®
DELIVERING OUR GLOBAL
GROWTH STRATEGY
Annual Report and Accounts
for the year ended 30 June 2015
slugline 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.
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:
• Latest news and press releases
• Annual reports and investor presentations
Getting Around the Report
Below is a selection of icons you will see used within this report:
For more information see
further pages within the
report.
More information online
at: www.dechra.com
Online Report
Visit our online annual report at:
dechra.annualreport2015.com
Glossary
Terms used within this section
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 involve a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015
www.dechra.com
slugline Financial Highlights
Total Revenue
£203.5m
2014: £193.6m
CER*: Up 10.0% £: Up 5.1%
EU Pharma Revenue
£168.6m
2014: £172.4m
CER*: Up 3.9%
£: Down 2.2%
NA Pharma Revenue
£34.9m
2014: £21.2m
CER*: Up 59.9%
£: Up 64.6%
189.2
193.6
203.5
168.7
172.4
168.6
20.5
21.2
34.9
2013
2014
2015
2013
2014
2015
2013
2014
2015
Underlying Operating
Profit
£44.4m
2014: £42.2m
CER*: Up 11.6%
£: Up 5.2%
Underlying Diluted Earnings
per Share
39.90p
2014: 36.32p
CER*: Up 16.9%
£: Up 9.9%
Dividend per Share
16.94p
2014: 15.40p
CER*: Up 10.0%
£: Up 10.0%
39.1
42.2
44.4
29.07
36.32
39.90
14.00
15.40
16.94
2013
2014
2015
2013
2014
2015
2013
2014
2015
* CER is defined as Constant Exchange Rate against prior year, whilst £ is at reported, Actual Exchange Rate (AER).
A reconciliation of underlying to reported measures can be found on page 43.
Operational Highlights
• Strong financial performance with double digit revenue and
• Advances in the short term pipeline with approval of TAF Spray®
underlying profit growth (at CER).
and Osphos® in EU, and filing of Zycortal®.
• Good progress made on delivering our global growth strategy.
• EU Pharmaceuticals revenue grew by 3.9% (at CER) with a
strong performance in Companion Animal Products (CAP) partly
offset by a decline in Food producing Animal Products (FAP).
• Excellent performance in North America Pharmaceuticals with a
revenue increase of 59.9% (at CER), driven by the growth of our
core brands, new product launches and the acquired product,
Phycox®.
• Continued geographical expansion with trading commencing in
two new subsidiaries in Canada and Poland.
•
Investment made in sales resources, infrastructure and
manufacturing to support our future growth.
• Conditional offer of €51.4 million made for Genera d.d.
announced on 3 August 2015 to enable us to enter the poultry
vaccines market.
• Cash conversion of 107.1% and a net cash position of
£13.4 million.
01
OverviewStock Code: DPHslugline Navigating This Report
Our Values
Our Strategy
Outcomes
D
E
C
H
R
A
edication
njoyment
ourage
onesty
elationships
mbition
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
a
b
c Portfolio Focus
Geographical Expansion
• Create long term value by
•
innovating and generating
sustainable profit growth
through pipeline delivery
• maintaining market
leadership in defined
therapeutic areas and
improving returns through
portfolio focus
• seizing growth opportunities
in new markets through
geographical expansion
• delivering incremental sales
and earnings growth through
value enhancing strategic
acquisitions
l
s
r
e
d
o
h
e
r
a
h
s
r
o
f
s
n
r
u
t
e
r
g
n
i
s
i
m
i
x
a
M
Acquisition
• Maintain strong cash generation
Read our Corporate
Social Responsibility
Report on pages 50 to 57.
Read Delivering Our
Strategy on page 14.
See our Financial History
on page 159.
02
slugline
How Our Business Operates
06
28
Group at a Glance
Our Business Model
IFC Welcome to Dechra Pharmaceuticals PLC
Financial and Operational Highlights
01
Navigating this Report
02
Strategic Report
Group at a Glance
Chairman’s and Chief Executive Officer’s Statement
Delivering Our Strategy
Strategy in Action
Strategic Enablers Q&As
Our Business Model
Our Business Model Explained
Creating Value
Our Marketplace
Our Key Products
International Footprint
Product Development
Financial Review
Key Performance Indicators
06
08
14
18
26
28
29
31
32
34
36
38
40
46
48 Q&A with Ian Page
49 Q&A with Anne-Francoise Nesmes
50 Corporate Social Responsibility
58 How the Business Manages Risk
60 Understanding Our Key Risks
14
Delivering Our Strategy
50
Corporate Social
Responsibility
Financial Review
40
Our Governance
66
68
75
80
81
96
99
Board of Directors
Corporate Governance
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors’ Report – Other Disclosures
Statement of Directors’ Responsibilities
Our Financials
102 Independent Auditor’s Report
105 Consolidated Income Statement
106 Consolidated Statement of Comprehensive Income
107 Consolidated Statement of Financial Position
108 Consolidated Statement of Changes in
Shareholders’ Equity
109 Consolidated Statement of Cash Flows
110 Notes to the Consolidated Financial Statements
150 Company Balance Sheet
151 Reconciliation of Movements in Shareholders’
Funds
152 Notes to the Company Financial Statements
159 Financial History
Company Information
162 Glossary
164 Shareholder Information
166 Advisers
36
International Footprint
39
26
58
Product Pipeline
Strategic Enablers Q&As
Managing Risk
03
OverviewStock Code: DPHslugline 11.6%
In 2015, the Group focused on the
execution of our four strategic pillars
delivering underlying profit
growth of 11.6% at CER
(5.2% at AER)
See our Strategy in Action case studies
on pages 18 to 25.
View further content on our website:
www.dechra.com
®
slugline
Strategic Report
06 Group at a Glance
08 Chairman’s and Chief Executive Officer’s Statement
14 Delivering Our Strategy
18 Strategy in Action
26 Strategic Enablers Q&As
28 Our Business Model
29 Our Business Model Explained
31 Creating Value
32 Our Marketplace
34 Our Key Products
36 International Footprint
38 Product Development
40 Financial Review
46 Key Performance Indicators
48 Q&A with Ian Page
49 Q&A with Anne-Francoise Nesmes
50 Corporate Social Responsibility
58 How the Business Manages Risk
60 Understanding Our Key Risks
slugline Group at a Glance
EU Pharmaceuticals
Dechra Veterinary Products EU (DVP EU)
364
Employees
14
Countries
DVP EU markets and sells Dechra’s products throughout Europe and exports to over 40
countries. The business has an operating board of eight senior managers, and is managed
from Den Bosch, the Netherlands, Sansaw, UK, and Uldum, Denmark. In total, DVP EU
employs 364 people and maintains an outsourced sales force of 20 people located in
different territories. Inventory is managed through a central distribution centre in Uldum,
Denmark.
DVP EU has sales operations in 14 countries: Belgium, Denmark, Finland, France, Germany,
Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Spain, Sweden and the UK, each
run by a Country Manager. DVP EU also exports to other European countries 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)
374
Employees
3
Manufacturing
Sites
DPM produces the majority of Dechra’s pharmaceuticals and also manufactures for third
parties on a contract basis. The objectives of manufacturing are to produce Dechra’s
veterinary pharmaceutical product range efficiently and economically to the highest quality
standards, 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, UK, employs 239 people, and offers a comprehensive range of
pharmaceutical manufacturing and packing services, principally for Companion Animal Products
(CAP). The site is dual-licensed to produce both veterinary and human products. The site
includes Pharmaceutical Development, Quality Control (QC) and Stability Testing and Validation
Laboratories.
Bladel
The site at Bladel, the Netherlands, employs 122 people. The operation complements the
Skipton site, 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.
Melbourne
The site at Melbourne, Florida, employs 13 people. It manufactures Phycox and Levocrine®.
06
Revenue for the EU
Pharmaceuticals Segment
£168.6m
£168.6m
CAP 49%
CAP 49%
Equine 8%
Equine 8%
FAP 16%
FAP 16%
Diets 15%
Diets 15%
Third Party Manufacturing 12%
Third Party Manufacturing 12%
Profit Evolution for EU
45.8
49.0
48.0
m
£
t
fi
o
r
P
60.0
50.0
40.0
30.0
20.0
10.0
0
2013
2014
2015
Manufacturing Volumes
Internal 58%
Third Party Manufacturing 42%
All figures are at AER.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline
North America Pharmaceuticals
Dechra Veterinary Products North America (DVP NA)
69
Employees
2
Locations
DVP NA markets and sells Dechra’s veterinary products across Canada (DVP Canada) and
the US (DVP US), the latter being the world’s largest animal health market.
The US 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.
Led by an operating board of four senior managers, DVP US has 61 employees at year
end, 47 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.
DVP Canada was established in January 2015 and currently employs eight people. The
office is located in Montreal. DVP Canada markets CAP and Equine products.
Product Development and Regulatory Affairs
62
Employees
4
Locations
The Product Development team develops Dechra’s own branded veterinary product portfolio
of novel and generic pharmaceuticals. The Regulatory Affairs team obtains licences for our
products, manages post approval adverse event reporting, periodic product renewals and
other activities required to maintain the product licenses.
A total of 62 people at 30 June 2015 work across European Regulatory Affairs, US
Regulatory Affairs, Pharmaceutical Development and Product Development. They work
at four locations in Overland Park, USA, Sansaw, England, Skipton, England, and Bladel,
the Netherlands. The team includes highly qualified academics, veterinarians, formulation
chemists, pharmacists, analysts, clinical trial managers and product development managers.
Revenue for DVP NA
£34.9m
CAP 92%
Equine 8%
Profit Evolution for DVP NA
5.6
6.0
10.6
m
£
t
fi
o
r
P
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2013
2014
2015
Development Spend
8.0
8.2
8.7
m
£
d
n
e
p
s
t
n
e
m
p
o
e
v
e
D
l
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2013
2014
2015
All figures are at AER.
07
Stock Code: DPHStrategic Reportslugline
Chairman’s and Chief Executive Officer’s Statement
It has been a successful
year which clearly
demonstrates that we
are delivering our global
growth strategy.”
3.9%
Our EU business has
delivered solid growth of
3.9% at CER ((2.2%) at AER)
Read the Financial Review
on pages 40 to 45.
Read Delivering Our Strategy
on pages 14 to 17.
View further content on our
website: www.dechra.com
Michael Redmond
Non-Executive Chairman
Ian Page
Chief Executive Officer
We are pleased to report that the Group has
delivered a strong performance in the year,
with good revenue growth in the majority of our
EU markets and excellent growth within North
America. This performance has been realised
through new product launches, the resolution
of a number of supply issues, improved
penetration of our core products into our major
markets and new territory launches. Overall
it has been a successful year which clearly
demonstrates that we are delivering our global
growth strategy.
Portfolio Focus
DVP EU
Our EU business has delivered solid
growth of 3.9% at CER, driven by a strong
performance across our Companion Animal
Products (CAP) portfolio offsetting a decline
in Food producing Animal Products (FAP).
Most markets grew in the year but the most
significant double digit sales increases
were seen in the UK, France, Spain
and Belgium. Our key therapeutic focus
areas of endocrinology, dermatology and
anaesthetics and analgesics all performed
strongly. Additionally, we have strengthened
two of our therapeutic areas:
• our dermatology portfolio was expanded
with the successful launch of an
in-licensed product, Sporimune® in seven
European markets.
•
the launch of Osphos in the UK improves
our position in the equine market.
Preparations are now being made for the
launch of the product across the rest of
Europe in the new financial year.
FAP continues to decline as we have a
strong presence in the antibiotics market in
Western Europe where there is continued
focus on prudent prescribing due to
concerns over antibiotic resistance. This
remains an ongoing headwind against our
overall performance, especially in Germany
and also in Denmark, where there has been
competitive pressure. However, it is pleasing
to note that the rate of decline has slowed in
the Netherlands, a market in which antibiotic
use has reduced sharply over the last four
years.
Our therapeutic and life stage pet diets,
branded Specific, have now fully recovered
from the stock-outs created by the
complex transfer of the products to a new
manufacturer. The supply issues were well
managed given the logistical challenges
involved in the transfer process. Overall sales
declined slightly compared to the previous
year. The range has now been repositioned
and a new marketing campaign is being
rolled out across Europe focusing on three
key drivers:
•
•
•
the high inclusion of fish protein and the
associated benefits of Omega 3;
the ethos of deriving the nutrients of the
products from sustainable sources; and
the Specific brand being dedicated to the
veterinary market.
08
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline DVP North America
We have seen an excellent performance in
North America with sales growth of 59.9%
at CER. All our major therapeutic areas grew,
in particular endocrinology and dermatology
sales increased by 24.0%. The sales increase
in endocrinology was driven by Vetoryl®, our
lead product in this category, which continued
to deliver double digit growth and by the new
product launch of Levocrine Chewable Tablets,
which has outperformed our expectations.
Our agility enables us to respond rapidly to
market changes or opportunities. Following
a serious shortage of critical care intravenous
fluids in the US market, we obtained FDA
approval for the emergency importation of
our European critical care intravenous fluid
Vetivex® 11 (Hartmans solution) to supply the
equine market. We are currently working with
the FDA to achieve long term approval for a
US labelled version of this product to add to
our equine portfolio.
Our performance in North America benefited
from the full year trading of Phycox, the
re-launch of ophthalmics, the launch of
Osphos and the opening of our Canadian
subsidiary. Phycox, which came into the
Group through the acquisition of the assets of
PSPC Inc. in May 2014, has performed well
throughout the year and we have increased the
number of customers purchasing the product
by over 50%. The ophthalmics products,
which were re-launched following long term
supply issues, achieved expected sales targets
despite strong competition from human
generic equivalents. We have successfully
launched Osphos, our unique product for
equine lameness and, whilst the uptake has
been a little slower than expected, we have to
date penetrated approximately one-third of the
equine and mixed animal practices. Adjusting
for these items, sales of our existing core
products grew by 21.7% at CER.
To support our growth in the US, we have
continued our investment in the infrastructure
with 16 new appointments, predominantly
across sales and technical support.
Pipeline Delivery
Team Restructuring
Given the varied range of projects in
development and the increasing demands
of regulatory authorities, the Product
Development and Regulatory Department
has been restructured. Dr Joseph Rosentel
has been appointed to lead the Product
Development Project Teams and Dr Susan
Longhofer will now head up Regulatory
Affairs and will dedicate more time to
business development, a critical function
as we assess numerous in-licensing
opportunities.
59.9%
We have seen an excellent
performance in North America
with sales growth at
59.9% at CER (64.6%
at AER)
Glossary
Terms used within this section:
CAP
Companion Animal Products
FAP
Food producing Animal Products
CER
Constant Exchange Rate
FDA
US Food and Drug Administration
09
Strategic Reportslugline Chairman’s and Chief Executive Officer’s Statement
continued
This restructuring has been implemented to
provide the necessary expertise and focus with
a view to ensuring we deliver the increasingly
complex product portfolio in a timely and
efficient manner.
Successful Approvals
Following the launch of Osphos in the UK
and US in the first half of our financial year,
we have subsequently received approval in
17 additional EU territories and have also
received marketing approval in Canada.
EU approvals were achieved following
the completion of mandatory studies
demonstrating food safety as the horse is
classed as a food producing animal in the
majority of EU territories.
TAF Spray was also approved in 14
European countries in the year. This is a
differentiated generic antibiotic aerosol
containing thiamphenicol which is used to
treat superficial wound infections in several
species.
A new low dose 5mg Vetoryl has been
approved for the US. This enhances
the range of dosing options available to
veterinarians and provides a new marketing
message as we continue to deliver growth
from the Group’s leading product.
To support our geographic expansion
goals, minor approvals were received for
Octacillin® and Soludox® in the Philippines
and Sedaxylan® in South Africa.
Development Update
Complete dossiers have been filed in both
the EU and US for a canine endocrine
product, to be branded Zycortal. Initial
questions have been received and it is
hoped that the first approval will be received
during our new financial year.
We have three FAP project dossiers for
poultry and swine under review in Europe
and are preparing a further dossier for a
decentralised application which will be
submitted before the end of the 2015
calendar year.
Owing to the nature of the development
process, some projects in the Feasibility
phase have taken longer than projected
before reaching the Development phase.
However, we are mitigating the potential
impact of delays by increasing the overall
number of projects in development.
Refilling the Pipeline
We continue to identify new opportunities
internally and externally to improve and
expand our product portfolio. We have
reached a preliminary agreement with Jaguar
Animal Health Inc. to secure marketing and
joint development rights for their leading
companion animal product. We have also
acquired a partially completed dossier for
an additional canine endocrinology product;
further development work will be required to
gain full approval, which will be conducted at
our manufacturing facility in Skipton, UK.
Geographical Expansion
In the first half of our financial year we
opened our Canadian subsidiary and
successfully recruited a team of eight,
the majority of whom focus on sales. We
commenced trading in January 2015
and have begun to establish a strong
presence in this territory. The Canadian
subsidiary achieved sales targets for
Vetoryl, Felimazole® and the dermatology
range. However, other products sales were
impacted by surplus stock in the market
from our previous distributor which had
washed through the system by the end of
the financial year. The new team is highly
focused to deliver results in our new
financial year.
We have also established a trading
subsidiary in Poland. This came about as the
distributor of our range of predominantly FAP
products was acquired, thereby allowing us
to take advantage of a change of ownership
clause in the contract. We have appointed
ten people, including the Country Manager
and an experienced sales team, the
majority of whom previously worked for our
distributor, together with three contracted
sales representatives. Trading commenced
ahead of our expectations in May 2015.
We are currently at an advanced stage of
planning the start-up in an additional new
territory, Austria, which we anticipate will be
trading prior to the end of the new financial
year.
We also continue to invest in our Regulatory
function to gain new licences in other
countries identified as target markets.
Whilst there are few locations where we
have the relevant critical mass for a new
start-up at this time, the registration process
is important as we look to expand beyond
our core markets.
TAF Spray® was approved
for launch by all our European
trading subsidiaries
in the year
A new low dose 5mg Vetoryl®
has been approved
for the US
8
We established our Canadian
subsidiary and successfully
recruited a team of eight
Read the Strategy in Action:
Geographical Expansion on
pages 22 and 23.
View further content on our
website: www.dechra.com
10
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline The principal benefits of trading through our
own subsidiaries are that we can capture the
full margin from our own products and we
can provide the relevant sales and marketing
focus which is more difficult to achieve
through marketing partners.
Acquisition
Throughout the year we have continued to
identify and screen potential businesses and
products for acquisition that could increase
Dechra’s value and improve returns to
shareholders.
We were pleased to announce, post the year
end, that we have made a conditional offer
to acquire a 63.3% shareholding (equivalent
to 69% of voting rights) in a Croatian based
business, Genera d.d., which triggered
a mandatory takeover for the remaining
shares which would value the business at
the equivalent of €51.4 million on a debt
free, cash free basis. The sale and purchase
agreement to acquire this stake is conditional
on total aggregate shareholder acceptances
reaching 75% of the voting share capital.
The mandatory offer is expected to be
completed by November 2015 and
is subject to approval by the Croatian
Financial Services Agency (HANFA). The
principal reason for the acquisition of this
shareholding in Genera is that it represents
a unique opportunity for Dechra to enter the
poultry vaccines market, thereby expanding
our FAP portfolio. This broader product
offering will support our FAP sales in Western
Europe and will enhance our ability to
increase our presence in emerging markets.
Additionally, the acquisition will bring three
new sales territories in Croatia, Slovenia and
Bosnia and Herzegovina and will enhance
our manufacturing capabilities through
access to a lower cost manufacturing base.
Although the veterinary market has
undergone considerable consolidation
over the past decade, we are still able to
identify potential acquisition candidates due
to our market knowledge and increasing
international presence.
Throughout the year we have
continued to identify and
screen potential businesses
and products for acquisition
that could increase Dechra’s
value and improve returns to
shareholders.”
11
Strategic Reportslugline
Chairman’s and Chief Executive Officer’s Statement
continued
11.7%
Within the year, third party
manufacturing sales
have increased
by 11.7% at CER
(9.4% at AER)
We have focused on talent
management and development
Read the Strategic Enablers
Q&As on pages 26 and 27.
Read more about Corporate
Social Responsibility
on pages 50 to 57.
View further content on our
website: www.dechra.com
Strategic Enablers
Manufacturing
The key objective of Dechra
Pharmaceuticals Manufacturing (DPM) is
to produce Dechra’s own pharmaceutical
range in the most efficient and effective
manner. In addition to manufacturing
the Group’s products, we also utilise
spare capacity to provide a third party
manufacturing service. Within the year
these external sales, reported under our EU
segment, have increased by 11.7%.
A number of projects were implemented
across our sites throughout the year to
increase capacity, improve yields and drive
efficiencies to reduce the cost of goods.
These include investments in:
•
the Premix Department in Bladel to
increase batch sizes for FAP products;
• a new faster encapsulating machine
in Skipton which increases yield and
doubles capacity;
• a blister packing line to increase capacity
and flexibility through automation; and
Information Technology
The roll out of the Oracle Programme
remains one of the primary objectives
for the Group. Detailed plans are in place
for the implementation to be completed by
the end of 2017. Progress has been made
in the year with the appointment of a new
dedicated Project Manager to coordinate
this complex project and ensure adherence
to plan. Additionally, the implementation of
the Group Finance Consolidation solution
went live in June 2015.
We have continued to refresh our IT
infrastructure and update our digital
technologies with the following initiatives:
• a Group high-speed network has been
implemented across all major Dechra
locations;
• a web-based portal for staff training has
been designed;
• a new DVP website has been launched
in multiple languages and a new PLC
website is at an advanced stage of
development; and
• a larger creams and ointments vessel to
facilitate a major third party contract and
production of in-house creams, liquids
and ointments in Skipton.
• new hybrid PC tablets are being
introduced for all sales staff to improve
mobile working and presentation
capabilities.
There have been a number of other
developments within Manufacturing, the
most significant of which is the successful
pre-approval inspection of the Skipton
facility by the FDA in preparation for the
approval of our new canine endocrine
product, Zycortal, to be manufactured at
the site.
Our US site in Melbourne, Florida, which
was acquired from PSPC Inc. in May
2014, has been fully integrated into
Group Manufacturing. This year, we have
focused on increasing quality systems
and production capacity following the
launch of a new product, Levocrine,
which is manufactured at this site. A new
Manufacturing Manager has been appointed
to drive quality systems improvements and
the necessary increase in production to
meet the demand we have created for both
Levocrine and Phycox.
People
As reported last year, our focus has been
on talent management and development.
We have introduced a Talent Mapping
programme to identify staff with high potential
and we are implementing a professional
development programme to strengthen and
support individuals as required. Succession
planning is also in place for all key managerial
and technical roles across the Group and
a rolling review programme has been
established. Additionally, a Dechra careers
website has been developed to provide
up-to-date information on opportunities for all
employees and to attract new talent to
the Group.
The Senior Executive Team (SET) has
been strengthened within the year with
the appointment to the team of Dr Joseph
Rosentel, Director of Product Development,
and Giles Coley, Marketing Director
DVP EU. Work has commenced on a
Leadership Development programme for
the team.
12
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Glossary
Terms used within this section:
IT
Information Technology
Oracle Programme
Enterprise Resources Planning (ERP)
software
DVP
Dechra Veterinary Products
To support the Group’s
growth, there has been
significant recruitment
throughout the year.”
Outlook
The Board believes that our focus on our
key therapy areas, the continued rate
of adoption of Osphos and sales in our
new territories will drive progress in the
short term. Current trading is in line with
management expectations; however, the
business continues to be exposed to
exchange rate volatility.
In the long term the delivery of further new
products and the integration of potential
acquisitions 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
7 September 2015
Ian Page
Chief Executive Officer
7 September 2015
There has been significant recruitment
throughout the year to support the Group’s
growth. In total, we have added over 100
employees, in new territories, in sales and
technical support teams within DVP US and
in recruitment to fill vacancies in DVP EU
and DPM.
As we grow, internal communication to
drive Group-wide alignment is increasingly
important. With this in mind, a Dechra-wide
newsletter has been introduced to improve
internal communication across all our
locations and all our employees.
Dividend
The Board is proposing a final dividend of
11.82 pence per share (2014: 10.65 pence
per share). Added to the interim dividend
of 5.12 pence per share, this brings the
total dividend for the financial year ended
30 June 2015 to 16.94 pence per share,
representing 10.0% growth over the
previous year.
Subject to shareholder approval at the
Annual General Meeting to be held on
23 October 2015, the final dividend will be
paid on 20 November 2015 to shareholders
on the Register at 30 October 2015. The
shares will be become ex-dividend on
29 October 2015.
13
Stock Code: DPHStrategic Reportslugline Delivering Our Strategy
Generate long term value for shareholders
International specialist veterinary pharmaceuticals & related products business
Strategic Pillars
a
b
c
Pipeline Delivery
Portfolio Focus
Geographical
Expansion
Acquisition
Strategic Enablers
Manufacturing and
Supply Chain
Technology
People
Dechra Values
Dedication
Enjoyment
Courage
Honesty
Relationships
Ambition
Strategic Progress
Last year we clarified our strategy around the four strategic pillars
shown above. We believe that, through our clear strategic focus, we
can drive sustainable long term shareholder value.
In this report we describe the progress we have made towards
achieving our strategic milestones. Whilst we are addressing all
aspects of our business plan, we were particularly pleased with the
progress made in our portfolio focus and our short term priorities for
geographical expansion in the year ended 30 June 2015.
Read the Chairman’s and Chief
Executive Officer’s Statement
on pages 8 to 13.
Read about Our Marketplace
on pages 32 and 33.
See Key Performance Indicators
on pages 46 and 47.
Read How the Business Manages
Risk on pages 58 and 59.
14
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Our strategic framework sets the direction and priorities for our business. Last year we defined the following strategic pillars:
Pipeline Delivery
We must deliver our pipeline on time, at the right costs and with the expected returns. It is also important that we refill the pipeline so that
we get a constant flow of novel products in future years.
Our priorities are:
• Deliver existing pipeline projects to schedule.
• Work effectively with regulators.
• Continuously refill the pipeline by identifying and evaluating new ideas.
Portfolio Focus
a
b
c
We are a specialist veterinary pharmaceuticals business focused on CAP, Equine and FAP. Our portfolio is well positioned in our therapeutic
focus sectors to assist in maximising returns. We have recognised that we are underweight in FAP which represents 13% of our revenue.
Our priorities are:
• Maximise revenue and profit from existing CAP portfolio by focusing on clearly defined therapeutic sectors.
• Develop and grow critical mass of FAP portfolio by extending our geographical reach.
Geographical Expansion
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 evaluating various entry strategies. In the US, we will grow the business organically in the short term with the launch of new products,
including Osphos.
Our priorities are:
• Grow the US business and invest steadily in the infrastructure as our pipeline delivers.
• 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, where barriers to entry are high, through partnerships.
Acquisition
While our strategy aims to deliver organic growth, acquisitions can accelerate our expansion by providing entry into new geographies,
enhancing our portfolio or giving access to new technologies. We have defined criteria through which potential acquisition targets can be
screened.
• Our priority is to target strategic acquisitions that will expand our geographical footprint and/or enhance our product portfolio.
Strategic Enablers
Our strategic enablers are critical to support the execution of our strategy:
• Our manufacturing and supply chain organisation is focused on running our operations efficiently and to high quality standards to
maintain or improve margins;
• We are implementing a strong IT platform to enable us to operate efficiently and are exploring how IT can provide a source of competitive
advantage; and
• Our people strategy underpins everything we do in the business. We have a well-defined plan to build talent, develop people and strengthen
the Dechra culture.
15
Stock Code: DPHStrategic Reportslugline
Delivering Our Strategy
continued
Pipeline Delivery
a
b
c
Portfolio Focus
Geographical
Expansion
Acquisition
Manufacturing and
Supply Chain
Technology
People
•
Identify new development
candidates
• Achieve at least one new
product approval
• Launch Osphos successfully
in the US and the UK
• Launch the new Vetoryl
• Commence trading in
• Continue to develop
•
Improve supply chain effectiveness
• Continue roll out of Oracle with Group
• Develop the succession plans for the
marketing campaign to grow
sales
• Promote the new Dechra
Academy to support
veterinarians
•
Increase market share in
equine and dermatology
sectors
Canada
• Plan further new territory
launch
• Strengthen distributor
relationships in identified
growth markets
relationships with potential
targets
•
Improve knowledge of
animal health in emerging
markets
• Continue to drive quality and efficiency
• Achieve FDA approval for new pipeline
products
Finance Consolidation and DVP EU
Senior Executive Team and the next tier
implementation
of management
• Continue roll out of Performance
Development Review (PDR)
• 7 new projects started in
• Vetoryl grew by 24.0%
• Team recruited in Canada
Feasibility
globally
• Dechra Academy was
updated and launched
successfully in 11 countries
with 5,000 new users
• All core therapeutic areas in
CAP, including dermatology,
as well as Equine growing at
double digit in Europe
• 1 project for feline
endocrinology stopped
• Two product approvals:
Osphos in EU (April 2015)
and TAF Spray (December
2014)
• Osphos launched in the
US in August 2014 and in
the UK in September 2014,
with dedicated Equine sales
representatives recruited to
support the launch
• TAF Spray launched in several
EU countries
and sales in line with
expectations
• Poland trading earlier than
• Successful integration
of the assets of PSPC
Inc. with sales exceeding
expectations
• On time first order delivery to new
• Completed implementation of Group
• Talent management and succession
country operations in Italy and Poland
Finance Oracle consolidation module
planning started
• Completed transition of dry diets
• Developed web-based tools to improve
• Recruitment of sales teams in North
manufacturing to new third party site
communication
America and Poland
expected
• Conditional offer for
• Strengthening of distributor
relationships ongoing
Genera d.d., a Croatian
animal health company,
announced post year end
on 3 August 2015
• Completed investments in DPM to
improve yield and capacity
• Successful FDA pre-approval inspection
at Skipton to manufacture our next
canine endocrine product, Zycortal
• PDR rolled out to all Dechra employees
• Continue to identify new
• Continue to drive sales force
opportunities
effectiveness
• Establish one additional
subsidiary in Austria
• Explore and negotiate
in-licensing deals
• Further roll out of digital
• Obtain regulatory product
technologies
approvals in defined markets
• Gain global approval for
Zycortal, our next canine
endocrine drug
• Support registration of three
FAP dossiers
• Launch Osphos in remaining
EU countries
• Deliver CAP and FAP sales
targets through technical
expertise and marketing
campaigns
• Successful re-launch and
re-branding of our Specific
diets range
• Continue to explore
potential acquisitions to
find those which align
with our strategic goals
•
Integrate acquisitions in a
seamless manner
• Gain further FDA approval as pipeline
• Roll out of Oracle in DVP EU and
• Develop leadership development
•
Invest to improve our capabilities and
• Develop solutions to support the mobile
•
Implement rolling review of succession
• Support new product launches
• Continue infrastructure refresh
• Develop a Group-wide remuneration
demands
drive efficiencies
•
Implement a scalable global sales and
operations planning (S&OP) process to
drive improved customer service
DVP US
workforce
programme
programme
plans
and reward strategy
• Roll out HR system solution
• New Product Sales
• Sales Growth
• Sales Growth
• Underlying diluted EPS
• Lost Time Accident Frequency Rate
• Return on Capital Employed
• Lost Time Accident Frequency Rate
• Underlying diluted EPS
• Underlying diluted EPS
• Underlying diluted EPS
Growth
(LTAFR)
Growth
Growth
Growth
• Return on Capital Employed
• New Product Sales
(LTAFR)
• Employee Turnover
• Return on Capital Employed
• Return on Capital Employed
• Return on Capital Employed
• New Product Sales
• Cash Conversion
s
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16
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline
Pipeline Delivery
a
b
c
Portfolio Focus
Geographical
Expansion
Acquisition
Manufacturing and
Supply Chain
Technology
People
•
Identify new development
• Launch the new Vetoryl
• Commence trading in
• Continue to develop
•
Improve supply chain effectiveness
• Continue to drive quality and efficiency
• Achieve FDA approval for new pipeline
products
• Continue roll out of Oracle with Group
Finance Consolidation and DVP EU
implementation
• Develop the succession plans for the
Senior Executive Team and the next tier
of management
• Continue roll out of Performance
Development Review (PDR)
• On time first order delivery to new
country operations in Italy and Poland
• Completed implementation of Group
Finance Oracle consolidation module
• Talent management and succession
planning started
• Completed transition of dry diets
• Developed web-based tools to improve
• Recruitment of sales teams in North
manufacturing to new third party site
communication
America and Poland
• Completed investments in DPM to
improve yield and capacity
• Successful FDA pre-approval inspection
at Skipton to manufacture our next
canine endocrine product, Zycortal
• PDR rolled out to all Dechra employees
j
s
e
v
i
t
c
e
b
O
5
1
0
2
r
u
O
5
1
0
2
n
i
s
t
n
e
m
e
v
e
h
c
A
r
u
O
i
candidates
marketing campaign to grow
Canada
• Achieve at least one new
sales
• Plan further new territory
product approval
• Promote the new Dechra
launch
• Launch Osphos successfully
in the US and the UK
Academy to support
veterinarians
• Strengthen distributor
relationships in identified
relationships with potential
targets
•
Improve knowledge of
animal health in emerging
markets
•
Increase market share in
growth markets
equine and dermatology
sectors
globally
• 7 new projects started in
• Vetoryl grew by 24.0%
• Team recruited in Canada
• Successful integration
Feasibility
and sales in line with
expectations
• 1 project for feline
• Dechra Academy was
endocrinology stopped
updated and launched
• Poland trading earlier than
• Two product approvals:
Osphos in EU (April 2015)
with 5,000 new users
• Strengthening of distributor
and TAF Spray (December
• All core therapeutic areas in
relationships ongoing
successfully in 11 countries
expected
• Conditional offer for
of the assets of PSPC
Inc. with sales exceeding
expectations
Genera d.d., a Croatian
animal health company,
announced post year end
on 3 August 2015
CAP, including dermatology,
as well as Equine growing at
double digit in Europe
2014)
• Osphos launched in the
US in August 2014 and in
the UK in September 2014,
with dedicated Equine sales
representatives recruited to
support the launch
• TAF Spray launched in several
EU countries
• Explore and negotiate
• Further roll out of digital
• Obtain regulatory product
in-licensing deals
technologies
approvals in defined markets
• Gain global approval for
• Deliver CAP and FAP sales
Zycortal, our next canine
endocrine drug
• Support registration of three
FAP dossiers
• Launch Osphos in remaining
EU countries
targets through technical
expertise and marketing
campaigns
• Successful re-launch and
re-branding of our Specific
diets range
potential acquisitions to
find those which align
with our strategic goals
•
Integrate acquisitions in a
seamless manner
s
e
v
i
t
c
e
j
b
O
5
1
0
2
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u
O
5
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R
• Continue to identify new
• Continue to drive sales force
• Establish one additional
• Continue to explore
• Gain further FDA approval as pipeline
• Roll out of Oracle in DVP EU and
• Develop leadership development
opportunities
effectiveness
subsidiary in Austria
demands
DVP US
programme
•
Invest to improve our capabilities and
drive efficiencies
• Develop solutions to support the mobile
•
workforce
Implement rolling review of succession
plans
• Support new product launches
• Continue infrastructure refresh
• Develop a Group-wide remuneration
•
Implement a scalable global sales and
operations planning (S&OP) process to
drive improved customer service
programme
and reward strategy
• Roll out HR system solution
r
o
f
n
o
i
t
c
A
l
f
o
n
a
P
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• New Product Sales
• Sales Growth
• Sales Growth
• Underlying diluted EPS
• Lost Time Accident Frequency Rate
• Return on Capital Employed
• Lost Time Accident Frequency Rate
• Underlying diluted EPS
• Underlying diluted EPS
• Underlying diluted EPS
Growth
Growth
Growth
• Return on Capital Employed
Growth
• Return on Capital Employed
• Return on Capital Employed
• Return on Capital Employed
• New Product Sales
• Cash Conversion
(LTAFR)
• New Product Sales
s
I
P
K
d
e
t
r
o
p
e
R
(LTAFR)
• Employee Turnover
See our Key Performance
Indicators on pages 46 and 47.
17
Stock Code: DPHStrategic Reportslugline
Strategy in Action: Pipeline Delivery
Delivering
new products
18
slugline TAF Spray Launch
Within our key therapy areas we aim to build a strong and
compelling product portfolio with animal health at its heart. We also
want to help our customers by providing tools that will enable them
to treat animals more effectively.
Exploring: Six years ago Eurovet searched for a new product
in locomotion, one of the key therapy areas in bovine, to
support Cyclospray® which was at the time the European
market leader in antibiotic sprays licensed for digital dermatitis
(Mortellaro’s disease) in cattle. We used our existing knowledge
and experience to bring a product to the market which would
be completely new to the majority of customers. A small
team worked on the business case and, after a number of
brainstorm sessions, it was proposed to use an active in the
chloramphenicol group.
Feasibility/Development: After a number of pilot tests
thiamfenicol was chosen. This molecule had the same
characteristics as chloramphenicol but with none of the negative
side effects and could be used safely and legally in animals;
additionally it is used rarely in humans. A multi-disciplinary team
was formed consisting of pharmacists, veterinarians, and
formulation and manufacturing experts. There was an existing
thiamfenicol spray licensed, but in one EU Member State only.
The team was tasked to develop a product with dramatically
improved characteristics for EU registration. These demands
for a differentiated superior product resulted in a number of
technical requirements, namely:
•
•
to change the colouring agent from blue to yellow to allow
broader market acceptance;
to determine the exact formulation of the licensed product,
which required skilled laboratory analysis, and the excipients
to be used to avoid having maximum residue level (MRL)
issues;
•
the spray characteristic needed to be superior; and
•
the quantity of active delivered every second needed to be
within strict specifications.
Registration: The authorities of the Reference Member State
supported our application for seven target species. During
the process, communications with the regulatory bodies were
smooth and efficient.
Launch: TAF Spray is being launched to markets from June
2015 onwards throughout the EU. The product positioning is
as superior to Cyclospray due to the active ingredient being
new to antibiotic sprays in all but one market and the new
colour being visible and more consumer friendly. With high
quality spray characteristics, we have gained another brand
that will strengthen our position in this key therapy area and
support Cyclospray sales. Our sales force is introducing the
product with the marketing materials supporting the ‘GO FOR
GOLD’ campaign and the technical story. Initial feedback from
the markets is positive as Dechra is bringing an innovative
product to the marketplace.
With this strict set-up for product development: brainstorming,
multi-disciplinary development team and project planning,
we have a proven track record of success in overcoming
challenges during the product development cycle, of which the
approval of TAF Spray is a recent example.
19
GO
FOR
GOLD
SPRAY
TAF
NEXT-GENERATION WOUND SPRAY WITH
THIAMPHENICOL.
EFFECTIVE TREATMENT OF HOOF/CLAW INFECTIONS
AND SUPERFICIAL WOUND INFECTIONS.
REGISTERED FOR USE ON CATTLE, HORSES,
SHEEP, GOATS, PIGS, MINK AND RABBITS.
GOLDEN YELLOW COLOUR.
PRECISE SPRAYING. NON-DRIP NOZZLE.
FOR USE IN UPRIGHT AND INVERTED POSITION.
TAF Spray 28.5 mg/g Cutaneous Spray, Clear yellow solution. REG NR XXXX Active substance: Thiamphenicol 28.5 mg/g Excipients: Curcumine (E100) 0.5 mg/g Target species: Horses, cattle, goats, sheep, pigs, mink,
rabbits. Indications for use, specifying the target species: In all target species: reatment of superficial wound infections caused by micro-organisms sensitive to thiamphenicol. In cattle, goats and sheep: Treatment of
infections of the claw and hoof such as foot rot, interdigital dermatitis, digital dermatitis caused by micro-organisms sensitive to thiamphenicol. Contra-indications: Do not use in known cases of hypersensitivity to the
active substance or to any of the excipients. See also withdrawal period. Adverse reactions: None known. Withdrawal period: Meat and offal: horses, cattle, goats, sheep, rabbits: zero days. Pigs: 14 days. Milk: zero
hours. Do not use on the udder of lactating animals if their milk is intended for human consumption. Administration: Spray the solution on the affected area for 3 seconds (equivalent to approximately 45 mg
thiamphenicol) once a day. Treatment can be repeated depending on the healing process, up to 3 consecutive days. For optimal use, wounds should be cleaned before application. Eurovet Animal Health B.V.
Handelsweg 25, 5531 AE Bladel, The Netherlands. To be supplied only on veterinary prescription.
Sansaw Business Park - Hadnall, Shrewsbury SY4 4AS, UK T +44 (0)1939 211200 F +44 (0)1939 211201 E info.uk@dechra.com www.dechra.com
Strategic Reportslugline a
b
c
Strategy in Action: Portfolio Focus
Focusing on
key therapeutic
areas
20
slugline Equine Anaesthesia
Campaign
One of the pillars of Dechra’s strategy is focus on key therapy
areas. This strategy enables us to broaden our portfolio,
deepen knowledge and optimise customer support.
Dechra is recognised by specialists and equine veterinarians
as a leading pharmaceutical company in equine anaesthesia.
Sedation and anaesthesia are integral parts of equine veterinary
practice and the availability of effective and safe veterinary
anaesthetic drugs is of utmost importance.
Every anaesthetic procedure consists of four stages: sedation,
induction, maintenance and recovery, each of them with
specific characteristics and challenges. Dechra provides equine
veterinarians with an extensive range of products covering each
step of the anaesthetic procedure. Our equine anaesthetic
range incorporates sedative drugs (Domidine®, Sedaxylan,
Relaquine), opioids (Alvegesic, Morphasol, Buprenodale®)
as well as induction and maintenance agents (Anesketin,
Myorelax®, Iso-vet). The range is unique in its extent and, as
well as being used during anaesthetic procedures, some of
the products are also used for control of pain and therefore
complement the strong position Dechra has with Equipalazone®
in the field of equine pain management.
To support veterinarians further during anaesthetic
procedures, an Equine Anaesthetic App has been developed
in collaboration with a French key opinion leader in equine
anaesthesia. The App is part of the equine anaesthesia
campaign and has been built to help equine veterinarians
choose the correct anaesthetic protocols and dosages. The
App highlights Dechra’s extensive range of products and
dedication to equine anaesthesia. During the last year, sales
teams across the EU have been specifically trained in equine
anaesthesia and how our portfolio meets customers’ demands.
With the equine anaesthesia product range, we want Dechra to
be seen as the specialist and preferred partner in this therapy
area, offering a wide range of high quality products as well as
practical solutions and support for the veterinarian.
21
From the innovators in
equine health
A innovative smartphone and tablet application developed
to assist equine veterinarians in choosing the optimal
anesthesia protocol.
One tool to choose
between different
protocols and products.
Many different interventions have a place within modern equine
veterinary care. All these interventions result in a need for different kind
Dechra offers a broad range of analgesics and anaesthetics to ease the
daily work in this area. The table below shows our product range, used
in different situation.
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Learn more online
dechra.co.uk
Call our equine team
1234567890
For further information contact: Dechra Veterinary Products Limited, Sansaw Business Park, Hadnall, Shrewsbury, Shropshire SY4 4AS
Tel: +44 (0)1939 211200, Fax: +44 (0)1939 211201, www.dechra.com
Strategic Reportslugline Strategy in Action: Geographical Expansion
Establishing
ourselves in
new territories
22
slugline Canadian Launch
Through third party distribution Dechra built a solid foundation
in Canada with its core CAP portfolio as well as an assortment
of other CAP brands focused in the dermatology and
ophthalmology segments.
As part of our geographic expansion, a decision was made to
establish a Canadian subsidiary. After hiring a Country Manager
in February 2014 the process began with the incorporation of
the Canadian business with offices being established in Pointe-
Claire, Quebec.
With approximately 3,400 clinics practicing companion animal
medicine in Canada, it was clear that the team would need to
be strategically positioned in order to maximize our return on
investment. Focusing on hiring the best people with strong
connections in the industry, five Territory Sales Managers began
selling in January 2015. These field based representatives
are supported by an office based Operations Manager and a
recently hired Technical Services Veterinarian.
As of April 2015 we are selling exclusively the range of Dechra
products. This transition from third party distribution did not
happen without a few bumps in the road but we are now
seeing very positive momentum. In the 2015 financial year
the Canadian business achieved sales targets for Vetoryl,
Felimazole and the dermatology range and saw strong
momentum in the remainder of the portfolio as we came out of
our distribution agreements.
While working to build on our established sales foundation,
a great deal of emphasis has been put into creating a strong
Dechra brand. Working with members of the global team, we
have begun the ongoing process of developing and delivering
materials that support our customers and their patients.
Looking forward we will be expanding our geographic reach
across Canada by adding additional Territory Sales Managers to
support our organic growth with a focus on our core brands. We
have recently received approval for Osphos thereby expanding our
portfolio into the Equine segment.
23
This spring take advantage of the
wide range of Dechra dermatology products.
From April 1, 2015 to May 31, 2015
Buy:
between $500 and
between $1000 and $1499 and receive 10% in free products *
5% in free products *
$999 and receive
$1500 or more and receive
15% in free products*
PLUS
Buy at least 5 different products and receive a 2% bonus to your rebate level. **
* See reverse for eligible product list. Codes provided on this promo sheet must be used for ordering.
** Free product to be selected from eligible product list.
Strategic Reportslugline
Strategy in Action: Acquisition
Accelerating
our growth
24
slugline Integration of PSPC
In May 2014, Dechra acquired the assets of PSPC, Inc.
whose principal product was Phycox, a patented nutraceutical
prescribed by veterinary surgeons as a supplement for dogs
and horses with osteoarthritis and poor joint health. In addition,
a levothyroxine sodium product was in development but had not
been commercialised. In just over a year, Dechra has been able to
integrate successfully the existing Phycox brand into the portfolio,
as well as bring Levocrine Chewable Tablets (levothyroxine
sodium) to market.
Our initial marketing objective was to increase the adoption
of Phycox by new veterinary practices. We felt this could be
accomplished by including Phycox in our quarterly focus,
leveraging our customer base and building on our existing
Dechra portfolio. When we acquired PSPC Inc. Phycox had
been sold to approximately 5,400 veterinary hospitals. After
14 months under Dechra’s umbrella, the number of hospitals
which have purchased Phycox has reached 8,400.
We will continue to target new clinics in the 2016 financial
year; however, we will also incorporate marketing initiatives to
drive more volume through the current 8,400 users. This dual
strategy will rely on the sales organisation to secure a steady
influx of new users and the marketing team to provide the
programmes and incentives to increase usage among current
users.
Initially the commercialisation of Levocrine was a lower priority.
As happens so often in our industry, the market changed when
the levothyroxine market-leader experienced severe out of
stocks. This presented a window of opportunity and our ability
to move quickly allowed us to establish Levocrine as a viable
product in our portfolio.
The PSPC acquisition to date has achieved our financial
objectives and has had a positive impact on the awareness
of the Dechra brand in the US market. Additionally, it has
strengthened our position in two key market segments,
endocrinology and pain management. The addition of US
manufacturing allows more direct control and provides a
platform for future growth in the supplement market.
25
Strategic Reportslugline Strategic Enablers Q&As
SET members answer the following three important
questions in relation to our strategic enablers:
Q1 How do you support Dechra’s
strategy?
A1 DPM consists of two manufacturing
facilities based in the EU and since May
2014 one in the US. The majority of
Dechra’s pharmaceutical products are
produced by DPM, providing a much
more reliable and flexible supply chain
than has traditionally been provided by
third parties.
This set-up provides additional margin
opportunities for the Group and greater
speed of response when addressing
particular market difficulties or opportunities.
DPM and the Dechra Product
Development team work closely together
to bring development projects to fruition
as early as possible. In-house scale-up,
validation and stability studies can all be
carried out faster and at less expense.
Third parties and in-licensing partners
for Dechra’s pharmaceutical and care
products are also managed by DPM
to support the supply chain for such
products.
A2 The facilities operate to regulatory standards
and accreditations for Good Manufacturing
Practice (GMP). We have significantly
expanded our accreditations over recent
years to supply product to most significant
global markets, particularly the US. During
this financial year, we obtained FDA
approval for Skipton’s injections department
to produce both existing and new pipeline
products for the US market. Additionally,
MHRA granted approval of our refurbished
Liquids, Creams and Ointments department
in Skipton.
Third party manufacturing revenue
continues to grow, contributing to fixed
costs absorption and improving our
margins.
As we aim to reduce our production
costs per unit, we continued to invest in
equipment to reduce wastage, increase
flexibility of speed and batch sizes. We
have also introduced several new KPIs
to improve measurement of our cost
improvement initiatives.
A1 Since joining Dechra in 2012, the
objectives of Dechra and those of
the IT functions within each business
unit have changed considerably. The
emphasis across the IT teams is now
one of collaboration, with the sharing
of knowledge, learnings and solutions
which can be used to leverage benefits
and efficiencies across Dechra. IT
solutions are now always considered
for Group deployment with the aim of
standardisation, bringing efficiencies in
support and cost whilst providing new
technical solutions to the Dechra users
and customers.
A2 The Oracle ERP roll out is a key
programme for Dechra and the last
financial year has seen a significant change
Q&A with Allen Mellor, Group IT Director
Strategic Enabler: Technology
A1 The primary objective of our People Plan
is to enable the Group to drive innovation,
customer and shareholder value,
accountability and success.
We recognise that, within a growing
business, our culture is core to our
success. The Dechra Values were
developed in 2011 and, since then, have
helped shape our culture as we have
grown both organically and through
acquisitions.
It is also important to drive a culture of
performance and accountability to deliver
our strategic ambitions. During the last
year, we launched our PDR process to
our office based staff around the globe,
part of which encourages a formal
discussion about the Dechra Values
during the annual review meetings.
A2 Earlier this year we developed an
approach for reviewing the performance
and future potential of the talent within
the organisation, evaluating where our
future people and technical leaders are.
Understanding our talent map helps
drive development activity for individuals,
manage succession more effectively and
identify where we need to recruit new
experience into the Group.
Succession plans are now documented
across the Group and we will continue to
review and monitor these on an annual basis.
In our drive to attract talented people we
have developed and launched our first
Group-wide careers website; all vacancies
will be advertised on the site giving a view
of the breadth of opportunities available
across our global business.
A3 A key priority will be the implementation of
the Human Capital Management system,
automating many currently manual
processes, creating an opportunity to
align and improve standard processes
and share HR resources more effectively
across Dechra. Managers will have better
access to employee data and employees
will be able to control some of their own
personal data. The expected reduction in
the administrative burden for the HR team
will free time to deliver our People Plan.
26
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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015
www. dechra.com
slugline
Strategic Report
Q2 What have the key highlights
for the year been?
Q3 What are your priorities for
next year and beyond?
A3 Our priorities and focus in the next few
years will remain the same. We will
continue to gain further FDA approvals,
make strategic investments to increase
our capabilities and ensure our Supply
Chain is robust and efficient.
To assist in the delivery of our pipeline,
DPM will also support the introduction
of new products. A fully integrated Sales
and Operations Planning process will
ensure the business is ready to adapt to
variability in demand.
Additionally, we will start the upgrade of
our existing Oracle system as part of the
Group-wide Oracle roll out.
Q&A with Mike Annice, Managing Director, Manufacturing
Strategic Enabler: Manufacturing
in both the management of the programme
and our delivery approach. A dedicated
Programme Manager has been assigned
to drive the project steering and ensure
traction is maintained. The consultancy
team has expanded in line with the need
for multiple delivery streams and the key
users have been engaged with the analysis
and design of business process changes
required to implement the Oracle solution.
In the last quarter, the Oracle Financial
Consolidation solution for the Group was
delivered, meeting successfully the first
milestone of our roll out.
IT also supports the business and identifies
opportunities for efficiency improvements.
During the year the IT teams saw the final
Windows XP machines decommissioned,
the full deployment of the Private Cloud
MPLS network and the emerging
requirements for tablet devices for mobile
users within the business.
Following a successful pilot of the Microsoft
Surface Hybrid PC tablets, the IT Team
commenced the replacement of laptops.
The latest Microsoft devices enable the
ongoing provision of existing legacy
software, controlled security of data and
network connectivity with more convenient,
lightweight, touch based solutions perfect for
presentation of digital content.
A3 The one certainty within IT in any business
is that solutions that are available
today may be redundant and obsolete
tomorrow. As such, identifying the right
solutions which will have a critical impact
on the Group will continue to be essential.
Over the forthcoming 12 to 24 months,
the IT teams will continue with the
ongoing deployment and roll out of Oracle
hand in hand with key business users.
The next major implementation is not
scheduled to take place until late 2016,
however, the testing prior to deployment
will be a critical factor completed over the
next year in preparation for this key date.
As the Hybrid tablet devices replace
progressively all laptops, the opportunities
to introduce new, touch friendly solutions
to support the mobile workforce will also
take shape. The team will also continue
with the infrastructure refresh programme.
The development of a Group-wide
remuneration and reward strategy will
aim to create equity in our approach to
compensation and benefits across the
Group. This should also ensure that we
remain competitive and can attract the
best talent to the organisation to meet our
resourcing needs in the coming years.
We will assess the effectiveness of the
Graduate Development programme and
plan for its expansion for 2016 intake.
Finally, we will continue to focus on
leadership development including the
Senior Executive Team.
Stock Code: DPH
27
27
Q&A with Katy Clough, Group HR Director
Strategic Enabler: People
slugline 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 teams develop new products to meet customers’ needs and achieve 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.
• Our Supply Chain aims to provide the best service possible to our customers through effective supplier partnerships and integrated
planning between the Manufacturing and Commercial teams.
• Following registration and manufacture of our products, experienced sales and marketing teams in the EU and NA market our products
directly to veterinary practices and indirectly through export partners.
• This integrated approach of development, manufacturing and supply chain, and sales and marketing creates value for the business and our
stakeholders.
Product Development and Regulatory Affairs
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• US and Canadian
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and Distributors
• Export Partners
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Export Partners
28
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline
Our Business Model Explained
Product Development and Regulatory Affairs
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.
Our integrated and entrepreneurial approach
to product development aims to deliver new
products successfully and efficiently in the
shortest practical time frame.
Two Skilled Teams
The Product Development and Regulatory
Affairs teams include skilled people with
the expertise and experience to navigate
the hurdles of the development process.
Located across four locations, project
teams 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.
Manufacturing
See our Product Pipeline on
page 39.
Our manufacturing facilities provide a wide
range of services which delivers the flexibility
that the veterinary market requires. We also
provide a complete range of products and
services (i.e. a one-stop shop) for 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 customer 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 available to
third party customers which helps to secure
new business.
See our Manufacturing Capabilities
at: www.dechra.com
Supply Chain and Partnerships
Dechra has grown significantly over the past
few years, both through organic growth and
acquisition, and has developed a number of
different supply chain models to best serve
our customers with pharmaceutical, care
and diets products in worldwide markets.
In-house and outsourced manufacturing
facilities deliver a range of different product
types including solid dose, liquid and sterile
injectables. Finished goods are stored
and delivered to customers using modern
warehousing facilities utilising the latest store,
pick and pack technology and processes.
Effective internal ways of working and
strong external partnerships are key to the
successful operation of our supply chains
and is supported by our Dechra Values.
Our ambition is to continue to develop
and grow scalable supply chain business
models to meet the needs of our dynamic
business. Our priority in the short term is to
implement a global Sales and Operations
Planning process across Dechra to integrate
our business and drive supply chain
performance.
Stock Code: DPH
29
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DVP EU
DVP NA
• European
Veterinarians
and Wholesalers
• US and Canadian
Veterinarians
and Distributors
• Export Partners
•
Export Partners
slugline
Product Development and Regulatory Affairs
DVP EU
Strategic Report
Manufacturing
Supply Chain and Partnerships
Regulatory Environment
Our Regulatory team understands
the different regulatory
environments in which we
operate, specifically the US
and Europe as well as other
international regulators. As the
regulatory hurdles are increasing,
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.
Third Party Manufacturing
In addition to manufacturing our own
products, both Skipton and Bladel
generate income through third party
manufacturing. Although the clear
focus is on Group manufacturing,
third party manufacturing adds
value by making full use of our
unique capabilities and our installed
capacity. Currently approximately
42% of output by volume is third
party manufacturing.
The external offering includes product
development, formulation, trial
manufacturing, validation, production
and packaging for both human and
veterinary pharmaceuticals.
See our Group at a Glance
on pages 6 and 7.
Read the Strategic Enablers
Q&As on pages 26 and 27.
DVP EU is committed to marketing products that support the work of
veterinarians in many species.
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 therapeutic and maintenance pet diets.
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.
Routes to Market
Our customers are principally veterinarians; however, in most
territories the route to market is through wholesalers and, in a
small number of markets, also through pharmacies. Our products
are distributed through a combination of channels including direct
sales, wholesalers and national distributor channels.
DVP NA
DVP NA markets, in the US and Canada, Dechra products for the
companion animal and equine sectors that solve clinical problems and
help veterinarians treat medical conditions.
Our Expertise
Our Dechra brand has gained momentum in the US and in Canada,
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. We currently
focus on five core therapeutic sectors: dermatology, endocrinology,
ophthalmology, equine pharmacy and pain management.
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 US. In Canada, there are approximately 5,000
veterinarians and 3,400 clinics.
In the US and Canada, 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.
Stock Code: DPH
30
slugline Strategic Report
Creating Value by:
Clear Strategic Focus
We have a defined strategy focused on four main drivers:
portfolio focus, geographical expansion, product pipeline
delivery and targeted acquisition.
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.
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.
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 producing our varied product portfolio.
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.
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,
and equine.
Recognised Brand
Dechra is recognised today as a global animal healthcare
company with a strong and growing reputation as a provider
of high quality, specialist veterinary medicines and related
products.
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.
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.
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.
31
slugline Our Marketplace
The global animal health
market was valued at $23.4
billion in 2014, a growth of
4.7% over 2013 (at constant
currency).”
Dechra’s International
Footprint
(sales by territory at AER)
Europe 78%
US 16%
Rest of World 6%
Read about Our Key Products
on pages 34 and 35.
Read about our International
Footprint on pages 36 and 37.
The Global Market
The global animal health market was valued
at $23.4 billion in 2014, a growth of 4.7%
over 2013 (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 4.8% to $13.8 billion
in 2014, 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 reducing 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 veterinarians,
wholesalers and distributors.
Dechra in the Marketplace
FAP represented 13% of our turnover with
sales in EU and emerging markets. Our
range of antimicrobial water soluble powders
and injectables, targeted mainly at swine
32
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015
www. dechra.com
slugline Strategic Report
Dechra in the Marketplace
We offer a broad range of specialised
pharmaceutical products. We do not
compete in the anti-parasiticides and
vaccines markets for companion animals,
as they are highly competitive. 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 the global animal health market
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 78% of our sales are
in Europe, 16% in the US with 6% being in
the Rest of the World. We aim to expand our
geographical footprint either organically or
through acquisitions.
and poultry, supports the prudent use of
antibiotics.
Our key account managers have an in-depth
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 worldwide medicines and vaccines
market for CAP was estimated at
$9.7 billion in 2014, a growth of 4.5%.
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 mainly through
wholesalers and distributors.
$13.8bn
The global medicines and vaccines
market for FAP grew by an
estimated 4.8% to $13.8
billion in 2014*
$9.7bn
The global medicines and vaccines
market for CAP was estimated at
$9.7 billion in 2014*
* Source: Vetnosis, Company Reports
33
slugline Our Key Products
Why we focus on this specialist area
Key products
Animal Use
Endocrinology
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.
Vetoryl®
Dogs
For the treatment of pituitary-dependent and adrenal-dependent
hyperadrenocorticism (Cushing’s disease and syndrome).
Forthyron®/
Thyforan®
Levocrine®
Felimazole®
Dogs
For the treatment of hypothyroidism.
Cats
For the stabilisation of hyperthyroidism in cats prior to surgical thyroidectomy
and the long term treatment of feline hyperthyroidism.
Dermatology and Care
Dermatology represents approximately 20%
of veterinarians’ clinical time and is a major
focus area for the industry. Best practice
techniques look to adopt more topical products
as opposed to oral treatments, with the aim
of utilising less antibiotics. Dechra’s product
portfolio is well positioned for this approach.
Canaural®
Isaderm
Malaseb
Anaesthesia and Analgesia
Perioperative sedation and pain management
are challenging but critical for all patients and
form a fundamental part of animal welfare.
A comprehensive range of analgesic and
anaesthetic products allows veterinarians
to adapt their protocols to the individual pet
based on their level of discomfort, whilst
providing flexible anaesthetic procedures.
CleanAural®
DermaPet®,
Triz, MalAcetic,
Malaket and
MiconaHex+Triz
Vetivex®
Sedator®
Comfortan®
Atipam®
Phycox®
Cats
Dogs
Dogs
Cats
Dogs
Cats
Dogs
Cats
Dogs
Cattle
Cats
Dogs
Horses
Cats
Dogs
Cats
Dogs
Cats
Dogs
Dogs
Horses
For the treatment of otitis externa including the ear mite, Otodectes cynotis.
For the topical treatment of surface pyoderma in the dog such as acute moist
dermatitis (hot spots) and intertrigo (skin fold dermatitis).
Cats: Medicated shampoo to aid the control and treatment of ringworm due to
Microsporum canis in conjunction with griseofulvin.
Dogs: Medicated shampoo for the treatment and control of seborrhoeic
dermatitis associated with Malassezia pachydermatis and Staphylococcus
intermedius.
A pH balanced routine ear cleaner. For the removal of moderate ear wax and
debris where the ear drum is intact.
For the treatment of numerous skin and ear conditions.
This product is administered by intravenous infusion for the treatment of
dehydration and metabolic acidosis. It may be used to correct volume depletion
(hypovolaemia) resulting from gastrointestinal disease or shock.
For restraint and sedation.
Analgesia. Premedication for general anaesthesia or neuroleptanalgesia in
combination with a neuroleptic drug.
Reverses the sedative effects of medetomidine and demedetomidine.
Reduces joint discomfort and swelling.
Cardiovascular Disease
As pets increasingly live longer, managing heart
disease efficiently is critical. This is our only
major product in this category.
Cardisure®
Dogs
For the treatment of congestive heart failure originating from valvular
insufficiency (mitral and/or tricuspid regurgitation) or dilated cardiomyopathy.
34
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Why we focus on this specialist area
Key products
Animal Use
Ophthalmology
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.
Isathal®
Lubrithal®
Vetropolycin®
and Vetroploycin®
HC
Cats
Dogs
Rabbits
Cats
Dogs
Cats
Dogs
For the topical treatment of conjunctivitis associated with staphylococcal
infections.
Soothes and moisturises the eye.
For the treatment of superficial bacterial infections of the eyelid
and conjunctiva when due to organisms susceptible to the antibiotics
contained in the ointment.
Equine Medicine
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.
Food Producing Animal Products
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
Quality nutrition leads to quality of life for
pets and veterinarians are best placed to
offer nutritional advice. With our range of
nutritional products, along with licensed and
non-licensed medicines, we are able to offer
holistic solutions to veterinarians to manage
their patients in the most appropriate manner.
Equipalazone®
Horses
Osphos®
HY-50®
Somulose®
Domidine®
Soludox®
Octacillin®
Methoxasol®
Cyclospray®
Rapidexon®
Horses
Horses
Cats
Cattle
Dogs
Horses
Cattle
Horses
Chickens
Pigs
Turkeys
Chickens
Pigs
Broilers
Pigs
Cattle
Pigs
Sheep
Cats
Cattle
Dogs
Horses
Pigs
For the treatment of musculoskeletal disorders in horses and ponies where the
anti-inflammatory and analgesic properties of phenylbutazone can offer relief, such
as lameness associated with osteoarthritic conditions, acute and chronic laminitis,
bursitis and carpitis, and in the reduction of post-surgical soft tissue reaction.
For the control of clinical signs associated with the bone resorptive processes of
navicular syndrome.
For intra-articular and intravenous treatment of lameness caused by joint
dysfunction associated with non-infectious synovitis.
The product is indicated for euthanasia in dogs, cats, horses and cattle.
For the sedation and slight analgesia of horses and cattle; to facilitate physical
examinations and treatments, such as minor surgical interventions.
For respiratory disease in pigs, chickens and turkeys.
Treatment of infections caused by bacteria susceptible to amoxicillin.
Broilers: Treatment and prevention of respiratory infections caused by
Escherichia coli susceptible to trimethoprim and sulfamethoxazole where the
disease has been diagnosed in the flock.
Pigs: Treatment and prevention of respiratory infections caused by
Actinobacillus pleuropneumoniae susceptible to trimethoprim and
sulfamethoxazole where the disease has been diagnosed in the herd.
Prevention of infections of superficial traumatic or surgical wounds caused by
micro-organisms sensitive to chlortetracycline.The product can be used as
part of a treatment for superficial claw/hoof infections, in particular interdigital
dermatitis (foot rot) in sheep and digital dermatitis in cattle.
Dexamethasone may be used for the treatment of inflammatory or allergic
conditions.
Specific™
Cats
Dogs
Balanced high quality pet diets for therapeutic use and life stage maintenance
diets.
35
Stock Code: DPHStrategic Reportslugline International Footprint
We currently have our own sales and marketing organisations in 14 European countries and in the US and Canada in North America. We
also market products in over 40 countries worldwide through distributors and marketing partners. The map below shows the key products
in our focus therapeutic areas in territories where we have sales and marketing organisations.
15
16
06
14
05
04
07
08
09
11
12
13
02
01
03
10
Country Key
European Pharmaceuticals
North American Pharmaceuticals
Export
36
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015
www.dechra.com
slugline
01. United Kingdom
Key Products
02. Ireland
Key Products
03. Portugal
Key Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Food producing Animal Products
Food producing Animal Products
Food producing Animal Products
Pet Diets
04. Norway
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Pet Diets
Pet Diets
Key Products
05. Sweden
Key Products
06. Finland
Key Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular
Anaesthesia and Analgesia
Anaesthesia and Analgesia
Anaesthesia and Analgesia
Food producing Animal Products
Food producing Animal Products
Food producing Animal Products
Pet Diets
07. Denmark
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Pet Diets
Pet Diets
Key Products
08. Netherlands
Key Products
09. Belgium
Key Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Food producing Animal Products
Food producing Animal Products
Food producing Animal Products
Pet Diets
10. Spain
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Pet Diets
Pet Diets
Key Products
11. France
Key Products
12. Germany
Key Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Food producing Animal Products
Food producing Animal Products
Food producing Animal Products
Pet Diets
13. Italy
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Pet Diets
Pet Diets
Key Products
14. Poland
Key Products
Endocrinology
Dermatology
Ophthalmology
Equine
Cardiovascular Disease
Anaesthesia and Analgesia
Food producing Animal Products
Food producing Animal Products
Pet Diets
15. Canada
Endocrynology
Dermatology
Ophthalmology
Equine
Pet Diets
Key Products
16. United States
Key Products
Product Key
Endocrinology
Dermatology
Ophthalmology
Equine
Pet Diets
slugline
Complete product range
Some key products not registered
Not yet active
37
Stock Code: DPHStrategic Report Product Development
Although some products may have a slightly
different path, most novel and generic
products follow a fairly standard process
containing five phases, defined as: Exploring,
Feasibility, Development, Registration 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; therapies
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 Exploring 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
Feasibility, 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 development phase
which involves expensive clinical trials or
bioequivalence studies.
Entering the Development Phase
The Development 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 Development phase demonstrate
the required safety, efficacy and chemical
stability of the product, regulatory dossiers
are prepared for Registration/Filing.
From beginning to end, the development
process can take between three and ten
years before Launch.
Go/
No Go
Go/
No Go
Go/
No Go
3 – 10 years
Exploring
Feasibility
Development
Registration
Launch
CAP
Novel
(Start from scratch)
Formulation
CTR
Dose Titration
Preliminary Safety study
3
Pilot
batches
CTR
CTR
CTR
Safety
Efficacy
Residues
Environmental
Risk Assessment/
Ecotoxicology
User Safety
Studies
Register
Launch
CAP
FAP
Generic
(Copycat product)
Formulation
Chemistry
Drives timing,
needs stable
formulation
2
Pilot
batches
Bioequivalence
Study/Studies
or waiver
Register
Launch
CAP Companion Animal Product
FAP Food Producing Animal Product
CTR Clinical Trials Required
New Formulation of products with existing
maximum residue limit (MRL)
Laboratory Studies
Indication(s) determined
Active Pharmaceutical
Ingredient (API)
manufacturer selected
Manufacturing site
selected (finished
products)
Commercially —
Is there a customer
need?
Is it worth taking
the development idea
forward?
38
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline
Product Pipeline
A key strategic priority for the Group is the delivery and strength of the pipeline. The following chart outlines the status of the major projects. Owing
to the nature of product development, the content of our pipeline will change over time as new projects progress from exploratory to development
to market or as projects are terminated. For competitive reasons, exact project details are not disclosed.
Exploring
Feasibility
Development
Registration
CAP
FAP/Equine
CAP
FAP/Equine
CAP
FAP/Equine
CAP
FAP/Equine
Dermatological
and/or dental
applications for
dogs and cats
Gastrointestinal
treatment for
dogs and cats
Analgesic for
horses
Endocrinology
treatment for
dogs
Endocrinology
treatment for
horses
Endocrinology
diagnostic
Antibiotic for
cattle
Endocrinology
treatment for
dogs
Antibiotic for
poultry
Ophthalmology
treatment for
dogs
Antiparasitic
for poultry
Cardiovascular
treatment for
dogs
Analgesic for
horses
Antibiotic for
pigs and
poultry
Dermatology
treatment for
dogs
Antimicrobial
for pigs and
poultry
Antibiotic for
cattle
Antibiotic for
poultry
Dermatology
treatment for
dogs
Cardiovascular
treatment for
piglets
Antibiotic for
pigs and
poultry
Antimicrobial
for dogs and
cats
Antimicrobial
for pigs
Endocrinology
treatment for
cats
Cardiovascular
treatment for
dogs
Gastrointestinal
therapy for
dogs
Analgesic
Antiparasitic
Dermatology
Endocrinology
Opthalmology
Antimicrobial
Cardiovascular
Diagnostic
Gastrointestinal
39
Stock Code: DPHStrategic Reportslugline Financial Review
During the 2015 financial
year the Group focused on
the execution of our four
strategic pillars. As a result,
we consolidated our position
within the market, invested in
the launch of new products
and expanded geographically
delivering underlying profit
growth of 11.6% at constant
exchange rates (CER). Our
performance offsets strong
currency headwinds, notably
due to the volatility of the
Euro, resulting in a growth of
5.2% at actual exchange rates
(AER).”
Glossary
Terms used within this section:
IFRS
International Financial Reporting Standards
CER
Constant Exchange Rates
AER
Actual Exchange Rates
CAP
Companion Animal Products
FAP
Food producing Animal Products
40
Anne-Francoise Nesmes
Chief Financial Officer
When presenting our financial results, we use
a number of adjusted measures which are
considered by the Board and management
in reporting, planning and decision-making.
These measures are reconciled to the
financial results reported under IFRS on
page 43.
• Underlying results reflect the Group’s
trading performance excluding
amortisation of acquired intangibles,
non-underlying charges and
one-off events such as restructuring and
acquisition costs.
• All growth rates for both underlying and
reported financial 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 (in August 2013) is
shown as discontinued operations in
accordance with IFRS.
Overview of Underlying Financial
Results
We delivered underlying operating profit of
£44.4 million, representing a growth of
11.6% compared to the previous year. This
was achieved through a combination of
revenue growth and improvement in margins
whilst we invested in key areas to support
our growth.
Revenue
Gross profit
Gross profit %
Underlying operating
profit
Underlying EBIT %
Underlying EBITDA
Underlying diluted EPS (p)
Dividend per share (p)
2015
£m
203.5
116.1
57.1%
44.4
21.8%
48.0
39.90
16.94
2014
£m
193.6
107.7
55.6%
42.2
21.8%
46.2
36.32
15.40
Actual
exchange rate
5.1%
7.8%
Constant
exchange rate
10.0%
13.6%
5.2%
11.6%
3.9%
9.9%
10.0%
10.2%
16.9%
10.0%
A reconciliation to reported results is shown on page 43.
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline
Revenue
Total revenue grew by 10.0% to
£203.5 million. We delivered good growth in
our CAP portfolio, and revenues increased
due to product launches and the start of
trading in new subsidiaries.
Revenue by Segment
European Pharmaceuticals Segment revenue
grew by 3.9% to £168.6 million with a strong
performance in the UK offsetting lower
revenue in Germany due to the reduced
use of antibiotics and in Denmark due to
competitive pressure. It is pleasing to report
that Vetoryl bounced back following last
year’s slower performance and grew by 22%
due to trading in Italy as well as the roll out of
our new marketing campaign.
Revenue in our North American
Pharmaceuticals Segment grew by 59.9%
to £34.9 million with the full year effect of
the PSPC Inc. acquisition contributing to the
growth. Our key products also performed
well with an increase of 20.0% for Vetoryl
and 24.0% for DermaPet®. Osphos,
launched in August 2015, is also gaining
momentum.
New territories, Italy, Canada and Poland,
performed well and contributed 16.0% of the
total revenue growth.
Revenue by Categories
Overall, the strong performance in CAP and
Equine is offset by a decline in FAP sales.
CAP sales grew by 20.8% fuelled by
Vetoryl’s momentum in the EU and US, the
launch of Phycox and the success of our
dermatology range, DermaPet, in the US.
On a restated basis, Equine revenue has
grown by 17.0% following the launch of
Osphos.
FAP declined by 13.6%, mostly due to the
impact of the reduction in the prescription
of antibiotics and increased competition
in Germany and Denmark. However, as
reported in the Chairman’s and Chief
Executive Officer’s statement, we are
pleased to report that the rate of decline has
currently slowed in the Netherlands.
Unfortunately we experienced some
supply disruption as we transferred the
manufacturing of our dry diets to a new third
party manufacturer. This affected our sales
which declined by 4.2% in this financial year.
However, all supply issues were resolved
in the latter part of the year and we expect
to regain momentum in the 2016 financial
year with the launch of a new marketing
campaign.
Finally, third party manufacturing sales
increased by 11.7% as we realise the value
from new contracts signed in 2014.
CAP
Equine*
FAP*
Subtotal Pharma
Diets
Third Party Manufacturing
Total
2015
£m
113.9
17.0
27.3
158.2
25.6
19.7
203.5
2014
As restated
£m
98.2
15.3
33.7
147.2
28.4
18.0
193.6
Actual
exchange rate
16.0%
11.1%
(19.0%)
7.5%
(9.9%)
9.4%
5.1%
Constant
exchange rate
20.8%
17.0%
(13.6%)
12.6%
(4.2%)
11.7%
10.0%
* As we continue to focus on our Equine portfolio, we reviewed our product allocation to ensure that
multi-species products were appropriately allocated to the relevant categories. As a result we have
reclassified £2.2 million of 2014 product sales from FAP to Equine and £0.5 million from CAP to
Equine.
10.0%
Total revenue grew by 10.0%
(at CER) to £203.5 million
(5.1% at AER)
Revenue by Product Category
(at AER)
CAP 56%
Equine 8%
FAP 13%
Diets 13%
Third Party Manufacturing 10%
41
Stock Code: DPHStrategic Reportslugline
Financial Review
continued
Our gross margins have
improved from 55.6% to
57.1% (at AER) reflecting the
higher margins within our
CAP portfolio offsetting the
lower margin FAP business.”
forward. By ensuring that we are right-sized
to achieve our ambitions and by funding our
geographical expansion, we are building a
platform for future growth.
Research and Development
Expenses (R&D)
Our R&D spend in the 2015 financial year
was £8.7 million. This is slightly above last
year (2014: £8.2 million), commensurate
with our pipeline progress and an increase in
our in-licensing activities to create additional
value and breadth within the pipeline. In
addition to R&D spend, in-licensing activities
sometimes lead to capital investments, such
as the share investment of US$1.0 million in
Jaguar Animal Health Inc.
Segmental Profit
Operating leverage continues to improve
in our European and North American
Pharmaceuticals Segments with underlying
profit as a percentage of sales at 28.5% and
30.4% respectively (at AER), as summarised
in the table on the next page.
Gross Profit
Our gross margins have improved from
55.6% to 57.1% (at AER) reflecting the
higher margins within our CAP portfolio
compared to the lower margin FAP
business.
This favourable product mix is the main
reason for the improvement in margins.
However, we also benefited from a reduction
in cost of goods as we transferred the pet
diets to a new third party manufacturer and
from the higher margins retained through
establishing our own subsidiaries in Italy and
Canada.
Selling, General and Administrative
Expenses (SG&A)
SG&A expenses grew by 15.4% to
£63.1 million as we continued to invest to
support the future growth of the Group.
During 2014, SG&A growth was driven by a
mixture of one-off items and investment in
resources to progress the strategic pillars.
This prior year investment has had a full year
effect in 2015. Additionally, we have invested
in the sales organisation in DVP EU and
DVP US, strengthened our manufacturing
resources and built necessary infrastructure
functions to support the operations going
42
slugline Operating Segment (Pharmaceuticals)
Revenue
— EU
— North America
Operating Profit
— EU
— North America
EBIT %
— EU
— North America
Actual
exchange rate
5.1%
(2.2%)
64.6%
Constant
exchange rate
10.0%
3.9%
59.9%
(2.0%)
76.7%
4.1%
73.3%
2015
£m
203.5
168.6
34.9
48.0
10.6
28.5%
30.4%
2014
£m
193.6
172.4
21.2
49.0
6.0
28.4%
28.3%
The full segmental analysis can be found in note 2 on page 119.
During 2015, consequent to the commencement of trading in Canada, the Board reviewed
our reporting Segments and concluded that the US Pharmaceutical Segment should be
expanded to include Canada and named the North American Pharmaceuticals Segment,
reflecting the way we manage the Group and meeting the criteria defined under IFRS 8.
Overview of Reported Financial Results
Including non-underlying items, the Group’s profit after tax of £19.5 million decreased by 65.1%
at CER (66.9% at AER), due to the one-off profit on disposal of the Services Segment of
£38.6 million in the prior year.
Revenue
Gross profit
Gross profit %
Operating profit
EBIT %
Profit after tax
Profit after tax including
discontinued operations
Diluted EPS (p)
2015
£m
203.5
116.1
57.1%
26.0
12.8%
19.5
19.5
21.99
2014
£m
193.6
107.7
55.6%
25.0
12.9%
19.4
59.0
67.33
Actual
exchange rate
5.1%
7.8%
Constant
exchange rate
10.0%
13.6%
4.0%
9.6%
0.5%
6.2%
(66.9%)
(67.3%)
(65.1%)
(65.4%)
A reconciliation of underlying results to reported results as at 30 June 2015 is shown in the
table below:
2015
Underlying
results
£m
203.5
116.1
(63.0)
(8.7)
44.4
0.7
45.1
(9.8)
35.3
39.90
Revenue
Gross profit
Selling, General and
Administrative Expenses
R&D expenses
Operating profit
Net finance costs
Profit before tax
Taxation
Profit after tax
Diluted EPS (p)
Non-underlying items
Amortisation
of intangibles
£m
Acquisition
costs
£m
Finance
expenses
£m
(17.9)
(17.9)
(17.9)
3.4
(14.5)
(0.5)
(0.5)
(0.5)
(0.5)
(0.9)
(0.9)
0.1
(0.8)
2015
Total
reported
results
£m
203.5
116.1
(81.4)
(8.7)
26.0
(0.2)
25.8
(6.3)
19.5
21.99
Non-underlying items of £19.3 million before taxation, excluding the discontinued operations,
are £0.9 million above the previous year due to higher acquired intangible amortisation with
the full year effect of the PSPC Inc. acquired intangibles taking effect. Full details are shown
in notes 4 and 5 on page 121.
£19.5m
Group’s reported profit after
tax was £19.5m
(2014: £19.4m)
£8.7m
R&D spend was £8.7m
(2014: £8.2m)
Read the Q&A with Ian and
Anne-Francoise on pages 48
to 49.
View further content on our
website: www.dechra.com
43
Stock Code: DPHStrategic Reportslugline
Financial Review
continued
Underlying Diluted Earnings
per Share
39.90p
2014: 36.32p
29.07
36.32
39.90
2013
2014
2015
Dividend per Share
16.94p
2014: 15.40p
14.00
15.40
16.94
Earnings per Share and Dividends
Underlying diluted EPS from continuing
operations for the year was 39.90 pence,
16.9% growth versus last year.
The reduction in interest payments following
the repayment of our debt and the positive
impact of transactional exchange gains,
contributed to our EPS increase. The
transactional currency effect of the Euro and
other currency movements impacted profit
after tax by £1.8 million and contributed
2.12 pence to the EPS.
The reported diluted EPS for the year was
21.99 pence (2014: 67.33 pence).
The Board is proposing a final dividend of
11.82 pence per share (2014: 10.65 pence).
Added to the interim dividend of 5.12 pence,
it brings the total dividend per share for the
year to 16.94 pence, representing 10.0%
growth over the previous year. Dividend
cover based on underlying EPS is 2.4 times.
Total non-current assets
Working capital
Net cash/(debt)
Corporate and deferred tax
Other liabilities
Total net assets
Cash conversion
Net Cash Position
Our net cash position continues to improve
with strong cash generation being reflected
in the increase from £5.0 million net
borrowings in the prior year to £13.4 million
net cash as at 30 June 2015.
Covenants on all loan facilities were met
during the year.
Whilst no new acquisitions were completed
during the financial year, the Group announced
on 3 August 2015 that it had signed a
conditional agreement to purchase a majority
shareholding in Genera d.d., a Croatian
pharmaceutical company. This triggers
a mandatory takeover obligation for the
remaining shares of Genera, this takeover is
subject to approval by the Croatian Financial
Services Agency (HANFA). More information
pertaining to this acquisition can be seen in
note 33 to the Financial Statements.
Balance Sheet
Net assets at 30 June 2015 were
£194.5 million, a £10.3 million decrease
compared to 2014. This decrease is reflective
of a significant amount of the Group assets
being held in Eurozone countries.
2015
£m
183.5
31.7
13.4
(25.0)
(9.1)
194.5
107.1%
2014
£m
214.4
32.2
(5.0)
(28.0)
(8.8)
204.8
90.6%
2013
2014
2015
Total non-current assets include intangibles which amounted to £166.7 million
(2014: £196.2 million) as at 30 June 2015.
44
slugline
committed to determining a hedging strategy
which reflects our risk from a transactional
perspective, we do not, at present, see
benefit in translational hedging.
Summary
During the 2015 financial year we made
good progress towards our strategic
ambitions as we focused on executing
our strategy:
• our revenue and earnings grew through
our portfolio focus, pipeline delivery and
geographic expansion;
• we invested in our selling and
administration infrastructure to promote
growth, while maintaining our operating
profit margin; and
• our strong balance sheet continues to
give us the flexibility to pursue strategic
investment opportunities as and when
they arise.
Anne-Francoise Nesmes
Chief Financial Officer
7 September 2015
Glossary
Terms used within this section:
EPS
Earnings Per Share
SG&A
Selling, General and Administrative
Expenses
R&D
Research and Development
EBIT
Earnings Before Interest and Tax
During the financial year
2015 we made good
progress towards our
strategic ambitions as we
focused on executing our
strategy.”
Read about Delivering Our
Strategy on pages 14 to 17.
See our Key Performance
Indicators on pages 46 and 47.
Additionally, it is worth noting that total
working capital decreased during the year
from £32.2 million to £31.7 million. Whilst
the expected increase of working capital
in geographical expansion areas such as
North America did occur, it was offset by
translational exchange impacts on Euro and
other currency based working capital.
Finance Strategy
Taxation and Treasury
We reported last year that we had
undertaken a review of our tax and treasury
strategies to make our operations more
efficient, robust and scalable. During 2015,
we continued to implement the tax strategy
approved by the Board.
In September 2014, the Group refinanced its
existing bank facility. This refinancing resulted
in a loss on extinguishment of debt of
£0.4 million in the year ended 30 June 2015,
which is included in our non-underlying
financial expenses.
Currency Risk
During 2015, we have been exposed to
significant transactional and translational
currency risk. This has resulted in one-off
transactional gains of £2.2 million being
recognised in the Consolidated Income
Statement and £18.5 million foreign
exchange translational impact being
recognised in the Consolidated Statement
of Comprehensive Income in 2015. We have
been reviewing a number of mechanisms
to manage the currency risk inherent within
our business given our primarily UK based
manufacturing facilities and Euro/Dollar
based sales organisations. Whilst we are
45
Stock Code: DPHStrategic Reportslugline 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 .KPIDefinitionRelevance to StrategyPerformanceStrategic LinkSales Growth10.0%Year-on-year sales growth including new products but excluding revenue from acquired businesses in the year of acquisition.£203.5m£193.6m£189.2m201520142013A key driver of our strategy is to deliver sustainable sales growth through delivering our pipeline, maximising our existing portfolio and expanding geographically.Sales increased by 10.0% at CER (5.1% at AER). Our growth was driven by the continued commitment and execution of our four pillars, allowing us to see growth through the acquisition effect of PSPC, new products, geographical expansion in Italy and Canada and the organic growth of the portfolio. This offset the impact of the FAP decline and strong currency headwinds.abcUnderlying Diluted EPS Growth 16.9%Underlying profit after tax divided by the diluted average number of shares, calculated on the same basis as note 10 to the Accounts.39.90p36.32p29.07p201520142013Underlying EPS is a key indicator of our performance and the return we generate for our shareholders. It is one of the performance conditions of the LTIP.EPS increased by 16.9% at CER (9.9% at AER). Organic growth and interest savings from repaying part of our debt in September 2014 accounted for most of the increase. Additionally, the EPS benefited from the impact of translational exchange gains accounted for as finance income (see note 3 to the Accounts).abcReturn on Capital Employed 20.0%Underlying operating profit expressed as a percentage of average operating assets (excluding cash/debt and net tax liabilities).20.0%16.4%17.6%201520142013As 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 performance conditions of the LTIPs.Our ROCE has improved as we deliver more profits and maintain working capital levels. However, the increase is also a result of the reduction in value of our net assets base due to movements in exchange rates (see pages 44 and 45). abcDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.com46sluglineKey Performance IndicatorsKey to Strategic Pillars: Pipeline Deliveryabc Portfolio Focus Geographical Expansion AcquisitionKey to Strategic Enablers: Manufacturing and Supply Chain Technology PeopleRead more about Delivering Our Strategy on pages 14 to 17.Read about How the Business Manages Risk on pages 58 and 59.Read about the Directors’ Remuneration Report on pages 81 to 95.Dechra Annual Report Front 2015.indd 4609/09/2015 14:20:28 KPI
Definition
Relevance to Strategy
Performance
Cash Conversion
107.1%
Cash generated from operations
before tax and interest payments as a
percentage of operating profit before
amortisation of acquired intangibles.
Our stated aim is to be a
cash generative business.
Cash conversion was strong in
2015 reflecting good growth in
profits combined with steady
working capital levels which are
discussed further on page 44.
Strategic
Link
a
b
c
2015
2014
2013
107.1%
90.6%*
107.0%
* On continuing operations basis
New
Product Sales
13.8%
Revenue from new products as a
percentage of total Group revenue.
A new product is defined as any
molecule launched in the last five
financial years.
2015
2014
2013
13.8%
8.6%
6.5%
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 newly
developed or in-licensed
products.
a
b
c
Sales from new products continue
to increase and accounted for
13.8% of our total sales in 2015.
This is due to the continued
success in the EU of Forthyron
and Cardisure and the launch of
Osphos in the UK and US during
2015.
Lost Time
Accident
Frequency Rate
(LTAFR)
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.
The safety of our
employees is core to
everything we do. We are
committed to a strong
culture of safety in all our
workplaces.
LTAFR for continuing operations
fell from 0.08 to 0.07 illustrating
our continued commitment to
employee safety.
2015
2014
2013
0.07*
0.08*
0.22
* On continuing operations basis
Employee
Turnover
12.2%
Number of leavers during the period
as a percentage of the average total
number of employees in the period.
2015
2014
2013
12.2%
16.8%
16.1%
Attracting and retaining
the best employees is
critical to the successful
execution of our strategy.
Employee turnover reduced to
12.2%, which is reflective of the
steady state in which the business
operated in 2015. In 2014 we
completed the closure of a factory
in Uldum, Denmark.
47
Stock Code: DPHStrategic Reportslugline Q&A with Ian Page
ww
Q It has been a strong year for
Dechra; to what do you attribute
this success?
A Ultimately, it is the delivery of
our strategy. We have expanded
geographically, launched new products,
and our core portfolio of products
has performed very well. Looking at
it in a little bit more detail, revenue
growth in the USA was exceptional
at almost 60%. This is driven both
organically, with good performance from
our endocrinology and dermatology
portfolio, but also with the launch of
Osphos, our new equine lameness
product. This has been enhanced by
the acquisition of PSPC, which was
made in the prior year, where we have
seen an excellent market penetration
from Phycox and by the introduction of
a new endocrine product, Levocrine.
Looking at Europe, our performance
has been a little bit more modest with
4% growth; however, our companion
animal portfolio continues to perform
well even in mature markets. Our farm
animal products have performed less
well and there has been a little bit of a
headwind in the period as we have seen
in prior years; this is again due to focus
on antibiotics resistance issues within
the marketplace. We do, however, have
a strong portfolio of products and are
investing strongly in this area and do
expect to turn around the farm animal
poor performance in the future. Overall,
it is the revenue growth across the
Group that has driven the performance
within the year.
Q In terms of geographical expansion,
have you got any more plans?
A I am pleased to report that Canada,
which we launched in January of this
year, has performed to our expectations
and we have also received orders
in Poland within the financial year,
which is ahead of schedule. We have
established a legal entity in another
European country and we hope to
start trading there very soon. We have
increased the number of people in our
Regulatory Department that look at
international registrations as we look to
penetrate developing markets and also
we hope to enhance our geographical
expansion by acquisitions.
48
Q What progress are you making on
Q How do you see the outlook for the
acquisitions?
next year and into the future?
A We have made a lot of progress in terms
of screening acquisitions. There are
not a lot of opportunities to consolidate
businesses within our existing markets.
However, we are looking further afield
and looking into new geographies and
new therapeutic competencies.
I am pleased that we have made a
conditional acquisition in a majority stake
in Genera, which is a Croatian based
animal health business. The principal
interest in this business is its poultry
vaccine facility. We had been negotiating
with Genera for a number of years to
acquire the marketing rights for Europe
and the opportunity became available
to us to acquire a majority share. We
see vaccines as a very important way
forward to develop our FAP portfolio;
vaccines are the future as we have seen
growth in this section as we are seeing
a decline in antibiotics. Genera will also
bring to us a low cost manufacturing
base and will give us a significant market
share in three new territories: Slovenia,
Bosnia and Croatia. So we are pleased
to have announced the conditional
acquisition of a majority stake in this
market.
A We remain very confident in our
strategy. Our market share in our
key therapeutic sectors continues
to increase; we continue to screen
more opportunities to add depth and
breadth into our product development
pipeline. As I have already outlined, our
geographical strategy is also performing
well. In terms of acquisitions, they
have been strategic, they will add new
therapeutic competencies and will also
add new countries to trade in. Looking
at current trading we have got every
reason to be confident in our future.
Watch the Q&A with Ian Page at:
dechra.annualreport2015.com
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline
Q&A with Anne-Francoise Nesmes
Q What has driven the strong financial
performance in the year?
A We are very pleased with our
performance in 2015. You may recall
that last year our sales growth was a
little disappointing, but we highlighted
that the momentum in the second
half of 2014 had picked up. This has
continued and we are reporting a
double digit sales growth at CER for
the 2015 financial year. Our gross
margin has also improved by about two
percentage points due to a favourable
product mix and if you take our
sales growth, our sales performance
combined with the improved gross
margin, that has given us the flexibility
to invest behind our strategy. Finally, we
are also realising financial efficiencies
which we talked about last year, in
particular we are realising the savings
from the tax optimisation project which
we started last year.
Q The exchange rate volatility has had
an impact on the results; can you
explain what is happening?
A We are a global organisation and we
trade in many currencies. Exchange
rate volatility is a risk the business will
continue to face and it impacts our
P&L and our balance sheet. One of the
major currencies in which we trade is
the Euro, which we all know has been
very volatile again this year given the
political and economic environment in
Europe. The Euro has weakened by
9% against the pound compared to last
year’s average rate.
We have a conservative treasury policy
and, as a Board, we have decided to
use hedging instruments very carefully.
So, for instance, we will only hedge
specific transaction risk exposure.
Additionally, this year we have also been
able to implement a so-called netting
system which allows us to settle
inter-company transactions and, as a
result, we have been able to reduce the
cost of foreign transactions in different
currencies.
Q You mentioned earlier that you were
investing for growth, can you
expand a little on this point?
A We have seen a significant increase
in our selling and admin costs as we
invest to support our strategy and our
growth. In particular, we have invested
to establish our new subsidiaries and
fund their infrastructures. We have also
Q Can you outline a few highlights for
the year?
A This is a tricky question as we have
achieved key milestones in all parts
of the Group which demonstrates our
ability to execute our strategy. But
I am particularly pleased to see the
positive impact that we are making
through being agile. So, for instance,
we have been able to capitalise when
competitors have been out of stock in
the US and in Europe. We have also
been able to open our subsidiary in
Poland sooner than expected and I am
sure there are many more examples
of this across Dechra. But what it
demonstrates is our ability to succeed
when all parts of the organisation work
together and become One Dechra.
Watch the Q&A with Anne-Francoise
Nesmes at: dechra.annualreport2015.com
financed the launch of new products,
in particular Osphos, where we spent
on marketing campaigns and recruited
new sales representatives. Additionally,
as reported in the first half, we are
investing in the US infrastructure in the
US organisation; the pay-back of which
is very clear given the success of this
organisation during the financial year.
Q Can you outline the changes in your
Product Development team and
pipeline?
A To progress the number of projects
we have in the pipeline and to face the
increasing regulatory demands, we
realised we had to change the way
the team was organised. So, we have
now split the Product Development
and Regulatory Affairs team into two.
One team, led by Joe Rosentel, is now
responsible for managing the projects
through the pipeline and delivering our
pipeline. The second team, led by Susan
Longhofer, is responsible for business
development and in-licensing to bring
new ideas and is also responsible for
managing our regulatory affairs.
Setting aside this reorganisation, we
are pleased to report progress in our
short term pipeline, as we have had a
number of new products approved, in
particular Osphos; we have had TAF
Spray approved in Europe, Vetoryl
5mg in the US and a number of smaller
registrations in other emerging markets.
Stock Code: DPH
4949
slugline
Stock Code: DPHStrategic Reportslugline
Corporate Social Responsibility
Our Corporate Social
Responsibility strategy has
three pillars: Our People,
Our Community and Our
Environment.”
Glossary
Terms used within this section:
SET
Senior Executive Team
PDR
Performance Development Review
HR
Human Resources
MAT
Moving Annual Total
LTAFR
Lost Time Accident Frequency Rates
RIDDOR
Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations
Tony Griffin
Managing Director, Dechra Veterinary Products EU
Katy Clough
Group HR Director
A responsible approach to our stakeholders
and the wider community is considered by
the Board to be important to the business.
Our Corporate Social Responsibility
strategy has three pillars: Our People, Our
Community and Our Environment. 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 are 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.
Our People
There has been significant progress made
during the year on the People Plan.
• One Dechra — A Great Place to Work
A number of key projects have
progressed which will enable us to
integrate the Group and optimise our
resources and capabilities. These
include development of a Group-wide
Learning Management Resource which
will be available to all employees from
September 2015, the introduction of
a Group-wide newsletter informing
all employees of progress against
the strategy and other important
developments across the Group, and
the development of a Group-wide
careers website, showcasing the global
opportunities available and supporting
the attraction of talent to the Group.
• Strong Senior Executive Team (SET)
The SET has responsibility for the overall
leadership of the Group, driving the
successful implementation and execution
of the strategy and enabling cohesion and
co-operation between the various business
units, as well as setting the Dechra Values
so that these are embraced at every level
of the business.
Reporting to Ian Page, Chief Executive
Officer, the team comprises Anne-
Francoise Nesmes, Chief Financial
Officer, Tony Griffin, Managing Director
DVP EU, Dr Susan Longhofer, Regulatory
Affairs and Business Development
Group Director, Mike Eldred, President
North America, Mike Annice, Managing
Director, Manufacturing, Allen Mellor,
Group IT Director and Katy Clough,
Group HR Director.
50
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Case Study:
Our People —
US Team Building Event
As reported in last year’s Annual Report, we introduced
the objective of ‘One Dechra — A great place to work’ to
support our overall business strategy.
During a PDRA team building event in May as one of several
One Dechra initiatives, the PDRA team and the
Kansas sales office joined forces at a cooking workshop
to make manicotti (an Italian American pasta similar to
cannelloni) and decorate dog biscuits. This was a fun-filled
evening with a purpose, which resulted in the local Ronald
McDonald House receiving a freezer full of the manicotti
and the dogs at the Humane Society of Greater Kansas
City enjoying the treats.
Our People Plan is designed to enable the Group to drive innovation, customer and shareholder value, accountability, and success through:
US Team Building Event
06
Scalable
HR Operations
05
Dechra
Leaders
Development
01
Strong SET
One Dechra
A Great Place To Work
04
Aligned
Compensation
and Benefits
02
Performance
Culture
03
Talent
Management
01
Develop the SET to provide world class
leadership to the Group
02
Align employee efforts and improve
execution through effective goal setting
linked to reward
03
Attract, retain and develop the right talent in
the right place at the right time
04
Develop equitable reward systems that drive
accountability and reward high performance
05
Identify succession plans and create
development plans to secure the future
talent pipeline
06
Create simplified access to data and reduce
manual effort
Stock Code: DPH
51
Strategic Reportslugline Corporate Social Responsibility
continued
During the year, the number of SET
members has increased with the
addition of Dr Joseph Rosentel, Product
Development Director, and Giles Coley,
Marketing Director DVP EU. The SET
has met eight times during the year and
the Board approved the SET terms of
reference which will assist with the focus
of its core duties.
• Performance Culture
The updated Performance Development
Review (PDR) process was rolled out
across the Group during summer 2014,
with all employees being set objectives
that link back to the overall Company
strategy. Training for managers has been
provided to support this roll out and
the annual salary review calendar has
been revised in line with the PDR cycle
to underpin the link between individual
contribution and reward.
A formal approach to succession planning
and talent management across the
Group has commenced. At least once
a year we will continue to undertake a
comprehensive assessment of talent
and potential at all levels in the Group.
The aim is to identify both successors
for key positions and put in place the
development, support or key experiences
that are required for individuals to
progress within the organisation. This
supports our strategic aim to build a
sustainable business.
During this process we have identified
the need to attract a wider range
of young talent and, to address
this, we have continued to support
apprenticeship programmes, offered
a number of placements to university
students and have set up a pilot
Graduate scheme in the UK.
• Talent Management
• Aligned Compensation and Benefits
As Dechra continues to grow, attracting
and selecting top talent is an important
priority. With this in mind, a new careers
website was launched in July 2015.
This new site showcases the breadth
of what Dechra does and our global
reach, it represents our Values and more
importantly our people, to enable future
potential employees to learn more about
us and want to join.
We recognise the need to identify our high
potential employees and successors for
key roles and to develop them in order
to retain and prepare for future roles. The
commitment to the development of our
most talented individuals is partly rooted
in our need to deploy our resources
effectively across the Group and build
breadth of experience.
Employee Turnover (MAT)
Planned tactical work has been
undertaken to understand external
benchmarks for senior managers and
flight risk groups, together with an audit
of existing benefits and compensation
practices across the Group. This
has led to an alignment of the bonus
schemes for key groups in 2015 with
further development of an overall Group
compensation strategy planned for the
current financial year.
• Dechra Leaders’ Development
We want to ensure that we retain our
talented people and develop their skills in
both functional and people management,
which is key to supporting our continued
growth. Over the course of the last
financial year, Leadership Development
Programmes have been delivered in both
the Manufacturing and European teams.
We are also looking at designing a tailored
SET Development Programme.
16.1
16.8
12.2
• Scalable HR
20.00%
15.00%
10.00%
5.00%
0.00%
2013
2014
2015
52
During the year a project was undertaken
to identify a suitable Human Capital
Management system that will support
simplified, transparent access to data and
reduce manual effort. Following a tender
process, a vendor has been identified
and the implementation of the first phase
of the system has recently commenced.
The aim is to create a virtual HR shared
services function that operates across
geographic boundaries, which will reduce
time spent on administration and allow
further focus on HR business partnering.
The system will provide self-service
access to both managers and employees,
will automate much of the PDR process
and assist in tracking succession
planning. It is proposed to develop KPIs
and a dashboard of HR metrics to assist
with evaluating decision making relating
to resourcing and ensuring compliance
with increasing external reporting
requirements.
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.
In summary 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 Total (MAT);
during the 2015 financial year we reported
12.2% (2014: 16.8%). This represents a
decrease, and is due to the fact that the
previous year’s figure was high following
the closure of the manufacturing facility at
Uldum, Denmark.
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 (the Code)
which applies throughout the Group. This
Code was translated and circulated around
the business along with the Anti-Bribery and
Anti-Corruption Policy.
A separate Anti-Bribery and Anti-Corruption
Policy was launched in the 2014 financial 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, and work is
now commencing on an e-learning solution to
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline assist with the training of new employees and
for refresher purposes.
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.
The Code of Business Conduct, Anti-Bribery
and Anti-Corruption Policy and Whistleblowing
Policy were reviewed in December 2014.
The Dechra Values were launched in
June 2011 across the business, and are
being incorporated into the way we operate.
View further content on our
website: 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. During the year the Values
were translated into German and launched
with the aid of on-site briefings to all
employees at our German site in Aulendorf.
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. Management is 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. At the February
PLC Board meeting, the Health and Safety
Manager for DPM Skipton provided a
presentation which included the progress
from 2011 to 2015, an environmental and
energy update and synergies achieved with
the Bladel facility.
The main sites within the Group have 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.
Skipton is operating to OHSAS 18001:2007,
which is the British Standard for
occupational health and safety management
best practice. As it continues to develop its
safety management system, the site hopes
to seek accreditation within two 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 47).
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. As in the previous
year, the number of accidents occurring
in the year was one. This incident did not
result 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. The committee has met twice
during the financial year; and as well as
driver safety it has discussed the fleet
provision and areas of improvement from
an economic, environmental and employee
perspective.
53
Strategic Reportslugline Corporate Social Responsibility
continued
Our Community
The Board 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.
This is the fourth year in which the Group has operated a Donations Policy. All employees within the Group are entitled to nominate a charity
or a non-commercial organisation. This year the number of nominations received exceeded our expectations and it was therefore decided to
increase the overall donation spend from £10,000 to £20,000 which was split equally between ten charities, as detailed below:
Type of Charity
Charity
Jurisdiction
Description
Animal
Coalition to Unchain Dogs
US
The Coalition to Unchain Dogs improves the welfare of dogs living
in underserved communities as well as dogs continuously chained
outdoors by offering information and free health services.
Inges Kattehjem
Denmark
This is the biggest cat charity in Denmark. They provide advice and
offer a home for abandoned and rescued cats.
Environmental
Cuan Wildlife Animal Rescue UK
Other
Cystic Fibrosis Trust
UK
The Good Will Cause
UK
The Children’s Hunger
Project
US
Skipton Extended Learning
for All (SELFA)
UK
Cuan Wildlife Animal Rescue are dedicated to the rescue, care and
rehabilitation of sick, injured and orphaned wild animals and birds.
The Cystic Fibrosis Trust is the UK’s only national charity dealing with
all aspects of cystic fibrosis. It funds research to improve cystic fibrosis
care and treatment, and aims to ensure appropriate clinical care and
support for people with cystic fibrosis.
The Good Will cause is a fundraising foundation that is part of the North
of England Children’s Cancer Research Fund. The primarily aim of the
Good Will cause is raise funds to research Burkitt’s lymphoma in more
depth.
This charity recognises that free school lunches are the only meals
some children receive. This charity fills students’ back-packs with food
on Fridays so they have basic nutrition and meals over the weekend.
SELFA is a local children’s charity that provides support for vulnerable,
disadvantaged and disabled children who live in the Skipton and
Craven District of North Yorkshire.
Stichting
WensAmbulanceBrabant
Netherlands
Wish Ambulance Brabant fulfils the wishes of terminally ill people by
taking them to their favourite place.
Heifer International
International
The Joshua Tree Charity
UK
Heifer International’s mission is to end hunger and poverty and to
care for the Earth using gifts of livestock, seeds, trees and training
in sustainable agriculture community development projects to help
people become self-reliant. Families receive training in animal care and
conversation for environmentally sound agricultural development.
The Joshua Tree is a registered charity based locally in Northwich which
supports families living with the life changing experience of childhood
cancer.
Presentation cheque to Inges Kattehjem
Paula Lenton, a DVP UK employee, presenting a cheque to Cuan Wildlife Rescue
54
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Lene Stoksted Bentien (Logistics and Project Services Manager)
and Eva Remmer Søndergaard (HR Manager) receiving the
certification in Corporate Social Responsibility
Case Study:
Certificate in Corporate Social Responsibility
In December 2014, two of DVP EU’s employees in Denmark
completed a two month intensive training programme and
passed an examination administered by an external panel of
examiners. The certification called E4 is a certified management
system developed by the business network, Green Network.
The management system comprises four areas based on
international CSR standards: economy, environment, ethics and
employment. Lene and Eva are certified in using recognised
tools and methods to organise and manage the Danish business
unit’s social responsibility, develop strategies, prepare action
plans and assess its own practice. It is hoped that their new
skills can be shared throughout the Group.
Since obtaining the certification, the local Council and a Council
in the Copenhagen area have visited Uldum, as they were
interested in our approach on social responsibilities, including
our endeavours in helping the unemployed into traineeships and
helping them back into the job market.
The Uldum site has an agreement with the local Council to take
on these traineeships on a regular basis, the most recent being
at the beginning of 2015 when a trainee, who had been out of
the job market for a long time, was engaged in the canteen. The
traineeship was very successful and she was provided with the
skills to apply for other job opportunities. Our HR manager has
now been invited to join a task force of approximately 12 local
companies, which has been established to find ways of helping
people on social security benefits back into the job market. This
project will run for two years.
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 2015 financial year.
Donations in Kind
Type of Charity
Charity
Jurisdiction
Description
Animal
Animal
Manchester & Cheshire
Dogs Home
UK
Dechra Veterinary Products UK (DVP UK) donated products following a
large fire at the Manchester site.
Help Street Animals of
Morocco
Morocco
DVP UK continued to provide assistance to a charity called Help the
Street Cats of Morocco by providing supplies in 2015 of Alvegesic,
Atipam® and Sedator.
Animal
Love Underdogs
Romania
DVP UK donated wound care products to this charity, which helps and
supports some of the most unwanted, abused and neglected dogs in
Romania.
Financial Donations
Business Unit
Jurisdiction
DPM Bladel
The Netherlands
DPM Skipton
UK
DVP EU
DVP EU
DVP EU
DVP NA
Denmark
International
Germany
US
Amount
£1,217
£350
£607
£815
£708
£2,404
Description
Donation to a community project.
Donations to various local and national charities.
Donations to community projects and the Danish Cancer Foundation.
Continued sponsorship of three children through SOS Children’s
Villages.
Donations to various animal charities and a local community project.
Team building event resulting in donations to local community
projects (further details can be found in People Plan on page 51).
55
Stock Code: DPHStrategic Reportslugline Corporate Social Responsibility
continued
Case Study:
Sustainability
Dechra has started putting sustainability at the heart of
its business while maintaining product performance and
customer experience. To start this journey, we are reviewing
the ingredients that go into our veterinary dedicated diets,
Specific, starting with a special emphasis on the fish
by-products we use.
We believe that if we can source high quality ingredients that
have been grown or caught in a sustainable and well managed
process, we will be able to produce high quality diets for our
veterinary customers to recommend. Specific is known for
its high levels of Omega 3 that helps support joints, skin and
shiny coats and leads to healthy and happy pets. And if the pet
owners are satisfied they will keep on buying their pet food from
their veterinarian enabling us to donate 5% of Specific’s profits
to good causes that will help support the environment to
continue delivering quality ingredients.
We call this the Circle of Good and are asking
pet owners to join by buying Specific from
their veterinarian.
5% TO GOOD CAUSES.
THAT’S MORE THAN
A DROP IN THE OCEAN.
Our Environment
The Group recognises the importance
of good environmental controls. It is the
Group’s policy to comply with environmental
legislation currently in place, to adopt
responsible environmental practices and to
give consideration to minimising the impact
of its operations on the environment.
DPM, Skipton has successfully completed
its accreditation audit for ISO 14001:2004
Environmental Standard Certification
during the year. This standard requires
that organisations have an environmental
policy and an action plan for managing their
impact on the environment. The business is
committed to a programme of continuous
improvement which is reviewed annually
with a view to ensuring that progress is
maintained. During the financial year the
environmental improvements at this site
have included considering and reducing the
environmental impact in all refurbishment
work undertaken by contractors, the
upgrade of the incandescent lighting to
energy efficient LED and changing the
heating system from fuel oil to energy
efficient air conditioning units.
DVP EU, Uldum is also committed to a
programme of continuous improvement
and is investigating alternative forms of
transporting Dechra products. On the
transfer of our diets product to a new
supplier, Uldum has reviewed the method
of transportation of this product switching
from road transportation to sea, which
will result in lower CO2 emissions due to
environmentally friendly crude oil used by
ships. As Uldum is the central logistics
hub for Dechra this endeavour will have
a significant impact on our environmental
footprint.
DVP EU, Uldum has contributed DKK15,000
to Energreen ApS for the construction of
new green energy production facilities within
Denmark.
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 to ensure compliance with
regulatory requirement and to protect
the environment. The site 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. The figures
on the next page demonstrates that the
10% recycling target has been met and
exceeded, which has been achieved by
changing the way waste is collected in
the process areas, providing awareness
training for Environmental Health and Safety
representatives and work colleagues,
obtaining warehouse employees’
commitment to recycling and a reduction in
the size of the landfill waste compactor.
56
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Waste disposed (Averaged) for the 12 month periods ending:
Waste type (Tons)
June 15
June 14
Annual % change
Target
Recycled
Landfill
Contaminated Waste and Controlled Drugs
8.7
106.0
82.1
7.7
134.0
60.8
+ 13%
- 21%
10% increase
Reduction
+ 35%
Divert from landfill
The Skipton facility continues to comply
with 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.
ESOS
The Group is currently working to comply
with the Energy Savings and Opportunities
Scheme (ESOS). This is a UK Government
initiative to implement Article 8 of the EU
Energy Efficiency Directive 2012. The UK
Group have collated the data and have
appointed an external assessor, who is
working with Dechra to verify the evidence
required to confirm compliance to the
Environmental Agency. No other Group
company is affected by this EU Directive.
• Scope 1: includes emissions from
combustion of fuel and operation of
facilities (excluding combustion of fuel
from Company cars);
Greenhouse Gas Emissions
This is the second 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 2: includes emissions from
purchased electricity, heat, steam and
cooling; and
• Vehicle emissions.
UK Government’s Conversion Factors for
Company Reporting 2014 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.
Scope 1
Scope 2
Vehicle emissions
Total Carbon Footprint (tonnes of CO2e)
Intensity ratio (tonnes of CO2e per £m)
Tonnes of CO2e
1 July 2014 to
30 June 2015
636
1,740
1,241
3,617
17.8
1 July 2013 to
30 June 2014
restated*
613
1,712
1,165
3,490
18.0
* Figures restated to take into account corrections made to our carbon footprint calculations as well as the inclusion of new businesses.
57
Stock Code: DPHStrategic Reportslugline How the Business Manages Risk
Effective risk management and control is
key to the delivery of our business strategy
and objectives. Our risk management and
control processes are designed to identify,
assess, mitigate and monitor significant
risks, and can only provide reasonable and
not absolute assurance that the Group will
be successful in delivering its objectives.
The Board is responsible for the oversight
over how the Group’s strategic, operational,
financial and compliance risks are managed
and for assessing the effectiveness of
the risk management and internal control
framework.
is also responsible for embedding sound risk management in strategy, planning, budgeting,
performance management, and operational processes within their respective Operating
Segments and business units.
The Board and the SET together set the tone and decide the level of risk and control to be
taken in achieving Group and business unit objectives.
Top
Down
Boar d
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
Our Senior Executive Team (SET) owns the
risk management process and is responsible
for managing specific Group risks. The SET
Bottom
Up
Business Units
Identify
n it s
siness U
u
B
B
o
a
r
d
Monitor
Internal
Control
Framework
Assess
S
E
T
e
mitte
d it C o m
A u
Mitigate
Risk Management Process
Our strategy informs the setting of the
objectives across the business and is
widely communicated. Strategic risks and
opportunities are identified as an integral part
of the strategy setting process.
The SET provides a pivotal platform for
evaluating and managing risk from both a
bottom up and top down level and acts as
a link between the Board and the business
units to ensure management of operational
risks is embedded in the business. Each SET
member owns one or more Group risks and
also maintains an operational risk register for
their business unit.
For the risks which they own, each SET
member identifies how the risks are currently
controlled, what additional mitigating actions
are required, and what monitoring and
assurance mechanisms are in place.
The Board conducts a review of the risk
management and internal control framework
and the SET presents the most significant
Group risks, controls and mitigation plans
to the Board for review twice a year. The
Audit Committee reviews the effectiveness of
internal financial controls annually.
58
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline
Internal Control Framework
Our internal control framework is designed
to ensure:
Policies and Procedures
Our key financial, legal and compliance
policies that apply across the Group are:
• proper financial records are maintained;
• Code of Business Conduct;
•
the Company’s assets are safeguarded;
• Delegated Authorities;
• compliance with laws and regulations;
• Anti-Bribery and Anti-Corruption;
and
• effective and efficient operation of
business processes.
The Dechra Values are the foundation of
the control framework and it is the Board’s
aim that these values should drive the
behaviours and actions of all employees.
The key elements of the control framework
are described below:
Management
Structure
Policies and Procedures
Business Planning
Operational Level Controls
• Whistleblowing;
• Sanctions; and
• Charitable Donations.
Operational Controls
Our key operational control processes are
as follows:
• Quality Assurance: All our manufacturing
sites have an established Quality
Management System. These systems
are designed to ensure that our products
are manufactured to a high standard and
in compliance with the relevant regulatory
requirements.
• Pharmacovigilance: Our regulatory team
operates a robust system with a view
to ensuring that any adverse reactions
related to the use of our products are
reported and dealt with promptly.
Quality
Assurance
Pharmacovigilance
Information
Technology
Financial
Controls
•
Dechra Values
Management Structure
Our management structure has clearly
defined reporting lines, accountabilities and
authority levels.
The Group is organised as business units.
Each business unit is led by a SET member
and has its own management team.
Strategy and Business Planning
We have a five year strategic plan which is
updated and reviewed by the Board twice a
year. Business objectives and performance
measures are defined annually together with
budgets and forecasts. Monthly business
performance reviews are conducted at both
Group and business unit levels.
Information Technology: Our business
units currently use a number of different
local financial, manufacturing and
warehouse management systems to
support their operations. We are in the
process of implementing Oracle across
the Group.
• Financial Controls: Our financial controls
are designed to prevent and detect
financial misstatement or fraud and
operate at three levels:
• Entity Level Controls performed
by senior managers at Group and
business unit level;
• Month-end and Year-end procedures
performed as part of our regular
financial reporting and management
processes; and
The product pipeline is reviewed regularly to:
• Transactional Level Controls operated
on a day-to-day basis.
• assess whether products in development
are progressing according to schedule;
•
identify new product ideas and assess fit
with our product portfolio; and
• assess the expected commercial return
on new products.
Improvements in 2015
The Board appointed Deloitte to undertake
an assessment of the Group’s risk
management process and a review of
internal financial controls in the second half
of the previous financial year.
During the current financial year we
implemented a number of improvements
to the Group’s risk management and
review processes and to the business
units’ financial controls based on Deloitte’s
recommendations.
Each quarter, business units formally
report to Group Finance on the operation
of their key financial controls. They also
submit and discuss progress reports on
the implementation of agreed control
improvements. These form the basis
of financial controls assurance reports
presented to the Audit Committee.
In April 2015, a Head of Internal Audit and
Risk Assurance was appointed and has
presented to the Audit Committee on the
key changes required to comply with the
revised UK Corporate Governance Code
which becomes effective for the 2016
financial year.
Plans for 2016
We plan to implement a number of
changes to our risk management process
and internal control framework to ensure
compliance with the changes introduced
in the revised UK Corporate Governance
Code.
The new Internal Audit and Risk Assurance
function will provide independent assurance
that major business risks are being
managed appropriately, and that the internal
control framework is robust and operating
effectively.
We also plan to conduct pre-implementation
assurance work on the Oracle system
configuration and control design.
Read more on Delivering Our
Strategy on pages 14 to 17.
Read our Key Performance
Indicators on pages 46 and 47.
59
Stock Code: DPHStrategic Reportslugline Understanding Our Key Risks
Dechra is the only veterinary pharmaceuticals
company in the FTSE 350 and we therefore
believe it is important to summarise the key
distinctions between the animal and human
pharmaceutical industries in order to provide
a better understanding of our risk profile.
The business of developing and marketing
animal pharmaceuticals shares a number of
characteristics with human pharmaceutical
businesses. These similarities include
the need to conduct clinical trials to
prove product safety and efficacy, obtain
regulatory approval for new products,
complex and highly regulated product
manufacturing, and to market products
based on approved clinical claims. However,
there are also significant differences
between animal and human pharmaceutical
businesses, including:
• Product development is generally
faster, cheaper and more predictable
and sustainable: Development of
animal medicines typically requires fewer
clinical studies with fewer subjects and is
conducted directly in the target species.
Decisions on product safety, efficacy and
likelihood of success can therefore be
made more quickly.
• Diversified product portfolios:
Animal pharmaceuticals businesses are
generally less reliant on a small number
of ‘blockbuster’ products. Animal health
products are sold across different
regions which may have distinct product
requirements. As a result, animal health
products often have a smaller market
size and the performance of any single
product typically has less impact on
overall business performance.
• Stronger customer relationships
and brand loyalty: The animal health
industry uses a combination of sales
representatives to promote their products
and technical veterinary specialists to
provide support and advice on animal
health. These relationships result in better
access to customers and sales visits are
typically longer and more meaningful.
Companion Animal Products are often
directly prescribed and dispensed by
veterinarians which contributes to brand
loyalty, which often continues after the
loss of patent protection or regulatory
exclusivity.
• Lower pricing pressure: Livestock
producers and pet owners generally
pay for animal healthcare themselves.
Pricing decisions are not influenced by
government payors that are involved in
product and pricing decisions for human
medicines.
• Less price erosion by generic
competition: Generic competition
in animal healthcare, whilst playing
an important role, has a lower impact
on prices compared to human
pharmaceuticals because of the
smaller average market size of each
product opportunity, stronger customer
relationships and brand loyalty.
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, foreign
exchange, IT systems failure and
non-compliance with legislation. The table
below therefore details the ten principal
risks that are specific to our business and
provides information on:
• how they link to Group strategy;
•
their potential impact on the business;
and
• what controls are in place to mitigate
them.
Key:
Level
Up
Down
Potential Impact
Controls and Mitigating Actions
Trend
Revenues and margins
may be adversely affected
should competitors launch
a novel or generic product
that competes with one of
our unique products upon
the expiry or early loss of
patents.
Costs may increase due
to defensive marketing
activity.
We focus on lifecycle management
strategies for our key products to ensure
they fulfil evolving customer requirements.
Product patents are monitored and
defensive strategies are developed
towards the end of the patent life or the
data exclusivity period.
We monitor market activity prior to
competitor products being launched, and
develop a marketing response strategy to
mitigate competitor impact.
Link to
Strategic
Pillar and
Enabler
Risk
a
b
c
Competitor Risk:
Competitor products
launched against one of our
leading brands (e.g. generics
or a 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, our
unique products like Vetoryl
and Felimazole have built a
market which may be attractive
to competitors.
60
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Link to
Strategic
Pillar and
Enabler
Risk
a
b
c
Market Risk:
The emergence of veterinary
buying groups, corporate
customers and internet
pharmacies.
We sell and promote primarily
to veterinary practices and
distribute our products through
wholesaler and distributor
networks in most markets.
In a number of mature markets,
veterinarians are establishing
buying groups to consolidate
their purchasing, and corporate
and internet customers are also
emerging.
Acquisition Risk:
Identification of acquisition
candidates and their potential
integration.
Identification of suitable
candidates and securing a
successful approach involves a
high degree of uncertainty.
Acquired products or businesses
may fail to deliver expected
returns due to over-valuation or
integration challenges.
Product Development Risk:
Failure to deliver major
products either due to pipeline
delays or newly launched
products not meeting revenue
expectations.
The development of
pharmaceutical products is
a complex, risky and lengthy
process involving significant
financial, R&D and other
resources.
Products that initially appear
promising may be delayed or
fail to meet expected clinical
or commercial expectations
or face delays in regulatory
approval.
It can also be difficult to predict
whether newly launched
products will meet commercial
expectations.
Potential Impact
Controls and Mitigating Actions
Trend
The emergence of
corporate customers and
buying groups represents
an opportunity to increase
sales volumes and revenue
but may result in reduced
margins.
Our reputation and
relationships with veterinary
practices could also be
adversely affected.
We manage and monitor our national
and European pricing policies to ensure
equitable pricing for each customer group.
Our relationships with larger customers are
managed by key account managers.
Our marketing strategy is designed
to support veterinarians in retaining
customers by promoting the benefits of our
product portfolio in our major therapeutic
areas.
Growth in
buying groups,
corporate
customers
and internet
pharmacies.
Failure to identify or secure
suitable targets could slow
the pace at which we can
expand into new markets
or grow our portfolio.
Acquisitions could deliver
lower profits than expected
or result in intangible
assets impairment.
We have defined criteria for screening
acquisition targets and we conduct
commercial, clinical, financial and legal due
diligence.
The Board reviews acquisition plans
and progress regularly and approves all
potential transactions.
The SET manages post-acquisition
integration and monitors the delivery of
benefits and returns.
Increased
acquisition
activity in animal
health sector.
Some projects
in the feasibility
phase have
taken longer
than projected.
A succession of clinical trial
failures could adversely
affect our ability to deliver
shareholder expectations
and could also damage our
reputation and relationship
with veterinarians.
Our market position in key
therapeutic areas could
be affected, resulting in
reduced revenues and
profits.
Where we are unable
to recoup the costs
incurred in developing and
launching a product this
would result in impairment
of intangible assets.
Potential new development candidates are
assessed from a commercial, financial and
scientific perspective by a multi-functional
team to allow senior management to make
decisions on which ones to progress.
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
co-project leaders who chair project team
meetings.
Before costly pivotal studies are initiated,
smaller proof of concept pilot studies are
conducted to assess the effects of the drug
on 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 w are trained to a high standard.
61
Stock Code: DPHStrategic Reportslugline Understanding Our Key Risks
continued
Link to
Strategic
Pillar and
Enabler
a
b
c
Risk
Regulatory Risk:
Failure to meet regulatory
requirements.
We conduct our business in a
highly regulated environment,
which is designed to ensure
the safety, efficacy quality,
and ethical promotion of
pharmaceutical products.
Failure to adhere to regulatory
standards or to implement
changes in those standards
could affect our ability to register,
manufacture or promote our
products.
Potential Impact
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
delays.
Non-compliance with
regulatory requirements may
result in delays to production
or lost sales.
Controls and Mitigating Actions
The Group strives to exceed regulatory
requirements and ensures that its employees
have detailed experience and knowledge of
the regulations.
Trend
Manufacturing and regulatory 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 keep
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 used to audit
our manufacturing quality systems.
a
b
c
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:
A supply failure on a key product
may affect our ability to develop,
make, or sell our products.
We rely on third parties for the
supply of all raw materials for
products that we manufacture
in-house. We also purchase
many of our finished products
from third party manufacturers.
a
b
c
Reduction in sales of our
antimicrobial product range.
Our reputation could
be adversely impacted
if we do not respond
appropriately to government
recommendations.
Regular contact is maintained with relevant
veterinary authorities to ensure that we
have a comprehensive understanding of
regulatory changes.
We strive to develop new products and
minimise antimicrobial resistance concerns.
Reduction of
antibiotic use in
Germany has
accelerated.
Raw material supply failures
may cause:
•
increased product
costs due to difficulties
in obtaining scarce
materials on commercially
acceptable terms;
We monitor the performance of our key
suppliers and act promptly to source from
alternative suppliers where potential issues
are identified.
The top ten Group products are regularly
reviewed in order to identify the key suppliers
of materials or finished products.
• product shortages due to
manufacturing delays;
We maintain buffer stocks and dual sourcing
arrangements for key products.
• delays in clinical trials
due to shortage of trial
products.
Shortages in manufactured
products and third party
supply failures on finished
products may result in lost
sales.
All contracts with suppliers are reviewed
from both a commercial and legal
perspective to try to ensure that assignment
of the contract is allowed should there be a
change of control of either of the contracting
parties.
62
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015www.dechra.comslugline Stock Code: DPHStrategic Report63sluglineLink to Strategic Pillar and EnablerRiskPotential ImpactControls and Mitigating ActionsTrendReliance on Third Parties Risk: Loss of key third party manufacturing customers from DPM.Third party manufacturing represents approximately 10% of Group revenues. Loss of a key customer can impact manufacturing revenues and lead to an increase in the cost of goods of the remaining portfolio.The DPM Sales Director manages relationships with key customers and we have an experienced sales team which focuses on bringing in new customers. Robust supply agreements are in place with each of our key customers and are regularly reviewed.Monthly customer service level monitoring and reporting is in place.abcPeople Risk: Failure to retain high calibre, talented senior managers and other key roles in the business.Our growth plans and future success are dependent on retaining knowledgeable and experienced senior managers and key staff.Loss of key skills and experience could erode our competitive advantage and could have an adverse impact on results.Inability to attract and retain key personnel may weaken succession planning.The Nomination Committee oversees succession planning for the Board and the SET. Succession plans are in place for the SET together with development plans for key senior managers. Key person insurance is in place where appropriate.Remuneration packages are reviewed on an annual basis in order to help ensure that the Group can continue to retain, incentivise and motivate its employees.People Risk: Failure to resource the business to achieve our strategic ambitions, particularly on geographical expansion and acquisition.As Dechra expands into new markets and acquires new businesses or science we recognise that we may need new people with different skills, experience and cultural knowledge to execute our strategy successfully in those markets and business areas. Failure to recruit or develop good quality people could result in:• capability gaps in new markets;• challenges in integrating new acquisitions; or• overstretched resourcesThis could delay implementation of our strategy and we may not meet shareholders’ expectations.The Group HR Director reviews the organisational structure with the SET twice a year to aim to ensure that the organisation is fit for purpose and to assess the resourcing implications of planned changes or strategic imperatives.A development programme is in place to identify opportunities to recruit new talent and develop existing potential.abcKey to Strategic Pillars: Pipeline Deliveryabc Portfolio Focus Geographical Expansion AcquisitionKey to Strategic Enablers: Manufacturing and Supply Chain Technology PeopleDechra Annual Report Front 2015.indd 6309/09/2015 14:20:30 Shareholder
Value
Our approach to governance
is informed by our belief that
good governance enhances
longer term shareholder value
To learn more about our responsible approach
read the Corporate Social Responsibility Report
on pages 50 to 57.
View further content on our website:
www.dechra.com
®
slugline
Our Governance
Board of Directors
66
68 Corporate Governance
Audit Committee Report
75
80 Nomination Committee Report
81
Directors’ Remuneration Report
96
99
Directors’ Report – Other Disclosures
Statement of Directors’ Responsibilities
slugline Board of Directors
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
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. He also
held the position of Chairman of Abcam PLC from
February 2009 to November 2014.
External Appointments
None.
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 in the successful delivery
of strategic plans.
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.
Committee Membership
Not applicable.
Skills and Experience
Anne-Francoise has considerable experience
in the pharmaceutical industry covering all
finance matters 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.
Background
Anne-Francoise was appointed Chief Financial
Officer in April 2013. Prior to joining the Group,
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.
External Appointments
None.
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.
Michael Redmond
Non-Executive Chairman
N*
R
Ian Page
Chief Executive Officer
Anne-Francoise Nesmes
Chief Financial Officer
Tony Griffin
Managing Director,
Dechra Veterinary Products EU
66
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline A
Audit
N
Nomination
R
Remuneration
Chairman
*
Committee Membership
Audit, Nomination, Remuneration.
Skills and Experience
Ishbel has a broad range of PLC Board experience
in a variety of roles, including Chairman, Audit
Committee and Remuneration Committee
Chairman. She has knowledge and understanding
of City matters gained over 20 years’ experience
as an investment banker, specialising in UK
mid-market corporate finance.
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
(appointed January 2009) and Galliford Try plc
(appointed February 2014). She is also Senior
Independent Director at Bonmarche Holdings plc
(appointed October 2013).
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 was Chief Executive Officer
and subsequently Chairman of Arysta LifeScience
Corporation from 2004 to 2015. Arysta develops
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 2001 and 2005 and as Financial
Controller of Glaxo Wellcome PLC between 1998
and markets 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).
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 a Director, and
Chairman of the Audit Committee, of the Royal
Academy of Arts (appointed October 2012).
A
N
R
A
N
R*
A*
N
R
Ishbel Macpherson
Senior Independent
Non-Executive Director
Dr Christopher Richards
Non-Executive Director
Julian Heslop
Non-Executive Director
67
Our GovernanceStock Code: DPHslugline 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 2015.
In 2015, we have concentrated on executing
our key strategies. Good progress has been
made with our focused promotion of existing
key products, demonstrated by the strong
growth in the majority of our EU markets,
and in North America in particular. We have
also pushed ahead with the geographic
expansion of the business, opening new
subsidiaries in Canada and Poland.
Managing Governance
Our approach to governance is informed by
our belief that good governance enhances
longer term shareholder value.
We aim to embed good corporate
governance principles in all our policies. We
encourage the Senior Executive Team (SET)
and managers to suggest improvements
to help ensure that we operate at a
consistently high level of compliance.
This report explains the Company’s
governance framework and provides an
overview of how the main principles of the
UK Corporate Governance Code (the Code)
have been applied.
Leadership
There were no changes in the membership
at Board level or Committees during the
year.
As reported to shareholders last year,
my tenure as Chairman will end at the
conclusion of the 2016 Annual General
Meeting. The search for my successor is
being overseen by Ishbel Macpherson, the
Senior Independent Director.
Board Effectiveness
The Board considered in September 2014
the report of an external evaluator of Board
effectiveness and the details of how we
have responded are reported on page 73.
68
Relations with Shareholders
The Annual General Meeting will be held
in Northwich on 23 October 2015 and I
would like to encourage our shareholders
to attend. It will provide you 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
7 September 2015
Michael Redmond
Non-Executive Chairman
Accountability
The risk assessment framework across the
Group is a key focus of the Board and the
SET. The recent appointment of a Head of
Internal Audit and Risk Management will
strengthen the capacity of the Board and
SET to embed the appropriate risk culture
across the Group and obtain independent
assurance on risk and control processes.
Further detail may be found on page 78.
We also agreed the terms of reference for
the SET to provide a greater focus for their
activities as a leadership team.
The Code requires that the Directors 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 78. Following assurance from
the Audit Committee, the Board gives this
confirmation.
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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 throughout the period.
The Financial Reporting Council updated the Code in 2014 (the
2014 Code) which applies to reporting periods beginning after
1 October 2014 and so does not apply to the Company’s reporting
period ended 30 June 2015. The 2014 Code made changes to the
requirements on going concern, risk management, internal control,
remuneration policies and shareholder engagement. The Board
has initiated the planning process to assist our compliance with the
2014 Code in the next reporting period. The 2014 Code may be
found at www.frc.org.uk.
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’s strategy has four pillars to promote
growth:
• Pipeline Delivery;
• Portfolio Focus;
• Geographical Expansion; and
• Acquisition.
KPIs have been designed to measure progress and delivery of
the strategic plan and our four growth pillars. Further details are
provided on pages 46 and 47.
Board Membership and Responsibilities
Details of the Directors together with their biographical details can
be found on pages 66 and 67.
Non-Executive Directors
It is considered that each of the Non-Executive Directors is
independent and is free of any business or other relationship
which could materially interfere with, or compromise, their ability to
exercise independent judgement. Each 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. In
line with the Code, at least half the Board, excluding the Chairman,
are determined by the Company to be independent.
Senior Independent Director
Ishbel Macpherson has held the position of Senior Independent
Director since October 2013. 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. Ishbel is leading the
recruitment process for the Chairman’s successor (further details are
provided in the Nomination Committee Report on page 80).
Role
Chairman
Responsibilities
• Lead the Board in the determination of its strategy and achievement of its objectives
• 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
• Ensure shareholder views are brought to the attention of the Board
Chief Executive Officer
• Day-to-day management of Group operations and leading the Senior Executive Team
• Performance and results of the Group
• Proposing strategy
• Executing strategy agreed by the Board
Chief Financial Officer
• Responsible for financial planning and reporting for the Group
• Management of financial risk
• Developing and executing the strategic plan
• Securing funding as required
Managing Director DVP EU
• Management of the majority of Group turnover
• Nominated Director for health, safety and environmental matters
• Development and execution of strategy in the EU
Non-Executive Directors
• Provide independent and constructive challenge
• Represent a broad range of experience and independent judgement
• Evaluate strategy and risks
69
Our GovernanceStock Code: DPHslugline Corporate Governance
continued
Board Responsibilities
The Board is responsible for the long term success of the Company. The main responsibilities and key actions carried out are set out below:
Responsibilities
Strategy and performance
Actions
Biannual strategy review. Strategic decisions are made after reports and recommendations
are received from management on markets, potential growth areas, product development, risk
analysis and execution risks
Risk management and internal
controls
Annual review of key risks and receipt of Audit Committee reports on risk management process
and internal financial controls
Oversight of the Group’s operations Approval of the annual budget and capital expenditure projects. Site visits to factories and offices
Governance
in the UK and abroad. Review progress through business units reports and detailed financial
results report
Receive governance reviews from external advisers, Company Secretary and internal audit.
Review of Board skills, performance and composition and succession planning
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 acquisitions and business development proposals
Approval of the Annual and Half-Yearly Reports and dividend policy
Review of portfolio prioritisation
Approval of budget
Approval of treasury policy, tax strategy and 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, Sanctions and the Anti-Bribery and
Anti-Corruption Policy
Board Meetings
The Board is routinely scheduled to meet nine times per year. During the year one additional meeting was held in relation to the offer to
acquire a 63.3% shareholding (equivalent to 69% of voting rights) in a Croatian based business, Genera d.d.
Attendance at the Board and Committee meetings during the year to 30 June 2015 is set out in the table below:
Mike
Redmond
19 April
2001
Ian
Page
13 June
1997
Anne-
Francoise
Nesmes
Tony
Griffin
Ishbel
Macpherson
Dr Chris
Richards
Julian
Heslop
22 April
2013
1 November
2012
1 February
2013
1 December
2010
1 January
2013
10
n/a
3
4
10
n/a
n/a
n/a
10
n/a
n/a
n/a
10
n/a
n/a
n/a
10
10
5
3
4
5
3
4
9
5
3
4
Appointment Date
Board
Met 10 times
Audit Committee
Met 5 times
Nomination Committee
Met 3 times
Remuneration Committee
Met 4 times
Meetings attended
Where Directors cannot attend a meeting, the Board papers are still provided allowing the Director to raise any queries or discussion points
through the Chairman. 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.
70
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline During the year, in addition to its routine business, presentations by
senior management and strategic development, some of the other
matters considered by the Board included:
• External auditor selection;
• Regulatory affairs reorganisation;
•
IT strategy and budget;
• Manufacturing strategy review;
• Hedging arrangements review;
• Review of external Board evaluation;
•
Integration of Florida manufacturing facility;
• Non-Executive Director fees;
• Delegated Authorities;
• Talent development;
• Research and development and Pipeline Delivery;
• FAP strategy and Vaccines strategy reviews; and
• SET terms of reference.
Board Committees
The Board has formally delegated specific responsibilities to Committees, namely the Audit, Remuneration and Nomination Committees.
The full terms of reference for each of these Committees are available on the Company’s website (www.dechra.com) or on request from the
Company Secretary.
Committee
Role and Terms of Reference
Audit
The main responsibilities are:
Committee
Report on
Pages
75 to 79
•
•
•
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 control systems as described on
page 78;
to oversee the relationship with the external auditor, monitor their independence and objectivity,
and set the policy for non-audit work; and
•
to review and approve the significant accounting policies.
Remuneration
The main responsibilities are:
81 to 95
•
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:
80
•
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 2006. 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
2006. 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.
71
Our GovernanceStock Code: DPHslugline Corporate Governance
continued
Effectiveness
The Board and its Committees are annually assessed to help ensure
their effectiveness is maintained and that they remain fit for purpose.
The Chairman manages the Board and oversees the operation of
its Committees with the aim of ensuring that they operate effectively
by utilising the diverse range of skills and experience of the various
Board members.
Board Balance and Independence
The Board understands the importance of balance and refreshment
in terms of its composition and keeps these matters under review.
There have been no changes at Board level over the past 12
months. As stated earlier in this report, the Chairman will stand
down at the 2016 Annual General Meeting. The search for a
successor has commenced.
The Nomination Committee Report on page 80 provides further
information on succession planning measures taken by the Company
together with how we are developing the talent pool internally.
Length of Tenure of Chairman and
Non-Executive Directors
3
1
3
2
1
0
0 to 2
years
2 to 6
years
6 to 9
years
9+
years
Board Composition and Gender Diversity
The Board seeks to ensure that the Board and the Committees
have an appropriate composition to manage their duties effectively
and to manage succession issues. The Board supports diversity
in its broadest sense and considers it an essential driver of Board
effectiveness. The Board recognises the importance that its
composition is sufficiently diverse and reflects a wide range of
knowledge, skills and experience.
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. The Board has 29% female representation. Female
representation below Board level is 30% of the SET and 52% of the
overall workforce.
Board Composition
3
1
3
Non-Executive Chairman 14%
Non-Exectutive Directors 43%
Executive Directors 43%
Gender Diversity
2
5
1
2
1
3
5
4
3
2
1
0
Female
Male
Entire
Board
Executive
Directors
Non-Executive
Directors
Senior Executive Team
Overall Workforce
3
414
7
455
Female 30%
Male 70%
Female 52%
Male 48%
72
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
Conflicts of Interest and External Board Appointments
Pursuant to the Companies Act 2006 all Directors have a duty
to avoid a situation in which they have, or could have, a direct
or indirect conflict of interest with the Company. The Articles of
Association of the Company enable the Directors to consider and
if appropriate 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.
First, 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.
Ian Page is 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 he is not involved in any
investment decision made by Sanford it was not considered that any
conflict would arise nor would there be any material impact on his
time commitment.
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. This
year, Board meetings were held at Dechra Pharmaceuticals
Manufacturing (DPM) in Skipton and at Dechra Veterinary Products
EU in Den Bosch, the Netherlands, which provided the Board with
an informal opportunity to meet with senior management based at
these sites. The Board also visited DPM in Bladel, the Netherlands.
Any newly appointed Directors are provided with comprehensive
documentation in relation to the remit and obligations of the role,
current areas under consideration for the Board and the latest
broker reports. New Directors visit the various business units in
External Evaluation Recommendations and Actions
Action
Progress
order to allow them to meet with the executive teams and to be
shown around the operations. Ongoing field visits with members
of the UK sales team are organised for each of the Non-Executive
Directors and the Chairman which gives them the opportunity to
observe the sales team’s activity in the field and their day-to-day
interaction with practising veterinarians.
Regular briefings are provided to the Directors, which cover a
number of legal and regulatory changes and developments relevant
to the Director’s areas of responsibility. In addition, the Company
Secretary informs the Directors of any external training courses
which may be of relevance.
Each Director is entitled, on request, to receive information to enable
him or her to make informed judgements in order to discharge
their duties adequately. 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 and Effectiveness
The effectiveness of the Board is important to the success of
the Group and the Board undertakes an annual evaluation of its
performance and that of its Committees.
• The 2014 external Board evaluation
An external evaluation of the Board and its Committees
was completed during 2014 by Independent Audit Limited
(Independent Audit). The process undertaken by Independent
Audit involved:
• a review of the Board and its Committees’ minutes, agenda
papers and ancillary documents; and
• one to one meetings with each member of the Board and the
Company Secretary.
A comprehensive report was presented to the Board in
September 2014. Overall, the review indicated that the Board
operated effectively but noted some areas for improvement.
The actions which were taken are shown in the table below:
Ensure risk is included in each strategic discussion
Each strategy report includes a discrete risk management section which informs
decision making
Presentations from each part of the business
Presentations from all divisions are part of the rolling agenda. This broadens the
Board’s knowledge of the businesses and enhances the exposure of the SET to the
Board
Greater focus on resource management, talent
development and succession planning
We have prioritised this for the 2016 financial year. For further information refer to
pages 50 to 52
Board information better tailored to needs of
Non-Executive Directors
Discussions with Non-Executive Directors have resulted in papers to the Board being
more tailored to the Non-Executive Directors’ requirements
Terms of reference for the SET to be established
New terms were approved in June 2015 which provide more focus to the SET
73
Our GovernanceStock Code: DPHslugline Corporate Governance
continued
• The 2015 Board evaluation
Following the external evaluation last year, it was agreed
to undertake an internal evaluation for the 2015 financial
year focusing on the following areas: (i) Board composition;
(ii) strategy review and delivery 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 discussed at the
September 2015 Board meeting. The actions and progress
made will be reported in next year’s Annual Report.
The Board will perform a further external evaluation in two 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 99 and 102 to 104 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 63. The principal risks that
may affect the Group’s future performance are set out on pages 60
to 63.
As reported last year, the Group 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 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 2015 the Group had cash balances of £45.9 million
and net cash of £13.4 million (2014: cash balances of £26.8 million
and net borrowings 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.
Internal Control and Risk Management
The Company’s risk management process and internal control
processes are described in the Strategic Report on pages 58 and 59.
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 is 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 in the UK. 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 the media.
In January, the Company hosted an investor site visit day at
the Skipton manufacturing facility for shareholders and will
continue to offer site visits on a periodic basis. This year, the
Chief Executive Officer and Chief Financial Officer also met US
investors in April 2015. The Chairman and Senior Independent
Director are available to meet shareholders upon request.
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.
Michael Redmond
Non-Executive Chairman
7 September 2015
74
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Letter from the Audit Committee Chairman
Dear Shareholder
I am pleased to present this year’s Audit
Committee Report which fully reflects
the requirements of the UK Corporate
Governance Code (the Code) and the
Guidance for Audit Committees issued by
the Financial Reporting Council (FRC) in
September 2012. Our report provides an
overview of the work carried out during
the period including significant issues
considered in relation to the financial
statements and how we assessed the
effectiveness of the external auditor.
During the period under review we focused
particular attention on the tender for external
audit services and the establishment of an
internal audit and risk management function.
Tender of External Audit Services
KPMG LLP (KPMG) have been our external
auditor since 1997. As recommended by the
Code, the Audit Committee (the Committee)
decided to put out to tender our external
audit services. Following a tender exercise,
we appointed PricewaterhouseCoopers LLP
(PwC) as external auditor, who will, subject
to shareholder approval, replace KPMG at
the conclusion of the 2015 Annual General
Meeting. Further details are given on page 79.
Internal Audit
We recently appointed a Head of Internal
Audit and Risk Management to provide
assurance on our internal controls and risk
management processes. The Committee
will continue to review closely progress
on management’s implementation and
monitoring of the internal financial control
recommendations received from Deloitte LLP
(Deloitte) last year.
Julian Heslop
Audit Committee Chairman
The following report explains the
judgements and factors the Committee
considered in reviewing both the tender of
external audit services and internal audit on
pages 78 and 79.
The report also outlines significant accounting
matters which received particular focus
during the period. It explains why the issues
were considered significant and explains how
the Committee satisfied themselves on the
validity of the judgements made.
Finally, we specifically reviewed, at the
request of the Board, whether the 2015
Annual Report was fair, balanced and
understandable and concluded that it was.
The basis supporting our conclusion is set
out on page 78.
Julian Heslop
Audit Committee Chairman
7 September 2015
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Our GovernanceStock Code: DPHslugline
Audit Committee Report
The Purpose and Function of the Audit Committee
(the Committee)
Purpose
The Committee’s key aim is to review and report to the Board on
financial reporting, internal financial control effectiveness and to oversee
the relationship with the external auditor. The main responsibilities are
summarised on page 71 of the Corporate Governance Report.
Membership, Meetings and Attendance
The membership of the Committee, together with appointment
dates and attendance at meetings, are detailed on page 70 of the
Corporate Governance Report.
The Board considers that all members of the Committee are
independent. Julian Heslop has recent and relevant financial experience
as a result of his financial background and qualification. Dr Chris
Richards and Ishbel Macpherson provide different but relevant skills and
experience which support the Committee in meeting its objectives. The
biographies of all Committee members are detailed on pages 66 and 67.
The Company Secretary attends each meeting and acts as its
secretary assisting the Chairman in ensuring that all Committee
papers are provided prior to each meeting in a timely manner and
providing advice to the Committee on all governance related matters.
Other members of the Board normally attend each meeting together
with the lead audit partner and the newly appointed Head of Internal
Audit and Risk Management.
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 establishment
and remit of the internal audit and risk management function.
Major Activities of the Committee during the Year
The Committee met five 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. This
allows the Committee to ensure that standing items of business 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:
Meeting Date
4 December 2014
Main Activities
• Consideration of the internal controls project, recruitment of the internal audit and risk manager and
9 January 2015
16 February 2015
5 May 2015
progress on the external audit tender
• Review of the anti-bribery and anti-corruption and whistleblowing policies
• Review of non-audit fees
• Completion of the external audit tender process and recommendation to the Board
• Review of the Group’s half-yearly report
• Consideration of the Half-Year Review Memorandum prepared by the external auditor
• Review of the Committee’s terms of reference
• Review of non-audit fees (including actual and projected spend)
• Consideration of the progress of the internal controls project
• Review of the dividend policy
• Meeting with the external auditor without management present
• Review of the audit strategy for the year ending 30 June 2015 (including timetable, scope and fees)
• Discussion in relation to the Company’s expectations of the external auditor and audit process
• Review of the internal financial control environment
• Review of the internal audit work plan to the end of 2015 financial year
• Review of non-audit fees
• Discussion of the programme of business for 2016 financial year
1 September 2015
• Review of the Group’s preliminary statement and draft Annual Report (including the Audit Committee
Report) for the year ended 30 June 2015
• Consideration of the Audit Memorandum prepared by the external auditor, including
•
review of accounting treatment of non-underlying items
• assessment of acquired intangible assets and goodwill
• commentary on the general control environment across the Group
• Review and approval of going concern statement
• Report from the internal auditor
• Review of the external audit effectiveness, external auditor’s independence and level of non-audit fees
• Meeting with the external auditor without management present
• Fair, balanced and understandable recommendation of the Annual Report
76
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
All significant matters under consideration were supported by
relevant justification papers and fully discussed in order to ensure
that due and appropriate consideration was given before any
decision was approved. Further detail in relation to a number of the
matters is provided below:
• Financial Judgements
The Committee reviewed both the half-yearly and the annual
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.
The Committee gave particular attention to significant matters
where judgement was involved 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 reviewed were as follows:
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 acquired intangible assets and
goodwill of £155.5 million which represents 80.0% of Group net
assets.
The Committee reviewed the analysis provided by management
which supported the underlying carrying values. The value of Food
producing Animal Products assets, given their recent sales decline,
was given particular attention; a combination of 30.0% amortisation
of these assets since acquisition together with a realistic assessment
of their value on acquisition, given expected market declines at the
time, meant that their carrying values were supported by anticipated
future cash flows and no impairment was required. In reviewing the
valuations, special attention was paid to the assumptions relating to
future growth rates in the context of current underlying performance
including the impact of and calculation of terminal values. The
impact of sensitivity analysis was also considered where relevant.
In addition, the Committee reviewed 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
Review of the corporate tax rate for the year of 24.6%.
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 Committee discussed the key 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, KPMG, that they were
satisfied with the accuracy and consistency of these figures.
The Committee also reviewed material one-off income and costs
within the underlying results, if any, and ensured these are clearly
disclosed within the financial statements and notes.
77
Our GovernanceStock Code: DPHslugline Audit Committee Report
continued
• Going Concern
The Committee reviewed management’s 2016 and 2017 budgets
for profit, cash flow and net debt and the committed financing
facilities available to the Group. Based on this, it concluded that it is
appropriate to use the going concern principle for Group reporting.
Further detail in relation to this is provided on page 74 of the
Corporate Governance Report.
Internal Controls and Risk Management
The Board retains overall responsibility for establishing the systems
of internal control and monitoring their 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. Further details in respect of the internal controls are
provided within the Strategic Report on pages 58 and 59.
• Fair, Balanced and Understandable Assessment of the
Annual Report
At the request of the Board, the Committee considered whether
the 2015 Annual Report was fair, balanced and understandable
and whether it provided the necessary information for shareholders
to assess the Company’s performance (pages 40 to 45), business
model (page 28) and strategy (pages 14 to 17).
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 information on their own
business units and their confirmation that it was fair, balanced and
understandable. In addition, the final draft document was reviewed
by all 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 to
comment so that issues could be debated and a final assessment
made. The external auditor also confirmed that in their opinion the
Annual Report 2015 was fair, balanced and understandable.
This assessment was carried out by the Committee on 1 September
2015, following which the Committee reported to the Board that it
was satisfied that, taken as a whole, the Annual Report 2015 is fair,
balanced and understandable.
• Review of Policies and Procedures
During the year the Committee reviewed the following policies:
• Accounting Policies
The Committee reviewed the accounting policies and
re-confirmed that they are appropriate for the Group.
• Anti-Bribery and Anti-Corruption and Whistleblowing
The Committee reviewed the current documentation, as
circulated to all employees within the Group. Anti-Bribery and
Anti-Corruption Policy implementation is being focused on
relationships with third parties and export contracts which may
pose a particular bribery risk. The Company Secretary ensures
that the Committee is updated on a regular basis in respect of
the training and monitoring of the policies across the Group.
An online training solution is being developed to assist with the
ongoing training requirements of the Group. In respect of the
Whistleblowing Policy, the Committee reviewed the process in
place to report issues.
• Dividend
The Committee is currently developing its approach to meeting the
2014 Code standards, which are operative for accounting periods
commencing from 1 October 2014. They require the monitoring of
internal control and risk management as an ongoing process as well
as assessing the robustness of risk management processes, reporting
on significant control failings, together with a formal assessment of
the viability of the Company over a period significantly longer than 12
months. The Company is planning to comply with the revised terms of
the Code for the 2016 financial year.
The Group has made further progress during the year in
implementing the recommendations made by Deloitte to strengthen
the risk management process and internal controls. The application
of key financial controls was tested by Internal Audit for the year
ended 30 June 2015. The Committee reviews progress on a regular
basis and reviewed the overall assessment of the Group’s internal
financial controls at its meeting on 1 September 2015. It concluded
that there was reasonable assurance that internal financial controls
operated effectively as referred to on pages 58 and 59 of the
Strategic Report.
Appointment of Internal Auditor
The Committee appointed a Head of Internal Audit and Risk
Management in April 2015. He is accountable to and delivers regular
reports to the Committee. The Committee defines the scope of his
work which broadly comprises provision of independent assurance
that major business risks are being managed appropriately, and that
the internal control framework is robust and operating effectively.
External Auditors
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 conducted a review of the external auditor’s
independence, effectiveness and objectivity 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 questionnaire on external auditor effectiveness
and efficiency (further detail on which is provided below);
The dividend proposal was reviewed by the Committee and was
recommended to the Board for approval.
• a report prepared by KPMG setting out its processes to ensure
independence and its confirmation of compliance with them; and
•
the level of non-audit fees as a percentage of the audit and
half-yearly fees paid to the external auditor, which were 3.1%
(2014: 52.4%).
78
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Responses to the questionnaire have been received from 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 2015.
Based on the review set out above the Committee remains satisfied
with the external auditor’s independence, effectiveness and
objectivity.
Appointment of External Auditor
KPMG will be retiring as the Company’s external auditor at the
conclusion of the forthcoming Annual General Meeting. The
reports of KPMG on the Company’s financial statements for past
financial years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit
scope, or accounting principles. In connection with the audits of
the Company’s financial statements for each of the two previous
financial years, and in the subsequent half-yearly period to
31 December 2014, there were no disagreements with KPMG
on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if
not resolved to the satisfaction of KPMG, would have caused KPMG
to make reference to the matter in their report.
At the forthcoming Annual General Meeting, a resolution to appoint
PricewaterhouseCoopers LLP (PwC) 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 the
Company does not provide an indemnity to the external auditor.
PwC have been invited to observe the year end close process and
they have agreed plans to assure a smooth transition.
External Audit Engagement Director Rotation
In line with the ethical standards of the Audit Practices Board the
Lead Audit Partner will be rotated every five years.
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. As reported
in the 2014 Annual Report the Committee was aware of the
recommendations in the Code in relation to the expectation that
the external audit is put out to tender every ten years, and therefore
decided to undertake a tender process to coincide with the rotation
of the Lead Audit Partner of KPMG.
Given the size, complexity, and geographical spread of the
Company, the Committee decided to invite PwC, Ernst & Young LLP
(Ernst & Young) and KPMG to take part in a tender for carrying out
the external audit. Deloitte was excluded from the process as they
provide significant global tax management and compliance support
to the Group that would be disruptive to change. Each firm was
invited to make a presentation to the Committee ensuring that each
firm had equivalent access to management. Written tenders covered
pre-determined areas of focus including risk identification, audit
approach to risk and audit scope together with fee proposals.
The Committee was mindful throughout the process that the
independence of the external auditor be preserved and required
disclosure of existing relationships.
The Committee selected PwC, subject to shareholder approval,
because the Committee believed that they best met the objectives
it had set including demonstrating an understanding of our business
and associated risks and an ability to work constructively and
challengingly with management and provide the Committee with the
assurances needed in order to carry out its function.
Non-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, who assess the qualification,
expertise, independence and objectivity of the external auditor prior
to granting approval. As such, non-audit fee spend 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. 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.
During the year, the external auditor provided assistance with tax
compliance correspondence, completing an engagement agreed in
the prior year. 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 results of this policy are that:
(i) Deloitte undertake global tax compliance work in substitution for
the external auditor; and
(ii) during the course of the year Deloitte, Ernst & Young, Grant
Thornton and PwC have been appointed to provide advice on an
employment matter, related tax advice, company reorganisation
and due diligence.
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 carried out by the external auditor represented
3.1% (2014: 52.4%) of the annual audit fee and half-yearly review
fee, and reflects the policy set out above.
Julian Heslop
Audit Committee Chairman
7 September 2015
79
Our GovernanceStock Code: DPHslugline Nomination Committee Report
Dear Shareholder
On behalf of the Board, I am pleased
to present the report of the Nomination
Committee (the Committee). During the
year, the Committee has continued with its
focus on succession planning, leadership
development and talent management.
The following report provides an overview of
the work carried out during the year under
review.
Dechra’s stance in relation to diversity is
detailed in the Corporate Governance Report.
Should you have any questions in relation to
this report or the Committee, please feel free
to contact me or the Company Secretary.
Committee Membership and
Attendance
The membership of the Committee, together
with appointment dates and attendance at
meetings during the year, is set out on pages
66 to 67 and 70 of the Corporate Governance
Report. Other attendees at the meetings
include the Chief Executive Officer, the Group
HR Director 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
2015 financial year this took place at the
February meeting. An overview of the terms
of reference is detailed on page 71 of the
Corporate Governance Report.
Principal activities of the Committee during
the year:
• Review of the Chairman’s Tenure
The Committee reviewed the Chairman’s
tenure in 2014 and agreed that 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. This
will provide sufficient time to oversee the
continued development of the Board and
develop their understanding of Dechra
further. The recruitment process for a
successor has commenced. During
the year an independent recruitment
80
Michael Redmond
Nomination Committee Chairman
consultant, JCA Group (JCA), was retained
to assist in the recruitment of the new
Chairman. At the commencement of the
recruitment process, a role description
was defined and agreed by the Committee
detailing the skills and experience required
for the position of Chairman of the Board.
To assist JCA with the understanding of
the requirements of the role, they met with
the Chief Executive Officer, Chief Financial
Officer and members of the Committee. A
list of candidates has been long listed for
interview.
The Committee considers that Michael
Redmond continues to lead the
Board effectively and maintains his
independence and integrity at all times.
His previous pharmaceutical experience
and the longevity of his association with
the Company enables him to continue to
make a strong and effective contribution.
two key areas: defining the current talent
map, and understanding the organisation’s
current capability versus the needs of the
future strategic direction of the Company.
In order to address these points a Group-
wide talent review commenced with the
SET and their direct reports. It is now
being rolled out across the Group. The
needs of the future strategic direction
of the Company have been scoped in
discussion with the Board and the process
of matching talent to needs has begun.
These are the first steps towards
building a coherent Leadership
Development Strategy which will ensure
that our Leadership Team has the
capabilities required to manage the
business effectively and sustainably.
The Company is working to ensure it
has strong internal candidates for key
leadership positions.
• Non-Executive Directors and Senior
Executive Team (SET) Succession
Planning
The Group HR Director undertook a
succession planning review of both the
Non-Executive Directors and the SET and
presented her findings to the Committee
in February 2015. This review included
restructuring the reporting lines for senior
management. Appropriate succession
plans have been documented for key roles
and where an internal successor has been
identified, development plans are being put
in place to support these individuals.
• Leadership Needs of the Group
In considering the leadership needs of the
Group, the Committee has focused on
• Appraisal Process and
Re-appointment of Directors
Following an internal evaluation, further
details of which are provided on page
74 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 2015
Annual General Meeting.
Michael Redmond
Nomination Committee Chairman
7 September 2015
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Letter from the Remuneration
Committee Chairman
Dear Shareholder
On behalf of the Board, I am pleased to
present the Directors’ Remuneration Report
for the year ended 30 June 2015.
The Directors’ Remuneration Report is
divided into two sections: the Annual
Report on Remuneration followed by
an abbreviated form of the Directors’
Remuneration Policy. The Annual Report
on Remuneration provides details of the
amounts earned in respect of the year
ended 30 June 2015 and how the Directors’
Remuneration Policy will be implemented
in the year commenced 1 July 2015. The
Directors’ Remuneration Report (excluding
the Directors’ Remuneration Policy) will be
subject to an advisory vote at the 2015
Annual General Meeting.
Our Directors’ Remuneration Policy
The Directors’ Remuneration Policy was
approved by shareholders at the Annual
General Meeting held on 24 October 2014,
with 98.32% of all votes cast in favour, and
will remain in force until 2017. We review the
application of the Policy regularly, to ensure
it remains appropriate, linked to strategy and
reflective of developing market practices;
there have been no changes to the Policy
since its approval.
The performance metrics for the bonus and
LTIP Awards for 2016 are set out on page
90. In previous years, we have conducted
the annual review of Executive Directors’
salaries in June. However, we are now
moving these reviews to September, for all
employees, to improve alignment with the
annual performance development review
calendar. This will allow us to enhance the
link between performance and reward for
all employees. It is our expectation that any
revisions to Executive Directors’ salaries
for 2016 will be in line with the range of
increases awarded to the wider workforce.
Dr Christopher Richards
Remuneration Committee Chairman
The Link between our Directors’
Remuneration Policy and our Strategy
Dechra’s Policy is designed to promote
the long term success of the Group and
to reward the creation of long term value
for shareholders. The performance targets
for all incentive elements are set to reward
high performance whilst not encouraging
inappropriate business risks.
The table on the next page describes how
certain remuneration elements are linked to
our strategy.
81
Our GovernanceStock Code: DPHslugline Letter from the Remuneration
Committee Chairman
continued
Remuneration Element
Annual Bonus
Our annual bonus rewards key executives by reference to short term financial metrics (based
on profit) and personal objectives, which are designed to incentivise the delivery of the long term
strategy through the short term objectives.
The use of a profit measure in the annual bonus focuses executives on the delivery of strong
financial performance to generate the profit growth which is a key strategic priority of our pipeline
delivery and portfolio focus. The annual bonus has a stretching profit target which requires
performance above budget and market expectations to trigger the payment of a maximum bonus.
Part of the bonus is based on the achievement of personal objectives. These personal objectives
are set at the beginning of each financial year and reflect the corporate, financial, strategic and
other non-financial priorities of the business, achievement of which is necessary to deliver the
longer term strategy. During the year the Executive Directors were set a number of personal
objectives, which were linked to the delivery of the four strategic pillars together with leadership
development of senior management below the Board and enhanced use of technology within the
business to drive efficiency.
Dechra further recognises the importance of being a responsible business leader, with the health
and safety of our employees being central to everything we do. Therefore, the Remuneration
Committee (the Committee) has discretion to amend any bonus pay-out to take into account wider
business considerations including the achievement of the highest standards in respect of our health
and safety procedures.
Strategic
Pillar and
Enabler
a
b
c
Link to our Key
Performance
Indicators
• Sales Growth
Strong sales
performance
is required to
maximise profit
• Cash Conversion
Strong cash
conversion
reduces liquidity
risk
• Lost Time
Accident
Frequency Rate
The reduction
in accidents is
an important
consideration in
the Committee’s
assessment of
wider business
performance for
the purposes of
any bonus pay-out
Long Term Incentive Plan
The LTIP is designed to reward the generation of long term value for shareholders and to aid the
retention of key executives recognising the importance of attracting, retaining and developing a
management team of the appropriate calibre. Performance measures are set that reflect our long
term objectives including sustainable profit growth and the enhancement of shareholder value.
LTIP Awards are based 50% on the delivery of stretching growth in EPS linking the incentive reward
opportunity to the longer term profitability of the business, which should encourage innovation,
launch of new products and commercial focus.
The other 50% relates to the delivery of superior shareholder returns compared to companies of a
similar size to Dechra, linking the reward opportunity for executives to the generation of long term
value for shareholders.
The application of an underpin to LTIP Awards based on ROCE ensures that our executives are
focused on using capital efficiently and appropriately to allow the business to seize growth
opportunities in new territories and markets whilst maintaining returns.
All Employee Share Plans
It is our aim to make Dechra a great place to work. As part of this, Dechra’s remuneration policy for
the wider workforce seeks to deliver a competitive package to reward employees for the value
they create for shareholders. All UK employees, who represent 39.9% of the entire workforce,
may participate in the SAYE Scheme that encourages share ownership and rewards employees in
a way which is linked to the increase in shareholder value. The SAYE Scheme also aids retention
recognising the need to retain and develop the right talent at all levels to facilitate the high
performance culture and stability required to deliver the longer term strategy.
• Underlying
Diluted EPS
Growth
• Return on
Capital
Employed
a
b
c
• New Product
Sales
This measure
encourages
innovation, growth
and sustainability
• Employee
Turnover
Retention of
skilled employees
will help grow the
business
Generation of Long Term Value for Shareholders/Alignment of Interests
The Directors’ Remuneration Policy is designed to promote long term Group success and to reward the generation of shareholder value.
In this regard, a significant proportion of the remuneration opportunity is linked to the achievement of stretching performance targets.
The interests of shareholders and executives are aligned by formal shareholding guidelines. Executive Directors are required to have a
holding of Dechra shares equivalent to at least 100% of salary by the third anniversary of appointment. Moreover, the Chief Executive Officer
and Chief Financial Officer are further expected to build up a holding equivalent to at least 200% and 150% of salary respectively by the fifth
anniversary of appointment.
82
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
Shareholding Policy
In June 2015, the Shareholding Policy was amended by the
Committee to require that the Chief Executive Officer and the
Chief Financial Officer should retain shareholdings of 200% and
150% respectively of base salary within five years of appointment.
Shareholder Views
We consult with shareholders on policy and on any significant
events and take shareholders’ views into account before any
decisions are taken. 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
7 September 2015
Incentive Outturns in 2015
As a result of the progress in our strategy, we have delivered
underlying profit before tax on continuing operations during the year
of £45.1 million, an improvement of 13.0% at actual exchange rates
on the prior year. Reflecting the performance of the Group in relation
to profit targets and the performance of Executive Directors against
personal objectives as described on page 85, bonuses for the year
equal to 80% of salary have been earned by the Executive Directors.
See Strategic Report on pages 6 to 63.
LTIP Awards were granted to Ian Page and Tony Griffin in March
2013 and vested by reference to performance over the three year
period ended 30 June 2015. Each Award was subject to a total
shareholder return (TSR) performance condition as regards to
50% of the Award and an Earnings per Share (EPS) performance
condition as regards to 50% of the Award, with an underpin based
on Return on Capital Employed (ROCE) applying to each element.
As disclosed on page 86, the Awards granted in March 2013 are
due to vest in March 2016:
• as to 87.2% of the TSR element (43.6% of the total Award)
by reference to TSR performance (reflecting median to upper
quartile performance); and
• as to 98.9% of the underlying diluted EPS element (49.5% of
the total Award) by reference to EPS performance (reflecting that
the underlying diluted EPS at 39.90 pence was between 33.00
pence and 40.00 pence).
In aggregate, taking into account the ROCE underpin (reflecting that
the ROCE at 20.0% had not fallen below 15.0%), the LTIP Awards
vested as to 93.1%.
As disclosed on page 86, the second of Anne-Francoise Nesmes’
recruitment awards was subject to the same performance
conditions and have vested to the same extent.
Application of Malus and Clawback
The Executive Directors’ bonus opportunity is subject to a malus
provision and, since 2013, LTIP Awards have also been subject
to malus provisions. In line with best practice, and reflecting the
UK Corporate Governance Code, a clawback provision has been
introduced for bonuses earned for 2016 and future years and for
LTIP Awards granted in respect of 2016 and future years. The
clawback provisions will enable the Committee to recover payments
made for up to two years following the date of payment (in the case
of the annual bonus) or vesting (in the case of LTIP Awards), in the
event of material misstatement in the financial statements or gross
misconduct on the part of the participant.
83
Our GovernanceStock Code: DPHslugline Directors’ Remuneration Report
2015 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
approved by the shareholders at the Annual General Meeting held on 24 October 2014. KPMG LLP have audited pages 84 to 90 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 2015. The table
shows the remuneration for each such person in respect of the year ended 30 June 2015 and the year ended 30 June 2014:
Salaries &
Fees
£0001
Benefits
£0002
Annual
Bonus
£0003
Long Term
Incentives
£0004
Pension
£0005
Total
£000
2015
440
309
220
126
43
45
45
1,228
2014
440
300
232
106
39
42
41
1,200
2015
53
17
29
—
—
—
—
99
2014
37
17
31
—
—
—
—
85
2015
352
247
176
—
—
—
—
775
2014
352
240
186
—
—
—
—
778
2015
887
382
323
—
—
—
—
1,592
2014
6986
302
—
—
—
—
—
1,000
2015
62
43
26
—
—
—
—
131
2014
62
42
28
—
—
—
—
132
2015
1,794
998
774
126
43
45
45
3,825
2014
1,589
901
477
106
39
42
41
3,195
Ian Page
Anne-Francoise Nesmes
Tony Griffin7
Mike Redmond
Ishbel Macpherson
Dr Chris Richards
Julian Heslop
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, 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 25 to the Group’s financial statements.
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. The 2014 value assigned to the long term incentives for Ian Page was shown in last year’s Annual Report as an estimate, with the value determined by
reference to a share price of £6.95 (being the average market value of a share over the last quarter of the Company’s financial period ended on 30 June
2014). This has been restated to show the actual value determined by reference to a price of £7.525 (being the market value of a share on 8 September
2014, the date of vesting).
7. 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 1.20 for 2014
and 1.3045 for 2015. His salary was €286,554 for 2015 and €278,208 for 2014.
84
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Additional Disclosures in Respect of the Single Figure Table
Salaries & Fees
As disclosed in the Directors’ Remuneration Report in the 2014 Annual Report on Remuneration the Executive Directors’ base salaries,
excluding Ian Page, were increased by 3% with effect from 1 July 2014. This was broadly in line with the average increase awarded to
employees in the wider Group. Ian Page elected to waive a review of his salary for the year ended 30 June 2015.
The Committee’s approach to Executive Directors’ salaries for the year ending 30 June 2016 is summarised on page 90.
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 2014 Directors’ Remuneration Report, the Chairman’s fee was increased with effect
from 1 July 2014 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. The other Non-Executive Directors received an increase in
their base fees for the year ended 30 June 2015 and the fees paid for the Chairmen of the Remuneration and Audit Committee were also
increased. In addition, it was agreed that a fee be introduced for the Senior Independent Director for the year ended 30 June 2015. The
Non-Executive Directors’ fees for the year ended 30 June 2015 and 30 June 2014 were determined on the following basis.
Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
Senior Independent Director additional fee
2015
Fee
£000
126
40
5
5
3
2014
Fee
£000
106
39
3
3
—
The approach in relation to the Chairman and Non-Executive Directors’ fees for the year ending 30 June 2016 is summarised on page 90.
Annual Bonus
The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the Committee in
respect of 2015 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 2015 against targets for 2015 financial year is as follows:
2015 Financial Year Targets
Underlying profit before tax performance: 10% of salary payable
upon the achievement of 95% of Group profit target rising to 90%
of salary payable upon the achievement of 110% of Group profit
target
Amount Achieved for the Year Ended 30 June 2015
The underlying profit before tax target was £42.9 million. Actual
underlying profit before tax was £45.1 million. This converted into an
achievement of 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 2015
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 are
not detailed in this report.
The personal objectives of each Executive Director are set on an individual basis and are closely linked to the corporate, financial, strategic
and other non-financial objectives of the Company. This enables the Committee to reward the Executive Directors’ contribution to both the
annual financial performance and the achievement of specific corporate, financial, strategic or other non-financial objectives. The Committee
reviewed the performance of each Executive Director against their specific objectives based on a report by the Chief Executive Officer and
with respect to the Chief Executive Officer, a report by the Chairman. This assessment included consideration by the Committee of the
Company’s progress in a number of areas including product pipeline targets, geographic expansion, acquisition opportunities evaluated as
well as control environment and supply chain improvements.
The Committee’s approach to Executive Directors’ annual bonus opportunities for the year ending 30 June 2016 is summarised on page 90.
85
Our GovernanceStock Code: DPHslugline Directors’ Remuneration Report
continued
LTIP Awards Vesting in Respect of the Year Ended 30 June 2015
The LTIP Awards granted on 5 March 2013 are due to vest on 5 March 2016. Ian Page and Tony Griffin were granted LTIP Awards on
5 March 2013, the performance targets for which are as follows: 50% of the Award is subject to a performance condition based on the
Company’s total shareholder return (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 Company’s underlying diluted Earnings per Share (EPS) in the final
year of 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
Each of the TSR element and the EPS element is subject to an additional Return on Capital Employed (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%.
The EPS targets originally agreed for the LTIP Awards granted in March 2013 were set for organic growth, with the intention that they would
be appropriately adjusted for the impact of any acquisitions and divestments. Therefore, as reported in the Directors’ Remuneration Report for
the years ended 30 June 2013 and 30 June 2014 and following a consultation with major shareholders at the beginning of November 2013,
the performance conditions for those Awards were adjusted in accordance with the LTIP rules to take account of the disposal of the Services
Segment in August 2013 so as to ensure that performance was measured on a fair and consistent basis over the performance period. The EPS
and ROCE performance measures detailed above are as adjusted to reflect the divestment of the Services Segment. As described below, the
2015 EPS (39.90 pence) represents 23.3% compound annual growth (from a rebased 2012 EPS figure of 21.28 pence) in EPS.
With respect to the performance conditions relating to the LTIP Award due to vest on 5 March 2016, the Company’s TSR performance was
over 129.8% compared with a 137.4% TSR for the upper quartile company in the comparator group. Therefore 87.2% of the TSR element
will vest. In addition, the Group’s underlying diluted EPS for 2015 was 39.90 pence. Accordingly, 98.9% of the EPS element will vest.
Overall, taking into account that ROCE performance for 2015 was 20%, the LTIP Awards will vest as to 93.1% of maximum opportunity. In
the single figure table on page 84, the value attributable to this Award is calculated by multiplying the number of shares in respect of which
the Award is expected to vest by £10.086 (being the average market value of a share over the last quarter of the Company’s financial period
ended on 30 June 2015).
Recruitment Award for Anne-Francoise Nesmes Vesting in Respect of the Year Ended 30 June 2015
As disclosed in the 2014 Directors’ Remuneration Report, 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 first Award vested in full on 30 June 2014, the details of which were
disclosed in the 2014 Annual Report. The vesting of the second of those Awards was subject to the same performance conditions as those
applying to the LTIP Awards granted on 5 March 2013, as detailed above. Therefore this second Award vested as to 93.1% on 30 June
2015. In the single figure table on page 84 the value attributable to this Award is calculated by multiplying the number of shares in respect of
which the Award vested, 38,859, by £9.83 (being the market value of a share on 30 June 2015).
The details of the LTIP Awards granted during the year ended 30 June 2015 are set out below. The Committee’s approach to Executive
Directors’ LTIP awards for the year ending 30 June 2016 is summarised on page 90.
The aggregate gain made by the Executive Directors on share options and LTIP Awards exercised during 2015 was £1,024,971
(2014: £883,249).
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 on 6 April 2014. Both Ian Page and
Anne-Francoise Nesmes have elected to receive a salary supplement in lieu of the employer contribution over and above the £40,000 limit
for the entire period under review.
86
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Tony Griffin is a member of the Basispensioen, a defined benefit scheme established in the Netherlands. The table below sets out the
arrangements for Tony Griffin for the period under review.
Accrued benefit at 1 July 2014
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 2014
Transfer value at 30 June 2015
Increase in transfer value over the period after member contribution
€9,704
€10,161
€10,161
€37,000
€154,000
€192,000
€38,000
Following the implementation by the Dutch government of a reduction in the cap on maximum amount of pensionable income to €100,000,
Tony Griffin elected to receive a salary supplement in lieu of the pension premium entitlement for earnings above €100,000. This was
effective from 1 January 2015.
Chief Executive Officer Remuneration for Six Previous Years
Year ended
30 June 2015
30 June 2014
30 June 2013
30 June 2012
30 June 2011
30 June 2010
Total single
figure
remuneration
£000
1,794
1,589
1,201
682
984
768
Annual bonus
payout (%
of maximum
opportunity)
80
80
36
60
60
44
LTIP vesting
(% of
maximum
number of
shares)
93.1
100.0
100.0
0
71.1
100.0
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 2014 and the year ended 30 June
2015. 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 benefits2
Annual bonus
Chief Executive Officer
Average per all UK based Employees
2015
£000
440
523
352
2014
£000
440
34
352
Increase
%
0
52.9
0
2015
£000
30
1.5
2.9
2014
£000
29
1.6
2.8
Increase
%
3.4%
(6.3%)
3.6
Ian Page elected to waive his salary increase for the 2015 financial year.
1.
2. Excludes SAYE options granted in the financial year.
3. The increase in Ian Page’s taxable benefit is related to his fully expensed car.
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 2014 and the year ended 30 June 2015.
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 2015
£000
14,900
45,613
—
Year ended
30 June 2014
£000
13,500
41,624
1,4611
% change
10.4
9.6
N/A
1. The Services Segment was divested during August 2013. The 2014 pay therefore includes 1.5 months of Services.
87
Our GovernanceStock Code: DPHslugline Directors’ Remuneration Report
continued
Total Shareholder Return (TSR) Graph
The graph below shows the TSR performance of the Company over the past six financial years compared with the TSR over the same
period for the FTSE 250 Total Return Index. Throughout the financial year ended 30 June 2015 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 is given in this report.
350
300
250
200
150
100
x
e
d
n
I
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
50
2009
Dechra
FTSE 250
2010
2011
2012
2013
2014
2015
Long Term Incentive Arrangements and Share Schemes:
LTIP Awards Made During the Year Ended 30 June 2015
Awards were granted to the Executive Directors on 15 September 2014, on the following basis:
Ian Page
Maximum
Type of award
opportunity
Nil cost option under the LTIP 200% of salary
Number of
shares
115,334
Face value
at grant1
£879,998
% of award
vesting at
threshold
Performance
period
25% 1 July 2014 –
30 June 2017
Anne-Francoise Nesmes Nil cost option under the LTIP 150% of salary
60,747
£463,500
25% 1 July 2014 –
30 June 2017
Tony Griffin
Nil cost option under the LTIP 100% of salary
29,937
£228,419
25% 1 July 2014 –
30 June 2017
1. For these purposes, the face value of the award is calculated by multiplying the number of shares by £7.63 (being the average share price used to determine
the number of shares comprised in the Awards).
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 underlying diluted 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
88
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
Both 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%.
SAYE Options Granted in the Year
The following Directors were granted SAYE options on 13 October 2014:
Ian Page
Anne-Francoise Nesmes
Number of
options
1,465
1,465
Option
Exercise
price
date
£6.14 December 2017
£6.14 December 2017
Payments to Past Directors (Unaudited):
It was agreed to pay for six months’ private medical cover on behalf of Ed Torr and his family for the period to 31 July 2015. Ed Torr fully
reimbursed the Company. There were no other payments made to past Directors during the period.
Payments for Loss of Office (Unaudited):
There were no payments for loss of office made to Directors during the period.
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 salaries. Thereafter, by the fifth anniversary of appointment, the Chief
Executive Officer and the Chief Financial Officer are required to have acquired and retained a holding equivalent to the value of at least 200%
and 150% respectively of their base salary. The holdings of the Executive Directors and their families as at 30 June 2015 are as follows:
Name
Ian Page
Anne-Francoise Nesmes
Tony Griffin
* Calculated using the share price as at 30 June 2015.
Appointment
date
13 June 1997
22 April 2013
1 November 2012
Ordinary
shares
Number
955,701
22,062
20,077
Ordinary
shares
£000*
9,395
217
197
% of
salary
2,135
70
90
Non-Executive Directors
By the third anniversary of their appointment to the Board, Non-Executive Directors are required to have acquired and retained a holding of
Dechra shares equivalent to the value of at least 50% of their annual base fee. The holdings of the Non-Executive Directors and their families
as at 30 June 2015 are as follows:
Name
Mike Redmond
Ishbel Macpherson
Dr Chris Richards
Julian Heslop
Appointment
date
19 April 2001
1 February 2013
1 December 2010
1 January 2013
Ordinary
shares
Number
73,417
5,848
7,400
10,000
Ordinary
shares
£000*
722
57
73
98
% of
base fee
573
144
182
246
* Calculated using the share price as at 30 June 2015.
There have been no changes in the holdings of the Directors between 30 June and 7 September 2015.
89
Our GovernanceStock Code: DPHslugline Directors’ Remuneration Report
continued
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 2015 are as follows:
Ian Page
Anne-Francoise
Nesmes
Tony Griffin
Award date
7 September 2011
5 March 2013
27 November 2013
15 September 2014
27 September 20131
27 September 20131
27 November 2013
15 September 2014
5 March 2013
27 November 2013
15 September 2014
Number of
shares at
30 June
2014
92,811
94,420
129,211
—
41,739
41,739
66,079
—
34,401
34,129
—
Granted
during the
year
—
Lapsed
during the
year
—
—
Exercised
during the
year
(92,811)
—
—
115,334
—
—
—
60,747
—
—
29,937
—
—
—
—
—
—
—
—
(41,739)
—
—
—
—
—
Number of
shares at
30 June
2015
—
94,420
129,221
115,334
—
41,739
66,079
60,747
34,401
34,129
29,937
Status
Vested
Unvested
Unvested
Unvested
Vested
Vested
Unvested
Unvested
Unvested
Unvested
Unvested
Performance
period
2011–2014
2012–2015
2013–2016
2014–2017
2013-2014
2012–2015
2013–2016
2014–2017
2012–2015
2013–2016
2014–2017
1. These awards are the Recruitment Awards granted to Anne-Francoise Nesmes as referred to on page 86. 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 2015 are shown below:
Ian Page
Anne-Francoise Nesmes
Date of
grant
7 April 2014
13 October 2014
7 April 2014
13 October 2014
Number of
options
1,630
1,465
1,630
1,465
Option
price
£5.52
£6.14
£5.52
£6.14
Exercise
date
May 2017
December 2017
May 2017
December 2017
Implementation of the Directors’ Remuneration Policy in the Year Ending 30 June 2016 (Unaudited):
The Directors’ Remuneration Policy outlined on pages 92 to 95 will be implemented in the year ending 30 June 2016 in line with the way in
which it has been implemented in the year ended 30 June 2015.
Malus and Clawback
As referred to in the Remuneration Committee Chairman’s statement on page 83, to reflect the updated provisions of the UK Corporate
Governance Code, in addition to the malus provisions which already apply to the annual bonus and LTIP, clawback provisions have been
added to LTIP Awards granted after 1 July 2015 and annual bonuses paid in respect of 2016 and future years. These provisions will enable
the Committee to require repayment of some or all of an award for up to two years following payment in the event of material misstatement
in the financial statements or gross misconduct on the part of the participant.
Salary and Fees
The next review of Executive Directors’ salaries will be undertaken in September 2015, rather than July as in previous years. This change
has been implemented for all employees following the alignment of the salary review cycle with the annual performance development review
calendar which provides a clearer link between performance and reward. It is planned that the Executive Directors’ salaries for 2016 will
increase in line with the range of increases awarded to the wider workforce, which is up to 4.5%.
The Chairman and Non-Executive Directors have agreed to waive an increase to their fees this year.
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 2016, on the same basis as for the year ended 30 June 2015. Details of the bonus structure can be found on page 85.
LTIP
The Committee proposes that LTIP Awards for the year ending 30 June 2016 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 Tony Griffin. The performance measures remain as per the grant of LTIP Awards
made on 15 September 2014, details of which can be found on page 88.
90
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
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, although the
task of determining and monitoring the remuneration packages of the Executive Directors and agreeing the Chairman’s fee level has been
delegated to the Committee.
Membership
Details of each members’ attendance at the Committee’s meetings is detailed on page 70.
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. Furthermore, the Group HR Director has attended all meetings held during the financial year.
Responsibilities
The Committee has its own terms of reference, which are approved by the Board. These are reviewed on an annual basis to ensure that
they continue to adhere to best practice. During the 2015 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 are provided on page 71.
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.
Advisers
The following 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).
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 £13,700 for the year ended 30 June 2015. 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 provided to Dechra are detailed on
page 79.
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 advisory vote on the Directors’ Remuneration Report and the binding vote on the Remuneration Policy at
the Company’s Annual General Meeting on 24 October 2014:
Resolution
To approve Remuneration Report
To approve Remuneration Policy
Votes for
67,915,363
66,935,753
% of vote Votes against
161,770
1,140,380
99.76
98.32
% of vote
0.24
1.68
Votes
withheld
301,814
302,814
91
Our GovernanceStock Code: DPHslugline Directors’ Remuneration Report
continued
Directors’ Remuneration Policy
Dechra’s Directors’ Remuneration Policy was approved by shareholders at the Annual General Meeting held on 24 October 2014 with
98.32% of all votes cast in favour. The full Policy can be found at www.dechra.com.
The Policy Tables of the Directors’ Remuneration Policy are provided below as it is considered these would be most helpful for shareholders
to have repeated here. However, to aid reading in relation to the application of the Policy for 2016 certain date references have been
updated.
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.
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.
92
Performance measure
Not applicable.
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Element: Benefits
Purpose and link to strategy
Provided on a market competitive basis.
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.
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 2016, 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, which
include non-financial targets,as described on page 90.
93
Our GovernanceStock Code: DPHslugline 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.
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 2016, 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 90.
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.
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 2016 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.
94
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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 currently.
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.
Policy Table for Non-Executive Directors:
Element
Purpose and link to strategy
Operation
Fees and benefits
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.
Opportunity
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.
This Directors’ Remuneration Report, excluding the Directors’ Remuneration Policy, will be put to an advisory vote at the Annual General
Meeting on 23 October 2015. The Directors’ Remuneration Report was approved by the Board on 7 September 2015 and signed on its
behalf by:
Dr Christopher Richards
Remuneration Committee Chairman
7 September 2015
95
Our GovernanceStock Code: DPHslugline 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 2015. 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 (which includes the Corporate Social Responsibility Report)
on pages 6 to 63 along with the Corporate Governance Report and Board Committee Reports. They are incorporated by reference into this
Directors’ Report and include:
• Details in respect of the Board of Directors;
• 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 financial risk management (including the exposure to price, credit and liquidity risk)
can be found in notes 22 and 33 to the Financial Statements.
Acquisitions and Disposals
There have been no acquisitions or disposals during the year.
Amendment of the Articles of Association
The Company’s Articles of Association may be amended by a special resolution of its shareholders. A resolution will be put to shareholders
at the forthcoming Annual General Meeting to adopt new Articles of Association in order to update the Company’s existing Articles of
Association to take into account of recent legislative changes, developing practice and to provide increased flexibility for the Board.
Significant Agreements/Change of Control
As detailed in the Going Concern Statement on page 74 the Group has bank facilities with a syndicate of banks comprising HSBC Bank Plc,
The Royal Bank of Scotland and Barclays Bank PLC (the Banks). These facilities include a change of control provision. Under this provision,
a change of control of the Company could result in withdrawal of facilities. 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 provide 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. In the event of a change
of control, unvested awards under the LTIP will vest to the extent determined by the Remuneration Committee taking into account the
relevant performance conditions and, unless the Remuneration Committee determines otherwise, the extent of vesting so determined shall
be reduced to reflect the proportion of the relevant performance period that has elapsed.
The Directors consider that there are no contracted or other single 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.
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 Articles of
Association. The powers of the Directors set out in the Articles of Association include those in relation to the issue and buy-back
of shares.
96
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Overseas Branches
The Company has no overseas branches.
Political Donations and Expenditure
No political donations were made during the year ended 30 June 2015 (2014: nil). 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 38 to 39. The expense on this activity for the year ended 30 June 2015 was £8,671,000
(2014: £8,248,000) and a further £1,035,000 (2014: £1,065,000) was capitalised as development costs.
Results and Dividends
The results for the year and financial position at 30 June 2015 are shown in the Consolidated Income Statement on page 105 and
Consolidated Statement of Financial Position on page 107. The Directors recommend the payment of a final dividend of 11.82 pence per
share which, if approved by shareholders, will be paid on 20 November 2015 to shareholders registered at 30 October 2015. The shares will
become ex-dividend on 29 October 2015. An interim dividend of 5.12 pence per share was paid on 7 April 2015, making a total dividend for
the year of 16.94 pence per share (2014:15.40 pence per share). The total dividend payment is £14,900,000 (2014: £13,500,000).
Share Capital
The issued share capital of the Company for the year is set out in note 23 to the Consolidated Financial Statements. As at the end of
the financial year 87,971,163 fully paid ordinary shares were in issue which included 258,599 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 41,739 shares and have waived their rights to dividends
and in accordance with the Investment Association guidance (formerly known as the ABI) they abstain from voting at general meetings.
At the Annual General Meeting of the Company held on 24 October 2014, the Company was authorised to purchase up to 8,771,256 of its
ordinary shares, representing 10% of the issued share capital of the Company as at 19 September 2014. 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 2014 Annual General Meeting and resolutions to renew these authorities will be
proposed at the 2015 Annual General Meeting. To reflect the Pre-Emption Group’s revised Statement of Principles (issued in March 2015)
we are seeking shareholder approval to increase the authority to disapply pre-emption rights of shareholders from 5% to 10%.
97
Our GovernanceStock Code: DPHslugline 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
BlackRock Inc
Standard Life
Legal & General Group
Norges Bank
Aviva plc
Old Mutual
30 June 2015
18 August 2015
Aggregate
voting
rights
8,184,256
8,073,296
6,487,689
4,350,277
4,231,944
3,541,152
2,951,049
2,948,528
2,910,563
Percentage
9.30
9.18
7.38
4.95
4.81
4.03
3.35
3.35
3.31
Aggregate
voting
rights
8,184,256
8,324,566
6,345,564
5,026,735
3,842,881
3,529,667
2,552,744
2,922,841
2,849,100
Percentage
9.30
9.46
7.21
5.71
4.37
4.01
2.90
3.32
3.24
Events After the Reporting Period
On 3 August 2015 the Company announced that it had signed a conditional share purchase agreement (SPA) to acquire 63.3% of the
authorised shares (equivalent to 69% voting rights) in Genera d.d. (Genera), a Croatian listed pharmaceutical business. Under the Croatian
Takeover Rules, the conditional offer requires Dechra to make a mandatory offer for the remaining issued share capital of Genera and is
subject to approval by the Croatian Financial Services Agency (HANFA). The SPA is conditional on total aggregate shareholder acceptances
reaching 75% of the voting share capital.
Dechra offered HRK179.60 per share, which was equivalent to €51.4 million, based on exchange rates in effect on the date of signing, for
the entire share capital on a cash free, debt free basis. This will be wholly payable in cash and is to be funded from Dechra’s existing debt
facilities.
Genera is the oldest and largest manufacturer of animal health products in the Republic of Croatia with a strong market share in its
local market and neighbouring countries. It operates three main divisions: Animal Health, which represents the majority of revenue;
Agrochemicals; and Human Pharmaceuticals. It operates from one manufacturing location in Kalinovica, Croatia and during 2014 employed
287 people.
Auditor
KPMG LLP will be retiring as the Company’s external auditor at the conclusion of the 2015 Annual General Meeting (further information is
contained in the Audit Committee Report on page 79). A resolution to appoint PricewaterhouseCoopers 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:
Rob Lamb
Company Secretary
7 September 2015
98
www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Statement of Directors’ Responsibilities
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
7 September 2015
Anne-Francoise Nesmes
Chief Financial Officer
7 September 2015
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.
99
Our GovernanceStock Code: DPHslugline £19.5m
Our profit after tax for continuing
operations was £19.5 million
compared to £19.4 million
in 2014
To learn more about reported results
read the Financial Review on page 43.
View further content on our website:
www.dechra.com
®
slugline
Our Financials
102 Independent Auditor’s Report
105 Consolidated Income Statement
106 Consolidated Statement of
Comprehensive Income
107 Consolidated Statement of
Financial Position
108 Consolidated Statement of
Changes in Shareholders’ Equity
109 Consolidated Statement of
Cash Flows
110 Notes to the Consolidated
Financial Statements
150 Company Balance Sheet
151 Reconciliation of Movements in
Shareholders’ Funds
152 Notes to the Company Financial
Statements
159 Financial History
slugline Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC
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 2015 set out on pages 105 to 158.
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 2015 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 (£155.5 million)
Refer to page 77 (Audit Committee Report), note 1(g) (accounting policy) and note 11 (financial disclosures).
• 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 the performance of the Cash Generating Unit (CGU), to which the assets are allocated will result
in impairment to the carrying value of those assets. This could be due to weaker than forecast demand, product obsolescence, or other
factors, and is particularly the case in the current year in respect of CGUs containing Food producing Animal Products.
• The recoverable amounts of the CGUs 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 the key judgemental area that our audit is concentrated on.
• Our response — Our audit procedures in this area included:
• Performing certain procedures to identify indicators for impairment of amortising intangible assets. These included reviewing Board
meeting minutes, reviewing forecast performance and enquiring as to whether they are aware of any indicators of impairment;
• Checking that the valuation methodology 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, primarily revenue and cost growth rates and the assumed asset lives, used in the models including whether they are
reasonable in light of historical growth rates. Agreeing that the long term growth rates in the model do not exceed industry published
data determined by reference to published growth rates of comparable companies;
• 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
• Performed our own sensitivity analysis, including assessing the effect of a reasonably possible change in growth rates, forecast cash
flows and discount.
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.
102
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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 £1.2 million (2014: £1.7 million), determined with reference to
a benchmark of Group profit before taxation from continuing operations (of which it represents 4.7% (2014: 8.0%)). Our assessment of
materiality has decreased to reflect changes in market expectations of audit materiality in our audit reports. The reduction in materiality does
not result in a significant change to audit procedures as component audits are performed to lower, statutory materiality in most locations.
We report to the Audit Committee any corrected or uncorrected misstatements exceeding £60,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Of the Group’s 23 reporting components, we subjected 13 to audits for Group reporting purposes. These audits covered 97% of Group
revenue, 98% of Group profit before taxation and 99% of Group total assets. The Group audit team instructed component auditors as to
the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit
team approved component materiality, which ranged from £0.3 million to £1.0 million, having regard to the size and risk profile of the Group
across the components.
The Group audit team visited nine components in the UK, US and Denmark. Telephone conference meetings were also held with the
component auditors in Denmark, Germany and the Netherlands. At these visits and meetings, the findings reported to the Group audit team
were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditor.
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;
and
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.
103
Our FinancialsStock Code: DPHslugline Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC
continued
Under the Listing Rules we are required to review:
•
the Directors’ statement, set out on page 74, in relation to going concern; and
•
the part of the Corporate Governance Statement on pages 69 relating to the Company’s compliance with the ten provisions of the 2012
UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and Responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 99, 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/auditscopeukco2014a, 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
7 September 2015
104
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Consolidated Income Statement
For the year ended 30 June 2015
2015
Non-
underlying
items*
(notes
4 & 5)
£000
—
—
—
Note
2
Underlying
£000
203,480
(87,338)
116,142
2014
Non-
underlying
items*
(notes
4 & 5)
£000
—
—
—
Total
£000
193,571
(85,863)
107,708
Total
£000
203,480
(87,338)
116,142
Underlying
£000
193,571
(85,863)
107,708
(63,120)
(18,371)
(81,491)
(57,292)
(17,172)
(74,464)
(8,671)
44,351
2,242
(1,496)
45,097
(9,790)
—
(18,371)
—
(920)
(19,291)
3,443
(8,671)
25,980
2,242
(2,416)
25,806
(6,347)
(8,248)
42,168
302
(2,609)
39,861
(8,012)
—
(17,172)
—
(1,247)
(18,419)
5,986
(8,248)
24,996
302
(3,856)
21,442
(2,026)
35,307
(15,848)
19,459
31,849
(12,433)
19,416
—
—
—
1,020
38,611
39,631
35,307
(15,848)
19,459
32,869
26,178
59,047
22.14p
22.14p
—
21.99p
21.99p
—
16.94p
67.57p
22.22p
45.35p
67.33p
22.14p
45.19p
15.40p
2
3
4
6
8
30
10
10
9
Revenue
Cost of sales
Gross profit
Selling, general and
administrative expenses
Research and development
expenses
Operating profit
Finance income
Finance expense
Profit before taxation —
continuing operations
Income tax expense
Profit for the year —
continuing operations
Profit for the year —
discontinued operations
Profit for the year attributable
to owners of the parent
Earnings per share
Basic
— continuing operations
— discontinued operations
Diluted
— continuing operations
— discontinued operations
Dividend per share (interim
paid and final proposed for
the year)
* Non-underlying items comprise amortisation and impairment (if any) of acquired intangibles, acquisition expenses, rationalisation costs, loss on
extinguishment of debt, fair value and other movements on deferred and contingent consideration, and profit and related expenses on the disposal of
discontinued operations.
105
Our FinancialsStock Code: DPHslugline Consolidated Statement of Comprehensive Income
For the year ended 30 June 2015
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit pension scheme
Income tax relating to components of other comprehensive income
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
Losses arising on available for sale financial assets
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
2015
£000
19,459
2014
£000
59,047
(111)
97
(14)
(136)
178
(37)
(18,525)
(4)
(18,524)
921
(136)
—
(136)
(341)
180
—
(18,128)
29
(18,260)
40,651
106
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Consolidated Statement of Financial Position
At 30 June 2015
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Deferred and contingent consideration
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred and contingent consideration
Employee benefit obligations
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued share capital
Share premium account
Own shares
Hedging reserve
Foreign currency translation reserve
Merger reserve
Retained earnings
Total equity attributable to equity holders of the parent
Note
2015
£000
2014
£000
11
12
15
16
17
20
18
19
20
21
14
23
24
166,684
16,822
183,506
31,744
30,932
45,948
108,624
292,130
(8)
(31,025)
(4,417)
(8,659)
(44,109)
(32,519)
(3,412)
(1,311)
(16,291)
(53,533)
(97,642)
194,488
880
124,801
(303)
(94)
(27,547)
1,770
94,981
194,488
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
The financial statements were approved by the Board of Directors on 7 September 2015 and are signed on its behalf by:
Ian Page
Chief Executive Officer
7 September 2015
Anne-Francoise Nesmes
Chief Financial Officer
7 September 2015
Company number: 3369634
107
Our FinancialsStock Code: DPHslugline Consolidated Statement of Changes in Shareholders’ Equity
For the year ended 30 June 2015
Attributable to owners of the parent
Issued
share
capital
£000
872
—
Share
premium
account
£000
123,485
—
Own shares
£000
—
—
Hedging
reserve
£000
—
—
Foreign
currency
translation
reserve
£000
9,106
—
Merger
reserve
£000
1,770
—
Retained
earnings
£000
39,383
59,047
Total
£000
174,616
59,047
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
944
—
5
877
877
—
944
124,429
124,429
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
372
—
3
880
372
124,801
—
—
—
—
—
—
—
—
(606)
(606)
(606)
(606)
—
—
—
—
—
—
—
—
—
—
303
303
(303)
(312)
—
—
—
(18,128)
—
180
(132)
—
(18,128)
—
—
—
—
—
(132)
(132)
—
(140)
—
—
—
—
—
—
—
—
(9,022)
(9,022)
—
—
—
(18,525)
—
178
38
—
(18,525)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,770
1,770
—
—
—
—
—
—
—
—
—
—
—
—
—
(312)
(18,128)
(136)
(136)
—
58,911
180
40,651
(12,579)
1,775
—
—
(12,579)
1,775
949
(606)
(10,804)
87,490
(10,461)
204,806
87,490
19,459
204,806
19,459
—
(37)
(140)
(37)
—
(18,525)
(14)
—
19,408
(13,857)
2,243
—
(14)
178
921
(13,857)
2,243
375
(303)
—
—
(94)
—
(27,547)
—
1,770
(11,917)
94,981
(11,239)
194,488
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
Year ended 30 June 2015
At 1 July 2014
Profit for the period
Effective portion of changes in
fair value of cash flow hedges,
net of tax
Losses arising on held for trading
financial assets
Foreign currency translation
differences for foreign operations
Remeasurement of defined
benefit pension scheme, net of
tax
Cash flow hedges recycled to
income statement, net of tax
Total comprehensive income
Transactions with owners
Dividends paid
Share-based payments
Shares issued
Own shares recycled to
retained earnings
Total contributions by and
distributions to owners
At 30 June 2015
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, net of tax.
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.
108
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Consolidated Statement of Cash Flows
For the year ended 30 June 2015
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation and impairment
Loss on disposal of intangible assets
Profit 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 in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operating activities before interest and taxation
Interest paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
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 (outflow)/inflow from investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
Own shares purchased
Repayment of borrowings
Expenses of refinancing borrowing facilities
Resetting of foreign currency borrowings
Dividends paid
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net cash/(borrowings)
Net increase/(decrease) in cash and cash equivalents
Repayment of borrowings
Expenses of refinancing borrowing facilities
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net cash/(borrowings) in the period
Net borrowings at start of period
Net cash/(borrowings) at end of period
Note
2015
£000
2014
£000
19,459
59,047
12
11
6
30
3
4
25
29
30
30
12
11
11
23
24
20
9
17
26
2,412
19,126
45
—
(2,242)
2,416
1,767
6,347
49,330
(4,527)
(2,553)
4,738
46,988
(1,338)
(4,667)
40,983
16
(908)
—
—
(2,081)
(1,035)
(643)
(4,651)
375
—
(102)
(1,235)
—
(13,857)
(14,819)
21,513
26,773
(2,338)
45,948
21,513
102
1,235
(2,338)
(1,442)
(659)
18,411
(4,990)
13,421
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)
109
Our FinancialsStock Code: DPHslugline 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 2015 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 150 to 158.
(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 63. 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 74
for details.
The consolidated financial statements are presented in Sterling, rounded to the nearest thousand, or rounded to the nearest
million in the commentary to the notes. 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 in
the prior year, as described in note 30, gave 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 or whenever there
is an indication of impairment. 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.
(iii) Taxation
The Group recognises deferred tax assets and liabilities based upon future taxable income and the expected recoverability of
the balance. The estimate will include assumptions regarding future income streams of the Group and the future movement
in corporation tax rates in the respective jurisdictions. The estimate of liabilities in respect of current taxation depends on
estimate and judgements in respect of whether or not, and the extent to which items of income and expenditure will be
taxable.
(iv) Non-underlying items
The Group presents a number of non-GAAP measures. This is to allow investors to understand the underlying performance
of the Group, excluding items associated with areas such as acquisition and disposal related expenses, debt refinancing,
discontinued operations and rationalisations. Judgement is associated with the classification of these items.
110
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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 2015.
•
•
•
•
IFRS 10 ‘Consolidated Financial Statements’ — replaces the guidance of control and consolidation in IAS 27 and SIC 32:
Consolidation - Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries
as if they were a single entity remains unchanged, as do the mechanics of the consolidation.
IFRS 11 ‘Joint Arrangements’ — requires joint arrangements to be accounted for as a joint operation or as a joint venture
depending on the rights and obligations of each party to the arrangement. Proportionate consolidation for joint ventures will
be eliminated and equity accounting will be mandatory.
IFRS 12 ‘Disclosure of Interests in Other Entities’ — requires enhanced disclosures of the nature, risks and financial effects
associated with the Group’s interests in subsidiaries, associates, joint arrangements and unconsolidated structures entities.
IAS 27 (Revised) ‘Separate Financial Statements’ — carries forward the existing accounting and disclosure requirements
of IAS 27 (2008), with some minor clarifications, whilst incorporating the requirements of IAS 28 (2008) and IAS 31 for
separate financial statements.
There are no other new standards, amendments to standards or interpretations mandatory for the first time for the year ended
30 June 2015.
New Standards and Interpretations not yet Adopted
The following standard amendment has been published, endorsed by the EU, and is available for early adoption, but has not yet
been applied by the Group in these financial statements.
•
Amendments to IAS 19 ‘Defined Benefit Plans: Employee Contributions’ — effective for annual periods beginning on or
after 1 January 2015.
In addition to the above, amendments to a number of standards under the annual improvements project to IFRS have been
endorsed by the EU but not yet adopted. None of these amendments are expected to have a material impact on the Group’s
financial statements.
(c) Basis of Consolidation
Subsidiary Undertakings
Subsidiary undertakings are fully consolidated from the date on which control is transferred to the Group. They cease to be
consolidated from the date that the Group no longer has control. All subsidiary undertakings have been consolidated.
Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated
on consolidation.
The financial statements of all subsidiary undertakings are prepared to the same reporting date as the Company.
111
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(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 million. 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, available for sale 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
needs to be impaired.
Held for Trading and Available for Sale Financial Assets
This category has two sub-categories: financial assets held for trading or available for sale 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 interest rate risks. In accordance with its treasury
policy, the Group does not hold or issue derivative financial instruments for speculative purposes. However, derivatives that do not
qualify for hedge accounting are accounted for as trading instruments.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are remeasured to fair value at
each reporting date.
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1. Accounting Policies continued
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 a 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.
(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.
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Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(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.
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 or extends the asset life. All other expenditure is expensed as incurred.
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1. Accounting Policies continued
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless
such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at
each consolidated statement of financial position date. Other intangible assets are amortised from the date that they are available
for use. The estimated useful lives are as follows:
•
•
•
•
•
•
software
capitalised development costs
patent rights
marketing authorisations
product rights
customer relationships
5 to 7 years
5 to 10 years or period of patent
period of patent
indefinite life or period of marketing authorisation
10 to 15 years
10 years
(h) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling expenses.
The cost of inventories is based on the first-in, first-out principle and includes expenditure incurred in acquiring the inventories and
bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes
an appropriate share of overheads based on normal operating capacity.
(i) Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form
an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of
the statement of cash flows.
(j)
Impairment
The carrying amounts of the Group’s assets are reviewed at each consolidated statement of financial position date to determine
whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows,
the recoverable amount is determined for the cash generating unit to which the asset belongs.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable
amount is estimated at each consolidated statement of financial position date and when there is an indication that the asset is
impaired.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill
allocated to the cash generating units (group of units), and then to reduce the carrying amount of the other assets in the units
(group of units) on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
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Our FinancialsStock Code: DPHslugline
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(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 funded through an insurance contract.
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.
Bonus and commission payments
The Group operates sales incentives schemes for certain employees and third party sales representatives in particular territories.
The related bonuses and commissions are accrued in line with the related sales revenues.
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www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
1. Accounting Policies continued
(m) Revenue Recognition
Revenue is recognised in the income statement when goods are supplied to external customers against orders and, title and risk
of loss are passed to the customer. As sales arrangements differ from time to time (for example by customer and by territory),
each arrangement is reviewed to ensure that revenue is recognised when title and risk has passed in full to the customer. This
review and the corresponding recognition of revenue encompasses a number of factors which include, but are not limited to the
following:
•
•
reviewing delivery arrangements and whether the buyer has accepted title - we recognise the revenue at the point at which
full title has passed; and/or
where distribution arrangements are in place, recognising when the goods pass to the third party customer (for example by
reviewing insurance arrangements) and recognising revenue at the point at which title has passed.
Rebates, deductions and discounts are provided for in the same period as the related sales are recorded, and are recognised
when 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 from third party manufacturing consists principally of the production of goods to customer specification together with the
provision of technical services. Revenues from third party manufacturing are recognised upon completion of the work order, either
the completion and agreed delivery of the delivery of the product or upon full provision of the service.
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 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.
(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.
117
Our FinancialsStock Code: DPHslugline
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(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.
(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, as discussed below, which are based on information provided to the Board of Directors,
which is deemed to be the Group’s chief operating decision maker. Several operating segments which have similar economic
characteristics have been aggregated into the reporting segments.
The 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 North American (NA) Pharmaceuticals Segment consists of Dechra Veterinary Products US and Dechra Veterinary Products
Canada, which sell Companion Animal and Equine Products into those territories. The Segment expanded during the prior year with
the acquisition of PSPC Inc.’s manufacturing unit based in Melbourne, Florida, and during the current year with the opening of the
Canadian subsidiary.
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.
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www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
2. Operating Segments continued
Reconciliations of reportable segment revenues, profit or loss and liabilities and other material items:
Revenue by segment
European Pharmaceuticals
NA Pharmaceuticals
— total
— inter segment
— total
— inter segment
Operating profit/(loss) by segment
European Pharmaceuticals
NA 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
European Pharmaceuticals
NA 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)
European Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
2015
£000
2014
£000
168,665
(32)
34,870
(23)
203,480
48,030
10,637
(8,671)
49,996
(5,645)
44,351
(17,871)
(9)
(491)
25,980
2,242
(2,416)
25,806
(24,567)
(11,486)
(710)
(36,763)
(32,519)
(3,410)
(24,950)
(97,642)
113,888
17,040
27,278
25,575
19,699
203,480
802
—
422
454
1,678
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)
Restated*
98,155
15,251
33,791
28,372
18,002
193,571
1,356
7,567
1,065
25
10,013
* The prior year categorisation has been restated to reflect the current portfolio, following a product allocation review in the period.
119
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Notes to the Consolidated Financial Statements
continued
2. Operating Segments continued
Additions to Property, Plant and Equipment by segment (including through business
combinations)
European Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
Depreciation and amortisation by segment
European Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
2015
£000
1,688
214
102
77
2,081
17,156
3,828
497
57
21,538
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
3. Finance Income
Finance income arising from:
— Cash and cash equivalents
— Loans and receivables
— Foreign exchange gains
2015
Revenue
£000
59,673
34,052
65,796
32,848
11,111
203,480
2015
Non-
current
assets
£000
17,368
1,983
123,803
40,352
—
183,506
2014
Revenue
£000
49,412
38,599
71,918
21,242
12,400
193,571
2015
£000
23
3
2,216
2,242
2014
Non-
current
assets
£000
17,752
2,260
152,158
42,270
—
214,440
2014
£000
80
61
161
302
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Underlying
Finance expense arising from:
— Financial liabilities at amortised cost
— Net interest on net defined benefit obligations
Underlying finance expense
Non-underlying
Loss on extinguishment of debt (notes 20 and 22)
Fair value and other movements 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 relating to acquisition activities
2015
£000
1,460
36
1,496
2015
£000
392
528
920
2,416
2015
£000
17,871
9
491
18,371
2014
£000
2,561
48
2,609
2014
£000
1,213
34
1,247
3,856
2014
£000
16,543
479
150
17,172
Rationalisation costs relate to the integration of Eurovet Animal Health B.V. and the ensuing senior management team restructure.
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 intangible assets
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
Total fees paid to Auditor
2015
£000
82,319
336
2,412
—
19,126
45
97
2,624
8,671
304
50
215
30
3
6
—
304
2014
£000
80,632
672
2,185
12
18,340
—
48
2,486
8,248
477
50
230
33
29
34
101
477
121
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
7. Employees
The average numbers of staff employed by the Group during the year, which includes Directors, were:
2015
Number
2014
Number
Continuing operations
Manufacturing
Distribution
Administration
Discontinued operations
Manufacturing
Distribution
Administration
Total
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
309
89
465
863
—
—
—
—
863
2015
£000
35,618
5,671
2,076
2,248
45,613
—
—
—
—
45,613
2015
£000
4,213
229
1,477
5,919
258
72
433
763
—
42
23
65
828
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
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 81 to 95.
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 £2,076,000 (2014: £2,468,000), of which £nil (2014: £33,000) related to discontinued operations.
Contributions to defined benefit pension schemes included in the above figures total £594,000 (2014: £731,000).
122
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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
2015
£000
2,146
6,185
257
8,588
(3,123)
882
(2,241)
6,347
—
6,347
The tax on the Group’s profit before tax differs from the standard rate of UK corporation tax of 20.75% (2014: 22.50%). The
differences are explained below:
Profit before taxation — continuing operations
Tax at 20.75% (2014: 22.50%)
Effect of:
— disallowable expenses
— income not taxable
— innovation related tax credits
— differences on overseas tax rates
— adjustments in respect of prior years
— difference between current and deferred tax rates
— 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
Deferred tax on employee benefit obligations
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
2015
£000
25,806
5,355
434
(387)
(923)
587
1,139
150
(8)
6,347
—
6,347
2015
£000
(4)
97
93
157
319
569
2014
£000
646
6,097
(910)
5,833
(2,428)
(1,379)
(3,807)
2,026
396
2,422
2014
£000
21,442
4,824
98
—
(832)
331
(2,289)
—
(106)
2,026
396
2,422
2014
£000
29
—
29
250
(91)
188
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were
substantively enacted on 2 July 2013. In the Budget on 8 July 2015, the Chancellor announced additional planned reductions to 18%
by 2020. This will reduce the company’s future current tax charge accordingly. The UK deferred tax balances at 30 June 2015 have
been calculated based on the rate of 20% substantively enacted at the balance sheet date.
123
Our FinancialsStock Code: DPHslugline
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:
10.65 pence per share (2014: 9.66 pence per share)
Interim dividend paid: 5.12 pence per share (2014: 4.75 pence per share)
Total dividend 15.77 pence per share (2014: 14.41 pence per share) recognised as distributions to
equity holders in the period
Proposed final dividend for the year ended 30 June 2015: 11.82 pence per share (2014: 10.65 pence
per share)
Total dividend paid and proposed for the year ended 30 June 2015: 16.94 pence per share
(2014: 15.40 pence per share)
2015
£000
9,355
4,502
2014
£000
8,420
4,159
13,857
12,579
10,398
9,341
14,900
13,500
In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2015 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 2016. There are no income tax consequences. The final dividend for the year ended 30 June 2014 is shown as a
deduction from equity in the year ended 30 June 2015.
10. Earnings per Share
Earnings per ordinary share has 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
2015
Pence
40.17
40.17
—
22.14
22.14
—
39.90
39.90
—
21.99
21.99
—
2015
£000
35,307
35,307
—
19,459
19,459
—
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
Number
87,890,277
604,887
88,495,164
Number
87,385,689
312,771
87,698,460
* Underlying measures exclude non-underlying items as defined in the Consolidated Income Statement on page 105.
At 30 June 2015, there are 351,332 options that are excluded from the EPS calculations as they are not dilutive for the period
presented but may become dilutive in the future.
124
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
11. Intangible Assets
Goodwill
£000
Software
£000
Development
costs
£000
Patent
rights
£000
Marketing
authorisations
£000
Acquired
intangibles
£000
Total
£000
Cost
At 1 July 2013
Additions
Acquisitions through
business combinations
Foreign exchange
adjustments (restated)*
At 30 June 2014 and
1 July 2014
Additions
Disposals
Foreign exchange
adjustments
At 30 June 2015
Amortisation
At 1 July 2013
Charge for the year
Foreign exchange
adjustments (restated)*
At 30 June 2014 and
1 July 2014
Charge for the year
Disposals
Foreign exchange
adjustments
At 30 June 2015
Net book value
At 30 June 2015
At 30 June 2014 and
1 July 2014
At 30 June 2013
58,355
—
84
(3,461)
54,978
—
—
(5,652)
49,326
—
—
—
—
—
—
—
—
49,326
54,978
58,355
3,412
1,381
—
794
5,587
643
(52)
(515)
5,663
947
341
981
2,269
187
(52)
(178)
2,226
3,437
3,318
2,465
9,071
1,065
—
(359)
9,777
1,035
(86)
(86)
10,640
3,963
1,122
(292)
4,793
732
(41)
(186)
5,298
5,342
4,984
5,108
3,680
—
—
—
3,680
—
—
—
3,680
1,468
334
—
1,802
336
—
—
2,138
1,542
1,878
2,212
Contracted capital commitments
Software assets in the course of construction included above
853
—
—
—
853
—
—
—
853
—
—
—
—
—
—
—
—
853
853
853
204,830
—
280,201
2,446
7,483
7,567
(14,165)
(17,191)
198,148
—
—
(12,534)
185,614
54,227
16,543
273,023
1,678
(138)
(18,787)
255,776
60,605
18,340
(2,793)
(2,104)
67,977
17,871
—
(6,418)
79,430
76,841
19,126
(93)
(6,782)
89,092
106,184
166,684
130,171
150,603
196,182
219,596
2015
£000
—
1,121
2014
£000
—
2,856
* The opening cost and accumulated amortisation balances have been restated to reflect the foreign exchange separately on each element. This has no
impact on the opening net book value.
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.
125
Our FinancialsStock Code: DPHslugline 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 2013
Acquisitions through business combinations
Foreign exchange adjustments (restated)*
At 30 June 2014 and 1 July 2014
Foreign exchange adjustments
At 30 June 2015
Amortisation
At 1 July 2013
Charge for the year
Foreign exchange adjustments (restated)*
At 30 June 2014 and 1 July 2014
Charge for the year
Foreign exchange adjustments
At 30 June 2015
Net book value
At 30 June 2015
At 30 June 2014 and 1 July 2014
At 30 June 2013
Acquired
development
costs
£000
24,920
—
(1,583)
23,337
(2,618)
20,719
2,243
2,191
—
4,434
2,233
(658)
6,009
14,710
18,903
22,677
Product
rights
£000
179,910
7,483
(12,582)
174,811
(9,916)
164,895
51,984
14,352
(2,793)
63,543
15,638
(5,760)
73,421
91,474
111,268
127,926
Total
£000
204,830
7,483
(14,165)
198,148
(12,534)
185,614
54,227
16,543
(2,793)
67,977
17,871
(6,418)
79,430
106,184
130,171
150,603
* The opening cost and accumulated amortisation balances have been restated to reflect the foreign exchange separately on each element. This has no
impact on the opening net book value.
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 2015 was £92.0 million with a remaining amortisation period of 2½ years, 10½ years, 5½ years and 7
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 values at 30 June 2015 were £1.2 million and £3.4 million with a remaining
amortisation period of 8 years and 6½ years respectively.
In May 2014, the Company completed the purchase of product rights to Phycox, a patented nutraceutical now launched, called
Levocrine, 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 2015 is £6.6 million, with a remaining amortisation period of 9 years.
The Company previously 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 2015 was £0.8 million with a
remaining amortisation period of 3½ years. The rights to Equidone®, which was launched in the US during 2011, have a carrying value
of £0.6 million with an amortisation period of 6 years.
£0.8 million 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.
126
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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 2013
Additions
Disposals
Acquisitions through business combinations
Foreign exchange adjustments (restated)*
At 30 June 2014 and 1 July 2014
Additions
Disposals
Foreign exchange adjustments
At 30 June 2015
Depreciation
At 1 July 2013
Charge for the year
Disposals
Foreign exchange adjustments (restated)*
At 30 June 2014 and 1 July 2014
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2015
Net book value
At 30 June 2015
At 30 June 2014 and 1 July 2014
At 30 June 2013
Net book value of assets held under finance
leases
At 30 June 2015
At 30 June 2014 and 1 July 2014
At 30 June 2013
Contracted capital commitments
Assets in the course of construction included above
10,583
2,958
—
—
6,103
19,644
—
—
(2,108)
17,536
1,341
697
—
6,717
8,755
582
—
(1,023)
8,314
9,222
10,889
9,242
—
—
—
3,155
767
—
—
(2)
3,920
233
—
(25)
4,128
1,701
196
—
(2)
1,895
252
—
(1)
2,146
1,982
2,025
1,454
—
—
—
—
19
(2)
—
105
122
15
(2)
(10)
125
—
—
—
106
106
10
(2)
(8)
106
19
16
—
—
—
—
10,424
1,183
(270)
318
6,060
17,715
1,833
(295)
(817)
18,436
5,046
1,304
(270)
6,307
12,387
1,568
(295)
(823)
12,837
5,599
5,328
5,378
—
—
163
2015
£000
1,186
28
Total
£000
24,162
4,927
(272)
318
12,266
41,401
2,081
(297)
(2,960)
40,225
8,088
2,197
(270)
13,128
23,143
2,412
(297)
(1,855)
23,403
16,822
18,258
16,074
—
—
163
2014
£000
52
—
* The opening cost and accumulated depreciation balances have been restated to reflect the foreign exchange separately on each element. This has no
impact on the opening net book value.
127
Our FinancialsStock Code: DPHslugline 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 reviewed for impairment
either annually, or more frequently if there are indications that amounts might be impaired. The impairment tests involve 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. In the Group’s case, the recoverable amount is based on the value in use calculations.
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.
The cash flow forecasts are derived as follows:
•
•
•
The latest available Board-approved business plan for the first two years;
The business plan is extrapolated by applying a growth rate of 3% (2014: 3%) per annum in years three and four;
Thereafter, a terminal value is calculated based on year four cash flows, and assuming a long term growth rate of 0% (2014: 0%).
The projections covered a period of four years as we believe this to be the most appropriate timescale over which to review and
consider annual performances before applying a fixed terminal value.
Value in use calculations were performed at 30 June 2015 for the following assets:
Cash generating unit
Dechra Veterinary Products EU
Dechra Veterinary Products NA
Dechra Pharmaceuticals Manufacturing — Skipton
Cash generating unit
Dechra Veterinary Products EU
Dechra Veterinary Products NA
Dechra Pharmaceuticals Manufacturing — Skipton
2015
Goodwill
carrying
value
£000
46,691
Indefinite
life assets
carrying value
£000
822
404
2,231
49,326
—
—
822
2014
Goodwill
carrying
value
£000
52,368
Indefinite life
assets carrying
value
£000
822
379
2,231
54,978
—
—
822
Total
value
£000
47,513
404
2,231
50,148
Total
value
£000
53,190
379
2,231
55,800
Pre-tax
discount
rate
%
11.0
13.3
10.1
Pre-tax
discount
rate
%
11.4
12.2
11.3
Key assumptions
The key assumptions implicit in the impairment review are those regarding the Board-approved business plan, medium and long term
growth rates and the discount rate.
The Board-approved business plan incorporates a number of key input assumptions, most notably regarding market growth
expectations, the competitive and legislative environments, lifecycle management, selling prices, product margins and direct costs.
The assumptions applied in the business plan are based on past experience and the Group’s expectation of future market changes
and, where applicable, are consistent with external sources of information.
The medium and long term growth rates of 3% and 0% respectively reflect a cautious estimate of expected future growth in the
Group’s markets, are no higher than those implicit in the Group’s strategic planning process, and do not exceed the long term growth
rates in the countries in which each CGU operates.
The pre-tax discount rates have been estimated using a market participant rate, which is adjusted after consideration of market
information, and risk adjusted dependent upon the specific circumstances of each asset or cash generating unit.
Sensitivity Analysis
We have performed sensitivity analyses around the key assumptions and have concluded that no reasonable changes in key
assumptions would cause the recoverable amount to be less than the carrying value. 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.
Additionally, given the recent sales decline of our FAP products, the value of FAP assets was given particular attention. We stressed
tested the FAP intangibles to reflect a cautious estimate of potential changes in the market and this would not result in an impairment
due to a combination of continued amortisation of these assets together with a realistic assessment of their value on original
acquisition (given expected market declines at the time).
128
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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
R&D tax credits
Employee benefit obligations
Assets
Liabilities
Net
2015
£000
—
—
165
480
1,210
99
129
667
2,750
2014
£000
—
—
477
303
719
90
—
292
1,881
2015
£000
(17,235)
(1,806)
—
—
—
—
—
—
(19,041)
2014
£000
(21,738)
(1,641)
—
—
—
—
—
—
(23,379)
2015
£000
(17,235)
(1,806)
165
480
1,210
99
129
667
(16,291)
2014
£000
(21,738)
(1,641)
477
303
719
90
—
292
(21,498)
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 (2014: £nil). The estimated unprovided deferred tax liability in relation to these temporary differences is £nil
(2014: £nil). Deferred tax assets in relation to losses amounting to £6,000 (2014: £6,000) have not been recognised due to uncertainty
over their recoverability.
(c) Movements during the Year
Intangible assets
Property, plant and equipment
Inventories
Payables
Share-based payments
Losses
Employee benefit obligations
Intangible assets
Property, plant and equipment
Inventories
Payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations
Balance at
1 July
2013
£000
(27,548)
(1,896)
1,067
212
964
—
17
(27,184)
Balance at
1 July
2014
£000
(21,738)
(1,641)
477
303
719
90
—
292
(21,498)
Recognised
in income
£000
4,147
(42)
(596)
71
(154)
94
287
3,807
Recognised
in income
£000
2,072
(293)
(342)
179
172
9
129
315
2,241
Recognised
in equity
£000
—
—
—
29
(91)
—
—
(62)
Recognised
in equity
£000
—
—
—
(4)
319
—
—
97
412
Foreign
exchange
adjustments
£000
1,629
104
6
(9)
—
(4)
(12)
1,714
Foreign
exchange
adjustments
£000
2,431
128
30
2
—
—
—
(37)
2,554
Balance at
30 June
2014
£000
(21,738)
(1,641)
477
303
719
90
292
(21,498)
Balance at
30 June
2015
£000
(17,235)
(1,806)
165
480
1,210
99
129
667
(16,291)
Disposals
£000
34
193
—
—
—
—
—
227
Disposals
£000
—
—
—
—
—
—
—
—
—
129
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
2015
£000
10,131
1,159
20,454
31,744
2015
£000
27,705
1,268
579
1,380
30,932
2015
£000
45,948
2015
£000
10,370
7,813
138
3,861
8,843
31,025
2015
£000
8,659
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
15. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
16. Trade and Other Receivables
Trade receivables
Other receivables
Available for sale financial assets (note 22)
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
130
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 20. Borrowings
Current liabilities:
Finance lease obligations
Bank loans
Non-current liabilities:
Finance lease obligations
Bank loans
Total borrowings
2015
£000
8
—
8
—
32,519
32,519
32,527
2014
£000
103
—
103
7
31,653
31,660
31,763
In September 2014, the Group refinanced its existing bank facility, which gave rise to a loss on extinguishment of debt of £0.4 million 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.
Resetting of foreign currency borrowings within the prior year 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.
At the year end, the Group had the following unutilised borrowing facilities:
Bank overdraft facility
2015
£000
—
2014
£000
—
The revised borrowing facility is not secured on any specific assets of the Group but is supported by a joint and several cross-
guarantee structure. Interest will be charged at 1.30% over LIBOR. All covenants were met during the year ended 30 June 2015.
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
2015
£000
—
—
32,519
32,519
2014
£000
—
31,653
—
31,653
131
Our FinancialsStock Code: DPHslugline 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
2015
£000
8
—
—
8
—
8
2014
£000
103
7
—
110
—
110
2015
£000
8
—
—
8
—
8
2014
£000
103
7
—
110
—
110
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 £53,000
(2014: £182,000) for employees in the Netherlands are recognised within other payables in the Consolidated Statement of Financial
Position as at 30 June 2015.
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
2015
2.80%
1.80%
2.30%
1.00%
0.00%
0.00%
2014
3.40%
1.80%
2.30%
1.20%
0.00%
0.00%
In valuing the liabilities of the pension scheme at 30 June 2015 and 30 June 2014, mortality assumptions have been made as
indicated below.
The mortality assumption follows the Prognosetafel AG2014 (2014: 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
2015
£000
(7,210)
5,899
(1,311)
2014
£000
(5,927)
4,857
(1,070)
132
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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
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
2015
£000
5,927
702
203
158
900
(680)
7,210
2015
£000
4,857
167
(116)
594
158
789
(550)
5,899
2015
£000
702
36
116
854
2015
£000
908
111
1,019
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
2014
£000
772
136
908
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
2015
£000
2.80%
5,899
167
2014
£000
3.40%
4,857
159
133
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
21. Employee Benefit Obligations continued
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 £621,000 (2014: £694,000).
History of Amounts in the Current Period
Present value of funded defined benefit obligations
Fair value of scheme assets
Deficit in the scheme
2015
£000
(7,210)
5,899
(1,311)
2014
£000
(5,927)
4,857
(1,070)
2013
£000
(4,722)
3,726
(996)
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 2015, net cash was £13.4 million
(2014: net borrowings of £5.0 million), whilst shareholders’ equity was £194.5 million (2014: £204.8 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 interest cover, and net debt to EBITDA. The Group
comfortably complied with these covenants in 2015 and 2014.
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.
134
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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:
•
•
•
£90.0 million revolving credit facility, of which £32.5 million was drawn down at 30 June 2015;
an Accordion facility of £30.0 million, of which £nil was drawn down at 30 June 2015; and
various finance leases.
The Group’s undrawn borrowing facilities at 30 June 2015 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 0.88% on the revolving credit facility. The amount of the
revolving credit outstanding at 30 June 2015 was £32.5 million (2014: £31.7 million). The hedge is in place until 31 October 2016.
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.
135
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
22. Financial Instruments and Related Disclosures continued
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations.
The Group considers its maximum credit risk to be £29.6 million (2014: £29.2 million), which is the total carrying value of the Group’s
financial assets excluding cash and cash equivalents.
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 principal customers of the Pharmaceuticals Segments are European, US, Canadian and Rest of World wholesalers and
distributors. The failure of a large wholesaler could have a material adverse impact on the Group’s financial results.
The largest customer of the Group accounted for approximately 13.8% of gross trade receivables at 30 June 2015 (2014: 8.4%). No
customer accounted for more than 10% of total Group revenues.
Receivables are written off against the impairment provision when management considers the debt to be no longer recoverable.
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 2015 and
30 June 2014.
The following assumptions were used to estimate the fair values:
•
•
•
•
•
•
•
Cash and cash equivalents — approximated to the carrying amount.
Forward exchange contracts — based on market price and exchange rates at the balance sheet date.
Available for sale financial instruments — based on the market rates at 30 June 2015.
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 — approximated 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 2015 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.
136
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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
Available for sale financial instruments
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
45,948
45,948
579
27,705
1,268
28,973
75,500
2015
2014
Fair
value
£000
45,948
45,948
579
27,705
1,268
28,973
75,500
Carrying
value
£000
26,773
26,773
—
28,325
857
29,182
55,955
Fair
value
£000
26,773
26,773
—
28,325
857
29,182
55,955
(32,519)
(32,519)
(31,653)
(31,653)
(138)
(8)
(10,370)
(7,813)
(7,829)
(58,677)
16,823
(138)
(8)
(10,370)
(7,813)
(7,829)
(58,677)
16,823
(161)
(110)
(12,867)
(8,682)
(7,809)
(61,282)
(5,327)
(161)
(110)
(12,867)
(8,682)
(7,809)
(61,282)
(5,327)
In March 2015, the Group made an investment of US$1 million in Jaguar Animal Health Inc. (Jaguar) to potentially gain access to
the EU marketing rights for a companion animal product. At 30 June 2015, the Company holds 178,571 shares in Jaguar following
its IPO. The Company also holds 89,286 warrants, which are valid for three years. The shares and warrants have been classified as
available for sale financial instruments and have been valued at fair value at the period end, with any gains or losses being recognised
in the Consolidated Statement of Comprehensive Income.
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 2015
Available for sale financial instruments
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total
30 June 2014
Available for sale financial instruments
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total
Level 1
£000
579
—
—
579
Level 1
£000
—
—
—
—
Level 2
£000
—
(138)
—
(138)
Level 2
£000
—
(161)
—
(161)
Level 3
£000
—
—
(7,829)
(7,829)
Level 3
£000
—
—
(7,809)
(7,809)
Total
£000
579
(138)
(7,829)
(7,388)
Total
£000
—
(161)
(7,809)
(7,970)
At 30 June 2015, the deferred and contingent consideration balance is made up of £3.1 million in relation to the DermaPet acquisition,
£2.0 million for a US generic pharmaceutical product, and £2.7 million in relation to the Phycox acquisition. Movements in deferred and
contingent consideration consist of: a £0.6 million payment in the period and £0.2 million increase due to foreign exchange differences
in relation to the DermaPet acquisition; £0.2 million increase due to foreign exchange differences in relation to the US generic
pharmaceutical; and a payment of £0.3 million, £0.3 million of unwinding of discount and £0.2 million increase due to foreign exchange
differences in relation to the Phycox acquisition.
137
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
22. Financial Instruments and Related Disclosures continued
Credit Risk — Overdue Financial Assets
The following table shows financial assets which are overdue and for which no impairment provision has been made:
Overdue by:
Up to one month
Between one and two months
Between two and three months
Over three months
The movement in the impairment provision was as follows:
At start of period
Impairment provision recognised
Impairment provision utilised
At end of period
2015
£000
3,858
389
—
42
4,289
2015
£000
176
97
(10)
263
2014
£000
5,206
270
324
11
5,811
2014
£000
148
48
(20)
176
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 2015 and 30 June 2014. Where interest is at floating rates, the future interest payments have been estimated using current
interest rates:
At 30 June 2015
Carrying value
Future interest
Total committed cash flow
Payable:
Within 6 months
Between 6 months and 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Over 5 years
Deferred and
contingent
consideration
£000
(7,829)
(1,658)
(9,487)
Bank loans
and
overdrafts
£000
(32,519)
(1,109)
(33,628)
Finance
leases
£000
(8)
—
(8)
(3,386)
(1,161)
(434)
(456)
(479)
(462)
(3,109)
(9,487)
(132)
—
—
—
—
(33,496)
—
(33,628)
(8)
—
—
—
—
—
—
(8)
Trade and
other
payables
£000
(18,183)
—
(18,183)
(18,183)
—
—
—
—
—
—
(18,183)
Total
£000
(58,539)
(2,767)
(61,306)
(21,709)
(1,161)
(434)
(456)
(479)
(33,958)
(3,109)
(61,306)
138
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 22. Financial Instruments and Related Disclosures continued
At 30 June 2014
Carrying value
Future interest
Total committed cash flow
Payable:
Within 6 months
Between 6 months and 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Over 5 years
Deferred and
contingent
consideration
£000
(7,809)
(1,952)
(9,761)
Bank loans
and
overdrafts
£000
(31,653)
(588)
(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)
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
(21,549)
—
(21,549)
(21,549)
—
—
—
—
—
—
(21,549)
2015
£000
52
52
34
—
138
Total
£000
(61,121)
(2,540)
(63,661)
(22,597)
(213)
(36,267)
(403)
(423)
(445)
(3,313)
(63,661)
2014
£000
34
34
69
24
161
The Group has a contractual obligation to pay £44,000 (2014: £34,000) under its interest rate swap arrangement covering the period
from 30 June to 30 September 2015.
With the exception of the above disclosed, there are no other assets that have been impaired during the year.
139
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
22. Financial Instruments and Related Disclosures continued
Foreign Currency Exposure
The Sterling equivalents of financial assets and liabilities denominated in foreign currencies at 30 June 2015 and 30 June 2014 were:
At 30 June 2015
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 2014
Financial assets
Trade receivables
Other receivables
Cash balances
Financial liabilities
Bank loans and overdrafts
Trade payables
Other payables
Derivatives
Net balance sheet exposure
Danish
Krone
£000
—
—
10,286
10,286
—
(11)
—
—
(11)
10,275
Danish
Krone
£000
1,530
48
409
1,987
—
(630)
—
—
(630)
1,357
Euro
£000
1,755
—
—
1,755
(8,282)
(1,979)
(1,864)
(63)
(12,188)
(10,433)
Euro
£000
4,825
110
5,300
10,235
(6,258)
(1,444)
—
(86)
(7,788)
2,447
US
Dollar
£000
—
1,001
791
1,792
(28,616)
(726)
(148)
(76)
(29,566)
(27,774)
US
Dollar
£000
349
—
721
1,070
(28,321)
(503)
(2,457)
(75)
(31,356)
(30,286)
Other
£000
83
—
1,154
1,237
—
(288)
(1,183)
—
(1,471)
(234)
Other
£000
8,377
234
3,940
12,551
—
(97)
—
—
(97)
12,454
Sensitivity Analysis
Interest Rate Risk
A 2.0% increase in interest rates compared to those ruling at 30 June 2015 would reduce Group profit before taxation and equity by
£143,000 (2014: £138,000).
140
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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 after taxation of a 10% appreciation of Sterling against each of these
currencies. In this analysis, financial assets and liabilities are only considered sensitive to foreign exchange rates where they are not in
the functional currency of the entity that holds them. There is no impact on other equity reserves.
Danish Krone
US Dollar
Euro
Profit after
taxation
£000
731
(1,977)
(743)
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
profitability and the balance sheet from such movements.
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 interest rate swaps on the revolving credit facility of £32.5 million. The Group has designated these as
cash flow hedges. The risk being hedged is the variability of cash flows arising from movements in interest rates. During the period,
£20,000 was written off to the Consolidated Income Statement as an ineffective hedge. All other hedges remained effective throughout
the period.
The hedges are 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 2015 was a liability of £94,000 including an income tax credit of £4,000
(2014: £132,000 including an income tax credit of £29,000).
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
2015
Number
87,712,564
258,599
87,971,163
£000
877
3
880
2014
Number
87,157,444
555,120
87,712,564
£000
872
5
877
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, 258,599 new ordinary shares of 1p (2014: 555,120 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 £375,035 (2014: £949,503). 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.
141
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continued
24. Own Shares
At beginning of the period
Recycled to profit and loss account
At end of period
2015
£000
606
(303)
303
2014
£000
—
606
606
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 2015 was 41,739 (2014: 83,478).
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 annual earnings per share targets. 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 £500 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.
142
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Exercised
Number
Granted
Number
Lapsed
Number
25. Share-based Payments continued
Year ended 30 June 2015
Exercise
price
per share*
Pence
Exercise
Period
Unapproved Share Option Scheme
2 April 2008†
10 October 2008†
30 March 2009†
1 March 2010†
28 February 2011†
10 September 2012
16 September 2013
5 March 2014
11 September 2014
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
2017–2024
Approved Share Option Scheme
19 March 2007†
2 April 2008†
1 March 2010†
2010–2017
2011–2018
2013–2020
28 February 2011†
10 September 2012
16 September 2013
11 September 2014
Long Term Incentive Plan
7 September 2011
5 March 2013
27 September 2013†
27 November 2013
15 September 2014
SAYE Option Scheme
13 October 2008
12 October 2009
13 December 2010
17 October 2011
16 October 2012
7 April 2014
13 October 2014
2014–2021
2015–2022
2016–2023
2017–2024
2014–2015
2016–2016
2014–2015
2016–2017
2017–2018
2011–2015
2012–2016
2013–2017
2014–2018
2015–2019
2017–2019
2017–2023
Total
Weighted average exercise price*
336.15
364.62
381.15
418.81
461.97
541.00
721.00
698.00
763.00
265.43
336.15
418.81
461.97
541.00
721.00
763.00
—
—
—
—
—
315.02
304.92
375.64
365.54
471.00
552.00
614.00
At
1 July
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
—
(8,166)
(6,531)
(6,531)
(18,458)
—
—
—
—
(39,686)
—
—
(2,150)
(4,932)
—
—
—
(7,082)
(161,041)
—
(41,739)
—
—
(202,780)
—
(16,005)
—
(34,785)
—
—
—
(50,790)
(300,338)
124.87p
At
30 June
2015
Number
9,915
11,976
20,683
14,143
18,461
63,244
47,842
2,000
60,817
249,081
7,620
9,766
5,360
5,545
10,756
15,158
15,183
69,388
—
226,168
41,739
276,012
275,332
819,251
5,306
3,418
16,379
6,825
59,599
—
—
—
—
—
—
—
—
62,817
62,817
—
—
—
—
—
—
15,183
15,183
—
—
—
—
275,332
275,332
—
—
—
—
—
—
—
—
—
—
(2,000)
(4,000)
—
(2,000)
(8,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(382)
—
124,033
124,033
477,365
284.21p
(8,821)
(3,531)
(12,734)
(20,734)
102,257
120,502
314,286
1,452,006
612.96p
244.39p
* 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 2015 are 145,208.
143
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
25. Share-based Payments continued
Year ended 30 June 2014
Exercise
price
per share*
Pence
Exercise
Period
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
2010–2017
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
Approved Share Option Scheme
5 April 2005†
15 March 2006†
19 March 2007†
2 April 2008†
10 October 2008†
2008–2015
2009–2016
2010–2017
2011–2018
2011–2018
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
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
Total
Weighted average exercise price*
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 were 191,976.
The weighted average exercise price of options eligible to be exercised at 30 June 2015 was 276.48p (2014: 312.8p).
For options exercised during the year, the weighted average market price at the date of exercise was 791p (2014: 694p). The
weighted average remaining contractual lives of options outstanding at the Consolidated Statement of Financial Position date was four
years (2014: four years).
144
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 25. Share-based Payments continued
Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2012 were exercisable at
30 June 2015. 41,739 options granted on 27 September 2013 under the Long Term Incentive Plan were exercisable at 30 June 2015.
No options issued under SAYE plans were exercisable at 30 June 2015.
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
15/09/14
275,332
764p
Nil
2.83 years
1.16%
23%
1.83%
596p
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
11/09/14
78,000
765p
763p
5 years
1.78%
27%
1.83%
164p
16/09/13 and
05/03/14
72,000
738p
721p
5 years
1.69%
33%
1.90%
197p
145
Our FinancialsStock Code: DPHslugline Notes to the Consolidated Financial Statements
continued
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
13/10/14
124,033
716p
614p
07/04/14
111,078
675p
552p
3.25 years
5.25 years
3.25 years
5.25 years
1.09%
1.55%
24%
26%
1.96%
150p
186p
1.21%
1.87%
24%
27%
2.13%
158p
193p
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 2015 of £735,000 (2014: £429,000), of which £123,000 (2014: £50,000) related to
vested options. The total charge to the Consolidated Income Statement in respect of share-based payments was:
Equity settled share-based transactions
Cash settled share-based transactions
The above charge to the Consolidated Income Statement is included within administrative expenses.
26. Analysis of Net Cash/(Borrowings)
Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net cash/(borrowings)
27. Operating Leases
2015
£000
1,767
481
2,248
2015
£000
(32,519)
(8)
45,948
13,421
2014
£000
1,616
378
1,994
2014
£000
(31,653)
(110)
26,773
(4,990)
At the balance sheet date the Group had outstanding commitments for future minimum rentals payable under non-cancellable
operating leases as follows:
Within one year
Between one and five years
In five years or more
Land and buildings
Other assets
Total
2015
£000
784
3,074
2,392
6,250
2014
£000
785
2,735
2,254
5,774
2015
£000
1,131
1,280
—
2,411
2014
£000
1,264
1,217
—
2,481
2015
£000
1,915
4,354
2,392
8,661
2014
£000
2,049
3,952
2,254
8,255
The Group leases properties, plant, machinery and vehicles for operational purposes. Property leases vary in length up to a period of
20 years. Plant, machinery and vehicle leases typically run for periods of up to five years.
146
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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
29. Acquisitions
Average rate
for 2014
8.9378
1.1981
1.6259
Closing rate
at 30 June
2014
9.3051
1.2480
1.6938
Average rate
for 2015
9.7175
1.3045
1.5834
Closing rate
at 30 June
2015
10.4869
1.4057
1.5728
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 was in the final phase of development and has been launched in the 2015 financial year under the trade
name of Levocrine. 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. During the year ended 30 June 2015,
US$0.5 million (£0.3 million) of the contingent consideration was paid.
Book value
£000
Fair value
£000
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
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 £0.1 million 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 £0.2 million. Phycox’s results are reported within the NA
Pharmaceuticals Segment.
Contingent consideration of US$1.5 million was paid on 20 June 2014 following the successful registration of Levocrine. The remaining
contingent consideration of US$4.2 million (£2.5 million) is dependent on 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). $0.5 million (£0.3 million) was paid during the
year.
147
Our FinancialsStock Code: DPHslugline 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 period, the Group paid a further US$1.0 million (£0.6 million) in respect of the acquisition of DermaPet, Inc.; this related to
deferred consideration which was paid on the fourth anniversary of the completion date.
The maximum further consideration payable is US$5.0 million, which is contingent upon revenue exceeding US$20.0 million in any
rolling 12 month period ending on the sixth anniversary of the completion date. After the year end, in August 2015, this US$5.0 million
has been paid. leaving no further consideration outstanding for this acquisition.
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 constituted a reporting segment in accordance with IFRS 8.
The results of the discontinued operations included in the profit for the prior year are set out below. The Segment was classified as
discontinued operations and as held for sale at 30 June 2013.
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.
2015
£000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2014
£000
48,259
(44,519)
3,740
(1,669)
(755)
—
1,316
—
1,316
(296)
1,020
38,711
(100)
39,631
148
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 30. Discontinued Operations continued
Cash Flows from Discontinued Operations
Net cash outflow from operating activities
Net cash inflow from investing activities
Net cash outflow from financing activities (including repayment of inter company funding)
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 previous year)
Net cash inflow
31. Related Party Transactions
2015
£000
—
—
—
2014
£000
(14,210)
89,626
—
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 subsidiaries is shown within the financial
statements of the Company on page 158.
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 81 to 95. 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
On 3 August 2015, Dechra announced that it had signed a conditional share purchase agreement (SPA) to acquire 63.3% of the
authorised shares (equivalent to 69% voting rights) in Genera d.d. (Genera), a Croatian listed pharmaceutical business. Under the
Croatian Takeover Rules, the conditional offer requires Dechra to make a mandatory offer for the remaining issued share capital of
Genera and is subject to approval by the Croatian Financial Services Agency (HANFA). The SPA is conditional on total aggregate
shareholder acceptances reaching 75% of the voting share capital.
Dechra has offered HRK179.60 per share, which was equivalent to €51.4 million, based on exchange rates in effect on the date
of signing, for the entire share capital on a cash free, debt free basis. This will be wholly payable in cash and is to be funded from
Dechra’s existing debt facilities.
Genera is the oldest and largest manufacturer of animal health products in the Republic of Croatia with a strong market share in its
local market and neighbouring countries. It operates three main divisions: Animal Health, which represents the majority of revenue;
Agrochemicals; and Human Pharmaceuticals. It operates from one manufacturing location in Kalinovica, Croatia and during 2014
employed 287 people.
149
Our FinancialsStock Code: DPHslugline Company Balance Sheet
At 30 June 2015
Fixed assets
Investments
Intangible assets
Tangible assets
Current assets
Debtors (includes amounts falling due after more than one year of £647,000
(2014: £501,000))
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
vi
vii
vii
x
xi
xi
xi
xi
2015
£000
282,416
3,367
682
286,465
14,430
—
14,430
(55,355)
(40,925)
245,540
(32,519)
213,021
880
124,801
(303)
(91)
87,734
213,021
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
The financial statements were approved by the Board of Directors on 7 September 2015 and are signed on its behalf by:
Ian Page
Chief Executive Officer
7 September 2015
Anne-Francoise Nesmes
Chief Financial Officer
7 September 2015
Company number: 3369634
150
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
Reconciliation of Movements in Shareholders’ Funds
For the year ended 30 June 2015
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
Losses arising in the period on available for sale financial assets
Share-based payments charge
Dividends paid
New shares issued
Own shares purchased
At end of year
2015
£000
182,218
42,514
(137)
178
(37)
1,767
(13,857)
375
—
213,021
2014
£000
142,650
50,320
(273)
141
—
1,616
(12,579)
949
(606)
182,218
151
Our FinancialsStock Code: DPHslugline 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 £42,514,000 (2014: £50,320,000). 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.
152
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline (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.
National Insurance contributions payable by the Company on the intrinsic value of share-based payments at the date of exercise
are treated as cash settled awards and revalued to market price at each balance sheet date.
Where the Company grants options over its own shares to the employees of its subsidiaries, it recharges the expense to those
subsidiaries.
153
Our FinancialsStock Code: DPHslugline
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 £2,906,000 (2014: £3,061,000). Information relating to
Directors’ emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 81 to 95.
(iii) Fixed Asset Investments
Cost
At 1 July 2014
Additions
At 30 June 2015
Impairment
At 1 July 2014
Charge for the period
At 30 June 2015
Net book value
At 30 June 2015
At 30 June 2014
Shares in
subsidiary
undertakings
£000
254,309
40,351
294,660
12,244
—
12,244
282,416
242,065
A list of subsidiary undertakings is given in note (xii).
During the year, the Company invested in Dechra Finance Limited, a wholly owned subsidiary incorporated in England and Wales.
154
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
(iv)
Intangible Assets
Cost
At 1 July 2014
At 30 June 2015
Amortisation
At 1 July 2014
Charge for the year
At 30 June 2015
Net book value
At 30 June 2015
At 30 June 2014
(v) Tangible Assets
Cost
At 1 July 2014
Additions
At 30 June 2015
Depreciation
At 1 July 2014
Charge for the year
At 30 June 2015
Net book value
At 30 June 2015
At 30 June 2014
(vi) Debtors
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (ix))
Available for sale financial instruments
Other debtors
Prepayments and accrued income
Intangible
assets
£000
5,114
5,114
1,235
512
1,747
3,367
3,879
Tangible assets
£000
274
531
805
66
57
123
682
208
2014
£000
14,072
1,975
501
—
11
1
16,560
2015
£000
11,284
1,775
647
579
96
49
14,430
Included in debtors are amounts of £647,000 (2014: £501,000) 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 (2014: £nil).
In March 2015, the Group made an investment of US$1.0 million in Jaguar Animal Health Inc. (Jaguar) to potentially gain access to the
EU marketing rights for their companion animal products. At 30 June 2015, the Company holds 178,571 shares in Jaguar following its
IPO. The Company also holds 89,286 warrants, which are valid for three years. The shares and the warrants have been valued at fair
value at the period end, with any gains or losses being recognised in the statement of recognised gains and losses.
155
Our FinancialsStock Code: DPHslugline 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
2015
£000
2,016
50,275
139
—
2,925
55,355
2014
£000
3,485
42,642
161
129
2,424
48,841
In accordance with FRS 21 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2015 of
11.82 pence per share (2014: 10.65 pence 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 2016. The total cost of the proposed final dividend is £10,398,000
(2014: £9,341,000).
Bank loans (see note (viii))
(viii) Borrowings
Borrowings due within one year
Bank overdraft
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
2015
£000
32,519
32,519
2014
£000
31,653
31,653
2015
£000
2,016
2,016
—
33,496
33,496
(977)
32,519
34,535
2014
£000
3,485
3,485
32,039
—
32,039
(386)
31,653
35,138
In September 2014, the Company refinanced its existing bank facility. The Company’s revised borrowing facility comprises a
£90.0 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. No interest has been capitalised during the year (2014: £nil).
The Company guarantees certain borrowings of other Group companies, which at 30 June 2015 amounted to £8,000
(2014: £110,000).
156
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline (ix) Deferred Tax
At 1 July 2014
Amounts recognised in profit and loss
Amounts recognised in equity
At 30 June 2015 (included in debtors)
The amounts provided for deferred taxation at 20% (2014: 20%) 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 2014
New shares issued
Allotted, called up and fully paid at 30 June 2015
£000
501
147
(1)
647
2014
£000
503
(2)
501
2015
£000
662
(15)
647
Ordinary shares
of 1p each
£000
877
3
880
Number
87,712,564
258,599
87,971,163
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 2015 under the various Group share option schemes are
shown in note 25 to the Consolidated Financial Statements.
(xi) Reserves
At 1 July 2014
New shares issued
Own shares recycled to profit and loss account
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
Losses arising in the period on available for sale financial assets
Dividend (see note 9 to the consolidated financial statements)
Share-based payments charge
At 30 June 2015
Share
premium
account
£000
124,429
372
—
—
—
—
—
—
—
124,801
Own
shares
£000
(606)
—
303
—
—
—
—
—
—
(303)
Hedging
reserve
£000
(132)
—
—
—
(137)
178
—
—
—
(91)
Profit
and loss
account
£000
57,650
—
(303)
42,514
—
—
(37)
(13,857)
1,767
87,734
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.
157
Our FinancialsStock Code: DPHslugline Notes to the Company Financial Statements
continued
(xii) Subsidiary Undertakings
Dechra Pharmaceuticals PLC is the ultimate parent and controlling party of the Group. The subsidiary undertakings of the Company, all
of which are wholly owned, are:
Company
Operating subsidiaries
Albrecht GmbH∞
Country of
Incorporation
Germany
Principal Activity
Cooperatieve Dechra Finance Netherlands W.A.^
Dechra LimitedΩ
Dechra Development LLC**
Dechra Finance B.V.***
Dechra Finance Limited
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 Sp z.o.o.**
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
Scanimal Health ApS∞
Marketer of veterinary pharmaceuticals and distributor of
veterinary pharmaceuticals and equipment
Activities of financial services holding companies
The Netherlands
England & Wales Developer, regulatory, manufacturer and marketer of
veterinary pharmaceuticals
Regulatory and product development
USA
Financial services
The Netherlands
Activities of financial services holding companies
England & Wales
Marketer of veterinary pharmaceuticals and pet diets
Canada
Marketer of veterinary pharmaceuticals and pet diets
Denmark
Marketer of veterinary pharmaceuticals and pet diets
Finland
Marketer of veterinary pharmaceuticals and pet diets
France
Marketer of veterinary pharmaceuticals and pet diets
Italy
Marketer of veterinary pharmaceuticals and pet diets
Norway
Marketer of veterinary pharmaceuticals and pet diets
Poland
Marketer of veterinary pharmaceuticals and pet diets
Spain
Sweden
Marketer of veterinary pharmaceuticals and pet diets
The Netherlands Marketer of veterinary pharmaceuticals and pet diets
England & Wales Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
USA
Belgium
Marketer of veterinary pharmaceuticals and pet diets
The Netherlands Manufacturer of veterinary pharmaceuticals and marketer of
veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Denmark
Other subsidiaries
Anglian Manufacturing Chemists Limited‡
Anglian Pharma Manufacturing Limited†
Anglian Pharma Limited
Arnolds Veterinary Products Limited*
Broomco 4263 Limited*
Cambridge Specialist Laboratory Services Limited§ England & Wales
Dales Pharmaceuticals Limited*
Dechra Investments Limited
Eurovet Animal Health Limited+
Farvet Laboratories BV∞
Leeds Veterinary Laboratories Limited
North Western Laboratories Limited
Veneto Limited
DermaPet, Inc.¶
In liquidation
England & Wales
In liquidation
England & Wales
England & Wales
In liquidation
England & Wales Non-trading
England & Wales Non-trading
In liquidation
England & Wales Non-trading
England & Wales Holding company
England & Wales
The Netherlands
England & Wales
England & Wales
England & Wales Holding company
USA
In liquidation
Non-trading
In liquidation
In liquidation
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.
*
Ω
§
†
‡
#
¶
** 100% of ordinary share capital held by Dechra Limited.
∞ 100% of ordinary share capital held by Eurovet Animal Health B.V.
^ Sole member being Dechra Finance Limited.
*** 100% of ordinary share capital held by Cooperatieve Dechra Finance Netherlands W.A.
+
100% of ordinary share capital held by Dechra Veterinary Products Limited.
158
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline 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)
Operating profit
Profit after taxation
Earnings per share
— basic (pence)
— diluted (pence)
Continuing earnings per share
— basic (pence)
— diluted (pence)
Consolidated Statement of Financial
Position
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets held for sale
Shareholders’ funds
Consolidated Statement of Cash
Flows
Net cash inflow from operating activities
Net cash (outflow)/inflow from investing
activities
Net cash (outflow)/inflow from financing
activities
2015
£000
203,480
44,351
35,307
40.17
39.90
40.17
39.90
16.94
25,980
19,459
22.14
21.99
22.14
21.99
2014
£000
193,571
42,168
31,849
37.61
37.48
36.45
36.32
15.40
24,996
19,416
67.57
67.33
22.22
22.14
2013
£000
189,176
39,108
25,464
38.98
38.71
29.27
29.07
14.00
18,336
10,850
20.59
20.45
12.47
12.39
2012
(Restated)†
£000
124,330
25,545
16,029
—
—
21.35*
21.28*
12.27*
10,272
3,905
—
—
5.20
5.18
2012
£000
2011
£000
426,041
36,601
24,302
32.37*
32.27*
—
—
12.27*
20,890
11,749
15.65*
15.60*
—
—
389,237
31,823
22,748
31.53*
31.43*
—
—
11.12*
21,718
14,134
19.59*
19.53*
—
—
183,506
108,624
(44,109)
(53,533)
—
194,488
214,440
86,334
(35,715)
(60,253)
—
204,806
235,670
89,672‡
(49,558)‡
(136,991)
35,823
174,616
237,132
86,863‡
(48,217)‡
(147,278)
25,182
153,682
242,592
161,829
(103,461)
(147,278)
—
153,682
132,819
137,549
(88,952)
(83,083)
—
98,333
40,983
11,472
36,865
(4,651)
76,575
(19,368)
(14,819)
(92,148)
(18,266)
—
—
—
19,242
16,754
(120,344)
(36,178)
103,708
18,867
* 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.
159
Our FinancialsStock Code: DPHslugline 2000
Dechra floated on the London Stock
Exchange in 2000 at £1.20 per share
with a market capitalisation
of £60.0 million
To learn more about Delivering Our Strategy
read pages 14 to 17.
View further content on our website:
www.dechra.com
®
slugline
Company
Information
162 Glossary
164 Shareholder Information
166 Advisers
slugline Glossary
The following is a glossary of a number of the terms and acronyms
which can be found within this document:
API
Active Pharmaceutical 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
CER
Constant Exchange Rate
CMC
Chemistry and Manufacturing Controls
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
Dechra Values or Values
Dedication, Enjoyment, Courage, Honesty, Relationships and
Ambition
DPM
Dechra Pharmaceuticals Manufacturing
DVP
Dechra Veterinary Products
DVP EU
Dechra Veterinary Products EU or Dechra Veterinary Products
Europe
DVP NA
Dechra Veterinary Products North America
EBIT
Earnings before interest and tax
EBITDA
Earnings before interest, tax, depreciation and amortisation
EPS
Earnings Per Share
ERP
Enterprise Resource Planning
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
GHG
Greenhouse Gas
GMP
Good Manufacturing Practice
HANFA
Hrvatska agencija za nadzor financijskih usluga (Croatian Financial
Services Agency )
HR
Human Resources
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
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
IT
Information Technology
KPI
Key Performance Indicator
LIBOR
The London Inter-Bank Offered Rate
LTAFR
Lost Time Accident Frequency Rate
162
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline
Company Information
SAYE
Save As You Earn Share Scheme
SET
Senior Executive Team
SG&A
Selling, General and Administrative Expenses
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
VMD
Veterinary Medicines Directorate
LTIP
Long Term Incentive Plan
MAT
Moving Annual Total
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
MPLS
Multiprotocol Label Switching
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
Ordinary Shares
An ordinary share of 1 pence in the share capital of the Company
Otitis Externa
A condition which causes inflammation of the external ear canal (the
tube between the outer ear and the ear drum)
Oracle Programme
Enterprise Resources Planing (ERP) software
PDRA
Dechra’s Product Development and Regulatory Affairs team
QC
Quality Control
R&D
Research and Development
RIDDOR
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations
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
ROCE
Return On Capital Employed
ROI
Return On Investment
RPI
Retail Price Index
S&OP
Sales and operations planning
163
Stock Code: DPHslugline
Shareholder Information
Financial Calendar
Interim Management Statement
2015 Annual General Meeting
Final Dividend Ex-Dividend Date
Final Dividend Record Date
Final Dividend Payment Date
23 October 2015
23 October 2015
29 October 2015
30 October 2015
20 November 2015
Annual General Meeting
The 2015 Annual General Meeting of the Company will be held
at 1.00pm on 23 October 2015 at the offices of the Company at
24 Cheshire Avenue, Cheshire Business Park, Lostock Gralam,
Northwich CW9 7UA. 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.
Share History
Dechra floated on the London Stock Exchange in September 2000
at £1.20 per share, with a market capitalisation of £60.0 million.
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
three new ordinary shares for every existing ten 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
* Calls to the 0871 number are charged at 10 pence per minute (excluding
VAT) plus telephone company access charges. Lines are open from 8.30am
to 5.30pm (London time) Monday to Friday (except UK public holidays).
164
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:
• Notification of change in name and address
• Enquiries about dividend payments
• Submission of proxy form for voting at the Annual General
Meeting
Shareholders who receive duplicate sets of Company mailings
because they have multiple accounts should contact Equiniti to have
their accounts amalgamated.
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 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
or a recent dividend tax voucher.
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
Balance over £50,000
Minimum charge
Stamp duty charge
(purchases only)
Telephone
share
dealing
Internet
share
dealing
1.5%
0.2%
1.5%
0.2%
£50.00
£45.00
Postal
share
dealing
1.75%
0.5%
£50.00
0.5%
0.5%
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.
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Company Information
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 www.fca.org.uk/scams.
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 164);
• 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.
165
Stock Code: DPHslugline 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
Barclays Bank PLC
One Snowhill
Snow Hill Queensway
Birmingham
B3 2WN
Principal Bankers continued
HSBC Bank plc
Midlands Corporate Banking Centre
4th Floor
120 Edmund Street
Birmingham
B3 2QZ
The Royal Bank of Scotland plc
Corporate Banking
1 Spinningsfield Square
Manchester
M3 3AP
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.
166
www. dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2015slugline Company Information
slugline 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
slugline