®
Annual Report and Accounts
for the year ended 30 June 2016
Company Number: 3369634
Acquisition
Geographical
Expansion
Portfolio
Focus
Pipeline
Delivery
Accelerating
our global growth strategy
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Dechra AR2016 Front.indd 3
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05/09/2016 17:24:20
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
Online Report
Visit our online annual report at:
dechra.annualreport2016.com
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
Icons are used within this report to assist the reader to identify
links to other relevant sections of interest
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 2016
www.dechra.com
Dechra AR2016 Front.indd 4
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05/09/2016 17:24:30
Financial Highlights
Overview
Total Revenue
Underlying Operating Profit
£247.6m
2015: £203.5m
CER*: Up 21.7%
£: Up 21.7%
£52.9m
2015: £44.4m
CER*: Up 20.9%
£: Up 19.1%
Underlying Diluted
Earnings per Share
42.65p
2015: 39.90p
CER*: Up 8.9%
£: Up 6.9%
193.6
203.5
247.6
42.2
44.4
52.9
36.32
39.90
42.65
2014
2015
2016
2014
2015
2016
2014
2015
2016
Dividend per Share
Reported Operating Profit
18.46p
2015: 16.94p
CER*: Up 9.0%
£: Up 9.0%
£19.5m
2015: £26.0m
CER*: Down (17.3%) £: Down (25.0%)
Diluted Reported
Earnings per Share
13.90p
2015: 21.99p
CER*: Down (28.9%) £: Down (36.8%)
15.40
16.94
18.46
25.0
26.0
19.5
22.14
21.99
13.90
2014
2015
2016
2014
2015
2016
2014
2015
2016
* 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 38.
† Non-underlying items comprise amortisation and impairment of acquired intangibles, acquisition expenses, fair value of uplift of inventory acquired through business
combinations, rationalisation costs, loss on extinguishment of debt and reversal of fair value and other movements on deferred and contingent consideration.
Operational Highlights
Strong financial performance:
• Revenue growth in our existing EU Pharmaceuticals Segment
was 5.7% (at CER) driven by solid performance in Companion
Animal Products (CAP) and return to growth of Food producing
Animal Products (FAP).
• Continued excellent performance in our existing
NA Pharmaceuticals Segment, with revenue increased by 37.9%
(at CER); all core therapeutic sectors performing well.
• Consolidated revenue increased by 21.7% (at CER).
• Cash generation of 106.8% allowed us to absorb the costs
associated with the acquisitions whilst maintaining a prudent
cash position.
Strategic progress made:
• Three value added acquisitions completed.
• Product development pipeline continues to deliver results:
recently launched products Osphos® and Zycortal® gaining good
market penetration.
• Geographical expansion enhancing revenue growth with good
performance in Poland and Canada and new-start up in Austria.
Stock Code: DPH
Dechra AR2016 Front.indd 1
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05/09/2016 17:24:32
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,
poultry vaccines, pet diets and
complementary generics through:
Pipeline Delivery
a
b
c Portfolio Focus
Geographical Expansion
Acquisition
• 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
• Maintain strong cash generation
l
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s
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i
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x
a
M
Read our Corporate Social
Responsibility Report
on pages 46 to 53.
Read Delivering Our Strategy
on pages 13 to 15.
See our Financial History
on page 161.
02
Dechra AR2016 Front.indd 2
05/09/2016 17:24:36
Overview
IFC Welcome to Dechra Pharmaceuticals PLC
Financial and Operational Highlights
01
Navigating this Report
02
Strategic Report
Group at a Glance
06
Chairman’s and Chief Executive Officer’s Statement
08
Delivering Our Strategy
13
Strategy in Action
16
23 Q&A with Ian Page
Our Business Model
24
Our Business Model Explained
25
Creating Value
27
Our Geographical Footprint
27
Our Marketplace
28
Our Key Products
30
International Footprint
34
Product Development
36
Financial Review
38
Key Performance Indicators
44
Corporate Social Responsibility
46
How the Business Manages Risk
54
Understanding Our Key Risks
56
Our Governance
62
64
72
77
79
92
97
Board of Directors
Corporate Governance
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors’ Report – Other Disclosures
Statement of Directors’ Responsibilities
Our Financials
100 Independent Auditor’s Report
107 Consolidated Income Statement
108 Consolidated Statement of Comprehensive Income
109 Consolidated Statement of Financial Position
110 Consolidated Statement of Changes in
Shareholders’ Equity
111 Consolidated Statement of Cash Flows
112 Notes to the Consolidated Financial Statements
150 Company Statement of Financial Position
151 Statement of Changes in Shareholders’ Equity
152 Notes to the Company Financial Statements
161 Financial History
Company Information
164 Glossary
166 Shareholder Information
168 Advisers
How Our Business Operates
Group at a
Glance
Our Business
Model
06
24
Viability
Statement
70
Delivering
Our Strategy
13
Financial
Review
38
Product
Pipeline
37
Corporate
Social
Responsibility
46
Managing
Risk
54
Stock Code: DPH
Dechra AR2016 Front.indd 3
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05/09/2016 17:24:37
slugline0404Dechra AR2016 Front.indd 405/09/2016 17:24:38 slugline0505Strategic Report06Group at a Glance08Chairman’s and Chief Executive Officer’s Statement13Delivering Our Strategy16Strategy in Action23Q&A with Ian Page 24Our Business Model25Our Business Model Explained27Creating Value27Our Geographical Footprint28Our Marketplace30Our Key Products34International Footprint36Product Development38Financial Review44Key Performance Indicators46Corporate Social Responsibility54How the Business Manages Risk56Understanding our Key Risks05Dechra AR2016 Front.indd 505/09/2016 17:24:39 Group at a Glance
EU Pharmaceuticals
Revenue for the EU
Pharmaceuticals Segment
Profit Evolution for EU
Pharmaceuticals Segment
49.0
48.0
51.7
£188.9m
m
£
t
fi
o
r
P
60.0
50.0
40.0
30.0
20.0
10.0
0
2014
2015
2016
All figures are at AER.
Diets 12.9%
Other 13.7%
CAP 46.1%
CAP 46.1%
Equine 7.9%
FAP 19.4%
Equine 7.9%
FAP 19.4%
Diets 12.9%
Other 13.7%
Dechra Veterinary Products EU (DVP EU)
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 386 people. Inventory is
managed through a central distribution
centre in Uldum.
DVP EU has sales operations in 15
countries: Austria, 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 Products
(CAP), Equine medicines and Food producing
Animal Products (FAP). DVP EU also markets
a range of specialist, therapeutic and
maintenance pet diets, branded Specific™.
Genera
In October 2015, Dechra acquired
Genera d.d., which has sales operations
in four markets, namely Croatia, Bosnia-
Herzegovina, Serbia and Slovenia. Genera
markets a range of FAP, agrochemicals and
feed additives. It also develops and sells a
range of poultry vaccines. Genera employs
120 people (excluding Manufacturing and
Product Development and Regulatory Affairs
(PDRA)).
506
Employees
19
Countries
Dechra Pharmaceuticals Manufacturing (DPM)
DPM produces the majority of Dechra’s
pharmaceuticals and manufactures for third
parties on a contract basis. The objectives are
to produce Dechra’s product range efficiently
to the highest quality standards, to maintain
a reliable supply chain and to contribute
profit to the business through third party
manufacturing.
Skipton, UK
The site at Skipton employs 232 people.
It offers a comprehensive range of
manufacturing and packing services,
principally for CAP. It 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 Netherlands
The site at Bladel employs 126 people and
manufactures products for food producing
animals in large-scale batches. It 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.
Zagreb, Croatia
The Genera site in Zagreb, Croatia employs 97
people. It has a poultry vaccine manufacturing
facility, a liquids facility and a solid dose suite
which is EU approved. In addition, it has a
feed additive facility which is solely used for
third party manufacturing.
507
Employees*
5
Manufacturing Sites*
* Includes Melbourne, Florida and Brovel, Mexico City
06
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
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07Strategic Report
172
Employees*
3
Countries
* Excludes Manufacturing at Melbourne, Florida and
Brovel, Mexico City and PDRA at Portland, Maine
in Portland, Maine. Significant progress has
been made on the integration of Putney’s
commercial teams into the DVP US structure,
strengthening our US expertise. Excluding
PDRA, it employs 28 people.
Mexico
Brovel, a small family owned business, was
acquired in January 2016. It manufactures
and sells a diverse range of products for
dogs, horses and cattle, mainly in Mexico and
also exports to Central American countries.
Excluding manufacturing, it employs 38
people.
92
Employees
6
Locations
07
05/09/2016 17:24:40
North America Pharmaceuticals
Revenue for NA
Pharmaceuticals Segment
Profit Evolution for NA
Pharmaceuticals Segment
6.0
10.6
17.5
£58.7m
m
£
t
fi
o
r
P
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0
Other 1.8%
All figures are at AER.
2014
2015
2016
CAP 86.1%
CAP 00%
Equine 9.6%
FAP 2.5%
Equine 00%
Dechra Veterinary Products North America
(DVP NA) markets and sells Dechra’s
veterinary products across Canada (DVP
Canada), Mexico (Dechra-Brovel) 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 five senior managers, DVP US has 85
employees, who consist of field-based sales
representatives, marketing professionals,
in-house veterinarians, field veterinarians,
technical support staff and a customer
service team. DVP US currently markets
CAP and Equine medicines.
In addition there is a manufacturing site
at Melbourne, Florida which employs 16
people, and currently manufactures Phycox®.
DVP Canada was established in January
2015 and currently employs 10 people.
The office is located in Montreal.
DVP Canada markets CAP and Equine
medicines.
Putney
Acquired in April 2016, Putney develops and
markets a range of generic CAP. It is based
Product Development and Regulatory Affairs
Development Spend
8.2
8.7
10.3
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
m
£
d
n
e
p
s
t
n
e
m
p
o
e
v
e
D
l
2014
2015
2016
All figures are at AER.
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 licences.
A total of 92 people work across European
and US Regulatory Affairs, Pharmaceutical
Development and Product Development.
They work at four existing locations in
Overland Park, USA, Sansaw, England,
Skipton, England, and Bladel, the
Netherlands. Three new teams were added
with our recent acquisitions based in
Portland, USA; Zagreb, Croatia; and Mexico
City, Mexico.
The team includes highly qualified academics,
veterinarians, formulation chemists,
pharmacists, analysts, clinical trial managers
and product development managers.
Stock Code: DPH
Dechra AR2016 Front.indd 7
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Chairman’s and Chief Executive Officer’s Statement
With three acquisitions,
pipeline product launches,
successful trading in our new
subsidiaries and solid growth
in our focus portfolio, Dechra
has delivered another strong
performance in the 2016
financial year.”
Read the Financial Review
on pages 38 to 43.
Read Delivering Our Strategy
on pages 13 to 15.
Michael Redmond
Non-Executive Chairman
Ian Page
Chief Executive Officer
13.9%
Revenue growth
in EU
Progress has been
made in all aspects
of our key strategic
growth drivers
We are pleased to report that the Group has
delivered a strong financial performance, has
continued to implement its strategic objectives
and has invested in its infrastructure, people,
product development and acquisitions to
further its future objectives. Progress has been
made in all aspects of our key strategic growth
drivers:
• Portfolio Focus: we continue to
outperform in the majority of therapeutic
areas and markets in which we trade,
significantly so within the US;
• Pipeline Delivery: our product
development pipeline has delivered
two novel global products and several
regional and national registrations in the
period;
• Geographical Expansion: we benefited
from a solid performance in territories
established in the previous financial year
and have established positions in Austria,
the Adriatic region and Mexico within the
financial year;
• Acquisitions: three acquisitions have
been made in the year, providing
critical mass and an enhanced product
development pipeline in the US market,
poultry vaccine development capabilities
to broaden our EU Food producing
Animal Products (FAP) business and a
marketing and registration platform for
Dechra’s portfolio in Mexico.
Portfolio Focus
Dechra Veterinary Products Europe
(DVP EU)
Growth in the existing DVP EU business
during the year was modest at 5.7% at CER.
Including the eight months contribution from
Genera, it was 13.9% at CER.
Our Companion Animal Product (CAP)
sales were driven predominantly by strong
performance in endocrinology, and anaesthetics
and analgesics. Within endocrinology, Vetoryl®
continues to grow in all major territories
and the launch of Zycortal into 14 countries
has strengthened our position in this key
therapeutic sector. Our equine portfolio has also
performed well. Osphos has been launched
across all major territories and is performing to
our expectations. We are also re-positioning
Equipalazone® following palatability trials.
The recovery in FAP that was reported in the
first half has continued in the remainder of the
financial year. The decline in antibiotic sales in
Germany has slowed and after several years of
decline in the Netherlands we are now seeing
sales flatten. Against this background, overall
growth has been achieved by increasing market
penetration in Poland and in countries where we
had a lower market share historically, such as
the UK, France, Italy and Spain. We have also
launched Solamocta®, a new antibiotic lifecycle
improvement which will be key to our recovery
in Germany. Other new product registrations
have been received within FAP and are being
prepared for imminent launch in Europe which
should ensure that we continue to see positive
momentum within this important therapeutic
sector.
08
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
Dechra AR2016 Front.indd 8
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05/09/2016 17:24:44
Ian Page
Chief Executive Officer
Diet sales have not fully returned to previous
levels following the supply problems in the
previous financial year. We have appointed an
experienced manager to focus on developing
our therapeutic diets business and have
recently won two new contracts with major
veterinary groups which should ensure an
improved position in the future.
DVP North America (DVP NA)
Performance within our existing North
American business remains exceptional with
revenue growth of 37.9% at CER. Including
Putney and Brovel since acquisition it was
59.5% at CER. The US has driven the majority
of this growth as we continue to gain strong
market penetration in our key focus areas of
dermatology and endocrinology. This growth
has been enhanced by a good performance
from Phycox, strong growth and traction
with Osphos and the successful launch of
Zycortal in March 2016. Furthermore, our
biggest product, Vetoryl capsules, delivered
double digit growth as we have maintained
our educational and marketing campaign
and introduced a low dose 5mg capsule to
increase flexibility on dosing options. DVP
Canada delivered a good performance across
the portfolio which was also enhanced by the
launch of Osphos and Zycortal. The business
has also benefited from the acquisition and
launch of HY-50® in the territory, a product
which we have marketed in Europe since its
acquisition in January 2012.
The primary focus of the management team
towards the end of the trading period was to
integrate the commercial team from the recent
acquisition of Putney. The enlarged team will
give Dechra improved penetration and more
direct contact with US veterinary practices
to enhance sales of the Dechra and Putney
range of veterinary pharmaceuticals. Brovel,
the newly acquired Mexican business, is
managed by an internally promoted Country
Manager, Arturo Bravo, and a newly appointed
Finance Director, Rocío Aguirre, and reports
under our DVP NA segment.
Pipeline Delivery
Team Integration
Following the acquisition of Putney and the
assessment of the drivers behind the team’s
success, we have promoted its Director and
Head of the Development function,
Dr Anthony Lucas, to lead the enlarged
Group’s product development teams.
Dr Anthony Lucas will retain his current
regulatory team at Putney and will work closely
with Dr Susan Longhofer to ensure effective
utilisation of the Group’s resources.
Successful Approvals
Zycortal, a novel canine endocrine product
for the treatment of Addison’s disease, has
received approval throughout the EU, USA,
Canada and Australia.
Following the successful registration of
Osphos last year in the US and UK, approval
was subsequently received in 17 additional
EU countries in September 2015. Osphos
is a unique product which treats navicular
syndrome in horses.
We have also had numerous successes in
our FAP portfolio in Europe: two new water
soluble antibiotics, Solamocta and Phenocillin®
have been approved in 17 member states;
a liquid antibiotic, Metaxol, was approved in
18 member states; and our existing antibiotic
aerosol, Cyclospray®, was extended into
12 new territories.
09Strategic Report
59.5%
Revenue growth
in NA
Glossary
Terms used within this section:
CAP
Companion Animal Products
FAP
Food producing Animal Products
CER
Constant Exchange Rate
DVP EU
Dechra Veterinary Products Europe
DVP NA
Dechra Veterinary Products North America
Dechra AR2016 Front.indd 9
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09
05/09/2016 17:24:47
Chairman’s and Chief Executive Officer’s Statement
continued
12
Approval in
12 major European
markets for the
poultry vaccine,
Avishield ND
New pharmaceutical
development
laboratory in
Croatia
Read Strategy in Action:
Pipeline Delivery on pages
16 and 17.
Read Strategy in Action:
Portfolio Focus on pages
18 and 19.
Read Strategy in Action:
Geographical Expansion and
Acquisition on pages 20 to 22.
View further content on our
website: www.dechra.com
Our new Croatian facility has achieved
approval for a poultry vaccine, Avishield ND,
to treat Newcastle disease in 12 major
European markets and has also achieved a
number of other national registrations including
Egypt and Ukraine.
We continue to gain international approvals
to enhance our geographical expansion and
have received several registrations in both
established and developing markets around
the globe.
Pipeline Progress
In the period, we have terminated an early
stage project for canine ophthalmology
and a canine cardiology project. We have,
however, initiated eight new projects across
both FAP and CAP. Furthermore, successful
development has continued on the Genera
vaccines and Putney generics since
acquisition with significant filings being made
from both locations. To facilitate the increased
number of projects we have created a third
pharmaceutical development laboratory in
Zagreb, Croatia, staffed with five scientists
who will expand our formulation and analytical
development capabilities.
Geographical Expansion
Geographical expansion is progressing well.
In addition to the acquisition of Brovel, which
creates a foothold and an opportunity to
develop a presence in the significant Mexican
market, the acquisition of Genera provides
access to the smaller markets of Croatia,
Bosnia-Herzegovina, Serbia and Slovenia.
A greenfield start-up subsidiary has been
established in Austria which commenced
trading in January 2016. Initial sales are
progressing well. Our subsidiaries in Canada
and Poland, established in the prior financial
year, are performing well, with Poland being
above our expectations.
Acquisitions
Genera
In October 2015 Dechra acquired a controlling
interest in the shares of Genera d.d. for
€36.6 million (£26.8 million) which was funded
from existing cash and revolving debt facilities.
The objective of the acquisition was to broaden
our EU FAP business by entering into the
fast growing poultry vaccines market. The
business also provides us with a variety of dose
form manufacturing and technical know-how
in a low cost environment and extends our
geographical reach into the Adriatic region. We
have successfully completed the first major
steps of integration. Following consultation
with the Croatian authorities and trade unions,
we have rationalised the business to improve
efficiency and effectiveness and have integrated
the commercial, manufacturing and product
development teams into our global operations.
Additional focus has been provided to the
poultry vaccines unit which historically sold
products solely into less regulated developing
markets. It is now pleasing to report that they
have received their first approval for an EU
registered vaccine. Whilst one vaccine on its
own will not be commercially significant, it does
demonstrate that we have the correct quality
and regulatory capabilities in place to register
the core range necessary to market poultry
vaccines in Europe and other important world
markets.
Brovel
In January 2016, Dechra acquired 100% of
the share capital of Laboratorios Brovel S.A.
de C.V. (Brovel), a veterinary pharmaceuticals
company based in Mexico City. The Group
paid US$5.0 million (£3.3 million) consideration
in cash on completion and a further
US$1.0 million (£0.6 million) is contingent
upon Brovel reaching successful registration
milestones for Dechra’s products in Mexico.
Brovel was a family owned business with more
than 52 years’ experience in the production
and distribution of pharmaceutical veterinary
products. It has a diverse product portfolio
with a turnover of MxP$66.2 million
(£2.6 million). The Board believes this
acquisition will help open the significant
Mexican animal health market to Dechra as
well as offer the potential to access other Latin
American markets in the future. The primary
objective of this acquisition is to use it as
a platform to register and market Dechra’s
product portfolio. Several of our products have
been identified as suitable for the Mexican
market and the registration process with the
authorities has commenced.
Putney
In April 2016, Dechra acquired Putney Inc.
for US$200.0 million (£134.2 million) which
was funded by the refinancing of the existing
debt facilities and a placing of new shares
of approximately 5% of the Group’s issued
share capital. The acquisition was the most
complementary US opportunity we had
identified and provides significant scale
and access to a strong drug pipeline in the
key North American market. The business,
which had a turnover of US$49.6 million in
the year ended December 2015, markets
11 approved products and has a further 10
generic products in its pipeline which are
expected to be launched over the next five
years. Since acquisition we have started to
deliver synergies with the rationalisation of
duplicated functions and the integration of our
commercial teams. The product development
team, who have successfully registered 43.0%
of all generic CAP approvals in the US since
2012, are a key resource for Dechra.
10
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
Dechra AR2016 Front.indd 10
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05/09/2016 17:24:47
11Strategic Report
Our people remain the
most important enabler
to deliver success to
the Group.”
Strategic Enablers
People
Our people remain the most important enabler
to deliver success to the Group. We have
continued throughout the year to invest in
performance and talent management systems
and have also recently implemented a new
Oracle-based integrated HR system in 16
countries enabling us to better standardise
and monitor performance and reward
packages throughout the organisation. The
HR team have also been heavily engaged
in our recent acquisition activity in the due
diligence, communication, consultation and
restructuring of the businesses.
We are currently undergoing significant
change in our Board and Senior Executive
Team (SET). The current Chairman, Michael
Redmond, will step down from the Board in
October 2016 at our Annual General Meeting.
We have recruited his successor, Tony Rice,
who has been appointed to the Board as a
Non-Executive Director and will be appointed
as Chairman with effect from the conclusion
of the Company’s Annual General Meeting,
subject to his election. Chris Richards stepped
down from the Board as a Non-Executive
Director after almost six years of service with
the Company to further other opportunities.
We are currently engaged in the recruitment
process to add additional expertise to the
Non-Executive Directors on the Board. Anne-
Francoise Nesmes, the Chief Financial Officer
during the 2016 financial year, who supported
significant changes for Dechra over the last
three years, has also resigned from the Board.
She left the Company at the end of July 2016
to take up a role as Chief Financial Officer with
a FTSE 100 business. As announced on
17 August 2016, Richard Cotton is expected
to join the Company in January 2017 as Chief
Financial Officer. As outlined earlier in this
report, the SET is also being strengthened
with the promotion of Dr Anthony Lucas to
head up the Group’s product development
teams, and the appointment of a new Group
Manufacturing and Logistics Director, Greig
Rooney.
Technology
Oracle Roll Out
The roll out of the Oracle ERP system
continues to be one of the primary operational
objectives of the business. In April 2016
the core Oracle solution was successfully
implemented into DVP US. Following our
go-live for the Oracle Group Financial
Consolidation solution in June 2015, the full
Oracle roll out programme continues. We are
currently targeting a roll out to most sites in
2017 followed by an upgrade to the current
Manufacturing Oracle system.
Technology Upgrades
We have commenced Windows 10
deployment across all Group devices and
utilising Surface Pro 4 devices as standard
laptops for all personnel. New firewall security
models have been implemented and new
cyber security initiatives have been taken
to enhance system security and improve
user awareness. The Group now operates
on an MPLS network across all major sites
Dechra AR2016 Front.indd 11
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11
05/09/2016 17:24:49
Chairman’s and Chief Executive Officer’s Statement
continued
12.91
The Board is proposing
a final dividend
of 12.91 pence
per share
Good progress has
been made on the
integration of the recent
acquisitions
following the transition of DVP NA early in the
financial year. Work has begun to bring the
recently acquired businesses onto the Group’s
standardised systems.
Communication Tools
We have developed and launched a Group
Learning Management System, Delta,
enabling us to train employees across the
globe in a structured and standardised way.
Initial modules focus on policies such as
Anti-Bribery and Anti-Corruption and also,
from a commercial perspective, on sales
team training and the key technical and
unique selling points of our major products.
The Dechra Academy, which provides
online certified training for veterinarians and
veterinary nurses in our key therapeutic
sectors, has been enhanced and is well
received by veterinary professionals. We
are also developing social media marketing
tools with regular communications to our
customers across several media platforms.
The Group intranet is also undergoing
complete redevelopment to provide improved
capabilities for internal communication.
Manufacturing
People
Mike Annice, our Group Manufacturing
Director, retired in July of this year following
25 years with the Group. In preparation
for his retirement we have recruited his
successor, Greig Rooney, who has extensive
experience in the pharmaceutical, automotive
and food industries. Greig will operate out
of our Head Office site in Northwich and
will have responsibilities for all our global
manufacturing sites, Group logistics and
supply chain management. To assist Greig we
have appointed a new Manufacturing Finance
Director, Milton McCann, who commenced his
role with the Group in January 2016. We have
also promoted Andrew Parkinson to Group
Quality Director and have appointed Chris
Ashcroft as the Skipton Site Director.
Efficiency Improvements
In our previous financial year we made
an investment to upgrade the pre-mix
department in Bladel to increase batch
sizes and reduce the cost of goods. This
department is now fully commissioned and
product transfer to the new lines is under
way. We have also invested in a new tablet
and capsule blister packaging line in Skipton
which will increase volumes and speed,
therefore improving efficiency. This is currently
being commissioned and it is anticipated it
will be effective from the beginning of our new
financial year. Other initiatives to reduce the
cost of goods and improve efficiencies have
been implemented, resulting in raw material
price reductions, predominantly for our FAP.
We have also seen a small reduction in
material wastage rates and batch reject rates
are lower than the previous year.
Contract Manufacturing
Manufacturing volumes have increased overall
due to internal sales increasing; however,
like-for-like external sales have decreased
by 4.8% at CER due to reduced volume
with some customers. Overall contract
manufacturing has increased following the
Genera acquisition. Contract manufacturing
assists the Group in utilising capacity and
contributes to fixed overheads, thereby
improving the unit cost of goods for all
products, including Dechra’s own products.
Service to customers has increased with on-
time delivery ahead of internal targets and the
previous year.
Dividend
The Board is proposing a final dividend of
12.91 pence per share (2015: 11.82 pence
per share). Added to the interim dividend of
5.55 pence per share, this brings the total
dividend for the financial year ended 30 June
2016 to 18.46 pence per share, representing
9.0% growth over the previous year.
Subject to shareholder approval at the Annual
General Meeting to be held on 21 October
2016, the final dividend will be paid on
18 November 2016 to shareholders on the
Register at 28 October 2016. The shares will
be become ex-dividend on 27 October 2016.
Outlook
Although we anticipate a degree of
uncertainty following Brexit, the business is
naturally hedged by its geographical spread
and international sourcing. Any significant
downturn in the UK economy may impinge on
growth rates; however, we do not anticipate
any material effect on the Group.
Good progress has been made on the
integration of the acquisitions. Our pipeline
has also been strengthened through both new
internally generated ideas and the integration
of acquired development programmes. We
have continued to invest in people and the
infrastructure to ensure we maximise revenues
and execute our strategy successfully.
The Group continues to deliver growth and
identify opportunities across all aspects of our
strategy; we therefore continue to look forward
to the future with confidence.
The Strategic Report has been approved by
the Board and signed on its behalf by:
Michael Redmond
Non-Executive Chairman
5 September 2016
Ian Page
Chief Executive Officer
5 September 2016
12
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
Dechra AR2016 Front.indd 12
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05/09/2016 17:24:49
Delivering Our Strategy
13Strategic Report
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
Acquisition
Strategic Enablers
Manufacturing and
Supply Chain
Technology
People
Dechra Values
Dedication
Enjoyment
Courage
Honesty
Relationships
Ambition
Read the Chairman’s and Chief
Executive Officer’s Statement
on pages 8 to 12.
Read about Our Marketplace
on pages 28 and 29.
See Key Performance Indicators
on pages 44 and 45.
Read How the Business Manages
Risk on pages 54 and 55.
Stock Code: DPH
Dechra AR2016 Front.indd 13
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13
05/09/2016 17:24:49
Delivering Our Strategy
continued
Our Strategic Priorities
Our Progress in 2016
Key Challenges in 2016
Our Performance in 2016
Future Priorities
• Zycortal approved and launched in the US in March 2016 and in
14 European markets
• Following successful US and UK launches last year, Osphos launched
in 17 additional European countries
• Several FAP approved, notably Phenocillin and Solamocta (for turkeys
and ducks) launched in Q4 2016 in Germany and is due to be launched
in 17 other territories
• Pipeline prioritised and consolidated following our acquisitions of Genera
and Putney
• Double digit growth in key therapeutic areas with CAP growing by
19.4% and FAP by 43.2% at CER
• Roll out of digital technologies is progressing to plan, with the
implementation of our Learning Management System, Delta, which
enables product training to be disseminated to our sales representatives
• Results for the product
• New product revenue
• Continue to identify new opportunities by being innovative
from Jaguar Animal Health,
14.4% of total revenue
and promoting new product technologies and ideas
• 12 new products
• Build on the acquisition of Genera to develop
launched
a vaccines pipeline
• Expand our formulation and analytical capabilities with the
new development laboratory in Zagreb, Croatia
• Explore and negotiate in-licensing deals
• Ensure Putney pipeline is delivered
• Revenue of
£247.6 million
• Deliver CAP and FAP sales targets through
technical expertise and marketing campaigns
• Underlying EPS 42.65p
• Ensure opportunities for lifecycle management
• ROCE 16.1%
are identified early
• Continue to drive sales force effectiveness
Inc. have not met our
expectations
• Terminated one canine
ophthalmology project in
the Feasibility phase
• Terminated one canine
cardiology project
• Diets sales have not
returned to growth due
to challenging trading
conditions in Scandinavia
and palatability issues
• Continued emergence of
Corporates and buying
groups, putting some
pressure on margins
• Slowdown in German FAP
antibiotics sales
• Double digit growth in DVP NA (59.5% growth in revenue) at CER
• Austria started trading on 1 January 2016 and is trading in line with
expectations
• Regulatory approvals were obtained in several countries such as Brazil,
Egypt and Sri Lanka
• New Rest of the World organisation structure in place to drive focus
• Continued to build a
• One new subsidiary
• Obtain regulatory product approvals in defined markets,
significant presence in the
opened
including launching existing Dechra products in Mexico
Rest of World markets
through the newly acquired subsidiary, Brovel
•
Italy, Canada and
above expectations
Poland delivering to or
•
Identify opportunities to enter relevant target markets
• Seize opportunities arising from our recent acquisitions
• Three acquisitions completed: Genera, Brovel and Putney
• M&A market in animal
• £21.7 million revenue
• Deliver the value of our recent acquisitions
• Putney integration helps strengthen our US presence
• Genera integration on plan, new business structure defined
• Registration process of Dechra products commenced in Mexico
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.
a
b
c
Portfolio Focus
We are a specialist veterinary pharmaceuticals
business focused on CAP, Equine, FAP and Diets.
We look to maximise our revenue by focusing on
clearly defined therapeutic sectors.
Geographical Expansion
We have identified a number of markets that
present both volume and profit opportunities in
the medium to long term. Our entry strategies will
vary dependent on the local market dynamics.
Acquisition
Our priority is to target strategic acquisitions that
will expand our geographical footprint and/or
enhance our product portfolio. Acquisitions can
accelerate our expansion by providing entry into
new geographies.
• Good progress in our Oracle roll out with DVP US live in April 2016
• Complexity of inducting
• 5 quality audits passed
• Support new product launches and gain further FDA approval
Strategic Enablers
Our strategic enablers, Manufacturing and
Supply Chain, People, and Technology, support
the execution of our strategy.
• Commencement of a new Group Intranet platform for improved
communication and information sharing with all employees
• HR Cloud based IT system implemented in 16 countries
• Sales and Operations Planning (S&OP) process implemented in
DVP EU and DPM
• Restructuring programmes for Genera and Putney led successfully
14
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
Dechra AR2016 Front.indd 14
slugline
05/09/2016 17:24:51
health has been active and
from acquired
transaction multiples can
businesses
be high
• £164.9 million spend
• The execution of M&A
on acquisitions
transactions and integrating
new entities is time
consuming for employees
• Continue to explore potential acquisitions to find those which
align with our strategic goals
419 new employees
through recruitment and
acquisitions
successfully
in our manufacturing network as pipeline demands
• 13.1% employee
• Manage efficiently our increasingly complex manufacturing
turnover
network
• Continue to improve leadership effectiveness and quality of
talent in an expanded workforce
• Align compensation and reward system
• Continue to implement Oracle across the Group
• Develop solutions to support the mobile workforce
15Strategic Report
Our Strategic Priorities
Our Progress in 2016
Key Challenges in 2016
Our Performance in 2016
Future Priorities
Pipeline Delivery
in 17 additional European countries
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.
• Zycortal approved and launched in the US in March 2016 and in
14 European markets
• Following successful US and UK launches last year, Osphos launched
• Several FAP approved, notably Phenocillin and Solamocta (for turkeys
and ducks) launched in Q4 2016 in Germany and is due to be launched
in 17 other territories
and Putney
• Pipeline prioritised and consolidated following our acquisitions of Genera
We are a specialist veterinary pharmaceuticals
enables product training to be disseminated to our sales representatives
• Double digit growth in key therapeutic areas with CAP growing by
19.4% and FAP by 43.2% at CER
• Roll out of digital technologies is progressing to plan, with the
implementation of our Learning Management System, Delta, which
a
b
c
Portfolio Focus
business focused on CAP, Equine, FAP and Diets.
We look to maximise our revenue by focusing on
clearly defined therapeutic sectors.
Geographical Expansion
We have identified a number of markets that
present both volume and profit opportunities in
the medium to long term. Our entry strategies will
vary dependent on the local market dynamics.
• Austria started trading on 1 January 2016 and is trading in line with
expectations
Egypt and Sri Lanka
• Regulatory approvals were obtained in several countries such as Brazil,
• New Rest of the World organisation structure in place to drive focus
Acquisition
Our priority is to target strategic acquisitions that
will expand our geographical footprint and/or
enhance our product portfolio. Acquisitions can
accelerate our expansion by providing entry into
new geographies.
Strategic Enablers
Our strategic enablers, Manufacturing and
Supply Chain, People, and Technology, support
the execution of our strategy.
• Putney integration helps strengthen our US presence
• Genera integration on plan, new business structure defined
• Registration process of Dechra products commenced in Mexico
• Good progress in our Oracle roll out with DVP US live in April 2016
• Commencement of a new Group Intranet platform for improved
communication and information sharing with all employees
• HR Cloud based IT system implemented in 16 countries
• Sales and Operations Planning (S&OP) process implemented in
DVP EU and DPM
• Restructuring programmes for Genera and Putney led successfully
• New product revenue
14.4% of total revenue
• Continue to identify new opportunities by being innovative
and promoting new product technologies and ideas
• 12 new products
• Build on the acquisition of Genera to develop
launched
a vaccines pipeline
• Expand our formulation and analytical capabilities with the
new development laboratory in Zagreb, Croatia
• Explore and negotiate in-licensing deals
• Ensure Putney pipeline is delivered
• Revenue of
£247.6 million
• Deliver CAP and FAP sales targets through
technical expertise and marketing campaigns
• Underlying EPS 42.65p
• Ensure opportunities for lifecycle management
• ROCE 16.1%
are identified early
• Continue to drive sales force effectiveness
• Results for the product
from Jaguar Animal Health,
Inc. have not met our
expectations
• Terminated one canine
ophthalmology project in
the Feasibility phase
• Terminated one canine
cardiology project
• Diets sales have not
returned to growth due
to challenging trading
conditions in Scandinavia
and palatability issues
• Continued emergence of
Corporates and buying
groups, putting some
pressure on margins
• Slowdown in German FAP
antibiotics sales
• Double digit growth in DVP NA (59.5% growth in revenue) at CER
• Continued to build a
• One new subsidiary
significant presence in the
Rest of World markets
opened
•
Italy, Canada and
Poland delivering to or
above expectations
• Obtain regulatory product approvals in defined markets,
including launching existing Dechra products in Mexico
through the newly acquired subsidiary, Brovel
•
Identify opportunities to enter relevant target markets
• Seize opportunities arising from our recent acquisitions
• Three acquisitions completed: Genera, Brovel and Putney
• M&A market in animal
• £21.7 million revenue
• Deliver the value of our recent acquisitions
health has been active and
transaction multiples can
be high
from acquired
businesses
• £164.9 million spend
• The execution of M&A
on acquisitions
transactions and integrating
new entities is time
consuming for employees
• Continue to explore potential acquisitions to find those which
align with our strategic goals
• Complexity of inducting
419 new employees
through recruitment and
acquisitions
• 5 quality audits passed
• Support new product launches and gain further FDA approval
successfully
in our manufacturing network as pipeline demands
• 13.1% employee
• Manage efficiently our increasingly complex manufacturing
turnover
network
• Continue to improve leadership effectiveness and quality of
talent in an expanded workforce
• Align compensation and reward system
• Continue to implement Oracle across the Group
• Develop solutions to support the mobile workforce
Read the Chairman’s and Chief Executive
Officer’s Statement on pages 8 to 12.
Read our Strategy in Action
on pages 16 to 22.
See Key Performance Indicators
on pages 44 and 45.
Stock Code: DPH
Dechra AR2016 Front.indd 15
slugline
15
05/09/2016 17:24:52
Strategy in Action: Pipeline DeliveryFrom conception to marketing – Zycortal ‘making a difference’16sluglineDechra AR2016 Front.indd 1605/09/2016 17:24:59 Strategy in Action: Pipeline DeliveryDechra has specialised over the years in treating companion animal endocrine disorders through our key brands of Vetoryl, Forthyron® and Felimazole®. Identifying an Opportunity to Treat Addison’s DiseaseWe identified an opportunity to develop a product, Zycortal, for another endocrine disorder, hypoadrenocorticsm, better known as Addison’s disease. Addison’s disease is a relatively rare and under diagnosed condition with complex and often confusing symptoms. Fundamentally the dog is simply not well, off colour and they look depressed and lack energy. Given that the disease is more commonly found in young to middle aged dogs, we recognised that a well-supported, efficacious product would be of high value for veterinarians in delivering solutions to concerned pet owners. There were no approved products in the major European markets and, in the US, there was only one veterinary licensed product.Developing the ProductThe development team reviewed the potential product options and decided to work with one of our current active pharmaceutical ingredient suppliers to synthesize the complex DOCP (desoxycortone pivalate) molecule. Our formulation chemists were challenged with developing a superior product to the one currently licensed in the US. We developed a more user friendly product with a subcutaneous injection and flexible duration between dose administration.Not everything went to plan as a major challenge occurred when our selected contract manufacturing site closed. This meant a delay in the process while we reviewed alternative options. We decided to upgrade our own facility in Skipton to manufacture the product and seek FDA approval for the terminally sterilised injections suite. The investment in this solution also minimises potential supply risks. Preparing for the Product LaunchIn parallel to the development process, the central technical and marketing teams worked on the launch, utilising the expertise of key opinion leaders and experienced colleagues from across a wide range of markets. A proposition encouraging veterinarians to ‘look beyond the obvious’ was developed as a means to raise awareness and educate them about Addison’s disease. This basic premise was backed up by some striking imagery delivered across support materials ranging from diagnostic brochures and product support pieces to pet owners’ leaflets and case studies.A key part of a successful launch plan is the training of Dechra sales teams. A two day seminar with sessions on sales, marketing and technical training was organised, attended by representatives from all countries.The product had its first public showing at VetMadrid 2016 – AMVAC (Asociación Madrileña de Veterinarios de Animales de Compañía) in early March and BSAVA 2016 (British Small Animal Veterinary Association) in early April. Several months on, the product has been launched in the US and most of our EU markets, it is being well received by our veterinary customers and pet owners and is making a difference to canine health.17171717Strategic ReportsluglineDechra AR2016 Front.indd 1705/09/2016 17:25:01 18181818Strategy in Action: Portfolio FocusabcIncreasing our focus on FAP to drive performance18sluglineDechra AR2016 Front.indd 1805/09/2016 17:25:03 191919Strategy in Action: Portfolio FocusIncreasing our focus on FAP to drive performanceWe set up a dedicated FAP Business Unit (BU) to identify growth opportunities, stem the previous year’s decline and coordinate our response to a tough competitive environment.Our FAP PortfolioDechra supplies pig and poultry antibiotics that can be administered to the animals through drinking water. Along with our recognised range of products, we also support our customers by providing in-depth knowledge and education which helps veterinarians and farmers manage their livestock in an efficient and correct manner. Our products, marketed under the Solustab® brand, are highly soluble and stable, which ensures animals are treated with the correct dose without causing disruption to the drinking water systems. In addition to the pig and poultry range, Dechra markets a broad range of cattle products, including two premium standard wound sprays.Adapting Our Organisational Structure Between 2012 and 2015, Dechra faced a decline in the sales of our FAP in our main markets in the EU, as a result of the reduction in the use of antibiotics in the veterinary market due to concerns about increasing resistance in human health.To stop the decline and return the range back to growth, a FAP BU was created in 2015. Our aim was to improve our focus on this important part of our Group revenue.The central FAP BU consists of a mix of commercial, technical and marketing employees. It is working closely with the local key account managers and customers in the main European markets and with our distributors worldwide.A Successful TurnaroundSince its inception, the BU has started a number of initiatives to accelerate the turnaround of the FAP sales. There have been four elements to our approach:• accelerate growth in markets where, until now, we have had a lower share of the FAP business; • support the business by developing marketing tools which will help slow down the decline in the existing markets and drive growth in the new markets;• work closely with the product development team to ensure new and improved products are delivered to market in a timely fashion; and• prepare the business for the launch of the first poultry vaccines which are coming through registration following the recent acquisition of Genera.The FAP BU has delivered immediate success with sales increasing for the first time in our recent history. Our future goal is to increase market share by ensuring that Dechra is seen as the specialist and preferred partner, by offering a wide range of high quality products as well as technical knowledge and professional support. 1919Strategic ReportsluglineDechra AR2016 Front.indd 1905/09/2016 17:25:05 202020A Croatian Listed BusinessOn 21 October 2015 Dechra acquired Genera d.d., the oldest and largest manufacturer of animal health products in Croatia with a strong market share in its local market and neighbouring countries. It operates in a broad range of segments: veterinary pharmaceuticals and vaccines, agrochemicals, human pharmaceuticals, disinfectants, and feed additives; and over the last few years it had invested significantly in its poultry vaccines capabilities. Genera has sales forces in Croatia, Slovenia, Bosnia-Herzegovina and Serbia, and a network of distributors worldwide. The turnover at the time the of acquisition was €28.4 million, with 270 employees.Broadening our FAP Portfolio and Entering the Vaccines MarketThe strategic rationale for this acquisition was threefold: • to enter the important vaccines segment, with production and development capabilities;• to broaden our FAP portfolio, enhancing our ability to develop our presence in emerging markets; and• to add four new sales territories and strengthen our manufacturing capabilities with a GMP approved pharmaceutical production facility in a low cost environment.Our Ambition and PrioritiesWe believe this opportunity represents an attractive entry strategy to the poultry vaccine market with the potential to explore vaccines for other species in the long term. Vaccines is the fastest growing segment in animal health as the market is increasingly moving towards preventative medicines. The market for poultry vaccines was $1.3 billion in 2013, representing 22% of the vaccines market, and is projected to grow at a CAGR of 7.8% until 2020.Mitigating RisksAlthough the transaction is expected to be earnings neutral in the first two years, it offers great opportunities for our long term ambitions and success will depend on our ability to register the poultry vaccines in Western Europe and key world markets. We have created a dedicated integrated vaccines business unit to maintain the focus on the delivery of the vaccines registrations and the development of the future pipeline. The first vaccine approval was obtained in the EU during the period.Our Integration Progress So FarGiven the complexity of the integration, we appointed an Integration Manager as CEO of Genera to lead the project and a cross-functional team was established. The first few months after the acquisition were spent improving our understanding of the business, establishing good relationships with key members of Genera, and analysing the business segments. With a good understanding of the acquired operations, we formulated and executed a clear integration plan to:• continue the core business activities of veterinary pharmaceuticals sales and production and the agrochemical business;• invest in vaccines and establish a dedicated business unit;• divest the human pharmaceuticals and disinfectants businesses;• reduce the cost base through a redundancy programme; and• implement a new organisation structure aligned with our strategy. We are pleased with the progress of the integration and look forward to gaining approval for the poultry vaccine range in the EU and targeted emerging markets.GeneraStrategy in Action: Geographical Expansion and Acquisitionwww.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201620sluglineDechra AR2016 Front.indd 2005/09/2016 17:25:08 2121A Mexican Family Owned BusinessOn 13 January 2016, Dechra acquired 100% of the share capital of Laboratorios Brovel S.A. de C.V., a family owned veterinary pharmaceutical company located in Mexico City, Mexico. Brovel has been operating in Mexico for over 52 years and manufactures and sells quality veterinary pharmaceuticals for dogs, horses and cattle. It has a diverse product portfolio with a turnover of MxP$ 66.2 million (£2.6 million).Geographic Expansion into Mexico and Latin AmericaThe acquisition of Brovel will help open the significant Mexican animal health market to Dechra as well as offer the potential to access other Latin American markets in the future. The initial focus will be to achieve registration of several existing Dechra products in the market.Our Ambition and PrioritiesDechra will be investing in the registration process to ensure new products are approved by the Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA). Through the guidance and support provided by Dechra Veterinary Products NA, we hope Brovel can become a valued and trusted partner to veterinarians in the fields of dermatology, endocrinology and equine medicine. Mitigating RisksAs we enter new territories, we take potential reputation risk very seriously. We rolled out our Anti-Bribery and Anti-Corruption policy immediately, and are putting in place a new control framework, such as our Group Delegation of Authorities.The key to success in Mexico will be to establish a strong management team who understands Dechra’s values and ways of working. We are also providing full oversight to ensure that manufacturing quality and product development processes are in line with our standards.Our Integration Progress So FarBased on the established market presence and the associated value of the Brovel name, we decided in the immediate future to trade under Dechra-Brovel, which will create brand awareness for Dechra whilst maintaining the current well-known company name.Putting the right organisational structure in place is critical to the success of the integration. We appointed a new Country Manager and have recently hired a new Finance Director. We have also restructured the sales organisation in order to gain efficiencies and increase productivity. Dechra is working diligently with SAGARPA to register many of the US topical dermatology products acquired in the Dermapet acquisition, as well as Osphos, Vetoryl, Canaural® and other strategic products. We have submitted the necessary documentation and expect first approvals in the next couple of years. BrovelStrategy in Action: Geographical Expansion and Acquisition2121Strategic ReportStock Code: DPHsluglineDechra AR2016 Front.indd 2105/09/2016 17:25:09 22222222A US Generic Products BusinessOn 22 April 2016, Dechra acquired 100% of the share capital of Putney Inc., a leading developer of FDA approved CAP in the US located in Portland, Maine. Putney has been operating in Maine for over ten years and is the leading provider of high quality, bioequivalent, FDA approved, specialty drugs supporting the US veterinary community. It has a diverse product portfolio with annual turnover of $49.6 million.Accelerating Dechra’s North American StrategyThe acquisition of Putney adds critical mass to Dechra in the world’s largest companion animal market, by providing immediate access to a high quality product range that complements our existing therapeutic focus areas as well as adding a robust new product pipeline and the expertise to deliver that pipeline. Both our distribution partnerships and veterinarians will benefit as we add new products to help grow their practices.Our Ambition and PrioritiesDechra will be investing in the product development process to ensure the robust pipeline continues its successful history of gaining approval by the FDA. Putney has achieved 43.0% of all US generic CAP approvals from the FDA since 2012. We will leverage our combined sales and marketing teams and distribution channels, as well as share best practices in the areas of product development and regulation. Mitigating RisksSince Putney does not have its own manufacturing facilities, it relies heavily on third party manufacturing. There are opportunities in the medium to long term to leverage our existing manufacturing capabilities with both existing and future products that could mitigate supply risk.As always there is an inherent risk in developing new products. We have retained a majority of the R&D team who know the projects well. They will continue to progress the five product registration filings that were already under way and continue the development work for the other projects.Our Integration Progress So FarHaving identified the synergies early during the integration planning, we were able to move forward with the team in Portland. The teams are now working together to drive several initiatives such as:• building a telesales team with Putney’s experienced inside sales team which complements to Dechra’s existing outside sales team;• integrating the Dechra business to the Salesforce Customer Relationship Management (CRM) platform used by Putney to enhance our ability to penetrate the market by leveraging sales analytics; and• integrating the product development resources and prioritising the combined product pipeline.PutneyStrategy in Action: Geographical Expansion and Acquisitionwww.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 201622sluglineDechra AR2016 Front.indd 2205/09/2016 17:25:13 AAAAAStock Code: DPH23It has been yet another good year for Dechra, what have been the key drivers behind the success? Quite simply it has been the delivery of our strategy. All four key growth drivers have delivered. We have had good organic growth within Europe and exceptional organic growth within the US which has been enhanced by new product launches, particularly Osphos and Zycortal; geographical expansion is progressing well; we have launched in a number of new territories over the last few years: Italy, Canada, Poland and, more recently, Austria have all contributed towards growth and are all performing to our expectations. Finally, we have had a good contribution from the three acquisitions we have made within the period.Can you tell us a little more about the acquisitions? It has been an unusual year first of all with three acquisitions, but each one of them is strategically important. Taking them in turn: first of all Genera is a business based in Croatia that predominantly focuses on manufacturing and developing poultry vaccines. It is at an early stage of development for European registrations, so this is really one for the future. What it will do is it will give us more products to sell into our farm animal sector; particularly poultry vaccines to sell alongside our successful antibiotic franchise and it will also help us to develop sales in the rest of the world. Poultry is one of the fastest growing consumed meats within the world and it is an important sector for us.Secondly Brovel: Brovel was a family owned Mexican business that we acquired at a relatively low cost. This really is about just a platform to register our own products. They also have reach from a sales and marketing perspective into the Mexican market and it accelerates our geographical expansion.The third and most important acquisition within the period was Putney. Putney was our absolute number one acquisition target and has been for some time. There are very few decent assets available within the US market and Putney really adds to the critical mass that we require to be successful in the most important animal health market in the world. It adds a portfolio of new products into the Group, but also just as importantly it adds a pipeline. With all three acquisitions we have done a very good job in integrating them very quickly and rationalising the businesses into the Dechra Group and they will all deliver results in the future and will provide a platform to add to our growth in future years.You have started up in a number of new countries in the last two years, where is next?Italy, Poland and Canada have all been successful and are performing to our expectations and more recently we have launched in Austria which is also performing well. They were the obvious territories for us to start trading in over the last couple of years because we had already got a certain level of sales through marketing partners. There is no obvious next step that is a simple process that we can do organically like that, but what we are now doing is spending more money on registering in new territories to hopefully create that critical mass in future. The other way to obviously expand geographically is as we have in Mexico with the acquisition of Brovel. We do have a number of opportunities in a number of countries that we would hope to pursue over the next couple of years.There seems to have been a number of management changes lately, is there an underlying reason? There is no one reason. First of all if we start with the PLC Board and the Non-Executive team. The Chairman has to step down after nine years (he has actually done 14); that is recommendations on corporate governance about independence, so he will step down from the business in October of this year at the AGM. Mike has been replaced by Tony Rice who is an industrialist with a huge amount of experience and I look forward to working with him. I would also like to take this opportunity to thank Mike Redmond for the huge contribution he has made towards the Group through his tenure and he is a great supporter of myself and the management team.Looking also at the PLC level, but from an Executive perspective, Anne-Francoise as the CFO has also left the Group. Anne was always ambitious and has moved into a FTSE 100 company. Anne has done a great job in improving the infrastructure within the organisation over her period and I would to like to thank her for that also.Looking at the Senior Executive Team (SET), we have now made another two appointments onto that team. Greig Rooney, who has a lot of experience in manufacturing and supply chain management, has joined the SET and we have also appointed a new head of product development, Anthony Lucas, who has joined us from the Putney group. So, all the changes have been made either because of corporate governance regulations or to strengthen the Group, so I do believe that we have now got an excellent management team that will take us forward for the next few years of our growth.So you remain confident about Dechra’s future?I remain very confident about Dechra’s future. We have had a very successful history, but we also look forward to the future with optimism. We have introduced a lot of new products, we are trading in a lot of new countries, we have got a very strong management team, we are still getting good growth from a number of our older products and, finally, we have got a lot of growth to come from the acquisitions that we have just made. The animal health market in the world continues to grow from both a companion animal and a farm animal perspective, so all in all we are in good shape, we’re in a good market and we have got a good management team.Watch the full interview with Ian Page at: dechra.annualreport2016.comQQQQQslugline23Strategic ReportQ&A with Ian PageDechra AR2016 Front.indd 2305/09/2016 17:25:15 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 Affairs 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, supply chain, and sales and marketing creates value for the
business and our stakeholders.
Product Development and Regulatory Affairs
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DVP EU
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US, Canadian and Mexican
Veterinarians and Distributors
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Export Partners
• Export Partners
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Our Business Model Explained
Product Development and Regulatory Affairs
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. Across
six locations, project teams manage the wide
range of projects. Investment in formulation
laboratories in Bladel, Skipton, and Zagreb,
each with their respective dosage form
expertise, provides the resources required to
develop novel and generic products
cost-effectively.
Delivering the Pipeline
Our product pipeline is critical to our future
success. Our novel and generics projects
are very diverse, with the majority building on
our key therapy areas. We invest when we
can identify growth opportunities with a clear
financial return and competitive advantage,
focusing on novel therapies to treat unmet
needs with intellectual property protection.
Our approach aims to ensure we create
sustainable growth throughout our targeted
global markets.
Read about Product Development
and our Product Pipeline pages
36 and 37.
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.
Manufacturing
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.
Product Development
The Pharmaceutical Development
Laboratories are 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.
Other Manufacturing
In addition to manufacturing our
own products, Skipton, Bladel
and Zagreb 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.
The external offering includes product
development, formulation, trial
manufacturing, validation, production
and packaging for both human and
veterinary pharmaceuticals.
Supply Chain and Partnerships
Dechra has grown significantly over the past
few years, both through organic growth and
acquisition. It 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
continue with the implementation of a global
Sales and Operations Planning process
across Dechra to integrate our business and
optimise supply chain performance.
Dechra AR2016 Front.indd 25
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See our Group at a Glance
on pages 6 and 7.
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DVP NA
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US, Canadian and Mexican
and Wholesalers
Veterinarians and Distributors
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Export Partners
• Export Partners
26Strategic Report
Distribution
We employ experienced qualified sales
representatives in all the countries
where we have a sales office. They are
highly trained professionals who visit
veterinarians to explain the technical
aspects of our products. Given the
specialised nature of some of our
products, the sales representatives
engage with veterinarians and discuss
how to best treat a disease or a
condition.
In most countries, veterinarians
order the products they need from a
local or national wholesaler of their
choice. Wholesalers are independent
and order veterinary products from
all animal health manufacturers, as
required, to meet the demand of
their customers, the veterinarians.
In the majority of Europe, Dechra
supplies the wholesalers from our
distribution centre in Uldum, Denmark.
Occasionally Dechra sells directly to
veterinarians, for instance in Germany.
In the countries where we do not
have a subsidiary and thus a direct
sales presence, we trade through
third party partners. Our selected
partners market, sell and distribute
Dechra’s products and retain part of
the margins.
DVP EU
DVP EU is committed to marketing products that support
the work of veterinarians in many species and which make a
difference to the veterinarians, their patients and their customers.
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 nine core therapeutic sectors where we leverage
our expertise: dermatology, ophthalmology, equine medicine,
anaesthesia and analgesia, endocrinology, cardiovascular disease,
food producing animal antimicrobials, poultry vaccines, 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. It also sells Brovel
products in Mexico.
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 the following core
therapeutic sectors: dermatology, endocrinology, ophthalmology,
equine medicine 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 products directly, and also visit clinics together with
these distributors. In Mexico, we sell through numerous local
wholesalers.
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Stock Code: DPH
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See our International Footprint on pages 34 and 35.2828www.dechra.comDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 20162727Strategic ReportsluglineClear Strategic FocusWe have a defined strategy focused on four main drivers: portfolio focus, geographical expansion, pipeline delivery and targeted acquisition.Development PipelineWe 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 InnovativeDechra 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 PortfolioWe 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 medicine.Recognised BrandDechra 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 FocusIn 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 ExpertiseWe 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 SheetThe 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.Creating Value by:European PharmaceuticalsNorth American PharmaceuticalsExportKeyManufacturingOur Geographical FootprintDechra AR2016 Front.indd 2705/09/2016 17:25:16 Our Marketplace
The global animal
health market was valued
at $30 billion* in 2015, a
growth of 7%* over 2014
(at CER).”
Read Delivering Our Strategy
on pages 13 to 15.
Read about Our Business
Model on pages 24 to 27.
Read about our International
Footprint on pages 34 and 35.
Dechra’s International
Footprint
(sales by territory at AER)
Europe 72.8%
US 21.8%
Rest of World 5.4%
The Global Market
The global animal health market was valued at
$30 billion* in 2015, a growth of 7%* over 2014
(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 7%* (at constant currency) in 2015 and
represented 67%* 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 ‘medically
important’ 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 15.4% of our turnover
with sales in EU and emerging markets.
Our range of antimicrobial water soluble
powders and injectables, targeted mainly at
swine and poultry, supports the prudent use
of antibiotics. The acquisition of Genera in
this financial year provides an entry into the
2828
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29Strategic Report
poultry vaccines market, one of the fastest
growing sectors of the global animal health
market in the last five years*.
treatment of chronic diseases contribute to
an ageing pet population which consumes
more medication and veterinary services.
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 grew by 7%* in 2015 (at
constant currency) and represented 33%* of
the overall market. Product categories in this
market are anti-parasiticides (i.e. products
against ticks, fleas, worms), vaccines,
antimicrobials 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
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.
Dechra in the Marketplace
We offer a broad range of specialised
pharmaceutical products. We do not, at this
time, compete in the anti-parasiticides and
vaccines markets for companion animals.
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 about half 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 72.8% of our sales
are in Europe, 21.8% in the US with 5.4%
being in the Rest of the World. We aim to
expand our geographical footprint either
organically or through acquisition. In the last
few years we opened several subsidiaries
in new territories. In the 2016 financial year,
we completed two acquisitions that open
access to new geographies for Dechra,
including Latin America and Eastern Europe.
* Source: Vetnosis
Market Trends
Increased demand for new
treatments and medicines as
veterinary competencies rise
and owners’ compassion
for, and spending on, their
pets also grow
Preventative treatments
increasingly preferred,
fuelling growth of the
vaccines segment
Growing worldwide
demand for quality protein
Decline in the use
of antibiotics in
Western Europe due
to concerns over
antibiotic resistance
Risk of price and margin
pressure due to the
emergence of corporate
customers, veterinary buying
groups and internet
pharmacies
We aim to expand our
geographical footprint
either organically or
through acquisitions.”
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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.
Felimazole
Cats
For the stabilisation of hyperthyroidism in cats prior to
surgical thyroidectomy and the long term treatment of feline
hyperthyroidism.
Forthyron/
Thyforon®
Dogs
For the treatment of hypothyroidism.
Vetoryl
Dogs
For the treatment of pituitary-dependent and adrenal-dependent
hyperadrenocorticism (Cushing’s disease and syndrome).
Zycortal
Dogs
For use as replacement therapy for mineralocorticoid deficiency
in dogs with primary hypoadrenocorticism (Addison’s disease).
Dermatology and Care
Dermatology represents approximately
20% of veterinarians’ clinical time
and is a major focus area for the
industry. Dechra’s range of topical
products support a holistic approach
in the control and maintenance of
dermatological disease. Topical
therapy ensures that the correct
concentrations of antibiotics are
delivered to the site of the infection
thereby minimising the use of
antibiotics. Dechra’s range of licenced
and non-licenced topical products
help veterinarians address the
development of antimicrobial
resistance, in line with best practice.
Animax®
Canaural
CleanAural®
DermaPet®
Products
Isaderm®
Malaseb
Cats
Dogs
For the treatment of skin conditions. It is only approved in the
United States. The marketing rights for this product were
acquired in May 2007.
Cats
Dogs
Cats
Dogs
Cats
Dogs
Dogs
Cats
Dogs
For the treatment of otitis externa including the ear mite,
Otodectes cynotis.
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.
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.
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31Strategic Report
Why we focus on this specialist area
Key products
Animal
Use
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.
Cardiovascular Disease
As pets increasingly live longer,
managing heart disease efficiently is
critical. This is our only major product
in this category.
Alvegesic®
Atipam®
Buprenodale®
Comfortan®
Phycox
Sedator®
Vetivex®
Cats
Dogs
Horses
Cats
Dogs
Cats
Dogs
Horses
Cats
Dogs
Dogs
Horses
Cats
Dogs
Cattle
Cats
Dogs
Horses
For the relief of moderate pain and as a sedative in combination
with other products.
Reverses the sedative effects of medetomidine and
demedetomidine.
For post-operative analgesia for dogs and cats and for
post-operative analgesia in combination with sedation for horses.
Analgesia. Pre-medication for general anaesthesia or
neuroleptanalgesia in combination with a neuroleptic drug.
Reduces joint discomfort and swelling.
For restraint and sedation.
These products are administered by intravenous infusion for the
treatment of dehydration and metabolic acidosis. They may be
used to correct volume depletion (hypovolaemia) resulting from
gastrointestinal disease or shock.
Cardisure®
Dogs
For the treatment of congestive heart failure originating from
valvular insufficiency (mitral and/or tricuspid regurgitation) or
dilated cardiomyopathy.
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
Vetropolycin®
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.
Stock Code: DPH
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05/09/2016 17:25:22
Our Key Products
continued
Why we focus on this specialist area
Key products
Animal
Use
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.
Equipalazone
Horses
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.
Domidine®
Cattle
Horses
For the sedation and slight analgesia of horses and cattle; to
facilitate physical examinations and treatments, such as minor
surgical interventions.
HY-50
Horses
For intra-articular and intravenous treatment of lameness caused
by joint dysfunction associated with non-infectious synovitis.
Osphos
Horses
For the control of clinical signs associated with the bone resorptive
processes of navicular syndrome.
Somulose®
Cyclospray
Cats
Cattle
Dogs
Horses
Cattle
Pigs
Sheep
Methoxasol®
Broilers
Pigs
Food producing Animal Products
FAP is the largest segment of the
global animal health market accounting
for over 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.
The product is indicated for euthanasia in dogs, cats, horses and
cattle.
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.
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.
Octacillin®
Rapidexon®
Soludox®
Chickens
Pigs
Treatment of infections caused by bacteria susceptible to
amoxicillin.
Dexamethasone may be used for the treatment of inflammatory
or allergic conditions.
For respiratory disease in pigs, chickens and turkeys.
Cats
Cattle
Dogs
Horses
Pigs
Chickens
Pigs
Turkeys
32
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
Dechra AR2016 Front.indd 32
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33Strategic Report
Why we focus on this specialist area
Key products
Animal
Use
Pet Diets
Quality nutrition leads to a better quality
of life for pets and veterinarians and
veterinary nurses are best placed to
offer nutritional advice. With our range
of nutritional products, along with
licenced and non-licenced medicines,
we are able to offer holistic solutions to
veterinarians to manage their patients in
the most appropriate manner.
Poultry Vaccines
Prevention is increasingly the preferred
standard of care in modern animal
husbandry. With pressure on reducing
antibiotic usage, providing customers
with products to prevent rather than
treat disease is critical. Worldwide,
there is an increasing demand for
poultry meat and, as a consequence,
the poultry vaccines market is growing.
Specific™
Cats
Dogs
Balanced high quality pet diets for therapeutic use and life stage
maintenance diets.
Avishield
Chickens
Turkeys
Vaccination of poultry by water, eye drop or spray administration
with a range of high quality live vaccines, providing immunisation
against the most important viral diseases that threaten poultry
health, like Newcastle disease, infectious bronchitis and infectious
Bursal disease (Gumboro).
Stock Code: DPH
Dechra AR2016 Front.indd 33
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05/09/2016 17:25:25
International Footprint
We currently have our own sales and marketing organisations in 19 European countries and in the US, Canada and Mexico. We also market
products in over 40 countries worldwide through distributors and marketing partners. The tables below show the key products in our focus
therapeutic areas in territories where we have sales and marketing organisations.
Endocrinology
Dermatology and Care
Anaesthesia
and Analgesia
Cardiovascular
Ophthalmology
Equine Medicine
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Equipalazone
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34
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
Dechra AR2016 Front.indd 34
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05/09/2016 17:25:27
35Strategic Report
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Food producing
Animal Products
Pet Diets
Key Product
Cyclospray
Methoxasol
Octacillin
Rapidexon
Soludox
Key Product
Specific
Vaccines
Key Product
Avishield
Dechra-Brovel
Key Product
Brovel Products
Genera
Key Product
Genera Products
Putney
Key Product
Putney Products
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Stock Code: DPH
Dechra AR2016 Front.indd 35
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35
05/09/2016 17:25:28
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 time scales 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
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?
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
36
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
Dechra AR2016 Front.indd 36
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05/09/2016 17:25:28
37Strategic Report
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/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
Dermatological
and/or dental
applications for
dogs and cats
Antibiotic for
pigs and
poultry
Endocrinology
treatment for
dogs
Antiparasitic
for poultry
Endocrinology
diagnostic
Antimicrobial
for pigs and
poultry
Anti-Infective
for dogs and
cats
Antibiotic for
cattle
Respiratory
treatment for
horses
Antibiotic for
cattle
Dermatology
treatment for
dogs
Neonatal
mortality in
pigs
Analgesic
treatment for
horses
Fluid therapy
for cattle
Anti-Infective
for dogs and
cats
Antibiotic for
cattle
Anti-
inflammatory
treatment
for horses
Antibiotic
for pigs
Dermatology
treatment for
dogs
Antimicrobial
treatment for
pigs
Parasiticides
for dogs
Anti-
inflammatory
for poultry
Anti-Infective
for dogs and
cats
Antibiotic for
pigs and
poultry
Antibiotic
for horses
Anaesthesia
treatment
for dogs
Endocrinology
treatment for
cats
Anti-
inflammatory
treatment for
poultry
Parasiticides
for dogs
Vaccine for
poultry
Dermatology
treatment for
dogs
Analgesic
treatment
for dogs
Vaccine for
poultry
Parasiticides
for cats
Vaccine for
poultry
Endocrinology
treatment for
horses
Vaccine for
poultry
Analgesic
treatment
for dogs
Vaccine for
poultry
Gastrointestinal
treatment for
horses
Vaccine for
poultry
Analgesic
treatment
for dogs
Dermatology
treatment for
dogs
Vaccine for
poultry
Analgesic
treatment
for horses
Key
Analgesic, Anaesthesia,
Anti-inflammatory
Antimicrobial
Antiparasitic
Dermatology
Endocrinology
Fluid therapy
Gastrointestinal
Neonatal mortality
Respiratory
Vaccines
Stock Code: DPH
Dechra AR2016 Front.indd 37
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05/09/2016 17:25:28
Financial Review
Group underlying operating
profit growth was 20.9% at
CER for 2016. This pleasing
growth has been delivered
whilst continuing to invest
in our existing business,
integrating three strategic
acquisitions, establishing new
subsidiaries and continued
product launches.”
Ian Page
Chief Executive Officer
Overview of Reported Financial Results
During the 2016 financial year, Dechra made three acquisitions. To assist with the understanding of our financial results, we have shown in the
table below the performance of the existing Dechra business separately from the performance of the acquired entities. In the current year, the
acquisitions profit after tax has reflected the cost of acquisition related restructuring programmes and fair value inventory adjustments.
Including non-underlying items, the Group’s reported profit after tax of £12.5 million decreased by 27.7% at CER (35.9% at AER), due
primarily to the one-off acquisition costs. Dechra’s existing business grew by 5.1% at CER (declined by 1.0% at AER), with reported profit
after tax of £19.3 million (growth was adversely impacted by foreign exchange losses of £0.8 million in the year compared to foreign
exchange gains of £2.2 million in 2015).
As Reported
Revenue
Gross profit
Gross profit %
Operating profit/(loss)
EBIT %
Profit/(loss) after tax
Diluted EPS (p)
2016
Existing
£m
225.9
129.9
57.5%
29.4
13.0%
19.3
2016
Acquisi-
tion
£m
21.7
2.5
11.5%
(9.9)
(45.6%)
(6.8)
2016
Consoli-
dated
£m
247.6
132.4
53.4%
19.5
7.9%
12.5
13.90
Growth % at
AER
Growth % at
CER
Existing
11.0%
11.9%
Consoli-
dated
21.7%
14.0%
Existing
11.2%
12.7%
Consoli-
dated
21.7%
15.2%
13.1%
(25.0%)
18.1%
(17.3%)
(1.0%)
(35.9%)
(36.8%)
5.1%
(27.7%)
(28.9%)
2015
£m
203.5
116.1
57.1%
26.0
12.8%
19.5
21.99
Overview of Underlying Financial Results
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. Underlying results reflect the Group’s trading performance excluding the amortisation and write
off of acquired intangibles, non-underlying charges and other non-underlying items as defined on page 112. A reconciliation of underlying
results to reported results as at 30 June 2016 is shown in the table below:
Non-underlying items
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-cash
uplift on
acquired
inventory
£m
Amortisation
and related
costs
of acquired
intangibles
£m
Acquisition
and
restructuring
costs
£m
Finance
expenses
£m
(6.1)
(6.1)
(6.1)
1.7
(4.4)
(21.8)
(21.8)
(21.8)
5.7
(16.1)
(5.5)
(5.5)
(5.5)
1.4
(4.1)
(1.8)
(1.8)
0.5
(1.3)
2016
Underlying
results
£m
247.6
138.5
(75.3)
(10.3)
52.9
(3.2)
49.7
(11.3)
38.4
42.65
2016
Total
reported
results
£m
247.6
132.4
(102.6)
(10.3)
19.5
(5.0)
14.5
(2.0)
12.5
13.90
38
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
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39Strategic Report
We delivered underlying operating profit of £52.9 million, representing a growth of 20.9% compared to the previous year. This was achieved
through a solid trading performance in our existing business, growing at 17.8%, together with a small benefit from the acquisitions made in
the year.
Underlying
Revenue
Gross profit
Gross profit %
Underlying Operating profit
Underlying EBIT %
Underlying EBITDA
Underlying diluted EPS (p)
Dividend per Share
2016
Existing
£m
225.9
129.9
57.5%
51.6
22.8%
55.9
2016
Acquisi-
tion
£m
21.7
8.6
39.6%
1.3
6.0%
2.1
2016
Consoli-
dated
£m
247.6
138.5
55.9%
52.9
21.4%
58.0
42.65
18.46
Growth % at
AER
Growth % at
CER
Existing
11.0%
11.9%
Consoli-
dated
21.7%
19.3%
Existing
11.2%
12.7%
Consoli-
dated
21.7%
20.0%
16.2%
19.1%
17.8%
20.9%
16.5%
20.8%
6.9%
9.0%
18.3%
22.7%
8.9%
9.0%
2015
£m
203.5
116.1
57.1%
44.4
21.8%
48.0
39.90
16.94
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.
Revenue
Total revenue grew by 21.7% to
£247.6 million. Growth in the sales force
together with the launch of new products
and sales from our new operations in
Canada and Poland led to revenue growth in
our existing business of 11.2%.
Revenue by Segment
European Pharmaceuticals Segment revenue
grew by 13.9% to £188.9 million. This was
due to strong performances in key markets
such as the UK and France; the impact of
new subsidiaries, Poland and Austria; and
the additional revenue contributed by Genera
during the year. This offsets lower revenue in
Germany, which, whilst the decline due to the
reduced use of antibiotics has slowed over
the course of the year, continues to impact
negatively on the FAP revenues. In addition,
growing momentum in some key Rest of
World territories has contributed to continued
growth in the existing business and allows
us to maintain focus on developing this key
strategic area.
Revenue in our North American
Pharmaceuticals Segment grew by 59.5%
to £58.7 million. The sales force, which has
seen significant investment, continues to
drive revenue in key therapeutic areas and,
combined with the full year impact of our
Canadian subsidiary (which started trading
in January 2015), and the acquisition of both
Brovel and Putney during the year have resulted
in the continued growth of this Segment.
Overall, the three acquisitions contributed
£21.7 million to our revenue.
Revenue by Categories
All our revenue streams performed well,
except for Diets which showed a small
decline.
CAP sales grew by 19.4% fuelled by
momentum in our key therapeutic areas of
endocrinology, dermatology, cardiovascular
disease, and analgesia and anaesthesia in
the EU and US. Notably, Vetoryl grew by
25.4% globally and our dermatology range,
DermaPet, in the US by 32.4%. Cardisure
grew by 47.7%, and our analgesia and
anaesthesia therapeutic area also performed
well in Europe.
Equine revenue has grown by 19.4%
following the launch of Osphos.
For the first time after several years of
decline, FAP grew by 43.2%, due to the
growth in our newly established Polish
business; market share gain in countries
where previously we had a smaller
presence; the slowdown of the decline in
Germany; and the Netherlands returning
incrementally to growth. The integration of
Genera also contributed to the FAP revenue
growth. Excluding the sales from the new
acquisitions, FAP revenue in the existing
business grew by 13.6% compared to the
previous year.
Unfortunately, our sales of Diets did not
recover as expected with a sales decline of
1.2%. Whilst we are experiencing growth
in a number of key markets, this was offset
by the loss of a large corporate account in
Scandinavia and palatability issues for some
of the cats diet products.
Other sales, which include third party
manufacturing and other non-core
businesses in Genera, increased by 36.5%
reflecting the increased capabilities and
non-core activities acquired as part of
Genera. This offset lower third party
revenues in the existing business which
arose due to an increased focus on own
manufactured products during the period.
Stock Code: DPH
Dechra AR2016 Front.indd 39
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05/09/2016 17:25:31
Financial Review
continued
Revenue by Product Category
(at AER)
£247.6m
CAP 55.6%
Equine 8.3%
FAP 15.4%
Diets 9.9%
Other 10.8%
Glossary
Terms used within this section:
IFRS
International Financial Reporting Standards
as adopted by the EU
CER
Constant Exchange Rates
AER
Actual Exchange Rates
CAP
Companion Animal Products
FAP
Food producing Animal Products
CAP
Equine
FAP
Subtotal Pharma
Diets
Other
Total
2016
£m
137.7
20.5
38.1
196.3
24.4
26.9
247.6
Gross Profit
Gross margins for the existing business
increased to 57.5% from 57.1%. This
growth in margin reflects the changing
product mix and improved manufacturing
efficiencies within the business.
It is also important to note that the recent
acquisitions have a dilutive effect on gross
margin moving from 57.5% for the existing
business to 55.9% for the consolidated
business, as expected at the time of the
deal announcements.
Selling, General and Administrative
Expenses (SG&A)
Underlying SG&A expenses grew by 19.3%
to £75.3 million as we continued to invest in
supporting the future growth of the Group
and incorporate the costs of the acquired
companies.
Whilst increases in prior year infrastructure
functions have had a full year impact in
2016, during the year we further invested
in the sales organisation in DVP US.
Additionally, we made selected investments
in DVP EU, such as setting up a FAP
Business Unit to drive growth.
Research and Development
Expenses (R&D)
Our R&D spend in the 2016 financial year
was £10.3 million. This is commensurate
with our pipeline progress. It also reflects
the addition of Genera and Putney pipelines,
which have resulted in much larger R&D and
regulatory teams to support our expanded
pipeline of new products.
2015
£m
113.9
17.0
27.3
158.2
25.6
19.7
203.5
Actual
exchange
rate
20.9%
20.6%
39.6%
24.1%
(4.7%)
36.5%
21.7%
Constant
exchange
rate
19.4%
19.4%
43.2%
23.5%
(1.2%)
36.5%
21.7%
Non-Underlying Items
Non-underlying items incurred during the
year relate to the following:
• Non-Cash Inventory Adjustment
The non-cash inventory adjustment,
which increases the value of stock by
£6.1 million relates to the acquisition
of Brovel, Putney and Genera. It is the
result of the fair value exercise carried
out in accordance with IFRS 3 ‘Business
Combinations’ on acquisition.
• Amortisation and Related Costs of
Acquired Intangibles
This includes the amortisation of the
acquired intangible assets and the write-
off relating to existing intangibles and
related deferred consideration following
the acquisition of Putney, where it was
decided to suspend development of
a US generic pharmaceutical product
(£1.1 million). We also impaired an
acquired intangible due to a competitor
registration in the US (£0.6 million).
• Acquisition and Rationalisation Costs
This includes the transaction costs
associated with acquiring Genera, Brovel
and Putney and other costs related
to the integration and restructuring
programmes.
• Finance Expenses
This includes the extinguishment
expense related to the refinancing of
the debt facility to fund the Putney
acquisition as well as the unwind of
discount on the deferred consideration
balances relating to previous
acquisitions.
Non-underlying items of £35.1 million before
taxation are £15.8 million above the previous
year due to acquisition costs and higher
acquired intangible amortisation. Full details
are shown in notes 4 and 5 on pages 122
and 123.
40
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
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41Strategic Report
Segmental Profit
Operating leverage (EBIT %) has reduced as the Group has experienced the dilutive effect of
the acquisitions made during the year with EU and NA at 27.4% and 29.8% respectively.
Operating Segment (Pharmaceuticals)
The full segmental analysis can be found in note 2 on pages 120 to 122.
During 2016, following the three acquisitions and reflecting the way we manage the Group
and meeting the criteria defined under IFRS 8, the Board reviewed our reporting Segments
and concluded that the North American Pharmaceuticals Segment should be expanded
to include Putney and Brovel and that Genera should be included within the European
Pharmaceuticals Segment.
Underlying Diluted Earnings
per Share
42.65p
2015: 39.90p
36.32
39.90
42.65
Revenue
— EU
— North America
Operating Profit
— EU
— North America
EBIT %
— EU
— North America
2016
£m
247.6
188.9
58.7
51.7
17.5
27.4%
29.8%
2015
£m
203.5
168.7
34.8
48.0
10.6
28.5%
30.5%
Actual
exchange rate
21.7%
12.0%
68.7%
Constant
exchange rate
21.7%
13.9%
59.5%
7.7%
65.1%
11.0%
57.5%
2014
2015
2016
Earnings per Share and Dividends
Underlying diluted EPS for the year was
42.65 pence, 8.9% growth versus last year.
The increase in interest payments following
the additional borrowings, together with
the share dilution impact of the equity
placing for the Putney acquisition, impacted
negatively on the reported EPS growth. We
benefited last year from the positive impact
of transactional exchange gains of
£2.2 million, whereas in 2016 this is a loss of
£0.8 million, which contributed a reduction
of 0.90 pence to the EPS (2015: positive
impact of 2.12 pence).
The reported diluted EPS for the year was
13.90 pence (2015: 21.99 pence).
The Board is proposing a final dividend of
12.91 pence per share (2015: 11.82 pence).
Added to the interim dividend of 5.55 pence,
it brings the total dividend per share for the
year to 18.46 pence, representing 9.0%
growth over the previous year. Dividend cover
based on underlying diluted EPS is 2.3 times.
Net Debt Position
During the year we increased our Revolving
Credit Facility to £150.0 million to fund
the Putney acquisition, whilst retaining the
accordion facility of £30.0 million. As a result,
we ended the year in a net debt position
of £116.6 million, representing a Net Debt/
Underlying EBITDA ratio of 2.0 times.
Whilst the exchange rate volatility in the
last week of June adversely impacted
the translation of our Euro and US Dollar
borrowings, we met the covenants on our
loan facilities throughout the full year.
Stock Code: DPH
Integration and Financial Impact of
the Acquisitions
During the period, we completed three
acquisitions: Genera, Brovel and Putney. In
all of the acquisitions, there were immediate
portfolio benefits which can be seen in the
revenue growth within the Group. In addition,
as part of each acquisition, we undertook a
review of the newly acquired operations to
ensure that they were aligned with the Dechra
strategic pillars and enablers.
This review resulted in rationalisation
programmes in Genera and Putney which
reduced headcount and reorganised the
business to reflect the increased focus on
activities which are core to Dechra’s strategy.
We have also put in place plans to exit some
non-core activities. In Brovel, the focus on
registering Dechra’s own products remains
the key long term driver of expected growth.
In the period since acquisition, the three
entities generated revenue of £21.7 million
and underlying operating profit of
£1.3 million. A summary of the income
statement is shown on page 107.
Following a detailed valuation review
conducted by an independent third party,
we capitalised £122.9 million in intangible
assets and £56.4 million of goodwill.
The acquisitions were financed by cash
for Brovel, a combination of available
cash and debt for Genera, and debt and
equity placing for Putney. As a result, our
borrowings have increased by £123.2 million
compared to last year. We also raised
£47.0 million (net of expenses) from the
issue of 4.4 million shares.
Dechra AR2016 Front.indd 41
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Dividend per Share
18.46p
2015: 16.94p
15.40
16.94
18.46
2014
2015
2016
Read Strategy in Action:
Geographical Expansion and
Acquisition on pages 20 to 22.
41
05/09/2016 17:25:32
Financial Review
continued
£276.6m
Net assets at
30 June 2016 were
£276.6 million
ROCE for the
Group was
16.1%
Read the Chairman’s and
Chief Executive Officer’s
Statement on pages 8 to 12.
See Our Financials on pages
100 to 161.
Balance Sheet
Net assets at 30 June 2016 were
£276.6 million, a £82.1 million increase
compared to 2015. During 2016 the shape
of the balance sheet has changed to reflect
the significant increases in non-current
assets of £214.6 million and related deferred
tax liabilities of £32.3 million which have
originated from the new acquisitions and the
associated increase in debt to fund some
of these acquisitions. In addition to these
non-recurring changes, the ongoing shift in
exchange rates year on year has resulted in
a net assets increase which is reflective of
the significant amount of Group assets being
held in Eurozone countries.
Total non-current assets (excluding deferred tax assets)
Working capital
Net (debt)/cash
Corporate and deferred tax
Other liabilities
Total net assets
Cash conversion
2016
£m
398.1
63.1
(116.6)
(57.3)
(10.7)
276.6
142.4%
2015
£m
183.5
31.7
13.4
(25.0)
(9.1)
194.5
107.1%
Total non-current assets (excluding deferred tax
assets) include intangibles which amounted
to £360.4 million (2015: £166.7 million) as at
30 June 2016.
Total working capital increased during the
year from £31.7 million to £63.1 million.
The increase in working capital within the
existing business is driven by the expansion
and growth plans during the year. As
expected, the three acquisitions are also
capital intensive, with a one-off increase in
working capital at acquisition of £25.8 million.
Combined, the new acquisitions accounted
for £20.9 million of the working capital at
the year end.
Return on Capital Employed (ROCE)
Following the increase in net assets from
the acquisitions during the year, which
without the full year impact of the additional
profitability significant dilutes the ROCE
performance, ROCE for the Group was
16.1% for 2016. Whilst this has decreased
from 20.0% in 2015 it has still met our target
key performance indicator of 15.0%. Refer
to page 44 for details of the calculation.
Currency Risk
During 2016, we have been exposed to
transactional and translational currency
risk. In addition to the one-off transactional
loss of £0.8 million being recognised in the
Consolidated Income Statement, £32.1 million
foreign exchange gain translational impact was
recognised in the Consolidated Statement of
Comprehensive Income in 2016.
As part of our acquisition strategy, we seek
to balance the foreign exchange debt and
related interest payable risk associated
with non Sterling acquisitions with the
underlying related income and assets in
foreign currencies. As we move forward
42
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43Strategic Report
Glossary
Terms used within this section:
EPS
Earnings per Share
SG&A
Selling, General and Administrative
Expenses
R&D
Research and Development
ROCE
Return on Capital Employed
EBIT
Earnings Before Interest and Tax
We have delivered
another set of strong
financial results in the
2016 financial year.”
and our business continues to be more
diversified, our exposure to currency volatility,
in particular in terms of the Euro and the
US Dollar, is expected to become more
balanced.
Initial Views on Brexit
The decision by the UK to leave the
European Union has created uncertainty and
volatility in the market. While many decisions
will be needed to establish how the new
trading environment will operate, we do not
anticipate changes to our business model in
the near to medium term.
• our geographical expansion over the
last few years should help support our
growth should the European economy
slow down substantially.
Summary
We have delivered another set of strong
financial results in the 2016 financial year.
Our existing business is showing good
organic growth and momentum, with
investments made in prior years driving
growth and allowing us to continue to invest
for the future through acquisitions and
pipeline development.
We have established a cross-functional
project team to assess and monitor the
situation, and determine if and when
actions are needed. Our current view on
the possible changes is:
•
in terms of manufacturing and product
registration, Dechra is accustomed
to trading with multiple countries and
different rules and legislation;
• despite the possible additional
administrative burden, our distribution
model can adapt to changes in tariffs
and duties;
• our business is naturally hedged and
diversified, which helps in a period of
exchange rate volatility;
• material contracts can be renegotiated
over time as needed;
• we will monitor the impact on workforce
and global mobility to ensure we maintain
an effective system for planning people
resources; and
Stock Code: DPH
The strategic acquisitions made during
the year support our medium to long term
ambitions. In the short term, as we build
the businesses, we acknowledge that they
are dilutive to our gross margin, ROCE and
impact our operating leverage.
With the enlarged Group, we can leverage
economies of scale as we integrate the
various R&D teams and prioritise a broader
combined product pipeline with projects
from the existing business and the three
acquired entities.
Finally we have achieved our results by
maintaining sound financial discipline and
balance sheet management, which will
help in a more volatile macroeconomic
environment.
Ian Page
Chief Executive Officer
5 September 2016
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05/09/2016 17:25:38
Key Performance Indicators
The Group utilises the following Key Performance Indicators (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
.
KPI
Definition
Relevance to Strategy
Performance
Sales Growth
11.2%
Year-on-year sales growth including
new products but excluding revenue
from acquired businesses in the year
of acquisition.
2016
2015
2014
£225.9m
£203.5m
£193.6m
A 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 11.2% at CER
(11.0% at AER). This positive
trend was driven by continued
organic growth, our geographical
expansion and new product
launches.
Underlying
Diluted EPS
Growth
8.9%
Underlying profit after tax divided by
the diluted average number of shares,
calculated on the same basis as note
10 to the Accounts.
2016
2015
2014
42.65p
39.90p
36.32p
Underlying 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 Long
Term Incentive Plan (LTIP).
EPS increased by 8.9% at CER
(6.9% at AER). Organic and
acquisition growth were offset
by lower finance income and
higher finance expense reflecting
increased acquisition debt and
movement in exchange gains and
losses together with a higher tax
rate.
Return on Capital
Employed
16.1%
Underlying operating profit expressed
as a percentage of the average of the
opening and closing operating assets
(excluding cash/debt and net tax
liabilities).
2016
2015
2014
16.1%
20.0%
16.4%
As we look to grow the
business, it is important
that we use our capital
efficiently to generate
returns superior to our
cost of capital in the
medium to long term.
It underpins the
performance conditions
of the LTIPs.
ROCE has reduced to 16.1%
from 20.0%. The reduction is due
to the increased assets acquired
during the year. This still exceeds
our target of 15.0% during the
year, without the corresponding
increase in the underlying
operating profit in the period.
Link to
Strategic
Pillar and
Enabler
a
b
c
a
b
c
a
b
c
Key to Strategic Pillars:
Key to Strategic Enablers:
Pipeline Delivery
Manufacturing and Supply Chain
a
b
c
Portfolio Focus
Technology
Geographical Expansion
People
Acquisition
Read Delivering Our Strategy
on pages 13 to 15.
Read How the Business Manages
Risk on pages 54 and 55.
Read the Directors’ Remuneration
Report on pages 79 to 93.
44
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
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45Strategic Report
KPI
Definition
Relevance to Strategy
Performance
Underlying Cash
Conversion
106.8%
Cash generated from operations
before tax and interest payments as
a percentage of underlying operating
profit.
Our stated aim is to be a
cash generative business.
Underlying cash conversion
of 106.8% in 2016 reflected
strong growth in profits offset by
the investment in acquisitions
resulting in a lower profit base.
Link to
Strategic
Pillar and
Enabler
a
b
c
2016
2015
2014
106.8%
105.9%
55.5%
New
Product Sales
14.4%
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.
2016
2015
2014
14.4%
13.8%
8.6%
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.
Sales for new products continue
to grow, with 14.4% revenue
coming from new products which
are either novel, generic or
in-licensed.
a
b
c
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.
The LTAFR, including the
acquisitions, increased from
0.07 to 0.35 and excluding the
acquisitions it increased to 0.19.
None of these incidents resulted
in a work-related fatality or
disability.
2016
2015
2014
0.35*
0.07
0.08
* including acquisitions
Employee
Turnover
13.1%
Number of leavers during the period
as a percentage of the average total
number of employees in the period.
Attracting and retaining
the best employees is
critical to the successful
execution of our strategy.
2016
2015
2014
13.1%*
12.2%
16.8%
* excluding acquisitions
There has been a slight increase
in employee turnover during the
period; predominantly this has
been within the manufacturing
business. The impact of the
acquisitions, and subsequent
restructuring, has been excluded
from the figures.
Stock Code: DPH
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05/09/2016 17:25:41
Corporate Social Responsibility
Glossary
Terms used within this section:
DVP EU
Dechra Veterinary Products Europe
HCM
Human Capital Management
LTAFR
Lost Time Accident Frequency Rate
MAT
Moving Annual Total
SET
Senior Executive Team
Tony Griffin
Managing Director, Dechra Veterinary Products EU
Katy Clough
Group HR Director
Our People Plan is designed to enable the Group to drive innovation, customer and shareholder value, accountability, and success through:
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
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 an ongoing priority within
the business.
coordinating its CSR activities throughout
all departments within the Dechra Service
Center (DSC).
Our central logistics hub for Europe (Dechra
Service Center) based in Uldum, Denmark,
has published its first Corporate Social
Responsibility Report building on its history
of sustainability reporting in Denmark. In this
first report it has focused on organising and
Tony Griffin is the nominated Director
responsible for health, safety and
environmental matters. However, the Board
takes ultimate responsibility for Corporate
Social Responsibility and is committed to
developing and implementing appropriate
46
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
www.dechra.com
Dechra AR2016 Front.indd 46
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05/09/2016 17:25:45
Katy Clough
Group HR Director
47Strategic Report
Employees by Business Unit
Brovel 6%
DVP EU 30%
DVP US 8%
Genera 17%
Group 2%
Manufacturing 29%
PDRA 5%
Putney 3%
Employees by Country
Adriatic region 236
Austria 3
Belgium 11
Denmark 72
Finland 3
France 38
Germany 86
Ireland 4
Italy 5
Mexico 74
Netherlands 194
Norway 4
Poland 7
Portugal 2
Spain 16
Sweden 9
UK 358
US 166
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
During the year our employee base
has expanded significantly from 869
to 1,288 following the acquisitions
of Genera, Brovel and Putney. Our
people integration plans have been
underpinned by the roll out of the Dechra
Values. A Group-wide intranet is under
development which will be available to all
staff in a number of different languages.
• 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.
During the 2016 financial year there have
been a number of changes. In November
2015, Suzana Cross joined as General
Counsel and Company Secretary;
as a result of a restructuring after the
acquisition of Putney in April 2016,
Dr Anthony Lucas was appointed to lead
Product Development across the Group.
In readiness of the planned retirement
of Mike Annice, a recruitment process
commenced and Greig Rooney joined in
July 2016 as Group Manufacturing and
Logistics Director.
The SET comprises Ian Page, Chief
Executive Officer; the Chief Financial
Officer; Tony Griffin, Managing Director
DVP EU; Suzana Cross, General Counsel
and Company Secretary;
Dr Susan Longhofer, Regulatory Affairs
and Business Development Group
Director; Dr Anthony Lucas, Group
Product Development Director; Mike
Eldred, President North America; Greig
Rooney, Group Manufacturing and
Logistics Director; Allen Mellor, Group IT
Director; Katy Clough, Group HR Director
and Giles Coley, Marketing Director
DVP EU.
During the year, the SET met seven times
and a significant proportion of time has
been spent on the implementation and
execution of the strategy.
• Performance Culture
The updated Performance Development
Review (PDR) process was rolled out
across the Group during the summer
of 2014, with all employees being
set objectives that link to the overall
Company strategy. During the year a
Human Capital Management (HCM)
system has been implemented across
the Group and automation of goal setting
and PDRs is being rolled out to support
managers by reducing administration,
providing timely reminders and enabling
sharing of goals across teams and
departments.
• Talent Management
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 which
has helped to support the attraction of
candidates to Dechra. We have also
invested in the development of our
social presence via LinkedIn, a business
oriented social networking tool.
The talent pool of the Group has increased
through our acquisitions and during the
year there have been many opportunities
to develop the skills of our existing
employees identified on our succession
plans through their involvement in the
integration of our new teams.
• Aligned Compensation and Benefits
Planned tactical work has been
undertaken to understand external
benchmarks for senior managers and
roles that have been identified as key to
retain, together with an audit of existing
benefits and compensation practices
across the Group. Further alignment of
compensation and benefits has taken
place in our acquired businesses and
there have been planned enhancements
to benefits in some of our territories.
• 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 continued to be
delivered in the Manufacturing, European
and Product Development teams.
• Scalable HR
During the year a project was undertaken
to implement the HCM system (for
further information see Our People Case
Study overleaf).
Stock Code: DPH
Dechra AR2016 Front.indd 47
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47
05/09/2016 17:25:45
Case Study:Our People: HR System Implementation; ‘Diamond’A number of options have been considered over the last few years in various parts of the business to purchase and implement an HCM system, to provide:• the underlying database and functionality to enable us to manage our people assets; • a single point for all employee related data, automating key processes such as recruitment, compensation reviews and performance management; • support for managing international policies, employees’ roles and benefits; and • tools and reporting capabilities to manage talent and succession within the organisation.In September 2015 our Global HR team commenced building the framework for our new HR system, the ‘Dechra Diamond Project’. The project team has been led by Katy Rawlinson, Group HR Business Partner, and forms part of the Group-wide Oracle project. The core HR project team comprised Alison Yeomans (UK), Marie Le-Masney (UK), Eva Søndergaard (Denmark), Annemette Sønderskov (Denmark), Marie-Helene Ariëns (the Netherlands), Eline Quist (the Netherlands), Stefan van der Linden (the Netherlands), and Chris Huettner (US). They worked together to collate employee data from a number of sources across the Group to populate the new HR system and provide the basis for comprehensive Group HR reporting.After a successful period of user acceptance testing, a number of months of system configuration and a training session, Phase I of the new system went live at the end of February 2016. The new system implementation will deliver benefits across the Group including:• Consistency and Clarity – allowing process standardisation resulting in comparable and consistent ways of working across the Group;• Stable Analytics – standard HR data recording and reporting across the Group resulting in clear information being held about all Dechra’s employees which will ultimately assist in understanding and better advising our people strategy; and• Modern, Reliable and Flexible Technology – the system is the latest in Cloud technology and will allow employees and managers greater flexibility in, for example, booking and requesting holidays; completing performance appraisals; and changing personal details.The system has subsequently been rolled out globally with employees and managers experiencing the benefits of self-service and the autonomy and flexibility this creates.The project team are getting ready to launch Phase II; the Talent and Performance Management modules, which will be operational from the start of our 2017 financial year, performance reviews and the objective setting stage. Phase III will look at how we align various time and attendance and payroll systems to work with Oracle, particularly within our Manufacturing business units, and how we integrate our newly acquired companies.Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016www.dechra.com48sluglineCorporate Social ResponsibilitycontinuedFor 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 the period× 100Average total number employed over the periodThe Group’s target is to maintain employee turnover (Moving Annual Turnover (MAT))at or below 15%. During the 2016 financial year this was 13.1% (2015: 12.2%), which represents an increase of 0.9%. This excludes the employees from Genera, Brovel and Putney.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. Informing and engaging our employees through internal channels of communication is of utmost importance to the Company. We have multiple channels of communication to provide both formal and informal updates including a Group newsletter that is issued twice a year (following the half-yearly results and the year end results), intranets, management and team meetings at the respective business units. These ensure that our employees are informed of the financial performance of the Group, as well as the sharing of updates which are relevant to all Group employees such as the introduction of new technology, any management changes or restructuring, updates on corporate social responsibility activities, and progress in relation to our strategic objectives.Business EthicsThe Board expects all of the Group’s business activities to be conducted in accordance with the highest ethical standards and in full compliance with Dechra AR2016 Front.indd 4805/09/2016 17:25:51 4949Strategic Reportsluglineall 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 together with the Anti-Bribery and Anti-Corruption Policy. This 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. The e-learning platform, Delta, has been developed and the Anti-Bribery and Anti-Corruption course is the first mandatory company-wide training programme to be launched on this platform. All new relevant employees will be required to complete this course and existing relevant employees will be required to undertake regular refreshes of the course. 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. Human RightsDechra 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. Modern SlaveryOur Modern Slavery Act disclosure will be published on our website within six months of the date of this report.Health and Safety PolicyThe 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 business unit senior management meetings and PLC Board meetings. Discussions include details of incidents and any remedial action taken to mitigate or prevent recurrence. Twice a year a comprehensive health and safety report is presented at each of the business unit senior management meetings and subsequently reported to the PLC Board meeting the following month for discussion and review by the Directors. 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. Our manufacturing site in Skipton, UK operates a Health and Safety Management system closely aligned to the requirements of OHSAS 18001:2007, which is the British Standard for occupational health and safety management best practice. It is anticipated that the formal accreditation will be applied for in the forthcoming financial year.For a number of years the Group has reported Lost Time Accident Frequency Rate (LTAFR) as a non-financial key performance indicator (see page 45). Number of Lost Time AccidentsDPM Skipton 1DVP US & Canada 0Mexico 1Genera 3Putney 0PLC 0DVP EU 2LTAFRDPM Skipton 0.24DVP US & Canada 0.00Mexico 1.69Genera 0.85Putney 0.00PLC 0.00DVP EU 0.23Dechra AR2016 Front.indd 4905/09/2016 17:26:04 Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016www.dechra.com50sluglineCorporate Social ResponsibilitycontinuedThe LTAFR is a calculation of all injuries that are 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 absence or the inability of workers to conduct their full range of their normal working activities for a period of more than three working days after the day when the incident occurred. The acquired businesses, Genera, Brovel and Putney, are included from the first full month that they become part of the Dechra Group. Over the course of the last 12 months the number of incidents has increased from one to seven; of these, four occurred in the acquired businesses. None of these incidents resulted in a work-related fatality or disability.Our CommunityThe 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 fifth 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 £20,000 was allocated, split among the following charities:Type of CharityCharityJurisdictionDescriptionAnimal Viljandi VarjupaikEstoniaViljandi is a non-profit organisation providing animal shelters in Estonia. It employs three people who in 2014 dealt with 120 dogs and 432 cats.Vogel revalidatiecentrum ZundertNetherlandsThe PRC Zundert is an animal shelter providing a refuge for birds, which are released into the wild once treated. They also provide environmental education and awareness, working with schools, companies and environmental organisations.Sebastian County Humane SocietyUSAThe Sebastian County Humane Society purpose is the prevention of cruelty to animals, the relief of suffering among animals, placement of animals in responsible homes, and the extension of humane education.EnvironmentalThe Ocean CleanupInternationalOcean Cleanup intends to test, further develop, and roll out a technique to clean the oceans of plastic. A feasibility study and proof of concept have already been carried out successfully. Currently a large scale study to measure the amount of plastic in the oceans is being undertaken. This will be followed by a large scale pilot study near Japan.OtherBirmingham Children’s Hospital CharityUKThe Birmingham Children’s Hospital Charity supports every area of the Birmingham Children’s hospital.HimmunitasBelgiumHimmunitas is a non-profit organisation which treats people who have diseases like autoimmune diseases, Lyme disease, multiple sclerosis or chronically exhaustion syndromeOperation SmileInternationalOperation Smile is an international children’s medical charity that performs safe, effective cleft lip and cleft palate surgery, and delivers postoperative and ongoing medical therapies to children in low and middle income countries.Gilchrist Services Hospice CareUSAGilchrist ensures that individuals with a life limiting illness, and their loved ones, receive the specialised physical, emotional, and spiritual care and support they need.Ty HafonUKA charity which tries to ensure that every life limited child and young person in Wales lives a full family life. This involves offering a wide range of free care and support at its hospice and in the community for all the family. They also offer short break care to children and young people at the hospice so families can take time out from their caring duties. EASI (Equines Assisting Special Individuals)USAEASI is a non-profit organisation that offers equine therapeutic riding and equine assisted activities for people with disabilities or special needs. Their programme provides opportunities for growth and development through therapeutic, educational and recreational activities.RFV- Zollenreute e.v.GermanyRFV-Zollenreute is a small, non-profit riding club which offers therapeutic riding to children from socially disadvantaged families.Dechra AR2016 Front.indd 5005/09/2016 17:26:05 Case Study: Our Community In May 2016, wild fires raged through Fort McMurray, Canada causing serious damages to homes and the local environment. As a result hundreds of horses in the area were displaced. The Alberta Sales Manager, Nicole Dievert, wanting to help, worked with the local community to organise a hay and feed collection for the displaced horses. She also raised a cash donation of CAD 340, which was supplemented by a donation by DVP Canada bring the funds to CAD 3840.Hay and feed were purchased, and with the help of a local haulage company, Nicole and volunteers drove four hours to a location selected by the Alberta Equestrian Foundation. 28 volunteers helped unload the hay working tirelessly over three hours. With energy and compassion, Nicole and a team of volunteers saved over 100 horses displaced from the fire.5151Strategic ReportsluglineIn 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 2016 financial year.Donations in KindType of CharityCharityJurisdictionDescriptionAnimalHelp Street Animals of Morocco (HSAM)MoroccoDVP UK continued to provide assistance to HSAM by providing supplies in 2016 of Alvegesic, Atipam and Sedator.AnimalThe Humane Society of Greater Kansas City & Great Plains SPCAUSAPDRA US donated glucose testing equipment.OtherThe humanitarian organisation “Bread of Saint Ante”CroatiaDonation of disinfectants.Financial DonationsBusiness UnitJurisdictionAmountDescriptionDPM SkiptonUK£601Donations to Children in Need and Petal Cancer Research for Children.DVP CanadaCanada£1,783Refer to case study: Our Community below.DVP EUDenmark£240Donations to community projects and the Danish Cancer Foundation.DVP EUInternational£809Continued sponsorship of three children through SOS Children’s Villages.DVP EUInternational£31,830Refer to case study: Our Environment – Circle of GoodDVP EUGermany£687Donations to various animal charities and a local community project.GeneraCroatia£7,876Scholarships of high performing students without adequate parental care or with financial difficulties.PLCUK£1,000*Donation to Different Strokes.* Donation made for the year ended 30 June 2016 but paid after the year end.Dechra AR2016 Front.indd 5105/09/2016 17:26:05 Our EnvironmentThe 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. Our Manufacturing site in Skipton (DPM, Skipton) has maintained its accreditation audit for BS EN ISO 14001:2004 International Environmental Management standard. This standard requires organisations to have an environmental policy and an action plan for managing their impact on the environment. The business sets environmental objectives and targets to ensure that they continually improve their environmental performance relative to business efficiency and minimising the impact on their activities on the wider environmental media. DPM Skipton has:• since 1 April 2016 become a 0% waste to landfill site. Previous landfill waste is now processed for energy recovery;• improved significantly their waste recovery, reuse and recycling processes;• implemented active energy efficiency programmes such as replacing non energy efficient lighting with industry best practice LED lighting; and• investigated new technologies with a view to replacing or reducing energy consumption from the national energy supply networks.DPM Skipton: Annual Waste Disposal Performance (Monthly Averages) Year Ending 30 June 2015Year Ending 30 June 2016 %Variance over previous year Target expectationAverage Waste Volumes in tonnesRecovered, Recycled & Reused volumes8.711.59+33.22%+10% (Exceeded)Landfill Volumes8.835.95- 32.62%-10% (Exceeded)Contaminated Waste & Controlled Drugs6.845.49-19.74%-5% (Exceeded)Total Waste Produced25.8524.01- 7.12%-5% (Exceeded)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 ensure that all contaminated waste is disposed of under strict controls. Furthermore, all exhaust air is fully filtered from the manufacturing unit before discharge into the environment. Our service centre in Denmark (DSC) is constantly monitoring and optimising its energy resources, and has implemented the most energy efficient equipment possible whenever it has been both practically and financially viable. It is currently changing Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016www.dechra.com52sluglineCorporate Social ResponsibilitycontinuedCase Study:Our Environment – Circle of GoodThe Circle of Good was developed as a positioning for the Specific brand of pet food because we believe pets deserve quality nutrition to support a healthy and happy life. The manufacture a quality diet requires quality ingredients that need to come from a healthy and sustainable environment. The main source of protein in our Specific range is fish.To support this position, during 2015 financial year, DVP EU, out of the profit from the sales of Specific, committed to making donations to good causes that champion a healthy environment. As part of this commitment the Dutch and Belgian teams joined forces to look for a good cause that fitted with the philosophy of the Circle of Good. They chose the North Sea Foundation (NSF), as both teams have a similar vision, a willingness to share knowledge and collaborate. This resulted in an agreement between the two organisations for three years where Dechra has committed to financially and promotionally support their activities.The mission of the NSF is to protect the North Sea and to use the sea’s resources sustainably. With Specific containing a high proportion of fish by-products we are keen on organisations who have sustainable fishing practices at the heart of their mission. The NSF has been in operation for over 35 years and since 2013, they have undertaken a Beach Cleanup Tour, where each year the foundation clean up the entire coast of the Netherlands in several stages during one month. This has become their most visible achievement to the general public and has been a great success, with lots of people volunteering to help collect rubbish and debris washed up from sea. Both the Dutch and Belgian sales teams actively participated in beach clean-ups in August 2016, encouraging veterinarians and pet owners to join them – a true collaboration for the benefit of many.The table below provides a summary of the financial contributions to the various charities, which were chosen by the respective teams:CountryCharityAmountBelgium and the NetherlandsNSF£11,167FinlandWWF*£670FranceWWF£18,612NorwayWWF£401SwedenWWF£980* World Wide Fund for NatureDechra AR2016 Front.indd 5205/09/2016 17:26:08 all of its lighting to LED lighting, which is calculated to provide a return on investment within two years, providing an estimated service life of 50,000 hours (or 12 years). DSC is also investigating a system to monitor the use of its electricity, heat and water on a daily basis to enable it reduce consumption in specific areas and time slots. DSC has continued with its annual contribution of DKK15,000 to Energreen ApS for the construction of new green energy production facilities within Denmark.Greenhouse Gas EmissionsThis is third year that Dechra has collated and reported on its Greenhouse Gas Emissions.Methodology In order to determine our carbon emissions, we have used the GHG Protocol Corporate Accounting and Reporting Standard and have reported on Greenhouse Gas Emissions arising from those sources over which we have operational control. The disclosures below encompass:• Scope 1: includes emission from combustion of fuel and operation of facilities (excluding combustion of fuel from Company cars);• Scope 2: includes emissions from purchased electricity, heat, steam and cooling; and• Vehicle emissions.UK Government’s Conversion factors for Company Reporting 2015 have been used to convert Dechra’s usage into a carbon dioxide equivalent, and Dechra has selected ‘Tonnes of CO2e per total £ million sales revenue’ as the intensity ratio as this is a relevant indicator of the Group’s growth.Case Study:Our Environment – Special Nutrition Supplement ProductionThe production of the nutrition supplement, a pellet based feed, uses approximately 80% of the natural gas and approximately 40% of the electricity consumption at the Genera site. The equipment required for the production of this supplement operates 24 hours a day, 7 days a week, 11 months of the year. The production process involves pellets being loaded into a coater unit and being tumbled on a rotating drum whilst a coating liquid sprays through nozzles onto their surface. Hot drying air is used to evaporate the solvent leaving behind a layer of coating. The heating process utilises steam produced by the central boilers, whereas electricity is used for the coating of the pellets and the supply of compressed air. The compressed air is used in the manufacturing processes throughout the site.Once the pellets have sufficient coating they are discharged from the machine and any moisture evaporated from the product is exhausted with the drying air and recycled and heated for re-use.The coating spray solution is ethanol based, and on completion of the coating, the ethanol vapour is extracted into a recovery plant which recycles 95% of the ethanol back into the production process. To meet environmental legislation, the site has an ethanol recycling unit which alone consumes approximately 60% of the energy utilised in this production area.53Strategic Report53slugline1 July 2015 to 30 June 2016(Acquired businesses)1 July 2015 to 30 June 2016(Existing business)1 July 2015 to 30 June 2016 (Total)1 July 2014 to 30 June 20151 July 2013 to 30 June 2014 restated*Scope 12,8006343,434636613Scope 2 1,2121,9183,1301,7401,712Vehicle emissions1361,3751,5111,2411,165Total Carbon Footprint (tonnes of CO2e) 4,1483,9278,0753,6173,490Intensity ratio (tonnes of CO2e per £m)191.217.432.617.818.0* Figures stated to take into account corrections made to our carbon footprint calculations as well as the inclusion of new business.The intensity ratio has increased by 14.8 tonnes of CO2e per total £ million sales revenue, from the table above it can be seen that the increase is attributable to the acquisitions and in the main this is due to the production of a nutrition supplement that is manufactured at Genera. Please refer to case study below. Dechra AR2016 Front.indd 5305/09/2016 17:26:09 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 overseeing 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.
Our Senior Executive Team (SET) owns the
risk management process and is responsible
for managing specific Group risks.
The SET 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 the Group’s objectives.
Top
Down
Board
Overseeing of the Group’s risk management and internal controls
Audit Committee
Annual validation of the risk reporting process
Senior Executive Team
Owners of the risk management process and responsible for embedding risk
management into business units
Bottom
Up
Business Units
Identif
y
n it s
siness U
u
B
B
o
a
r
d
Monitor
r
Internal
Control
Framework
Assess
S
E
T
e
mitte
d it C o m
A u
e
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 is responsible 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 is responsible for identifying
how the risks are currently controlled, what
additional mitigating actions are required,
what monitoring and assurance mechanisms
are in place, assessing the effectiveness of
key control processes, and addressing any
weaknesses identified.
The Board conducts a review of the risk
management and internal control framework
and SET members present their risks,
controls and mitigation plans to the Board
for review on a rolling programme throughout
the year. The Audit Committee reviews the
effectiveness of internal financial controls
annually.
54
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016
www.dechra.com
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05/09/2016 17:26:09
55Strategic Report
Improvements in 2016
In September 2014, the Financial
Reporting Council issued a revised UK
Corporate Governance Code (the Code)
which introduced additional disclosure
requirements on risk management and
internal controls.
The Group’s existing risk management and
internal control processes met many of
the requirements of this revised Code. The
following changes have been implemented
to meet the requirements fully.
The key changes that have been
implemented are the:
•
identification of material internal controls
and key monitoring processes in more
detail;
• assessment of the effectiveness of these
internal control processes;
•
introduction of a rolling programme of
risk control reviews by the Board with
each SET member; and
• stress testing of the Group’s cashflow
forecasts to assess the impact of a
number of downside risk scenarios in
order to support the viability statement,
which can be found on page 70.
In addition, an internal audit programme has
been established to provide independent
assurance on material financial, operational
and compliance controls over a three year
cycle.
Plans for 2017
We plan to continue to refine and strengthen
our internal control framework where
required within our core business and in
recently acquired businesses.
The implementation of Oracle is expected
to deliver improvements in our control
framework through standardisation of
business processes and greater automation
of transactional level and period end control
processes.
55
05/09/2016 17:26:09
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;
• Delegation of Authorities;
• compliance with laws and regulations;
• Anti-Bribery and Anti-Corruption;
• 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.
•
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 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
• Transactional Level Controls
operated on a day-to-day basis.
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
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 annually. 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.
The product pipeline is reviewed
regularly to:
• 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.
Stock Code: DPH
Dechra AR2016 Front.indd 55
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Understanding Our Key Risks
Dechra is the only veterinary pharmaceuticals
company in the FTSE 350. 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:
No change
Increased risk
Decreased risk
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.
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.
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57Strategic Report
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.
Integration
of three
acquisitions
made this year.
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 which are trained to a high standard.
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57
05/09/2016 17:26:11
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.
a
b
c
Regulatory Risk:
Continuing pressure on reducing
antibiotic use.
The issue of the potential transfer
of 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
Trend
Ensuring new
acquisitions
meet relevant
quality and
regulatory
standards.
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.
Reduction in sales of our
antimicrobial product range.
Our reputation could
be adversely impacted
if we do not respond
appropriately to government
recommendations.
Controls and Mitigating Actions
The Group strives to exceed regulatory
requirements and ensures that its
employees have detailed experience and
knowledge of the regulations.
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.
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.
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.
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59Strategic Report
Link to
Strategic
Pillar and
Enabler
a
b
c
Risk
Reliance on Third Parties
Risk:
Loss of key third party
manufacturing customers from
DPM.
Other sales, relating to third
party manufacturing and other
non-core activities, represents
approximately 14% of Group
revenues.
Potential Impact
Loss of a key customer
can impact manufacturing
revenues and lead to an
increase in the cost of
goods of the remaining
portfolio.
Trend
Controls and Mitigating Actions
The DPM Sales Manager maintains
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.
a
b
c
People 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 resources
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.
This could delay
implementation of our
strategy and we may
not meet shareholders’
expectations.
Key to Strategic Pillars:
Key to Strategic Enablers:
Pipeline Delivery
Manufacturing and Supply Chain
Read Delivering Our Strategy
on pages 13 to 15.
a
b
c
Portfolio Focus
Technology
Geographical Expansion
People
Acquisition
Stock Code: DPH
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59
05/09/2016 17:26:12
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016www.dechra.com6060Dechra Annual Report Middle 2016.indd 6005/09/2016 17:26:41 Governance62Board of Directors64Corporate Governance72Audit Committee Report77Nomination Committee Report79Directors’ Remuneration Report94Directors’ Report – Other Disclosures97Statement of Directors’ Responsibilities61Stock Code: DPHDechra Annual Report Middle 2016.indd 6105/09/2016 17:26:42 Board of Directors
N*
R
Michael Redmond
Non-Executive Chairman
Committee Membership
Nomination (Chairman), Remuneration.
Skills and Experience
Michael has extensive board level international
pharmaceutical experience, having held
Non-Executive Director and Chairman roles in a
number of healthcare related companies, both
private and public, in the UK, Germany and
Canada. Furthermore, as a result of Michael’s tenure
with the Company, he has a detailed knowledge
and understanding of Dechra.
Background
Michael joined the Company as a Non-Executive
Director in April 2001, and was appointed Chairman
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
their 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.
Ian Page
Chief Executive Officer
Committee Membership
Not applicable.
Skills and Experience
Ian has gained detailed knowledge and experience
through various positions he has held within the
pharmaceutical and veterinary arena. He has solid
understanding of how business develops both in
the UK and globally. In particular he has extensive
experience in M&A and in the successful delivery
of strategic plans.
Background
Ian joined NVS, Dechra’s former services business,
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 Limited.
Tony Griffin
Managing Director,
Dechra Veterinary Products EU
Committee Membership
Not applicable.
Skills and Experience
Tony has over 25 years’ experience in the animal
health business and has substantial international
experience as a result of living and working outside
the UK since 1993. He gained broad experience
of running an international animal health business
with teams in different European countries as Chief
Executive Officer of the AUV Group. Tony is the
Board nominated Director responsible for health,
safety and environmental matters.
Ishbel Macpherson
Senior Independent
Non-Executive Director
Committee Membership
Audit, Nomination, Remuneration (Chairman).
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.
A
N
R*
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.
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 Galliford
Try plc (appointed February 2014) and Senior
Independent Director at Bonmarche Holdings plc
(appointed October 2013).
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Governance
A
Audit
N
Nomination
R
Remuneration
Chairman
*
A*
N
R
A
N
R
Julian Heslop
Non-Executive Director
Committee Membership
Audit (Chairman), Nomination, Remuneration.
Skills and Experience
Julian has considerable financial experience as
a result of the senior finance roles he has held in
the pharmaceutical, food, property and brewing
sectors over the last 30 years.
Background
Julian joined the Board in January 2013. He served
as Chief Financial Officer of GlaxoSmithKline PLC
between 2005 and 2011, having previously been
appointed its Senior Vice President, Operations
Tony Rice
Non-Executive Director
Committee Membership
Audit, Nomination, Remuneration.
Skills and Experience
Tony has extensive board level experience across a
range of sectors, including aerospace, healthcare,
telecommunications and retail in both UK and
international markets.
Background
Tony joined the Board in May 2016. He served
as Chief Executive Officer at Cable & Wireless
and Tunstall Holdings, and prior to that held
various roles at BAE Systems including Managing
Suzana Cross
General Counsel and Company Secretary
Committee Membership
Not applicable.
Skills and Experience
Suzana has over 19 years’ experience as a
solicitor, having held positions both in private
practice and in-house.
Background
Suzana was appointed as General Counsel and
Company Secretary in November 2015. Prior to
her appointment she was General Counsel and
Company Secretary for Victrex plc from April
2012 to November 2015, General Counsel and
Controller between 2001 and 2005 and as
Financial Controller of Glaxo Wellcome PLC
between 1998 and 2000. Prior to this, Julian held
senior finance roles at Grand Metropolitan PLC
and Imperial Brewing and Leisure. He is a Fellow of
the Institute of Chartered Accountants in England
and Wales.
External Appointments
Julian is a Non-Executive Director at Revolymer
PLC (appointed 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).
Director of Commercial Aircraft and Group MD
of Business Development. He has also served
as a Non-Executive Director at Punch Taverns,
Spirit Pub Company, Cable & Wireless, Telewest
Communications and Saab Technologies, and
Chairman of Alexander Mann Solutions.
External Appointments
Tony is currently the Senior Independent
Non-Executive Director and Chairman of the
Remuneration Committee at Halma plc.
Company Secretary for Speedy Hire plc from
July 2009 to March 2012 and Senior Legal Adviser
at United Utilities Group PLC from 2003 to 2008.
Suzana has a corporate and commercial law
background, having worked as a corporate lawyer
at Herbert Smith in London and at DLA Phillips Fox
in Sydney, Australia.
External Appointments
None.
Anne-Francoise Nesmes
Chief Financial Officer
Committee Membership
Not applicable.
Skills and Experience
Anne-Francoise has considerable experience
in the pharmaceutical industry covering all
finance activities including R&D, manufacturing,
commercial and corporate finance.
Background
Anne-Francoise was appointed Chief Financial
Officer in April 2013. Prior to joining the Group,
Anne-Francoise worked at GlaxoSmithKline PLC
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. Prior to this, she held finance
roles with John Crane, Tetra Pak, ADP and
Caterpillar UK.
External Appointments
None.
Anne-Francoise resigned on 31 July 2016.
Stock Code: DPH
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63
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Letter from the Chairman on Governance
Dear Shareholder
On behalf of the Board I am pleased to
present Dechra’s Corporate Governance
Report for the year ended 30 June 2016.
Managing Governance
The Board recognises that excellence in
corporate governance is essential in order to
generate and protect value for our investors.
Our governance structure is designed to
maintain effective control and oversight
of our business whilst at the same time
promoting the entrepreneurial spirit that has
underpinned Dechra’s success to date.
In our Corporate Governance Report we
aim to provide a clear and meaningful
explanation of how the Board leads the
Group and discharges its governance
duties, including how we apply the
provisions of the UK Corporate Governance
Code (the Code).
Leadership
We have a strong and balanced Board with
a range of complementary skills to support
the strategic and operational direction of the
Group. There were several changes to the
composition of the Board during the past year.
Chris Richards stood down in April 2016,
after almost six years as a Non-Executive
Director and as the Company’s Remuneration
Committee Chairman. Ishbel Macpherson was
appointed as the Remuneration Committee
Chairman on Chris Richards’ departure.
Anne-Francoise Nesmes stood down in
July 2016, after more than three years’ service
to the Company as the Chief Financial Officer.
As announced on 17 August 2016, we are
delighted to confirm that Richard Cotton has
been appointed as her replacement and he is
expected to join the Board in January 2017.
We wish Chris and Anne-Francoise well for
the future and thank them for their extensive
contribution to the Board and the Group.
We also welcomed Tony Rice to the Board
as an independent Non-Executive Director.
Tony’s biographical details can be found
on page 63. As you will be aware, I will be
standing down as Chairman in October
2016 following our Annual General Meeting
and, subject to his election as a Director
of the Company at that meeting, Tony will
replace me as the Chairman. With his wealth
of experience, Tony is the ideal person to
work with the management team on the
next phase of the Group’s development.
Michael Redmond
Non-Executive Chairman
Board Effectiveness
As Chairman, I am responsible for the
leadership of the Board and ensuring its
effectiveness in all aspects of its role.
During the 2016 financial year we undertook
an internal evaluation of the Board, its
committees and individual Directors. I am
delighted to report that the overall outcome
from the evaluation was that the Board
and its individual Directors are performing
effectively, and that the Board is well
supported and presents an open forum for
debate. The findings from this evaluation are
found on page 69.
Accountability
We are now required by the Code to
include an assessment of the viability of the
Company. This is covered on page 70.
Relations with Shareholders
The Annual General Meeting will be held in
London on 21 October 2016 and I would
like to invite 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
5 September 2016
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Corporate Governance
Governance
Compliance with the Code
The UK Corporate Governance Code (the Code) establishes
the principles of good governance for companies; the following
report describes how the Company has applied these principles
to its activities. The Board remains committed to maintaining high
standards of corporate governance. In the opinion of the Directors,
the Company has complied with the Code throughout the period.
Leadership
The Role of the Board
The Board’s primary responsibility is to promote the long term
success of the Company by the creation and delivery of sustainable
shareholder value. The Board’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 44 and 45.
Board Membership and Responsibilities
Details of the Directors together with their biographical details can
be found on pages 62 and 63.
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, is 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 that
have failed to be resolved through the normal channels. Ishbel led
the recruitment process for the Chairman’s successor (further details
are provided in the Nomination Committee Report on page 77).
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 (SET).
• Performance and results of the Group.
• Propose strategy.
• Execute strategy agreed by the Board.
Chief Financial Officer
• Responsible for financial planning and reporting for the Group.
• Management of financial risk.
• Develop and execute the strategic plan.
• Secure funding as required.
Managing Director DVP EU
• Management of the segment which contributes the majority of Group revenue.
• 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 commercial and industry experience and independent judgement.
• Evaluate strategy and risks.
Stock Code: DPH
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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
Risk management and
internal controls
Oversight of the Group’s
operations
Governance
Actions
Annual strategy review. Strategic decisions are made after reports and recommendations are
received from management on markets, potential growth areas including acquisitions, product
development, risk analysis, including execution risks.
Ongoing review of key risks and material internal control processes. Review of stress tests on the
Group’s forecasts to support the viability statement. Receipt of Audit Committee reports on risk
management process and internal controls.
Approval of the annual budget and capital expenditure projects. Site visits to factories and offices
in the UK and abroad. Review progress through business unit reports and detailed financial
results report.
Receive governance reviews from external advisers, Company Secretary and internal audit.
Review of Board skills, performance, composition and succession planning.
Matters Reserved for the Board
There is a formal schedule of matters reserved for 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, and tax strategy and policy.
Interaction with the external auditor.
Internal Controls
Ensure maintenance of a sound system of internal control and risk management.
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. Attendance at the Board and Committee meetings during the year to
30 June 2016 is set out in the table below:
Mike
Redmond†
19 April
2001
Ian
Page
13 June
1997
Anne-
Francoise
Nesmes
22 April
2013
Tony
Griffin
1 November
2012
Ishbel
Macpherson
1 February
2013
Dr Chris
Richards*
1 December
2010
Julian
Heslop
1 January
2013
Tony
Rice‡
5 May
2016
9
n/a
6
4
9
n/a
n/a
n/a
9
n/a
n/a
n/a
9
n/a
n/a
n/a
9
4
7
4
7
3
6
3
9
4
7
4
2
0
0
1
Appointment Date
Board
Met 9 times
Audit Committee
Met 4 times
Nomination Committee
Met 7 times
Remuneration Committee
Met 4 times
Meetings attended
* Chris Richards did not attend one Nomination Committee meeting prior to his resignation. He attended all Board, Remuneration and Audit Committee
meetings prior to his resignation on 8 April 2016.
† Mike Redmond did not attend one Nomination Committee meeting as it dealt with the appointment of his successor.
‡ Tony Rice has attended all meetings since his appointment.
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Governance
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.
During the year, in addition to the routine business, presentations by
senior management, and strategic development, some of the other
matters considered by the Board included:
• Sanctions Policy;
• Pipeline Delivery;
• Tax Management: Base erosion and profit sharing;
•
Integration of Genera, Brovel and Putney;
• Global Supply Chain initiatives;
• Cash management and corporate credit cards;
• Review of material internal controls and viability statement stress
testing results;
•
Impact of the resignation of the Chief Financial Officer; and
• Appointments of Non-Executive Chairman, the Chairman of the
Remuneration Committee and the Company Secretary.
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
72 to 76
•
•
•
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 75;
to oversee the relationship with and review the effectiveness of 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:
79 to 93
•
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:
77 and 78
•
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, or delegated Board matters 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 forthcoming Annual General Meeting.
Stock Code: DPH
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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 the following changes at Board level over the past
12 months:
• Chris Richards (Non-Executive Director) resigned on
8 April 2016;
• Tony Rice (Non-Executive Director) was appointed on
5 May 2016; and
• Anne-Francoise Nesmes (Executive Director) resigned on
31 July 2016.
The following changes are expected to take place in the next
12 months:
• Michael Redmond will retire at the 2016 Annual General Meeting;
• Tony Rice will be appointed as Chairman with effect from the
conclusion of the Company’s forthcoming Annual General
Meeting, subject to his election as a Director of the Company
at that meeting; and
• Richard Cotton (Executive Director) is expected to join the Board
in January 2017.
The Nomination Committee has retained an independent recruitment
consultancy, Odgers Berndtson, to assist in the appointment of
a further Non-Executive Director and it is anticipated a suitable
appointment will be made before the end of the 2016 calendar year.
The Nomination Committee Report on pages 77 and 78 provides
further information on the recruitment process undertaken during the
year, 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 as at 5 September 2016
1
2
0
1
3
2
1
0
0 to 3
years
3 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 it is important that
its composition is sufficiently diverse and reflects a wide range of
knowledge, skills and experience.
Board Composition as at 5 September 2016
Non-Executive Chairman 17%
Non-Executive Directors 50%
Executive Directors 33%
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 17% female representation. Female
representation below Board level is 30% of the SET and 53% of
the overall workforce.
Gender Diversity as at 5 September 2016
1
5
0
2
1
3
5
4
3
2
1
0
Female
Male
Entire
Board
Executive
Directors
Non-Executive
Directors
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Governance
Regular briefings are provided to the Directors, which cover a
number of legal and regulatory changes and developments relevant
to each 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, 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 2015 Internal Board Evaluation
The findings of the internal evaluation were discussed at the
September 2015 Board meeting. Overall, the review indicated
that the Board operated effectively but noted the following focus
areas:
• ensure that an overview of FAP remains a priority; and
• ensure that strategy is the first item on the Board’s agendas.
Both of these actions have been addressed during the
financial year.
• The 2016 Internal Board Evaluation
The findings of the internal evaluation were discussed at the July
2016 Board meeting. Overall, the review once again indicated
that the Board operates effectively but noted the following focus
areas:
• acquisition integration;
• bi-annual strategy review; and
• succession planning.
The last external evaluation was done in 2014. Due to the recent
changes in the Board a decision as to when the next external
evaluation will take place will be taken during the forthcoming year.
However, we anticipate that sufficient time should lapse to enable
the transition to the new Chairman.
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Senior Executive Team
as at 30 June 2016
Overall Workforce
as at 30 June 2016
Female 30%
Male 70%
Female 53%
Male 47%
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, 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 that there would 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 sites in Sansaw, UK and Den Bosch, the Netherlands. These
meetings provide the Board with an informal opportunity to meet
with senior management based at these sites.
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 equity
research reports. New Directors visit the various business units in
order to allow them to meet with the executive teams and to be
shown around the operations. Tony Rice has visited the Company’s
facilities and had meetings with the management teams at Skipton
and Sansaw in the UK and Den Bosch in the Netherlands.
In addition, meetings were arranged with the Group HR Director,
Group IT Director, Company Secretary, Head of Internal Audit and
Risk Assurance, Group Financial Controller, Group Treasurer and the
Group Supply Chain Director.
Stock Code: DPH
Dechra Annual Report Middle 2016.indd 69
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Corporate Governance
continued
Appointment and 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, Tony Rice, who was appointed to the Board
on 5 May 2016, will offer himself for election. All of the remaining
Directors will retire and offer themselves for re-election, excluding
Michael Redmond. 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 and the election of Tony Rice.
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 97 and 100 to 106 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 Directors have a reasonable expectation that Group has
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.
In reaching this conclusion the Directors have given due regard to
the following:
•
•
•
the Group’s business activities together with factors likely to
impact the future growth and operating performance;
the financial position of the Group, its cash flows, available debt
facilities and compliance with the financial covenants associated
with the Group’s borrowings, which are described in the financial
statements; and
the cash generated from operations, available cash resources
and committed bank facilities and their maturities, which taken
together provide confidence that the Group will be able to meet
their obligations as they fall due.
As at 30 June 2016 the Group had cash balances of £39.1 million
and net borrowings of £116.6 million (2015: cash balances of
£45.9 million and net cash of £13.4 million). Further information
on available resources and committed bank facilities is provided in
notes 17 and 20 to the financial statements.
Viability Statement
In accordance with the Code, the Board has determined that a three
year period to 30 June 2019 is an appropriate period over which to
provide its viability statement. This is supported by the Group’s budget
process which includes detailed projections for the next two financial
years and broader projections from the third year of the five year
strategic planning process. The Board believes this provides a sound
framework for providing reasonable assurance on the Group’s viability
given the inherent uncertainty associated with longer term forecasts.
The Board’s assessment has been made with due regard to the
Group’s current position, its future prospects, the strategic plan and
the management of the Group’s principal risks as detailed on pages
56 to 59 of the Strategic Report. The assessment is based on the
assumption that the Group will be able to refinance its borrowing
facilities which are currently committed until September 2019.
The Board reviews the budget and strategic plan annually and the
Group’s principal risks on a rolling basis throughout the year. The
planning process considers risks to sales and cost forecasts for each
part of the Group and the Group’s consolidated income and cash flow
forecasts.
Stress testing of the Group’s projected cash flows has been carried
out by considering those principal risks that could have a material
impact on viability. The impact of these principal risks can be
summarised into three categories, namely loss of profits on key
products, pipeline delays, and loss of third party manufacturing
customers. A number of severe but plausible stress tests have been
conducted on these areas, both individually and in combination,
together with an overall reverse stress test on the Group’s borrowing
facilities and covenant commitments.
The Board believes that the Group has adequate resilience due to its
diversified product portfolio, its geographic footprint, a strong balance
sheet, healthy cash generation and access to external financing,
which includes committed facilities.
Based on the results of this analysis, the Board has a reasonable
expectation that the Group will be able to continue in operation and
meet its liabilities as they fall due over the three year period from
30 June 2016.
Internal Control and Risk Management
The Board retains overall responsibility for determining the nature
and extent of the risks it is willing to take in achieving its strategic
objectives.
In accordance with the Code, the Board is responsible for reviewing
the effectiveness of the Group’s risk management and internal control
systems, and confirms that:
•
•
•
there is an ongoing process for identifying, assessing, managing
and monitoring the Group’s principal risks;
the SET’s assessment of the principal risks is considered to be
robust and those risks that have the potential to impact liquidity
have been considered in the assessment of the Group’s viability;
the principal risks and internal control processes have been
monitored by the SET throughout the year and reviewed by the
Board on a rolling programme throughout the year; and
• no significant failings or weaknesses in internal control processes
have been identified.
Based on its review throughout the year, the Board is satisfied that
the risk management and internal control systems in place remain
effective and provide reasonable but not absolute assurance that the
Group will be successful in delivering its objectives.
Further information on how the business manages risk can be found
in the Strategic Report on pages 54 and 55.
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Governance
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 other
communications between the Company and other parties such as
financial analysts, brokers and the media.
The Company organises site visits on a periodic basis. Feedback
is collated by the Company’s brokers after such presentations.
The feedback is then circulated to the Board for review and
consideration. In addition, the Board is provided with a monthly
market summary report which reports on share price and share
register movements. Where material changes in respect of
remuneration or governance are proposed, the Board seeks to
consult with its major shareholders before implementing such
changes.
During the 2016 financial year, an investor perceptions survey was
undertaken by Edison Investment Research Limited which confirmed
that Dechra’s strategy was clearly defined and understood by our
shareholders.
The Chairman and Senior Independent Director are available to
meet shareholders upon request.
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.
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
5 September 2016
Stock Code: DPH
Dechra Annual Report Middle 2016.indd 71
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Letter from the Audit Committee Chairman
Dear Shareholder
On behalf of the Board, I am pleased
to present this year’s Audit Committee
Report. During the year we have focused
on the key issues in relation to the Group’s
financial reporting, including key accounting
judgements and the ongoing quality of
related disclosures. We have also covered
other important areas, including the changes
made to the Group’s risk management
processes, the assessment of material
control processes and the development
of the viability statement and related
financial stress testing in order to meet the
requirements of the revised UK Corporate
Governance Code.
Committee Membership
It has also been a year of change for the
Audit Committee (the Committee). We have
welcomed Tony Rice to the Committee and
look forward to the fresh perspective he will
bring given his strong FTSE background
and diverse experience. We were sorry to
lose Chris Richards from the Committee and
thank him for his valuable contribution over
the past six years.
External Auditor
Following the tender for the external
audit and the appointment of
PricewaterhouseCoopers LLP (PwC) as
reported last year, the Committee has
overseen a smooth transition from the former
auditor to PwC, ensuring the continued
effectiveness of the external audit. In this
respect, the Committee has paid particular
focus to reviewing and approving the plan
for the external audit, considering the reports
from the external auditor on accounting and
control matters, and engaging with them on
significant judgements.
Julian Heslop
Audit Committee Chairman
Internal Audit and Risk Assurance
The Committee has overseen the continued
establishment of the internal audit function
under the leadership of the Head of Internal
Audit and Risk Assurance, John Wilson,
following his appointment in 2015. Audit
planning and risk management have both
been enhanced, and greater rigour has
been introduced to the methodology used
in both areas. Carefully directed use of
external expertise is in place to ensure that
appropriate skills are deployed in audits of
technical areas. Good progress is being
made in developing the internal control
framework to strengthen controls around
each of our principal risks. Further details
of the Group’s risk management and
internal control processes are provided
on pages 75.
Annual Report 2016
Finally, we specifically reviewed, at the
request of the Board, whether the 2016
Annual Report was fair, balanced and
understandable and concluded that it was.
The basis supporting our conclusion is set
out on page 75.
Julian Heslop
Audit Committee Chairman
5 September 2016
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Audit Committee Report
Governance
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 67 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 66 of the Corporate
Governance Report. Chris Richards resigned in April 2016 and the
Committee is pleased to welcome Tony Rice as its most recent
member. Tony will, subject to the appointment of an additional
Non-Executive Director, resign from the Committee on his election as a
Director and his subsequent appointment as Chairman of the Company
at the forthcoming Annual General Meeting.
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. Ishbel
Macpherson and Tony Rice 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 62 and 63.
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 Head of Internal Audit and Risk
Assurance.
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 at the December meeting and no changes were made.
Major Activities of the Committee during the Year
The Committee met four times since the last Annual Report was
issued. The meetings are timed to coincide with the financial
reporting timetable of the Company. The Committee 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
3 December 2015
17 February 2016
5 May 2016
30 August 2016
Stock Code: DPH
Main Activities
• Consideration of the proposed changes on risk management and internal controls
• Review and approval of the internal audit plan
• Review and approval of PricewaterhouseCoopers LLP (PwC) handover and Half-Yearly review plan
• Review of the Committee’s terms of reference
• Anti-Bribery and Anti-Corruption and sanctions update
• Review of global tax management and compliance support
• Review of non-audit fees (including actual and projected spend)
• Review of the Group’s Half-Yearly report
• Consideration of the Half-Year Review Memorandum prepared by the external auditor
• Half year review of internal financial controls
• Review of the internal audit report
• Review of the dividend policy
• Review of non-audit fees (including actual and projected spend)
• Review of reverse stress testing to support the viability statement
• Meeting with the external auditor without management present
• Review and approval of the external audit strategy (including timetable, scope and fees)
• Discussion in relation to the Company’s expectations of the external auditor and audit process
• Review of Intangible R&D Asset Capitalisation Policy
• Review of the internal audit work plan to the end of the 2016 financial year
• Review of non-audit fees (including actual and projected spend)
• Consideration of specific stress testing scenarios and relevant time period for the viability statement
• Discussion of the programme of business for the 2017 financial year
• Review of fair value accounting of acquisitions during the year
• Review of the Group’s preliminary statement and draft Annual Report (including the Audit Committee
Report) for the year ended 30 June 2016 and recommend the final dividend
• 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 the going concern and viability statements
• Review of the internal audit report
• Full year review of internal financial controls
• 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
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Audit Committee Report
continued
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, PwC,
in their reports to the Committee and in related discussions.
The key matters reviewed are shown in the table below:
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 £345.3 million, which represents 124.8% of Group net
assets.
Valuation of the intangible assets acquired during business
combinations in the year, which total £179.4 million.
The Committee reviewed management’s process for reviewing and
testing goodwill and other intangible assets for potential impairment.
It endorsed management’s assessment that an impairment to
acquired intangible assets of £3.9 million was required.
The Committee reviewed the calculations and assumptions provided
by management and third party experts which support the valuation
of these acquired intangible assets and these valuations were
assessed for completeness. The Committee reviewed the useful
economic lives of the identifiable intangible assets and the future
growth rate assumptions applied in the valuations.
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 14.0% (22.7% on
underlying operations).
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 impairment and amortisation of
acquired intangible assets and related deferred consideration,
acquisition related restructuring costs, and the fair value uplift on
inventory acquired through business combinations.
The Committee discussed the key risks in respect of corporate
tax and reviewed that appropriate controls were in place to ensure
that taxation calculations are not materially misstated. Areas where
significant judgements such as uncertain tax positions have been
applied are reviewed and challenged and external audit work and
conclusions are considered.
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, PwC, 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 were clearly
disclosed within the financial statements and notes.
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Governance
• Going Concern and Viability Statements
The Committee reviewed the Group’s going concern and viability
statements set out on page 70 of the Corporate Governance
Report. In considering the viability statement the Committee
paid particular attention to the time period to be used and the
robustness of the stress testing scenarios. The external auditor
reviewed management’s assessment and discussed this review
with the Committee.
• Fair, Balanced and Understandable Assessment of the
Annual Report
At the request of the Board, the Committee considered whether
the 2016 Annual Report was fair, balanced and understandable
and whether it provided the necessary information for
shareholders to assess the Company’s performance (pages 38
to 43), business model (page 24) and strategy (pages 13 to 15).
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) 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 confirmed that in their opinion the Annual
Report 2016 was fair, balanced and understandable, which can
be found on pages 100 to 106.
This assessment was carried out by the Committee on
30 August 2016, following which the Committee reported to
the Board that it was satisfied that, taken as a whole, the
Annual Report 2016 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 Intangible R&D Asset
Capitalisation policy and the annual review of the tax policy.
• Anti-Bribery and Anti-Corruption
The Committee reviewed the revised third party due diligence
procedures and Code of Conduct. The Company Secretary
and the Head of Internal Audit and Risk Assurance ensure
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 (Delta) has been developed to
assist with the ongoing training requirements of the Group.
• Dividend
The dividend policy was reviewed by the Committee and was
recommended to the Board for approval.
Internal Controls and Risk Management
The Board retains overall responsibility for the management of the
Group’s risk management and internal control framework. The
Committee monitors and reviews the effectiveness of the Group’s
internal financial controls.
The Committee has also reviewed the changes made to the Group’s
risk management and internal control processes in order to meet the
requirements of the Corporate Governance Code. These changes
include the:
•
identification of material internal controls and key monitoring
processes;
• assessment of the effectiveness of these internal control
processes by the SET;
•
•
introduction of a rolling programme of risk and control reviews by
the Board; and
implementation of stress testing of the Group’s cash flow
forecasts to assess the impact of a number of downside risk
scenarios in order to support the viability statement.
Following an independent review, the Group has completed the
implementation of the recommendations made by Deloitte LLP
(Deloitte) to strengthen the risk management and internal control
processes. The Committee reviewed the assessment of the Group’s
internal financial controls at its meeting on 30 August 2016. It
concluded that there was reasonable assurance that the controls
operated effectively.
Further details in respect of the Group’s risk management and
internal control processes are provided on pages 54 to 55 of the
Strategic Report and the Board’s statements on the effectiveness
of these processes are provided on page 70 of the Corporate
Governance Report.
Internal Audit
The Head of Internal Audit and Risk Assurance provides objective
assurance and advice on the management of the Group’s risks and
its systems of internal control. Internal Audit is supported by a
co-sourcing arrangement with KPMG LLP (KPMG) to provide a
flexible resource model and access to specialist expertise and
language skills in new geographies.
Internal Audit have developed a three year plan which seeks to
provide balanced assurance coverage of the Group’s material
financial, operational and compliance control processes. The plan
was approved by the Committee in December 2015. It sets out
a rolling programme of core assurance activities together with a
significant focus on the implementation of the Oracle ERP system.
Internal Audit recommendations are communicated to relevant
business leaders and appropriate control improvements are agreed
with them. Audit reports are provided to the Audit Committee
together with regular progress reports on management’s
implementation of control improvements.
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Audit Committee Report
continued
External Auditor
Following a competitive tender in 2015, PwC were appointed as the
Company’s external auditor for the 2016 audit, replacing KPMG who
had been the Company’s external auditor since its formation
in 1997.
During the year the FRC’S Audit Quality Review team reviewed
KMPG’s audit of the Company’s Financial Statements for the year
ended 30 June 2015. The Committee discussed the results of this
review.
Audit Plan
PwC 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 PwC 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:
•
the Committee’s own assessment of the quality of the audit
plan, the rigour of the audit findings and conclusions, the extent
to which the Lead Audit Partner understands the business and
constructively challenges management and the quality and clarity
of the technical and governance advice provided;
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.
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 assurance in relation
to the Oracle control framework. 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 a questionnaire on external auditor effectiveness
and efficiency (further detail on which is provided below);
The results of this policy are that:
(i) Deloitte undertake global tax compliance work;
• a report prepared by PwC setting out its processes to ensure
(ii) KPMG support internal audit; and
(iii) during the course of the year Deloitte, Ernst & Young LLP,
KPMG, Smith & Williamson LLP and Grant Thornton UK LLP
have provided advice on global mobility matters, related tax
advice, company reorganisation, acquisition valuation support
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
3.8% (2015: 3.1% in relation to services rendered by KPMG) of the
annual audit fee and half-yearly review fee, and reflects the policy set
out above.
Julian Heslop
Audit Committee Chairman
5 September 2016
independence and its confirmation of compliance with them; and
•
the level of non-audit fees as a percentage of the audit and
half-yearly review fees paid to the external auditor, which were
3.8% (2015: 3.1% in relation to services rendered by KPMG).
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 30 August 2016.
Based on the review set out above, the Committee is satisfied with
the external auditor’s independence, effectiveness and objectivity.
Re-Appointment of External Auditor
At the forthcoming Annual General Meeting, a resolution to
re-appoint 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.
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Nomination Committee Report
Governance
Dear Shareholder
On behalf of the Board, I am pleased
to present the report of the Nomination
Committee (the Committee). The 2016
financial year has been a busy year for the
Committee in light of recent changes to
the Board and the Senior Executive Team
(SET); and the acquisitions completed since
the last report which have brought in an
increased talent pool.
There were five additional meetings
during the year, which mainly dealt with
the succession planning for the role
of Chairman. Ishbel Macpherson, the
Senior Independent Director, led the
comprehensive recruitment process
which I am pleased to report resulted
in the appointment of my successor,
Tony Rice, subject to his election at the
forthcoming Annual General Meeting. The
Committee has also 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 on page 68.
Should you have any questions in relation to
this report or the Committee, please feel free
to contact me or the Company Secretary.
Michael Redmond
Nomination Committee Chairman
5 September 2016
Michael Redmond
Nomination Committee Chairman
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 62 and 63, and 66 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
2016 financial year this took place at the
January meeting. An overview of the terms
of reference is detailed on page 67 of the
Corporate Governance Report.
Principal activities of the Committee
during the year included:
• Appointment of Chairman
As reported in last year’s Nomination
Committee Report, the recruitment
process for my successor commenced
in the 2015 financial year. An
independent recruitment consultancy,
JCA Group (JCA), was retained to assist
in the recruitment and was provided
with a role description detailing the skills
and experience required for the position
of Chairman of the Board. To assist
JCA with their understanding of the
requirements of the role, they met with
the Chief Executive Officer, Chief Financial
Officer and members of the Committee
during the previous financial year.
Following a rigorous recruitment process,
which was led by Ishbel Macpherson,
Tony Rice was appointed to the Board on
5 May 2016 and, subject to his election at
the forthcoming Annual General Meeting,
he will be appointed as Chairman of
the Company. Tony Rice has extensive
board level experience across a range
of sectors. Further details relating to his
background and experience can be found
on page 63.
• Recruitment of Chief Financial
Officer and Non-Executive Director
Following the resignation of Chris
Richards in April 2016, an independent
recruitment consultancy, Odgers
Berndtson (Odgers), has been
retained to assist in the recruitment
of a Non-Executive Director. 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 Non-Executive Director. To
assist Odgers with the understanding
of the requirements of the role, they
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Nomination Committee Report
continued
met with the Chief Executive Officer, the
Managing Director of DVP EU and the
Chairman. A long list of candidates has
been identified for interview.
Anne-Francoise Nesmes resigned as
Executive Director and Chief Financial
Officer on 31 July 2016. Odgers
were also retained to assist with the
recruitment of her replacement. At the
commencement of this recruitment
Odgers met individually the Chief
Executive Officer, Chief Financial Officer,
Company Secretary, Group HR Director,
the Audit Committee Chairman and the
Chairman. Following these meetings
a brief was established and a short
list of candidates were interviewed by
the Chief Executive Officer, Group HR
Director, the Chairman and the Audit
Committee Chairman. As announced
on 17 August 2016, this has resulted
in the appointment of Richard Cotton.
It is anticipated that he will commence
working with Dechra in January 2017.
• Recruitment of Company Secretary
During the year, the Board approved the
appointment of a new General Counsel
and Company Secretary, Suzana Cross,
who joined in November 2015. Suzana
has extensive experience as a General
Counsel and Company Secretary across
a range of organisations. Further details
of which are disclosed on page 63.
• Non-Executive Directors and Senior
Executive Team (SET) Succession
Planning
There have been a number of changes
at Board level, as described above,
and within the SET with the addition
of Suzana Cross and the retirement of
Mike Annice, the Group Manufacturing
Director, who retired on 31 July 2016.
Odgers were appointed to assist
with the recruitment process for the
latter role. A field of candidates were
identified for interview, which resulted
in the successful recruitment of Greig
Rooney as Group Manufacturing and
Logistics Director. Greig commenced
employment on 4 July 2016, which
permitted a successful handover
with the outgoing post holder, Mike
Annice. Dr Anthony Lucas, the Group’s
Product Development Director, was also
promoted to the SET.
Further details in relation to the
changes to the SET can be found in the
Corporate Social Responsibility Report
on page 47. The succession planning
review which was undertaken in the
2015 financial year will be updated to
reflect these changes.
• Leadership Needs of the Group
During this financial year, the SET worked
with an external partner to identify key
areas to optimise their effectiveness.
In light of the recent acquisitions and
changes to the SET membership, we will
continue to build on this work.
In addition, during the year a number of
leadership development programmes
have been initiated within key areas of
the Group to ensure that the Company
has strong internal candidates for key
leadership positions. Further details
can be found in the Corporate Social
Responsibility Report.
The three acquisitions, further details
of which can be found in the Strategic
Report, have added significantly to the
overall talent pool and a Group-wide
review of talent and succession is
scheduled to take place during the 2017
financial year. This will be supported by
the new Human Capital Management
(HCM) system. The details relating to
the implementation of the HCM system
can be found in the Corporate Social
Responsibility Report on page 48.
• Appraisal Process and
Re-appointment of Directors
Following an internal evaluation, further
details of which are provided on page
69 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. At the forthcoming Annual
General Meeting Tony Rice, who was
appointed to the Board on 5 May 2016,
will offer himself for election, and all
of the remaining Directors will retire
and offer themselves for re-election,
excluding Michael Redmond.
Michael Redmond
Nomination Committee Chairman
5 September 2016
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Letter from the Remuneration
Committee Chairman
Governance
Dear Shareholder
Following Chris Richards’ resignation on
8 April 2016, I agreed to accept the
position of Chairman of the Remuneration
Committee (the Committee), and I am
pleased on behalf of the Board to present
the Directors’ Remuneration Report for the
year ended 30 June 2016.
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 2016 and how the Directors’
Remuneration Policy (the Policy) will be
implemented in the year commenced
1 July 2016. The Directors’ Remuneration
Report (excluding the Policy) will be subject
to an advisory vote at the 2016 Annual
General Meeting.
Our Directors’ Remuneration Policy
The 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
pages 83 and 84. An annual review of
Executive Directors’ salaries is undertaken
in September along with all employees.
This allows us to optimise the link between
performance and reward for all employees.
Ian Page’s salary has not been increased
since January 2014, and as part of the
annual review we will consider whether
any increase should be made to reflect the
exceptional change in size and complexity
of the Group since that date. It is our
expectation that any increase to Tony
Griffin’s salary will be in line with the range of
increases for the wider workforce.
Ishbel Macpherson
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 designed
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.
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Letter from the Remuneration
Committee Chairman
continued
Remuneration Element
Annual Bonus
Our annual bonus rewards key executives by reference to financial metrics (based
on profit) measured over one financial year 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 the
development of the supply chain and business and acquisition integration.
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 Committee has
discretion to amend any bonus payout to take into account wider business considerations including
the achievement of the highest standards in respect of our health and safety procedures.
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 return on capital employed (ROCE)
ensures that our executives are focused on using capital efficiently and appropriately to allow the
business to capitalise on growth opportunities in new territories and markets whilst maintaining
returns.
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
• Underlying
Diluted EPS
Growth
• Return on
Capital
Employed
a
b
c
• New Product
Sales
This measure
encourages
innovation, growth
and sustainability
All Employee Share Plans
All UK employees, including UK Executive Directors, 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.
• Employee
Turnover
Retention of
skilled employees
will help grow the
business
Generation of Long Term Value for Shareholders/Alignment of Interests
The 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 acquired
and retained a holding of Dechra shares equivalent to the value of at least 100% of their base salary by the third anniversary of appointment.
Moreover, the Chief Executive Officer and Chief Financial Officer are further expected to have acquired and retained a holding equivalent to at
least 200% and 150% of their base salary respectively by the fifth anniversary of appointment.
Incentive Outturns in 2016
As a result of the progress in our strategy, we have delivered underlying profit before tax during the year of £49.7 million, an improvement of
10.2% 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 84, bonuses for the year equal to 72% of salary have been earned
by the Executive Directors.
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Governance
No changes are proposed to the relative TSR targets (which
represent 50% of the Awards) or the ROCE underpin. The EPS
target for threshold vesting has not been adjusted. However, as
a balance, no adjustment has been made to the ROCE underpin,
although the Committee is aware that as a result of the transactions
the ROCE underpin has become more challenging.
The Committee strongly believes that this approach to the EPS
performance conditions recognises the additional earnings
forecasted from the acquisition, without unduly penalising
management for having made acquisitions that enhance shareholder
value and which are aligned to our strategy.
Directorate Changes
As previously announced, Anne-Francoise Nesmes left the business
on 31 July 2016. Anne-Francoise remained with the business for
the whole of the 2016 financial year and, accordingly, has earned a
bonus for the year as referred to on pages 83 and 84. In accordance
with the rules of the Company’s LTIP, Anne-Francoise will retain her
LTIP Award granted in November 2013 as she remained with the
business until the end of the performance period, but her other LTIP
Awards lapsed on 31 July 2016.
Anne-Francoise’s replacement, Richard Cotton, is expected to join the
Company in January 2017, and the remuneration package has been
determined in accordance with the shareholder approved Policy;
further information is given on page 88.
Forward Looking
This is the final year under the current remuneration framework
as we will be seeking approval for a new Directors’ Remuneration
Policy at the 2017 Annual General Meeting. Therefore, the
Committee will be reviewing the current remuneration framework
with its advisers during the forthcoming year to ensure that the
remuneration package continues to:
• promote the long term success of Dechra;
• provide appropriate alignment between Dechra’s strategic goals,
shareholder returns and executive reward; and
• have a competitive mix of base salary and short and long term
incentives, with appropriate performance conditions attached to
variable remuneration.
Our existing LTIP was approved by shareholders in 2008 and
expires for the purposes of new grants in November 2018. As part
of the renewal of the Directors’ Remuneration Policy at the 2017
Annual General Meeting, we propose to seek shareholder approval
for a new LTIP, reflecting that new policy.
Shareholder Views
We consult with shareholders on policy and on any significant
events and take shareholders’ views into account before any
decisions are taken, and we have discussed with shareholders the
adjustments made to the 2016 financial year LTIP Awards, EPS
targets and the approach to the EPS targets for the 2017 financial
year LTIP Awards. 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.
Ishbel Macpherson
Remuneration Committee Chairman
5 September 2016
81
05/09/2016 17:27:00
LTIP Awards were granted to Ian Page, Anne-Francoise Nesmes
and Tony Griffin in November 2013 and vested by reference to
performance over the three year period ended 30 June 2016. Each
Award was subject to a total shareholder return (TSR) performance
condition as regards 50% of the Award and an earnings per share
(EPS) performance condition as regards 50% of the Award, with an
underpin based on ROCE applying to each element. As disclosed
on page 84, the Awards granted in November 2013 are due to vest
in November 2016:
• as to 92.5% of the TSR element (46.25% of the total Award)
by reference to TSR performance (reflecting median to upper
quartile performance); and
• as to 100 % of the underlying diluted EPS element (50 % of the
total Award) by reference to EPS performance (reflecting that the
growth in the underlying diluted EPS at 13.6% was above the
maximum threshold of 13%).
In aggregate, taking into account the ROCE underpin (reflecting that
the ROCE at 16.1% had not fallen below 15.0%), the LTIP Awards
vested as to 96.25%.
Executive Director Salaries in respect of 2016
During the annual pay review cycle Anne-Francoise Nesmes and
Tony Griffin were each awarded a 4.5% salary increase in respect
of the 2016 financial year, broadly in line with the average range of
increases awarded to employees throughout the Group. Ian Page
elected to waive a review of his salary for 2016.
In addition, during the 2016 financial year, we undertook a
comprehensive review of Tony Griffin’s remuneration in light of the
increases to the scope of his role as a result of geographic expansion
in Europe and in anticipation of the successful acquisition of Genera.
As a result of that review, his salary was increased with effect from
1 January 2016 by 8.35%; more information is given on page 83.
EPS Performance Targets for 2016 and 2017 LTIP
Adjustments
Following the acquisitions of Genera and Putney in 2016, we
have reviewed the performance targets for existing LTIP Awards
and LTIP Awards to be granted in 2017 financial year. This is in
line with our previous discussions with shareholders that the EPS
targets for the LTIP would be set for organic growth and that they
would be adjusted for the impact of any significant acquisitions
and divestments. For the 2016 financial year Awards (granted in
September 2015, with a performance period ending June 2018),
we have decided to increase the EPS performance requirement for
maximum vesting from 13% per annum to 16% per annum. This
recognises the announcement at the time of acquiring Putney that
the acquisition was expected to be earnings enhancing from 2018
and reflects the increase in 2018 financial year broker forecasts as a
result of the acquisition.
For the 2017 financial year LTIP Awards (to be granted in September
2016, with a performance period ending June 2019), we have
decided to increase the EPS performance requirement for maximum
vesting from 13% per annum to 20% per annum to reflect the higher
forecast earnings as a result of the acquisitions, as well as taking
into account the potential headwinds and risks in delivering this
stretching level of growth. The Committee is mindful that this level
of growth is exceptional based on the integration of the acquired
businesses and is not anticipated to be sustainable in the longer
term. It is therefore expected that the EPS targets would need to
be reduced for future Awards to reflect a lower level of sustainable
growth.
Stock Code: DPH
Dechra Annual Report Middle 2016.indd 81
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Directors’ Remuneration Report
2016 Annual Report on Remuneration
The following section provides detail in respect of remuneration earned by the Directors during the year in line with the Directors’
Remuneration Policy approved by the shareholders at the Annual General Meeting held on 24 October 2014. PricewaterhouseCoopers LLP
(PwC) have audited pages 82 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 2016. The table
shows the remuneration for each such person in respect of the year ended 30 June 2016 and the year ended 30 June 2015:
Salaries &
Fees
£0001
Benefits
£0002
Annual
Bonus
£0003
Long Term
Incentives
£0004
Pension
£0005
Total
£000
2016
440
323
232
126
43
35
45
6
1,250
2015
440
309
220
126
43
45
45
—
1,228
2016
54
16
28
—
—
—
—
—
98
2015
53
17
29
—
—
—
—
—
99
2016
317
232
167
—
—
—
—
—
716
2015
352
247
176
—
—
—
—
—
775
2016
1,405
719
371
—
—
—
—
—
2,495
20156
1,027
382
374
—
—
—
—
—
1,783
2016
62
45
25
—
—
—
—
—
132
2015
62
43
26
—
—
—
—
—
131
2016
2,278
1,335
823
126
43
35
45
6
4,691
2015
1,934
998
825
126
43
45
45
—
4,016
Ian Page
Anne-Francoise Nesmes
Tony Griffin7
Mike Redmond
Ishbel Macpherson8
Dr Chris Richards9
Julian Heslop
Tony Rice10
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 27 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 2015 value assigned to the long term incentives for Ian Page and Tony Griffin was shown in last year’s Annual Report as an estimate, with the value
determined by reference to a share price of £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). This has been restated to show the actual value determined by reference to a price of £11.68 (being the market value of a share
on 15 March 2016, the date of vesting). The 2015 value assigned to the long term incentives for Anne-Francoise Nesmes reflected the value at the actual
date of vesting (30 June 2015) rather than an estimate and, accordingly, has not been restated.
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 1.3045 for
2015 and 1.3432 for 2016. His salary was €311,949 for 2016 (reflecting six months at a salary of €299,449 and six months at a salary of €324,449) and
€286,554 for 2015.
Ishbel Macpherson’s fee increased to £48,000 from £43,000 on her appointment as Chairman of the Remuneration Committee, this has been pro-rated.
8.
9. Chris Richards resigned on 8 April 2016.
10. Tony Rice was appointed on 5 May 2016.
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Governance
Additional Disclosures in Respect of the Single Figure Table
Salaries and Fees
As disclosed in the Directors’ Remuneration Report in the 2015 Annual Report, the Executive Directors’ base salaries, excluding Ian Page,
were reviewed in September 2015 in order that the review is aligned with the performance development review calendar to provide a clearer
link between performance and reward. Ian Page elected to waive a review of his salary for the year ended 30 June 2016.
Following that review, Anne-Francoise Nesmes’ and Tony Griffin’s salaries were increased by 4.5% with effect from 1 July 2015, broadly in
line with the average range of increases awarded to employees in the wider Group.
During the 2016 financial year, a comprehensive review of Tony Griffin’s remuneration was undertaken, in light of changes to the scope of his
role through the expansion of the Food producing Animal Products Business Unit and the geographic expansion in Europe into Italy, Austria,
Poland and the Adriatic region, (this last being through the acquisition of Genera). Following this review, the Committee agreed that an
increase in his salary was appropriate and, accordingly, his salary was increased by 8.35% to €324,449 with effect from 1 January 2016.
The Committee’s approach to Executive Directors’ salaries for the year ending 30 June 2017 is summarised on page 88.
The Chairman and other Non-Executive Directors are paid a fee for their role. The Senior Independent Director and the chairmen of the
Remuneration Committee and Audit Committee receive an additional fee for those roles. No changes were made to any of these fees for
the year ended 30 June 2016. Accordingly, the fees for the year ended 30 June 2016 were the same for the year ended 30 June 2015,
as follows:
Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
Senior Independent Director additional fee
Fee
£000
126
40
5
5
3
The approach in relation to the Chairman and Non-Executive Directors’ fees for the year ending 30 June 2017 is summarised on page 89.
Annual Bonus
The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the Committee in
respect of the 2016 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 2016 against targets for the 2016 financial year is as follows:
2016 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 2016
The underlying profit before tax target was £47.2 million. Actual
underlying profit before tax was £49.7 million. This converted into an
achievement of 103% of the profit target when translated at constant
exchange rate resulting in a payment worth 62% 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 2016
72% of salary
* The Committee considers that the objectives for the forthcoming financial year (2017) are commercially sensitive as they give our competitors insight into our
business plans and therefore are not detailed in this report.
Further information regarding the 2016 financial year personal objectives for each Executive Director and the performance achieved is given
on the following page.
Stock Code: DPH
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Directors’ Remuneration Report
continued
The personal objectives of each Executive Director for the year ended 30 June 2016 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 objectives. A summary of the objectives
is set out below along with a description of the performance against them. 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.
Director
Ian Page
Objective
Acquisitions
Anne-Francoise Nesmes
Pipeline Delivery
Business Integration
Development of Supply Chain
Tony Griffin
Geographical Expansion
Portfolio Focus
Acquisition Integration
Performance
Completion of three acquisition, Genera d.d., Laboratorios
Brovel S.A. de C.V., and Putney Inc., during the financial
year
Successful launch of Zycortal in US and European markets
Successful integration of three newly acquired businesses
during the year
Developed an integrated approach to Supply Chain
management across DVP EU with DVP North America plan
on track for delivery in forthcoming financial year
Successful launch of new territory in Austria; Poland
performing above expectations; and additional countries in
the Adriatic region gained through acquisition of Genera
Set up a dedicated Food producing Animal Product
Business Unit to identify growth opportunities, stem the
previous year’s decline and coordinate our response to a
tough competitive environment
Successfully led the restructure and integration of Genera,
delivered within expected timeframe
Based on the above assessment against objectives set, the Committee determined that the performance of Ian Page, Anne-Francoise
Nesmes and Tony Griffin warranted maximum payout in relation to the non-financial elements of their respective bonuses. The Committee’s
approach to Executive Directors’ annual bonus opportunities for the year ending 30 June 2017 is summarised on page 89.
LTIP Awards Vesting in Respect of the Year Ended 30 June 2016
The LTIP Awards granted on 27 November 2013 are due to vest on 27 November 2016. All of the Executive Directors were granted LTIP
Awards on 27 November 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 growth in the Company’s underlying diluted earnings per share
(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
Both the TSR element and the EPS element are subject to an additional return on capital employed (ROCE) performance measure. Unless
the Group’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% for every 1% that ROCE falls below 15%.
With respect to the performance conditions relating to the LTIP Award due to vest on 27 November 2016, the Company’s TSR performance
was over 65.7% compared with a 69.7% TSR for the upper quartile company in the comparator group. Therefore 92.5% of the TSR element
will vest. In addition, the growth in the Group’s underlying diluted EPS for the performance period was 13.6%. Accordingly, 100% of the
EPS element will vest. Overall, taking into account that ROCE performance for 2016 was 16.1%, the LTIP Awards will vest as to 96.25% of
maximum opportunity. In the single figure table on page 82, 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 £11.299 (being the average market value of a share over the last quarter of the
Company’s financial period ended on 30 June 2016).
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Governance
The details of the LTIP Awards granted during the year ended 30 June 2016 are set out below. The Committee’s approach to Executive
Directors’ LTIP awards for the year ending 30 June 2017 is summarised on page 89.
The aggregate gain made by the Executive Directors on share options and LTIP Awards exercised during 2016 was £1,803,017
(2015: £1,024,971).
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 benefit 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 for each
Executive Director.
The annual allowance for tax relief on pension savings for individuals reduced from £40,000 to £10,000 on 6 April 2016. Anne-Francoise
Nesmes elected to receive a salary supplement in lieu of the employer contribution over and above the £10,000 limit for the entire period
under review. From 6 April 2016, Ian Page’s pension savings reached the lifetime allowance and from this date he elected to receive his
pension contributions as a salary supplement.
Tony Griffin is a member of the Basispensioen, a defined benefit pension plan established in the Netherlands. The table below sets out the
arrangements for Tony Griffin for the period under review.
Accrued benefit at 1 July 2015
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 2015
Transfer value at 30 June 2016
Increase in transfer value over the period after member contribution
€10,161
€10,886
€10,965
€13,000
€192,000
€206,000
€14,000
The defined benefit pension plan is capped at €50,000. Pensionable salary over this cap is paid into a defined contribution plan. 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. The earliest date that an non-reduced pension is payable is 10 February 2040.
Chief Executive Officer Remuneration for Seven Previous Years
Year ended
30 June 2016
30 June 2015
30 June 2014
30 June 2013
30 June 2012
30 June 2011
30 June 2010
Total single
figure
remuneration
£000
2,278
1,934
1,589
1,201
682
984
768
Annual bonus
payout (%
of maximum
opportunity)
72
80
80
36
60
60
44
LTIP vesting
(% of
maximum
number of
shares)
96.25
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 2015 and the year ended 30 June
2016. 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
2016
£000
440
54
317
2015
£000
440
52
352
Increase
%
0
3.8
(9.9)
Ian Page elected to waive his salary increase for the 2016 and 2015 financial years.
1.
2. Excludes SAYE options granted in the financial year.
Average per all UK based Employees
Increase
%
4.6
6.7
(3.4)
2015
£000
30.2
1.5
2.9
2016
£000
31.6
1.6
2.8
Stock Code: DPH
Dechra Annual Report Middle 2016.indd 85
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05/09/2016 17:27:01
Directors’ Remuneration Report
continued
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 2015 and the year ended 30 June 2016.
Distributions to shareholders by way of dividend and share buyback
Overall expenditure on pay
Year ended
30 June 2016
£000
16,865
56,504
Year ended
30 June 2015
£000
14,900
45,613
% change
13.2
23.9
Total Shareholder Return (TSR) Graph
The graph below shows the TSR performance of the Company over the past seven financial years compared with the TSR over the same
period for the FTSE 250 Total Return Index. Throughout the financial year ended 30 June 2016 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 the appropriate comparator
for this report.
Dechra
FTSE 250
400
350
300
250
200
150
100
50
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
2009
2010
2011
2012
2013
2014
2015
2016
Long Term Incentive Arrangements and Share Schemes:
LTIP Awards Made During the Year Ended 30 June 2016
Awards were granted to the Executive Directors on 15 September 2015, on the following basis:
Type of award
Nil cost option under the LTIP 200% of salary
Maximum
opportunity
Number of
shares
90,721
Face value
at grant1
£879,994
Nil cost option under the LTIP 150% of salary
49,933
£484,350
Ian Page
Anne-Francoise
Nesmes2
Tony Griffin
Nil cost option under the LTIP 100% of salary
22,641
£219,618
% of award
vesting at
threshold
Performance
period
25% 1 July 2015 –
30 June 2018
25% 1 July 2015 –
30 June 2018
25% 1 July 2015 –
30 June 2018
1. For these purposes, the face value of the Award is calculated by multiplying the number of shares by £9.70 (being the average share price used to determine
the number of shares comprised in the Awards).
2. Anne-Francoise Nesmes’ Awards lapsed when she left the business on 31 July 2016.
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Governance
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 Group’s underlying diluted EPS over the performance
period. As referred to on page 81, following the acquisitions of Genera and Putney in 2016, we have adjusted the EPS growth targets for
these Awards to increase the EPS growth requirement for maximum vesting, recognising the additional earnings forecasted. For ease of
reference, we have set out below the original and revised EPS growth targets. as follows:
Original EPS compound annual
growth rate
<8% CAGR
8% CAGR
CAGR between 8% and 13%
>13% CAGR
Adjusted EPS compound annual
growth rate
<8% CAGR
8% CAGR
CAGR between 8% and 16%
>16% 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
Both the TSR element and the EPS element are subject to an additional ROCE performance measure. Unless the Group’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% for every 1% that ROCE falls below 15%.
SAYE Options Granted in the Year
No Directors were granted SAYE options during the year ended 30 June 2016.
Payments to Past Directors (Unaudited)
There were no 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. Anne-Francoise Nesmes left the business on 31 July 2016. No
payments for loss of office were made to her in the year ended 30 June 2016 nor will be made in the year ended 30 June 2017. Anne-Francoise
remained with the business for the whole of the 2016 financial year and, accordingly, earned a bonus for the year, as referred to on pages 83 and
84. In accordance with the rules of the LTIP, Anne-Francoise’s LTIP Award granted in November 2013 will vest in November 2016 as she remained
with the business for the whole performance period. Her LTIP Award granted in September 2014 and her LTIP Award granted in September 2015
lapsed on 31 July 2016.
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 2016 are as follows:
Name
Ian Page
Anne-Francoise Nesmes
Tony Griffin
* Calculated using the share price as at 30 June 2016.
Appointment
date
13 June 1997
22 April 2013
1 November 2012
Ordinary
shares
Number
752,166
39,502
52,104
Ordinary
shares
£000*
8,815
463
611
% of
salary
2,003
143
263
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 2016 are as follows:
Name
Mike Redmond
Ishbel Macpherson
Julian Heslop
Tony Rice
Appointment
date
19 April 2001
1 February 2013
1 January 2013
5 May 2016
Ordinary
shares
Number
73,417
5,848
10,000
20,000
Ordinary
shares
£000*
860
69
117
234
% of
base fee
683
171
293
586
* Calculated using the share price as at 30 June 2016.
There have been no changes in the holdings of the Directors between 30 June and 5 September 2016.
Stock Code: DPH
Dechra Annual Report Middle 2016.indd 87
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05/09/2016 17:27:01
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 2016 are as follows:
Ian Page
Anne-Francoise
Nesmes
Tony Griffin
Award date
5 March 2013
27 November 2013
15 September 2014
15 September 2015
27 September 20131
27 November 2013
15 September 20142
15 September 20152
5 March 2013
27 November 2013
15 September 2014
15 September 2015
Number of
shares at
30 June
2015
94,420
129,211
115,334
—
41,739
66,079
60,747
—
34,401
34,129
29,937
—
Granted
during the
year
—
—
—
90,721
—
Lapsed
during the
year
(6,515)
—
—
—
(2,880)
Exercised
during the
year
(87,905)
—
—
—
(38,859)
Number of
shares at
30 June
2016
—
129,211
115,334
90,721
—
—
—
49,933
—
—
—
22,641
—
—
—
(2,374)
—
—
—
—
—
—
(32,027)
—
—
—
66,079
60,747
49,933
—
34,129
29,937
22,641
Status
Vested
Unvested
Unvested
Unvested
Vested
Unvested
Unvested
Unvested
Vested
Unvested
Unvested
Unvested
Performance
period
2012–2015
2013–2016
2014–2017
2015–2018
2012–2015
2013–2016
2014–2017
2015–2018
2012–2015
2013–2016
2014–2017
2015–2018
1. This Award is the Recruitment Award granted to Anne-Francoise Nesmes, and was subject to the same performance conditions as those applying to the
LTIP Awards granted on 5 March 2013. It was granted outside the rules of the LTIP.
2. These Awards lapsed on 31 July 2016.
SAYE Scheme
Options held under the SAYE Scheme by each person who was a Director at 30 June 2016 are shown below:
Ian Page
Anne-Francoise Nesmes1
1. These options lapsed on 31 July 2016
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 2017 (Unaudited):
The Directors’ Remuneration Policy outlined on pages 90 to 93 will be implemented in the year ending 30 June 2017 in line with the way in
which it has been implemented in the year ended 30 June 2016.
Recruitment Arrangements for the New Chief Financial Officer
Anne-Francoise Nesmes left the business on 31 July 2016. Anne-Francoise’s replacement, Richard Cotton, is expected to join the
Company in January 2017, and the remuneration package has been determined in accordance with the shareholder approved Directors’
Remuneration Policy. Richard Cotton’s remuneration package will include a salary of £350,000 and a bonus opportunity of 100% of salary
(in accordance with the Policy), which will be pro-rated for the 2017 financial year to reflect his period in service during that year. As part of
his recruitment, Richard will be granted two ‘buy out’ awards in respect of incentives forfeited as a consequence of joining Dechra. Each
Award will be over shares with a value of £350,000 at the date of grant. The first Award will vest one year after Richard joins Dechra, subject
to his performance in role. The second Award will be subject to the same performance conditions as apply to the LTIP Awards granted in
September 2015 (as adjusted) and will vest following the assessment of those performance conditions following the end of the performance
period in June 2018. Each Award may be reduced to take account of any relevant performance conditions for the forfeited awards not being
achieved. Richard will not receive an Award under the LTIP in respect of the year ended 30 June 2017.
Malus and Clawback
Malus provisions apply to the annual bonus and LTIP Awards, and clawback provisions apply to the annual bonus and LTIP Awards granted
after 1 July 2015. 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 2016. It is planned that Tony Griffin’s salary for 2017 will
increase in line with the range of increases proposed for the wider workforce. It is also planned during the forthcoming financial year to
review Ian Page’s salary (which has not changed since January 2014). An independent external review will be undertaken in light of the
exceptional change in size and complexity of the Group.
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Governance
No changes will be made to the fee for the Chairman for the year ending 30 June 2017. In terms of the remaining Non-Executive Directors,
it has been agreed to increase the base fee from £40,000 to £50,000 per annum. This increase is effective from 1 July 2016. There will be
no changes to the additional fees.
Annual Bonus
No changes have been made to the bonus structure, consequently Executive Directors will have a bonus opportunity of 100% of salary
for the year ending 30 June 2017, on the same basis as for the year ended 30 June 2016. Details of the bonus structure can be found
on pages 83 and 84. In the opinion of the Board, the performance targets applying to the annual bonus are commercially sensitive, and
prospective disclosure could provide competitors with insight into the Group’s business plans and expectations. However, the Company will
disclose how any bonus earned relates to performance against targets on a retrospective basis when the targets are no longer considered
commercially sensitive, as shown on page 84 in respect of bonuses for the Group’s 2016 financial year.
LTIP
The Committee proposes that LTIP Awards for the year ending 30 June 2017 (the 2017 Grant) will be made at the level of 200% of salary for
Ian Page and 100% of salary for Tony Griffin. As with the Awards granted in respect of the 2016 financial year, the performance measures
for the Awards will be based on TSR (50%) and EPS (50%), with an underpin based on ROCE. The TSR targets will be the same as for the
Awards made in the 2016 financial year, details of which can be found on page 87. Richard Cotton will not receive an Award under the LTIP
in respect of the year ending 30 June 2017 other than the buy-out awards in respect of incentives forfeited as a result of joining Dechra as
outlined on page 88.
As referred to on page 81, the EPS growth target required for maximum vesting for the 2017 Grant has been increased to 20% CAGR to
reflect the higher forecast earnings as a result of the acquisitions of Genera and Putney. Accordingly, the EPS targets for the 2017 Grant
are:
EPS compound annual growth rate
<8% CAGR
8% CAGR
CAGR between 8% and 20%
>20% 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
Both the TSR element and the EPS element will be 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% for every 1% that ROCE falls below 15%.
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 66.
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 2016 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 67.
Policy on External Appointments
The Company recognises that Executive Directors may be invited to become Non-Executive Directors of other companies and that this
can help broaden the skills and experience of a Director. Executive Directors are only permitted to accept external appointments with the
approval of the Board.
The only Executive Director to hold an external appointment is Ian Page. He is Non-Executive Chairman of Sanford DeLand Asset
Management Limited, a position which he has held since 7 October 2010. During the year, Ian Page received no remuneration for this
appointment.
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Directors’ Remuneration Report
continued
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; and
• 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 £11,500 for the year ended 30 June 2016. 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 76.
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 23 October 2015 and 24 October 2014 respectively:
Resolution
To approve Remuneration Report
To approve Remuneration Policy
Votes for
69,175,413
66,935,753
% of vote Votes against
394,203
1,140,380
99.43
98.32
% of vote
0.57
1.68
Votes
withheld
107,863
302,814
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 2017, 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.
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Governance
Performance measure
Not applicable.
Element: Pension
Purpose and link to strategy
Help retain and recruit employees and provide appropriate income in retirement.
Operation
The Company operates a Group Stakeholder personal pension scheme that
has been effective since 1 July 2005. All Executive Directors excluding Tony
Griffin are members of this scheme.
Tony Griffin participates in a defined benefit pension plan which has been
established in the Netherlands. This is a funded career average pay
arrangement, where pensionable salary is subject to a €50,000 cap. Salary
over this cap is paid into a defined contribution pension plan.
Maximum opportunity
The Company contributes up to 14% of salary to a pension scheme on behalf
of the Executive Directors, and/or as a salary supplement in lieu of pension
contributions where appropriate.
Element: Benefits
Purpose and link to strategy
Provided on a market competitive basis.
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 payout is determined by the Committee
after the year end based on targets set for the financial period.
The Committee has discretion to amend the payout 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 2017, 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 89.
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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 2017, 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 89.
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 2017 financial year, the following award levels will
apply:
• Chief Executive Officer — 200%
• Other Executive Directors — 100%
Although no Award will be made to the Chief Financial Officer in respect of
the year ending 30 June 2017 other than the buy-out awards in respect
of incentives forfeited as a result of joining Dechra as outlined on page 88,
the intention is that he will be eligible to receive an Award of up to 150% in
September 2017.
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.
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Governance
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
Opportunity
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.
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 21 October 2016. The Directors’ Remuneration Report was approved by the Board on 5 September 2016 and signed on its
behalf by:
Ishbel Macpherson
Remuneration Committee Chairman
5 September 2016
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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 2016. 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 59 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;
• Details in respect of Directors’ Indemnities;
• Statement of Directors’ Responsibilities;
• Review of the Group’s business during the year and any likely future developments;
• Going concern and viability statements;
• Employees with disabilities and employee involvement; and
• Details in respect of 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 note 23 to the Financial Statements.
Acquisitions and Disposals
The acquisitions during the year under review are as follows:
Date of
Acquisition
November 2015
Detail
Genera d.d.
Manufacturer of animal health products
in Croatia with a strong market share
in its local market and neighbouring
countries
January 2016
Laboratorios
Brovel S.A. de C.V.
A veterinary pharmaceuticals company
based in Mexico City
April 2016
Putney, Inc.
A developer of generic companion
animal pharmaceuticals in the US,
based in Portland, Maine
Consideration
The cost of acquiring the 92.26% controlling interest
in Genera was €36.6 million which was funded from
Dechra’s existing cash and debt facilities. Subsequently
£0.4 million of the minority interest was acquired
equating to 1.13% of the voting shares
Consideration of US$5.0 million (£3.3 million) in cash on
completion and a further US$1.0 million (£0.6 million) is
contingent upon Brovel reaching registration milestones
for Dechra’s products in Mexico. The consideration was
funded from the Group’s existing cash resources
Consideration of US$200.0 million (£134.2 million)
funded through a combination of borrowings and equity
placing
Amendment of the Articles of Association
The Company’s Articles of Association may be amended by a special resolution of its shareholders.
Significant Agreements/Change of Control
The Group has bank facilities with a syndicate of banks comprising HSBC Bank Plc, The Royal Bank of Scotland plc 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 Long Term Incentive Plan 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.
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Governance
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.
Overseas Branches
The Company, through its subsidiary Genera d.d., has established branches in Bosnia-Herzegovina and Serbia.
Political Donations and Expenditure
No political donations were made during the year ended 30 June 2016 (2015: 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 36 and 37. The expense on this activity for the year ended 30 June 2016 was £10,355,000
(2015: £8,671,000) and a further £570,000 (2015: £1,035,000) was capitalised as development costs.
Results and Dividends
The results for the year and financial position at 30 June 2016 are shown in the Consolidated Income Statement on page 107 and
Consolidated Statement of Financial Position on page 109. The Directors are recommending the payment of a final dividend of 12.91 pence
per share which, if approved by shareholders, will be paid on 18 November 2016 to shareholders registered at 28 October 2016. The shares
will become ex-dividend on 27 October 2016. An interim dividend of 5.55 pence per share was paid on 6 April 2016, making a total dividend
for the year of 18.46 pence per share (2015:16.94 pence per share). The total dividend payment is £16,865,000 (2015: £14,900,000).
Share Capital
The issued share capital of the Company for the year is set out in note 24 to the Consolidated Financial Statements. As at the end of
the financial year 92,746,998 fully paid ordinary shares were in issue, which included 377,235 ordinary shares issued during the year in
connection with the exercise of options under the Company’s share option schemes. 4,398,600 ordinary shares (“New Ordinary Shares”)
were offered by way of a placing at an issue price of 1100 pence per share, raising approximately £47.0 million (net of underwriting
commission). The New Ordinary Shares were issued on 17 March 2016 fully paid and rank pari passu in all respects with the existing
ordinary shares.
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 2,880 shares and have waived their rights to dividends
and in accordance with the Investment Association guidance they abstain from voting at general meetings.
At the Annual General Meeting of the Company held on 23 October 2015, the Company was authorised to purchase up to 8,797,214 of its
ordinary shares, representing 10% of the issued share capital of the Company as at 14 September 2015. 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 2015 Annual General Meeting and resolutions to renew these authorities will be
proposed at the 2016 Annual General Meeting.
Stock Code: DPH
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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.
Fidelity Management & Research
Schroders
BlackRock Inc
Aberdeen Group
Standard Life
The Capital Group Companies, Inc
Legal & General Group
AEGON
Hargreave Hale Ltd Stockbrokers
Aviva plc
Old Mutual
30 June 2016
15 August 2016
Aggregate
voting
rights
8,140,794
7,052,937
5,803,176
5,055,417
4,408,241
4,099,442
3,558,271
3,110,455
3,024,634
2,886,549
1,892,763
Percentage
8.78
7.60
6.26
5.45
4.75
4.42
3.84
3.35
3.26
3.11
2.04
Aggregate
voting
rights
8,306,939
6,239,599
5,728,855
4,883,694
4,498,648
4,099,442
3,512,234
3,110,455
2,870,686
2,813,624
3,032,897
Percentage
8.96
6.73
6.18
5.27
4.85
4.42
3.79
3.35
3.10
3.03
3.27
Auditor
A resolution to re-appoint PricewaterhouseCoopers LLP as external auditor and to authorise the Directors to determine their remuneration
will be proposed at the forthcoming Annual General Meeting.
Audit Information
Each of the Directors who held office at the date of the approval of the Directors’ Report confirms that, so far as he or she is aware, there
is no relevant audit information of which the external auditor is unaware, and each Director has taken all steps that he or she ought to have
undertaken as a Director to make himself or herself aware of any relevant audit information and to establish that the external auditor is aware
of that information.
The Directors’ Report has been approved by the Board and signed on its behalf by:
Suzana Cross
Company Secretary
5 September 2016
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Statement of Directors’ Responsibilities
Governance
Directors’ Responsibility Statement
Each of the Directors as at the date of the Annual Report, whose
names and functions are set out on pages 62 and 63, confirm that
to the best of his/her knowledge:
1. the Group financial statements, prepared in accordance with
the IFRSs as adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Parent
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 Parent
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:
Michael Redmond
Chairman
5 September 2016
Ian Page
Chief Executive Officer
5 September 2016
Statement of Directors’ Responsibilities in Respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report,
the Directors’ Remuneration 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 applicable law and International Financial
reporting Standards (IFRSs) as adopted by the European Union
(EU) and have elected to prepare the Parent Company financial
statements in accordance with applicable law and United Kingdom
(UK) Accounting Standards (UK Generally Accepted Accounting
Practice).
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company and of
their profit or loss for that period. In preparing each of the Group and
Parent Company financial statements, the Directors are required to:
• select appropriate accounting policies and 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 a 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 Group’s and
Parent Company’s transactions, disclose with reasonable accuracy
at any time the financial position of the Group and the Parent
Company, and enable them to ensure that its financial statements
and the Directors’ Remuneration Report comply with the Companies
Act 2006 and, as regards the Group financial statements, Article 4
of the IAS Regulation. They are also responsible for safeguarding
the assets of the Parent Company and Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Stock Code: DPH
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slugline
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989824769.04 5 September 2016 3:41 PM proof 1Dechra Annual Report Back 2016.indd 9805/09/2016 17:30:34 99Our Financials9924769.04 5 September 2016 3:41 PM proof 1100Independent Auditor’s Report107Consolidated Income Statement108Consolidated Statement of Comprehensive Income109Consolidated Statement of Financial Position110Consolidated Statement of Changes in Shareholders’ Equity111Consolidated Statement of Cash Flows112Notes to the Consolidated Financial Statements150Company Balance Sheet151Reconciliation of Movements in Shareholders’ Funds152Notes to the Company Financial Statements161Financial HistoryDechra Annual Report Back 2016.indd 9905/09/2016 17:30:36 Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC
Report on the Financial Statements
Our Opinion
In our opinion:
• Dechra Pharmaceuticals PLC’s Group financial statements and Company financial statements (the Financial Statements) give a true and
fair view of the state of the Group’s and of the Company’s affairs as at 30 June 2016 and of the Group’s profit and cash flows for the year
then ended;
•
•
•
the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as
adopted by the European Union;
the Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; 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.
What We Have Audited
The Financial Statements, included within the Annual Report and Accounts (the Annual Report), comprise:
•
the Consolidated Statement of Financial Position as at 30 June 2016;
•
the Company Statement of Financial Position as at 30 June 2016;
•
the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the year then ended;
•
the Consolidated Statement of Cash Flows for the year then ended;
•
the Consolidated Statement of Changes in Shareholders’ Equity for the year then ended;
•
the Company Statement of Changes in Shareholders’ Equity for the year then ended; and
•
the notes to the Consolidated and Company Financial Statements, which include a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the Financial Statements.
These are cross-referenced from the Financial Statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the Group Financial Statements is IFRSs as adopted by the
European Union, and applicable law. The financial reporting framework that has been applied in the preparation of the Company Financial
Statements is United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law (United
Kingdom Generally Accepted Accounting Practice).
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Financial Statements
Our Audit Approach
Overview
• Overall Group materiality: £1.6 million which represents 5% of profit before tax adjusted for non-
underlying and exceptional items save for amortisation relating to the intangible assets (adjusted profit
before tax).
• Following our assessment of the risks of material misstatement of the Group financial statements we
performed audits of the complete financial information of 18 reporting units and specified procedures for
a further two reporting units.
•
In addition the Group engagement team audited the Company and certain centralised functions,
including those covering derivative financial instruments, corporate taxation, and goodwill and intangible
asset impairment assessments.
• The components on which audits of the complete financial information and centralised work was
performed accounted for 94% of Group revenue and 92% of adjusted profit before tax.
• As part of our supervision process, the Group engagement team have visited or have performed the
audit of significant components, in addition to performing the audits of the in scope UK reporting
locations. We also visited the component auditors in Croatia following the acquisition of Genera d.d.
during the year.
• Our assessment of the risk of material misstatement also informed our views on the areas of particular
focus for our work which are listed below:
• Assessment of the acquired balance sheet and fair value accounting for the significant acquisitions.
• Assessment of the carrying value of acquired intangible assets.
The Scope of Our Audit and Our Areas of Focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of
management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of
material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified
as ‘areas of focus’ in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide
an opinion on the Financial Statements as a whole, and any comments we make on the results of our procedures should be read in this
context. This is not a complete list of all risks identified by our audit.
Stock Code: DPH
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Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC
continued
Area of focus
How our audit addressed the area of focus
Assessment of the accounting position adopted on the opening
balance sheet accounting for the Genera, Brovel and Putney
acquisitions
•
Refer to the Audit Committee Report on page 74, the critical
accounting estimates and judgements in note 1 (b) to the accounts
on page 112, and note 31 (Acquisitions).
The Group completed the following acquisitions during the year:
• Genera d.d. on 21 October 2015;
• Laboratorios Brovel S.A. de C.V. on 13 January 2016; and
• Putney Inc. on 22 April 2016.
We focused on this area because the accounting for business
combinations including the respective provisional opening balance
sheet position is inherently judgemental.
IFRS 3 (revised) requires that consideration is given to the existence
and measurement of separable identifiable intangible assets
that have been acquired as part of each respective acquisition
agreement. For both Genera d.d. (Genera) and Putney Inc. (Putney),
significant value has been attributed to the brand and product
portfolio, the recognition of which is dependent on cash flow
forecasts including future business growth, product development
and the application of an appropriate discount rate, all of which are
subjective.
The land and property acquired was restated to fair value. This
required the use of assumptions including building construction
costs and the discounted land values within the valuation
methodology.
The accounting standards state that acquired inventory should
be recognised at fair value which is equal to the selling price less
costs to sell. This has resulted in value uplifts to the acquired
inventory held in Genera, Putney and Laboratorios Brovel S.A. de
C.V. (Brovel). The appropriateness of the fair value adjustments are
dependent on the existence and quality of inventory held at the
acquisition date and the calculation of selling costs.
We have focused on the completeness of liabilities recorded at the
respective acquisition date. As the recognition of obligations can
be subject to the extent of information available this can give rise to
judgement being exercised.
The calculation of deferred tax liabilities arising on the identifiable
intangible assets is reliant on the correct application of local
tax rates. The measurement of deferred taxes is dependent on
the understanding and application of local tax rules, with the
recognition of any deferred tax assets being judgemental based on
the Directors’ evaluation of recoverability.
Intangible assets – We obtained the cash flow forecasts
supporting the intangible assets identified and agreed that these
were consistent with those approved by the Board as part of
the acquisition process. For sales volumes and margin data
we tested that the relevant assumptions were consistent to the
historical performance of each of the acquired businesses. We
assessed the validity of new products being made available
for sale through independent research as to the accessibility
and marketability of similar products. We corroborated that
development costs have been appropriately included based
on actual costs previously incurred on comparable products
developed by the Group.
We engaged our valuation specialists who benchmarked within
a reasonable range that the growth assumptions were in line
with industry expectation and the specific geographical locations
in which the business operates. Our valuation specialists also
agreed that the discount rates were consistent to those applied
by companies of comparable size and within the relevant industry.
• Land and buildings – We engaged our valuation specialists who
agreed that both key assumptions were within a reasonable
range. The building construction costs were agreed as
consistent with average data available for industrial property
development within Central and Eastern European countries
and the land discount was compared with the value of sites sold
which are similar in size and nature.
•
Inventory – We have corroborated the respective selling costs
by agreeing to sales invoices and agreeing that these costs
have been accurately included within the overall calculations
performed. We attended and undertook physical inventory
counts at key locations validating that inventory was being held
and accurately recorded. As part of our physical attendance we
surveyed the aging and quality of specific inventory items and
evaluated the local obsolescence policies which adequately
aligned to the inventory profiles observed.
• Liabilities – We considered the completeness of liabilities
through our knowledge of the business, by making enquiries
of the Directors, examining correspondence with legal counsel
and reading the respective sale and purchase agreements.
We performed substantive procedures on material purchase
invoices and bank payments post acquisition date and
confirmed that these were correctly recorded.
• Taxation – We recalculated the deferred tax liabilities arising on
the acquired intangibles assets and agreed that relevant tax
rates have been used.
We read the prior year tax computations and available
correspondence from the respective tax authorities and agreed
that all known significant obligations and threats have been
suitably considered.
In respect of Putney, the Directors evaluated operating losses
which are available to be utilised in future periods. We agreed
the quantum and nature of the losses to prior period tax
computations. We read the local tax rules and verified the
accuracy of the calculation as to the losses which can be
recognised in line with the rules. We recalculated the associated
deferred tax asset and agreed the recognition of this by
confirming the basis of recoverability is consistent with Board
approved forecasts.
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Financial Statements
Area of focus
How our audit addressed the area of focus
• Acquired intangible assets and other relevant assets – We
agreed that the basis of the current and future revenue forecasts
are consistent with previous performance. Our valuation
specialists benchmarked, within a reasonable range, the growth
and discount rate to economic and industry averages and the
cost of capital for other comparable companies respectively. We
have performed sensitivities on a selection of these assumptions
confirming that the level of headroom calculated is not unduly
susceptible to change.
• US generic pharmaceutical product – We confirmed the
accuracy of the impairment charge by tracing the carrying value
to the asset ledger. We validated the appropriateness of the
Directors’ conclusion to fully impair the asset by obtaining and
reading a copy of the FDA approval supporting the Directors’
explanation as to the preferability of the comparable drug and as
such supporting the strategic decision to stop developing this
product.
Assessment of the carrying value of acquired intangible assets and
other relevant assets
Refer to the Audit Committee Report on page 74, the critical
accounting estimates and judgements in note 1 (b) to the accounts
on page 112, and note 11 (Intangible assets).
The Directors’ exercise judgement as to whether impairment
triggers, which require a full impairment assessment to be
performed, have been identified in relation to acquired intangible
assets and other relevant assets.
Where a full impairment assessment is required to support the
carrying value of the assets held, the Directors’ have prepared a
discounted cash flow which includes a number of assumptions.
The assumptions which are deemed to be the most significant in
respect of these forecasts are the current and future performance
of individual products. The long term growth and discount rate are
also considered to be subjective.
The Directors recorded an impairment charge of £3.3 million
relating to a US generic pharmaceutical product. The Directors’
have concluded that this asset is impaired following the acquisition
of Putney and a review of products acquired. It was established
that a comparable drug is produced by Putney which already held
FDA approval. Therefore a decision was taken to stop developing
this product resulting in a full impairment of the associated asset
value. The impairment charge is material to the financial statements
and is dependent on the accurate assessment of the Putney
products and their purpose.
How We Tailored the Audit Scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial Statements as
a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
The Group is structured along three segments being European Pharmaceuticals, North American Pharmaceuticals and Pharmaceuticals
Research and Development, with each division set up to manage operations on both a regional and functional basis, consisting of a number
of reporting units.
The Group Financial Statements are a consolidation of 25 active reporting units comprising the group’s operating businesses and centralised
functions. These reporting units maintain their own accounting records and controls and report to the head office finance team in the UK.
Accordingly, of the Group’s 25 active reporting units we identified 18 which, in our view, required a full audit of their complete financial
information in order to ensure that sufficient audit evidence was obtained. The reporting units on which a full audit of their complete financial
information was performed accounted for 94% of Group revenue and 92% of adjusted profit before tax. Of these reporting units, two were
considered to be significant components due to their size; the Dechra Veterinary Products trading entities in Denmark and the USA.
In addition to the significant components, 16 active non-significant reporting units were subjected to a full scope audit, five located in the
UK, seven which are accounted for at the shared service centre in Denmark, and one located in the US, the Netherlands, Germany and
Croatia respectively, were conducted such that the audit work was complete prior to the finalisation of the Group Financial Statements either
by the Group engagement team or by PwC network firms in those territories, operating under our instruction. Specific audit procedures on
certain balances and transactions were performed on a further two reporting units.
Stock Code: DPH
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Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC
continued
The Group consolidation, Financial Statements disclosures and a number of centralised functions were audited by the Group engagement
team at the head office. These included, but were not limited to, central procedures on derivative financial instruments, UK and corporate
taxation and goodwill and intangible asset impairment assessments. We also performed Group level analytical procedures on all of the
remaining out of scope active reporting units to identify whether any further audit evidence was needed, which resulted in no extra testing
being required. The Company was also subject to a full scope audit.
The Group engagement team visits component auditors based on significance and/or risk characteristics, to ensure coverage across the
Group. The group engagement team are responsible for the audit of all in scope UK reporting locations performing full scope audits. The
Group engagement team have visited or have performed the audit of all significant components, in addition to visiting the non-significant
component of Croatia.
Additionally the Group audit team was in contact, at each stage of the audit, in line with detailed instructions issued and through global
planning calls and further regular written communication. Specifically, for all component teams, the Group team discussed in detail the
planned audit approach at the component level, were in attendance at local audit close meetings and following independent review,
discussed the detailed reported findings of the audit with each component team.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures
on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group
materiality
How we
determined it
£1.6 million
5% of profit before tax adjusted for non-underlying and exceptional items save for amortisation relating to the
intangible assets.
Rationale for
benchmark applied
We believe that profit before tax adjusted for transaction costs incurred provides a consistent basis for determining
materiality as it eliminates the impact of these items which fluctuate year on year and can have a disproportionate
impact on the Consolidated Income Statement.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £100,000 as well as
misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going Concern
Under the Listing Rules we are required to review the Directors’ statement, set out on page 70, in relation to going concern. We have
nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the
Directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements.
We have nothing material to add or to draw attention to.
As noted in the Directors’ statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the
financial statements. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and
that the Directors intend them to do so, for at least one year from the date the Financial Statements were signed. As part of our audit we
have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can
be predicted, these statements are not a guarantee as to the Group’s and Company’s ability to continue as a going concern.
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Financial Statements
Other Required Reporting
Consistency of Other Information
Companies Act 2006 opinion
In our opinion, 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.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
•
information in the Annual Report is:
We have no exceptions to report.
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the
group and company acquired in the course of performing our audit; or
• otherwise misleading.
•
the statement given by the Directors on page 75, in accordance with provision C.1.1 of the UK
Corporate Governance Code (the Code), that they consider the Annual Report taken as a whole
to be fair, balanced and understandable and provides the information necessary for members to
assess the Group’s and Company’s position and performance, business model and strategy is
materially inconsistent with our knowledge of the Group and Company acquired in the course of
performing our audit.
•
the section of the Annual Report on page 67, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report.
We have no exceptions to report.
The Directors’ Assessment of the Prospects of the Group and of the Principal Risks that Would Threaten the Solvency or
Liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:
the Directors’ confirmation on page 70 of the Annual Report, in accordance with provision C.2.1 of
the Code, that they have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency or liquidity.
We have nothing material to add
or to draw attention to.
•
•
the disclosures in the Annual Report that describe those risks and explain how they are being
managed or mitigated.
We have nothing material to add
or to draw attention to.
the Directors’ explanation on page 70 of the Annual Report, in accordance with provision C.2.2 of
the Code, as to how they have assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Group will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
We have nothing material to add
or to draw attention to.
Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with
the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
Stock Code: DPH
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Independent Auditor’s Report to the Members
of Dechra Pharmaceuticals PLC
continued
Adequacy of Accounting Records and Information and Explanations Received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
•
the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ Remuneration
Directors’ Remuneration Report - Companies Act 2006 Opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
Other Companies Act 2006 Reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by
law are not made. We have no exceptions to report arising from this responsibility.
Corporate Governance Statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the
Code. We have nothing to report having performed our review.
Responsibilities for the Financial Statements and the Audit
Our Responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 97, the Directors are responsible for the preparation of
the Financial Statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What an Audit of Financial Statements involves
An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance
that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently applied
and adequately disclosed;
•
the reasonableness of significant accounting estimates made by the Directors; and
•
the overall presentation of the Financial Statements.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the Financial Statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a
reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures
or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Andrew Hammond (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
5 September 2016
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Consolidated Income Statement
For the year ended 30 June 2016
Financial Statements
2016
Non-
underlying
items*
(notes
4 & 5)
£000
—
(6,070)
(6,070)
Note
2
Underlying
£000
247,562
(109,052)
138,510
2015
Non-
underlying
items*
(notes
4 & 5)
£000
—
—
—
Total
£000
203,480
(87,338)
116,142
Total
£000
247,562
(115,122)
132,440
Underlying
£000
203,480
(87,338)
116,142
(75,298)
(27,294)
(102,592)
(63,120)
(18,371)
(81,491)
2
3
4
6
8
26
10
10
9
(10,355)
52,857
21
(3,200)
49,678
(11,288)
38,390
38,376
14
38,390
—
(33,364)
—
(1,766)
(35,130)
9,252
(25,878)
(25,708)
(170)
(25,878)
(10,355)
19,493
21
(4,966)
14,548
(2,036)
12,512
12,668
(156)
12,512
14.00p
13.90p
18.46p
(8,671)
44,351
2,242
(1,496)
45,097
(9,790)
35,307
—
(18,371)
—
(920)
(19,291)
3,443
(15,848)
(8,671)
25,980
2,242
(2,416)
25,806
(6,347)
19,459
35,307
(15,848)
19,459
—
—
—
35,307
(15,848)
19,459
22.14p
21.99p
16.94p
Revenue
Cost of sales
Gross profit
Selling, general and
administrative expenses
Research and development
expenses
Operating profit
Finance income
Finance expense
Profit before taxation
Income taxes
Profit for the year
Attributable to:
Owners of the parent
Non-controlling interests
Profit for the year
Earnings per share
Basic
Diluted
Dividend per share (interim
paid and final proposed for
the year)
* Non-underlying items comprise amortisation and impairment of acquired intangibles, acquisition expenses, fair value of uplift of inventory acquired through
business combinations, rationalisation costs, loss on extinguishment of debt and reversal of fair value and other movements on deferred and contingent
consideration. Refer to note 1(b) for further details.
Stock Code: DPH
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Consolidated Statement of Comprehensive Income
For the year ended 30 June 2016
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
Non-controlling interests
2016
£000
12,512
2015
£000
19,459
(1,551)
385
(1,166)
(154)
233
(450)
32,116
1,234
32,979
44,325
44,202
123
44,325
(111)
97
(14)
(136)
178
(37)
(18,525)
(4)
(18,524)
921
921
—
921
108
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Consolidated Statement of Financial Position
At 30 June 2016
Financial Statements
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
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
Provisions
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
Non-controlling interests
Total equity
Note
2016
£000
2015
£000
11
12
14
15
16
17
20
18
19
20
22
21
14
24
25
26
360,381
37,718
197
398,296
54,375
68,938
39,142
162,455
560,751
(1,672)
(60,220)
(467)
(3,897)
(66,256)
(154,093)
(3,166)
(3,721)
(3,334)
(53,569)
(217,883)
(284,139)
276,612
927
172,451
(21)
(15)
5,524
1,770
93,995
274,631
1,981
276,612
166,684
16,822
1,397
184,903
31,744
30,932
45,948
108,624
293,527
(8)
(31,025)
(4,417)
(8,659)
(44,109)
(32,519)
(3,412)
(1,311)
—
(17,688)
(54,930)
(99,039)
194,488
880
124,801
(303)
(94)
(27,547)
1,770
94,981
194,488
—
194,488
The financial statements were approved by the Board of Directors on 5 September 2016 and are signed on its behalf by:
Ian Page
Chief Executive Officer
5 September 2016
Michael Redmond
Chairman
5 September 2016
Company number: 3369634
Stock Code: DPH
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Consolidated Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2016
Issued
share
capital
£000
Share
premium
account
£000
877 124,429
–
–
Attributable to owners of the parent
Own
shares
£000
(606)
–
Hedging
reserve
£000
(132)
–
Foreign
currency
translation
reserve
£000
(9,022)
–
Merger
reserve
£000
1,770
–
Retained
earnings
£000
Total
£000
87,490 204,806
19,459
19,459
Non-
controlling
interests
£000
Total
equity
£000
– 204,806
–
19,459
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
372
–
–
–
–
–
–
–
–
–
–
303
3
372
880 124,801
880 124,801
–
–
303
(303)
(303)
–
–
–
–
–
–
–
–
–
47
–
–
–
–
–
–
–
–
–
–
47,650
–
–
47
47,650
927 172,451
–
–
–
–
–
–
–
–
–
–
282
282
(21)
(140)
–
–
–
–
–
(18,525)
–
178
38
–
(18,525)
–
–
–
–
–
(94)
(94)
–
(154)
–
–
–
–
–
–
–
–
–
33,071
–
233
79
–
33,071
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(140)
(37)
(37)
–
–
(140)
(37)
–
(18,525)
–
(18,525)
(14)
(14)
–
19,408
178
921
(13,857)
2,243
–
(13,857)
2,243
375
(303)
–
–
–
–
–
–
–
(14)
178
921
(13,857)
2,243
375
–
–
(27,547)
–
1,770
(11,917)
(11,239)
94,981 194,488
–
(11,239)
– 194,488
(27,547)
–
1,770
–
94,981 194,488
12,668
12,668
– 194,488
12,512
(156)
–
–
–
–
–
–
–
–
–
–
–
–
(154)
(450)
(450)
–
–
(154)
(450)
–
33,071
279
33,350
(1,166)
(1,166)
–
(1,166)
–
11,052
233
44,202
–
123
233
44,325
(15,292)
3,536
–
(15,292)
3,536
47,697
–
–
–
(15,292)
3,536
47,697
–
(282)
–
–
1,858
1,858
–
–
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 available for
sale financial assets
Foreign currency translation
differences for foreign
operations, net of tax
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
Year ended 30 June 2016
At 1 July 2015
Profit/(loss) for the period
Effective portion of changes in
fair value of cash flow hedges,
net of tax
Losses arising on available for
sale financial assets
Foreign currency translation
differences for foreign
operations, net of tax
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
Acquisition of non-controlling
interests
Own shares recycled to
retained earnings
Total contributions by and
distributions to owners
At 30 June 2016
–
(15)
–
5,524
–
1,770
(12,038)
35,941
93,995 274,631
1,858
37,799
1,981 276,612
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.
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Consolidated Statement of Cash Flows
For the year ended 30 June 2016
Financial Statements
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation
Loss on disposal of tangible assets
Impairment of intangible assets
Finance income
Finance expense
Equity settled share-based payment expense
Income tax expense
Operating cash flow before changes in working capital
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase 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 (net of cash acquired)
Acquisition of non-controlling interests
Purchase of property, plant and equipment
Capitalised development expenditure
Purchase of other intangible non-current assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
New borrowings
Expenses of raising borrowing facilities
Repayment of borrowings
Dividends paid
Net cash inflow/(outflow) from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net (borrowings)/cash
Net (decrease)/increase in cash and cash equivalents
New borrowings
Repayment of borrowings
Expenses of refinancing borrowing facilities
Acquisition of subsidiary borrowings
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net (borrowings)/cash in the period
Net cash/(borrowings) at start of period
Net (borrowings)/cash at end of period
Note
2016
£000
2015
£000
12,512
19,459
12
11
6
6
3
4
27
31
26
12
11
11
24
9
17
28
3,763
21,552
69
4,162
(21)
4,966
2,058
2,036
51,097
11,782
(16,393)
9,965
56,451
(1,393)
(11,483)
43,575
33
(166,173)
(390)
(2,802)
(570)
(4,133)
(174,035)
47,697
103,841
(360)
(10,572)
(15,292)
125,314
(5,146)
45,948
(1,660)
39,142
(5,146)
(103,841)
10,572
360
(15,027)
(1,660)
(14,308)
(994)
(130,044)
13,421
(116,623)
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
–
(1,235)
(102)
(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
Stock Code: DPH
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Notes to the Consolidated Financial Statements
1. Accounting Policies
Dechra Pharmaceuticals PLC is a company domiciled in the United Kingdom. The consolidated financial statements of the Group for
the year ended 30 June 2016 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 FRS 101 and they are separately presented on pages 150 to 160.
(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 59. 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 70
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, contingent consideration and assets and liabilities
acquired through business combinations 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.
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, commercial relationships and brand intangibles 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. In respect of uncertain tax positions, where an outflow of funds is believed
to be probable and a reliable estimate of the outcome of the dispute can be made, management provides for its best estimate of the
liability. The estimate of liabilities in respect of current taxation depends on estimates 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 and income
(including amortisation and impairment on acquired intangibles, and the reversal of fair value and other movements on
deferred and contingent consideration), the profit and related expenses on disposal of discontinued operations, debt
refinancing including any loss on extinguishment of debt, and rationalisations. Judgement is associated with the classification
of these items.
(v) Business Combinations
Deferred and contingent consideration and assets and liabilities acquired through business combinations are recorded at
fair value at the acquisition date. Those fair values are generally based on risk-adjusted future cash flows discounted using
appropriate interest rates. The assumptions relating to future cash flows and discount rates are based on future forecasts
and therefore are inherently judgmental.
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Financial Statements
1. Accounting Policies continued
Adoption of New and Revised Standards
The following standard is applicable to the Group and has been adopted in the current period as it is mandatory for the year
ended 30 June 2016.
•
Amendments to IAS 19 ‘Defined Benefit Plans: Employee Contributions’ — effective for annual periods beginning on or
after 1 January 2015.
There are no other new standards, amendments to standards or interpretations mandatory for the first time for the year ended
30 June 2016.
The adoption of this amendment has not had a material impact on the Group’s financial statements.
New Standards and Interpretations not yet Adopted
The following standards and amendments have been published, endorsed by the EU, and are available for early adoption, but
have not yet been applied by the Group in these financial statements.
•
•
•
•
•
•
Accounting for acquisitions of interests in joint operations (Amendments to IFRS 11) — effective for annual periods
beginning on or after 1 January 2016.
Clarification of acceptable methods of depreciation and amortisation (Amendments to IAS 16 and IAS 38) — effective for
annual periods beginning on or after 1 January 2016.
Agriculture – bearer plants (Amendments to IAS 41) — effective for annual periods beginning on or after 1 January 2016.
Equity method in separate financial statements (Amendments to IAS 27) — effective for annual periods beginning on or
after 1 January 2016.
Disclosure initiative (amendments to IAS 1) — effective for annual periods beginning on or after 1 January 2016.
Investment entities – applying the consolidation exception (Amendments to IFRS 10, IFRS 12 and IAS 28) — effective for
annual periods beginning on or after 1 January 2016.
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 new standards or 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. Non-controlling interests represent the portion of shareholders’ earnings and equity attributable to third party
shareholders.
The financial statements of all subsidiary undertakings are prepared to the same reporting date as the Company, with the
exception of Dechra Veterinary Products Sp z.o.o. (which had a year end of 30 November 2015, and the next financial period will
have the same reporting date as the Company), and Genera Pharma d.o.o. and Dechra-Brovel S.A. de C.V. (which both prepare
local financial statements to 31 December each year, in line with local tax authority regulations).
Stock Code: DPH
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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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Financial Statements
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.
Net Investment Hedge
For hedges of net investments in foreign operations, where the hedge is effective movements are recognised in other
comprehensive income. Ineffectiveness is recognised in the income statement. Gains and losses accumulated in equity are
included in the income statement when the foreign operation is partially disposed of or sold.
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.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
(g)
1. Accounting Policies continued
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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Financial Statements
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
• commercial relationships
• brand
• acquired capitalised development costs
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
7 years
3 to 10 years
10 to 15 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.
Stock Code: DPH
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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 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.
When the options are exercised, the company issues new shares. The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value) and share premium.
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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Financial Statements
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.
(p) Provisions
Provisions for legal claims, environmental remediation, deferred rent and advanced grants for property, plant and equipment are
recognised when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow
of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for
future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required on settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in
the provision due to passage of time is recognised as interest expense.
(q) Non-controlling Interests
Non-controlling interests are accounted for at fair value at the time of purchase, and movements in non-controlling interests are
recorded in equity at fair value.
Transactions with non-controlling interests are recorded directly in equity.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(r) 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.
In respect of uncertain tax positions, where an outflow of funds is believed to be probable and a reliable estimate of the outcome of the
dispute can be made, management provides for its best estimate of the liability. In calculating any such liability a risk based approach is
applied which takes into account, as appropriate, the probability that the Group would be able to obtain compensatory adjustments under
international tax treaties.
The estimated annual benefit of global intellectual property and innovation incentives is accounted for within current and deferred tax.
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.
(s) 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, Genera 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 and other non-core activities sales. The Segment expanded
during the year with the acquisition of Genera.
The North American (NA) Pharmaceuticals Segment consists of Dechra Veterinary Products US, Putney, Dechra Veterinary Products
Canada, and Dechra-Brovel, which sell Companion Animal and Equine Products into those territories. The Segment expanded
during the prior year with the opening of the Canadian subsidiary, and during the current year with the acquisition of Putney Inc. and
Laboratorios Brovel S.A. de C.V. (now known as Dechra-Brovel S.A. de C.V.).
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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Financial Statements
2. Operating Segments continued
Reconciliations of reportable segment revenues, profit or loss and liabilities and other material items:
2016
£000
2015
£000
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
Impairment of acquired intangibles and associated deferred consideration
Fair value uplift of inventory acquired through business combinations
Rationalisation costs of acquired entities
Expenses relating to acquisition activities
Total operating profit
Finance income
Finance expense
Profit before taxation
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
Other
Additions to intangible non-current assets by segment (including through business
combinations)
European Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
188,859
—
58,732
(29)
247,562
51,653
17,500
(10,355)
58,798
(5,941)
52,857
(20,149)
(1,675)
(6,070)
(1,581)
(3,889)
19,493
21
(4,966)
14,548
(47,498)
(15,890)
(776)
(64,164)
(155,741)
(6,768)
(57,466)
(284,139)
137,686
20,518
38,101
24,383
26,874
247,562
15,809
165,790
55
2,404
184,058
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)
(26,347)
(99,039)
113,888
17,040
27,278
25,575
19,699
203,480
802
—
422
454
1,678
Stock Code: DPH
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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
2016
£000
19,443
924
36
69
20,472
18,984
5,901
345
85
25,315
2015
£000
1,688
214
102
77
2,081
17,156
3,828
497
57
21,538
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:
2016
Revenue
£000
61,086
34,105
85,128
53,912
13,331
247,562
2016
Non-
current
assets
£000
19,624
2,326
162,138
211,368
2,840
398,296
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
4.
Finance Expense
Underlying
Finance expense arising from:
— Financial liabilities at amortised cost
— Net interest on net defined benefit obligations
— Foreign exchange losses
Underlying finance expense
Non-underlying
Loss on extinguishment of debt (note 20)
Fair value and other movements on deferred and contingent consideration
Non-underlying finance expense
Total finance expense
2015
Non-
current
assets
£000
17,368
1,983
123,976
41,576
—
184,903
2015
£000
23
3
2,216
2,242
2015
£000
1,460
36
—
1,496
2015
£000
392
528
920
2,416
2015
Revenue
£000
59,673
34,052
65,796
32,848
11,111
203,480
2016
£000
21
—
—
21
2016
£000
2,372
17
811
3,200
2016
£000
844
922
1,766
4,966
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5. Non-underlying Items
Non-underlying items comprise:
Amortisation of acquired intangibles
Impairment of acquired intangibles and associated deferred consideration
Fair value uplift of inventory acquired through business combinations
Rationalisation costs of acquired entities
Expenses relating to acquisition activities
Financial Statements
2016
£000
20,149
1,675
6,070
1,581
3,889
33,364
2015
£000
17,871
—
—
9
491
18,371
Rationalisation costs relate to the integration and restructuring programmes implemented since the acquisitions of Genera d.d. and
Putney Inc.
Expenses relating to acquisition activities includes legal and professional fees incurred during the acquisitions.
The fair value uplift of inventory acquired through business combinations is recognised in accordance with IFRS 3 ‘Business
Combinations’ to record the inventory acquired at fair value and its subsequent release into the income statement.
Impairment of acquired intangibles and associated deferred consideration includes the impairment of a US generic pharmaceutical
product following the acquisition of Putney Inc., as Putney have already developed a similar product. It also includes the impairment of
an acquired intangible due to the cessation of sales following a competitor registration in the US.
Amortisation of acquired intangibles reflects the amortisation of the fair values of future cash flows recognised on acquisition in relation
to the identifiable intangible assets acquired.
6.
Profit Before Taxation
The following items have been included in arriving at profit before taxation of continuing operations:
Cost of inventories recognised as an expense
Impairment of inventories included in above figure
Depreciation of property, plant and equipment
— owned assets
— under finance leases
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Impairment 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
Total fees paid to Auditor
* Fees paid to the Auditor in 2015 were paid to KPMG LLP.
2016
£000
104,221
988
3,761
2
21,552
69
4,162
93
2,543
10,355
559
186
317
35
21
—
559
2015
£000
82,319
336
2,412
—
19,126
—
45
97
2,624
8,671
304
50
215
30
3
6
304
Stock Code: DPH
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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:
Manufacturing
Distribution
Administration
Total
The costs incurred in respect of these employees were:
Wages and salaries
Social security costs
Other pension costs
Share-based payments charge (see note 27)
Total
Related party transactions — the remuneration of key management was as follows:
Short term employee benefits
Post-employment benefits
Share-based payments charge
2016
Number
2015
Number
417
121
770
1,308
2016
£000
44,331
6,748
3,039
2,386
56,504
2016
£000
4,350
251
1,332
5,933
309
89
465
863
2015
£000
35,618
5,671
2,076
2,248
45,613
2015
£000
4,213
229
1,477
5,919
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 79 to 90.
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 £3,039,000 (2015: £2,076,000). Contributions to defined benefit pension schemes included in the
above figures total £581,000 (2015: £594,000).
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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
Financial Statements
2016
£000
1,629
7,755
(218)
9,166
(7,178)
48
(7,130)
2,036
2015
£000
2,146
6,185
257
8,588
(3,123)
882
(2,241)
6,347
The tax on the Group’s profit before tax differs from the standard rate of UK corporation tax of 20.0% (2015: 20.75%). The differences
are explained below:
Profit before taxation
Tax at 20.0% (2015: 20.75%)
Effect of:
— expenses not deductible
— acquisition expenses
— one-off costs (FX/acquisition costs) in relation to the acquisition of Putney Inc.
— research and development related tax credits
— patent box tax credits
— impact of financing (income not taxable)
— effects of overseas tax rates
— adjustments in respect of prior years
— difference between current and deferred tax rates
— change in tax rates
Total income tax expense in the Consolidated Income Statement
2016
£000
14,548
2,910
235
167
1,314
(231)
(1,118)
(405)
(608)
(170)
4
(62)
2,036
2015
£000
25,806
5,355
434
—
—
—
(923)
(387)
587
1,139
150
(8)
6,347
Recurring items in the tax reconciliation include: research and development related tax credits and patent box incentives; expenses not
deductible; and the impact of financing.
Tax Credit/(Charge) Recognised Directly in Equity
Corporation tax on foreign currency translation
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
2016
£000
1,234
—
385
1,619
1,366
112
1,478
2015
£000
—
(4)
97
93
157
319
476
The Government has announced that it intends to reduce the rate of corporation tax to 17% with effective from 1 April 2020. As
this legislation was not substantively enacted as at 30 June 2016, the impact of the anticipated rate change is not reflected in the
tax provisions reported in these accounts. Finance Act 2015 (No. 2), which was substantively enacted in October 2015, included
provisions to reduce the rate of corporation tax to 19% with effect from 1 April 2017 and 18% from 1 April 2020. Accordingly, deferred
tax balances have been revalued to the lower rate of 19% in these accounts which has resulted in a credit to the Consolidated Income
Statement of £63,000 and a debit to retained earnings of £36,000. To the extent that the deferred tax reverses after 1 April 2020, then
the impact on the net deferred tax liability will be reduced.
The Group’s future tax charge, and its effective tax rate could be affected by several factors including the impact of the implementation
of the OECD’s BEPS actions.
Stock Code: DPH
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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:
11.82 pence per share (2015: 10.65 pence per share)
Interim dividend paid: 5.55 pence per share (2015: 5.12 pence per share)
Total dividend 17.37 pence per share (2015: 15.77 pence per share) recognised as distributions to
equity holders in the period
Proposed final dividend for the year ended 30 June 2016: 12.91 pence per share (2015: 11.82 pence
per share)
Total dividend paid and proposed for the year ended 30 June 2016: 18.46 pence per share
(2015: 16.94 pence per share)
2016
£000
10,401
4,891
2015
£000
9,355
4,502
15,292
13,857
11,974
10,398
16,865
14,900
In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2016 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 2017. There are no income tax consequences. The final dividend for the year ended 30 June 2015 is shown as a
deduction from equity in the year ended 30 June 2016.
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*
— Basic
Diluted earnings per share
— Underlying*
— Diluted
The calculations of basic and diluted earnings per share are based upon:
Earnings for underlying basic and underlying diluted earnings per share
Earnings for basic and diluted earnings per share
Weighted average number of ordinary shares for basic earnings per share
Impact of share options
Weighted average number of ordinary shares for diluted earnings per share
2016
Pence
42.95
14.00
42.65
13.90
2016
£000
38,390
12,512
2015
Pence
40.17
22.14
39.90
21.99
2015
£000
35,307
19,459
Number
89,380,414
628,307
90,008,721
Number
87,890,277
604,887
88,495,164
* Underlying measures exclude non-underlying items as defined in the Consolidated Income Statement on page 107.
At 30 June 2016, there are 309,407 options that are excluded from the EPS calculations as they are not dilutive for the period
presented but may become dilutive in the future.
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Financial Statements
Goodwill
£000
Software
£000
Development
costs
£000
Patent
rights
£000
Marketing
authorisations
£000
Acquired
intangibles
£000
54,978
—
—
5,587
643
(52)
9,777
1,035
(86)
3,680
—
—
853
—
—
198,148
—
—
Total
£000
273,023
1,678
(138)
(5,652)
(515)
(86)
—
—
(12,534)
(18,787)
49,326
—
56,350
—
11,830
117,506
—
—
—
—
—
—
—
—
—
117,506
49,326
5,663
2,796
108
(151)
752
9,168
2,269
187
(52)
10,640
570
—
(1,537)
592
10,265
4,793
732
(41)
(178)
(186)
2,226
202
(151)
264
2,541
6,627
3,437
5,298
796
(1,319)
354
5,129
5,136
5,342
3,680
1,337
—
—
—
5,017
1,802
336
—
—
2,138
405
—
—
2,543
2,474
1,542
853
—
—
—
—
853
—
—
—
—
—
—
—
—
—
853
853
185,614
—
255,776
4,703
122,897
(4,277)
179,355
(5,965)
36,755
340,989
49,929
483,798
67,977
17,871
—
76,841
19,126
(93)
(6,418)
(6,782)
79,430
20,149
(333)
13,958
113,204
227,785
106,184
2016
£000
1,451
89,092
21,552
(1,803)
14,576
123,417
360,381
166,684
2015
£000
1,121
11.
Intangible Assets
Cost
At 1 July 2014
Additions
Disposals
Foreign exchange
adjustments
At 30 June 2015 and
1 July 2015
Additions
Acquisitions through
business combinations
Impairment
Foreign exchange
adjustments
At 30 June 2016
Amortisation
At 1 July 2014
Charge for the year
Disposals
Foreign exchange
adjustments
At 30 June 2015 and
1 July 2015
Charge for the year
Impairment
Foreign exchange
adjustments
At 30 June 2016
Net book value
At 30 June 2016
At 30 June 2015
Software assets in the course of construction included above
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.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
11.
Intangible Assets continued
In accordance with the disclosure requirements of IAS 38 ‘Intangible Assets’, the components of acquired intangibles are summarised
below:
Cost
At 1 July 2014
Foreign exchange adjustments
At 30 June 2015 and 1 July 2015
Acquired through business combinations
Impairment
Foreign exchange adjustments
At 30 June 2016
Amortisation
At 1 July 2014
Charge for the year
Foreign exchange adjustments
At 30 June 2015 and 1 July 2015
Charge for the year
Impairment
Foreign exchange adjustments
At 30 June 2016
Net book value
At 30 June 2016
At 30 June 2015
Commercial
relationships
£000
—
—
—
1,370
—
192
1,562
—
—
—
—
188
—
19
207
Capitalised
development
costs
£000
23,337
(2,618)
20,719
109,981
—
12,024
142,724
4,434
2,233
(658)
6,009
4,126
—
1,364
11,499
Brand
£000
—
—
—
11,546
—
886
12,432
—
—
—
—
309
—
24
333
1,355
—
12,099
—
131,225
14,710
Product
rights
£000
174,811
(9,916)
164,895
—
(4,277)
23,653
184,271
63,543
15,638
(5,760)
73,421
15,526
(333)
12,551
101,165
83,106
91,474
Total
£000
198,148
(12,534)
185,614
122,897
(4,277)
36,755
340,989
67,977
17,871
(6,418)
79,430
20,149
(333)
13,958
113,204
227,785
106,184
The amortisation charge is recognised within administrative expenses in the Consolidated Income Statement.
During the year, the Company has acquired £122.9 million of intangible assets through the acquisitions of Genera d.d., Putney Inc.,
and Laboratorios Brovel S.A. de C.V. (Brovel). These assets principally relate to acquired development costs, in addition to customer
relationships, and brand intangibles. The amortisation period of these assets is 10 to 15 years for the acquired development costs,
7 years for the customer relationships, and 3 to 10 years for the brand intangibles.
The remaining 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 2016 was £91.6 million with a remaining amortisation period of 1½ years, 9½ years, 4½ years and
6 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 2016 were £1.0 million and £2.9 million with a remaining
amortisation period of 7 years and 5½ years respectively.
In May 2014, the Company completed the purchase of product rights to Phycox, which competes in the US veterinary joint health
supplement market. The carrying value of these assets at 30 June 2016 was £5.2 million, with a remaining amortisation period of
8 years. The product rights in relation to Levocrine® have been written off during the year, resulting in a loss of £0.6 million.
The Company previously completed a licensing, supply and distribution agreement for a branded veterinary generic pharmaceutical
product from a US pharmaceutical development company. £3.3 million was written off in relation to this asset during the year following
the acquisition of Putney Inc., who had already developed a similar product.
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 2016 was £0.6 million with
a remaining amortisation period of 2½ years. The rights to Equidone®, which was launched in the US during 2011, has a carrying
value of £0.5 million with a remaining amortisation period of 5 years. During the year, £0.9 million and £0.4 million was added to patent
rights for new in-licenced products within EU and Canada respectively, with remaining amortisation periods of 4½ years and 9½ years
respectively.
£0.8 million of the marketing authorisations relate to the Vetivex range of products. 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.
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Financial Statements
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 2014
Additions
Disposals
Foreign exchange adjustments
At 30 June 2015 and 1 July 2015
Additions
Acquired through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2016
Depreciation
At 30 June 2014
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2015 and 1 July 2015
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2016
Net book value
At 30 June 2016
At 30 June 2015
Net book value of assets held under finance
leases
At 30 June 2016
At 30 June 2015
Contracted capital commitments
Assets in the course of construction included above
19,644
—
—
(2,108)
17,536
142
11,554
(98)
4,421
33,555
8,755
582
—
(1,023)
8,314
1,007
(98)
1,453
10,676
22,879
9,222
—
—
3,920
233
—
(25)
4,128
167
51
(7)
15
4,354
1,895
252
—
(1)
2,146
308
(7)
8
2,455
1,899
1,982
43
—
122
15
(2)
(10)
125
2
215
(67)
(19)
256
106
10
(2)
(8)
106
42
—
(29)
119
137
19
—
—
17,715
1,833
(295)
(817)
18,436
2,491
5,850
(202)
2,516
29,091
12,387
1,568
(295)
(823)
12,837
2,406
(200)
1,245
16,288
12,803
5,599
—
—
2016
£000
112
269
Total
£000
41,401
2,081
(297)
(2,960)
40,225
2,802
17,670
(374)
6,933
67,256
23,143
2,412
(297)
(1,855)
23,403
3,763
(305)
2,677
29,538
37,718
16,822
43
—
2015
£000
1,186
28
13.
Impairment Reviews
Goodwill and indefinite life assets are tested for impairment 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.
Acquired intangible assets that are being amortised are reviewed for indicators of impairment annually, and in the event that
impairment indicators exist, a full value in use calculation is performed. Despite the current year sales growth, given the previous
sales decline of our FAP products, the impairment indicator assessment for FAP assets was given particular attention. A review was
performed to ensure that the individual products capitalised are reflective of the sales growth in the period and that no impairment
indicators exist. No impairment was recognised on these assets.
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% (2015: 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% (2015: 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.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
13.
Impairment Reviews continued
Value in use calculations were performed at 30 June 2016 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
2016
Goodwill
carrying
value
£000
54,510
Indefinite
life assets
carrying value
£000
853
60,765
2,231
117,506
Goodwill
carrying
value
£000
46,691
404
2,231
49,326
—
—
853
2015
Indefinite
life assets
carrying value
£000
853
—
—
853
Total
value
£000
55,363
60,765
2,231
118,359
Total
value
£000
47,544
404
2,231
50,179
Pre-tax
discount
rate
%
12.3
13.5
11.1
Pre-tax
discount
rate
%
11.0
13.3
10.1
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.
14. Deferred Taxes
(a) Recognised Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
Intangible assets
Property, plant and equipment
Inventories
Receivables/payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations
Assets
Liabilities
Net
2016
£000
—
—
—
1,191
1,370
10,951
162
907
14,581
2015
£000
—
—
165
480
1,210
99
129
667
2,750
2016
£000
(64,028)
(3,604)
(321)
—
—
—
—
—
(67,953)
2015
£000
(17,235)
(1,806)
—
—
—
—
—
—
(19,041)
2016
£000
(64,028)
(3,604)
(321)
1,191
1,370
10,951
162
907
(53,372)
2015
£000
(17,235)
(1,806)
165
480
1,210
99
129
667
(16,291)
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.
A deferred tax asset of £10,655,000 in relation to losses arising on the acquisition of Putney Inc. has been recognised as future taxable
profits associated with the future sale of products are expected to be available for offset.
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Financial Statements
14. Deferred Taxes continued
(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 (2015: £nil). The estimated unprovided deferred tax liability in relation to these temporary differences is £nil
(2015: £nil).
Deferred tax assets in relation to losses amounting to £386,000 (2015: £6,000) have not been recognised due to uncertainty over their
recoverability. Included within unrecognised losses are £384,000 of losses which expire in 2030. Other losses may be carried forward
indefinitely.
(c) Movements during the Year
Intangible assets
Property, plant and equipment
Inventories
Receivables/payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations
Intangible assets
Property, plant and equipment
Inventories
Receivables/payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations
Balance at
1 July
2014
£000
(21,738)
(1,641)
477
303
719
90
–
292
(21,498)
Balance at
1 July
2015
£000
(17,235)
(1,806)
165
480
1,210
99
129
667
(16,291)
Recognised
in income
£000
2,072
(293)
(342)
179
172
9
129
315
2,241
Recognised
in income
£000
3,824
(127)
2,698
689
48
197
13
(212)
7,130
Disposals
£000
–
–
–
–
–
–
–
–
–
Acquired
through
business
combinations
£000
(45,009)
(1,289)
(3,102)
(93)
–
9,919
–
–
(39,574)
Recognised
in equity
£000
–
–
–
(4)
319
–
–
97
412
Recognised
in equity/OCI
£000
–
–
–
–
112
–
–
385
497
Foreign
exchange
adjustments
£000
2,431
128
30
2
–
–
–
(37)
2,554
Foreign
exchange
adjustments
£000
(5,608)
(382)
(82)
115
–
736
20
67
(5,134)
Balance at
30 June
2015
£000
(17,235)
(1,806)
165
480
1,210
99
129
667
(16,291)
Balance at
30 June
2016
£000
(64,028)
(3,604)
(321)
1,191
1,370
10,951
162
907
(53,372)
Deferred tax assets and liabilities are analysed in the statement of financial position, after offset of balances within countries as follows:
Deferred tax asset:
Deferred tax liability:
2016
197
(53,569)
(53,372)
2015
1,397
(17,688)
(16,291)
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
15.
Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2016
£000
13,375
4,378
36,622
54,375
2015
£000
10,131
1,159
20,454
31,744
Included in finished goods and goods for resale is £5,188,000 of inventory held at net realisable value having been acquired through
business combinations.
16. Trade and Other Receivables
Trade receivables
Other receivables
Available for sale financial assets (note 23)
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
20. Borrowings
Current liabilities:
Bank loans
Finance lease obligations
Non-current liabilities:
Bank loans
Arrangement fees netted off
Total borrowings
2016
£000
59,232
8,084
129
1,493
68,938
2016
£000
39,142
2016
£000
24,326
17,210
50
5,147
13,487
60,220
2016
£000
3,897
2016
£000
1,648
24
1,672
154,435
(342)
154,093
155,765
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
2015
£000
—
8
8
33,496
(977)
32,519
32,527
In April 2016, the Group refinanced its existing bank facility, which gave rise to a loss on extinguishment of debt of £0.8 million in the
year ending 30 June 2016. The Group’s revised borrowing facility comprises a £150.0 million multi-currency revolving credit facility and
a £30.0 million Accordion facility committed until September 2019 and various finance lease obligations.
If the borrowings drawn down in foreign currencies exceed the £150.0 million limit at the reset date according to the exchange rates
on the reset date, then resetting of foreign currency borrowings occurs and a repayment is required to ensure the movements in
foreign exchange rates do not result in the committed revolving credit facility being exceeded. At the year end exchange rates the
drawn down borrowings in US Dollars and Euros equated to £151.6 million, of which the £1.6 million above the £150.0 million has
been classified as a current liability. At the last reset date in July 2016, the Group chose to repay £5.7 million to reduce the borrowings
below the £150.0 million facility limit. No further repayments were required at the August 2016 reset date.
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Financial Statements
20. Borrowings continued
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 1.3% over LIBOR. All covenants were met during the year ended 30 June 2016.
Genera also has borrowing facilities of £7.4 million, of which £4.4 million was drawn down at 30 June 2016. Interest is fixed at 3.2%.
The maturity of the bank loans and overdrafts is as follows:
Payable:
Within one year
Between two and five years
2016
£000
1,648
154,093
155,741
2015
£000
—
32,519
32,519
The minimum lease payments and the present value of minimum lease payments payable under finance lease obligations are:
Minimum lease
payments
Present value of
minimum lease
payments
Within one year
Total minimum lease payments
Future finance charges
Present value of lease obligations
Further information on the interest profile of borrowings is shown in note 23.
21. Provisions
2016
£000
24
24
2
26
2015
£000
8
8
—
8
2016
£000
24
24
2
26
At start of period
Impairment provision recognised/(released)
Acquired through business combinations
FX differences
Impairment provision utilised
At end of period
Deferred Rent
£’000
–
26
(546)
(39)
(559)
Provision for
PPE grant
£’000
–
–
(2,644)
(334)
375
(2,603)
Environmental
Health &
Safety
£’000
–
–
(402)
(30)
260
(172)
2015
£000
8
8
—
8
Total
£’000
–
26
(3,592)
(403)
635
(3,334)
The Group has received advanced payment for rental income on its facilities in Portland. This has been recognised at amortised cost
and is being utilised over the period of the rental contract.
Genera has received advanced funding for the refurbishment of the manufacturing facility for a third party manufacturing contract.
The funding has been recognised at amortised cost and is being utilised over the life of the property, plant and equipment.
On the acquisition of Genera, the Group acquired a fair value provision to address existing legal and environmental compliance.
A provision is recognised at the present value of the costs to be incurred for the remediation of the manufacturing site.
22. 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 £187,000
(2015: £53,000) for employees in the Netherlands are recognised within other payables in the Consolidated Statement of Financial
Position as at 30 June 2016.
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.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
22. Employee Benefit Obligations continued
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
2016
1.50%
1.80%
2.30%
1.00%
0.00%
0.00%
2015
2.80%
1.80%
2.30%
1.00%
0.00%
0.00%
In valuing the liabilities of the pension scheme at 30 June 2016 and 30 June 2015, mortality assumptions have been made as
indicated below.
The mortality assumption follows the Prognosetafel AG2014 (2015: Prognosetafel AG2014) mortality tables with an experience
adjustment in line with the ES-P2 tables as published by the Dutch Alliance of Insurers.
The assumptions used by the Group are the best estimates chosen by the Directors from a range of possible actuarial assumptions
which, due to the timescale covered, may not necessarily be borne out in practice.
Present value of funded defined benefit obligations
Fair value of scheme assets
Net pension scheme deficit
Movements in Present Value of Defined Benefit Obligations
Defined benefit obligation at beginning of the period
Service cost
Interest cost
Employee contributions
Remeasurement loss
Foreign exchange difference on translation
Defined benefit obligations at end of the period
Movements in Fair Value of Scheme Assets
Fair value of scheme assets at beginning of the period
Interest income
Additional charges
Employer contributions
Employee contributions
Remeasurement gain
Foreign exchange difference on translation
Fair value of scheme assets at end of the period
Analysis of the Amount Charged to the Income Statement
Service cost
Net interest cost
Additional charges
Net pension expense
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
2016
£000
(17,360)
13,639
(3,721)
2016
£000
7,210
867
211
165
6,848
2,059
17,360
2016
£000
5,899
194
(124)
581
165
5,297
1,627
13,639
2016
£000
867
17
124
1,008
2016
£000
1,019
1,551
2,570
2015
£000
(7,210)
5,899
(1,311)
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
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Financial Statements
22. Employee Benefit Obligations continued
Scheme Assets
The Group’s defined benefit pension scheme in the Netherlands is financed through an insurance contract. Under this contract, a
market price for the assets in respect of this insurance contract is not available. In accordance with IAS 19 for such insurance policies,
an asset value has been calculated by discounting expected future cash flows. The discount rate used for this calculation reflects the
risk associated with the scheme assets and the maturity or expected disposal date of those assets.
The fair value of the scheme’s assets is as follows:
Discount rate used to value assets
Total fair value of assets
Actual return on scheme assets
2016
£000
1.50%
13,639
194
2015
£000
2.80%
5,899
167
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 £819,000 (2015: £621,000).
History of Amounts in the Current Period
Present value of funded defined benefit obligations
Fair value of scheme assets
Deficit in the scheme
23. Financial Instruments and Related Disclosures
2016
£000
(17,360)
13,639
(3,721)
2015
£000
(7,210)
5,899
(1,311)
2014
£000
(5,927)
4,857
(1,070)
2013
£000
(4,722)
3,726
(996)
2012
£000
(2,801)
2,438
(363)
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. Hedges of net investments in foreign operations
are also used in the management of foreign currency risk.
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 2016, net borrowings was
£116.6 million (2015: net cash was £13.4 million), whilst shareholders’ equity was £276.6 million (2015: £194.5 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
complied with these covenants in 2016 and 2015.
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.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
23. Financial Instruments and Related Disclosures continued
The Group’s policy is to maintain borrowing facilities centrally which are then used to finance the Group’s operating subsidiaries, either
by way of equity investments or loans.
Financial Risk Management
The Group has exposure to the following risks from its use of financial instruments:
•
•
•
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:
•
•
•
•
£150.0 million multi-currency revolving credit facility;
an Accordion facility of £30.0 million;
£7.4 million bank loans; and
various finance leases.
The Group’s revised borrowing facilities at 30 June 2016 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 1.3% on the revolving credit facility. The amount of the
revolving credit outstanding at 30 June 2016 was £151.6 million at the year end exchange rates (2015: £32.5 million). Refer to note 20
for details on resetting the foreign currency drawn down balances at the reset dates. 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. During the year the Group designated a
US dollar loan of $120.0 million, as a net investment hedge of US dollar net assets.
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 £67.4 million (2015: £29.6 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 11.8% of gross trade receivables at 30 June 2016 (2015: 13.8%).
This customer accounted for 14.5% of total Group revenues. No other customer accounted for more than 10% of total Group
revenues (2015: none).
Receivables are written off against the impairment provision when management considers the debt to be no longer recoverable.
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Financial Statements
23. Financial Instruments and Related Disclosures continued
Fair Value of Financial Assets and Liabilities
The following table presents the carrying amounts and the fair values of the Group’s financial assets and liabilities at 30 June 2016 and
30 June 2015. 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 year end.
Derivatives (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 at
the year end.
Finance lease obligations — based upon discounted cash flows using discount rates based upon the Group’s cost of borrowing
at the balance sheet date.
Analysis of Financial Instruments
The financial instruments of the Group are analysed as follows:
Financial assets
Cash and cash equivalents
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)/assets
2016
2015
Carrying
value
£000
39,142
39,142
129
59,232
8,084
67,445
106,587
Fair
value
£000
39,142
39,142
129
59,232
8,084
67,445
106,587
Carrying
value
£000
45,948
45,948
579
27,705
1,268
29,552
75,500
Fair
value
£000
45,948
45,948
579
27,705
1,268
29,552
75,500
(155,741)
(155,741)
(32,519)
(32,519)
(50)
(24)
(24,326)
(17,210)
(3,633)
(200,984)
(94,397)
(50)
(24)
(24,326)
(17,210)
(3,633)
(200,984)
(94,397)
(138)
(8)
(10,370)
(7,813)
(7,829)
(58,677)
16,823
(138)
(8)
(10,370)
(7,813)
(7,829)
(58,677)
16,823
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 2016, 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. There were no transfers between Level
1 and Level 2 during the year.
30 June 2016
Available for sale financial instruments
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total
Level 1
£000
129
—
—
129
Level 2
£000
—
(50)
—
(50)
Level 3
£000
—
—
(3,633)
(3,633)
Total
£000
129
(50)
(3,633)
(3,554)
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
23. Financial Instruments and Related Disclosures continued
30 June 2015
Available for sale financial instruments
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total
Level 1
£000
579
—
—
579
Level 2
£000
—
(138)
—
(138)
Level 3
£000
—
—
(7,829)
(7,829)
Total
£000
579
(138)
(7,829)
(7,388)
Deferred and contingent consideration is recorded at fair value based on risk-adjusted future cash flows discounted using appropriate
interest rates, which are reviewed annually. Refer to note 4 for amounts recognised in the Consolidated Income Statement in the year.
At 30 June 2016, the deferred and contingent consideration balance is made up of £0.6 million in relation to the Brovel acquisition,
and £3.0 million in relation to the Phycox acquisition. Movements in deferred and contingent consideration consist of: a £3.2 million
payment in the period in relation to the DermaPet acquisition; £0.5 million increase due to foreign exchange differences and £2.0
million write-off in relation to a US generic pharmaceutical; addition of £0.6 million in relation to the Brovel acquisition; and payments of
£0.5 million and £0.4 million of unwinding of discount in relation to the Phycox acquisition.
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
Acquired through business combinations
Foreign exchange differences
Impairment provision utilised
At end of period
2016
£000
3,524
1,844
259
200
5,827
2016
£000
263
93
2,327
291
(138)
2,836
2015
£000
3,858
389
—
42
4,289
2015
£000
176
97
—
—
(10)
263
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 2016 and 30 June 2015. Where interest is at floating rates, the future interest payments have been estimated using current
interest rates:
At 30 June 2016
Carrying value
Arrangement fees netted off
Future interest
Total committed cash flow
Payable:
Within 6 months
Between 6 months and 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Over 5 years
Deferred and
contingent
consideration
£000
(3,633)
—
(1,273)
(4,906)
Bank loans
and
overdrafts
£000
(156,083)
342
(632)
(156,373)
(234)
(234)
(789)
(961)
(541)
(570)
(1,577)
(4,906)
(632)
—
—
—
(155,741)
—
—
(156,373)
Finance
leases
£000
(24)
—
(2)
(26)
(5)
(5)
(8)
(7)
(1)
—
—
(26)
Trade and
other
payables
£000
(41,536)
—
—
(41,536)
(41,536)
—
—
—
—
—
—
(41,536)
Total
£000
(201,276)
342
(1,907)
(202,841)
(42,407)
(239)
(797)
(968)
(156,283)
(570)
(1,577)
(202,841)
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23. Financial Instruments and Related Disclosures continued
At 30 June 2015
Carrying value
Arrangement fees netted off
Future interest
Total committed cash flow
Payable:
Within 6 months
Between 6 months and 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Over 5 years
Deferred and
contingent
consideration
£000
(7,829)
—
(1,658)
(9,487)
Bank loans
and
overdrafts
£000
(33,496)
977
(1,109)
(33,628)
(3,386)
(1,161)
(434)
(456)
(479)
(462)
(3,109)
(9,487)
(132)
—
—
—
—
(33,496)
—
(33,628)
Finance
leases
£000
(8)
—
—
(8)
(8)
—
—
—
—
—
—
(8)
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
Financial Statements
Trade and
other
payables
£000
(18,183)
—
—
(18,183)
(18,183)
—
—
—
—
—
—
(18,183)
2016
£000
50
—
—
—
50
Total
£000
(59,516)
977
(2,767)
(61,306)
(21,709)
(1,161)
(434)
(456)
(479)
(33,958)
(3,109)
(61,306)
2015
£000
52
52
34
—
138
The Group has a contractual obligation to pay £50,000 (2015: £44,000) under its interest rate swap arrangement covering the period
from 30 June to 30 September 2016.
With the exception of the above disclosed, there are no other assets that have been impaired during the year.
Foreign Currency Exposure
The Sterling equivalents of financial assets and liabilities denominated in foreign currencies at 30 June 2016 and 30 June 2015 were:
At 30 June 2016
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
—
—
—
—
(15,167)
(2)
—
—
(15,169)
(15,169)
Euro
£000
4,057
—
—
4,057
(31,688)
(4,513)
(790)
(25)
(37,016)
(32,959)
US
Dollar
£000
1,402
51
495
1,948
(122,838)
(698)
(16)
(25)
(123,577)
(121,629)
Other
£000
851
49
6,422
7,322
—
(133)
(705)
—
(838)
6,484
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
23. Financial Instruments and Related Disclosures continued
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
Danish
Krone
£000
—
—
10,286
10,286
—
(11)
—
—
(11)
10,275
Euro
£000
1,755
—
—
1,755
(8,282)
(1,979)
(1,864)
(63)
(12,188)
(10,433)
US
Dollar
£000
—
1,001
791
1,792
(28,616)
(726)
(148)
(76)
(29,566)
(27,774)
Other
£000
83
—
1,154
1,237
—
(288)
(1,183)
—
(1,471)
(234)
Sensitivity Analysis
Interest Rate Risk
A 2.0% increase in annual interest rates compared to those ruling at 30 June 2016 would reduce Group profit before taxation and
equity by £3,120,000 (2015: £143,000).
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 of non-Sterling businesses. The Group is hedging
certain foreign currency translations through the designation of a US dollar loan as a net investment hedge of US dollar net assets.
The following table shows the impact on the Group’s profit after taxation of a 10% appreciation of Sterling against each of these
currencies compared to the rates prevailing at the year end date. In this analysis, only financial assets and liabilities held on the
balances sheet at the year end are assessed and 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
(1,066)
(2,316)
(8,546)
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 £150.0 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,
£nil (2015: £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 2016 was a liability of £50,000 including an income tax credit of £35,000
(2015: £138,000 including an income tax credit of £44,000).
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Financial Statements
24. 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
2016
Number
87,971,163
4,775,835
92,746,998
£000
880
47
927
2015
Number
87,712,564
258,599
87,971,163
£000
877
3
880
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, 377,235 new ordinary shares of 1p (2015: 258,599 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 £742,988 (2015: £375,035). The holders of ordinary shares are entitled to receive dividends as declared or approved at
General Meetings from time to time and are entitled to one vote per share at such meetings of the Company.
The Company issued 4,398,600 shares of 1 pence each by way of a placing at an issue price of 1100 pence per share on 17 March
2016. The placing generated net proceeds of £46,955,600 after costs of £1,429,000. The placing price of 1100 pence per share is
a 5.4% discount to the closing mid-market price per Ordinary Share on 14 March 2016, being the latest practicable date prior to the
announcement of the placing.
25. Own Shares
At start of the period
Recycled to profit and loss account
At end of period
2016
£000
303
(282)
21
2015
£000
606
(303)
303
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 27 for details). The number of
ordinary shares held by the Employee Benefit Trust at 30 June 2016 was 2,880 (2015: 41,739).
26. Non-Controlling Interests
At start of period
Acquired through business combinations
Additional consideration paid to non-controlling interests
Loss for the period
FX differences
At end of period
2016
£’000
–
2,248
(390)
(156)
279
1,981
2015
£’000
–
–
–
–
–
–
On 21 October 2015, Dechra acquired 92.26% of the controlling interest in Genera d.d. (Genera). The non-controlling interest was
calculated using the fair value method.
On 6 May 2016, the Group purchased another 1.13% of the voting shares for a consideration of HRK 3,756,000. The group now
holds 93.39% of the equity share capital of Genera. The carrying amount of the non-controlling interests in Genera on the date of
acquisition was £2,248,000. The Group derecognised non-controlling interests of £390,000.
27. 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
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.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
27. Share-based Payments continued
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.
Exercised
Number
Granted
Number
Lapsed
Number
Year ended 30 June 2016
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
15 September 2015
18 March 2016
2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
2017–2024
2018-2025
2019-2026
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
15 September 2015
18 March 2016
Long Term Incentive Plan
5 March 2013
27 September 2013
27 November 2013
15 September 2014
15 September 2015
22 March 2016
SAYE Option Scheme
13 October 2008
12 October 2009
13 December 2010
17 October 2011
16 October 2012
7 April 2014
13 October 2014
12 October 2015
2014–2021
2015–2022
2016–2023
2017–2024
2018-2025
2019-2026
2016–2016
2014–2015
2016–2017
2017–2018
2018–2019
2019–2019
2011–2015
2012–2016
2013–2017
2014–2018
2015–2019
2017–2019
2017–2023
2018–2024
Total
Weighted average exercise price*
336.15
364.62
381.15
418.81
461.97
541.00
721.00
698.00
763.00
975.00
1188.00
265.43
336.15
418.81
461.97
541.00
721.00
763.00
975.00
1188.00
—
—
—
—
—
—
315.02
304.92
375.64
365.54
471.00
552.00
614.00
792.00
At
1 July
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
102,257
120,502
—
314,286
1,452,006
244.39p
(3,266)
(6,532)
(7,620)
(7,612)
(8,120)
(30,244)
—
—
(721)
—
—
(64,115)
(7,620)
(6,154)
—
(5,501)
(10,256)
(2,123)
(415)
—
—
(32,069)
(210,112)
(38,859)
(4,113)
—
—
—
(253,084)
(5,306)
—
(8,830)
—
(50,686)
(905)
(1,091)
—
(66,818)
(416,086)
178.56p
—
—
—
—
—
—
—
—
—
55,060
950
56,010
—
—
—
—
—
—
—
18,940
5,050
23,990
—
—
—
—
220,621
8,786
229,407
—
—
—
—
—
—
—
101,513
101,513
410,920
387.56p
At
30 June
2016
Number
6,649
5,444
10,886
4,354
8,164
31,000
47,628
2,000
57,713
55,060
950
229,848
—
3,612
5,360
44
500
11,158
12,087
18,940
5,050
56,751
—
—
267,070
266,158
220,621
8,786
762,635
—
3,418
7,064
6,326
7,576
95,043
106,577
92,162
318,166
1,367,400
—
—
(2,177)
(2,177)
(2,177)
(2,000)
(214)
—
(2,383)
—
—
(11,128)
—
—
—
—
—
(1,877)
(2,681)
—
—
(4,558)
(16,056)
(2,880)
(4,829)
(9,174)
—
—
(32,939)
—
—
(485)
(499)
(1,337)
(6,309)
(12,834)
(9,351)
(30,815)
(79,440)
364.60p
300.46p
* 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 2016 are 76,013.
142
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Financial Statements
27. 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†
28 February 2011†
10 September 2012
16 September 2013
11 September 2014
2010–2017
2011–2018
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
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
Total
2014–2015
2016–2016
2014–2015
2016–2017
2017–2018
2011–2015
2012–2016
2013–2017
2014–2018
2015–2019
2017–2019
2017–2023
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
Exercised
Number
Granted
Number
Lapsed
Number
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
102,257
120,502
314,286
1,452,006
—
—
—
—
—
(2,000)
(4,000)
—
(2,000)
(8,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(382)
(8,821)
(3,531)
(12,734)
(20,734)
621.96p
244.39p
—
(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
—
—
—
—
—
—
—
—
62,817
62,817
—
—
—
—
—
—
15,183
15,183
—
—
—
—
275,332
275,332
—
—
—
—
—
—
124,033
124,033
477,365
284.21p
* 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 were 145,208.
The weighted average exercise price of options eligible to be exercised at 30 June 2016 was 453.67p (2015: 276.48p).
For options exercised during the year, the weighted average market price at the date of exercise was 1,206p (2015: 791p). The
weighted average remaining contractual lives of options outstanding at the Consolidated Statement of Financial Position date was four
years (2015: four years).
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
27. Share-based Payments continued
Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2013 were exercisable at
30 June 2016.
No options issued under SAYE plans were exercisable at 30 June 2016.
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
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
22/03/16
8,786
1200p
Nil
3 years
0.46%
22%
1.61%
1021p
18/03/16
6,000
1185p
1188p
6.5 years
1.02%
26%
1.62%
273p
15/09/15
220,621
990p
Nil
3 years
0.68%
22%
0.54%
764p
15/09/15
74,000
990p
975p
6.5 years
1.47%
27%
0.54%
284p
12/10/15
101,513
930p
792p
15/09/14
275,332
764p
Nil
2.83 years
1.16%
23%
1.83%
596p
11/09/14
78,000
765p
763p
5 years
1.78%
27%
1.83%
164p
13/10/14
124,033
716p
614p
3.25 years
5.25 years
3.25 years
5.25 years
0.83%
1.17%
22%
26%
0.53%
215p
283p
1.09%
1.55%
24%
26%
1.96%
150p
186p
144
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Financial Statements
27. Share-based Payments continued
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 2016 of £842,000 (2015: £735,000), of which £65,000 (2015: £123,000) 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.
28. Analysis of Net (Borrowings)/Cash
Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net (borrowings)/cash
29. Operating Leases
2016
£000
2,058
328
2,386
2016
£000
(155,741)
(24)
39,142
(116,623)
2015
£000
1,767
481
2,248
2015
£000
(32,519)
(8)
45,948
13,421
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
2015
£000
784
3,074
2,392
6,250
2016
£000
986
2,619
1,536
5,141
Other assets
Total
2016
£000
1,978
3,142
1,517
6,637
2015
£000
1,131
1,280
—
2,411
2016
£000
2,964
5,761
3,053
11,778
2015
£000
1,915
4,354
2,392
8,661
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.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
30. Foreign Exchange Rates
The following exchange rates have been used in the translation of the results of foreign operations:
Danish Krone
Euro
US Dollar
31. Acquisitions
Average rate
for 2015
9.7175
1.3045
1.5834
Closing rate
at 30 June
2015
10.4869
1.4057
1.5728
Average rate
for 2016
10.0162
1.3432
1.4870
Closing rate
at 30 June
2016
9.0010
1.2099
1.3433
Acquisition of Genera
On 3 August 2015, Dechra announced that it had signed a conditional share purchase agreement to acquire 63.30% of the authorised
shares (equivalent to 69.00% voting rights) in Genera d.d. (Genera), a Croatian pharmaceutical business. Under the Croatian Takeover
Rules, the conditional offer required Dechra to make a mandatory offer for the remaining issued share capital of Genera. On
20 October 2015, the closing date for the Takeover Offer, Dechra had received further valid acceptances in respect of 82,390 Genera
shares, amounting to 20.73% of Genera’s share capital. Accordingly, the agreement with Mr. Marijan Hanžekovic, the majority
shareholder in Genera, to acquire his 63.30% holding (equivalent to 69.00% voting rights) became unconditional. The majority
shares were transferred on 20 October 2015 and the minority shares on 21 October 2015. At the acquisition date, the Group owned
1,549,417 shares in Genera, amounting to 92.26% of the voting rights (83.99% of the share capital) of Genera. The aggregate cost
of acquiring the 92.26% controlling interest in Genera has been €36.6 million which has been funded from our existing cash and debt
facilities. The non-controlling interest has been calculated using the fair-value method. The input to value the non-controlling interest
was the prevailing share price for Genera at 21 October 2015. This strategic acquisition gives us an entry point into the fast growing
poultry vaccines market and broadens our EU FAP business.
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions
Debt
Identifiable intangible assets
Net deferred tax liability
Net identifiable assets
Non-controlling interests
Goodwill
Total consideration
Satisfied by:
Cash
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less cash and cash equivalents acquired
Fair value
£000
16,961
6,781
10,310
283
(4,538)
(3,046)
(8,728)
9,674
(3,121)
24,576
(2,248)
4,466
26,794
26,794
26,794
26,794
(283)
26,511
The fair value adjustments principally relate to the application of fair values on acquisition, being the recognition of fair value uplift on
acquired inventory and intangibles in accordance with IFRS 3.
The goodwill of £4,466,000 arising from the acquisition represents the technical expertise of the assembled workforce (including their
in-house knowledge in vaccines development), access to the Adriatic region to continue geographic expansion, and broadening of the
Group’s contract manufacturing capabilities. None of the goodwill is expected to be deductible for income tax purposes.
146
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Financial Statements
31. Acquisitions continued
Acquisition of Genera continued
Acquisition related costs (included in operating expenses) amounted to £0.5 million. Genera’s results are reported within the
EU Pharmaceuticals Segment. Genera contributed £13.8 million revenue and £3.2 million loss to the Group’s pre-tax profit for the
period between the date of acquisition and the balance sheet date. If the acquisition of Genera had been completed on the first date
of the financial year, Group revenues for the period would have been £253.3 million and the Group pre-tax profit would have been
£14.5 million.
On 6 May 2016, the Group purchased another 1.13% of the voting shares for a consideration of HRK 3,756,000 (£0.4 million). The
Group now holds 93.39% of the equity share capital of Genera. Refer to note 26 for further details.
Acquisition of Brovel
On 13 January 2016, Dechra acquired 100% of the share capital of Laboratorios Brovel S.A. de C.V. (Brovel), a veterinary
pharmaceuticals company based in Mexico City. The Group paid US$5.0 million consideration in cash on completion and a further
US$1.0 million is contingent upon Brovel successfully reaching registration milestones for Dechra’s products in Mexico.
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net deferred tax liability
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Contingent consideration arrangement
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less cash and cash equivalents acquired
Provisional fair
value
£000
243
1,152
346
202
(465)
(131)
1,347
2,575
3,922
3,331
591
3,922
3,331
(202)
3,129
The fair values shown above are provisional and may be amended if information not currently available comes to light. The provisional
fair value adjustments principally relate to the application of fair values on acquisition, being the recognition of fair value uplift on
acquired inventory in accordance with IFRS 3. A review to identify any intangible assets on acquisition was performed with no
identifiable intangible assets being recognised.
The goodwill of £2,575,000 arising from the acquisition represents the geographical expansion potential provided through access to
the Latin America market and future sales expected to be achieved through the registration of Dechra products in these countries.
None of the goodwill is expected to be deductible for income tax purposes.
Acquisition related costs (included in operating expenses) amounted to £0.5 million. Brovel’s results are reported within the
NA Pharmaceuticals Segment. Brovel contributed £1.5 million revenue and £0.1 million loss to the Group’s pre-tax profit for the period
between the date of acquisition and the balance sheet date. If the acquisition of Brovel had been completed on the first date of the
financial year, Group revenues for the period would have been £249.1 million and the Group pre-tax profit would have been £14.4
million.
Stock Code: DPH
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Notes to the Consolidated Financial Statements
continued
31. Acquisitions continued
Acquisition of Putney
On 22 April 2016, Dechra acquired 100% of the share capital of Putney Inc. (Putney), a veterinary pharmaceuticals company based in
Maine, USA. The Group paid US$200.0 million consideration in cash on a debt free, cash free basis.
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net deferred tax liability
Provisions
Debt
Identifiable intangible assets
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less cash and cash equivalents acquired
Provisional fair
value
£000
466
14,037
5,699
1,541
(7,501)
(35,845)
(546)
(6,299)
113,331
84,883
49,309
134,192
134,192
134,192
134,192
(1,541)
132,651
The fair values shown above are provisional and may be amended if information not currently available comes to light. The provisional
fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the application of fair values on
acquisition, principally the recognition of fair value uplift on acquired inventory and intangibles in accordance with IFRS 3.
The goodwill of £49,309,000 arising from the acquisition represents the technical expertise within the assembled workforce in relation
to their regulatory expertise, as well as their in-house knowledge and skill at completing the product development process for future
pipeline developments. In addition, the goodwill reflects the synergies that are expected to be realised as a consequence of a greater
presence in the North American market. None of the goodwill is expected to be deductible for income tax purposes.
Acquisition related costs (included in operating expenses) amounted to £1.5 million. Putney’s results are reported within the
NA Pharmaceuticals Segment. Putney contributed £6.5 million revenue and £6.7 million loss to the Group’s pre-tax profit for the period
between the date of acquisition and the balance sheet date. If the acquisition of Putney had been completed on the first date of the
financial year, Group revenues for the period would have been £277.8 million and the Group pre-tax profit would have been
£14.8 million.
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.
US$4.2 million of the consideration is contingent on future sales. During the year ended 30 June 2016, US$0.6 million (£0.5 million)
of the contingent consideration was paid.
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 market. During the
period, the Group paid a further US$5.0 million (£3.2 million) which was contingent upon revenue exceeding US$20.0 million in any
rolling 12 month period. There is no further consideration outstanding.
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Financial Statements
32. Related Party Transactions
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 pages 159 to 160.
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 79 to 90. The remuneration of key management is disclosed
in note 7.
Non-Controlling Interests
Refer to note 26 for transactions with non-controlling interests during the year.
33. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
Stock Code: DPH
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Company Statement of Financial Position
At 30 June 2016
Non-current assets
Investments
Intangible assets
Tangible assets
Current assets
Trade and other receivables (includes amounts falling due after more than one year of
£1,351,000 (2015: £1,222,000))
Cash at bank and in hand
Borrowings
Trade and other payables
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Borrowings
Net assets
Equity
Called up share capital
Share premium account
Foreign currency translation reserve
Hedging reserve
Retained earnings
Total equity shareholders’ funds
Note
iii
iv
v
vi
viii
vii
viii
x
2016
£000
413,199
5,726
197
419,122
18,485
—
18,485
(32,133)
(34,613)
(48,261)
370,861
(128,163)
242,698
927
172,451
545
(15)
68,790
242,698
2015
£000
261,939
3,846
203
265,988
34,789
—
34,789
(2,016)
(53,339)
(20,566)
245,422
(32,519)
212,903
880
124,801
545
(91)
86,768
212,903
The financial statements were approved by the Board of Directors on 5 September 2016 and are signed on its behalf by:
Ian Page
Chief Executive Officer
5 September 2016
Michael Redmond
Chairman
5 September 2016
Company number: 3369634
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Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2016
Financial Statements
Attributable to owners of the parent
Issued
share
capital
£000
877
—
Share
premium
account
£000
124,430
—
—
—
—
—
—
—
3
3
880
880
—
—
—
—
—
—
—
47
47
927
—
—
—
—
—
—
371
371
124,801
124,801
—
—
—
—
—
—
—
47,650
47,650
172,451
Foreign
currency
translation
reserve
£000
Hedging
reserve
£000
Retained
earnings
£000
Total
equity
£000
(132)
—
(137)
—
178
41
—
—
—
—
(91)
(91)
—
(154)
—
230
76
—
—
—
—
(15)
545
—
56,095
42,800
181,815
42,800
—
—
—
—
—
—
—
—
545
545
—
—
—
—
—
—
—
—
—
545
—
(37)
—
42,763
(13,857)
1,767
—
(12,090)
86,768
86,768
(5,772)
—
(450)
—
(6,222)
(15,292)
3,536
—
(11,756)
68,790
(137)
(37)
178
42,804
(13,857)
1,767
374
(11,716)
212,903
212,903
(5,772)
(154)
(450)
230
(6,146)
(15,292)
3,536
47,697
35,941
242,698
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 available for sale financial
assets
Cash flow hedges recycled to income
statement, net of tax
Total comprehensive income
Transactions with owners
Dividends paid
Share-based payments
Shares issued
Total contributions by and distributions
to owners
At 30 June 2015
Year ended 30 June 2016
At 1 July 2015
Loss for the period
Effective portion of changes in fair value
of cash flow hedges, net of tax
Losses arising available for sale financial
assets
Cash flow hedges recycled to income
statement, net of tax
Total comprehensive income
Transactions with owners
Dividends paid
Share-based payments
Shares issued
Total contributions by and distributions
to owners
At 30 June 2016
Stock Code: DPH
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Notes to the Company Financial Statements
(i)
Principal Accounting Policies of the Company
Adoption of FRS 101
This is the first year in respect of which the Company has prepared its financial statements under FRS 101. The previous financial
statements for the year ended 30 June 2015 were prepared under ‘old UK GAAP’. The date of transition to FRS 101 for the Company
is 1 July 2014. Set out below are descriptions of the various implementation options applied by the Company in preparing the financial
statements for the year ended 30 June 2016, as well as reconciliations from ‘old UK GAAP’ to FRS 101 for total equity as at 1 July
2014 and 30 June 2015.
Mandatory Exceptions to Retrospective Application
Set out below are the applicable mandatory exceptions to retrospective application in IFRS 1 applied in converting from ‘old UK GAAP’
to FRS 101:
(a) Hedge accounting exemption
Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting
criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively, and the supporting documentation
cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of
1 July 2014 are reflected as hedges in the company’s results under FRS 101.
(b) Exemption for estimates
Estimates made as at 1 July 2014 under FRS 101 are consistent with those made previously under ‘old UK GAAP’.
IFRS 1 Exemptions Options
Set out below are the applicable IFRS 1 exemptions applied by the company in converting from ‘old UK GAAP’ to FRS 101.
Management expect that these exemptions will continue to apply for the period ended 30 June 2017:
(a) Exemption for fair value as deemed cost
The Company has elected to measure certain items of property, plant and equipment at fair value at the date of transition and has
used those values as the deemed cost at that date.
(b) Exemption for borrowing costs
The Company has elected to apply the requirements of IAS 23 only with effect from 1 July 2014. Borrowing costs incurred on
or after 1 July 2014 are accounted for in accordance with IAS 23, that is borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset, being one that takes a substantial amount of time to get ready for its
intended use, are capitalised as part of the cost of the asset.
(c) Business combinations
Paragraphs 62, B64(d), B64(e), B64(g), B64(h), B64(j) to B64(m), B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66 and B67 of IFRS 3
‘Business Combinations’ as the equivalent disclosures are included in the consolidated financial statements of the Group.
(d) Share-based payments
Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted-average exercise prices of
share options, and how the fair value of goods and services received was determined).
Accounting Principles
The Company Statement of Financial Position 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 income statement is presented for the Company as permitted by Section 408(2) and (3) of the Companies Act 2006. The loss dealt
with in the accounts of the Company was £5,772,000 (2015: profit £42,800,000). Fees paid to PricewaterhouseCoopers 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 year end 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.
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Financial Statements
(i)
Principal Accounting Policies of the Company continued
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 income statement.
The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the instrument at the
statement of financial position date. The fair value of forward exchange contracts and options is their quoted market price at the year
end 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 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 equity remains there until the forecast
transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying
amount of the asset when it is recognised. In other cases, the amount recognised in equity is transferred to profit or loss in the same
period that the hedged item affects profit or loss.
Cash Flow Statement
As the ultimate holding company of the Group, the Company has relied upon the exemption in FRS 101 not to present a cash flow
statement as part of its financial statements.
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 101 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 32 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 other than distributions in the period (see note 9 of the Consolidated Financial Statements).
Stock Code: DPH
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Notes to the Company Financial Statements
continued
(i)
Principal Accounting Policies of the Company continued
Employee Benefits
(a) Pensions
The Company operates a Group stakeholder personal pension scheme for certain employees. Obligations for contributions are
recognised as an expense in the income statement as incurred.
(b) 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 income statement
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 income statement 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 statement of financial position date.
Where the Company grants options over its own shares to the employees of its subsidiaries, it recharges the expense to those
subsidiaries.
Foreign Currency
Foreign currency transactions are translated into Sterling using the exchange rates prevailing at the dates of the transactions. Monetary
assets and liabilities are translated at the closing rate at the reporting date. Foreign exchange gains and losses are recognised in the
income statement.
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 IAS 12 ’Income Taxes’.
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.
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Financial Statements
(ii) Directors and Employees
Total emoluments of Directors (including pension contributions) amounted to £2,754,000 (2015: £2,906,000). Information relating to
Directors’ emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 79 to 90.
(iii)
Investments
Cost
At 1 July 2015
Additions
At 30 June 2016
Impairment
At 1 July 2015
Charge for the period
At 30 June 2016
Net book value
At 30 June 2016
At 30 June 2015
Shares in
subsidiary
undertakings
£000
274,183
151,260
425,443
12,244
—
12,244
413,199
261,939
A list of subsidiary undertakings is given in note (xii).
During the year, the Company invested in Dechra Finance Limited and Dechra Finance Sterling Limited, both wholly owned
subsidiaries incorporated in England and Wales, Dechra Finance Ireland Designated Activity Company, a wholly owned subsidiary
incorporated in the Republic of Ireland, and Dechra US Holdings Inc., a wholly owned subsidiary incorporated in USA.
A correcting adjustment has been made to the opening balance sheet at 1 July 2014 to reduce investments by £20.5 million and
corresponding amounts owed to subsidiary undertakings by £19.8 million following a review of the investments held and identifying an
error in the valuation of the investment in Dechra Investments Limited.
Stock Code: DPH
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Notes to the Company Financial Statements
continued
(iv)
Intangible Assets
Cost
At 1 July 2015
Additions
At 30 June 2016
Amortisation
At 1 July 2015
Charge for the year
At 30 June 2016
Net book value
At 30 June 2016
At 30 June 2015
(v) Tangible Assets
Cost
At 1 July 2015
Additions
At 30 June 2016
Depreciation
At 1 July 2015
Charge for the year
At 30 June 2016
Net book value
At 30 June 2016
At 30 June 2015
(vi) Trade and Other Receivables
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (ix))
Available for sale financial instruments
Other receivables
Prepayments and accrued income
Acquired
Intangibles
£000
Software
£000
Intangible
assets
£000
5,114
—
5,114
1,747
512
2,259
2,855
3,367
479
2,404
2,883
—
12
12
2,871
479
2016
£000
11,853
4,726
1,351
129
344
82
18,485
5,593
2,404
7,997
1,747
524
2,271
5,726
3,846
Tangible
assets
£000
326
68
394
123
74
197
197
203
2015
£000
31,068
1,775
1,222
579
96
49
34,789
Included in debtors are amounts of £1,351,000 (2015: £1,222,000) 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 (2015: £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 2016, 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 other comprehensive income.
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(vii) Trade and Other Payables
Amounts due to subsidiary undertakings
Trade payables
Derivative financial instruments
Accruals and deferred income
Financial Statements
2016
£000
30,631
1,200
50
2,732
34,613
2015
£000
50,275
—
139
2,925
53,339
In accordance with IAS 10 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2016 of
12.91 pence per share (2015: 11.82 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 2017. The total cost of the proposed final dividend is £11,974,000
(2015: £10,398,000).
(viii) Borrowings
Borrowings due within one year
Bank overdraft
Borrowings due after more than one year
Aggregate bank loan instalments repayable:
— between two and five years
Total borrowings
2016
£000
2015
£000
32,133
2,016
128,163
32,519
160,296
34,535
In April 2016, the Company refinanced its existing bank facility. The Company’s revised borrowing facility comprises a
£150.0 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 (2015: £nil).
The Company guarantees certain borrowings of other Group companies, which at 30 June 2016 amounted to £nil (2015: £8,000).
(ix) Deferred Tax
At 1 July 2015 (included in trade and other receivables)
Amounts recognised in profit and loss
Amounts recognised in equity
At 30 June 2016 (included in trade and other receivables)
The amounts provided for deferred taxation at 19% (2015: 20%) are as follows:
Short term timing differences
Accelerated capital allowances
£000
1,222
(37)
166
1,351
2015
£000
1,237
(15)
1,222
2016
£000
1,453
(102)
1,351
Stock Code: DPH
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Notes to the Company Financial Statements
continued
(x) Called up Share Capital
Issued share capital
Allotted, called up and fully paid at 1 July 2015
New shares issued
Allotted, called up and fully paid at 30 June 2016
Ordinary shares
of 1p each
£000
880
47
927
Number
87,971,163
4,775,835
92,746,998
Details of new ordinary shares issued following the share placing on 17 March 2016 and the exercise of options under the Long Term
Incentive Plan and the Approved, Unapproved and SAYE Share Option Schemes are shown in notes 24 and 27 to the Consolidated
Financial Statements.
Share Options
Details of outstanding share options over ordinary shares of 1p at 30 June 2016 under the various Group share option schemes are
shown in note 27 to the Consolidated Financial Statements.
(xi) Reconciliation of Total Equity as at 1 July 2014 and 30 June 2015
Previously
reported
under old UK
GAAP
1 July 2014
£000
GAAP
adjustments
and correction
£000
Under FRS
101
1 July 2014
£000
Previously
reported
under old UK
GAAP
30 June 2015
£000
GAAP
adjustments
and correction
£000
Under FRS
101
30 June 2015
£000
242,065
3,879
208
246,152
16,560
—
16,560
(3,485)
(45,356)
(32,281)
(31,653)
182,218
877
124,430
(606)
—
(132)
57,649
(20,477)
25
(25)
(20,477)
20,074
20,074
20,074
(403)
606
545
(1,554)
221,588
3,904
183
225,675
36,634
—
36,634
(3,485)
(45,356)
(12,207)
(31,653)
181,815
877
124,430
—
545
(132)
56,095
282,416
3,367
682
286,465
14,430
—
14,430
(2,016)
(53,339)
(40,925)
(32,519)
213,021
880
124,801
(303)
—
(91)
87,734
(20,477)
479
(479)
(20,477)
20,359
20,359
20,359
(118)
303
545
(966)
261,939
3,846
203
265,988
34,789
—
34,789
(2,016)
(53,339)
(20,566)
(32,519)
212,903
880
124,801
—
545
(91)
86,768
182,218
(403)
181,815
213,021
(118)
212,903
Note
a
b
b
a,c
d
a
a,c,d
Non-current assets
Investments
Intangible assets
Tangible assets
Current assets
Trade and other receivables
Cash at bank and in hand
Borrowings
Trade and other payables
Net current liabilities
Non-current liabilities
Borrowings
Net assets
Equity
Called up share capital
Share premium account
Own shares
Foreign currency translation
reserve
Hedging reserve
Profit and loss account
Total equity
shareholders’ funds
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Financial Statements
(xi) Reconciliation of Total Equity as at 1 July 2014 and 30 June 2015 continued
(a) Management have corrected the carrying value of the investments held by the Company. Refer to note (iii) for details.
(b) This adjustment relates to the reclassification of Software from Property, Plant and Equipment to Intangible Assets.
(c) This is the impact on the recognition of deferred tax assets in relation to the Share Based Payment schemes under FRS 101.
(d) Previously, under ‘old UK GAAP’, the net assets of the Employee Benefit Trust were consolidated into the Company only
accounts. This is not required under FRS 101.
(xii) Subsidiary Undertakings
Operating subsidiaries
Company
Albrecht GmbH∞
Country of
Incorporation and
Place of Business
Germany
Cooperatieve Dechra Finance Netherlands W.A.^
Dechra LimitedΩ
The Netherlands
England and Wales
Dechra-Brovel, S.A. de C.V.**
Mexico
Dechra Development LLC†
Dechra Finance B.V.***
Dechra Finance Limited
Dechra Finance Ireland Designated Activity
Company
Dechra Finance Sterling Limited
Dechra Veterinary Products, Inc**
Dechra Veterinary Products GmbH**
Dechra Veterinary Products N.V.∞
Dechra Veterinary Products A/S
Dechra Veterinary Products Oy#
Dechra Veterinary Products SAS#
Dechra Veterinary Products S.r.l.**
Dechra Veterinary Products AS#
Dechra Veterinary Products B.V.#
Dechra Veterinary Products Sp. z o.o.**
Dechra Veterinary Products, S.L. Unipersonal#
Dechra Veterinary Products AB#
Dechra Veterinary Products Limited#
Dechra Veterinary Products, LLC†
Eurovet Animal Health B.V.
USA
The Netherlands
England and Wales
Republic of Ireland
England and Wales
Canada
Austria
Belgium
Denmark
Finland
France
Italy
Norway
The Netherlands
Poland
Spain
Sweden
England and Wales
USA
The Netherlands
Genera d.d.+
Croatia
Genera d.o.o Sarajevo‡
Genera Pharma d.o.o.‡
Genera Sl d.o.o‡
Putney, Inc†
Bosnia Herzegovina
Serbia
Slovenia
USA
Scanimalhealth ApS∞
Denmark
Principal Activity
Marketer of veterinary pharmaceuticals and distributor of
veterinary pharmaceuticals and equipment
Activities of financial services holding company
Developer, regulatory, manufacturer and marketer of
veterinary pharmaceuticals
Developer, regulatory, manufacturer and marketer of
veterinary pharmaceuticals
Regulatory and product development
Financial services
Activities of financial services holding company
Financial services
Financial services
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Marketer of veterinary pharmaceuticals and pet diets
Holding company, developer, regulatory, manufacturer
and marketer of veterinary pharmaceuticals
Holding company, Developer, regulatory, manufacturer
and marketer of veterinary pharmaceuticals and crop
protection
Marketer of veterinary pharmaceuticals
Marketer of veterinary pharmaceuticals
Marketer of veterinary pharmaceuticals
Developer, regulatory and marketer of veterinary
pharmaceuticals
Marketer of veterinary pharmaceuticals
Stock Code: DPH
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Notes to the Company Financial Statements
continued
(xii) Subsidiary Undertakings continued
Other subsidiaries
Company
Arnolds Veterinary Products Limited*
Broomco 4263 Limited*
Dales Pharmaceuticals Limited*
Dechra Holdings US Inc**
Dechra Investments Limited
DermaPet, Inc¶
Farvet Laboratories B.V.∞
Veneto Limited
Country of
Incorporation and
Place of Business
England and Wales
England and Wales
England and Wales
USA
England and Wales
USA
The Netherlands
England and Wales
Principal Activity
Non-trading
Non-trading
Non-trading
Holding company
Holding company
Non-trading
Non-trading
Holding company
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 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.
+
†
‡
Dechra Pharmaceuticals hold 83.99% of share capital, 10.10% is held as treasury stock and 5.91% is held by minority shareholders.
100% of membership interest/holding share capital held by Dechra Holdings US Inc.
100% of ordinary share capital held by Genera d.d.
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Financial History
Financial Statements
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
2016
£000
247,562
52,857
38,390
42.95
42.65
42.95
42.65
18.46
19,493
12,512
14.00
13.90
14.00
13.90
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
2013
£000
193,571
42,168
31,849
189,176
39,108
25,464
37.61
37.48
36.45
36.32
15.40
24,996
19,416
67.57
67.33
22.22
22.14
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
426,041
36,601
24,302
32.37*
32.27*
—
—
12.27*
20,890
11,749
15.65*
15.60*
—
—
398,296
162,455
(66,256)
(217,883)
—
276,612
184,903
108,624
(44,109)
(54,930)
—
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
43,575
40,983
11,472
36,865
(174,035)
(4,651)
76,575
(19,368)
125,314
(14,819)
(92,148)
(18,266)
—
—
—
19,242
(120,344)
103,708
* 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.
Stock Code: DPH
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16216224769.04 5 September 2016 3:41 PM proof 1Dechra Annual Report Back 2016.indd 16205/09/2016 17:30:49 163Shareholder Information16324769.04 5 September 2016 3:41 PM proof 1164Glossary166Shareholder Information168AdvisersDechra Annual Report Back 2016.indd 16305/09/2016 17:30:52 Glossary
The following is a glossary of a number of the terms and acronyms
which can be found within this document:
EBITDA
Earnings before interest, tax, depreciation and amortisation
Adriatic region
Croatia, Bosnia-Herzgovinna, Serbia and Slovenia
EPS
Earnings Per Share
API
Active Pharmaceutical Ingredient
APP
Actinobacillis pleuropneumonia (APP) is a bacterial infection that
affects the respiratory system of pigs
APSP
Approved Performance Share Plan
BEPS
Base Erosion Profit Sharing
ERP
Enterprise Resource Planning
Executive Directors
The Executive Directors of the Company, currently Ian Page,
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
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 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
DOCP
Desoxycortine pivolate
DVP
Dechra Veterinary Products
DVP EU
Dechra Veterinary Products EU or Dechra Veterinary Products
Europe
DVP NA
Dechra Veterinary Products North America
DVP US
Dechra Veterinary Products US
EBIT
Earnings before interest and tax
FRC
Financial Reporting Council
FRS
Financial Reporting Standards
FTSE100 Index
An index comprising the 1st to 100th largest companies listed on
the London Stock Exchange in terms of their market capitalisation
FTSE250/350 Index
An index comprising the 101st to 350th largest companies listed 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)
HCM
Human Capital Management
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
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Shareholder Information
S&OP
Sales and Operations Planning
SAGARPA
Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca
y Alimentación (Secretariat of Agriculture, Livestock, Rural
Development, Fisheries and Food)
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
165
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LIBOR
The London Inter-Bank Offered Rate
LTAFR
Lost Time Accident Frequency Rate
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 in the UK
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, Julian Heslop, Ishbel Macpherson and Tony Rice
OECD
The Organisation for Economic Cooperation and Development
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
Stock Code: DPH
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Shareholder Information
Financial Calendar
Interim Management Statement
2016 Annual General Meeting
Final Dividend Ex-Dividend Date
Final Dividend Record Date
Final Dividend Payment Date
21 October 2016
21 October 2016
27 October 2016
28 October 2016
18 November 2016
Annual General Meeting
The 2016 Annual General Meeting of the Company will be held
at 1.00pm on 21 October 2016 at Investec Bank plc, 2 Gresham
Street, London EC2V 7QP. The notice of meeting (the Notice),
which includes special business to be transacted at the Annual
General Meeting together with an explanation of the resolutions to
be considered at the meeting, is made available on the Company
website or mailed to shareholders, if they have elected to receive the
Notice in paper format.
Electronic Communications
Shareholders now have the opportunity to receive shareholder
communications electronically, e.g. Annual Reports, Notice of the
Annual General Meeting and Proxy Forms. You can elect to receive
email notifications of shareholder communications by registering at
www.shareview.co.uk, where you can also set up a bank mandate
to receive dividends directly to your bank account and to submit
proxy votes for shareholder meetings. Receiving the Company’s
communications electronically allows the Company to communicate
with its shareholders in a more environmentally friendly, cost
effective and timely manner.
Registrar
Dechra’s Registrar is Equiniti Limited.
Equiniti should be contacted for any matters relating to your
shareholding, including:
Share History
Dechra floated on the London Stock Exchange in September 2000
at £1.20 per share, with a market capitalisation of £60.0 million.
• Notification of change in name and address
• Enquiries about dividend payments
In relation to the acquisition of VetXX Holdings A/S, on 15 January
2008, Dechra undertook a placing and open offer on the basis of 11
Open Offer shares for every 50 existing shares held on
10 December 2007 at an issue price of 303 pence. On 9 January
2008, 11,624,544 shares were issued.
On 5 April 2012, a Rights Issue was announced on the basis of
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.
On 17 March 2016 4,398,600 ordinary shares were offered by way
of placing at an issue price of £11.00 per share.
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
* Lines are open from 8.30am to 5.30pm (London time) Monday to Friday
(except UK public holidays).
• 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: 0371 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%
0.25%
£60.00
1.5%
0.25%
£45.00
Postal
share
dealing
1.75%
1.75%
£60.00
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 amount you
originally invested. If you are in any doubt, you should contact an
independent financial adviser.
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Shareholder 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 the previous page);
• 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.
Stock Code: DPH
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Advisers
Auditor
PricewaterhouseCoopers LLP
Cornwall Court
19 Cornwall Street
Birmingham
B3 2DT
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 Dermcare-Vet Pty. Ltd.
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Dechra AR2016 Front.indd 6
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®
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
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