Dechra Pharmaceuticals Annual Report 2018

FY2018 Annual Report · Dechra Pharmaceuticals

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Annual Report and Accounts
for the year ended 30 June 2018

Company Number: 3369634

SUSTAINING
GROWTH

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.

We have made excellent progress since setting our priorities for each Growth
Driver in 2013.

Commenced trading in

2014
Italy

Acquired

2014
PSPC
US bolt-on

Percentage of revenue made from outside Europe

2013
16%

2018
42%

Underlying operating profit margin

2013
9.6%

2018
24.4%

Commenced trading in

2015
Canada
and Poland

Acquired

2015
Genera
Entry into poultry
vaccines

Acquired

2016
Putney
Transformational
US deal

Acquired

2016
Apex
Access to Australian
CAP market

Number of countries with own sales and
marketing organisations

2013
13

2018
24

Number of countries distributed to

2013
40

2018
50

Acquired 33% of

2017
Medical Ethics
Access to novel
product development

Acquired

2017
RxVet
Access to
New Zealand

2018

Number of product registrations

Acquired

AST Farma
Strengthens Dutch
market position and
provides direct-to-vet
relationship

Le Vet
Adds to EU
product portfolio

2013 1,327

2018 4,680

Stock Code: DPH

The Global Market Opportu nity

Dechra is underweight in geographical diversity compared to the wider market.
Note: figures shown on this page are for the 2017 calendar year, unless otherwise indicated.

As at 31 December 2017

Rest of the World
6.7%

r o

North America
30.6%

c
a

The Animal
Health Market
Value: $32bn
Growth: 5.3% from
2016 to 2017

Far East
27.3%

rica an

e
m
A
h

t
r
o

Rest of the World
4.6%

Far East
2.0%

Eastern Europe
7.5%

t s i d e o f North
O u
i c a and
A m e r
E u r o p e

Sales: £381m
Growth : 23.1% from
2016 to 2017

A
m
e
r
i
c
a

North America
37.8%

i
s
t
u

E u r

Latin America
11.6%

Western Europe
19.3%

Western Europe
48.1%

Eastern Europe
4.5%

* Vetnosis: Review 2017.

Sustainable Market Dynamics

Continuing Growth in FAP and CAP Markets

Animal health globally is generally described as comprising two segments:
Food producing Animal Products (FAP) and Companion Animal Products
(CAP). FAP continues to show global growth due to an increased demand for
high quality protein production, whereas CAP growth (a sector in which horses
are generally included) is driven by the pet owners’ compassion for their animals,
improved nutrition and a wider range of medical products and treatments.

Read more on Our Values
on page 45

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

Our Strategic
Growth Drivers

Pipeline Delivery
Deliver our pipeline on time,
at the right costs and with the
expected returns.

Refill the pipeline so that we
get a constant flow of new
products in future years.

b c

Portfolio Focus
Maximise our revenue
by increasing market
penetration, focusing on
targeted therapeutic sectors
within CAP, Equine, FAP and
Nutrition.

Link to Strategy
in Action

Vaccines

See pages 30
and 31

Our Progress in 2018

Future Priorities

• Two further Poultry Vaccines registered in

EU: Avishield® IBH120 and ND B1.

• Continue to identify innovative
development opportunities.

• Launch of further Amoxi-Clav dose

• Further develop Dechra

sizes to complete range for the USA market.

•

In-licensing of major new products including
Redonyl® Ultra, Vetradent® and BioEquin®.

laboratory network, including
further FDA licensing.

• Continue to develop Vaccines

• Progress in co-development licensing

pipeline.

opportunities.

• Explore and negotiate further

in-licensing deals.

• Prepare for registration and

launch of Tri-Solfen®.

• Resolution of Nutrition supply and palatability
issues, and launch of refreshed cat diets.

• Strong growth in European FAP following
antibiotic product alignment and range
additions.

• Deepen market penetration
of existing products across
all territories.

• Enhance Nutrition and FAP

sales growth.

Enhancing our
Specific Portfolio

See pages 32
and 33

• Leveraging CAP product success to
increase penetration across Group.

• Continue to drive marketing
and sales force effectiveness.

• Continued growth in Equine, with stronger
growth in Europe from market penetration
and range additions.

Geographical Expansion
Leverage our product portfolio
into new geographic regions
through distribution partners,
in-country presence and new
country product registrations.

• Over 80 new country registrations of

existing portfolio products.

• Acquisition of RxVet expanding our

presence in New Zealand, route to market,
and dis-intermediating distribution margin.

• Successful establishment of the Dechra

• Develop Dechra Veterinary
Products International
business.

• Continue to leverage current
registration portfolio in newer
territories.

Veterinary Products (DVP) International team.

•

• Development of international registrations

strategy and prioritisation plan.

Increase international country
registrations.

Expansion into
New Zealand

See pages 34
and 35

Acquisition
Expand our geographical
footprint and/or enhance our
product portfolio through
acquisition.

• Acquisition and successful integration of
RxVet, expanding our presence in New
Zealand, route to market, and
dis-intermediating distribution margin.

• First full year of Apex, which opened up

new bridgehead into Australasia and South
East Asia.

• Acquisition and successful initial integration

of AST Farma and Le Vet, providing
transformation in EU Pharmaceuticals’
portfolio and pipeline.

• Continue integration

and leverage of recent
acquisitions.

• Acquire businesses in target
geographical/therapeutic
markets.

Integration of
AST Farma/Le Vet

See pages 36
and 37

• Progress in execution of Manufacturing
remodelling strategy, in Zagreb (inbound
transfers) and Bladel (FDA) in particular.

• Execute Manufacturing and
Supply Chain remodelling
strategy.

Strategic Enablers
Our strategic enablers,
Manufacturing and
Supply Chain, People and
Technology, support the
execution of our strategy.

• 12 months without a lost time accident.

• Completion of employee engagement
survey, providing valuable feedback.

• Successful implementation of the European
Oracle project and completion of Hyperion
suite.

• Develop and integrate
procurement activities.

• Continue to develop

leadership effectiveness,
and quality of talent.

• Continue to develop Oracle
ERP and other business
systems.

Corporate Social
Responsibility Report

See pages 46 and 47 for
more on our Employee
Engagement Survey
and Health and Safety

Chairman and Chief
Executive Officer’s
Report

See page 18 for more on
Technology

Stock Code: DPH

26062 5 September 2018 10:35 AM Proof 826062 5 September 2018 10:35 AM Proof 8Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com14Geographical FootprintGloballyWe currently have our own sales and marketing organisations in 24 countries. We also market our products in over 50 countries worldwide through distributors and marketing partners.Within EuropeKey European Pharmaceuticals North American Pharmaceuticals International ManufacturingDechra AR2018-strategic.indd 1405/09/2018 10:35:35Non-Executive Chairman’s and
Chief Executive Officer’s Statement

Dechra has delivered
another successful year
from both a financial and
strategic perspective.

Tony Rice
Non-Executive Chairman

Ian Page
Chief Executive Officer

Companion Animal Products (CAP) continues to perform well with our
key therapeutic sectors, especially endocrinology and anaesthesia and
analgesia, delivering good growth. Food producing Animal Products
(FAP) also continues to deliver growth of 0.4%, despite the ongoing
pressure on antibiotic reduction. We believe our FAP antibiotic range
is now aligned for best prescribing practice and the overall portfolio is
in a strong position to continue to deliver future growth. Our range of
in-house developed poultry vaccines will enhance this position. Equine
products have performed well, and sales of Osphos® have continued to
grow as its clinical merits are more widely appreciated. The performance
from Nutrition is pleasing as we have addressed historic supply and
palatability issues by delivering growth of 4.4%. We have now launched
our refreshed cat diets with a new modern packaging design, a Velcro®
type sealing system to keep the product fresh once opened and
significantly improved palatability. Additionally, we have reduced the
number of stocking units which will decrease the amount of plastic we
use and reduce distribution costs. We are currently embarking on a
similar programme for our dog diets.

NA Pharmaceuticals Segment
Total NA Segment revenues increased by 18.2% at CER (12.1% at
AER). The USA was the main driver of this growth, although Canada
also performed well. With the exception of our Carprofen chews and
caplets, where sales and margin were affected by distributors marketing
their own brands, growth was delivered across our entire range. Strong
performers were Amoxi-Clav, following the launch of the smallest tablet
size which completes the range, Vetivex® IV critical care fluids and
Zycortal® suspension, which benefited from increased market share and
additional demand in the fourth quarter due to a competitor product being
out of stock. Sales leverage is being realised from the enlarged sales team

11.4%
Revenue
Growth
in the EU

18.2%
Revenue
Growth
in NA

Read the Financial Review
on pages 19 to 25

Dechra has delivered another successful year from both a financial and
strategic perspective, the highlights of which are:

•

the European (EU) Pharmaceuticals Segment has continued to
deliver above market growth;

the North American (NA) Pharmaceuticals Segment has delivered
another exceptional performance;

the International business is beginning to gain traction;

the pipeline has delivered numerous international registrations;

licensing deals have been signed or are in negotiation to strengthen
our pipeline of novel, innovative products;

• we are at an advanced stage of integrating the AST Farma, Le Vet

and RxVet acquisitions; and

• we have achieved the successful implementation and go live of the

Oracle integrated ERP system in Europe.

Market Changes
The veterinary market is seeing faster change than at any time in
its history. European practice corporate consolidation is increasing,
especially in the UK and some Northern European countries. A recent
significant move is the leading USA company taking a small presence
in the UK and a significant presence in mainland Europe. Furthermore,
veterinary distributors who operate in the majority of major countries in
Western Europe and North America are changing and are beginning to
increase focus on the sales and marketing of their own products, which
is often in conflict with their core historic suppliers. We are also seeing
ongoing consolidation of distributors, especially within the USA. The
Board of Dechra believes that we are well positioned to support the
needs of the larger veterinary practice groups alongside independent
practices and that we also have the flexibility to respond quickly to any
ongoing changes within the distribution network.

Portfolio Focus
EU Pharmaceuticals Segment
In the year ended 30 June 2018 (the Period) total EU Pharmaceuticals
Segment revenues increased by 11.4% at CER (14.0% at AER). Existing
business reported revenues increased by 3.7% at CER (6.0% at AER).
Excluding third party contract manufacturing and treating Apex on a
like for like basis, revenues increased by 4.4% at CER (6.9% at AER).
This performance was in line with our expectations, with the majority of
countries in which we operate performing ahead of the markets. With
the consolidation of veterinary practices we are starting to adapt the
support model with an increase in key account managers and resource
for the technical support team aimed at supporting these corporate
groups in growing their business. Whilst consolidators put pressure on
margins they deliver volume. We believe we have strong relationships
with the majority of the key players whom we clearly regard as important
customers.

Stock Code: DPH
Non-Executive Chairman’s and
Chief Executive Officer’s Statement
continued

Glossary
Terms used within this section:

CER: Constant Exchange Rates

AER: Actual Exchange Rates

CAP: Companion Animal Products

ERP: Enterprise Resource Planning

EU Pharamaceuticals: European Pharmaceuticals
Segment comprising DVP EU, DVP International and
Dechra Pharmaceuticals Manufacturing

FAP: Food producing Animal Products

NA Pharmaceuticals: North American Pharmaceuticals
Segment comprising DVP US, Canada and Dechra-Brovel

PEA: Palmitoylethanolamide

which has benefited from a significant amount of investment over recent
years. The team now comprises 107 sales professionals and they provide
good geographical coverage across all the major regions of the USA. To
mitigate the activity of distributors selling their own competitive products
we have realigned our terms. Incorporation of veterinary practices in
the USA continues. These groups are an important customer base to
Dechra and we have therefore increased our focus on corporate account
management. Over the two years of ownership of Dechra-Brovel, our
Mexican subsidiary, we have made significant changes. We have recruited
a completely new management team which has been finalised with the
recent appointment of Adrian Dominguez as Country Manager. Following
the successful registration of several Dechra products, the details of
which are outlined in the Pipeline Delivery section of this report, we are
now able to transform the business into the Dechra brand, focusing on
our key products and delisting a number of the original, low value Brovel
FAP range. We anticipate Mexico making a more meaningful contribution
to our NA Pharmaceuticals Segment performance in the financial year
ending June 2019.

Product Pipeline
Integrated Team
The Development and Regulatory teams that have been brought
together by the acquisitions made over recent years have integrated well
and are forming a cohesive unit. We have also strengthened the team
with the appointment of new Regulatory Affairs Managers in Mexico and
Canada and by the appointment of an additional Group Pharmaceutical
Business Development Manager. A new project management structure
and improved reporting systems for both financial and key milestone
progress have been implemented. The development work of 20 plus
projects acquired through the acquisition of AST Farma B.V. and Le
Vet Beheer B.V. will continue to be conducted by a third party contract
organisation as they are providing an excellent service.

Pipeline Delivery
Numerous new product registrations, line extensions and international
registrations were achieved in the Period with many of these new
products already launched. Significant new product registrations
achieved in Europe include:

• Solacyl® water soluble powder, an anti-inflammatory for turkeys;

• Diatrim®, an antibiotic for the treatment of a wide range of infections,

including cattle mastitis;

• Avishield IBH120, our second EU registered poultry vaccine;

• Avishield ND B1, our third EU registered poultry vaccine; and

• Tiasol®, a solution to treat various infections such as swine dysentery
and colitis in pigs and treatment of chronic respiratory disease in
turkeys and chickens.

Additionally, over 60 registrations were achieved for existing products
in new EU territories as we increase our geographical footprint and
standardise the range.

Internationally there have been over 20 product registrations achieved
across Australia, Kazakhstan, Malaysia, New Zealand, Russia,
South Korea and Thailand. This is as a result of our increasing focus
on geographical expansion and the dedicated regulatory resource
committed to the Dechra Veterinary Products (DVP) International team.

In North America, we have extended the range of Vetivex critical care
fluids and have launched the full range of Amoxi-Clav tablets. We have
also developed in-house Redonyl® Ultra, a soft chew dermatological
supplement incorporating ultra micronised PEA, an active supplement,
sourced through a licensing agreement with Premune AB. In Mexico,
Osphos, Vetoryl®, Canaural® and Forthyron® have all been approved.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com
Le Vet has a substantial pipeline with a number of product registrations
already having been achieved since acquisition and an additional 20
plus projects which have been evaluated in detail and which will be
progressed. The majority are expected to be approved within the next
two to three years. The acquisition was a rare opportunity to consolidate
and strengthen our market position in Europe and had been identified
by the Dechra management team as a primary target for several years.

We continue to explore relevant acquisition opportunities and are
engaging with a number of target companies and believe we are well
placed to make further acquisitions.

Geographical Expansion
At the beginning of the year we established DVP International with
its own management team and specific targets orientated around
generating a material presence in markets outside of Western Europe
and North America. Good progress has been made in establishing
the business; one clear strategic objective has been targeting the
registration of our existing portfolio into target markets. Our historic
view of developing countries was orientated around the registration of
FAP products; however, new research has provided us with a list of
opportunities and a programme which has commenced to register a
number of our higher margin CAP and Equine products. Furthermore,
our increasing presence in international markets is providing us with
a closer insight into potential future acquisition targets. Our Australian
business, created through the acquisition of Apex, has performed well
with sales growth in line with the market. We have made significant
improvements to our manufacturing facility to improve efficiency and we
have sufficient capacity to deliver future growth. We have strengthened
the management team with the appointment of three veterinarians
to assist in technical marketing. Currently, International revenues
are reported within our EU Pharmaceuticals Segment; however, we
anticipate that its materiality will increase to merit separate segmental
reporting over time.

Strategic Enablers
Manufacturing
Increasing efficiency and creating centres of excellence at our main
manufacturing sites continues to be a priority for the Group. We are
investing in both capital equipment and additional inventory to deliver
our strategic objectives within Manufacturing. Substantial progress
has been made at both Bladel, Netherlands, where we are investing
to achieve FDA approval for our aseptic facility, and in Zagreb, Croatia,
where improvements in infrastructure and quality systems have been
made across the site. In line with our strategic plan, we continue to
move away from third party contract manufacturing to allow us to focus
on manufacturing the increasing volumes of our own brands. It is very
pleasing to report that we have had 12 months without a lost time
accident in any of our manufacturing facilities.

In addition to our pipeline we have in-licensing deals with:

• Redonyl® Ultra, a dermatological supplement from Premune AB

which has been launched in the EU, and as detailed above as a soft
chew for the USA;

• Vetradent, a water additive to combat biofilms from Kane Biotech

Inc., extending our dental range, has been launched in the USA; and

• BioEquin®, our first equine vaccine from Bioveta, a.s., for herpes,

has been launched in Germany. We have an agreement in place to
access additional equine vaccines from the Bioveta, a.s. pipeline for
the major EU markets.

Filling the Pipeline
Our recent acquisitions have extended the range of products in
development extensively; however, this is predominantly in the generic
or generic plus arena. We have been proactively working on signing
licensing agreements to obtain early stage technology to develop
novel products and have been successful in gaining access to two
molecules which are currently undergoing proof of concept studies and
an additional molecule that is in full development. The extra resources
in business and product development will help us to identify further
opportunities; negotiations are ongoing which will hopefully lead to
further pipeline projects. We continue to work closely with Animal Ethics
Pty Ltd who are making good progress on the international registration
and promotion of their farm animal pain relief product, Tri-Solfen®.

Acquisitions
In December 2017, we completed the acquisition of RxVet Limited,
a small CAP business in New Zealand. RxVet had been Dechra’s
distributor since 2010, with revenue in the year to March 2017 of
£0.8 million (NZ$1.4 million); sales of Dechra products accounted for
approximately half of this. The former owner managers have remained
with the business and are working to increase market share and build
Dechra’s presence in the region. Operationally the business is now
integrated into our Australian business and rebranding into Dechra livery
has commenced.

In February 2018, we completed the acquisition of AST Farma B.V.
and Le Vet Beheer B.V. for a total consideration of £307.3 million
(€340.0 million) on a debt-free and cash-free basis. The total
consideration was satisfied by approximately 75% in cash and 25%
in new Dechra shares, which are subject to a two year lock-in. AST
Farma and Le Vet together own approximately 90 generic, generic
plus and novel products. AST Farma is one of the leading companion
animal pharmaceutical companies in the Netherlands which offers a
wide range of products on a direct-to-vet basis, with the majority of its
sales bypassing the distributors. They achieve their market position with
a quality product range and by offering high levels of customer care
and added value services to veterinarians. Since acquisition, we have
merged our existing Dutch sales team into the AST Farma team and
have differentiated the sales function with the majority of representatives
focused on gaining market penetration and with four providing technical
and educational support across the country. This enlarged sales team
is already leveraging sales of Dechra’s existing portfolio. We are now in
the process of making the Dechra portfolio available to order directly
through the AST Farma network with the full service targeted to be
available from 1 January 2019.

Le Vet has focused on the European markets outside of the Netherlands.
Selecting products from the AST Farma range, Le Vet has developed a
strong portfolio of registrations which it has sold through an established
network of marketing partners across Europe, which included Dechra.
There are significant revenue synergies available to Dechra by bringing
the Le Vet products in-house to sell through our existing European sales
and marketing organisations. The majority of the most valuable third party
contracts have been terminated and the resultant value is in line with our
pre-acquisition expectations.

Stock Code: DPH
Non-Executive Chairman’s and
Chief Executive Officer’s Statement
continued

Dividend
The Board is proposing a final dividend of 18.17 pence per share
(2017: 15.33 pence per share). Added to the interim dividend of
7.33 pence per share, this brings the total dividend for the financial
year ended 30 June 2018 to 25.50 pence per share, representing
18.9% growth over the previous year.

Subject to shareholder approval at the Annual General Meeting
to be held on 19 October 2018, the final dividend will be paid on
16 November 2018 to shareholders on the Register at 26 October 2018.
The shares will become ex-dividend on 25 October 2018.

Outlook
Following a strong set of results in 2018, the new financial year has
started well and in line with management expectations. Good progress
is being made on all parts of our strategy, with several new opportunities
being realised and recent acquisitions delivering the expected returns.
Whilst there are many challenges in the market, which is developing
faster than at any time in its history, we believe that our strategy and
flexibility to adapt to change positions us well to continue to outperform.

Tony Rice
Non-Executive Chairman
3 September 2018

Ian Page
Chief Executive Officer
3 September 2018

Technology
At the beginning of May we went live across the majority of our
European markets with an Oracle integrated ERP system which replaces
several unsupported legacy systems. We built additional inventory
across the EU to mitigate any risk of failure; however, following go live
we experienced only minor teething problems. This has been a major
achievement by our EU team who, over the next 12 months, will look
to utilise the system to improve management information and deliver
operational efficiencies. The Hyperion financial system is also now fully
operational; this will allow us to simplify and automate the reporting and
consolidation of accounts and financial planning processes in the future.

We have continued to update both of our e-learning platforms, the
Dechra Academy and the internal Delta system. The Dechra Academy is
an online learning and educational tool that is available to veterinarians
and veterinary nurses; several new courses have been developed this
year, predominantly in the strategic therapeutic areas of endocrinology
and dermatology. Delta is an internal system that provides over 130
modules designed to ensure Dechra employees are up-to-date
with current policy and legislation. It enables them to have detailed
knowledge on the business and its products to ensure that we offer the
best possible support and advice to the veterinary profession.

People
Our people strategy remains important to the success of the Group.
We have instigated numerous initiatives within the year, including
ongoing leadership and management development programmes, several
apprenticeship schemes as well as offering ongoing training across all
levels of employment within the Group. We have also launched wellness
and wellbeing initiatives and have had an independent company
conduct an employee engagement survey which was completed by
87% of all Group staff with the vast majority stating that Dechra is a
great place to work. We would not be able to achieve anything without
the commitment, hard work and dedication of our team and we would
like to thank all employees for their contribution to the ongoing success
of the business.

Brexit
We have engaged in contingency planning and are implementing a hard
Brexit mitigation plan. We expect the financial impact to be immaterial.
Details of the mitigation plan can be found in Understanding Our Key
Risks on page 56.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

Financial Review

Dechra has delivered another strong
set of financial results, from both
existing business and acquisitions.
We continue to invest both organically
and through acquisitions to deliver
enhanced shareholder value.

Richard Cotton
Chief Financial Officer

Overview of Reported Financial Results
To assist with understanding our reported financial performance, the
consolidated results below are split between existing business and
acquisition; acquisition includes those businesses acquired in the
current and prior year, reported on a ‘like for like’ basis. Additionally, the
table below shows the growth at both reported actual exchange rates
(AER), and constant exchange rates (CER) to identify the impact of
foreign exchange movements. The acquisition loss includes underlying

operating profit of £9.0 million and non-underlying items of £26.6 million.
These non-underlying items are comprised of amortisation of acquired
intangibles of £18.7 million, non-cash uplift on acquired inventory of
£5.1 million and acquisition costs of £2.8 million.

Including non-underlying items, the Group’s consolidated profit before
tax increased by 4.9% at CER (1.0% at AER). Dechra existing business
grew by 66.4% at CER (65.4% at AER), with reported profit before tax of
£47.3 million.

As Reported
Revenue
Gross profit
Gross profit %
Operating profit/
(loss)
EBIT %
Profit/(loss)
before tax
Diluted EPS (p)

2018
Existing
£m
389.0
215.7
55.4%

51.7
13.3%

2018
Acquisition
£m
18.1
6.7
37.0%

2018
Consolidated
£m
407.1
222.4
54.6%

(17.6)
(97.2%)

47.3

(18.4)

34.1
8.4%

28.9
37.04

Read the Geographical Expansion
case study on pages 34 and 35

Read the Acquisition case study
on pages 36 and 37

Glossary
Terms used within this section:

IFRSs: 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

bps: basis points

2017
£m
359.3
191.7
53.4%

33.2
9.2%

28.6
27.93

Existing
%
8.3%
12.5%
200bps

55.7%
490bps

65.4%
—

Growth at AER
Consolidated
%
13.3%
16.0%
120bps

Growth at CER
Consolidated
%
13.9%
17.1%
150bps

Existing
%
9.0%
13.8%
230bps

2.7%
(80bps)

1.0%
32.6%

57.8%
420bps

66.4%
—

6.3%
(60bps)

4.9%
38.5%

Stock Code: DPHFinancial Review
continued

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 non-underlying items. A reconciliation of
underlying results to reported results in the year to 30 June 2018 is provided in the table below. In the commentary which follows, all references will
be to CER unless otherwise stated.

2018
Underlying
Results
£m
407.1
227.5
(110.0)
(18.3)
99.2
(5.4)
(0.1)
93.7
(19.2)
74.5
76.45

Non-cash uplift
on acquired
inventory
£m
—
(5.1)
—
—
(5.1)
—
—
(5.1)
1.3
(3.8)
—

Non-underlying Items

Amortisation
and related
costs of
acquired
intangibles
£m
—
—
(46.1)
(8.0)
(54.1)
—
(0.2)
(54.3)
13.5
(40.8)
—

Acquisition,
impairments
and
restructuring
costs
£m
—
—
(5.9)
—
(5.9)
—
—
(5.9)
0.7
(5.2)
—

Tax rate
changes
and finance
expenses
£m
—
—
—
—
—
0.5
—
0.5
10.9
11.4
—

2018
Reported
Results
£m
407.1
222.4
(162.0)
(26.3)
34.1
(4.9)
(0.3)
28.9
7.2
36.1
37.04

Revenue
Gross profit
Selling, general and administrative expenses
R&D expenses
Operating profit
Net finance costs
Share of associate loss
Profit before tax
Taxation
Profit after tax
Diluted EPS (p)

In the year, Dechra delivered consolidated revenue of £407.1 million, representing an increase of 13.9% on the prior year. This included
£389.0 million from its existing business, an increase of 9.0%, and a £18.1 million contribution from acquisition business.

Consolidated underlying operating profit of £99.2 million, represents a 24.0% increase on the prior year. This included £90.2 million from Dechra’s
existing business, an increase of 13.3%, and a £9.0 million contribution from acquisition business.

Underlying EBIT margin increased by 200bps to 24.4%, with the accretion coming from both the existing and acquisition business in EU
Pharmaceuticals.

Underlying diluted EPS grew by 20.9% to 76.45p reflecting the profit growth from the existing and acquired businesses, offset by higher finance
charges from the increase in debt and equity issuance to fund the acquisitions, adjusted by the change in mix of the applicable tax rates.

Underlying
Revenue
Gross profit
Gross profit %

Underlying Operating profit
Underlying EBIT %
Underlying EBITDA

Underlying Diluted EPS (p)
Dividend per share

2018
Existing
£m
389.0
215.7
55.4%

90.2
23.2%
97.4

—
—

2018
Acquisition
£m
18.1
11.8
65.2%

2018
Consolidated
£m
407.1
227.5
55.9%

9.0
49.7%
9.2

—
—

99.2
24.4%
106.6

76.45
25.50

2017
£m
359.3
195.9
54.5%

81.3
22.6%
88.2

64.33
21.44

Growth at CER

Existing
%
9.0%
11.3%
120bps

Consolidated
%
13.9%
17.1%
160bps

13.3%
90bps
12.5%

—
—

24.0%
200bps
22.6%

20.9%
18.9%

76.45p
Underlying
Diluted Earnings
per Share

5
4
6
7

3
3

4
6

5
6
2
4

2016

2017

2018

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comReported Segmental Performance
Reported segmental performance is presented in note 2 on pages 123 and 125. The effect of acquisitions made in the year was material: the
reported segmental performance is analysed between existing and acquisition businesses, and at AER and CER in the table below. The acquisition
elements capture the additional base business coming into the Group, the growth Dechra generated in them during the year, and the synergies
that have already been realised by the Group since acquisition. This analysis becomes less definitive the further in time from the completion of the
acquisition, as the acquisition business is progressively integrated with the existing business.

Reported
Revenue by segment
EU Pharmaceuticals
NA Pharmaceuticals
Total

Operating profit/(loss) by
segment
EU Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research
and Development
Segment operating profit
Corporate and unallocated
costs
Underlying operating
profit
Non-underlying operating
items
Reported operating profit

2018
Existing
£m

2018
Acquisition
£m

2018
Consolidated
£m

240.6
148.4
389.0

67.5
48.3

(17.8)
98.0

(7.8)

90.2

(38.5)
51.7

18.1
—
18.1

9.5
—

(0.5)
9.0

—

9.0

(26.6)
(17.6)

258.7
148.4
407.1

77.0
48.3

(18.3)
107.0

(7.8)

99.2

(65.1)
34.1

Growth at AER

Growth at CER

Existing
%

Consolidated
%

Existing
%

Consolidated
%

6.0%
12.1%
8.3%

14.0%
12.1%
13.3%

3.7%
18.2%
9.0%

11.4%
18.2%
13.9%

11.2%
11.8%

(18.7%)
10.2%

26.9%
11.8%

(22.0%)
20.4%

9.7%
18.3%

24.9%
18.3%

(18.7%)
12.4%

(22.0%)
22.2%

2017
£m

226.9
132.4
359.3

60.7
43.2

(15.0)
88.9

(7.6)

(2.6%)

81.3

10.9%

22.0%

13.3%

24.0%

(48.1)
33.2

55.7%

2.7%

57.2%

6.3%

Underlying Segmental Performance
European Pharmaceuticals
Revenue in European (EU) Pharmaceuticals grew by 11.4%. The existing business grew by 3.7% including like for like Apex revenue: excluding third
party contract manufacturing, which is being reduced in line with our strategy and replaced with own product manufacturing, revenues increased
by 4.4%. This growth was driven by the strong contribution from market penetration and new product launches in the Companion Animal Products
(CAP), Equine, Food producing Animal Products (FAP) and Nutrition. The acquisitions of Apex (like for like year on year, acquired in October 2016)
and RxVet Limited (Dechra Veterinary Products International business), acquired in December 2017, and AST Farma B.V. and Le Vet Beheer B.V.
(acquired in February 2018) contributed a combined £18.1 million to revenue and are reported within EU Pharmaceuticals.

Operating Profit from existing business grew 9.7%, with operating margin expanding to 28.1% and consolidated operating margin increasing to
29.8% as a result of operating leverage and the accretive operating margin of AST Farma and Le Vet, partially offset by increased investment in our
Dechra Veterinary Products International business to drive growth in new international markets.

Underlying
Revenue
EBITDA
EBITDA %
Operating Profit
EBIT %

2018
Existing
£m
240.6
72.3
30.0%
67.5
28.1%

2018
Acquisition
£m
18.1
9.7
53.6%
9.5
52.5%

2018
Consolidated
£m
258.7
82.0
31.7%
77.0
29.8%

2017
£m
226.9
65.0
28.6%
60.7
26.8%

Growth at CER

Existing
%
3.7%
10.0%
180bps
9.7%
150bps

Consolidated
%
11.4%
24.5%
340bps
24.9%
320bps

£258.7m
EU
Pharmaceuticals
Revenue

8
5
2

6
2
2

8
8
1

2016

2017

2018

£77.0m
EU
Pharmaceuticals
Operating
Profit

0
7
7

0
6

1
5

2016

2017

2018

Stock Code: DPHFinancial Review
continued

North American Pharmaceuticals
Revenue from North American (NA) Pharmaceuticals grew by 18.2% to £148.4 million. All of the growth was in the existing business, with no
acquisitions in NA Pharmaceuticals within the current or prior year. The growth came from market penetration and product launches in CAP and
Equine, slightly offset by a reduction in FAP as older non-strategic (ex-Brovel) FAP products were withdrawn from the market in Mexico, and replaced
with Dechra CAP portfolio products which have been successfully registered.

Operating Profit from the business grew by 18.3% with the EBIT margin constant at 32.5%, as further investments were made in the commercial
team to drive future growth.

Underlying
Revenue
EBITDA
EBITDA %
Operating Profit
EBIT %

2018
Existing
£m
148.4
48.6
32.7%
48.3
32.5%

2018
Acquisition
£m
—
—
—
—
—

2018
Consolidated
£m
148.4
48.6
32.7%
48.3
32.5%

2017
£m
132.4
43.6
32.9%
43.2
32.6%

Growth at CER

Existing
%
18.2%
17.9%
(10bps)
18.3%
10bps

Consolidated
%
18.2%
17.9%
(10bps)
18.3%
10bps

Pharmaceuticals Research and Development
Pharmaceuticals Research and Development (R&D) expenses increased by 22.0% from £15.0 million to £18.3 million, with existing business
research and development increasing by 18.7%. R&D activities of the acquisitions of Apex, RxVet, AST Farma and Le Vet added £0.5 million. Overall
R&D expenses as a percentage of sales increased from 4.2% to 4.5%, excluding the acquired R&D expenses, the increase was from 4.2% to 4.6%.
This was in line with the previously communicated strategic intent to expand the Group’s product pipeline to drive enhanced future growth.

R&D expenses
% of Sales

2018
Existing
£m
(17.8)
4.6%

2018
Acquisition
£m
(0.5)
2.8%

2018
Consolidated
£m
(18.3)
4.5%

2017
£m
(15.0)
4.2%

Growth at CER

Existing
%
(18.7%)

Consolidated
%
(22.0%)

4
.
8
4
1

4
.
2
3
1

£148.4m
NA
Pharmaceuticals
Revenue

7
.
8
5

£48.3m
NA
Pharmaceuticals
Operating profit

2
.
3
4

3
.
8
4

5
.
7
1

2016

2017

2018

2016

2017

2018

£18.3m
Development
spend

8
1

5
1

0
1

2016

2017

2018

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comRevenue by Product Category
CAP revenue continues to be the largest proportion of Dechra’s
business at 65.5%, up from 62.3% in the prior year. CAP grew 21.1% in
the year from market penetration, product launches and the addition of
the acquisition revenues. Equine revenue grew strongly by 28.3% in the
year, with growth in both EU Pharmaceuticals and NA Pharmaceuticals.
Equine now represents 8.5% of the business (2017: 7.6%). FAP revenue
contracted slightly over the prior year by 0.4%, whilst delivering growth
in EU Pharmaceuticals: this was due to the intentional withdrawal
of older (ex-Brovel) non-strategic FAP products from the market (as
described under NA Pharmaceuticals above). FAP now represents
12.0% of the business (2017: 13.2%). Nutrition revenue grew 4.4% on
the prior year: this pleasing growth follows the launch of the refreshed
cat range with new improved packaging.

Other revenue contracted by 17.9% to £27.9 million, now representing
only 6.8% of the business as we continue our planned exit from third
party contract manufacturing in line with our manufacturing strategy, to
improve the production efficiency of Dechra’s own products.

CAP
Equine
FAP
Subtotal Pharmaceuticals
Nutrition
Other
Total

2018
£m
266.7
34.4
48.7
349.8
29.4
27.9
407.1

2017
£m
223.8
27.2
47.3
298.3
27.5
33.5
359.3

%
%
Change
Change
at AER
at CER
19.2% 21.1%
26.5% 28.3%
(0.4%)
17.3% 18.3%
6.9%
4.4%
(16.7%)
(17.9%)
13.3% 13.9%

3.0%

Revenue by Product
Category (at AER)

£407.1m

CAP

Equine

FAP

Nutrition

Other

65.5%

8.5%

12.0%

7.2%

6.8%

Underlying Gross Profit
Underlying Gross Margin for the existing business increased by
120 bps to 55.4%. The consolidated Underlying Gross Margin grew
by 160 bps to 55.9%, reflecting the accretive Gross Margin in the
acquisition businesses, in particular AST Farma and Le Vet.

Underlying Selling, General and
Administrative Expenses (SG&A)
SG&A costs at AER grew from £99.6 million in the prior year to
£110.0 million in the current year, a growth of 10.6%. This represents
growth from both acquisitions and the existing business, and
infrastructure cost added to manage the acquisitions. It represents an
increased investment within overall SG&A to drive further growth. Within
this, Corporate and unallocated costs rose slightly to £7.8 million; this
represents a slowing down in the historical rate of investment in central
infrastructure in Corporate costs.

More significantly, SG&A as a percentage of revenue declined in the year
from 27.7% in 2017 to 27.0% in 2018, as the revenue growth in the
business generated operating leverage from the cost base.

Non-underlying Items
Non-underlying items incurred in the year are fully described in note 5 on
page 126. In summary, they relate to the following:

• Amortisation and related costs of acquired intangibles of

£54.1 million – this includes the amortisation of the acquired
intangibles, and has grown significantly in the year from £40.4 million
following the acquisitions in the current year;

• Remeasurement of contingent consideration gain of £0.1 million

– this relates to the excess release to the income statement of the
contingent consideration on remeasurement of milestone and sales
performance liabilities;

• Non-cash inventory adjustment of £5.1 million – the non-cash
inventory adjustment which increases the value of acquisition
inventory sold relates to the acquisitions of RxVet, AST Farma and
Le Vet. It is the result of the fair value exercise carried out in
accordance with IFRS 3 ‘Business combinations’ on acquisition;

• Expenses relating to acquisition activities of £3.1 million – this

includes the transaction costs associated with the acquisitions of
RxVet, AST Farma and Le Vet;

• Rationalisation of manufacturing footprint reorganisation of

£2.9 million – this includes the costs associated with this strategic
programme;

• Finance income of £0.5 million – this represents the unwinding of
the present value discounts relating to deferred consideration due
and associated foreign exchange. This is offset by the acceleration
of arrangement fees in relation to the existing financing facility on
refinance in July 2018;

• Taxation credit of £26.4 million – this represents the tax impact of the
above, as well as the revaluation of deferred tax balance sheet items
following changes in corporate tax rates, notably following the Tax
Cuts and Jobs Act in the USA.

Taxation
The reported effective tax rate (ETR) for the year is a credit of 24.9%
(2017: 8.6%), primarily reflecting the one off impact of the reduction
in USA tax rates on deferred tax balances; this includes both the
underlying and non-underlying business. On an underlying basis
the ETR is 20.5% (2017: 21.9%): the main differences to the UK
corporation tax rate applicable of 19.0% (2017: 19.75%) relate to patent
box allowances, and differences in overseas tax rates particularly by
the extent of growth in NA Pharmaceuticals, though this effect has
moderated to an extent due to corporate tax rate reductions in USA
from the Tax Cuts and Jobs Act.

The underlying ETR is expected to remain broadly similar in the current
year, due to the anticipated mix of profits from different countries.

We continue to monitor relevant tax legislation internationally as it may
affect our future ETR. Further details can be found in Understanding Our
Risk on page 56.

Earnings per Share and Dividend
Underlying diluted EPS for the year was 76.45 pence, a 20.9% growth
on the prior year. The EBIT growth of 24.0% was slightly offset by higher
interest costs from increased debt to part fund the acquisition of
AST Farma and Le Vet. The weighted average number of shares for the
year was 97.5 million (2017: 93.5 million).

The reported diluted EPS for the year was 37.04 pence (2017: 27.93
pence).

The Board is proposing a final dividend of 18.17 pence per share
(2017: 15.33 pence), added to the interim dividend of 7.33 pence, the
total dividend per share for the year ended 30 June 2018 is
25.50 pence. This represents 18.9% growth over the prior year.
Dividend cover based on underlying diluted EPS is 3.0 times (2017: 3.0
times). The Board continues to operate a progressive dividend policy
recognising investment opportunities as they arise.

Stock Code: DPHCurrency Sensitivity
Euro €: a 1% variation in the £/€ exchange rate affects underlying diluted
EPS by approximately +/- 0.7%.

Underlying operating profit
Depreciation and amortisation

Financial Review
continued

Currency Exposure
Currency rate movements have been less significant in the year than
in 2017. The average rate for £/€ has declined by 3.4%, and the £/$
rate has increased by 5.7% during the financial year. The effect in the
Consolidated Income Statement and Statement of Financial Position is
analysed in the above paragraphs of this review between performance at
AER and CER. CER analysis compares the performance of the business
on a like for like comparable basis.

£/€
£/$

Average rates

2018
1.1286
1.3465

2017
1.1681
1.2735

% Change
(3.4%)
5.7%

US Dollar $: a 1% variation in the £/$ exchange rate affects underlying
diluted EPS by approximately +/- 0.5%.

Current exchange rates are £/€ 1.1028 and £/$ 1.2914 as at 29 August
2018. If these rates had applied throughout the year, the underlying
diluted EPS would have been approximately 3.7% higher.

Statement of Financial Position
The Statement of Financial Position is summarised in the table below.

• Non-current assets increased from £453.2 million to £765.6 million

mainly due to the acquisition of AST Farma and Le Vet (£307.3 million).

• Working capital has increased from £62.5 million to £92.5 million
following the acquisition of AST Farma and Le Vet. This was also
impacted by a planned increase in inventory to support the shutdown
of production lines at the Bladel facility during their manufacturing site
upgrade, and to increase service levels in North America.

• Net debt has increased in the year by £91.4 million from

£120.0 million to £211.4 million; net of cash generation by the
business, this includes £133.4 million of additional debt drawn to
part fund the acquisition of AST Farma and Le Vet. Exchange rate
variations favourably affected the Net Debt position by £5.7 million.

• Corporate and deferred tax has increased from £51.0 million to

£98.9 million mostly as a result of the acquisition of intangible fixed
assets associated with AST Farma and Le Vet.

Total non-current assets
Working capital
Net debt
Corporate and deferred tax
Other liabilities
Total net assets

2018
£m
765.6
92.5
(211.4)
(98.9)
(42.8)
505.0

£505.0m
Net Assets

2
0
3

6
7
2

2017
£m
452.3
62.5
(120.0)
(51.0)
(41.2)
302.6

5
0
5

Cash Flow, Financing and Liquidity
The Group enjoyed strong cash generation during the year, with the
EBITDA margin strengthening from 24.5% to 26.2%. However, as
mentioned above, working capital has increased by £23.4 million, mainly
due to planned increases in inventory at Bladel and in North America
and increased working capital to support the Oracle implementation
which occurred in the last quarter of the financial year. This resulted
in net cash generated from operations before non-underlying items of
£85.6 million, representing cash conversion of 81.9%. It is expected that
the increased working capital levels will unwind to a certain extent during
the forthcoming year as these strategic projects conclude.

2018
£m
99.2
7.4

106.6
26.2%
(23.4)
2.4

85.6
(4.4)

81.2
81.9%

2017
£m
81.3
6.9

88.2
24.5%
6.9
2.8

97.9
(3.7)

94.2
115.9%

EBITDA
EBITDA %
Working capital movement
Other
Net cash generated from
operations before interest, taxation
and non-underlying items
Non-underlying items
Net cash generated from
operations
Cash conversion (%)

Net Debt Bridge
Notable cash items are listed below in the Net Debt reconciliation table:

• Capital expenditure on tangible and intangible assets was broadly
similar at £12.6 million (2017: £10.7 million), representing 1.7 times
depreciation and amortisation, which includes sums for the ongoing
Manufacturing remodelling project.

• Acquisition of subsidiaries, associates and minority interests of

£229.1 million includes the acquisition of RxVet, AST Farma and Le
Vet. Further details in note 32 to the accounts on pages 153 and 154.

• Net equity issued of £103.3 million, includes the proceeds of the equity
placement and issue of new shares as consideration for the acquisition
of AST Farma and Le Vet, and the settlement of vested employee
share schemes.

Net Debt 30 June 2017
Net cash generated from operations before
non-underlying items
Non-underlying items
Capital expenditure
Acquisition of subsidiaries, associates and minority
interests
Interest and tax
Net equity issued
Dividend paid
Foreign exchange on net debt and other non-cash
movements
Net Debt 30 June 2018
Net Debt: underlying EBITDA ratio

£m
(120.0)

85.6
(4.4)
(12.6)

(229.1)
(17.2)
103.3
(21.8)

4.8
(211.4)
1.75

2016

2017

2018

• The Net Debt/underlying EBITDA leverage ratio per the borrowing

facilities’ leverage covenant, which includes the proforma adjustment
to full year EBITDA for the acquisitions, was 1.75 times (2017: 1.4
times). This is broadly in line with the guidance provided at the time
of the acquisition of AST Farma and Le Vet of 1.7 times, the bulk of
the difference being attributable to adverse currency exchange rate
movements since completion in February 2018.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comBorrowing Facilities
Revolving Credit Facility
On 25 July 2017, the Group signed a new credit agreement, refinancing
its previous £205.0 million Revolving Credit Facility (RCF). The committed
facilities are a new five year multi-currency RCF with two one year
extension options for £235.0 million, through seven banks: Bank of
Ireland, BNP Paribas, Fifth Third, HSBC, Lloyds, Raiffeisen and Santander.
The RCF has an Accordion facility of a further £125.0 million.

There are two covenants governing the RCF:

• Leverage: Net Debt to underlying EBITDA not greater than 3:1

(30 June 2018: 1.75) compared to the previous covenant of 2.5:1;
and

•

Interest Cover: underlying EBITDA to Net Finance Charges not less
than 4:1, unchanged from the previous facility (30 June 2018: 15.4).

There is a non-utilisation fee of 35.0% of the applicable margin. The
margin over LIBOR (or equivalent) ranges from 1.3% for leverage below
1.0 times, up to 2.2% for leverage above 2.5 times.

The first of the two one year extension options was exercised on
25 June 2018. The termination date for the RCF is now 25 July 2023.

Term Loan Facility
On 24 January 2018, the Group signed a new Term Loan facility of
£350.0 million to provide funding for acquisitions. The committed
facility has a termination date of 31 December 2020. It has an initial
availability period of 30 June 2018 which was subsequently extended
to 31 December 2018 on 25 June 2018. A sum of €150.0 million was
drawn on 12 February 2018 to fund part of the consideration paid for
the AST Farma and Le Vet acquisition.

The facility has the same covenants as the RCF above. However the
Leverage covenant on both facilities was increased from 3:1 to 3.25:1
for the measurement period ending on 30 June 2018, after which it
moves back to 3:1 on both facilities.

Return on Capital Employed (ROCE)
ROCE fell to 15.4% in the year (2017: 17.7%). This is largely due
to the inclusion in the metric of 100% of the assets acquired from
AST Farma and Le Vet in mid February in the Capital Employed
element, but only 4.5 months’ profit in the Return element. We expect
this to rise in the coming year as the Group consolidates a full year of
profit from the acquisition.

Acquisitions
The Group has made several acquisitions in recent years. Performance
of the acquisitions made during the 2018 and 2017 financial years
is separately summarised compared to the existing business in the
sections above.

In December 2017, the Group acquired the entire issued share capital of
RxVet Limited, a small CAP business in New Zealand. RxVet has been
Dechra’s distributor in New Zealand since 2010, with revenue in the year
to March 2017 of NZ$1.4 million; sales of Dechra products account for
about half of this. The business has been successfully integrated into the
Group, has been renamed Dechra Veterinary Products NZ Limited, and
is performing in line with management expectations. The acquisition was
financed from the Group’s existing working capital resources.

In February 2018, we completed the acquisition of AST Farma B.V. and
Le Vet Beheer B.V. for a total consideration of £307.3 million
(€340.0 million) on a debt-free and cash-free basis. The combined revenue
in the year ended 31 December 2016, excluding business with Dechra prior
to the acquisition, was €36.9 million. The total consideration was satisfied
as to approximately 75% in cash and 25% in new Dechra shares, which
are subject to a two year lock-in. The acquisition was financed from the
£102.3 million proceeds of an equity placing, issuance of new consideration
ordinary shares, and debt drawn from a new Term Loan facility (see
Borrowing Facilities above). Integration has proceeded in line with plan,
and the ongoing synergy realisation programme is on schedule.

Accounting Standards
The accounting policies adopted are outlined in note 1 to the accounts.
There are no accounting policy changes which have impacted the 2018
financial year.

Note 1 to the Accounts identifies the evaluation of the impact of
IFRS 9 (financial instruments) and IFRS 15 (revenue recognition) which
the Group will adopt in 2019, and the effect on the 2018 accounts when
they are realigned with the new standard, which is not material. The status
of the Group’s impact assessment of IFRS 16 (leases) which will be adopted
in 2020 is also outlined in Note 1.

Summary
The existing business has performed well in the year, with above
market growth rates and operating leverage. This has produced
additional resources to invest more intensively in R&D, the newly
formed International business and the North American commercial
team, to provide future organic growth, whilst still growing the
operating margin.

We are very excited by our investments in the acquisitions of RxVet,
AST Farma and Le Vet and the future growth and breadth which they
will deliver, as well as the ongoing investments in the Manufacturing
remodelling programme which are proceeding to plan.

The Group’s balance sheet is strong, enabling us to continue to consider
further relevant acquisition opportunities as they arise.

Richard Cotton
Chief Financial Officer
3 September 2018

Stock Code: DPHQ&A with Ian Page

It has been another good and
ultimately successful year for
Dechra.

Ian Page
Chief Executive Officer

Q What have been the key drivers of success throughout

the year?

A It has been another good and ultimately successful year for Dechra

despite a number of challenges, those namely being the reorganisation
and investment that we have had to put in to Manufacturing to
improve efficiencies, but also we have invested a huge amount of time
and effort into what proved to be a successful go live on an Oracle
ERP integrated system for the majority of European countries which
happened in May.

Commercially, it has been a similar pattern to previous years where we
have outperformed the majority of markets in which we trade within
the EU. We have also put greater investment into our International
business, but the biggest success has been the USA where we have
massively outperformed the market and we have seen yet again
excellent growth. Overlaying that is the full year effect from Apex, but
also a four month contribution from the most recent acquisition that
we have made which is AST Farma and Le Vet.

Q Can you tell us more about the strategy behind the

AST Farma and Le Vet acquisition and the progress on
integration to date?

A The strategy is very clear. AST Farma and Le Vet has been our

number one target within Europe for some time. It brings additional
products to the Group, it strengthens our position in the Netherlands
and also extends our European pipeline. Although it is predominantly
generic or generic plus, most of the range is complementary to our
existing range. In the AST Farma part of the business it strengthens
our Dutch offering but also gives us a direct to vet capability from a
logistics perspective where we do not have to be dependent upon
the distribution network that is currently in place. The big benefit
to the Group though is the Le Vet side of the business. Le Vet, we
were already one of their major distributors, but they also sold their
products through several other companies and we are now able to
terminate those agreements to bring more products in-house.

From an integration perspective, the Dutch aspect of the business
is now fully integrated; the sales teams are co-ordinated, the
commercial aspects are now all operating out of the AST Farma
facility for the Dutch market, but as I have already said the big benefit
falls on the Le Vet side and with Le Vet we have now terminated most
of their agreements with our competitors and we are now starting to
bring the products in-house which gives us the full value chain and
the full margin for these products and I think within two years we will
have completed the majority of the exercise and will have taken the
full value out of this acquisition.

Q Following the AST Farma and Le Vet acquisition you have
been described by one arm of the animal health press as
the “generics specialists”: is that now your strategy?
A I can understand how people may come to that conclusion with a

little bit of knowledge, however, our real emphasis is on providing
novel products to veterinarians. We have bought two businesses
that are predominantly generic or generic plus within AST Farma and
Le Vet and within Putney recently, but we have also invested a huge
amount of time and effort in new partnerships and researching new
ideas to make sure we have got a drug development pipeline that
includes a lot of unique and novel products that will enhance our key
therapeutic sectors.

Q Acquisitions are clearly a major factor of your growth;

what is next on your agenda?

A As always, we have a target and list, and we are engaging with a

number of companies. It is very difficult to get them to the table and
it is very difficult to get them over the line. Having said that, we have
proved successful and we have delivered good growth through
acquisition over recent years. So we remain hopeful that in the near
term we can bring one or two more complementary businesses into
the Dechra Group.

Q How does the increasing amount of consolidation
of veterinary practices by groups such as Banfield
and CVS affect Dechra?

A This has been a facet of our market, particularly in the USA and
the UK for a number of years now and we see the incorporated
groups as major customers to Dechra and the trend is only going
to continue. We have started to restructure a number of our sales
organisations to put greater focus on key account management
and to put more emphasis on these practice consolidators. They
do put a challenge on margins, but at the same time they deliver
volume. I think there is a lot of change in the marketplace overall,
not just consolidation of practices, but also the change of the role
of the distributors but I think that one of Dechra’s advantages is our
flexibility and our capabilities to deal with change very quickly.

Q What does the future hold for Dechra and

also you personally?

A First of all looking at Dechra, the market for veterinary products

continues to grow, people continue to spend more on their pets, the
demand for high quality protein increases year on year across the
globe, so Dechra as one of the few mid-sized companies I think is
best placed in terms of its flexibility and its strategy to continue to
outperform markets.

From a personal perspective I have been CEO now for 17 years. I
still have drive; I still have ambition, I believe we are still creating a
huge number of opportunities for Dechra, so as long as I have got
the Board’s, the employees’ and the shareholders’ support, I see no
reason for change in the immediate future.

Watch the full interview with Ian Page at
dechra.annualreport2018.com

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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com

Q&A with Richard Cotton

Q What were the financial highlights of 2018?
A Dechra produced another strong set of financial results in 2018 in
both the existing and acquisition business. Revenue grew 13.9%
over 2017, which translated to a 17.1% increase in Gross profit.
This leveraged the cost base with a 24.0% increase in Underlying
Operating Profit and a 20.9% increase in Underlying diluted EPS.

Q Revenue grew strongly in the year – where did the

growth come from?

A European Pharmaceuticals’ existing business revenue grew to

£240.6 million, from market penetration and new product launches,
and acquisition business added £18.1 million of revenue from Apex,
RxVet, AST Farma and Le Vet. North American Pharmaceuticals
grew particularly strongly, with 18.3% growth to £148.4 million as the
commercial team expansion bore results.

Q The AST Farma and Le Vet acquisition was a significant
financial investment by the Group. How was it financed?
A At €340.0 million, AST Farma and Le Vet was the biggest acquisition
that Dechra has ever made. Consideration was paid 75% in cash
and 25% in new Dechra ordinary shares. The cash consideration was
financed from the net £102.3 million proceeds of an equity placing
with the balance of £126.7 million drawn from a new £350.0 million
Term Loan facility.

Q What caused the increase in Net Debt during

the year? What is the Group’s balance sheet leverage
ratio and what does the Board target?

A Net debt increased from £120.0 million to £211.4 million in the year.

This comprises an increase of £133.4 million to part fund the acquisition
of AST Farma and Le Vet in February and a net £40.6 million reduction
from cash generated by the business during the year.

The Group maintains a conservative balance sheet, with the Net
debt: EBITDA leverage ratio at 1.75 times. This is broadly in line
(adjusted for currency exchange rate fluctuations) with the guidance
given at the time of the AST Farma and Le Vet acquisition when new
debt was drawn. Typically the Board would target maximum Net debt:
underlying EBITDA of 2.0 times, though in the right circumstances
may go to a level above this.

Pharmaceuticals R&D increased
by 22.0% as the Group invested
to expand its development
pipeline.

Richard Cotton
Chief Financial Officer

Q The Group’s cash conversion was weaker than in recent

years – what was the main cause of that?

A Working capital increased in the year due to a number of reasons.
The Manufacturing remodelling strategy includes a planned
shutdown and upgrade of production lines at our Bladel facility over
several months. To achieve this, inventory was built up during the
year to cover the period of production capacity outage. We expect
this to be a temporary increase in inventory which will unwind over
2019. There has also been a planned increase in Inventory in North
America to improve customer service levels. Following the go live of
Oracle, there was a temporary delay in shipping some product which
was then shipped in June, resulting in a delay in expected Accounts
Receivable collection. These were minor new system teething issues
which have since been overcome.

Q How much did Dechra invest in research and

development (R&D) in the year?

A Pharmaceuticals R&D expenditure increased by 22.0% from

£15.0 million to £18.3 million: this included an 18.7% increase in
the existing business as well as R&D expenses incurred within
the acquired business. Dechra stated in the 2017 Annual Report
its strategic intent of increasing R&D expenditure to enable the
expansion of the Group’s product pipeline. R&D expenses as a
percentage of sales have increased from 4.2% to 4.5%. This was
delivered without impacting the Group’s Underlying EBIT margin,
which increased by 200 bps to 24.4%.

Q How much is Dechra investing in the Manufacturing

remodelling project, and how much of that spend has
already been incurred?

A When the programme was first communicated in 2017, the Group
indicated that between capex and non-underlying expenditure it
was planning to invest £18.0 million in the project over five years.
That target remains, and the project is on schedule and budget.
In the year £3.5 million was spent on capex and non-underlying
expenditure, so cumulatively £4.2 million has now been spent since
the project’s inception.

* All growth figures quoted are at constant exchange rate (CER)

unless otherwise stated

Stock Code: DPH
Stock Code: DPH

27
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Watch the full interview with Richard Cotton at
dechra.annualreport2018.com

Stock Code: DPH
Key Performance Indicators

KPI and Definition

Performance

Commentary

Relevance to Strategy

Sales Growth
Year-on-year sales growth
including new products and
excluding revenue from acquired
businesses.

9.0%

2018

2017

2016

£389.0m

£269.6m

£225.9m

Dechra’s existing business in
EU Pharmaceuticals grew by
4.4%, excluding third party
contract manufacturing, and in
NA Pharmaceuticals by 18.2%.

b c

Underlying Diluted
EPS Growth
Underlying profit after tax divided
by the diluted average number of
shares, calculated on the same
basis as note 11 to the Accounts.

20.9%

2018

2017

2016

76.45p

64.33p

42.65p

This includes a 24.0% increase
in underlying operating profit
offset by an increase in finance
charges from the increase in
debt and equity issuance to fund
acquisitions.

Return on Capital
Employed
Underlying operating profit
expressed as a percentage of the
average of the opening and closing
operating assets (excluding cash/
debt and net tax liabilities).

230bps

2018

2017

2016

15.4%

17.7%

16.1%

The decline is largely due to the
inclusion of 100% of the assets
acquired from AST Farma and
Le Vet in February in the Capital
employed element, but only
4.5 months’ profit in the Return
element.

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

b c

Underlying EPS is a key indicator
of our performance and the return
we generate for our stakeholders.
It is one of the performance
conditions of the LTIP.

b c

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 LTIP.

Key to Strategic Growth Drivers:

Key to Strategic Enablers:

Key:

Pipeline Delivery

b c Portfolio Focus

Geographical Expansion

Acquisition

Manufacturing and Supply Chain

Long Term Incentive Plan (LTIP)

performance condition

Technology

People

Read Delivering Our Strategy
on pages 12 and 13

Read How the Business Manages Risk
on pages 54 and 55

Read the Directors’ Remuneration Report
on pages 83 to 98

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comKPI and Definition

Performance

Commentary

Relevance to Strategy

Underlying Cash
Conversion
Cash generated from
underlying operations before
tax and interest payments as
a percentage of underlying
operating profit.

3,400bps

2018

2017

2016

81.9%

115.9%

106.8%

Underlying cash conversion
was weaker in the year due to
the planned temporary increase
in inventory to support the
shutdown of production lines
at our Bladel facility during the
site upgrade, and to increase
customer service levels in North
America.

b c

Our stated aim is to be a cash
generative business. Cash
generation supports investment
in the pipeline, acquisition and
people.

New Product Revenue
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.

720bps

2018

2017

2016

8.2%

15.4%

14.4%

New product revenues reflect
the strong market penetration of
products launched in the current
and previous four years.

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.

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

100%

2018 0

2017

2016

0.26

0.35

There have been no lost time
accidents during the year. None
of the previous year’s incidents
resulted in a work-related fatality
or disability.

20bps

The increase relates to the
restructuring of our manufacturing
business.

2018

2017

2016

15.9%**

15.7%

13.1%*

* excludes Apex, Brovel, Genera and
Putney
** excludes RxVet, AST Farma and Le Vet

This measure shows the delivery
of revenue 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.

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

Read about Corporate
Social Responsibility
on pages 42 to 53

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

Stock Code: DPHStrategy in Action:
Pipeline Delivery

Vaccines

As part of Dechra’s strategy in the Food
producing Animal Product (FAP) market, we
entered the fast growing vaccines segment
in October 2015 by acquiring the Croatian
company, Genera d.d. It marketed a range of
essential live poultry vaccines to the regional
Adriatic countries and to a number of developing
international markets thereby providing Dechra
with a solid basis to enter the vaccine sector.
Since the acquisition we have continued to build
on this foundation, focusing on development and
approval of this range in key European markets
and subsequently expanding into additional
international markets. With the growing worldwide
emphasis on preventing diseases and reducing
the use of antibiotics, we believe that this step is
key to the future of Dechra’s FAP business.

When we acquired Genera the core range of live
poultry vaccines consisted of six products. At that
time none of these had been approved for sale in
the main European poultry production markets of
the UK, Germany, France, Spain and Italy. Having
spent time with the team in Croatia, evaluating the
capabilities and production potential, we decided
to focus on ensuring that the six key products
gained approval in these key European markets.

Utilising the basis of the EU marketing
registration, we were then able to gain marketing
authorisations in the main poultry production
countries in North Africa, the Middle East and
Asia. In addition to the first six products, a further

four were added to our development programme
to ensure that our live poultry range meets the
needs of veterinarians and farmers across all of
these markets.

The development team in Zagreb has worked
extremely hard and has successfully delivered
products and registrations to the planned
timelines. In 2016 the first European marketing
authorisation was received for Avishield ND,
used for the prevention of Newcastle disease in
chickens and turkeys. Despite only having one
product, we quickly discovered that veterinarians
became enthusiastic about this new vaccine.
Through clinical studies we had demonstrated
that our product was more effective and safer
to use than the established products from our
competitors. We therefore proceeded to launch in
Germany and Belgium, where we quickly gained
high market shares despite not being able to offer
a complete range. To date, we have succeeded
in obtaining authorisation in all key European
markets for an additional three vaccines for the
prevention of infectious bronchitis, infectious
bursal disease and an additional strain of
Newcastle disease. Using the slogan ‘Protection
Evolved’ we are now preparing to launch the
complete range across Europe, and continue to
develop our position in the international markets.

FROM DAY ONE.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

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Stock Code: DPH

Strategy in Action:
Portfolio Focus a

b c

Ceptatiis nissi illuptae volorion rehenducil ipsunt.

Enhancing our
Specific® Portfolio

Packaging
In order to strengthen our sustainability position
and as part of our environmental road map we
have rationalised our pack sizes which will:

•

reduce our use of plastics by 8%;

reduce our freight on the cat product range by
35%; and
reduce our carbon footprint by 50,000 kg CO2
equivalent.

Included with the sustainability benefits are some
great innovations for the pet owner, such as:

• a new easy open pack utilising a laser scored

tear line;

• a new reclose system employing Sensi Grip®

seals; and

•

improved barrier film that exploits up to the
minute developments in packaging technology.

Next Phase
Once the cat refresh is fully launched we will
commence a programme to update the dog
diets with similar innovations.

The Future
We will continue to emphasise the importance of
feeding pets with diets with nutritional advantages
over other pet foods and continue the exciting
developments with additional category leading
recipe innovations and packaging design.

We are also revitalising the product pipeline
creating closer links to our pharmaceutical
heritage. We will continue to innovate to improve
the growth and contribution from this key therapy
area and will continue to provide veterinarian
dedicated support which is a cornerstone to
Specific’s success.

One of Dechra’s key therapy areas is its range
of veterinarian dedicated dog and cat foods.
This range offers targeted special care diets that
provide the optimum in nutritional support for pets
with illnesses and diets for everyday nutritional
needs. Branded ‘Specific’, we have marketed
the range since January 2008 when we acquired
VetXX Holdings A/S.

We have implemented a programme of revitalising
the Specific range; the initial focus being on
refreshing the cat range with improved recipe,
design and packaging. The diets support some of
our key pharmaceutical products with a look and
feel that belongs to the Dechra family of products
providing a useful cross over to our other key
therapy areas.

Recipe Development
The refreshed look involves a development in the
recipes that introduce:

natural antioxidants;

• chelated minerals for better bioavailability; and

•

further improvements to the palatability.

There have been further ingredient advances that
reflect our ongoing investment in utilising up to
date nutritional knowledge that will support good
pet health. We have included Marine Stewardship
Council (MSC) certified fish within these updates,
to strengthen our commitment to a sustainable
future.

Design
The historic design of the Specific packaging had
been in existence since 2005; a newly updated
design brings a fresh looking, simplified approach
and reflects our pharmaceutical image but retains
elements of the original branding. This builds
upon our strong veterinarian brand identity and
enables us further to emphasise our dedication to
this channel. The updated design differentiates it
from the everyday foods making it a strong brand
identifier.

As an exciting part of the refresh we have updated
and refocused our pet owner websites. This
provides easy accessibility and functionality for
pet owners looking to discover quality nutritional
advice that enhances their pet’s life.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

Stock Code: DPH

Strategy in Action:
Geographical Expansion

Expansion into
New Zealand

Background
RxVet Limited was first established in 2010 by two
entrepreneurs with an animal health background,
Peter Blaikie and Nick Gorman, who recognised
an opening to provide a broader range of
veterinary products than were currently available
in New Zealand and to offer a local, more intimate
service. RxVet had acted as our distributor since
2010, selling Dechra products into the New
Zealand market.

Over the years the business grew as the
collaboration delivered new registrations and
products for the New Zealand companion animal
and equine veterinarians. The founders also
attracted a few other suppliers to add critical
mass and complementary products.

In October 2016, Dechra established its own
organisation in Australia through the acquisition
of the trade and assets of Apex Laboratories Pty
Ltd. Apex Laboratories were also commercialising
some veterinary registrations in New Zealand
and therefore the next natural step was to
discuss with RxVet how we could best optimise
the sales growth and customer service. It was
agreed that by combining forces, the merged
businesses would offer better critical mass, be
more competitive and grow sales through a more
optimal territory coverage. At this point Dechra
offered to purchase the RxVet business with
the proviso that current owners remained in the
business to allow customer continuity and retain
local market experience.

Acquisition and Integration
The deal was finalised in November 2017
and completed in December 2017 for a total
consideration of £0.3 million (NZ$0.6 million) with
a further £0.02 million (NZ$0.04 million) deferred
payment which was paid in July 2018. Plans
were developed to merge the activities, and the
first step was to combine the sales teams to offer
optimal territory coverage.

The next challenge was to ensure that both sets
of sales people were familiarised with the wider
product range. This required both technical and
commercial sales training as the Apex products
were broadly generic with sales generated
through commercial negotiations and good
relations, whereas the RxVet products were
more orientated to the technical benefits of the
products. This is an ongoing process and is reliant
on building a good team ethic.

It is was also important to ensure the products in
registration did not lose focus or time to market
due to management being engaged in integration
activities. To date this has been successfully
achieved with three new products having been
registered since the acquisition.

The next phase of the plan was to rebrand and
rename RxVet to Dechra Veterinary Products NZ
Limited. This is a key factor in our international
strategy to enhance Dechra’s image globally
and ensure that where we have our own sales
organisation, our employees feel that they are
part of the larger family with greater opportunity
for career progression and that they embrace the
Dechra Values.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

Stock Code: DPH

Strategy in Action:
Acquisition

Integration of
AST Farma/Le Vet

Background
On 13 February 2018, Dechra acquired AST Farma
B.V and Le Vet Beheer B.V. for a total consideration
of €340.0 million on a debt-free and cash-free
basis. The total consideration was satisfied as to
approximately 75% in cash and 25% in new Dechra
shares, which are subject to a two year lock-in.

AST Farma was established in 1999 by Sebastiaan
Tesink, and had grown to become one of the leading
companion animal pharmaceutical companies in the
Netherlands, focused on generic plus products. The
business was started with a basic range of companion
animal registrations acquired from Fort Dodge (now
Zoetis), and grew its reputation by launching niche
products, including ranges for minor species, and by
offering added value services to veterinarians. In an
independent Dutch market research conducted by
Vet 150, assessing customers’ opinions of suppliers,
AST Farma has consistently scored in the top two
companies among companion animal veterinarians for
the past ten years.

Dechra considered AST Farma to be innovative and a
very customer oriented company. Part of its success
had been driven by their direct-to-vet delivery
model, with over 80% of sales going direct instead
of through the wholesalers. In the past 15 years
they have been very focused on developing quality
generic plus products. Additionally, they have taken
molecules from human medicine and developed
the first veterinary licensed equivalent products. A
prime example of this is the European registrations of
Metrobactin® and Tralieve®.

Le Vet B.V., a subsidiary of Le Vet Beheer B.V., was
established in 2002 by Alexander Tesink. Le Vet had
focused on the European markets outside of the
Netherlands, registering 60 of the AST Farma products
in EU member states which were sold through a
network of marketing partners including Dechra.

Reasons for the Acquisition and
Progress To Date
• Strengthening the Group’s Position in the

Netherlands
The combination of Dechra and AST Farma in
the Netherlands has moved Dechra to number
four in the rankings of animal health companies
in that market. In April 2018, we integrated the
two sales organisations in the Netherlands into
the AST Farma premises in Oudewater. The
changes in roles and responsibilities have been
communicated to our customers and the team
was quickly working cohesively. Combining the
strengths of both companies and ensuring that

we continue to maintain the good reputation and
image of AST Farma among Dutch veterinarians,
will enable us to create the strongest partner
for companion animal veterinarians in the
Netherlands.

• New Opportunities with AST Farma Direct

to Vet Model
In the Dutch market the direct-to-vet distribution
model will offer new opportunities for Dechra.
We intend to increase market penetration and
improve margins by making Dechra’s products
available directly to veterinarians through AST
Farma logistics and by promotion through the
combined enlarged sales team. We will start
supplying the Specific nutrition range through this
model from 1 September 2018 and the complete
Dechra range in January 2019.

•

Increasing our Broad Portfolio
of Products in the EU
In the rest of Europe, gaining access to the 60
Le Vet products will significantly strengthen our
range. We already market a number of products,
15 of the 60 products, in the majority of EU
territories; however in some countries, notably
Germany and Belgium, we had no access to the
Le Vet product range.

Since completion we have already terminated
20 agreements with Le Vet marketing partners
across Europe. We will start to relaunch Le Vet
products in Dechra livery, starting in Germany
and France in early September 2018, with a flow
of products continuing through to the end of
2019. By this time we will be marketing the vast
majority of Le Vet products through our own sales
organisations. Bringing sales that were made
through third party marketing partners in-house
allows us retain the distribution margin.

• Access to a Robust Pipeline

In addition to the existing portfolio, AST Farma
and Le Vet were developing a robust new product
pipeline of over 30 products, a number of which
have already been approved since the acquisition
completed. This pipeline will further strengthen
Dechra’s portfolio to its customers across Europe
and we will also look to register a number of the
products in our international markets. We are
now preparing to launch the first new product,
Tralieve (a pain relief tablet), in Germany, the UK
and France. This first veterinary license for the
use of tramadol in dogs fits perfectly into our
fast growing anaesthesia and analgesia focus
therapeutic range.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

Stock Code: DPH

Product Development

Although some products may have a slightly different path, most novel
and generic products follow a fairly standard process containing six
phases, defined as: Evaluation, Feasibility, Research, 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 speed to market
relative to the competition.

In addition to developing new products, Dechra also is looking
continuously to improve existing commercial products to retain and grow
market share. Lifecycle activities are varied but may include changing
primary packaging or dose form for improving convenience for the user
or adding claims or species to widen the addressable market. These
activities are generally called lifecycle management and can lead to
substantial growth, even for established products.

Dechra’s current development pipeline is a mixture of short, medium and
long term new opportunities and lifecycle projects.

Generating and Prioritising Ideas
Ideas are usually generated by Marketing and Business Development, but
Dechra encourages all employees to share ideas for new or existing products.
Ideas will be prioritised by Marketing and the most attractive ones will be
evaluated by a small cross functional Evaluation team. During the Evaluation
phase, the team defines the scope of the project and assesses if the cost
benefit ratio is favourable considering market need, market value, therapeutic
indications, strategic fit and the probability of technical and regulatory
success. The team also define the work required in the Feasibility phase.

Making the Chemistry Work
The second phase of the process is Feasibility, which involves the
collection of a range of preliminary data to identify early stop points.

In this phase proof of concept level data for pharmaceutical
development (formulation and manufacturing process), efficacy and
safety is created and a regulatory pathway is identified. The purpose of
this phase is to eliminate projects with low probability of success as early
as possible.

All the necessary pilot data is generated in the Research phase to:

• understand the efficacy and safety profile (innovation) or the likelihood

of establishing bioequivalence (generics);

• ensure high quality pharmaceutical development; and

• establish the best strategy to maximise the probability of technical

and regulatory success.

The main purpose of the Research phase is to de-risk the expensive,
long and resource intensive Development phase. In addition, during
the Research phase the formulation and manufacturing process are
finalised, and the dose that is both safe and effective is determined. For
some projects, this phase can be relatively straight forward, while for
others it can be iterative, for example finding a formulation that gives the
desired safety and efficacy profile.

Entering the Development Phase
The Development phase is the longest part of the process, potentially
taking two or four years. After the formulation has been demonstrated
to be stable, up to three registration 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.

The whole process from beginning to end can take between three and ten
years before Launch depending on complexity and nature of the product.

Stage Gate Process
The Pipeline Review Committee analyses each project after each phase
for any technical or regulatory risks and issues and any changes in the
business case. Projects are prioritised based on their overall commercial
and strategic value.

SENIOR EXECUTIVE TEAM (SET)

RECOMMENDATIONS

APPROVAL

PIPELINE REVIEW COMMITTEE
Stakeholders from all relevant departments

Project decisions driven by resources,
expertise and Dechra Strategy

GO/
NO GO

EVALUATION

FEASIBILITY

RESEARCH

DEVELOPMENT

REGISTRATION

LAUNCH

PROOF OF
CONCEPT
TO IDENTIFY
EARLY KILL
POINTS

OUTPUT:
Feasibility
Report and
Research Plan

PRELIMINARY
EVALUATION OF
IDEAS

OUTPUT:
Initial
Target
Profile and
Feasibility
Plan

PILOT STUDIES
TO DE-RISK
DEVELOPMENT
PROGRAMME

PIVOTAL
DEVELOPMENT
PROGRAMME

DOSSIER
EVALUATION

LAUNCH
CAMPAIGN

OUTPUT:
Research
Report and
Development
Plan

OUTPUT:
Pivotal Data
Dossier

OUTPUT:
Responses to
Authorities and
Launch Plan

OUTPUT:
Launch Campaign

L
E
N
N
U
F
A
E
D

s
a
e
d

e
s
i
t
i
r
o
i
r
P

D
E
S
I
T
I

R
O
R
P

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com

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 Evaluation to market or as
projects are terminated. For competitive reasons, exact project details are not disclosed.

Evaluation

Feasibility

Research

Development

Registration

CAP/Equine

FAP

CAP/Equine

FAP

CAP/Equine

FAP

CAP/Equine

FAP

CAP/Equine

FAP

Analgesic
therapy
for cats

Antibiotic
for cattle
and pigs

Anti-
inflammatory
for horses

Antibiotic
for pigs and
poultry

Paraciticide
for cats

Antibiotic for
pigs

Paraciticide
for dogs

Antibiotic for
cattle

Antibiotic for
dogs and cats

Fluid therapy
for cattle

Paraciticide
for dogs

Paraciticide
for poultry

Endocrine
diagnostic

Poultry
vaccines

Dermatological
therapy for
dogs

Poultry
vaccines

Gastrointestinal
therapy for
dogs

Anti-
inflammatory
for Poultry

Dermatological
therapy for
dogs

Antibiotic for
pigs

Dermatological
therapy for
dogs

Poultry
vaccines

Antibiotic for
dogs and cats

Swine
vaccines

Analgesic
therapy for
dogs

Antibiotic for
cattle, pigs
and poultry

Lameness
therapy for
horses

Antibiotic for
cattle, dogs,
cats, horses

Analgesic
therapy for
dogs

New opportunities are
constantly being evaluated
and will move into
Feasibility quickly if of
interest

Dermatological
therapy for
dogs

Poultry
vaccines

Lameness
therapy for
horses

Dermatological
therapy for
dogs

Poultry
vaccines

Lameness
therapy for
horses

Endocrine
therapy for
horses

Endocrine
therapy
for cats

Ocular anti-
inflammatory
for dogs

Gastrointestinal
therapy for
dogs

Anti-
inflammatory
for horses

Dermatological
therapy
for dogs

Antibiotic
for rabbits

Antibiotic
for dogs

Analgesic
therapy for
horses

Endocrine
therapy for
dogs

Cardiovascular
therapy
for cats

Gastrointestinal
therapy
for dogs

Dermatological
therapy
for dogs

Antibiotic for
dogs and cats

Anti-
inflammatory
for dogs and
cats

Gastrointestinal
therapy
for dogs

Urological
therapy for
dogs

Anti-
inflammatory
for horses

Key

Analgesic, Anaesthesia,
Anti-inflammatory

Antimicrobial

Antiparasitic

Cardiology

Dermatology

Endocrinology

Fluid therapy

Gastrointestinal

Vaccines

Locomotion

Urology

Analgesic
/anti-
inflammatory
for horses

Antibiotic for
dogs and cats

Anaesthetic
for dogs and
cats

Gastrointestinal
therapy for
dogs and cats

Anaesthetic
for horses

Anaesthetic
for dogs and
cats

Anaesthetic
for horses

Antibiotic
for horses

Gastrointestinal
therapy for
dogs

Stock Code: DPHInternational Product Offering

The tables below show the key products in our focus therapeutic areas in territories where we have sales and marketing organisations.

m
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B

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o
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S

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w
S

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U

c
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t
a
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r
d
A

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l

a
r
t
s
u
A

a
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r
t
s
u
A

c
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t
a
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r
d
A

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l

a
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t
s
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A

a
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t
s
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A

c
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t
a
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r
d
A

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l

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t
s
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A

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A

c
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A

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l

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Key Product
Felimazole
Forthyron/Thyforon
Vetoryl
Zycortal

Key Product
Animax
Canaural
CleanAural
DermaPet Products
Isaderm
Malaseb

Key Product
Alfaxan
Alvegesic
Atipam
Comfortan
Phycox
Sedator
Vetivex

Key Product
Cardisure

Key Product
Isathal
Lubrithal
Vetropolycin &
Vetropolycin HC

Key Product
Domidine
Equipalazone
HY-50
Osphos
Somulose

Endocrinology

Dermatology
and Care

Anaesthesia
and Analgesia

Cardiovascular

Opthalmology

Equine Medicine

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comFood producing
Animal Products

Nutrition

Key Product
Cyclospray
Methoxasol
Octacillin
Rapidexon
Soludox

Key Product
Specific

c
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a
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d
A

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s
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A

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t
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A

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t
a
i
r
d
A

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l

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s
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A

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A

Vaccines

Key Product
Avishield ND

c
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t
a
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A

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A

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A

CAP Generics/
Other

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A

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Key Product
CAP Generics
Metrobactin

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Stock Code: DPHCorporate Social Responsibility

Tony Griffin
Managing Director, Dechra Veterinary Products EU

Katy Clough
Group HR Director

The Board takes ultimate responsibility for Corporate Social Responsibility and is committed to developing and implementing appropriate policies
that create and maintain long term value for all stakeholders. Sound business ethics help to minimise risk, ensure legal compliance and enhance
Company efficiency.

Code of Conduct
Dechra established a Code of Conduct in August 2009, which sets out the standards of conduct to be adopted by all employees. During the
year, reflecting organic and acquisition growth, the Board approved a revised Code of Conduct, which encompasses the Group’s Values and the
standards of conduct to be adopted by all Dechra businesses worldwide. The Code of Conduct incorporates a number of our policies and standards
to enable us to act with integrity and honesty, and includes Anti-Bribery and Anti-Corruption (ABC), Sanctions, Data Protection, Modern Slavery,
Health and Safety and Donations. In a number of areas the standards are supported by more detailed Group or local policies and procedures.

During the year we have also relaunched and renamed our Whistleblowing Policy (now referred to as How to Raise a Concern). The procedure
encourages all employees to report anything which they believe is a breach of Dechra’s standards of conduct via one of four reporting channels. Any
concern will be taken seriously and the individual will be treated fairly, confidentially and with discretion. During the forthcoming financial year, both
the refreshed Code of Conduct and the How to Raise a Concern procedure will be translated into local languages.

Our Code of Conduct sets the standard of how we interact with our stakeholders and wider community, and is based around four pillars: Our
People, Our Community, Our Environment and Our Business.

Pillar
Our People

Policy
A great and safe place to work.

Objectives
Leverage the Dechra Values and culture.

Our Community

Our Environment

We value difference and believe diversity
of people, skills and abilities is a strength
that helps us to achieve our best.
To contribute to the social and economic
welfare of the local communities in which
we operate.

We are committed to minimising
the impact of our operations on the
environment by adopting responsible
environmental practices and complying
with applicable environmental legislation.

Our Business

We are committed to acting responsibly
and with integrity. We comply with the laws
and regulations and respect the traditions
and cultures of the countries within which
we operate.

Maintain high levels of employee engagement.

Reinforce a culture of safe working practices.

Contribute towards charitable causes through the donation of time,
products and skills.

Minimise our environmental footprint.

Optimise the energy we use.

To utilise the most eco-friendly and financially cost effective distribution
system.

Wherever practicable, to use sustainable raw materials in our pet diets.
Maintain and improve the knowledge and skills of veterinarians who
prescribe and use our products.

To act honestly and with integrity.

To develop products to improve animal welfare.

The progress in relation to the above objectives is described further in this report.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comOur People
At Dechra, our people are our greatest asset and underpin everything we do in the business. We recognise that the diversity of our team and an
inclusive culture is beneficial for our business, its processes, and its performance. Our objective is to continue to be a high performing business
driven by highly skilled and committed teams. Accordingly, we are committed to:

• strengthening and communicating the Dechra culture and ensuring our values encompass our business ethics and standards;

• attracting, retaining and developing talent to build and maintain a top quality team; and

• developing effective succession plans to ensure business continuity.

In delivering these aims, it is the Group’s policy to recruit and promote people on the basis of their personal ability, contribution and potential, regardless
of age, gender, sexual orientation, marital status, race, colour, ethnicity, disability, religion, political affiliation or union membership. We are committed to
ensuring that everywhere across our Group we promote, support and maintain a culture of fairness, respect and equal opportunity for all.

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 Group’s terms and
conditions and to provide training and career development whenever appropriate. The Group does not tolerate bullying and harassment.

We are committed to fair employment practices and comply with national legal requirements regarding wages and working hours.

During the year the Board formalised its diversity policy further details of which can be found in the Nomination Committee Report on pages 80 to
82.

Creation
of Shared
Services

Healthy
Workplace

Accelerate
Performance

Engaged and
Committed
Workforce

Our original people plan was developed four
years ago to support the delivery of the Group’s
five year plan. Following significant progress, we
adapted the people plan in the 2017 financial
year to support the delivery of the evolving
business goals.

Accelerate Performance:
Align employee efforts and drive productivity
through effective goal setting, feedback and
focus on development.

Grow Our Own Talent:
Attract retain and develop the right talent in the
right place at the right time.

Strong Culture and Values:
How we do things round here.

Engaged and Committed Workforce:
A great place to work.

Healthy Workplace:
Improving the working lives of our people.

Creation of Shared Services:
Efficient infrastructure supporting commercial
operations.

Grow Our
Own Talent

Strong
Culture and
Values

Stock Code: DPHCorporate Social Responsibility
continued

Attract, Retain and Develop Talent
Dechra is committed to enhancing the skills of our workforce, planning
for a successful future and creating a sustainable talent pipeline.

Dechra Pharmaceuticals Manufacturing (DPM)
A total of ten trainees have been working at the Zagreb site gaining
valuable experience to set each of these talented graduates up for
successful careers.

Marina Zubcic
When I applied for
this position in Dechra
(Quality Control for
vaccines) I honestly
did not know what
to expect since I
graduated from my
degree course in
Nutrition Science. But
from the information I
got from the Company’s website I knew this was the position for
me and I have been proved right.

I have learned so much in a relatively short time and am aware
that I still have a lot to learn. The people in my lab are like a little
family. Whenever there is build of work in analysis, other people
jump in to help, everyone participates in the planning of the work,
every person’s word is heard and acknowledged. I am really
happy that I have had the opportunity to work here because the
experience that I am getting is invaluable.

Andrea Križanac

Your first job teaches you how to apply those techniques
you have learned at college in the “real world”, I can say I am
really grateful that my first job was at Dechra. I have learnt
new skills, gained valuable on the job training, and have
grown my experience. These nine months have been exciting
and inspirational. I met such great people and real experts
in different areas. I have always dreamed of being a part of
company because of its culture and people and I can tell I found
this in Dechra. It all takes time and the right attitude to learn.
Accomplishment in such small tasks only gives you the courage
to take up bigger projects. So, I hope I will continue to be part
of this story and contribute with my work to the Company’s
development and success.

At Skipton, UK, we have had several employees undertake NVQ
programmes in a variety of departments. The site is working with Cogent
as its Apprenticeship partner to plan ongoing development in developing
its managers and skills in quality and production. The engineering
apprenticeship programme continues to go from strength to strength. A
key highlight, showing the incredible calibre of employees is demonstrated
by our second year apprentice, Stephanie Thorne. Her previous roles were
all administration, but her true passion lies in engineering. This has been
evident throughout her life as she volunteers with a local steam train group
and is a fully qualified fire fighter. Her interest in fixing things and striving to
learn has resulted in her winning the college ‘Apprentice of the Year’. Her
tutor, Dave Crook, said the reason why she was nominated was that she
excelled in all her work from the year before, bringing all her course work in
ahead of schedule, and then helping others with their work.

Hayley Barritt, currently a materials planner, has recently completed
her three years Chartered Institute of Procurement and Supply studies
and has achieved full membership status. Hayley has worked full time
throughout the period. She said: ‘Studying while working full time is really
difficult, but this achievement has made it all worthwhile. The diploma has
really strengthened my subject knowledge and confidence.

Dechra Veterinary Products EU (DVP EU)
We have centrally implemented a Dechra Sales Academy, the aim of
which is to help improve commercial and coaching skills across the
business in a wider culture of continuous improvement. As well as
developing a common language on leadership and sales, improving and
securing a standard level of sales, and delivering a consistent and high
level of sales support throughout the organisation.

The Dechra Sales Academy contains Leadership, Management and Sales
programmes for all countries within the European business. This year
we successfully conducted the ‘Success Through Leadership’ and the
‘Success through Management’ programmes. These programmes focused
on the concept of High Performing Teams, which will facilitate an increase
in the sales level within these teams. Across a two year period we will
conduct the ‘Success through Sales’ programme in all DVP EU countries.
We will continue to develop our employees by holding refreshment days,
programmes for new employees, mentor programmes and team building
sessions around the ‘High Performing Team’ methodology.

At the Sansaw offices, UK, Maisie Grew is undertaking a Customer Services
Practitioner apprenticeship. Maisie joined Dechra after studying Business and
Events Management at Reaseheath College for two years. She has excelled
in her apprenticeship, taking everything in her stride including adapting to new
systems and varied pressures on a daily basis and has already demonstrated
herself to be a vital member of the UK and Ireland Customer Services team.

Product Development
Katherine Palmatier,
Product Development Coordinator
My career development was just beginning when I came to
Dechra almost four years ago as an administrative assistant.
Joining the global product development team put me in a prime
position at the ground level of the organisation to learn more
about the overall veterinary pharmaceutical industry, collaborate
with many Dechra team members around the world, and
familiarise myself with various departments and operations within
the Company.

Although this role was a great learning opportunity, as time passed
I began to feel ready to take on something new at Dechra. I was
fortunate to receive guidance and career counselling from my direct
manager, human resources and an external career counsellor to
enhance this discovery process.

It was important for me to determine where could I add value at
Dechra along with satisfying my professional and personal goals.
The guidance I received helped me identify my strengths and focus
and concentrate my thoughts on the direct path ahead. As a result,
I was promoted into the role of Product Development Coordinator
and now manage my successor in the administrative assistant role.

I have realised from this overall process that development is not
easy – there will always be new behaviours to learn in order to
rise to the challenges ahead. While this can seem intimidating at
first, reflecting on the support I have received from Dechra and
what I have learned during this process will assuredly help me to
be able to advance my career more confidently in the future.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comDechra Veterinary Products North America (DVP NA)
Consistent with our values, we encourage employees to have honest conversations about their needs, aspirations and ambitions. This year, within
the DVP NA team, we have transitioned a territory manager into an inside sales representatives position that was better suited to her supporting her
work life balance and personal needs.

Leverage the Dechra Values and Culture
Our culture and Values are important to us and have helped to drive the Group’s success. We believe that our Values encapsulate our business
ethics and set the standards that we wish to achieve and ultimately exceed. They outline the type of people we are, the services we provide
and the way we aim to do business.

Dedication

Enjoyment

Courage

We are dedicated to
delivering products
and services that
meet the highest
level of service
and quality to our
customers. We take
pride in and are committed to our jobs
within Dechra. Through the ownership of
our responsibilities we will contribute to
the competitiveness of our business in
the marketplace. We constantly look for
better ways to do things, resulting in a
culture of continuous improvement. We
encourage people to make decisions and
accept there may be mistakes that will
form part of our learning experience.

We will provide
challenge for our
people within their
roles to help them
stay motivated
and engaged. We
will endeavour to
create an environment where our people
want to come to work and feel a part
of Dechra. We will develop ourselves
personally and professionally. We want
an environment that encourages learning
and development and will achieve ever-
increasing personal competence. We will
generate enthusiasm and energy through
positive thinking and actions.

We want a business
where we dare to
challenge each
other, creating better
cross-organisational
solutions. We want
an environment
where innovation and creativity can
flourish. We encourage each person to be
pro-active and to take initiatives. We will
encourage everyone to have confidence
in themselves and have the strength and
character to question the status quo. We
will nurture individuality and free thinking,
thereby creating a strong and competitive
spirit.

Honesty

Relationships

Ambition

We will act with
integrity and fairness
and treat everyone
with respect. We are
honest and open
in all interactions.
Openness is
supported at all levels of the organisation.
In our business every job is important. We
value each person’s contributions to the
business as much as we value our own.

We see our
customers and
suppliers as
business partners
and thereby work
together to ensure
common success.
We know that success is not built on the
performance of an individual, therefore
we encourage co-operation and cross-
organisational team working to produce
better results together.

We are goal oriented
and shall deliver
solid results through
our energetic and
resilient approach
throughout the
organisation. Our
ambitions shall ensure that we at all
times deliver the highest possible levels
of quality and services to our customers
and to each other. We are determined
to do our best and to celebrate as many
successes as possible.

Stock Code: DPHCorporate Social Responsibility
continued

Maintain High Levels of Employee Engagement
Informing and engaging our employees through internal channels of
communication is of utmost importance to the Group. 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 and year end results), intranets, management and team
meetings at the respective business units. These keep our employees
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.

At Dechra, people are our greatest asset. We have attracted and
retained qualified and skilled employees, and to retain our current
employees and attract new employees we wanted to:

• gain an understanding of how our employees, collectively, see

Dechra as a place to work today; and

• shape Dechra’s HR strategy and priorities through a better
understanding of our collective strengths and opportunities.

To achieve these objectives we
decided to launch our very first
engagement survey and after
considering a number of external
partners, Great Place to Work
(GPTW) was selected as our
engagement partner. The GPTW
Institute runs the world’s largest
employee survey and recognition
programme, and works with
around 9,800 organisations
globally including a significant
number of other pharmaceutical
clients.

A number of communications were
shared with our employees globally
to inform them that the engagement survey would be launched in March
2018. The communications asked our employees to provide open and
honest feedback. Managers also held briefing sessions with their teams
to share the GPTW presentation to build an understanding of why
Dechra was launching the survey. We also used posters across our sites
as a reminder to our teams of the importance of their input.

Following the completion of the engagement survey, videos were posted
to thank our teams for their input.

Dechra received an 87% response which is fantastic for a first global
engagement survey, and as shared by GPTW, very rarely seen for a first
survey launch.

The global high level results of survey are:

• Engagement level of 75% (18 percentage points higher than the

benchmark**);

• Trust index level of 67%; and

• 74% of our employees stating that Dechra is ‘a great place to work’

(18 percentage points higher than the benchmark**).

Some of our top strengths as an organisation are shown to be:

• Diversity (84%, 16 percentage points higher than the benchmark**);

• Empowerment and Accountability (75%, 9 percentage points higher

than the benchmark**);

• Our Culture (75%, 14 percentage points higher than the

benchmark**).

As our Group is very diverse we have had a range of scores with a
distinction between the engagement levels of our employees based in
manufacturing sites and our other key employee groups.

Overall, we are extremely pleased with our first ever engagement survey
results and our HR team is now working with our business areas to
provide them with their results, and are working with them to identify one
or two key areas of focus and agree a corresponding action plan for the
forthcoming 12 months.

Global SAYE
The existing Dechra UK SAYE scheme which has been in place since
2001 has proved a popular benefit to our UK employees with the
November 2017 grant having a 51% uptake. As Dechra continues to
expand internationally we receive regular feedback and requests from
employees and managers who want to be able to enjoy the benefits of
participation in a share save scheme.

Therefore we would like to offer the majority of our existing employee
base the opportunity to benefit from share ownership which will provide
a more equitable approach to our global reward schemes. The current
SAYE scheme rules are due for renewal in October 2020, and it is
proposed to ask for shareholder approval of new UK rules along with
an International Plan at the forthcoming Annual General Meeting in
October 2018 and to authorise the Directors to adopt an employee
stock purchase plan (ESPP) as a sub-plan of the International SAYE.
The launch will, subject to shareholder approval, be in September 2019
initially to a limited number of countries: Australia, Croatia, Denmark,
France, Germany, the Netherlands and the USA. Along with the UK, this
will represent 87% of our global employee base.

Culture of Safe Working Practices
Tony Griffin is the nominated Director responsible for health, safety and
environmental matters. The Group attaches great importance to the
health and safety of its employees and the public. The safety of our
employees is paramount and that means continuing to reinforce good
safety management practices as well as raising awareness of improved
ways of working. Management are responsible for, and committed to,
the maintenance, monitoring and promotion of a policy of health and
safety at work to nurture the care and well-being of our 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 to the PLC Board
meeting for discussion and review by the Directors.

To continue to improve the safety performance across both existing and
newly acquired facilities and to reflect the priority that is given across the
business to safety, a proactive hazard awareness reporting initiative was
introduced and rolled out across Dechra Pharmaceuticals Manufacturing
(DPM) in the 2017 financial year.

Investigated Accidents (all)
Hazard Reports

2018
43
1474

2017
69
1706

For a number of years the Group has reported Lost Time Accident
Frequency Rate (LTAFR) as a non-financial key performance indicator
(see page 29). A LTA is any 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.
Any acquisitions during the year 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 decreased from six to nil.

** 2018 UK National Average, medium sized businesses.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comLost Time Accidents and Proactive EHS
The Group has now achieved a year without a lost time accident,
and this is particularly important within our manufacturing sites where
historically the majority of the lost time accidents have occurred.

Dechra standards, as well as the ability to use these findings to
produce an action plan that will enable all areas to achieve standards
of excellence.

These results have arisen from placing a huge emphasis on creating an
open safety culture of motivating people to report and discuss hazards
and observations. Having this open safety culture provides us with the
opportunities to fix problems before an accident can occur.

This has resulted in a total of over 1,400 hazard reports across all
sites, with the Zagreb facility alone reporting almost 900 hazards
within the year.

The year has seen a heavy investment in safety training. The Melbourne
site has delivered safety training on a monthly basis and the Skipton
site has delivered approximately 2,000 hours of safety training. This
investment has resulted in a much more engaged and proactive
workforce that are not only reporting problems but providing answers
to fix them.

All sites have increased the focus on safety and building blocks
have been put into place in order further to improve our safety
performance. An audit programme has been launched which gives
the business the ability to measure all areas against the agreed

The current round of safety
audits provides all sites the
opportunity to target key areas
and enables us to invest in areas
that will produce the best results
to further enhance our safety
performance.

We are all extremely proud of the
progress our sites have made
in health and safety thus far,
but we are determined to push
standards even further during the
course of next year.

Our Community
The Board encourages the business units to contribute to the social and economic welfare of the local communities in which they operate. It
recognises that by taking voluntary action in this area it is helping to protect and develop its own business.

Donations in Kind
Type of Charity
Animal
Animal
Animal

Charity
Danish Cat Shelter
AVA Association
KDPG

Jurisdiction
Denmark
France
France

Description
Specific Cat Diets
100 Arthroquin units (£11,873)
20 Bags of dog nutrition (£709)

DPM Volunteering

During the January 2018 team meeting in Melbourne, the DPM team
as well as members of the DVP NA sales team participated in a CSR
event at the Friends for Animals Sanctuary. The sanctuary was in the
construction phase, so team members helped by moving debris,
clearing walkways and fence lines. When completed the sanctuary

will provide a no-kill animal sanctuary for all types of domesticated
animals, and offering the community the opportunity to experience
the benefits of adopting and caring for these animals.

Stock Code: DPHCorporate Social Responsibility
continued

Record-setting storms, earthquakes, wildfires, extreme flooding, and landslides devastated communities across North America in 2017. DVP NA team
members responded with supplies and helpful hands.

Hurricane Harvey
On August 29, 2017, Hurricane Harvey hit the Texas Gulf Coast.
Greater Houston was hit particularly hard with over 40 inches
of rain and devastating floods resulting in over 20 Veterinary
Hospitals temporarily closing in the area. DVP NA management
coordinated the shipment of shampoos and sprays for the
Disaster Relief Team at Texas A & M College of Veterinary
Medicine & Biomedical Sciences who helped rescue and care for
pets impacted by the disaster.

Alexis Hein, Territory Sales Manager – Houston, and her husband,
collected donations of supplies, including Dechra products, for
the Houston Pets Alive group where they volunteered their time
supporting the organisation’s efforts to rescue, treat, and reunite
dogs with their owners. Alexis also delivered donations to a local
veterinarian for people and pets sheltered at Houston’s NRG
stadium.

Hurricane Irma
Hurricane Irma hit North Florida in September 2017, some areas
were without power for up to three weeks, multiple clinics were
flooded, and homes completely destroyed. Blair Davies, the sales
representative for the area, delivered Dechra donated products
and offered assistance to clinics and hospitals in her area, helping
to restore their facilities and get their businesses back up and
running. Sandy Forehand, Territory Sales Manager – Eastern
Florida, delivered Dechra donated products and offered her
time to local rescue groups who were housing and caring for
abandoned animals.

Bay Area California
Wildfires caused damaged in the Bay Area California as well
as Santa Barbara and Ventura Counties, which also endured
torrential rain falls causing mudslides. Jen Ball in the Bay Area
and Brian Albertson in Santa Barbara and Ventura Counties, have
devoted their efforts to supporting the veterinary communities in
their territories with donations of fluids, medicine, and their time.

Other Non Financial Donations

In December 2017, Jennifer
McGowan, Office Manager in Portland,
led a drive to collect much needed
supplies for the Animal Refuge League
of Greater Portland’s new 25,000
square foot facility.

On 6 June 2018, Dechra Canada
donated water solutions, wipes, and
shampoo to the Lions Foundation of
Canada Dog Guides whose mission is
to assist Canadians with a medical or
physical disability by providing them
Dog Guides at no cost.

Alexis Hein and husband Kurt deliver donated Dechra products to
Houston Pets Alive after Hurricane Harvey affected the Greater Houston
Area in 2017.

Guide dogs of the Lions Foundation of Canada Dog
Guides pose with Dechra donated products.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comFinancial Donations
This is the seventh 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, and each year the number of nominations received increases. This year we decided to increase the overall donation
spend from £30,000 to £40,000, which was split equally between the following 20 charities:

Type of
Charity
Animal

Environment

People

Charity
Cindy’s Promise –
Rescue and Rehab Inc.
Tacke Pomagacke
Asociación BaasGalgo
Smokey Paws

Country
Australia

Slovenia
Spain
UK

Animal Refuge League of
Greater Portland
K9s on the Frontline

S.N.I.P. (Spay Neuter
Impact Project)
SeaWatchers (VLIZ)

Promoter of the
Conservation of Culture
and the Environment AC
Association Vestigium

USA

Belgium

Mexico

Croatia

FB Humanitarians Zagreb Croatia

New Future

Udruga OSIT

Fußballverein Neufra /
Do. e.V.
Helferkreis Waldburg
Aquí Nadie se Rinde
I.A.P.
Abirmeco

More Africa

Active Hope
Cass County 4-H Dog
Group

Croatia

Germany

Germany
Mexico

Mexico

Africa

UK
USA

Description
Working to rescue and rehabilitate neglected and abandoned horses.

Provides animal assisted therapy, activity and education.
Provides care to abandoned greyhounds across Spain.
Supplying specially designed animal oxygen masks to help save the lives of
thousands of pets and wildlife caught up in fires or trapped in stressful situations.
Provides care and shelter for stray or abandoned animals.

Supplying fully trained service dogs at no cost to combat veterans suffering from
post-traumatic stress disorder.
Providing spay, neuter and vaccine clinics on the Pine Ridge Native American
Reservation.
Assessing the impact of pollution, climate change and the exploitation of ocean
resources.
Promoting the conservation of natural ecosystems.

Helping the residents of Vrbani, one of Zagreb’s newest neighbourhoods, with various
community support projects.
Helping people in need meet their basic life needs with practical things such as food,
hygiene supplies and medicines.
Ensuring children without adequate parental care can meet basic needs such as
housing, nutrition, clothing, health care, education and leisure activities.
Supporting mentally challenged people by organising workshops, projects, trips and
excursions.
A registered football and sports club in Neufra on the Danube (Biberach district).

Assisting refugees.
Supporting children who are fighting against cancer.

Developing a digital educational programme for parents or guardians with the aim of
improving the upbringing of children and eliminating school, intra-family and social
violence.
Aiming to provide every child on the island of Zanzibar with an education, especially
children with any kind of disability.
Supporting disadvantaged children in the Warrington area.
Providing weekly training sessions to teach children about dogs.

In addition to the annual Group donation, each business unit has discretion to allocate funds to local community groups, employee nominated
charities and/or animal welfare charities. Below is a selection of what has taken place during the 2018 financial year.

Business Unit
Apex
DPM Skipton

Jurisdiction
Australia
UK

Amount
£206
£575

DVP Denmark International

£1,376

DVP EU

International

£46,713

DVP Germany Germany

Genera
Genera
PDRA
Portland

Croatia
Slovenia
USA

£682

£595
£320
£371

Description
Donation to Cancer Research.
Donations to Yorkshire Cat Rescue, Pendle Dogs in Need, Moorland Rescue and
Cancer Charity.
Sponsoring the education of three children in India, Kenya and Philippines and Danish
Cancer Society.
Circle of Good: Donations to North Sea Foundation, Marine Conversation Society,
Tour de Fundacja, The Ocean Clean Up and a study on the containment levels in fish.
Donations to Aulendorf Carnival, Veterinarians Without Borders, and Society for
Cynological Research.
Donation to support young chemists meeting.
Donation to the Slovenian beekeeping organisation.
Donation to a project to develop an alternative to the veterinary fastidious medium.

Stock Code: DPHCorporate Social Responsibility
continued

Our Environment
Minimise our Environmental Footprint
The Group recognises the importance of good environmental controls. It is the Group’s policy to comply with environmental legislation currently in
place, to adopt responsible environmental practices and to give consideration to minimising the impact of its operations on the environment.

Annual Waste Disposal Performance at DPM

Bladel

Florida

Skipton

Zagreb

2018

2017

2018

2017

2018

2017

2018

2017

Recovered, recycled
and reused
Landfill
Waste & Controlled
Drugs

100%*
–

32.0%
68.0%**

43.0%
57.0%

83.5%
–

56.1%
20.4%

95.8%
–

86.6%
–

–

16.5%

23.5%

4.2%

13.4%

* Recycled.
** The increase was a result of the hurricane damage to stock, which could not be recycled.

Our central logistics hub for Europe (the Dechra Service Center (DSC)) has continued with its annual contribution of DKK15,000 to Energreen ApS
for the construction of new green energy production facilities within Denmark.

Optimise the Energy Used
Greenhouse Gas Emissions
In order to determine our carbon emissions, we have used the GHG Protocol Corporate Accounting and Reporting Standard and have reported on
emissions arising from those sources over which we have operational control (the exception being the inclusion of a third party manufacturer who
leases part of our facility in Uldum, Denmark). Any acquisitions during the year are included from the first full month that they become part of the
Dechra Group. 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.
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.

Scope 1
Scope 2
Vehicle emissions
Total Carbon Footprint (tonnes of CO2e)
Intensity ratio (tonnes of CO2e per £m)

1 July 2017 to
30 June 2018
3,819
3,463
1,703
8,985
22.1

1 July 2016 to
30 June 2017
4,018
3,890
1,618
9,526
26.5

1 July 2015 to
30 June 2016
3,434
3,130
1,511
8,075
32.6

As reported in last year’s report, the main contributor to Scope 1 is the production of the nutrition supplement that is manufactured at Genera. This
was explained in a case study in the 2016 Annual Report. This site has plans to reduce its carbon footprint by installing solar panels as detailed in
the case study on the following page.

The intensity ratio has decreased by 4.4 tonnes of CO2e per total £ million sales revenue. The decrease is partially due to the continued monitoring
and optimising of the energy resources used at our manufacturing facilities and at the DSC. However the majority of the decrease was due to the
reduction in the production of the nutrition supplement manufactured at Genera.

During the year, the Senior Executive Team (SET) agreed that it would adopt a policy of replacing all non-LED lighting to LED lighting over the next
five years within its control. All of the lighting at the manufacturing facility in Florida and DSC are LED, and 70% of the Skipton site is covered by LED
with the remainder due for completion in the 2019 financial year. A replacement programme is being undertaken at Bladel and Zagreb. During the
year more than 100 bulbs were replaced with LED lighting in Zagreb, and phase one has been completed in Bladel, which covers the warehouse
and the visual inspection room.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comCase Study:
Solar Renewable Energy Project supported by EU Funds

The annualised level of electric power generation is expected to
be approximately 1,545,000 kWh, which would provide nearly
30% of the site’s electric power requirements and represents a
yearly saving of £150,000.

Installation will start in October 2018 and is due to complete in
June 2019.

Our manufacturing facility in Zagreb has the opportunity to build a
solar power plant on its site. The installation, costing £1.3 million,
will be partially subsidised (60%) by EU funds. The Croatian
Ministry of Environment and Energy has announced that this will
be the largest solar renewable energy project in Croatia, with
5,540 photovoltaic (PV) panels being fitted onto the existing roof
structures across the site.

Currently 100% of energy is sourced via the main grid. Energy
costs in the EU are increasing and are predicted to continue to
rise, coupled with the fact that it is planned that the Zagreb facility
will increase its volume (number of packs) over the next five years,
it is especially important from both a business and environmental
perspective to utilise a renewable and sustainable energy source.

The implementation of this project is projected to reduce the
site’s CO2 footprint by approximately 556 tonnes, which equates
to 6.2% of the Company’s total CO2 emissions in 2018. It will
also lower variable costs, mitigate the risks of electricity price
fluctuations, and will have a direct impact on reducing the cost of
goods sold.

Finally, the project will de-risk the site’s energy supply by securing
its own source of electricity via renewable sources.

Eco-friendly and Financially Cost-Effective Distribution Systems
The transportation of goods is the largest activity for DSC. On a yearly
basis they handle approximately 45,000 deliveries to customers
worldwide as well as receiving and storing approximately 1,300 full
truck deliveries. Although the cost of transport is the predominant
factor for choice of transportation, DSC has reviewed the method of
transportation to find a form of transportation with the lowest carbon
footprint.

The majority of the pharmaceutical products received by DSC are
supplied from our manufacturing sites in Bladel, the Netherlands and
Skipton, the UK. The products from Bladel are transported by road,
whereas the products from UK are shipped by sea and road.

Products are shipped to our customers by road, air and sea. As the
majority of the customers are based in Europe, road transportation is the
main method. The following table shows the CO2 emission for this form
of transportation:

Shipments
Total Weight (GRT)
CO2 Outlet (kg)
CO2 per kg

2018
30,409
16,665,247
1,393,046
12.2

2017
23,625
25,060,715
1,703,377
14.8

Sustainable Raw Materials in Our Nutrition Range
Since 2015, we have been reviewing the ingredients of our dry food to
establish whether they can be obtained from a sustainable source. The
raw materials are reviewed on a yearly basis for scarcity, and, if scarce,
we endeavour to find an alternative raw material. Our focused action on
the fish raw materials has resulted in the use of 100% certified fish in the
dry cat diets from January 2018. Further information on how changes in
our packaging have reduced our plastic usage and freight is provided in
the Strategy in Action case study on pages 32 and 33.

Stock Code: DPHCorporate Social Responsibility
continued

Collaboration with Industry
Dechra’s Product Development team strategically looks for opportunities
to involve its’ team members with key professional and industry
organisations. This has the benefits of directly increasing employees’
scientific and regulatory knowledge, as well as the opportunity to
develop leadership skills.

The University of Kansas has collaborated with industry and the FDA
Center for Veterinary Medicine (CVM) to offer an ongoing seminar series
covering topics that are key to veterinary drug development. Members
of the Dechra Clinical Operations team have been speakers at two of
these seminars. Karen Bond, Senior Clinical Trial Manager, presented
on Data Quality from a study monitor’s standpoint and Lisa Andreas,
Senior Clinical Data Manager, presented on the importance of Data
Management Plans in the conduct of clinical studies. Both presentations
were extremely well received and sparked discussions within the
industry on best practices.

Three of the members of the Clinical Operations team are actively
involved in a cross functional working group that consists of a
collaboration of three industry associations along with FDA CVM and
is tasked with identifying best practices and optimal requirements for
creation and submission of electronic data in both clinical and laboratory
studies. This working group is about to release a white paper which will
provide suggestions to FDA CVM regarding their policy on the issue.

Ben Moses, Clinical Operations Manager, regularly participates in the
Society of Quality Assurance, the American Academy of Veterinary
Pharmacology and Therapeutics, and the Generic Animal Drug Alliance
(GADA). Ben is also the Chair of the Bioequivalence Subgroup at
GADA, which provides excellent leadership opportunities and allows
Dechra to help shape the evolving regulatory expectations related to the
development of generic drugs.

Our Business
Improve the Knowledge and Skills of Veterinarians
Our relationship with veterinarians is key to our business and therefore,
we provide added value services in the form of educational programmes
focused on our key therapeutic sectors. We deliver this education
through many channels including conferences and our digital e-learning
environment, the Dechra Academy.

Dechra Academy
Dechra’s dedication and commitment to enhancing the health of animals
goes beyond the supply of high quality pharmaceuticals and includes
vital education for animal health professionals. The Dechra Academy
provides information that will help them better diagnose, monitor
and treat conditions and aid the easy and convenient use of Dechra
products.

Previously the Dechra Academy offer was mostly UK centred, it is now
firmly internationally oriented and provides Continuous Professional
Development (CPD) recognition by individual countries’ authorities.
There are 94 courses available in our Dechra Academy – a significant
increase from a year ago – driven by making training available in multiple
languages. The Dechra Academy offers 122 hours of accredited content
across nine markets in eight languages. A number of new courses
have also been created this year in the strategic therapy areas of
Endocrinology and Dermatology.

On top of that, over 130 internal modules are available on Delta (our
internal training resource) to enable Dechra employees to continue to be
the best partners to the veterinary profession.

Earlier this year Dechra launched an email campaign across Europe,
designed to drive professionals to the Dechra Academy. The successful
campaign was a major contributor to almost 10,000 new user accounts
this year alone that saw our user numbers grow 28% and triple in four
years. The Dechra Academy was used in over 37,000 sessions with
more than 6,000 users visiting the site more than once this year.

The updated Dechra Academy and internal Delta system are now
working on the same platform. We will continue to update both,
presenting relevant training and education in new ways to cater better
for the changing requirements in an increasingly information-rich
business environment.

As Dechra grows globally, more CPD content is becoming available
to more countries all the time, with recognition approval currently in
progress for the USA and Canada.

52
52

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.comTo Act with Honesty and Integrity
We are committed to acting responsibly and with integrity, respecting
the laws, regulations, traditions and cultures of the countries within
which we operate. This is reflected through our Values. We expect our
third parties to trade with honesty and integrity, and therefore we have
introduced a Third Party Code of Conduct, which communicates what
we expect from our trading partners in relation to health, safety and
environmental standards, internationally accepted standards of workers’
rights, use of child and forced labour, ethical standards, anti-bribery and
anti-corruption, and compliance with relevant laws and regulations.

ABC Training for Employees
During this financial year the Anti-Bribery and Anti-Corruption course
on our e-learning platform (Delta) was completed by a further 381
employees as well as those employees from Dechra-Brovel, AST Farma
and Let Vet. The course has been translated into nine languages,
and it is an automatic mandatory course, within one month of
commencement, for all new employees.

Human Rights
Dechra is committed to upholding and respecting human rights both
within our business and from our suppliers. However, Dechra does not
currently have a separate human rights policy.

Animal Welfare
It is our mission to develop products to improve animal welfare. We are
committed to the responsible use and humane treatment of animals. We
carefully consider the use of animals in research. However, occasionally
it is necessary to conduct toxicology testing to achieve product
registrations. The majority of the toxicology information can be derived
from existing bibliographic data, when additional data is required by
the regulators a third party Contract Research Organisation (CRO) will
undertake the study on a minimum number of animals.

The following principles are applied in any trials which involve animals:

• animals should be treated humanely with greatest consideration
given to their health and welfare and consistent with meeting the
necessary scientific objectives.

• all animal studies should only be performed after considering whether
the numbers of animals can be reduced, replaced or the procedures
refined to minimise distress.

Case Study:
Academia and Industry Working together

The combination of the skills and expertise of our best academic
organisations and industry leads to positive and practical
outcomes. A good example of this type of collaboration was
when Dechra, and the Biotechnology and Biological Sciences
Research Council (BBSRC) funded a four year iCASE PhD
programme at the Royal Veterinary College, University of London
supervised by Prof. Ross Bond and Dr Anette Loeffler. Siân-Marie
Frosini (née Clark) undertook the studies to support the use of
topical therapy (medication that is applied directly on to the skin
like a cream or gel rather than given as a tablet or injection) in
the treatment of bacterial skin infections in dogs. In this era of
growing awareness of antibiotic resistance, topical treatments
are being seen as a better means for treating certain infections.
This project generated three publications, five meeting abstracts
at international conferences and resulted in the award of three
prizes, with a number of manuscripts still in the pipeline for
publication. Alongside traditional research, Siân-Marie undertook
a six month placement at the DVP EU UK office where she
worked alongside the dermatology product group, most notably
creating a new Dechra Academy CPD module.

Overall, this collaboration has provided compelling evidence
in support of topical therapy, and specifically fusidic acid, as
an alternative to systemic antimicrobials, such as an injection
or tablet, for the treatment of bacterial skin infections in dogs.
Fusidic acid is one of the active ingredients contained in three of
Dechra’s leading products: Isaderm, Isathal, and Canaural.

Current guidelines encourage treatment using topical therapy in
an effort to limit the spread of antimicrobial resistant bacteria and
promote good antimicrobial stewardship. However, behaviour
changes in veterinary practice are slow, and this project provides
timely confirmation that concentrations of topically applied fusidic
acid on the skin far exceed clinical resistance breakpoints, in
other words the point at which the antibiotic defeats the bacteria.
This excellent evidence helps to encourage veterinarians to
change their prescribing habits and follow current recognised
treatment guidelines for canine superficial pyoderma (bacterial
skin infection).

Most strikingly, the novel methods developed during this
project could help the microbiologists to determine resistance
breakpoints specifically for topical therapies such as the fusidic
acid contained in Isaderm gel. Currently, these breakpoints are
based on systemic therapies, and are often misinterpreted for
topical-only antimicrobials. Development of this novel method
into a system to determine clinical breakpoints based on topical
application of a drug would be a significant leap forward in the
appropriate use of antimicrobials.

This project is an excellent example of science and academia
working with industry to develop veterinary medicine for the
benefit of pet health. Siân-Marie is also continuing to build on
her collaborative start with Dechra and we are all grateful for the
unique opportunity this project has given.

Stock Code: DPHHow 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 provide reasonable but not
absolute assurance that the Group will be successful in delivering its objectives.

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

IDENTIFY

Management
Structure

Policies and Procedures

Business Planning

Operational Level Controls
• Product Portfolio Reviews • Lifecycle Management
• Pricing Policies • Financial Controls
• Quality Assurance • Pharmacovigilance

Dechra Values

A
S
S
E
S
S

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

Audit Committee
Review the effectiveness
of the risk management
and internal audit
framework

R
O
T
I
N
O
M

Internal Audit
Independent assurance
on the design and
operation of the internal
control framework

MITIGATE

Business Units
Identification, mitigation
and monitoring of risks

Risk Management Process
Our strategy informs the setting of objectives across the business
and is widely communicated. Strategic risks and opportunities are
identified as an integral part of the strategy setting process.

The Board oversees the risk management and internal control
framework and the Audit Committee reviews the effectiveness of the
risk management process and the internal control framework.

Our Senior Executive Team (SET) owns the risk management
process and is responsible for managing specific Group risks.
The SET members are 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.

SET members present their risks, controls and mitigation plans to the
Board for review on a rolling programme throughout the year.

Internal Audit co-ordinate the risk reporting process and provide
independent assurance on the internal control framework.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comInternal Control Framework
Our internal control framework is designed to ensure:

The key controls in place to manage our principal risks are described in
further detail on pages 56 to 59.

• proper financial records are maintained;

•

the Group’s assets are safeguarded;

• compliance with laws and regulations; 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
Our management structure has clearly defined reporting lines,
accountabilities and authority levels.

The Group is organised into business units. Each business unit is led
by a SET member and has its own management team.

Policies and Procedures
Our key financial, legal and compliance policies that apply across the
Group are:

• Code of Business Conduct and How to Raise a Concern;

• Delegation of Authorities;

• Dechra Finance Manual, including Tax and Treasury policies;

• Anti-Bribery and Anti-Corruption;

• Data Protection;

• Sanctions; and

• Charitable Donations.

Strategy and Business Planning
We have a five year strategic plan which is developed by the SET and
endorsed 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.

Operational Controls
Our key operational control processes are as follows:

• Product Pipeline Reviews: We review our pipeline regularly to

identify new product ideas and assess fit with our product portfolio,
assess whether products in development are progressing according
to schedule; and assess the expected commercial return on new
products.

• Lifecycle Management: We manage and monitor lifecycle
management activities for our key products to meet evolving
customer needs.

• Pricing Policies: We manage and monitor our national and
European pricing policies to deliver equitable pricing for each
customer group.

• 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.

• 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.

Internal Audit provides independent and objective assurance and
advice on the design and operation of the Group’s internal control
framework. The internal audit plan seeks to provide balanced coverage
of the Group’s material financial, operational and compliance control
processes.

Improvements in 2018
We have continued to strengthen and improve a number of key control
processes and the following changes have been implemented:

• our Group Code of Conduct and Third Party Code of Conduct have
been developed to improve our ability to comply with existing and
emerging legislation;

• a new Data Protection Policy and supporting procedures have

been developed to support compliance with the EU General Data
Protection Regulation (GDPR);

• we have made further enhancements to our manufacturing Quality
Management Systems to continue to meet relevant regulatory
standards; and

• our Tax and Treasury polices and procedures have been updated
to comply with new tax regulations and to reflect a number of
improvements in our Treasury processes, respectively.

Plans for 2019
We will continue to refine and strengthen our internal control framework
where required in response to changes in our risk profile and improvement
opportunities identified by business management, quality assurance and
internal audit.

Stock Code: DPHUnderstanding Our Key Risks

Dechra is one of only a handful of listed veterinary pharmaceuticals
companies in the FTSE. 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 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, 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: Companion

Animal Products are directly prescribed and often dispensed and sold
by veterinarians which contributes to building brand loyalty, which
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.

Emerging Risks
Given current geopolitical uncertainty we have identified three emerging
risks as detailed below:

Taxation
The Group’s effective tax rate (ETR) is subject to taxation policy in the
territories in which it operates. The Group has benefited in the year from
the reduction in corporate tax rate in the USA for the Tax Cuts and Jobs
Act. We continue to monitor developments in the USA tax reform which
may cause adverse movements in the Group’s ETR.

The EU is currently challenging the legality of the UK Control Foreign
Company (CFC) tax legislation from which the Group benefits. We
continue to monitor developments.

The Group currently benefits from patent and innovation box tax
incentives. The Group’s ETR will increase as qualifying patents expire.

Brexit
The decision by the UK to leave the European Union (EU) has created
volatility in markets and uncertainty about how future trading relationships,
regulatory processes and supply chains will operate. Our priority is to
maintain continuity of supply of our products to our customers in the UK
and the EU. We have established a cross-functional team to assess and
monitor the situation and determine which actions need to be taken.

Our primary focus is on addressing Brexit risk in our supply chain. This
includes transferring UK registered Marketing Authorisations for products
that are sold in the EU to an EU entity and duplication of product release
testing for products that are transferred between the UK and the EU.

The Group has implemented a hard Brexit mitigation plan which
will provide an EU based laboratory testing facility and staff for batch
testing if this is required and the transfer of product registrations to an
EU domiciled legal entity within the Group. This will entail an upfront
investment of £0.2 million in capital and £1.0 million in one-off expenses.
If EU batch testing and increased customs duties is required this will
result in additional operating costs of approximately £0.8 million.

Our current view on the potential changes that may result from Brexit 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 economic uncertainty and exchange rate volatility; and

• we will monitor the impact on workforce and global mobility to

maintain an effective system for resource planning.

The Board reviews the potential impact of Brexit as an integral part of
the review of the Principal Risks, rather than as a stand alone risk. The
Board will continue to assess the potential impacts of Brexit as the
process evolves.

Iran
We continue to monitor the potential impact of US sanctions on our
existing business with Iran, where we currently sell £1.3 million of
products that are on the UN exempt sanctions list.

Principal Risks
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 risk profile
below therefore details the nine principal risks that are specific to our
business and provides information on:

•

their prioritisation;

• how they link to Group strategy;

•

their potential impact on the business; and

• what controls are in place to mitigate them.

h
g
H

t
c
a
p
m

w
o
L

Low

Likelihood

High

Risk increasing

Risk stable

Risk decreasing

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com

Link to
Strategic
Growth
Driver and
Enabler

Risk

Potential Impact

Control and Mitigating Actions

Trends

1 Market Risk:

b c

The emergence of veterinary buying groups
and corporate customers.

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 customers
are also emerging.

2 Regulatory Risk:

b c

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.

3 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.

b c

The emergence of corporate
customers and buying groups
represents an opportunity to
increase sales volumes and
revenue but may result in reduced
margins.

We manage and monitor our national and European
pricing policies to deliver 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.

Continuing
customer
consolidation
in USA and
major EU
markets

Reduction in sales of our
antimicrobial product range.

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

Regular contact is maintained with relevant veterinary
authorities to enable us to have a comprehensive
understanding of regulatory changes.

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

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.

Competitor
product
launches
against some
of our key
products

4 Product Development and
Launch Risk:

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

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.

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.

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 has a detailed market knowledge and
retains close contact with customers through its
management and sales teams which are trained to a
high standard.

Stock Code: DPHUnderstanding Our Key Risks
continued

Link to
Strategic
Growth
Driver and
Enabler

Risk

Potential Impact

Control and Mitigating Actions

Trends

5 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.

This could delay implementation of
our strategy and we may not meet
shareholders’ expectations.

The Group HR Director reviews the organisational
structure with the SET and the Board 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.

Increasingly
competitive
labour market
with particular
challenges
in recruiting
quality and
technical
capabilities

In the UK, the uncertainty created by Brexit
could impact the hiring and retention of staff
in some areas.

6 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.

Brexit presents uncertainty regarding
the regulatory standards and transitional
arrangements between the UK and the EU.

b c

Increasing
regulatory
standards
and additional
complexity
due to Brexit

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.

Brexit transition may result
in additional regulatory and
quality control requirements and
associated costs.

Non-compliance with regulatory
requirements may result in delays
to production or lost sales.

The Group strives to exceed regulatory requirements
and ensure 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 facilitate 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.

Work is in progress to transfer UK registered
Marketing Authorisations for products sold in the EU
to an EU entity and to establish duplicate product
release testing for products transferred between the
UK and the EU.

External consultants are used to audit our
manufacturing quality systems.

7 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.

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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comLink to
Strategic
Growth
Driver and
Enabler

b c

Risk

Potential Impact

Control and Mitigating Actions

Trends

8 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.

Raw material supply failures may
cause:

•

Increased product costs due
to difficulties in obtaining
scarce materials on
commercially acceptable
terms;

• product shortages due to

manufacturing delays; or

• 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.

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.

We maintain buffer stocks and/or dual sourcing
arrangements of key products.

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.

We have recruited a dedicated team to manage our
third party supplier network.

9 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.

b c

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.

Board
and SET
succession
planning
managed
successfully

Key to Strategic Growth Drivers:

Key to Strategic Enablers:

Key to Risk Trend:

Pipeline Delivery

Manufacturing and Supply Chain

Increased risk

b c Portfolio Focus

Geographical Expansion

Acquisition

Technology

People

Decreased risk

No change

Stock Code: DPH

Our
Governance

Giving a clear understanding
of Dechra’s governance.

62
63
74
80
83
99
101

Read more on Corporate Governance
on pages 63 to 73

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com61

Stock Code: DPHLetter from the Chairman on Governance

Tony Rice
Non-Executive Chairman

Dear Shareholder

On behalf of the Board, I am pleased to present Dechra’s Governance
report for the year ended 30 June 2018.

Values
Dechra established a Code of Conduct in August 2009, which set out
the standards of conduct to be adopted by all employees. However, in
light of recent acquisitions and the growth of the Group, it was agreed
that the Code of Conduct would be updated and relaunched. During
the year, the Board approved the revised Code of Conduct, which
encompasses the Group’s Values, the standards of conduct to be
adopted by all Dechra businesses worldwide and an overview of how
to raise a concern. For further details please refer to page 73.

Managing Governance
The Board recognises that excellence in corporate governance is
important 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 no membership changes in the Board or Committees during
the year.

The Senior Executive Team (SET) has the responsibility for the overall
leadership of the Group, driving the successful implementation and
execution of the strategy. Further details of the SET can be found on
pages 64 to 66.

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 2018
financial year we undertook an external 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 dynamic and
consistent with the organisational culture of openness. The findings from
this evaluation are detailed on page 71.

During the year the Board formalised its policy on diversity. The Board
is proud of the diversity within the Group and monitors and reviews our
position in this area. Further details can be found in the Nomination
Committee Report on pages 80 to 82.

Accountability
We are required by the Code to include an assessment of the viability
of the Company. This is covered on page 72. Further details can be
found in the Audit Committee Report on how the Audit Committee
have assisted the Board in reviewing the financial reporting and internal
financial control effectiveness, and managing the relationship with the
external auditor.

Remuneration
Our Remuneration Policy is designed to promote the long term
success of the Group and to reward the creation of long term value
to shareholders. Further details can be found in the Directors’
Remuneration Report on pages 83 to 98.

Relations with Shareholders
The Annual General Meeting will be held in London on 19 October 2018
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.

Tony Rice
Non-Executive Chairman
3 September 2018

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comCorporate 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. The Code can be found at www.frc.org.uk.

Leadership
The Role of the Board
The Board’s primary responsibility is to promote the long term success of the Company by the creation and delivery of sustainable shareholder value.

The Board’s strategy has four drivers 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 drivers. Further details are provided on pages
28 and 29.

Board Membership
Details of the Directors together with their biographical details can be found on pages 64 and 67.

Non-Executive Directors
It is considered that each of the Non-Executive Directors is independent and is free of any business or other relationship which could materially
interfere with, or compromise, their ability to exercise independent judgement. Each brings with them a breadth of experience which adds value
to the decision making of the Board as well as the formulation and progression of the Dechra strategy.

In line with the Code, at least half the Board, excluding the Chairman, 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. The Senior Independent Director also
carries out the annual evaluation of the performance of the Chairman and chairs the Nomination Committee when it is considering the succession of
that role.

Role
Chairman

Chief Executive Officer

Chief Financial Officer

Managing Director Dechra Veterinary Products (DVP) EU

Non-Executive Directors

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.
• Day-to-day management of the Group operations and leading the

Senior Executive Team (SET).

• Performance and results of the Group.

• Propose strategy.

• Execute strategy agreed by the Board.
• Responsible for financial planning and reporting for the Group.

• Management of financial risk.

• Develop and execute the strategic plan in conjunction with the Chief

Executive Officer.

• Secure funding as required.
• 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.
• Provide independent and constructive challenge.

• Represent a broad range of commercial and industry experience and

independent judgement.

• Evaluate strategy and risks.

Stock Code: DPHIan Page: Chief Executive Officer

Committee Membership: Disclosure (Chairman).

Skills and Experience: Ian has gained detailed knowledge and experience through
various positions he has held within the pharmaceutical and veterinary arena. He has a solid
understanding of business development 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 management buyout 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: None.

Pets:

Richard Cotton: Chief Financial Officer

Committee Membership: Disclosure.

Skills and Experience: Richard has a wealth of experience in senior financial roles in life sciences
and other sectors, including broadcast and photographic, automotive, filtration and metals. His
experience covers all finance management and value creation activities from R&D, to manufacturing
and commerce in international organisations. He has significant experience in the development and
successful execution of strategy, corporate finance and M&A, capital markets and governance.

Background: Richard was appointed Chief Financial Officer in January 2017. Prior to joining
Dechra he was Chief Financial Officer of Consort Medical plc from 2012 to 2016. He has also
been Finance Director of Vitec Group plc from 2008 to 2011, Group Finance Director at Wagon
plc from 2005 to 2008, and Group Finance Director of McLeod Russel plc from 2001 to 2005.
Prior to this he held senior finance roles in Alcoa Inc.

External Appointments: None.

Pets:

Tony Griffin: Managing Director, Dechra Veterinary Products EU

Committee Membership: Not applicable.

Skills and Experience: Tony has over 30 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.

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.

Pets:

Board of Directors
Executive Directors

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comSenior Executive Team
The Senior Executive Team comprises the Executive Directors a nd the following:

Dr Susan Longhofer: Business Development and
Regulatory Affairs Group Director

Background: Susan joined the Group in June 2005. A veterinarian with over 26 years’
experience in the industry, she leads a team of approximately 50 staff around the globe
responsible for registering new products and maintaining the registrations of our existing
products. She has recently assumed a Business Development role searching out new
products to continue to fill our product development pipeline. Prior to joining Dechra, Susan
worked for Virbac Corporation, Heska Corporation and Merck Research Laboratories. Susan
holds an MS and a DVM in Veterinary Science and is a Diplomate, American College of
Veterinary Internal Medicine. She is located in Kansas, USA.

Pets:

Dr Anthony Lucas: Group Product Development Director

Background: Anthony joined Dechra in 2016 following the acquisition of Putney Inc. where
he was Senior Vice President of R&D. Anthony is originally a veterinarian from Australia with
five years in clinical practice including a residency in emergency and critical care. Following
a Masters in veterinary pharmacology, PhD in human pharmacology and post-doc at the
University of Kansas, he spent six years at Elanco in early drug development, technology
acquisition and as a Six Sigma blackbelt. In his six years at Putney, Anthony built the R&D
team, which delivered ten FDA product approvals.

As the Group Product Development Director, Anthony leads a team of 50 scientists across
five global research centres, to efficiently deliver the pipeline of products to meet Dechra’s
growth needs. He is located in Maine, USA.

Pets:

Mike Eldred: President North America

Background: Mike joined Dechra in 2004 and is responsible for Dechra Veterinary
Products’ North American business. Mike has more than 20 years’ experience in the animal
health sector, having held senior positions in business development, sales and operations at
Virbac Corporation, Fort Dodge Animal Health and Sanofi Animal Health. As our first employee
in the US, he has built the US and Canadian team to 169 people and with a strong Dechra
culture has grown sales revenue to £148.4 million. Mike has also been involved in several
commercial agreements and acquisitions for the Group including Pharmaderm, DermaPet,
Phycox Animal Health and Putney. Mike has a BA in Business, and an MBA. He is located in
Kansas, USA.

Pets:

Giles Coley: Dechra Veterinary Products International Group
Director

Background: Giles joined Dechra in January 1999 as sales and marketing manager for
Arnolds Veterinary Products having previously spent 14 years primarily involved in dairy farming
business consultancy. During his time at Dechra he has been responsible for the launch
and market development of our leading brand Vetoryl, as well as a number of our other key
brands. Giles has also been an integral member of the teams that ensured fast and smooth
integrations of several of our acquisitions and in particular as lead in the integration of Apex in
2016. In his role of Dechra Veterinary Products International Group Director, his responsibilities
are extremely varied and involve managing and growing our existing business through Apex
and distribution partners, as well as further developing our Dechra International strategy
through product registrations and market development. Giles has a BSc degree in Agricultural
Technology. He is located in Sansaw, UK.

Pets:

Stock Code: DPH

Senior Executive Team

The Senior Executive Team comprises the Executive Directors a nd the following:

Katy Clough: Group HR Director

Background: Katy joined in April 2014 from AppSense Ltd where she was the
Vice President of HR Europe and Rest of the World. With over 15 years operating
at Director level within Software, Health, Travel and Finance industries, Katy brings
with her a wealth of HR expertise gained in both blue chip corporates and smaller
entrepreneurial companies. She has strong international, leadership and M&A
experience and has taken responsibility for driving the global people agenda for the
Dechra Group. She is located at Head Office, Northwich, UK.

Allen Mellor: Group IT Director

Background: Allen joined the Dechra in April 2012 and has developed and
implemented the Group IT strategy during this time. During the last 20 years,
Allen has gained a breadth of experience from the implementation of diverse
business solutions across multiple industry sectors including Justice, Education,
Energy, Distribution and Retail. Having held several senior management positions
encompassing software development, IT service provision and IT departmental
management, his last role was as Head of IT for the BSS Group PLC, a leading
plumbing and heating distribution company. Allen is currently responsible for all
Group IT support to a multitude of internal customers. He is located at Head Office,
Northwich, UK.

Pets:

Andrea Dodds: Group Marketing Director

Background: Andrea joined Dechra in October 2017 from Colgate-Palmolive,
where she was Marketing Director for Regions in Latin America and Eurasia.
She led the implementation of central marketing teams providing strategic and
operational support to the regions’ commercial teams.

Andrea brings extensive international experience gained in senior marketing roles
including Colgate’s Global Marketing in New York and Hill’s Pet Nutrition in Europe
and the USA. She developed and executed global product launch, branding and
business development programmes. Prior to joining Colgate, she worked for
Unilever and Beiersdorf and holds a BSc in Marketing, Engineering and IT. She is
located in Sansaw, UK.

Pets:

Melanie Hall: Company Secretary

Committee Membership: Disclosure

Background: Melanie joined Dechra in January 2010 as the Assistant Company
Secretary, and was promoted to Deputy Company Secretary in May 2015 and
Company Secretary in July 2017. Prior to joining Dechra she has gained over
25 years’ experience in various company secretarial roles including at GKN plc,
TRW Automotive Inc and Pendragon PLC. Melanie is a Fellow of the Institute
of Chartered Secretaries and Administrators. She is located at the Head Office,
Northwich, UK.

Pets:

Stock Code: DPH

Non-Executive Directors

Tony Rice: Non-Executive Chairman

Committee Membership: Nomination (Chairman), 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 and was appointed Chairman
in October 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 Director of Commercial Aircraft and Group Managing Director 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.

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.

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 Senior Independent Director at Bonmarche Holdings
plc (appointed October 2013) and Non-Executive Director of Lloyd’s Register Group
Limited (appointed August 2018).

Pets:

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 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 Itaconix PLC
(appointed July 2012) and is their Audit Committee Chairman. He is also a Director of
the Royal Academy of Arts (appointed October 2012).

Pets:

Dr Lawson Macartney: Non-Executive Director
Committee Membership: Audit, Nomination and Remuneration.

Skills and Experience: Lawson is a veterinarian and, in addition to spending several
years in veterinary practice, has held a range of senior roles in pharmaceutical R&D,
sales and marketing over the past 30 years.

Background: Lawson joined the Board in December 2016. He served as Chief
Executive Officer of Ambrx Inc. between 2013 and 2015, and prior to that led emerging
business for Shire PLC. Before joining Shire in 2011, he was with GlaxoSmithKline
PLC (GSK) from 1999 to 2011 in positions of increasing seniority. His final role at
GSK was to lead the strategic marketing, outcomes and reimbursement, project
management and portfolio teams. In addition to his veterinary degree, Lawson has a
PhD in viral pathobiology and is a pathologist, holding Fellowship of the Royal College of
Pathologists as well as Membership of the Royal College of Veterinary Surgeons.

External Appointments: Lawson has been the Chairman of Viking Therapeutics Inc.
since 2015, as well as the Chairman of the Nomination and Corporate Governance
and a member of the Audit Committee. He is also a strategic adviser to several
investment and private equity groups in both Europe and USA.

Pets:

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

Corporate Governance
continued

Board Responsibilities
The Board is responsible for the long term success of the Company. The main responsibilities and key actions carried out are set out below:

Responsibilities
Strategy and performance

Actions
Bi-annual strategy review. Strategic decisions are made after reports and recommendations are received
from management on markets, potential growth areas including acquisitions, product development and
risk analysis, including execution risks.

Risk management and
internal controls

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.

Oversight of the Group’s
operations

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 result reports.

Governance

Receive governance reviews from external advisers, the 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 strategy, approval of
acquisitions and business development proposals, the dividend policy, budget, internal controls and risk management and Group policies. Other
matters have been delegated to the Board Committees, the SET and other committees such as the Data Protection Committee.

The schedule of matters are reviewed periodically and were last reviewed in July 2017 along with the Delegation of Authority Policy. The Delegation
of Authority Policy defines who is authorised to make decisions on behalf of the Group and their authority limits for both monetary and
non-monetary decisions.

Board Meetings
The Board is scheduled to meet eight times per year. During the year, four additional meetings were held in relation to the acquisition of AST Farma
B.V. and Le Vet Beheer B.V. (the Acquisition). Attendance at the Board and Committee meetings during the year to 30 June 2018 is set out in the
table below:

Appointment Date

Board
Met 12 times

Audit Committee
Met 7 times ‡

Disclosure Committee
Met 2 times

Nomination Committee
Met 4 times

Remuneration Committee
Met 4 times

Meetings attended

Tony
Rice
5 May
2016

Ian
Page
13 June
1997

Richard
Cotton
3 January
2017

Tony
Griffin†
1 November
2012

Julian
Heslop
1 January
2013

Lawson
Macartney
1 December
2016

Ishbel
Macpherson
1 February
2013

n/a

† Tony Griffin did not attend an ad hoc Board meeting due to a prior commitment.
‡

The Audit Committee met seven times, three of these were additional meetings held in relation to the Acquisition.

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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.comDuring the year, in addition to its routine business, presentations by senior management, and strategic development, some of the other matters
considered by the Board included:

• Appointment of the Disclosure Committee;

• Nutrition Strategy;

• Acquisition of RxVet Limited;

• Acquisition of Ast Farma B.V. and Le Vet Beheer B.V., including the approval of the shareholder circular and the financial structure of the

acquisition;

• Medium term loan of up to £350.0 million;

• Diversity Policy;

• FRC Consultation on the Code;

• Schedule of Matters and Delegated Authorities; and

• Code of Conduct.

Board Committees
The Board has formally delegated specific responsibilities to Committees, namely the Audit, Remuneration and Nomination Committees. In addition,
during the year it approved the establishment of a Disclosure Committee, whose members are the Chief Executive Officer, the Chief Financial Officer
and the Company Secretary. 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

Main Responsibilities

Committee
Report on
Pages

Audit

• To review and oversee the Group’s financial and narrative reporting processes and to monitor the

74 to 79

integrity of the financial statements, 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 77

and the work of the internal audit function.

• 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.

• To review and approve the significant accounting policies.

Disclosure

• To develop and maintain adequate procedures, systems and controls to enable the Company to

comply with its obligations regarding identification and disclosure of inside information.

• To verify all significant regulatory announcements, the Annual Report and other documents issued

by the Company comply with applicable requirements.

Remuneration

• To determine the remuneration, bonuses, long term incentive arrangements, contract terms and

83 to 98

other benefits in respect of the Executive Directors and the Chairman.

• To oversee any major changes in employee benefit structures.

• To approve the design of any employee share schemes.

Nomination

• To oversee the plans for management succession.

80 and 82

• To recommend appointments to the Board.

• To evaluate the effectiveness of the Non-Executive Directors.

• 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: DPHCorporate Governance
continued

Effectiveness
Board Balance and Independence
The Board understands the importance of balance and refreshment
in terms of its composition and keeps these matters under review.
There have been no changes at Board level over the past 12 months.
The Nomination Committee has retained an independent recruitment
consultant, Dzaleta Consulting, 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 2018 calendar year.

The Nomination Committee Report on pages 80 and 82 provides
further information on the Non-Executive Director recruitment process,
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

0 to 2
years

2 to 6
years

6 to 9
years

Conflicts of Interest and External Board Appointments
Under the Companies Act 2006 (the Act), all Directors have a duty to
avoid a situation in which they have, or could have, a direct or indirect
conflict of interest with the Company. As permitted under the Act, 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.

The Board has established procedures for the disclosure by Directors of
any such conflicts, and also for the consideration and authorisation of
these conflicts. Directors are required to submit any actual or potential
conflicts of interest they may have with the Company to the Board. The
non-conflicted Directors are able to impose limits or conditions when
giving or reviewing authorisation. The Board reviews the Conflicts of
Interest register annually and on an ad hoc basis when necessary. Any
potential conflicts of interest are considered by the Board prior to the
appointments of new Directors. During the financial year under review no
actual conflicts have arisen.

Ian Page was the Non-Executive Chairman of Sanford DeLand Asset
Management Limited (Sanford) until October 2017, when he resigned.
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
was 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, a Board meeting was
held at the AST Farma/Le Vet facilities in Oudewater, the Netherlands.
This meeting provided the Board with an informal opportunity to meet
with senior management based at this site, as well as senior managers
from DVP EU corporate office and the Bladel Site Director.

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 management teams and to be shown around
the operations. Lawson Macartney has continued his induction and has
visited the Company’s facilities and had meetings with the management
teams at Sydney, Australia and Skipton, UK. He has also attended a
field visit with a member of the UK Equine sales team, which provided
an opportunity to observe the sales team’s activity in the field and their
day-to-day interaction with practicing veterinarians. An introduction to
Remuneration Committee responsibilities was provided to Lawson by
our remuneration advisors, Deloitte LLP.

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
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. 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 to ensure that they remain fit
for purpose. The evaluation of the Board and its Committees, focuses
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.

• The 2017 Internal Board Evaluation

The findings of the internal evaluation were discussed at the July
2017 Board meeting. Overall, the review indicated that the Board
operated effectively but noted some areas for improvement. The
actions which were taken are shown in the table below:

Action
Executive Director
Succession Planning

Non-Executive Director
Induction

Concise Board Papers

Progress
Succession planning for Executive
Directors was reviewed at the February
meeting of the Nomination Committee
The comments received have been fed
into the Induction programme and any
gaps in the last induction have been
addressed
Work is still to be undertaken with
regards to ensuring all Board papers
are executive summaries and focus the
Board on key issues

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com

• The 2018 External Board Evaluation

The last external evaluation was undertaken in 2014, however due
to changes in the Board it was agreed to defer this until 2018.
Independent Audit Limited (Independent Audit) was engaged to carry
out an external evaluation of the Board and its Committees. The
process undertaken by Independent Audit involved:

• a review of the Board and Committee minutes, agenda papers

and ancillary documents;

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

• observing a Board meeting.

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

The findings were presented to the Board in May 2018, and
were discussed further at the June 2018 meeting. Overall, the
review indicated that the Board operates effectively, is robust and
challenging but noted the following focus areas:

•

Increase the diversity of the Board;

• Continue to develop the organisational design to meet future

growth requirements;

• Concise Operational and Functional Board reports; and

• Bi-annual update on product pipeline and product development.

A report on the actions taken will be included in next year’s Annual
Report.

Independent Audit has performed no other services for the Board. The
Board will perform a further external evaluation in three years’ time.
Internal evaluations will be completed during the intervening period.

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 101 and
104 to 110 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 the 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 its obligations
as they fall due.

As at 30 June 2018 the Group had cash balances of £79.7 million and
net borrowings of £211.4 million (2017: cash balances of £61.2 million
and net borrowings of £120.0 million). Further information on available
resources and committed bank facilities is provided in notes 18 and 21
to the financial statements.

As reported last year the Group completed a refinancing and entered
into a facilities agreement in July 2017 (the Facility Agreement) with
a group of banks comprising Bank of Ireland (UK) plc, BNP Paribas,
Fifth Third Bank, HSBC Bank plc, Lloyds Bank plc, Raiffeisen Bank
International AG and Santander UK plc (the Banks). The Facility
Agreement includes a committed revolving credit facility of
£235.0 million, together with an ‘Accordion’ facility of £125.0 million.
The facility is committed for five years until July 2022 with two optional
one year extensions, the first of which was exercised in June 2018. The
facility is now committed until July 2023.

In January 2018, the Group entered into a £350.0 million multi-currency
term loan facility (Term Loan) with BNP Paribas Fortis SA/NV, Fifth Third
Bank, HSBC Bank plc, Santander UK plc and Lloyds Bank plc, with the
loans made or to be made under the Term Loan to be applied towards
the acquisition of AST Farma and Le Vet and any other permitted
acquisitions. All parties, terms and conditions are the same as the
existing £235.0 million Facility Agreement. The maturity date on the Term
Loan is 31 December 2020. The Term Loan had an initial drawdown
period expiring on 30 June 2018, this has been subsequently extended
to 31 December 2018.

Stock Code: DPHThese scenarios have been developed by considering those principal
risks that could have a material impact on viability. The potential impact
of each principal risk is described on pages 56 to 59 of the Strategic
Report and can be summarised into two broad categories, namely loss
of profits on key products and product pipeline delays. A number of
severe but plausible stress tests have been conducted on these areas
including a significant pipeline delay; significant profit reduction on top
five manufactured products; significant decline in forecast antibiotic sales;
loss of key purchased products and loss of key in-licensed products. A
combination of the individual scenarios and an overall reverse stress test
on the Group’s borrowing facilities and covenant commitments have also
been considered.

The Board believes the results of the stress testing demonstrate that
the Group should be able to withstand the impact in each case due to
its strong cash generation, strong balance sheet, and existing financing
arrangements.

Viability Statement
Based on the results of this analysis and the assumptions used in the
Group’s planning process, 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 2018.

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.

Corporate Governance
continued

Assessment of Prospects
Dechra has consistently delivered on its strategic objectives resulting in a
strong track record of growth. The Group’s strategy remains unchanged
and is set out on pages 12 and 13 of the Strategic Report. The key factors
supporting the Group’s prospects are explained throughout the Annual
Report and are summarised below:

• a clear strategic focus;

• a growing global animal health market;

• a clear portfolio focus with strong market positions in a number of

key therapeutic areas;

• a strong development pipeline and a track record of pipeline delivery;

• manufacturing flexibility, with a wide range of dosage forms, small

and large scale production batches;

• an entrepreneurial and experienced management team;

• a recognised brand with a strong reputation for providing high quality

products with technical support;

• an expanding international focus;

•

talented people and expertise; and

• a sound track record of successful acquisitions to expand our

product portfolio and geographic reach.

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.

The Assessment Process and Key Assumptions
The Group’s prospects are assessed primarily through its strategic and
financial planning processes over a five year time period. The strategic
plan is supported by a five year financial plan, which are updated annually
by the SET and reviewed by the Board. The Board also reviews the
Group’s principal risks on a rolling basis throughout the year, based on
updates from SET members.

The planning process considers risks to sales and cost forecasts for
each part of the Group, the Group’s consolidated income and cash
flow forecasts, and includes key assumptions to support longer term
projections. The financial plans are reviewed to ensure that adequate
financing facilities are in place for the period of the plan.

Progress against financial budgets, forecasts and key business objectives
are reviewed through monthly business performance reviews at both
Group and business unit levels. Mitigating actions are taken to address
under performance.

The latest updates to the plans were reviewed in June 2018 and
considered the Group’s current position, its future prospects and
reaffirmed the Group’s stated strategy.

Assessment of Viability and Time Period
The Board has determined that a three year period to 30 June 2021
is an appropriate period over which to provide its viability statement.
This time period 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. The viability assessment
takes account of all the committed expenditure of the Group.

Although the output of the Group’s strategic and financial planning
processes reflects the Board’s best estimate of the future prospects
of the business, the Group has also conducted stress testing to assess
the liquidity impact of a range of alternative scenarios.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comEngagement with Other Stakeholders
Code of Conduct
The Company’s Values and culture help drive the Group’s success,
encapsulate its business ethics and set the standards under which the
Group operates. During the year the Board approved a refreshed Code
of Conduct, which now provides an overview of all of the standards
under which the business operates into one document.

Health and Safety
The Board attaches great importance to the health and safety of its
employees. Twice a year a comprehensive health and safety report is
provided to the Board for its review.

Employee Engagement
The Board believes that the Group’s employees are its greatest asset.
The results of the Group’s first employee engagement survey was
presented by the Group HR Director at the June meeting. During the
forthcoming year, the Board will be kept informed of the progress made
in relation to any focus areas identified.

The Board has considered how best to address the new Code’s
requirement for Board engagement with employees and is currently
recruiting a further Non-Executive Director to fulfil this requirement.

Further information in relation to the Group’s Code of Conduct, Health
and Safety, employee engagement and engagement with its other
stakeholders can be found in the Corporate Social Responsibility report
on pages 42 to 53.

Tony Rice
Non-Executive Chairman
3 September 2018

Relations with Shareholders and Other Stakeholders
Dialogue with Institutional Shareholders
Relationships with shareholders receive high priority and a rolling
programme of meetings between institutional shareholders and the Chief
Executive Officer and Chief Financial Officer have been held throughout
the year (a summary of the main events are shown below).

Investor Presentations
Full Year: London and Edinburgh
Half Year: London and Edinburgh

Investor Roadshows
US: New York
France: Paris
Germany: Dusseldorf and Frankfurt
Switzerland: Zurich

Investor Meetings and Calls
Acquisition and Placing

Investor Conferences
(Chief Financial Officer only)
UK
UK

September 2017
February/March 2018

November 2017
November 2017
December 2017
December 2017

January 2018

November 2017
April 2018

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.

Feedback is collated by the Company’s brokers after Investor Presentations.
The feedback is circulated to the Board for review and consideration. In
addition, the Board is provided with market summary reports which detail
share price and share register movements. Where material changes in
respect of remuneration or governance are proposed, the Board seeks to
consult with its major shareholders before implementing such changes.

The 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.

Stock Code: DPHLetter from the Audit Committee Chairman

Julian Heslop
Audit Committee Chairman

Annual Report 2018
The judgements and factors that the Committee considered in reviewing
the Annual Report and Accounts for 2018 (Annual Report 2018) are set
out in its report on page 76.

The report also outlines significant accounting matters which received
particular focus during the period. It explains why the issues were
considered significant and how the Committee satisfied itself
on the validity of the judgements made.

The Committee has reviewed the revised viability statement, which now
clearly distinguishes the assessment of long term prospects from the
viability assessment, with a five year time frame for long term prospects
and a three year time frame for viability.

Finally, we specifically reviewed, at the request of the Board, whether
the 2018 Annual Report was fair, balanced and understandable and
concluded that it was. The basis supporting our conclusion is set out
on page 77.

I will be available at the Annual General Meeting to answer any questions
about our work.

Julian Heslop
Audit Committee Chairman
3 September 2018

Dear Shareholder

On behalf of the Board, I am pleased to present this year’s Audit
Committee (the Committee) report. During the year in addition to our
regular duties, we focused on revising the non-audit fees policy and
the proposed amendments to the risk reporting and viability statement
following guidance from the Financial Reporting Council.

Non-Audit Services
For the first time in four years the level of non-audit fees exceeded
50% of the audit fee, which was wholly due to the engagement of
PricewaterhouseCoopers LLP (PwC) as the reporting accountant for the
circular to shareholders to approve the acquisition of AST Farma B.V.
and Le Vet Beheer B.V. (the Acquisition), which completed in February
2018. The time to complete this assignment was extremely short as a
result of the vendor requirements which gave the Company a limited
period of exclusivity. The Committee consequently considered the
proposal by management to use PwC who were best placed to meet
the assignment timetable and exceptionally gave their approval for the
engagement. In giving their approval the Committee noted that a team
independent of the audit team would carry out the work, the absence
of any remuneration payable to the audit partner or team as a result of
the work, its consistency with the revised ethical standard published by
the FRC, and the low level of non-audit fees over the previous three year
period. It also made the decision not to use PwC in future for such work.
It consequently concluded that this appointment would not adversely
impact PwC’s independence or integrity as auditor.

The Committee also agreed during the year that in addition to their
policy of not using the external auditor where another professional firm
can provide the same or similar service they would set an annual cap
that non-audit fees would not exceed 30% of the annual audit fee in
future years.

It is the Committee’s expectation going forward that the result of this
policy will be that, excluding the fee paid to the external auditor for their
review of the interim accounts, other non audit fees will be minimal
and related to work required by legislation of the countries in which the
Group operates.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comAudit Committee Report

The Purpose and Function of the Audit Committee (the Committee)
Purpose
The Committee’s key role 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 69 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 68 of the Corporate
Governance Report.

The Board considers that all members of the Committee are independent. Julian Heslop has recent and relevant financial experience as a result of his
financial background and qualification. Ishbel Macpherson and Lawson Macartney provide different but relevant skills and experience which support the
Committee in meeting its objectives. The biographies of all Committee members are detailed on page 67.

The Company Secretary attends each meeting and acts as its secretary assisting the Chairman in ensuring that all papers are provided prior to each
meeting in a timely manner and providing advice on all governance related matters. Other members of the Board normally attend each meeting together
with the PricewaterhouseCoopers LLP (PwC) Lead Audit Partner, the Group Financial Controller and the Head of Internal Audit and Risk Assurance.

The Committee meets with the external and internal auditors without management being present, after each scheduled meeting, to discuss their respective
areas and any issues arising from their audits.

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 November 2017 meeting and amended them to reflect the revised
UK Corporate Governance Code and updated Financial Reporting Council (FRC) Guidance on Audit Committees.

Major Activities of the Committee during the Year
The Committee met seven times since the last Annual Report was issued. Four of the meetings were scheduled meetings, and these are generally
timed to coincide with the financial reporting timetable of the Company. Three additional meetings were held to discuss the acquisition of AST Farma
B.V. and Le Vet Beheeer B.V. (the Acquisition). 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.

At each meeting the Committee reviews the following items routinely:

• status of statutory audits, global tax management and compliance support;

• non-audit fees (including actual and projected spend); and

•

the internal audit progress and assurance report.

The table below provides an overview of the other matters discussed at the meetings:

Meeting Date
30 November 2017

20 December 2017
18 January 2018
23 January 2018
22 February 2018

11 May 2018

Main Activities
• Review and approval of the annual internal audit plan
• Review and approval of PwC Half-Yearly review plan
• Review of the Committee’s terms of reference
• Review of Anti-Bribery and Anti-Corruption and Whistleblowing Policies
• Progress update on procedures to prevent tax evasion
• Review and approval of Non-Audit fees relating to the Acquisition
• Review of Historical Financial Information, Financial Reporting Procedures and Working Capital with respect to the Acquisition
• Review and approval of the Enlarged Group Working Capital
• Review of the Group’s Half-Yearly Report and supporting papers
• Consideration of the Half-Year Review Memorandum prepared by the external auditor
• Half year review of internal financial controls
• Review and approval of Internal Audit Charter
• Review of the dividend policy and interim dividend proposal
• Anti-Bribery and Anti-Corruption and Sanctions progress update
• Review and approval of the year end 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 year end accounting treatment for acquisitions, non-underlying items and new accounting standards
• Review and approval of revisions to the non-audit fee policy
• Review of tax strategy and policy framework
• Review of draft viability statement
• Review of treasury policy and practice
• Review and approval of the amendments to How to Raise a Concern Procedure

Stock Code: DPHAudit Committee Report
continued

Meeting Date
28 August 2018

Main Activities
• Review of the Group’s preliminary statement, draft Annual Report (including the Audit Committee Report) for the year

ended 30 June 2018 and supporting papers, and the proposed 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 commend the going concern and viability statements
• Review and approval of the internal control and risk management statements
• Full year review of internal financial controls for the period ended 30 June 2018
• Review of the external audit effectiveness, external auditor’s independence and level of non-audit fees
• Fair, balanced and understandable recommendation of the Annual Report

Financial and Narrative Reporting
All significant matters under consideration by the Committee during the year 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-year and the annual financial statements. This process included an analysis by management of key
judgements made in determining the results. 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 alternative
performance measures (APMs) were provided to enhance investors’ understanding of the underlying performance. The Group uses various
non-GAAP APMs within internal management reporting, the Half-Yearly Report and the Annual Report. The objective of these APMs is to isolate
the impact of exceptional, one-off or non-trading related items to allow the Board and investors to understand better the underlying performance of
the business. The Group also uses constant exchange rate growth percentages to eliminate the impact of exchange rate fluctuations and show the
underlying business growth. These matters were well supported by briefing papers provided by management and were specifically reviewed and
agreed by the external auditor in their reports to the Committee and in related discussions.

The key matters reviewed are shown in the table below:

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

Corresponding actions taken by the Committee to
address the issues

Review of the carrying value of intangible assets and goodwill of
£709.8 million, which represents 69.8% of total Group assets.

The Committee reviewed management’s process for reviewing and
testing goodwill and other intangible assets for potential impairment.
It noted the significant headroom between the value in use and the
carrying value of the goodwill.

Review of the remeasurement of the intangibles and associated
contingent consideration for the Animal Ethics Pty Ltd and Kane Biotech
Inc in-licensing transactions which were remeasured during the year.

The Committee reviewed the accounting basis of the adjustments which
supported the remeasurement and considered the appropriateness of
the accounting treatment.

Valuation of the acquired intangible assets and goodwill acquired during
business combinations in the year, which total £362.5 million.

Valuation and accounting for the acquired commercial licensing
agreement intangibles of £8.7 million together with the related deferred
consideration.

The Committee reviewed the calculations and assumptions provided
by management and third party experts which support the valuation
of these acquired 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 -24.9% (20.5% 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 cost,
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 were not materially misstated. Areas where significant
judgements such as uncertain tax positions had been applied were
reviewed and challenged and external audit work and conclusions were
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 that
the application of the accounting policy was appropriate.

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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com
Going Concern and Viability Statements
The Committee reviewed the Group’s going concern and viability statements set out on pages 71 and 72 of the Corporate Governance Report. In
considering the viability statement the Committee paid particular attention to the robustness of the stress testing scenarios. The external auditor
reviewed management’s assessment and discussed this review with the Committee.

During the year, the Committee reviewed the changes to Dechra’s risk reporting and viability statement following recent guidance from the FRC. The
statement was revised to distinguish clearly the assessment of long term prospects from the viability assessment, with a five year time frame for long
term prospects and a three year time frame for viability.

Fair, Balanced and Understandable Assessment of the Annual Report
At the request of the Board, the Committee considered whether the 2018 Annual Report was fair, balanced and understandable and whether it provided
the necessary information for shareholders to assess the Group’s performance (pages 19 to 25), business model (page 8) and strategy (pages 12 and 13).

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 2018 was fair, balanced and understandable, which can be found on pages
104 to 110.

This assessment was carried out by the Committee on 28 August 2018, following which the Committee reported to the Board that it was satisfied
that, taken as a whole, the Annual Report 2018 is fair, balanced and understandable.

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 effectiveness of the Group’s risk management and internal control processes. This includes:

• confirmation that the rolling programme of risk and control reviews by the Board has been completed;

• a review of the SET’s assessment of material internal control effectiveness;

• a review of the going concern and viability statements together with the financial stress testing conducted to support these statements; and

• a review of baseline financial controls and management representations on their effectiveness across the Group.

Further details in respect of the Group’s risk management and internal control processes are provided on pages 54 and 55 of the Strategic Report
and the Board’s statements on the effectiveness of these processes are provided on page 72 of the Corporate Governance Report.

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

• Finance Policies

The Committee undertook the annual review of the Group Tax Policy and Strategy which had been amended to reference the Group’s new
policy on prevention of criminal facilitation of tax evasion. It also reviewed the Treasury Policy which has been amended to increase governance,
monitoring and reporting on Treasury activities and compliance.

• Non-Audit Fees Policy

The Committee formalised the non-audit fees policy, further details of which can be found on page 79.

• Whistleblowing Policy (now referred to as How to Raise a Concern)

This policy was reviewed as part of the data privacy compliance work, the main changes included encouraging employees to raise an issue when
it was a concern, an increase in the number of reporting channels, and an outline of how an investigation would be conducted and the reporting
of the outcome.

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 worldwide geographies.

Internal Audit operates a three year assurance plan which seeks to provide balanced coverage of the Group’s material financial, operational
and compliance control processes. It consists of a rolling programme of core assurance activities together with initial controls reviews on new
acquisitions and reviews of major business process and systems changes, including the implementation of the Oracle ERP system. The annual
delivery plan, which defines the specific assurance projects to be delivered each calendar year, is developed from the three year plan. The annual
plan for the year to June 2019 was approved by the Committee in May 2018.

Internal Audit recommendations are communicated to relevant business leaders, appropriate control improvements agreed with them, and
implementation of agreed actions is monitored monthly. Audit reports are provided to the Committee together with regular progress reports on
management’s implementation of control improvements.

During the year the Committee reviewed and approved an Internal Audit Charter, and concluded that Internal Audit continued to be effective.

Stock Code: DPHAudit Committee Report
continued

External Auditor
Following a competitive tender in 2015, PwC were appointed as the Company’s external auditor effective from the 2016 audit. The Company
complies with the Competition and Market Authority Order 2014 relating to audit tendering and the provision of non-audit services.

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;

•

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

• a report prepared by PwC setting out its processes to ensure independence and its confirmation of compliance with them; and

•

the level of non-audit fees as a percentage of the audit and half-yearly review fees paid to the external auditor, which were 62.3% (2017: 8.5% in
relation to services rendered by PwC).

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 28 August 2018.

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 Committee 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.

External Audit Engagement Partner Rotation
In line with the ethical standards of the Audit Practices Board, the Lead Audit Partner will be rotated every five years. The current Lead Audit Partner was
appointed during the 2016 financial year and consequently will stand down at the latest after the completion of the audit of the 2020 financial year.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comNon-Audit Assignments
With respect to non-audit services 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.

For the first time in four years the level of non-audit fee paid to the external auditor exceeded 50%, which was wholly due to the engagement of PwC
as the reporting accountant for the circular to shareholders to approve the Acquisition, which completed in February 2018. The time to complete
this assignment was extremely short as a result of the vendor requirements which gave the Company a limited period of exclusivity. The Committee
consequently considered the proposal by management to use PwC, who were best placed to meet the assignment timetable, and exceptionally
gave their approval for the engagement. In giving their approval the Committee noted:

•

the tight timescales;

•

the fact that the audit team would not be compensated for work being assigned to PwC;

• consistency of the work to be done with the revised ethical standard issued by the FRC;

•

that the proposed work had been internally approved by the PwC Ethics Partner; and

• PwC non-audit fees had been very low over the previous three years relative to the audit fee.

In May 2018 the Committee amended its policy for the use of the auditors, PwC, for non-audit work, by agreeing a cap of 30% for the ratio of non-audit
fees to the audit fee and reconfirmed the underlying principle that the external auditor should never be used where another professional firm can provide
the same or similar service. It is consequently expected, going forward, that the external auditor will continue to review the half-yearly accounts but will
carry out little other work for the Company other than those situations where it is required to do so by legislation.

The Committee will continue to approve in advance any non-audit work carried out by the external auditor. In all instances the Committee will
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 and the audit work.

A summary of audit and non-audit fees in relation to the year is provided in note 7 to the Group’s financial statements. This shows that non-audit work
carried out by the external auditor represented 62.3% (2017: 8.5%) of the annual audit fee and half-yearly review fee. This fee is higher than in previous
years, and is due to the external auditor providing the services of reporting accounting with respect to the Acquisition. The Committee fully considered
this engagement and concluded that it did not consider that the performance of this non-audit work affected or impaired the external auditor’s integrity
for the reasons outlined above. The four year average of non-audit fees as a percentage of the audit fees to 30 June 2018 is 35.2%.

Audit fees including related assurance services (£m)
Non-audit fees (£m):
Review of Half -Yearly Report
Other work
Ratio of non-audit fees to audit and Half-Yearly Report fees

2018
PwC
0.80

0.04
0.52
62.3%

2017
PwC
0.57

0.04
0.05
8.5%

2016
PwC
0.50

0.04
0.02
3.9%

2015
KPMG
0.26

0.04
–
1.0%

Role of the Committee in the Acquisition
The Committee had responsibility for the review and recommendation to the Board of:

•

the Enlarged Group Working Capital for inclusion in the circular, which was reviewed by KPMG;

the Financial Reporting Procedures Report, which was reviewed by KPMG; and

• Historical Financial Information included in the circular, which was audited by PwC.

Julian Heslop
Audit Committee Chairman
3 September 2018

26062 7 September 2018 4:46 PM Proof 8

Dechra AR2018-governance.indd 79

26062 7 September 2018 4:46 PM Proof 8

11/09/2018 10:21:05

Stock Code: DPH

26062 7 September 2018 4:46 PM Proof 826062 7 September 2018 4:46 PM Proof 8Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com80Nomination Committee ReportDear ShareholderOn behalf of the Board, I am pleased to present the Nomination Committee (the Committee) report.During the year the Committee focused on the size and composition of the Board, which has led to the commencement of a recruitment process for an additional Non-Executive Director. The Committee believes that the appointment of an additional Non-Executive Director will strengthen the existing capability and good dynamics of the Board. The Committee believes that the Board continues to have the appropriate skills, knowledge and experience to oversee the effective delivery of our strategy. The Committee also oversaw the Senior Executive Team (SET) succession and emergency planning. As a result of this the Committee believes that the Company has an evolving and experienced SET to lead the development and implementation of this strategy.The following report provides an overview of the work carried out during the year under review.Should you have any questions in relation to this report or the Committee, please contact me or the Company Secretary.Tony Rice Nomination Committee Chairman 3 September 2018Committee Membership and AttendanceThe membership of the Committee, together with appointment dates and attendance at meetings during the year, is set out on page 68 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 ResponsibilitiesThe 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 2018 financial year this took place at the February meeting. An overview of the terms of reference is detailed on page 69 of the Corporate Governance Report.Principal activities of the Committee during the year included:• Board Structure, Size and CompositionThe Board seeks to ensure that the Board and the Committees have an appropriate composition to manage their duties effectively and to manage succession issues. It 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 CompositionNon-Executive DirectorsExecutive DirectorsNon-Executive Chairman14%43%43%During the year, the Board formalised its policy on diversity. It believes that everyone should be recruited and promoted on the basis of their personal ability, contribution and potential. The Board is committed to ensure that a culture of fairness, respect and equal opportunity is promoted and supported across the Group. The policy and its implementation will be reviewed annually. Tony Rice Nomination Committee ChairmanDechra AR2018-governance.indd 8011/09/2018 10:21:07The Board is generally opposed to the idea of stated gender quotas,
however it acknowledges that there is a current low representation of
female Directors (14.3%) on the Board. This is not a true reflection of
the Group as female representation below Board level is 33% of the
Senior Executive Team and 53% of the overall workforce.

It is our intention to restore the balance and as such we have
commenced the recruitment for a further Non-Executive Director (see
below). This would take our female representation at Board level to
above 20%.

The Board
as at 30 June 2018

Senior Executive Team
as at 30 June 2018

Male

86%

Female

14%

Male

67%

Female

33%

Overall Workforce
as at 30 June 2018

Management Tier below the
Senior Executive Team
as at 30 June 2018

Male

47%

Female

53%

Male

62%

Female

38%

• Non-Executive Recruitment

During the year, an independent recruitment consultancy, Dzaleta
Consulting, was retained. Dzaleta Consulting was provided with a
role description detailing the skills and experience required for the
position of a Non-Executive Director. The Committee in drafting the
role description took into account the challenges and opportunities
facing the Group and what skills and expertise were needed on
the Board in the future. In particular it was determined that the
candidates should have a Human Resources background which
would be beneficial in light of the new Corporate Governance
requirements around engagement with the workforce and oversight
of the wider Group remuneration principles by the Remuneration
Committee. In addition, they were required to have a broad business
experience and be a good fit with the culture of the Company. Other
areas of expertise were also considered such as a good knowledge
and experience of digital and technology developments and their
impact and use in business. Dzaleta Consulting were previously
retained in relation to the recruitment of the last two SET vacancies.

To assist Dzaleta Consulting with the understanding of the
requirements of the role, they met with the Group HR Director, Chief
Executive Officer and the Chairman, and a long list of candidates
were identified for interview. All of the candidates had a broad range
of experience from a wide range of different backgrounds including
executives in blue chip FTSE organisations, partners in consulting
firms and a number of candidates with an established portfolio
career.

The long list of candidates was circulated to the Committee for
comments before a short list was agreed. The first interviews
were with the Chief Executive Officer and Group HR Director, the
second interviews will be held with the Chairman, and successful
interviewees will meet with the remaining Non-Executive Directors
prior to appointment.

• SET Succession Planning and Leadership Needs of the Group

Two of our key risks are people focused and they are:

•

the failure to retain high calibre, talented senior managers and
other key roles in the business; and

failure to recruit or develop the good quality people to achieve our
strategic aims.

To assist with this, the Group HR Director regularly presents to
the Committee on the Group’s succession planning and talent
development programme. A regular review of succession planning
takes place across the Group, with a particular focus given to
the SET succession. The process of documenting the Group’s
Talent Map supports the decisions about the organisation design
and structure. The results of this review are incorporated into the
succession planning process and the Committee discusses the
succession plan for the SET at least annually.

For Executive Directors and the SET, plans are in place for sudden,
unforeseen absences, for medium term orderly succession and
for longer term succession as well as supporting significant
acquisitions that require full time Dechra leadership during the
integration phase. For each SET member, we have either identified
an internal candidate or have identified roles that would benefit from
bringing new experience into the team. In addition the Committee
has reviewed the emergency succession planning, which clearly
identified individuals capable of covering key management roles on
an interim basis whether this be due to an unanticipated absence
or secondment of a key resource into a different role for a defined
period. All these individuals will receive, or have received, the
necessary coaching to assist them in obtaining the required skills to
provide any critical support when needed.

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Stock Code: DPH

Nomination Committee Report
continued

In addition to this, a forward looking review of the future anticipated
shape of the organisation will be considered next year to identify
any potential gaps that may emerge and work to ensure the
organisation’s design remains fit for purpose.

One of the elements of our People Plan has focused on the continual
development of the SET to provide world class leadership to the
Group. We encourage regular contact between members of the
SET and the Board, with all SET members presenting to the Board
at least once a year, leading site visits of their respective businesses
and attending one-to-one sessions with Non-Executive Directors to
discuss specific issues when applicable.

Through acquisitions, recruitment and internal promotion we now
have an experienced SET, with clearly defined roles. Dechra has
increasingly focused on the centralisation of support services,
to allow the Business Unit leaders to focus their efforts on their
core businesses. During the year a Group Marketing Director,
Andrea Dodds, was recruited to continue the evolution of the
team. In addition to this the newly promoted Company Secretary,
Melanie Hall, was appointed to the SET. Post year end the
Group Manufacturing and Supply Director left the business and a
recruitment process has been commenced.

• Effectiveness of Committee and Directors

The external evaluation, further details of which are provided on page
71 of the Corporate Governance Report, found that the Committee
was operating effectively and was covering all areas within its remit.
It recommended that a Board skills matrix was compiled to inform
future discussion and this was presented to the Committee for its
discussion at the June 2018 meeting.

Following the external evaluation, which concluded that the Board
is dynamic, robust and challenging, the Committee has concluded
that each of the Directors seeking re-election 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. At the forthcoming Annual General Meeting, all of the
Directors will retire and offer themselves for re-election.

Tony Rice
Nomination Committee Chairman
3 September 2018

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

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26062 7 September 2018 4:46 PM Proof 826062 7 September 2018 4:46 PM Proof 8Stock Code: DPH83Dear ShareholderI am pleased to present the Directors’ Remuneration Report for the year ended 30 June 2018.The report is divided into two sections: the Annual Report on Remuneration, followed by an abbreviated form of our Directors’ Remuneration Policy (the full version can be found at www.dechra.com). The Annual Report on Remuneration provides details of the amounts earned in respect of the 2018 financial year and how the Directors’ Remuneration Policy (the Policy) will be implemented in the 2019 financial year.The Directors’ Remuneration Report (excluding the Policy) will be subject to an advisory vote at the 2018 Annual General Meeting.Our Directors’ Remuneration PolicyThe Policy was approved by shareholders at the Annual General Meeting on 20 October 2017, with 98.88% of all votes cast in favour, and will remain in force until 2020. We review the application of this Policy regularly, to ensure it remains appropriate, linked to strategy and reflective of developing market practices. No changes to the Policy are proposed for 2019. The performance metrics for the bonus and LTIP awards for 2019 are set out on page 92. An annual review of Executive salaries is undertaken in September along with all employees. This allows us to optimise the link between performance and reward for all employees. It is our expectation that any increases to the Executive Directors’ salaries will be in line with the range of increases for the wider workforce. Incentive Outturns in 2018As a result of the progress in our strategy, we have delivered underlying profit before tax during the year of £93.7 million, an improvement of 23.6% at constant exchange rates (21.7% 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 86, bonuses for the year equal to 76% of salary have been earned by Ian Page and Richard Cotton, and equal to 74% of salary by Tony Griffin.LTIP awards were granted to Ian Page and Tony Griffin in September 2015 and are due to vest on 15 September 2018. The awards are scheduled to vest:• as to 100% of the TSR element (50% of the total award) reflecting upper quartile performance; and • as to 100% of the underlying diluted EPS element (50% of the total award) reflecting that the compound annual growth in the underlying diluted EPS at 24.2% was above the maximum threshold of 16.0%.In aggregate, taking into account the ROCE underpin (reflecting that the ROCE at 15.4% had not fallen below 15.0%), the LTIP awards vested as to 100%.As disclosed on page 87, the second of Richard Cotton’s recruitment awards was subject to the same performance conditions and is scheduled to vest to the same extent.Executive Director Remuneration Decisions in 2018During the annual salary review cycle, Richard Cotton’s and Tony Griffin’s salary were increased by 2.5% in respect of the 2018 financial year, broadly in line with the average range of increases awarded to employees throughout the Group. Ian Page notified the Remuneration Committee (the Committee) that he did not wish to be considered for a salary increase in 2018 and, accordingly, his salary for 2018 was not increased.We granted LTIP awards in March 2018 subject to TSR and EPS performance conditions (applying to one third and two thirds of the awards, respectively) with the EPS target for maximum vesting increased for these awards to 18% CAGR from the initial proposal included in the Directors’ Remuneration Report for the 2017 financial year of 15.5%, which takes into account the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (the Acquisition). A ROCE underpin continues to apply to each element. Details of the awards are set out on page 90. We also amended the EPS growth targets for the LTIP awards granted in respect of the 2017 financial year (performance period 1 July 2016 to 30 June 2019) to take account of the Acquisition, increasing the EPS target for maximum vesting to 25% CAGR from the original target of 20%. Both the bonus opportunity and LTIP awards of the Executives are subject to malus and clawback. During the year we made a minor change to the malus and clawback provisions, broadening the circumstances in which they can be operated to take account of changes in best practice. The Link between our Directors’ Remuneration Policy and our StrategyDechra’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.Letter from the Remuneration Committee ChairmanIshbel MacphersonRemuneration Committee ChairmanDechra AR2018-governance.indd 8311/09/2018 10:21:10Letter from the Remuneration Committee Chairman
continued

Remuneration Element

Annual Bonus
Our annual bonus incentivises the delivery of the long term strategy through the achievement of
short term objectives.

90% of the opportunity is based on a stretching profit target which requires performance above
budget and market expectations to trigger the payment of a maximum bonus.

The balance of the bonus is based on the achievement of personal objectives which reflect the
priorities of the business, achievement of which is necessary to deliver the longer term strategy.

Long Term Incentive Plan
The LTIP is designed to reward the generation of long term value for shareholders. Performance
measures reflect our long term objectives including sustainable profit growth and the enhancement
of shareholder value. Awards are based on growth in EPS and the delivery of shareholder returns.
For the 2018 and 2019 financial year awards, the weightings are two third EPS and one third total
shareholder return.

The application of a ROCE underpin ensures 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.

The introduction of a post vesting holding period aligns management with the long term interests of
shareholders and the delivery of sustained performance.

Strategic
Growth
Driver and
Enabler

b c

Link to our Key
Performance Indicators

• Sales Growth
Strong sales
performance is required
to maximise profit

• New Product Sales

This measure
encourages innovation,
growth and sustainability

• Underlying Diluted

EPS Growth

b c

• Return on Capital

Employed

• New Product Sales

This measure
encourages innovation,
growth and sustainability

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. 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 the post vesting holding period which applies to LTIP awards granted from 2018 onwards,
and by formal shareholding guidelines. Executive Directors are required to retain half of any shares acquired under the LTIP and, if relevant, any
recruitment award (after sales to cover tax) until such time as their holding has a value equal to 200% of their base salary.

Shareholder Views
We consult with shareholders on policy and on any significant events and
take shareholders’ views into account before finalising our proposals. In
2018, we consulted with shareholders in relation to the approach to LTIP
targets taking into account the Acquisition. 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 contact me
or the Company Secretary.

Ishbel Macpherson
Remuneration Committee Chairman
3 September 2018

Forward Looking
During the 2019 financial year, as well as the Committee’s more
regular work, we will consider how we best respond to the Companies
(Miscellaneous Reporting) Regulations which introduce a range of new
corporate governance reporting requirements as they apply to the work
of this Committee.

The Committee recognises the benefits of employee share ownership
and the existing Dechra UK Save As You Earn (SAYE) scheme which
has been in place since 2001 has proved both a popular benefit to our
UK employees (the November 2017 grant had an uptake of 51%) and a
helpful retention tool.

As Dechra continues to expand internationally we receive regular
feedback and requests from employees and managers who want to be
able to enjoy the benefits of participation in a share save scheme. We
have therefore agreed, subject to shareholder approval, to offer a SAYE
internationally on as close a basis as possible to its operation in the UK,
and in the USA to offer an Employee Stock Purchase Plan (ESPP). This
will enable the majority of our existing employee base the opportunity to
benefit from share ownership which will, in turn, ensure a more equitable
approach to our global reward schemes.

The current SAYE scheme rules are due for renewal in October 2020.
However, in view of the above, it is proposed to ask for shareholder
approval of new UK rules along with an International Plan at the
forthcoming Annual General Meeting in October 2018 and to authorise
the Directors to adopt ESPP as a sub-plan of the International SAYE.
More information is included in the Notice of Annual General Meeting.

Initially the offer will be limited to our larger territories and it is hoped that
we will be able to launch it in October 2019.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

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Directors’ Remuneration Report

2018 Annual Report on Remuneration
The following section provides detail 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 20 October 2017, along with details of how the Policy will be applied in the
2019 financial year. PricewaterhouseCoopers LLP (PwC) have audited pages 85 to 93 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 2018. The table shows
the remuneration for each such person in respect of the year ended 30 June 2018 and the year ended 30 June 2017:

Ian Page
Richard Cotton7
Tony Griffin8
Tony Rice9
Ishbel Macpherson
Julian Heslop
Lawson Macartney10
Total

Salaries &
Fees
£0001

2018
500
356
303
126
58
55
50
1,448

2017
490
175
285
102
58
55
29
1,262

Benefits
£0002

Annual Bonus
£0003

Long Term
Incentives
£0004

Pension
£0005

Total
£000

2018
65
29
10
—
—
—
—
104

2017
54
20
19
—
—
—
—
93

2018
380
272
223
—
—
—
—
875

2017
451
161
256
—
—
—
—
868

2018
2,514
1,404
627
—
—
—
—
4,545

20176
2,357
—
612
—
—
—
—
2,577

2018
77
40
32
—
—
—
—
149

2017
68
25
39
—
—
—
—
136

2018
3,536
2,101
1,195
126
58
55
50
7,121

2017
3,420
381
1,211
102
58
55
29
5,256

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. The amount for Richard Cotton in 2017 includes a one-off relocation allowance of £15,000. 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 28 to the Group’s financial statements.

3. Annual Bonus – this is the amount of cash bonus paid in respect of the financial year.
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 2017 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 £17.741 (being the average market value of a share over the last quarter of the Company’s financial period ended on 30 June 2017).
This has been restated to show the actual value determined by reference to a price of £20.44 (being the market value of a share on 15 September 2017, the date of
vesting).

7. Richard Cotton was appointed on 3 January 2017.
8. 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 1.1681 for 2017 and
1.1286 for 2018. His salary was €341,144 for 2018 (reflecting two months at a salary of €334,182 and ten months at a salary of €342,537) and €332,560 for 2017
(reflecting two months at a salary of €324,449 and ten months at a salary of €334,182).

9. Tony Rice was appointed to the Board on 5 May 2016 and to the office of Chairman on 21 October 2016.
10. Lawson Macartney was appointed on 1 December 2016.

Additional Disclosures in Respect of the Single Figure Table
Salaries and Fees
As disclosed in the Directors’ Remuneration Report in the 2017 Annual Report, the Executive Directors’ base salaries were reviewed in September
2017 in order that the review is aligned with the performance development review calendar to provide a clearer link between performance and
reward. Ian Page notified the Committee that he did not wish to be considered for a salary increase in 2018.

Following that review, Richard Cotton’s and Tony Griffin’s salaries were increased by 2.5%, to £358,750 and €342,537 respectively, with effect from
1 September 2017, broadly in line with the average range of increases awarded to employees in the wider Group.

The Committee’s approach to Executive Directors’ salaries for the year ending 30 June 2019 is summarised on page 92.

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. As disclosed in the Directors’ Remuneration Report in the
2017 Annual Report, no changes were made to any of the fees for the year ended 30 June 2018. Accordingly, the fees for the year ended 30 June
2018 were the same for the year ended 30 June 2017, as follows:

Office
Chairman
Non-Executive Director
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
Senior Independent Director additional fee

The approach to the Chairman’s and Non-Executive Directors’ fees for the year ending 30 June 2019 is summarised on page 92.

Stock Code: DPH

Fee
£000
126
50
5
5
3

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Directors’ Remuneration Report
continued

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 2018 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 2018 against targets for the 2018 financial year is as follows:

2018 Financial Year Targets

Amount Achieved for the Year Ended 30 June 2018

Underlying profit before tax performance: 10% of salary payable
upon the achievement of 95% of Group profit target rising to 90%
of salary payable upon the achievement of 110% of Group
profit target*.

Personal objectives: up to an additional 10% of salary was payable
to Executive Directors upon the achievement of personal objectives*.

Total Annual Bonus Earned for the Year Ended 30 June 2018

The underlying profit before tax target was £87.8 million (at CER). Actual
underlying profit before tax was £93.7 million, resulting in a payment worth
66% of salary1.

Actual performance resulted in payment worth 10% of salary for the period
or Ian Page and Richard Cotton and 8% of salary for Tony Griffin. The
objectives are based on key aspects of delivering the Group’s strategy2.

76% of salary for Ian Page and Richard Cotton and 74% for Tony
Griffin.

1 The Committee considered the effect of the financing of the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (the Acquisition), including in particular the impact
on the underlying profit before tax if the Acquisition had been purely financed by cash rather than 25% in equity and 75% in cash, as well as taking into account that
that £102.3 million of the cash was obtained via the placing of shares. The Committee concluded that if the Acquisition had been funded solely by cash, the interest
associated with the debt financing would have made a minimal impact on the underlying profit before tax figure and it would not have affected the resulting payment of
66% of salary.

2 The Committee considers that the objectives for the forthcoming financial year (2019) are commercially sensitive as they give our competitors insight into our business

plans and therefore are not detailed in this report. They will be disclosed in the 2019 Annual Report & Accounts.

The personal objectives of each Executive Director for the year ended 30 June 2018 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

Richard Cotton

Tony Griffin

Objective
Acquisition

Pipeline Delivery
People
Organisation

Financing
Technology

Financial Reporting

Technology
Geographic Expansion

Portfolio Focus

Performance
Acquisition of RxVet Limited, AST Farma B.V. and Le Vet Beheer
B.V.
In-licensing deals with Premune, Kane Biotech and Bioveta
Recruited and onboarded the Group Marketing Director
Continued evolution of organisational structure through
centralisation of core services
Complete refinancing of facility agreement and term loan
Implementation of Hyperion Financial Management and Treasury
management systems. Oversaw Oracle Steering Committee
Evolved cyclical reporting to enable clear oversight and
accountability of business results and shortened reporting cycles
Implemented the delayed Oracle finance project for DVP EU

Integration of AST Farma B.V. and Le Vet Beheer B.V.
Implemented market penetration plan for endocrinology and
cardiology increasing market share. Delivered portfolio growth
above the market in key territories and accelerated sales growth in
Nutrition.

Based on the above assessment against objectives set, the Committee determined that the performance of Ian Page and Richard Cotton
warranted maximum payout in relation to the non-financial elements of their respective bonuses. Tony Griffin warranted a payout of 8% in relation to
the non-financial elements of his bonus. The Committee’s approach to Executive Directors’ annual bonus opportunities for the year ending 30 June
2019 is summarised on page 92.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018

www.dechra.com

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LTIP Awards Vesting in Respect of the Year Ended 30 June 2018
The LTIP awards granted on 15 September 2015 are due to vest on 15 September 2018. Ian Page and Tony Griffin were granted LTIP Awards
on 15 September 2015, 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 (CAGR)
<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

* This reflects the EPS performance requirement for maximum vesting as increased by the Committee, from the original level of 13%, to reflect the acquisition of Putney,

as disclosed in the Directors’ Remuneration Report for the 2016 financial year.

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%.

The Company’s TSR performance was over 185.6% compared with a 51.1% TSR for the upper quartile company in the comparator group (FTSE
250 Index (excluding investment trusts)). Therefore 100% of the TSR element will vest. In addition, the compound annual growth in the Group’s
underlying diluted EPS for the performance period was 24.2%. Accordingly, 100% of the EPS element will vest. Overall, taking into account that
ROCE performance for 2018 was 15.4%, the LTIP awards will vest as to 100% of maximum opportunity. In the single figure table on page 85, 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 £27.707 (being
the average market value of a share over the last quarter of the Company’s financial period ended on 30 June 2018).

Recruitment Award for Richard Cotton
As disclosed in the Directors’ Remuneration Report for the 2016 financial year, as part of his recruitment, the Committee agreed to award Richard
two ‘buyout’ awards in respect of incentives forfeited as a consequence of joining Dechra. Each award was over shares with a value of £350,000
at the date of grant, 7 March 2017.

The vesting of the first of those awards was subject to a performance condition based on the Chief Executive Officer’s assessment of his
performance during the first year of his appointment (3 January 2017 to 3 January 2018). Based on the Chief Executive Officer’s assessment of his
performance over this period, the award vested as to 100% on 3 January 2018. In the single figure table on page 85 the value attributable to this
award is calculated by multiplying the number of shares in respect of which the award vested (21,033) by £20.64 (being the mid market value of
a share on 3 January 2018).

The vesting of the second award was subject to the same performance conditions as those applying to the LTIP awards granted on 15 September
2015, as detailed above. Therefore this second award vested as to 100% on 28 August 2018. In the single figure table on page 85 the value
attributable to this award is calculated by multiplying the number of shares in respect of which the award vested by £27.707 (being the average
market value of a share over the last quarter of the Company’s financial period ended on 30 June 2018).

The details of the LTIP awards granted during the year ended 30 June 2018 are set out on page 90. The Committee’s approach to Executive
Directors’ LTIP awards for the year ending 30 June 2019 is summarised on page 92.

SAYE Exercised During the Year Ended 30 June 2018

Ian Page

Date of
grant
13 October 2014

Number of
options
1,465

Option
price
£6.14

Exercise
date
2 March 2018

The aggregate gain made by the Executive Directors on share options and LTIP awards exercised during 2018 was £3,497,837 (2017: £2,872,032).

Stock Code: DPHDirectors’ Remuneration Report
continued

Pension
Ian Page and Richard Cotton were both 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 earning over £150,000 per annum reduced from £40,000 to £10,000 on
6 April 2016. Richard Cotton 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 2017
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 2017
Transfer value at 30 June 2018
Increase in transfer value over the period after member contribution

€9,861
€9,861
€10,157
€19,000
€253,000
€274,000
€21,000

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 a non-reduced pension is payable is 10 February 2040.

TSR Graph
The graph below shows the TSR performance of the Company over the past nine financial years compared with the TSR over the same period for
the FTSE 250 Total Return Index. Throughout the financial year ended 30 June 2018 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.

950

850

750

650

550

450

350

250

150

x
e
d
n

n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S

a
t
o
T

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Dechra

FTSE 250

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com

Chief Executive Officer Remuneration for Nine Previous Years

Year ended
30 June 2018
30 June 2017
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
3,536
3,420
2,480
1,934
1,589
1,201
682
984
768

Annual bonus
payout (%
of maximum
opportunity)
76
92
72
80
80
36
60
60
44

LTIP vesting
(% of
maximum
number of
shares)
100.0
100.0
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 2017 and the year ended 30 June 2018.
For these purposes, UK employees were chosen as a comparator group reflecting that Ian Page is UK based and the number of UK employees
was sufficiently large to provide a robust comparison. Employees outside the UK were not included in the comparator group since country specific
differences could distort the comparison.

Salary1
Taxable benefits2
Annual bonus

Chief Executive Officer

Average per all UK based Employees

2018
£000
500
59
380

2017
£000
490
54
451

(Decrease)/
increase
%
2.0
9.3
(15.7)

2018
£000
37.4
2.4
4.7

2017
£000
35.6
1.7
3.0

Increase
%
2.8
41.2
56.7

Ian Page notified the Committee that he did not wish to be considered for a salary increase in 2018, and accordingly, his salary for 2018 was not increased. The
increase in the table above reflects that the 2017 salary increase was in effect from 1 September 2016.

2. Excludes SAYE options granted in the financial year.

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 2017 and the year ended 30 June 2018.

Distributions to shareholders by way of dividend and share buyback
Overall expenditure on pay

Year ended
30 June 2018
£000
21,810
86,834

Year ended
30 June 2017
£000
19,973
76,117

% change
9.2
14.1

Stock Code: DPHDirectors’ Remuneration Report
continued

Long Term Incentive Arrangements and Share Schemes:
LTIP Awards Made During the Year Ended 30 June 2018
Awards were granted to the Executive Directors on 2 March 2018, as set out in the table below. These awards were deferred from September 2017
due to the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (the Acquisition):

Ian Page

Type of award
Nil cost option under the LTIP 200% of salary

Maximum
opportunity

Number of
shares
39,904

Face value
at grant1
£999,994

Richard Cotton2

Nil cost option under the LTIP 150% of salary

21,473

£538,113

Tony Griffin3

Conditional award under the
LTIP

100% of salary

12,099

£303,201

% of award
vesting at
threshold

Performance
period
25% 1 July 2017 –
30 June 2020

25% 1 July 2017 –
30 June 2020

1. For these purposes, the face value of the award is calculated by multiplying the number of shares by £25.06 (being the average share price used to determine the

number of shares comprised in the awards).

2. Each of Ian Page and Richard Cotton has also been granted a tax qualifying option over 1,197 shares at an exercise price of £25.06 as part of their LTIP award. These
tax qualifying options are linked to the nil cost option such that, at the time of exercise, to the extent that there is a gain in the tax qualifying option, the nil cost option
will be forfeited to the value of that gain, to ensure that the pre-tax value of the LTIP award is not increased by the grant of the tax qualifying option.

3. The exchange rate used for this purpose was 1.1297 (the exchange rate at grant).

One third 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

Two thirds 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 disclosed in the Directors’ Remuneration Report in the 2017 Annual Report, the EPS growth target required for maximum vesting was
proposed to be 15.5%, however following the Acquisition it was agreed to increase this, recognising the additional earnings forecasted, to 18%
CAGR. Accordingly, the EPS target is as follows:

Original EPS compound annual
growth rate
<8% CAGR
8% CAGR
CAGR between 8% and 18%
>18% 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.

Each award is subject to a two year holding period. Other than shares sold to satisfy tax liabilities arising in connection with the acquisition of shares
or to fund the exercise price of the tax qualifying option, no shares acquired may be sold before the second anniversary of vesting.

SAYE Options Granted in the Year
The following SAYE options were granted during the year ended 30 June 2018.

Ian Page

Richard Cotton

Payments to Past Directors
There were no payments made to past Directors during the period.

Payments for Loss of Office
There were no payments for loss of office made to Directors during the period.

Date of
grant
12 October 2017

12 October 2017

Number of
options
1,093

Option
price
£16.46

Exercise
date
December 2020

1,093

£16.46

December 2020

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com
Shareholding Guidelines and Statement of Directors’ Shareholdings and Interests:
Executive Directors
In respect of the financial year ended 30 June 2018, the Company’s shareholding guidelines required Executive Directors to have acquired and retained
half of any shares acquired under the LTIP and, if relevant, any recruitment award (after sales to cover tax) until such time as their holding has a value
equal to 200% of salary. Unvested share based incentives will not be allowed to count towards the holding requirements. Shares which are vested,
but which remain subject to a holding period and/or clawback, may count towards the holding requirement on a net of assumed tax basis.

The holdings of each person who served as an Executive Director during the period ended 30 June 2018 and their families as at 30 June 2018 are
as follows:

Name
Ian Page
Richard Cotton
Tony Griffin

Appointment
date
13 June 1997
3 January 2017
1 November 2012

Ordinary
shares
Number
738,697
42,351
64,320

Ordinary
shares
£000*
20,551
1,178
1,789

% of
salary
4,110.1
328.4
592.0

* Calculated using the share price as at 30 June 2018.

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
2018 are as follows:

Name
Tony Rice
Ishbel Macpherson
Julian Heslop
Lawson Macartney

Appointment
date
5 May 2016
1 February 2013
1 January 2013
1 December 2016

Ordinary
shares
number
40,000
5,848
10,000
5,880

Ordinary
shares
£000*
1,113
163
278
164

% of
base fee
883.2
325.4
556.4
327.2

* Calculated using the share price as at 30 June 2018.

There have been no changes in the holdings of the Directors between 30 June and 3 September 2018.

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 during the year ended 30 June 2018 are as follows:

Ian Page

Award date
15 September 2014

Number of
shares at
30 June
2017
115,334

Granted
during the
year
—

Lapsed
during the
year
—

Exercised
during the
year
(115,334)

Richard Cotton

Tony Griffin

15 September 2015
19 September 2016
2 March 20182
7 March 20173

7 March 20173
2 March 20182
15 September 2014

15 September 2015
19 September 2016
2 March 2018

90,721
73,260
—
21,033

21,033
—
29,937

22,641
20,858
—

—
—
39,904
—

—
21,473
—

—
—
12,099

—
—
—
—

—
—
—

—
—
—
(21,033)

—
—
(29,937)

—
—
—

Number of
shares at
30 June
2018

Status
— Vested and
exercised in
the year
Unvested1
Unvested
Unvested
— Vested and
exercised in
the year
Unvested4
Unvested
— Vested and
exercised in
the year
Unvested1
Unvested
Unvested

90,721
73,260
39,904

21,033
21,473

22,641
20,858
12,099

Performance
period
2014-2017

2014–2017
2015–2018
2016–2019
2017–2018

2015–2018
2016–2019
2013–2016

2014–2017
2015–2018
2016–2019

1. Will vest on 15 September 2018 as to 100%.
2. Each of Ian Page and Richard Cotton has also been granted a tax qualifying option over 1,197 shares at an exercise price of £25.06 as part of their LTIP award. These
tax qualifying options are linked to the nil cost option such that, at the time of exercise, to the extent that there is a gain in the tax qualifying option, the nil cost option
will be forfeited to the value of that gain.

3. These awards are Recruitment Awards granted to Richard Cotton as referred to on page 87. They were granted outside the rules of the LTIP.
4. Vested on 28 August 2018 as to 100%.

Stock Code: DPHDirectors’ Remuneration Report
continued

SAYE Scheme
The only options held under the SAYE Scheme by any person who served as a Director during the year ended 30 June 2018 are those granted on
12 October 2017 shown in the table on page 90 .

Implementation of the Directors’ Remuneration Policy in the Year Ending 30 June 2019 (Unaudited):
The Directors’ Remuneration Policy outlined on pages 94 to 98 will be implemented in the year ending 30 June 2019, as set out below.

Salary and Fees
The next review of Executive Directors’ salaries will be undertaken in September 2018. It is planned that the Executive Directors’ salaries for 2018
will increase in line with the range of increases proposed for the wider workforce.

Following a review of the Non-Executive Directors’ base and additional fees, it was agreed that no changes will be made to the base fee for the
Chairman and Non-Executive Directors for the year ending 30 June 2019. With regards to the additional fees, it was agreed to increase the fees as
follows:

Office
Remuneration Committee Chairmanship additional fee
Audit Committee Chairmanship additional fee
Nomination Committee Chairmanship additional fee
Senior Independent Director additional fee

2018
Fee
£000
5
5
—
3

2019
Fee
£000
8
10
5
5

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 2019, on the same basis as for the year ended 30 June 2018. Details of the bonus structure can be found on page 86. 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 86 in
respect of bonuses for the Group’s 2018 financial year.

LTIP
The Committee proposes that LTIP awards for the year ending 30 June 2019 (the 2019 Grant) will be made at the level of 200% of salary for
Ian Page, 150% for Richard Cotton and 100% of salary for Tony Griffin. The performance measures remain as per the grant of LTIP awards made
on 2 March 2018, details of which can be found on page 90. In setting the EPS growth targets for the 2019 Grant, the Committee had regard
to the Acquisition. The Committee concluded that maintaining the same growth targets appropriately balanced the required level of stretch with
incentivisation. The Committee will consider the targets again in advance of the grants in respect of the awards for the year ending 30 June 2020,
recognising that the base year for those awards will include a full year of AS Farma and Le Vet.

The awards will ordinarily be subject to a two year post vesting holding period.

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 member’s attendance at the Committee’s meetings is detailed on page 68.

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 2018 financial year this review took place at the June 2018 meeting. Copies can be obtained via
the Company website at www.dechra.com. The Committee Chairman and the Company Secretary are available to shareholders to discuss the
Remuneration Policy.

An overview of the Committee’s terms of reference is provided on page 69.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comService Contracts and Letters of Appointment
Details of the Executive Directors’ service contracts and Non-Executive Directors’ letters of appointment are set out below.

Notice Period

Name
Tony Rice
Ian Page
Richard Cotton
Tony Griffin
Julian Heslop
Lawson Macartney
Ishbel Macpherson

Commencement date
5 May 2016
1 September 2008
3 January 2017
1 November 2012
1 January 2013
1 December 2016
1 February 2013

Director
3 months
6 months
6 months
6 months
3 months
3 months
3 months

Company
3 months
12 months
12 months
12 months
3 months
3 months
3 months

There are no expiry dates applicable to either Executive or Non-Executive Directors’ service contracts. The Non-Executive Directors are entitled to
compensation on termination of their appointment confined to three months’ remuneration.

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 who held an external appointment was Ian Page. He was Non-Executive Chairman of Sanford DeLand Asset
Management Limited, a position which he resigned from in October 2017. During the year, Ian Page received no remuneration for this appointment.

Advisers
The following have provided advice to the Committee during the year in relation to its consideration of matters relating to Directors’ remuneration:

• Chief Executive Officer, Chief Financial Officer, Group HR Director and Company Secretary; 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 £13,000 for the year ended 30 June 2018. 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. During the year Deloitte also performed global tax compliance work for Dechra.

Statement of Voting at Previous 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 20 October 2017:

Resolution
To approve Remuneration Report
To approve Remuneration Policy
To approve the new LTIP

Ishbel Macpherson
Remuneration Committee Chairman
3 September 2018

Votes
for
66,111,495
72,932,631
70,433,043

% of vote
94.18
98.88
95.49

Votes
against
4,086,647
823,955
3,328,963

% of vote
5.82
1.12
4.51

Votes
withheld
3,567,113
8,619
3,199

Stock Code: DPHDirectors’ Remuneration Report
continued

Directors’ Remuneration Policy
The Remuneration Policy was approved by Shareholders at the Annual General Meeting held on 20 October 2017 and became effective from this
date. The full Remuneration Policy as approved by shareholders is available in the Directors’ Remuneration Report included in the financial year 2017
Annual Report and Accounts at www.dechra.com.

We have set out below those parts of the Remuneration Policy which we consider shareholders will find most useful.

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
While no formal performance conditions apply, an individual’s
performance in role is taken into account in determining any
salary increase.

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 within the
range of salary increases 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.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comElement: Retirement Benefits

Purpose and link to strategy
Provide a competitive means of saving to deliver appropriate income in retirement.

Operation
The Company operates a Group Stakeholder personal pension scheme.

Performance measure
Not applicable.

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. Pension
contributions over this cap are paid into a defined contribution pension plan.

In appropriate circumstances, an Executive Director may receive a salary
supplement in lieu of contributions to a pension scheme.

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 (or car allowance), medical cover and life assurance
scheme.

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

Performance measure
Not applicable.

Purpose and link to strategy
The executive bonus scheme rewards Executive Directors for achieving financial and strategic targets in the relevant year by reference to operational
targets and individual objectives.

Operation
Targets are reviewed annually and any pay-out is determined by the Committee
after the year end based on targets set for the financial period.

The Committee has discretion to amend the pay-out should any formulaic
output not reflect the Committee’s assessment of overall business performance.

Recovery provisions apply, as referred to below.

Maximum opportunity
The 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 to reflect the
Company’s strategy.

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. The personal
objectives are reviewed and endorsed by the Committee.

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.

Stock Code: DPHDirectors’ 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).

Awards will vest as to 25% for threshold performance, increasing
to 100% for maximum performance.

Operation
The Committee intends to make long term incentive awards under the LTIP
approved at the 2017 Annual General Meeting.

Under the new LTIP, the Committee may grant awards as conditional shares,
as nil (or nominal) cost options, as forfeitable shares, as market value share
options with a per share exercise price equal to the market value of a share
at the date of grant or as cash settled equivalents (or may settle in cash
a share award). Other than in the case of ‘Qualifying LTIP awards’ as referred
to below, market value share options will not be granted to Executive Directors.
Awards will usually vest following the assessment of the applicable performance
conditions, but will not be released (so that the participant is entitled to acquire
shares) until the end of a holding period of two years beginning on the vesting
date. Alternatively, awards may be granted on the basis that the participant is
entitled to acquire shares following the assessment of the applicable
performance conditions but that (other than as regards sales to cover tax
liabilities) the award is not released (so that the participant is able to dispose
of those shares) until the end of the holding period.

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 period beginning with the
date of grant and ending with the release date (this payment may assume that
dividends had been reinvested in Dechra shares on a cumulative basis).

Market value options may be granted under the LTIP as tax-advantaged
Company Share Option Plan (CSOP) options, offering tax savings to the Group
and the participant.

The Committee may at its discretion structure awards as Qualifying LTIP
Awards, consisting of a CSOP option and an ordinary nil-cost LTIP award,
with the ordinary award scaled back at exercise to take account of any gain
made on exercise of the CSOP option.

Recovery provisions apply, as referred to below.

Maximum opportunity
The maximum award level under the LTIP in respect of any financial year is
200% of salary.

If a Qualifying LTIP award is granted, the value of shares subject to the CSOP
option will not count towards the limits referred to above, reflecting the
provisions for the scale back of the ordinary LTIP award.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comElement: All Employee Share Plans

Purpose and link to strategy
Provision of the Save As You Earn Scheme (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 typical market
practice.

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 qualifying
employees.

Maximum opportunity
The limit on participation and the permitted discount under the SAYE scheme
will be those set in accordance with the applicable tax legislation from time to
time. The limit on participation under and other relevant terms of 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.

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 reflecting the
experience of the individual,
responsibilities of the role and the
expected time commitment.

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.

Fees are set taking into account
the responsibilities of the role and
expected time commitment.

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.

Stock Code: DPHDirectors’ Remuneration Report
continued

Recruitment Remuneration Policy
When hiring a new Executive Director, the Committee will typically align the remuneration package with the above Policy.

When determining appropriate remuneration arrangements, the Committee may include other elements of pay which it considers are appropriate.
However, this discretion is capped and is subject to the limits referred to below.

• Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may include

agreement on future increases up to a market rate, in line with increased experience and/or responsibilities, subject to good performance, where
it is considered appropriate.

• Pension will only be provided in line with the above Policy.

• The Committee will not offer non-performance related incentive payments (for example a ‘guaranteed sign-on bonus’).

• Other elements may be included in the following circumstances:

• an interim appointment being made to fill an Executive Director role on a short term basis;

•

if exceptional circumstances require that the Chairman or a Non-Executive Director takes on an executive function on a short term basis;

•

if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long term incentive award
for that year as there would not be sufficient time to assess performance. Subject to the limit on variable remuneration set out below, the
quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair
and appropriate basis;

•

if the Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable relocation, travel and
subsistence payments. Any such payments will be at the discretion of the Committee.

• The Committee may also alter the performance measures, performance period, vesting period and holding period of the annual bonus or LTIP,

subject to the rules of the LTIP, if the Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be
clearly explained in the next Directors’ Remuneration Report.

• The maximum level of variable remuneration which may be granted (excluding ‘buyout’ awards as referred to below) is 300% of salary.

The Committee may make payments or awards in respect of hiring an employee to ‘buyout’ remuneration arrangements forfeited on leaving a
previous employer. In doing so, the Committee will take account of relevant factors including any performance conditions attached to the forfeited
arrangements and the time over which they would have vested. The Committee will generally seek to structure ‘buyout’ awards or payments on
a comparable basis to the remuneration arrangements forfeited. Any such payments or awards are excluded from the maximum level of variable
remuneration referred to above. ‘Buyout’ awards will ordinarily be granted on the basis that they are subject to forfeiture or ‘clawback’ in the event
of departure within 12 months of joining Dechra, although the Committee will retain discretion not to apply forfeiture or clawback in appropriate
circumstances.

Any share awards referred to in this section will be granted as far as possible under Dechra’s ordinary share plans. If necessary and subject to the
limits referred to above, recruitment awards may be granted outside of these plans as permitted under the Listing Rules which allow for the grant
of awards to facilitate, in unusual circumstances, the recruitment of an Executive Director.

Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue in
accordance with their terms.

Fees payable to a newly appointed Chairman or Non-Executive Director will be in line with the policy in place at the time of appointment.

Policy on Service Contracts:
Details of the Executive Directors’ service contracts and Non-Executive Directors’ letters of appointment are set out on page 93.

Whilst the Committee’s policy is for the service contract of any newly appointed Executive Director to have a notice period of not more than
12 months, the Committee retains discretion to set an initial notice period of up to 24 months, reducing to 12 months after the initial 12 months of
employment.

Ishbel Macpherson
Remuneration Committee Chairman
3 September 2018

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comDirectors’ 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
2018. 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 8 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;

• Details of acquisitions and disposals during the year;

• Going concern and viability statements;

• Approach to 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 24 to the Financial Statements.

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
As detailed in the Going Concern Statement on page 71, the Group has bank facilities with a group of banks comprising Bank of Ireland (UK) plc,
BNP Paribas, Fifth Third Bank, HSBC Bank plc, Lloyds Bank plc, Raiffeisen Bank International AG and Santander UK plc (the Banks); these facilities
include change of control provisions. 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.

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 subsidiaries Genera d.d., has established branches in Bosnia-Herzegovina and Serbia, and Apex Laboratories Pty Limited
in New Zealand.

Political Donations and Expenditure
No political donations were made during the year ended 30 June 2018 (2017: nil). The Group has a policy of not making any donations to political
organisations or independent election candidates or incurring political expenditure anywhere in the world as defined in the Political Parties, Elections
and Referendums Act 2000.

Research and Development
The Group has a structured development programme with the aim of identifying and bringing to market new pharmaceutical products. Investment
in development is seen as key to strengthen further the Group’s competitive position. Further information in relation to product development can be
found on pages 38 and 39. The expense on this activity for the year ended 30 June 2018 was £18.3 million (2017: £15.0 million) and a further
£1.7 million (2017: £1.2 million) was capitalised as development costs.

Results and Dividends
The results for the year and financial position at 30 June 2018 are shown in the Consolidated Income Statement on page 111 and Consolidated
Statement of Financial Position on page 113. The Directors are recommending the payment of a final dividend of 18.17 pence per share which, if
approved by shareholders, will be paid on 16 November 2018 to shareholders registered at 26 October 2018. The shares will become ex-dividend
on 25 October 2018. An interim dividend of 7.33 pence per share was paid on 6 April 2018, making a total dividend for the year of 25.50 pence per
share (2017: 21.44 pence per share). The total dividend payment is £26.1 million (2017: £20.0 million).

Stock Code: DPHDirectors’ Report – Other Disclosures
continued

Share Capital
The issued share capital of the Company for the year is set out in note 25 to the Consolidated Financial Statements. As at the end of the financial
year 102,329,635 fully paid ordinary shares were in issue, which included 358,302 ordinary shares issued during the year in connection with the
exercise of options under the Company’s share option schemes. 5,121,952 new ordinary shares were offered by way of a placing at an issue price
of 2050 pence per share, raising approximately £102.3 million (net of underwriting commission). The placing price of 2050 pence per share was a
0.6% discount to the closing mid-market price per ordinary share on 24 January 2018, being the last practical date prior to the announcement of the
placing. These new ordinary shares were issued on 30 January 2018 fully paid and rank pari passu in all respects with the existing ordinary shares.
3,670,625 new ordinary shares were issued to the sellers of AST Farma B.V. and Le Vet Beheer B.V. at an issue price of 2031 pence per share. The
issue price was the average of the middle market closing price of an ordinary share for the 30 days up to and including 24 January 2018, being the
last practical date prior to the announcement of the acquisition. These new ordinary were issued on 13 February 2018 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 is the Trustees
of the Dechra Employee Benefit Trust, who hold 21,033 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 20 October 2017, the Company was authorised to purchase up to 9,318,140 of its ordinary
shares, representing 10% of the issued share capital of the Company as at 8 September 2017. 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 2017 Annual General Meeting and resolutions to renew these authorities will be proposed at the 2018
Annual General Meeting.

Substantial Interests in Voting Rights
In accordance with the requirements in the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial Conduct Authority, the
Company had been notified of the following interests exceeding the 3% notification threshold as at the end of the financial year and a date not more
than one month before the date of the notice of the Annual General Meeting.

Fidelity Management & Research
Standard Life Aberdeen
BlackRock Inc
Rabobank
Aviva plc
AEGON
The Capital Group Companies, Inc
Legal & General Group

30 June 2018

14 August 2018

Aggregate
voting
rights
9,798,363
8,075,151
6,153,098
3,972,240
3,527,876
3,348,201
3,260,018
3,145,648

Aggregate
voting
rights
10,343,626
7,959,701
6,161,565
3,845,724
3,495,786
3,369,664
3,069,955
3,102,491

Percentage
10.11
7.78
6.02
3.76
3.42
3.29
3.00
3.03

Percentage
9.58
7.89
6.01
3.88
3.45
3.27
3.19
3.07

Auditor
A resolution to re-appoint PricewaterhouseCoopers LLP as external auditor and to authorise the Audit Committee 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:

Melanie Hall
Company Secretary
3 September 2018

100

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comStatement of Directors’ Responsibilities

Statement of Directors’ Responsibilities in Respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors are required to prepare the
Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and
Company Financial Statements in accordance with United Kingdom (UK) Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law).

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 Company and of the profit or loss of the Group and Company for that period. In preparing the Financial Statements, the
Directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable IFRSs as adopted by the European Union have been followed for the Group Financial Statements and United Kingdom
Accounting Standards, comprising FRS 101, have been followed for the Company Financial Statements, subject to any material departures
disclosed and explained in the Financial Statements;

• make judgements and estimates that are reasonable and prudent; and

• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in

business.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company, and enable them to ensure
that the 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.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group and Company’s performance, business model and strategy.

Each of the Directors as at the date of the Annual Report, whose names and functions are set out on pages 64 and 67, confirm that to the best of
their knowledge:

1. the Company Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice

(United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law), give a true and fair view of
the assets, liabilities, financial position and profit of the Company;

2. the Group Financial Statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities,

financial position and profit or loss of the Group; and

3. the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company,

together with a description of the principal risks and uncertainties that it faces.

Approved by the Board and signed on its behalf by:

Ian Page
Chief Executive Officer
3 September 2018

Richard Cotton
Chief Financial Officer
3 September 2018

101

Stock Code: DPHOur
Financials

Giving a clear understanding
of Dechra’s financials.

Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive
Income
Consolidated Statement of Financial
Position
Consolidated Statement of Changes in
Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial
Statements
Company Statement of Financial Position
Company Statement of Changes in
Shareholders’ Equity
Notes to the Company Financial Statements
Financial History

104
111

112

113

114
115

116
156

157
158
165

Read more on Financial Statements on
pages 111 to 165

102

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com103

Stock Code: DPHIndependent Auditor’s Report to the Members of
Dechra Pharmaceuticals PLC

Report on the Audit of the Financial Statements
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 2018 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
(United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); 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.

We have audited the Financial Statements, included within the Annual Report and Accounts (the Annual Report), which comprise: the Consolidated
and Company Statements of Financial Position as at 30 June 2018; the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Cash Flows; the Consolidated and Company Statements of Changes in Shareholders’
Equity for the year then ended; and the Notes to the Financial Statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs
(UK) are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
or the Company.

Other than those disclosed in note 7 to the Financial Statements, we have provided no non-audit services to the Group or the Company in the
period from 1 July 2017 to 30 June 2018.

Our Audit Approach
Overview

• Overall Group materiality: £2.3 million (2017: £2.6 million).
•

In determining overall Group materiality, we have considered a range of benchmarks that may be appropriate
in the Group’s circumstances and which are used to assess the performance of the Group. These include
Group Revenue, Group Profit before tax and Group Profit before tax adjusted for non-recurring items. Applying
our professional judgement, we determined Group overall materiality to be £2.3 million.
• Overall Company materiality: £2.4 million (2017: £1.2 million) based on 0.5% of net assets.

• Following our assessment of the risks of material misstatement of the Consolidated Financial Statements we

•

performed audits of the complete financial information of 22 reporting units.
In addition the Group engagement team audited the Company and certain centralised functions, including
those covering the Group treasury operations, 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 91% of Group revenue and 73% of Group profit before tax.

• As part of our supervision process, the Group engagement team have visited significant components, in

addition to performing the audits of the in scope UK reporting locations.

Our assessment of the risk of material misstatement also informed our views on the areas of particular focus of
our work which are listed below:

• Business combinations – assessment of the acquisition accounting in respect of Le Vet Beheer B.V. and AST

•

Farma B.V.
Impairment of intangible assets – assessment of the carrying value of acquired intangible assets and other
relevant assets.

• Licensing agreements – recognition and subsequent remeasurement of acquired intangible assets in respect

of licensing agreements.

• Taxation – assessment of uncertain tax provisions.

104

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comThe Scope of Our Audit
As part of designing our audit, we determined materiality and assessed 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.

We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered
the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at Group and
significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the
risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the Group and Company financial
statements, including, but not limited to, the Companies Act 2006, the Listing Rules, Pensions legislation and UK tax legislation. Our tests included,
but were not limited to, review of the financial statement disclosures to underlying supporting documentation, review of correspondence with and
reports to the regulators, review of correspondence with legal advisers, enquiries of management, review of significant component auditors’ work
and review of internal audit reports. There are inherent limitations in the audit procedures described above and the further removed non-compliance
with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.

We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management
override of internal controls, including testing journals and evaluating whether there was evidence of bias by the Directors that represented a risk of
material misstatement due to fraud.

Key Audit Matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the Financial Statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our
audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is
not a complete list of all risks identified by our audit.

Key audit matter

How our audit addressed the key audit matter

Business combinations – assessment of the acquisition accounting in
respect of Le Vet Beheer B.V. and AST Farma B.V.

Refer to the Audit Committee Report on page 75, the critical
accounting estimates and judgements in note 1 (b) to the accounts on
page 116, and note 32 (Acquisitions).

The Group completed the acquisition of Le Vet Beheer B.V. (“Le Vet”)
and AST Farma B.V. (“AST Farma”) on 13 February 2018.

We focused on this area because the accounting for business
combinations including the 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
the acquisition of Le Vet and AST Farma, significant value has been
attributed to the developed technology, brand, the non-compete
agreement, right of first refusal to future products developed externally
and in process research and development, 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 calculation of deferred tax liabilities arising on the identifiable
intangible assets is reliant on the correct application of local tax rates.

We reviewed management’s assessment of the acquired assets and
liabilities to ensure that the identification process was complete and
accurate.

We obtained the cash flow forecasts supporting the valuation of those
intangible assets identified and agreed that these were consistent with
those approved by the Board as part of the acquisition process. In
addition, we performed look-back tests to assess the accuracy of the
Group’s forecasts and assumptions, and performed sensitivity analysis
over the key assumptions to determine if they could have a significant
impact over the value recorded. 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 engaged our valuation specialists who confirmed that the
methodology used to value each intangible asset is in line with
expectation. They 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
with those applied by companies of comparable size, geographical
spread and within the relevant industry.

For the remaining fair values of other assets and liabilities acquired, we
performed substantive testing to verify the existence, accuracy and
completeness of material assets and liabilities.

Additionally, we reviewed the disclosure note associated with the
acquisition and confirmed that this was appropriate.

We recalculated the deferred tax liabilities arising on the acquired
intangibles assets and agreed that relevant tax rates have been used.

105

Stock Code: DPHIndependent Auditor’s Report to the Members of
Dechra Pharmaceuticals PLC
continued

Key audit matter

How our audit addressed the key audit matter

Impairment of intangible assets - assessment of the carrying value of
acquired intangible assets and other relevant assets.

We reviewed the recent financial performance of individual products
and held discussions with management in respect of future market
conditions to identify any potential indicators of impairment.

Refer to the Audit Committee Report on page 75, the critical accounting
estimates and judgements in note 1 (b) to the accounts on page 116,
and note 12 (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 intangible 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
is deemed to be the most significant in these forecasts is in respect of
the future performance of products. The long term growth and discount
rate are also considered to be subjective.

We reviewed management’s impairment model and reperformed
all calculations within the discounted cash flow. We agreed that the
current and future revenue forecasts used as the basis of the model are
consistent with previous performance. Valuation specialists were utilised
to benchmark, within a reasonable range, the growth and discount
rate assumptions to economic and industry averages and the cost of
capital for other comparable companies respectively. We assessed the
sufficiency of headroom through the performance of sensitivity analysis
on key assumptions, confirming that an impairment is not reasonably
possible.

Licensing agreements – recognition and subsequent remeasurement of
acquired intangible assets in respect of licensing agreements.

• New in-licensing agreements - We obtained management’s model
and reperformed the calculations forming the basis of the valuation.

We have performed sensitivities on the expected timing of contractual
milestones and agreed that those adopted are consistent with those
approved by the Board. Through the performance of sensitivity analysis,
we have confirmed that a material misstatement is not reasonably
possible.

Our valuation specialists also agreed that the discount rate was
consistent to those applied by other companies of comparable size,
geographical spread and within the relevant industry.

• Remeasurement of existing agreements - We have assessed the
changes made to the assumptions underpinning the in-licensing
agreements with Kane Biotech Inc. and Animal Ethics Pty Ltd. In
doing so we corroborated the revised cash flow assumptions to
updated forecasts and performed sensitivity analysis to take into
consideration reasonably possible alternatives.

Refer to the Audit Committee Report on page 75, the critical accounting
estimates and judgements in note 1 (b) to the accounts on page 116,
and note 12 (Intangible assets).

New in-licensing agreements
On 31 March 2018, an exclusive licence and distribution agreement
to market and supply a number of equine vaccines within the Group’s
European territories was acquired.

The in-licensing agreement has been recorded at cost and will be
amortised on a straight line basis over 8 to 10 years, dependent upon
the first product launch in accordance with the terms of the contract.

On 1 June 2018, a licence distribution agreement for an injectable
solution was acquired.

The in-licensing agreement has been recorded at cost and will be
amortised straight line over the period of the contract of 15 years from
the date of FDA approval.

The milestone and other payments of each contract are forecast to
reflect the probability of successful product launch and subsequent
performance under the contractual terms of each agreement. The future
payments are contingent on these factors and therefore represent an
area of judgement.

Remeasurement of existing agreements
During the year related liabilities in respect of the exclusive distribution
agreement for StrixNB and DispersinB with Kane Biotech Inc. and
the in-licensing agreement with Animal Ethics Pty Ltd for Tri-Solfen®
were reassessed for the timing and quantum of future contingent cash
flows. The variability of the timing and quantum of the future cashflows
represents an area of judgement.

106

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comKey audit matter

How our audit addressed the key audit matter

Taxation - assessment of uncertain tax provisions.

Refer to the Audit Committee Report on page 75, the critical accounting
estimates and judgements in note 1 (b) to the accounts on page 116,
and note 9 (Income Tax Expenses).

The Group operates in a complex multi-national tax environment
and there are open tax matters and areas of judgement with various
overseas tax authorities. In addition, from time to time the Group enters
into commercial transactions with complicated accounting and tax
consequences.

Judgement is required in assessing the level of provisions required in
respect of uncertain tax provisions.

In conjunction with our UK, US and international tax specialists, we
evaluated and challenged management’s judgements in respect of
estimates of tax exposures and contingencies in order to assess the
adequacy of the Group’s tax provisions. This included obtaining and
evaluating certain third party tax advice that the Group has obtained to
assess the appropriateness of any assumptions used.

In understanding and evaluating management’s judgements, we
considered the status of recent and current tax authority audits and
enquiries, the outturn of previous claims, judgemental positions taken
in tax returns and current year end estimates and developments in
the tax environment. We noted that due to the varying assumptions
and judgements that are required to formulate the provisions there
are a number of possible outcomes. However, based on the evidence
obtained, we consider the level of provisioning and related disclosure to
be acceptable in the context of the Group Financial Statements taken as
a whole.

We determined that there were no key audit matters applicable to the Company to communicate in our report.

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 structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.

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 54 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 54 active reporting units we identified 22 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 91% of Group revenue and 73% of adjusted profit before tax. Of these reporting units, 20 were considered to be significant
components due to their size or risk characteristics, being those units located in the UK, the USA, Denmark and the Netherlands.

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 treasury operations, 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 any unusual transactions. The Company was also subject to a full scope audit.

Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those
reporting component units. As a result, all overseas significant components in the USA, Denmark and the Netherlands were visited by senior
members of the Group audit team, whilst the Group engagement team were responsible for the audit of all in scope UK reporting units. In addition,
the Group audit team were 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 in aggregate on the Financial
Statements as a whole.

107

Stock Code: DPHIndependent Auditor’s Report to the Members of
Dechra Pharmaceuticals PLC
continued

Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:

Overall materiality

£2.3 million (2017: £2.6 million).

£2.4 million (2017: £1.2 million).

Group Financial Statements

Company Financial Statements

How we determined it

0.5% of net assets.

In determining overall Group materiality, we have
considered a range of benchmarks that may be
appropriate in the Group’s circumstances and which
are used to assess the performance of the Group. These
include Group Revenue, Group Profit before tax and
Group Profit before tax adjusted for non-recurring items.
Applying our professional judgement, we determined
overall Group materiality to be £2.3 million.

Rationale for benchmark
applied

We believe that profit before tax adjusted for non-
recurring items 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.

The Company is the ultimate holding Company of
the Dechra Group of Companies and with no trading
activity, net assets is considered to be the primary
measure used by the shareholders in assessing the
performance of the entity, and is a generally accepted
auditing benchmark.

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality
allocated across components was between £0.015 million and £1.9 million. Certain balances within the Company were within the scope for the
Group audit and audited to a lower component materiality, whilst the Company’s financial statements as a whole were audited to a materiality of
£2.4 million.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2 million (Group audit)
(2017: £0.1 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Going Concern
In accordance with ISAs (UK) we report as follows:

Reporting obligation

We are required to report if we have anything material to add or draw attention to in respect of
the Directors’ Statement in the Financial Statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting in preparing the Financial Statements
and the Directors’ identification of any material uncertainties to the Group’s and the Company’s
ability to continue as a going concern over a period of at least 12 months from the date of approval
of the Financial Statements.

Outcome

We have nothing material to add or to
draw attention to. However, because
not all future events or conditions can
be predicted, this statement is not
a guarantee as to the Group’s and
Company’s ability to continue as a going
concern.

We are required to report if the Directors’ statement relating to Going Concern in accordance with
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

We have nothing to report.

Reporting on Other Information
The other information comprises all of the information in the Annual Report other than the Financial Statements and our auditors’ report thereon. The
Directors are responsible for the other information. Our opinion on the Financial Statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the Financial Statements or a material misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report based on these responsibilities.

With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the disclosures required
by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and
the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs
(UK) unless otherwise stated).

108

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the
year ended 30 June 2018 is consistent with the Financial Statements and has been prepared in accordance with applicable legal requirements.
(CA06)

In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)

Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages
63 to 73) about internal controls and risk management systems in relation to financial reporting processes and about share capital structures in
compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) is consistent with the
Financial Statements and has been prepared in accordance with applicable legal requirements. (CA06)

In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 63
to 73) with respect to the Company’s corporate governance code and practices and about its administrative, management and supervisory bodies
and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)

We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the Company.
(CA06)

The Directors’ Assessment of the Prospects of the Group and of the Principal Risks that Would Threaten the Solvency
or Liquidity of the Group
We have nothing material to add or draw attention to regarding:

• The Directors’ confirmation on pages 71 to 72 of the Annual Report 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.

• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.

• The Directors’ explanation on pages 71 to 72 of the Annual Report 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 to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the principal risks
facing the Group and 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 enquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment
with the relevant provisions of the UK Corporate Governance Code (the Code); and considering whether the statements are consistent with the
knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules)

Other Code Provisions
We have nothing to report in respect of our responsibility to report when:

• The statement given by the Directors, on page 77, that they consider the Annual Report taken as a whole to be fair, balanced and understandable,
and provides the information necessary for the 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 obtained in the course of performing our audit.

• The section of the Annual Report on page 76 describing the work of the Audit Committee does not appropriately address matters communicated

by us to the Audit Committee.

• The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of

the Code specified, under the Listing Rules, for review by the auditors.

Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006. (CA06)

109

Stock Code: DPHIndependent Auditor’s Report to the Members of
Dechra Pharmaceuticals PLC
continued

Responsibilities for the Financial Statements and the Audit
Responsibilities of the Directors for the Financial Statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 101, the Directors are responsible for the preparation of the
Financial Statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also
responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material
misstatement, whether due to fraud or error.

In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these Financial Statements.

A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditors’ report.

Use of this Report
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.

Other Required Reporting
Companies Act 2006 Exception Reporting
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

• certain disclosures of Directors’ remuneration specified by law are not made; 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.

Appointment
Following the recommendation of the Audit Committee, we were appointed by the Directors on 23 October 2015 to audit the Financial Statements
for the year ended 30 June 2016 and subsequent financial periods. The period of total uninterrupted engagement is three years, covering the years
ended 30 June 2016 to 30 June 2018.

Andrew Hammond (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
3 September 2018

• The maintenance and integrity of the Dechra Pharmaceuticals PLC website is the responsibility of the Directors; the work carried out by the

auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have
occurred to the Financial statements since they were initially presented on the website.

• Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other

jurisdictions.

110

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comConsolidated Income Statement
For the year ended 30 June 2018

Revenue
Cost of sales
Gross profit
Selling, general and administrative
expenses
Research and development expenses
Operating profit
Finance income
Finance expense
Share of loss of investments accounted
for using the equity method
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)

Note
2

Underlying
£m
407.1
(179.6)
227.5

(110.0)
(18.3)
99.2
1.5
(6.9)

(0.1)
93.7
(19.2)
74.5

74.5
—

74.5

2
3
4

6
7
9

11
11

2017

Non-
underlying*
(notes
4 & 5)
£m
—
(4.2)
(4.2)

(32.5)
(11.4)
(48.1)
—
(0.2)

(0.1)
(48.4)
14.4
(34.0)

(34.0)
—

(34.0)

Underlying
£m
359.3
(163.4)
195.9

(99.6)
(15.0)
81.3
0.8
(5.1)

—
77.0
(16.9)
60.1

60.1
—

60.1

2018

Non-
underlying*
(notes
4 & 5)
£m
—
(5.1)
(5.1)

(52.0)
(8.0)
(65.1)
—
0.5

(0.2)
(64.8)
26.4
(38.4)

(38.4)
—

(38.4)

Total
£m
407.1
(184.7)
222.4

(162.0)
(26.3)
34.1
1.5
(6.4)

(0.3)
28.9
7.2
36.1

36.1
—

36.1

37.24p
37.04p

25.50p

Total
£m
359.3
(167.6)
191.7

(132.1)
(26.4)
33.2
0.8
(5.3)

(0.1)
28.6
(2.5)
26.1

26.1
—

26.1

28.09p
27.93p

21.44p

* Non-underlying items comprise items associated with areas such as amortisation and related costs of acquired intangibles, impairment of investments, remeasurement
and other movements on deferred and contingent consideration, non-cash inventory adjustments, rationalisation of manufacturing organisation costs, rationalisation
and acquisition expenses, loss on extinguishment of debt and fair value and taxation credits.

111

Stock Code: DPHConsolidated Statement of Comprehensive Income
For the year ended 30 June 2018

Profit for the year

Other comprehensive income/(expense):

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/(expense)

Items that may be reclassified subsequently to profit or loss:
Recycle of profit 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

2018
£m
36.1

—
—

—

—
(0.4)
—
(0.4)
35.7

35.7
—
35.7

2017
£m
26.1

2.1
(0.5)

1.6

0.3
12.9
—
13.2
40.9

40.7
0.2
40.9

112

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comConsolidated Statement of Financial Position
At 30 June 2018

ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments
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 income
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
Foreign currency translation reserve
Merger reserve
Retained earnings
Total equity attributable to equity holders of the parent
Non-controlling interests
Total equity

Note

12
13
6
15

16
17
18

21
19
33
20

33
23
22
15

2018
£m

709.8
45.3
10.5
3.8
769.4

86.6
81.6
79.7
247.9
1,017.3

(1.2)
(75.7)
(8.8)
(5.9)
(91.6)

(289.9)
(0.2)
(28.0)
(3.0)
(2.8)
(96.8)
(420.7)
(512.3)
505.0

1.0
359.3
(0.4)
17.8
1.8
125.5
505.0
—
505.0

The financial statements were approved by the Board of Directors on 3 September 2018 and are signed on its behalf by:

Ian Page
Chief Executive Officer
3 September 2018

Company number: 3369634

Richard Cotton
Chief Financial Officer
3 September 2018

2017
£m

396.3
45.2
10.8
0.8
453.1

56.5
67.3
61.2
185.0
638.1

(1.0)
(61.3)
(1.6)
(2.5)
(66.4)

(180.2)
—
(33.4)
(3.0)
(3.2)
(49.3)
(269.1)
(335.5)
302.6

0.9
173.4
(0.7)
18.2
1.8
107.4
301.0
1.6
302.6

113

Stock Code: DPHConsolidated Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2018

Year ended 30 June 2017
At 1 July 2016
Profit for the period
Recycle of 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
Total comprehensive income
Transactions with owners:
Dividends paid
Share-based payments
Shares issued
Acquisition of non-controlling interests
Own shares purchased
Total contributions by and distributions to
owners
At 30 June 2017
Year ended 30 June 2018
At 1 July 2017
Profit for the period
Foreign currency translation differences for
foreign operations, net of tax
Total comprehensive income
Transactions with owners:
Dividends paid
Share-based payments
Shares issued
Recycle of own shares to retained earnings
Acquisition of non-controlling interests
Total contributions by and distributions to
owners
At 30 June 2018

Attributable to owners of the parent

Issued
share
capital
£m
0.9
—

Share
premium
account
£m
172.5
—

Foreign
currency
translation
reserve
£m
5.5
—

Own
shares
£m
(0.1)
—

Merger
reserve
£m
1.8
—

Retained
earnings
£m
94.0
26.1

—

—
—

—
—
—
—
—

—
0.9

0.9
—

—
—

—
—
0.1
—
—

0.1
1.0

—

—
—

—
—
0.9
—
—

0.9
173.4

173.4
—

—
—

—
—
185.9
—
—

185.9
359.3

—

—
—

—
—
—
—
(0.6)

(0.6)
(0.7)

(0.7)
—

—
—

—
—
—
0.3
—

—

12.7

—
12.7

—
—
—
—
—

—
18.2

18.2
—

(0.4)
(0.4)

—
—
—
—
—

—

—
—

—
—
—
—
—

—
1.8

1.8
—

—
—

—
—
—
—
—

0.3

—

1.6
28.0

(17.7)
3.1
—
—
—

(14.6)
107.4

107.4
36.1

—
36.1

(21.8)
4.3
—
(0.3)
(0.2)

0.3
(0.4)

—
17.8

—
1.8

(18.0)
125.5

Non-
controlling
interests
£m
2.0
—

—

0.2

—
0.2

—
—
—
(0.6)
—

(0.6)
1.6

1.6
—

—
—

—
—
—
—
(1.6)

(1.6)
—

Total
£m
274.6
26.1

0.3

12.7

1.6
40.7

(17.7)
3.1
0.9
—
(0.6)

(14.3)
301.0

301.0
36.1

(0.4)
35.7

(21.8)
4.3
186.0
—
(0.2)

168.3
505.0

Total
equity
£m
276.6
26.1

0.3

12.9

1.6
40.9

(17.7)
3.1
0.9
(0.6)
(0.6)

(14.9)
302.6

302.6
36.1

(0.4)
35.7

(21.8)
4.3
186.0
—
(1.8)

166.7
505.0

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.

114

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comConsolidated Statement of Cash Flows
For the year ended 30 June 2018

Cash flows from operating activities
Operating profit
Non-underlying items
Underlying operating profit
Adjustments for:
Depreciation
Amortisation and impairment
Loss on disposal of intangible assets
Loss on disposal of tangible assets
Equity settled share-based payment expense
Underlying operating cash flow before changes in working capital
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Cash generated from operating activities before interest, taxation and non-underlying items
Cash outflows in respect of non-underlying items
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
Acquisition of subsidiaries (net of cash acquired)
Acquisition of non-controlling interests
Acquisition of investments in associates
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
Own shares purchased
New borrowings
Expenses of raising borrowing facilities
Repayment of borrowings
Dividends paid
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period

Reconciliation of net cash flow to movement in net borrowings
Net increase in cash and cash equivalents
New borrowings
Repayment of borrowings
Expenses of raising borrowing facilities
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net borrowings in the period
Net borrowings at start of period
Net borrowings at end of period

Note

13
12
7
7
28

27
6
13
12
12

25
26

2018
£m

34.1
65.1
99.2

4.8
2.6
—
—
2.4
109.0
(22.5)
(9.5)
8.6
85.6
(4.4)
81.2
(5.7)
(11.5)
64.0

(227.3)
(1.8)
—
(4.9)
(1.3)
(6.4)
(241.7)

103.3
—
133.4
(3.9)
(17.2)
(21.8)
193.8
16.1
61.2
2.4
79.7

16.1
(133.4)
17.2
3.9
2.4
3.3
(0.9)
(91.4)
(120.0)
(211.4)

2017
£m

33.2
48.1
81.3

4.9
2.0
0.3
0.2
2.3
91.0
(1.6)
6.4
2.1
97.9
(3.7)
94.2
(4.8)
(12.0)
77.4

(35.0)
(0.6)
(11.0)
(4.2)
(1.2)
(5.2)
(57.2)

0.9
(0.6)
25.0
(0.1)
(5.9)
(17.7)
1.6
21.8
39.1
0.3
61.2

21.8
(25.0)
5.9
0.1
0.3
(6.3)
(0.2)
(3.4)
(116.6)
(120.0)

115

Stock Code: DPHNotes to the Consolidated Financial Statements

1. Accounting Policies

Dechra Pharmaceuticals PLC is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in
the United Kingdom. The address of its registered office is 24 Cheshire Avenue, Cheshire Business Park, Lostock Gralam, Northwich, England.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below, these have been
applied consistently in all years presented.

(a) Statement of Compliance

These consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial
Reporting Standards (IFRSs) and IFRS Interpretations Committee (IFRS IC) as adopted by the European Union, and the Companies Act
2006 applicable to companies reporting under IFRS. The Company has elected to prepare its Parent Company financial statements in
accordance with FRS 101 and they are separately presented on pages 156 to 164.

(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 8 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 71 for details.

The consolidated financial statements are presented in Sterling, rounded to the nearest hundred thousand. They are prepared on a going
concern basis and under the historical cost convention, except where IFRS 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 14.

(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 estimate 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.
Other intangible assets acquired by the Group are stated at cost, which might include future milestone and royalty payments.
The measurement of these reflect management’s best estimate as to future performance, discounted at an appropriate 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.

At 30 June 2018 the Group held a current provision of £2.6 million (2017: £2.4 million) in respect of uncertain tax provisions.
Liabilities relating to these open and judgemental matters are based on an assessment as to whether additional taxes will be due,
after taking into account external advice where appropriate. The resolution of these tax matters may take many years. The Group
does not expect to materially increase its uncertain tax provision in the next 12 months.

(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 rationalisation, acquisition and disposal related expenses and income
(including amortisation and impairment on acquired intangibles, non-cash inventory adjustments, and the remeasurement and other
movements on deferred and contingent consideration), debt refinancing including any loss on extinguishment of debt, impairment
of investments and the rationalisation of the manufacturing organisation and taxation credits. Judgement is associated with the
classification of these items. The costs incurred in making acquisitions and their integration are deemed to be non-underlying as
they do not relate to the sales and profit from ongoing trading activities.

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(b) Basis of Preparation continued

(iv) Business Combinations

The Deferred and contingent consideration and assets and liabilities acquired through business combinations are recorded
initially at fair value. Those fair values are 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
judgemental.

Adoption of New and Revised Standards
The following standards, amendments to standards or interpretations are mandatory for the first time for the years ended after 30 June
2018, which have had a material impact on the financial statements.

•

IFRS 15 ‘Revenue from contracts with customers’; is effective for accounting periods beginning on or after 1 January 2018 and will
replace existing accounting standards. It provides a single, principles-based approach to the recognition of revenue from all contracts
with customers, reflecting the transfer of goods and services at a value that the Company expects to be entitled to receive. The
new Standard is not expected to have a material impact on the amount or timing of recognition of reported revenue. The Group will
retrospectively apply the standard, recognising a cumulative adjustment to decrease equity at 1 July 2018 by approximately
£6.5 million. This represents the earlier recognition of rebates and discounts based on a probability of occurrence basis of calculation.
The impact of this change on the income statement for the year ended 30 June 2018 would have been to reduce net revenue by
£1.1 million. There is no impact on the cash flow as a result of the implementation of this change in accounting policy. In accordance
with the Standard requirements, where the modified retrospective approach is applied, prior year results will not be restated.

IFRS 9 ‘Financial Instruments’; is effective for accounting periods on or after 1 January 2018 and will replace existing accounting
standards. The Standard introduces changes to the classification, measurement and de-recognition of financial assets and financial
liabilities, provides a new impairment model for financial assets based on expected losses and stipulates a new hedge accounting model.
The new Standard is not expected to have a material impact on reported results. The Group will retrospectively apply the standard from
1 July 2018 recognising the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained
earnings.

IFRS 16 ‘Leases’; is effective for accounting periods on or after 1 January 2019 and will replace existing accounting standards. The
Standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease
term is 12 months or less or the underlying asset has a low value. The standard will affect primarily the accounting for the Group’s
operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of £12.6 million. However,
the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future
payments and how this will affect the Group’s profit and classification of cash flows.

New Standards and Interpretations not yet Adopted
There are no new standards, amendments to existing standards or interpretations that are not yet effective that would be expected to
have a material impact on the Group.

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 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).

Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity
method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share
of the change in net assets of the investee after the date of acquisition. Intangible assets identified as part of the notional purchase price
allocation are amortised over the useful life of each asset, with the Group’s share recognised as a charge in the income statement.

The Group’s share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements
in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of
the investment. Distributions received from an associate reduce the carrying amount of the investment.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired.
If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and
its carrying value and recognises the amount adjacent to share of profit/(loss) of associates in the income statement.

Gains and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the
Group’s financial statements only to the extent of unrelated investors’ interests in the associates. Unrealised losses are eliminated unless
the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where
necessary to ensure consistency with the policies adopted by the Group.

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Stock Code: DPHNotes to the Consolidated Financial Statements
continued

1. Accounting Policies continued
(d) Foreign Currency Translation

(i)

(ii)

Functional and Presentational Currency
The consolidated financial statements are presented in Sterling, which is the Group’s presentational currency, and are rounded to
the nearest hundred 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).

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 income and expenses are translated to Sterling at the average rate for the period being reported. The assets and liabilities of
foreign operations are translated to Sterling at the closing rate at the reporting date. Foreign currency differences on all translations
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 and Liabilities, 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.

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.

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. 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.

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(e) Accounting for Financial Assets and Liabilities, Derivative Financial Instruments and Hedging Activities continued

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 and impairment losses.

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 15 years
4 years

The residual value, where significant, is reassessed annually.

(g)

Intangible Assets
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of
subsidiaries, associates and joint ventures. In respect of business acquisitions that have occurred before 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 (including future milestone and royalty payments as applicable)
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.

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Notes to the Consolidated Financial Statements
continued

1. Accounting Policies continued

(g)

Intangible Assets 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.

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 or is otherwise stated below. Goodwill and intangible assets with an indefinite useful life are systematically tested for
impairment at each consolidated statement of financial position date. Intangible assets are amortised from the date that they are available
for use. Assets in the course of construction are not amortised until the date the assets become 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
• pharmacological process

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
10 years

The pharmacological process and capitalised developed technology from the acquisitions of Putney Inc. and AST Farma B.V. and Le Vet
Beheer B.V. respectively are amortised on a reducing balance method at a rate of 20% over a 10 year life based on the expected profile
of future cash flows. All amortisation on a reducing balance methodology is recognised within selling and general administrative expenses
with the exception of that in respect of the pharmacological process which is recognised within research and development expenses.

The amortisation of the intangible assets are classified as an administrative expense because they relate to the right to sell and distribute
the product. Within the acquired intangibles the product rights encompass market authorisations, and the capitalised development
costs encompass product authorisations subject to regulatory approval. The pharmacological process is classified as a research and
development expense as it relates to the process of taking a product through to registration.

When considering the basis of amortisation for our acquired intangibles, we consider a number of factors: the different market conditions
which surround the intangible, the age of the products within developed technology and their corresponding place within the life cycle of
the product.

(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 determined 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.

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1. Accounting Policies continued
Impairment continued
An impairment loss in respect of goodwill is not reversed.

(j)

In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(k) Dividends

Dividends are recognised in the period in which they are approved by the Company’s shareholders or, in the case of an interim dividend,
when the dividend is paid.

(l)

Employee Benefits
Pensions
The Group operates a stakeholder personal pension scheme for certain employees. Obligations for contributions are recognised as an
expense in the income statement as incurred.

Dechra Veterinary Products SAS and Dechra Veterinary Products BV participate in state-run pension arrangements. These are not
considered to be material to the Group financial statements and are accounted for as defined contribution schemes, with contributions
being recognised as an expense in the income statement as incurred.

The Group sponsors defined benefit arrangements in certain countries, the most material being a defined benefit pension plan in the
Netherlands. This is a funded career average pay arrangement, where pensionable salary is subject to a cap. The arrangement is 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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Notes to the Consolidated Financial Statements
continued

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. We estimate the quantity and value of goods which may ultimately be returned at the point of sale. Our
return accruals are based on actual experience over the preceding 12 months for established products. For newly launched products,
we use rates based on our experience with similar products or a predetermined percentage.

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 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) Contingent Consideration

The Group had adopted the financial liability model when accounting for the contingent consideration of an asset. The estimated future
amounts payable for contingent consideration are recorded on initial recognition of the asset, together with a corresponding liability. Any
subsequent downward remeasurement of the related liability is adjusted against the intangible, with any excess recognised in the Income
Statement. Any subsequent upward remeasurement of the related liability is adjusted against the intangible.

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(q) 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 can be 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.

(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 IFRS is given in the Financial Review on page 20. A breakdown of the non-
underlying items 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. In undertaking this aggregation the assessment determined that the aggregated segments have
similar products, production processes, customers and overall regulatory environment.

The European Pharmaceuticals Segment comprises Dechra Veterinary Products EU, Dechra Veterinary Products International and Dechra
Pharmaceuticals Manufacturing. This Segment operates internationally and manufactures and markets Companion Animal, Equine, Food
producing Animal Products and Nutrition. This Segment also includes third party manufacturing and other non-core activities sales. The
Segment expanded during the year with the acquisition of RxVet Limited, AST Farma B.V. and Le Vet Beheer B.V.

The North American Pharmaceuticals Segment consists of Dechra Veterinary Products US, Putney, Dechra Veterinary Products Canada, and
Dechra-Brovel, which sells Companion Animal, Equine Products and Food producing Animal Products in those territories. The Segment also
includes our manufacturing unit based in Melbourne, Florida.

The Pharmaceuticals Research and Development Segment includes all of the Group’s pharmaceutical research and development activities.
From a Board perspective, this Segment has no revenue income.

123

Stock Code: DPH

Notes to the Consolidated Financial Statements
continued

2. Operating Segments continued

Reconciliation of reportable segment revenues, profit or loss and liabilities and other material items:

Revenue by segment
European Pharmaceuticals — total
— total
NA Pharmaceuticals

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
Remeasurement of contingent consideration
Impairment of assets available for sale
Fair value uplift of inventory acquired through business combinations
Rationalisation costs on business acquisitions
Rationalisation of manufacturing organisation
Expenses relating to acquisition activities
Total operating profit
Finance income
Finance expense
Share of losses in investment accounted for using the equity method
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
Nutrition
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

2018
£m

258.7
148.4
407.1

77.0
48.3

(18.3)
107.0
(7.8)
99.2
(54.1)
0.1
—
(5.1)
—
(2.9)
(3.1)
34.1
1.5
(6.4)
(0.3)
28.9

(79.6)
(31.0)
(1.4)
(112.0)
(291.1)
(6.5)
(102.7)
(512.3)

266.7
34.4
48.7
29.4
27.9
407.1

370.2
6.9
0.4
0.5
378.0

2017
£m

226.9
132.4
359.3

60.7
43.2

(15.0)
88.9
(7.6)
81.3
(40.4)
—
(0.6)
(4.2)
(0.8)
—
(2.1)
33.2
0.8
(5.3)
(0.1)
28.6

(73.7)
(20.2)
(0.4)
(94.3)
(181.2)
(8.2)
(51.8)
(335.5)

223.8
27.2
47.3
27.5
33.5
359.3

64.5
4.4
1.4
0.1
70.4

124

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com2. 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

The total depreciation, amortisation and impairment charge is made up of the following:
Non-underlying
Amortisation — selling, general and administrative expenses
Amortisation — research and development expenditure

Underlying
Amortisation and impairment
Depreciation

2018
£m

4.9
0.2
0.2
0.2
5.5

40.9
18.6
0.5
1.5
61.5

46.1
8.0
54.1

2.6
4.8
7.4

2017
£m

10.1
0.5
0.1
—
10.7

22.7
23.4
0.5
0.7
47.3

29.0
11.4
40.4

2.0
4.9
6.9

Geographical Information
The following table shows revenue based on the geographical location of customers and non-current assets based on the country of domicile
of the entity holding the asset:

UK
Germany
Rest of Europe
USA
Rest of World

3. Finance Income

Finance income arising from:
— Cash and cash equivalents
— Foreign exchange gains

2018
Revenue
£m
56.1
40.4
138.3
139.8
32.5
407.1

2018
Non-
current
assets
£m
18.9
2.4
493.9
180.1
74.1
769.4

2017
Revenue
£m
56.3
37.4
113.1
124.1
28.4
359.3

2018
£m

0.2
1.3
1.5

2017
Non-
current
assets
£m
15.6
2.4
192.4
193.2
49.5
453.1

2017
£m

0.2
0.6
0.8

125

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

4. Finance Expense

Underlying
Finance expense arising from:
— Financial liabilities at amortised cost
— Net Interest on net defined benefit obligations
Underlying finance expense

Non-underlying
Loss on extinguishment of debt (note 21)
Fair value and other movements on deferred and contingent consideration
Non-underlying finance (income)/expense
Total finance expense

5. Non-underlying Items

Non-underlying items charged to operating profit comprise:

Amortisation of acquired intangibles
— classified within selling, general and administrative expenses
— classified within research and development expenses
Impairment of assets available for sale
Remeasurement of contingent consideration
Fair value uplift of inventory acquired through business combinations
Rationalisation costs
Expenses relating to acquisition activities
Rationalisation of manufacturing organisation

2018
£m

6.8
0.1
6.9

2018
£m
0.4
(0.9)
(0.5)
6.4

2018
£m

46.1
8.0
—
(0.1)
5.1
—
3.1
2.9
65.1

2017
£m

5.0
0.1
5.1

2017
£m
—
0.2
0.2
5.3

2017
£m

29.0
11.4
0.6
—
4.2
0.8
2.1
—
48.1

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.

The remeasurement of the contingent consideration balance relates to the net credit to the income statement on the reassessment of future
milestone and royalty payments on a licensing agreement.

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.

Expenses relating to acquisition activities includes legal and professional fees incurred during the acquisitions of AST Farma and Le Vet
(£2.8 million) and Other (£0.3 million). Other is offset with the profit on the sale of human marketing authorisations acquired from previous
acquisitions of £0.4 million.

Rationalisation of manufacturing organisation relates to the cost associated with this strategic programme.

Impairment of assets available for sale in the prior year relates to the impairment of the investment in Jaguar Animal Heath Inc.

Rationalisation costs relate to the integration and restructuring programmes implemented subsequent to acquisitions.

126

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com6.

Interests in Associate
(a) Losses in Associate
Set out below is the summarised financial information of Medical Ethics Pty Ltd for the year ended 30 June 2018 (2017: period 30 March 2017
to 30 June 2017), which is accounted for using the equity method. This is not Dechra Pharmaceuticals PLC’s share of the results.

Revenue
Pre-tax loss from continuing operations
Post-tax loss from continuing operations

Non-current assets
Current assets

Non-current liabilities
Current liabilities

Net assets of associate

(b) Interest in Associate

1 July 2017
Additions
Share of underlying loss after tax
Share of amortisation of intangible asset identified on acquisition
30 June 2018

2018
£m

0.8
(0.1)
(0.1)

2018
£m
1.9
5.2
7.1
—
(0.4)
(0.4)
6.7

£m
10.8
—
(0.1)
(0.2)
10.5

2017
£m

1.6
(0.1)
(0.3)

2017
£m
—
5.5
5.5
—
(0.5)
(0.5)
5.0

£m
—
11.0
(0.1)
(0.1)
10.8

On 30 March 2017 the Group acquired a 33.0% interest in Medical Ethics Pty Ltd for AUD$18.0 million (£11.0 million), which is the holding
company of Animal Ethics Pty Ltd. The company is incorporated in Australia, which is also the principal place of business. The registered
address is c/o Level 3, 649 Bridge Road, Richmond, Victoria 3121, Australia. The company has share capital consisting solely of ordinary
shares, which are directly owned by the Group. Medical Ethics Pty Ltd is a private company and there is no quoted market price available for
its shares. There are no contingent liabilities relating to the Group’s interest in the associate.

Following the acquisition of Medical Ethics Pty Ltd, the disclosure of the final fair values of the assets and liabilities acquired were included in
the financial statements for the year ended 30 June 2017. The Group’s share of the loss arising from its investment in Medical Ethics includes
the effect of amortising the fair value adjustments.

Opening interest in associate
Fair value of associate acquired
Post-tax loss from continuing operations
Amortisation of notional intangible asset recognised on acquisition
Interest in associate
Goodwill
Carrying value of investment in associate

2018
£m
2.2
—
(0.1)
(0.2)
1.9
8.6
10.5

127

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

7. 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
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Impairment of intangible assets — underlying
(Release)/recognition of impairment of receivables
Operating lease rentals payable
Research and development expenditure as incurred
Auditors’ remuneration
Analysis of total fees paid to the Auditors:
Audit of these financial statements
Audit of financial statements of subsidiaries pursuant to legislation
Other assurance services - transaction services
Total fees paid to Auditors

2018
£m
140.4
2.0

4.8
56.6
—
—
0.1
(0.1)
2.8
18.3
1.4

0.4
0.5
0.5
1.4

2017
£m
147.7
0.9

4.9
42.4
0.2
0.3
—
0.4
3.0
15.0
0.7

0.2
0.4
0.1
0.7

Included within research and development expenditure is £0.25 million to secure the worldwide rights for an equine gastro intestinal formulation
from NewMarket Pharmaceuticals LLC which we plan to develop to registration through our R&D team.

8. 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 28)
Total

Related party transactions — the remuneration of key management was as follows:

Short term employee benefits
Post-employment benefits
Share-based payments charge

2018
Number

480
128
829
1,437

2017
Number

486
109
743
1,338

2018
£m
72.0
9.2
3.7
3.3
88.2

2018
£m
5.5
0.3
1.6
7.4

2017
£m
60.9
8.0
4.4
2.8
76.1

2017
£m
5.1
0.2
1.7
7.0

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 83 to 98.

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 £3.7 million (2017:
£4.4 million). Contributions to defined benefit pension schemes included in the above figures total £0.7 million (2017: £0.7 million).

128

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com9.

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 tax rates
— adjustment in respect of prior years

Total deferred tax credit
Total income tax (income)/expense in the Consolidated Income Statement

2018
£m
2.3
11.5
(0.4)
13.4
(9.2)
(11.2)
(0.2)

(20.6)
(7.2)

2017
£m
4.5
7.8
(0.9)
11.4
(9.5)
—
0.6

(8.9)
2.5

The tax on the Group’s profit before taxation differs from the standard rate of UK corporation tax of 19.00% (2017: 19.75%). The differences to
this rate are explained below:

Profit before taxation
Tax at 19.00% (2017: 19.75%)
Effect of:
— expenses not deductible
— acquisition expenses
— research and development related tax credits
— patent box tax credits
— impact of financing (income not taxable)
— effects of overseas tax rates
— movement in unrecognised deferred tax
— adjustment in respect of prior years
— change in tax rates
Total income tax (income)/expense in the Consolidated Income Statement

2018
£m

28.9
5.5

0.5
0.7
(0.1)
(2.6)
(0.5)
1.0
0.1
(0.6)
(11.2)
(7.2)

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. The effective tax rate is -24.9% (excluding non-underlying items the effective tax rate is 20.5%).

Tax Credit/(Charge) Recognised Directly in Equity

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

2018
£m
—
—

1.0
0.9
1.9

2017
£m

28.6
5.6

0.2
0.6
(0.1)
(2.1)
(0.7)
(0.7)
—
(0.3)
—
2.5

2017
£m
(0.5)
(0.5)

0.7
0.1
0.8

The UK current tax rate used for the period is 19.00% which is the enacted rate from 1 April 2017. Finance Act 2016 which was substantively
enacted in September 2016 included provisions to reduce the rate of corporation tax to 17% with effect from 1 April 2020. Deferred tax has
been calculated using the rate of 19% and 17% based on the timing of when each individual deferred tax balance is expected to reverse in the
future. Similarly, deferred tax arising in overseas jurisdiction has been based on the enacted rate.

US Tax Reform and EU CFC Challenge
The United States Tax Cuts and Jobs Act was signed on 22 December 2017 and included a broad range of tax reform measures including a
reduction in the Federal rate of corporate income tax from 35% to 21% (effective 1 January 2018) as well as significant changes to business
deductions and other international tax provisions including changes to the rules governing interest deductibility. In the results to 30 June 2018
US tax reform gave rise to a transitional one-off non-underlying non-cash tax credit of £10.0 million primarily due to the revaluation of the
Group’s aggregate US deferred tax assets and deferred tax liabilities following the reduction in the US Federal rate from 35% to 21%.

Finance arrangements are in place to fund the acquisition of business operations in overseas territories. This finance is provided primarily
to US operations through intragroup loans which provide a benefit to the Group effective tax rate. In addition, the Group claims a partial
exemption under the UK Controlled Foreign Companies legislation for profits from ‘qualifying loan relationships’. The Group is monitoring the
developments in relation to EU state aid investigations into this exemption, noting that at this stage the final outcome of any investigation is not
certain. As such, no quantification of the potential tax liability has been calculated, as the basis for this calculation is currently unclear.

Future Tax Charge
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 Base Erosion and Profit Shifting (‘BEPS’) actions, and changes in applicable tax rates and legislation in the territories in which it
operates.

129

Stock Code: DPH

Notes to the Consolidated Financial Statements
continued

10. Dividends

Final dividend paid in respect of prior year but not recognised as a liability in that year:
15.33 pence per share (2017: 12.91 pence per share)
Interim dividend paid: 7.33 pence per share (2017: 6.11 pence per share)
Total dividend 22.66 pence per share (2017: 19.02 pence per share) recognised as distributions
to equity holders in the period
Proposed final dividend for the year ended 30 June 2018: 18.17 pence per share
(2017: 15.33 pence per share)
Total dividend paid and proposed for the year ended 30 June 2018: 25.50 pence per share
(2017: 21.44 pence per share)

2018
£m

14.3
7.5

21.8

18.6

26.1

2017
£m

12.0
5.7

17.7

14.3

20.0

In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2018 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
2019. There are no income tax consequences. The final dividend for the year ended 30 June 2017 is shown as a deduction from equity in the
year ended 30 June 2018.

At 30 June 2018, the distributable reserves of Dechra Pharmaceuticals PLC as determined under UK company law is £120.4 million
(2017: £66.4 million).

11. 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

2018
Pence

76.85
37.24

76.45
37.04

2018
£m
74.5
36.1

2017
Pence

64.68
28.09

64.33
27.93

2017
£m
60.1
26.1

Number
96,942,002
509,209
97,451,211

Number
92,962,967
516,032
93,478,999

* Underlying measures exclude non-underlying items as defined in the Consolidated Income Statement on page 111.

At 30 June 2018, there are 231,551 options (2017: 294,848) that are excluded from the EPS calculations as they are not dilutive for the period
presented but may become dilutive in the future.

130

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com12. Intangible Assets

Goodwill
£m

Software
£m

Development
costs
£m

Patent
rights
£m

Marketing
authorisations
£m

Acquired
intangibles
£m

Cost
At 1 July 2016
Additions
Acquisitions through business
combinations
Disposals
Foreign exchange adjustments
At 30 June 2017 and 1 July 2017
Additions
Acquisitions through business
combinations
Remeasurement
Disposals
Foreign exchange adjustments
At 30 June 2018
Accumulated Amortisation
At 1 July 2016
Charge for the year

Disposals
Foreign exchange adjustments
At 30 June 2017 and 1 July 2017
Charge for the year
Acquisitions through business
combinations
Impairment
Disposals
Foreign exchange adjustments
At 30 June 2018
Net book value
At 30 June 2018
At 30 June 2017

113.2
—

9.9
—
5.0
128.1
—

102.3
—
—
(1.1)
229.3

—
—

—
—
—
—

—
—
—
—
—

229.3
128.1

9.2
3.2

0.1
(0.1)
0.3
12.7
4.2

—
—
—
(0.2)
16.7

2.5
0.5

(0.1)
—
2.9
0.8

—
0.1
—
(0.1)
3.7

13.0
9.8

10.3
1.2

—
(0.3)
0.5
11.7
1.7

—
—
(0.2)
—
13.2

5.1
1.0

—
—
6.1
1.2

—
—
(0.2)
—
7.1

6.1
5.6

5.0
0.3

—
—
—
5.3
0.9

(2.1)
—
(0.2)
—
3.9

2.6
0.5

—
—
3.1
0.5

(0.4)
—
(0.2)
—
3.0

0.9
2.2

Software assets in the course of construction included above

0.8
0.2

—
—
—
1.0
—

—
—
—
(0.1)
0.9

—
—

—
—
—
—

—
—
—
—
—

0.9
1.0

340.2
34.2

21.3
—
13.7
409.4
8.7

262.3
(3.1)
—
(3.3)
674.0

113.2
40.4

—
6.2
159.8
54.1

—
—
—
0.5
214.4

459.6
249.6

2018
£m
—

Total
£m

478.7
39.1

31.3
(0.4)
19.5
568.2
15.5

362.5
(3.1)
(0.4)
(4.7)
938.0

123.4
42.4

(0.1)
6.2
171.9
56.6

(0.4)
0.1
(0.4)
0.4
228.2

709.8
396.3

2017
£m
9.4

The 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 2018 was £0.1 million with a remaining
amortisation period of 0.5 years. The rights to Equidone, which was launched in the US during 2011, has a carrying value of £0.3 million
with a remaining amortisation period of 3 years. The in-licensed products within Canada acquired in 2016 had a carrying value of £0.3 million
and had a remaining amortisation periods of 8.5 years. During the year, £0.9 million was added to patent rights within EU from Le Vet B.V.
On acquisition of Le Vet during the year this and previously acquired patent rights from Le Vet were reclassified to acquired intangibles
(£1.7 million).

£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.

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 14.

During the year, the contingent consideration in relation to development milestones and sales milestones of the acquired intangibles has been
remeasured and to the extent possible remeasured against the intangibles.

131

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

12. Intangible Assets continued

In accordance with the disclosure requirements of IAS 38 ‘Intangible Assets’, the components of acquired intangibles are summarised below:

Commercial
relationships
£m

Pharmacological
process
£m

Capitalised
development
costs
£m

Brand
£m

Product
rights
£m

Cost
At 1 July 2016
Additions
Acquisitions through business combinations
Foreign exchange adjustments
At 30 June 2017 and 1 July 2017
Additions
Acquisitions through business
combinations
Remeasurement
Foreign exchange adjustments
At 30 June 2018
Accumulated Amortisation
At 1 July 2016
Charge for the year
Foreign exchange adjustments

At 30 June 2017 and 1 July 2017
Charge for the year
Foreign exchange adjustments
At 30 June 2018
Net book value
At 30 June 2018
At 30 June 2017

1.6
—
—
0.1
1.7
—

4.9
—
0.1
6.7

0.2
0.4
—

0.6
0.7
—
1.3

5.4
1.1

48.8
—
—
1.7
50.5
—

—
—
(0.9)
49.6

0.8
11.4
—

12.2
8.0
—
20.2

29.4
38.3

12.4
—
0.4
0.5
13.3
—

2.4
—
(0.3)
15.4

0.3
2.0
—

2.3
2.1
—
4.4

11.0
11.0

93.1
—
17.9
3.5
114.5
—

255.0
—
(2.2)
367.3

10.7
9.1
0.6

20.4
26.9
0.1
47.4

319.9
94.1

184.3
34.2
3.0
7.9
229.4
8.7

—
(3.1)
—
235.0

101.2
17.5
5.6

124.3
16.4
0.4
141.1

93.9
105.1

Total
£m

340.2
34.2
21.3
13.7
409.4
8.7

262.3
(3.1)
(3.3)
674.0

113.2
40.4
6.2

159.8
54.1
0.5
214.4

459.6
249.6

132

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com12. Intangible Assets continued

The table below provides further detail on the acquired intangibles and their remaining amortisation period.

Significant assets
Intangible assets arising from the acquisition of Dermapet

Intangible assets arising from the acquisition of Genetrix

Intangible assets arising from the acquisition of Eurovet

Intangible assets arising from the acquisition of
PSPC Inc
Intangible asset acquired from Pharmaderm
Animal Health
HY-50 intangible asset acquired from Bexinc Limited
Intangible assets arising from the acquisition of Genera

Intangible assets arising from the acquisition of Putney

Description
Product, marketing and
distribution rights
Product, marketing and
distribution rights
Technology, product, marketing
and distribution rights
Product, marketing and
distribution rights
Marketing and distribution rights

Marketing and distribution rights
Product, brand, technology,
marketing and distribution rights

Product, brand, technology,
pharmacological process,
marketing and distribution rights

Intangible asset arising from the acquisition of Apex

Product and technology

Intangible asset related to Animal Ethics
Intangible assets related to a US dental licensing
agreement
Intangible asset related to Bioveta
Intangible asset related to an injectable solution licensing
agreement
Intangible assets related to RxVet
Intangible assets arising from the acquisition of AST
Farma and Le Vet

Marketing and distribution rights
Marketing and distribution rights

Brand
Product, brand, technology,
marketing and distribution rights

Intangible asset related to Premune

Product

Carrying value
£m
22.7

Sub-Total
carrying value
£m
22.7

Remaining
amortisation
period
7 ½ years

1.4

33.5

3.9

0.7

1.8
1.1
0.4
8.0

8.2
29.7
50.3

14.5
2.4
0.2

28.2
1.0

2.0
6.5

0.2
86.2
136.6
15.6
2.2
2.2

0.1

1.4

2 ½ years

33.5

4 years

3.9

0.7

6 years

4 years

1.8

3 ½ years
4 ½ years
7 ½ years
12 ½ years
9.5 Genera – total
8 years
8 years
10 years
88.2 Putney – total
15 years
12 years
3 years
Apex – total
10 years
9 years

17.1
28.2
1.0

2.0
6.5

10 years
10 years

0.2

1 ½ years
9 ½ years
8 ½ years
10 years
2 ½ years
4 ½ years
242.242.8 AST Farma and
Le Vet – total
3 years

0.1
459.6

133

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

13. Property, Plant and Equipment

Freehold
land and
buildings
£m

Short
leasehold
buildings
£m

Motor
vehicles
£m

Plant and
fixtures
£m

Cost
At 1 July 2016
Additions
Acquired through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2017 and 1 July 2017
Additions
Acquired through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2018
Accumulated Depreciation

At 1 July 2016

Charge for the year
Disposals
Foreign exchange adjustments

At 30 June 2017 and 1 July 2017
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2017
Net book value
At 30 June 2018
At 30 June 2017

Contracted capital commitments
Assets in the course of construction included above

33.5
0.2
3.4
—
2.1
39.2
0.1
—
—
0.1
39.4

10.7

0.6
—
0.8

12.1
1.2
(0.2)
0.1
13.2

26.2
27.1

4.4
—
—
—
—
4.4
—
—
(0.2)
—
4.2

2.4

0.3
—
—

2.7
0.3
(0.3)
—
2.7

1.5
1.7

0.3
—
0.1
—
—
0.4
0.1
—
—
—
0.5

0.1

0.1
—
—

0.2
0.1
—
—
0.3

0.2
0.2

29.1
4.0
3.0
(0.9)
1.2
36.4
5.2
0.1
(1.7)
—
40.0

16.3

3.9
(0.7)
0.7

20.2
3.2
(1.4)
0.6
22.6

17.4
16.2

2018
£m

1.5
0.2

Total
£m

67.3
4.2
6.5
(0.9)
3.3
80.4
5.4
0.1
(1.9)
0.1
84.1

29.5

4.9
(0.7)
1.5

35.2
4.8
(1.9)
0.7
38.8

45.3
45.2

2017
£m

4.2
0.3

134

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com14. 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 between 0% and 3% (2017: 3%) per annum in years three and four; and

Thereafter, a terminal value is calculated based on year four cash flows, and assuming a long term growth rate of 0% (2017: 0%).

The projections covered a period of four years as we believe this to be the most appropriate timescale over which to review and consider
annual performances before applying a fixed terminal value.

Value in use calculations were performed at 30 June 2018 for the following assets:

Cash generating unit
Dechra Veterinary Products EU

Dechra Veterinary Products NA

Dechra Veterinary Products International

Cash generating unit
Dechra Veterinary Products EU

Dechra Veterinary Products NA

Dechra Pharmaceuticals Manufacturing — Skipton

2018

Goodwill
carrying
value
£m
167.5

Indefinite
life assets
carrying value
£m
0.9

52.9

8.9

229.3

Goodwill
carrying
value
£m
72.3

53.6

2.2

128.1

—

0.9

2017

Indefinite
life assets
carrying value
£m
1.0

—

1.0

Total
value
£m
168.4

52.9

8.9

230.2

Total
value
£m
73.3

53.6

2.2

129.1

Pre-tax
discount
rate
%
11.6

11.2

14.7

Pre-tax
discount
rate
%
11.7

14.5

13.2

Note: Dechra Pharmaceuticals Manufacturing – Skipton is not a separate CGU in the current year as it forms part of Dechra Veterinary
Products EU. This change was triggered by the manufacturing organisation. During the year, Dechra Veterinary Products International was
created as a separate business and consequently is now classified as a separate CGU.

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 2 to 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 10% and a reduction in the
growth rate to nil would still not result in the requirement for an impairment provision.

135

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

15. 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

2018
£m
—
—
0.9
1.2
2.4
2.1
1.2

1.0
8.8

2017
£m
—
—
0.8
3.5
1.6
8.4
1.3

1.0
16.6

2018
£m
(98.4)
(3.4)
—
—
—
—
—

—
(101.8)

2017
£m
(61.3)
(3.8)
—
—
—
—
—

—
(65.1)

2018
£m
(98.4)
(3.4)
0.9
1.2
2.4
2.1
1.2

1.0
(93.0)

2017
£m
(61.3)
(3.8)
0.8
3.5
1.6
8.4
1.3

1.0
(48.5)

Deferred tax assets and liabilities are offset to the extent that there is a legally enforceable right to offset current tax assets against current
tax liabilities.

(b) Unrecognised Deferred Tax
The aggregate amount of gross temporary differences associated with investments in subsidiaries for which deferred tax liabilities have
not been recognised is £1.8 million (2017: £1.5 million). The estimated unprovided deferred tax liability in relation to these temporary differences
is £0.1 million (2017: £0.1 million).

Deferred tax assets in relation to losses amounting to £0.9 million (2017: £1.1 million) have not been recognised due to uncertainty over their
recoverability. Included within unrecognised losses are £0.7 million of losses which expire prior to 2030. Other losses may be carried forward
indefinitely.

Balance at
1 July
2016
£m
(63.7)
(3.8)
(0.1)
1.6
1.4
14.0
0.9
1.2
(48.5)

Balance at
1 July
2017
£m
(61.3)
(3.8)
0.8
3.5
1.6
8.4
1.3
1.0
(48.5)

Acquired
through
business
combinations
£m
(6.4)
—
(0.3)
—
—
—
—
—
(6.7)

Acquired
through
business
combinations
£m
(64.6)
—
(2.0)
—
—
—
—
—
(66.6)

Recognised
in income
£m
11.1
(0.1)
1.3
1.9
0.1
(6.2)
0.5
0.3
8.9

Recognised
in income
£m
26.6
0.4
2.0
(2.3)
(0.1)
(6.1)
0.1
—
20.6

Recognised
in equity/OCI
£m
—
—
—
—
0.1
—
—
(0.5)
(0.4)

Recognised
in equity/OCI
£m
—
—
—
—
0.9
—
—
—
0.9

Foreign
exchange
adjustments
£m
(2.3)
0.1
(0.1)
—
—
0.6
(0.1)
—
(1.8)

Foreign
exchange
adjustments
£m
0.9
—
0.1
—
—
(0.2)
(0.2)
—
0.6

Balance at
30 June
2017
£m
(61.3)
(3.8)
0.8
3.5
1.6
8.4
1.3
1.0
(48.5)

Balance at
30 June
2018
£m
(98.4)
(3.4)
0.9
1.2
2.4
2.1
1.2
1.0
(93.0)

Intangible assets
Property, plant and equipment
Inventories
Receivables/payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations

136

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com15. Deferred Taxes continued

Deferred tax assets and liabilities are analysed in the statement of financial position, after offset of balances within countries as follows:

Deferred tax assets
Deferred tax liabilities

16. Inventories

Raw materials and consumables
Work in progress
Finished goods and goods for resale

2018
£m
3.8
(96.8)
(93.0)

2018
£m
18.0
6.1
62.5
86.6

Included in finished goods and goods for resale is £5.2 million (2017: £nil) of inventory held at net realisable value having been acquired
through business combinations.

17. Trade and Other Receivables

Trade receivables
Other receivables
Prepayments and accrued income

18. Cash and Cash Equivalents

Cash at bank and in hand

19. Trade and Other Payables

Trade payables
Other payables
Other taxation and social security
Accruals

20. Current Tax Liabilities

Corporation tax payable

2018
£m
76.0
3.0
2.6
81.6

2018
£m
79.7

2018
£m
33.0
12.3
4.4
26.0
75.7

2018
£m

5.9

2017
£m
0.8
(49.3)
(48.5)

2017
£m
15.6
3.9
37.0
56.5

2017
£m
59.7
5.5
2.1
67.3

2017
£m
61.2

2017
£m
21.4
18.7
4.8
16.4
61.3

2017
£m

2.5

137

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

21. Borrowings

Current liabilities:
Bank loans

Non-current liabilities:
Bank loans
Arrangement fees netted off

Total borrowings

2018
£m

1.2
1.2

293.3
(3.4)
289.9
291.1

2017
£m

1.0
1.0

180.6
(0.4)
180.2
181.2

In July 2017 the Group replaced its existing facility of £205.0 million with a multi-currency revolving credit facility of £235.0 million, with an
accordion of £125.0 million until 2022. During the year the termination date was extended to 2023 with the possibility of further extending to
2024. At the year end £157.7 million was drawn down against this facility. The 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 a minimum of 1.3% over LIBOR and at a maximum
of 2.2% over LIBOR, dependent upon the Leverage (the ration of Total Net Debt to Adjusted EBITDA) of the Group. At 30 June 2018, interest
being charged on this facility is 1.5% above LIBOR. All covenants were met during the year ended 30 June 2018. On replacement of the
existing facility, arrangement fees of £0.4 million were written off as non-underlying in relation to this facility.

In January 2018 the Group entered into a new multi-currency Term Loan facility of £350.0 million until 31 December 2020. At the year end
£132.9 million was drawn against this facility. The 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 a minimum of 1.1% over LIBOR and at a maximum of 2.0% over LIBOR,
dependent upon the Leverage (the ratio of Total Net Debt to Adjusted EBITDA) of the Group. At 30 June 2018, interest being charged on this
facility is 1.5% above LIBOR. All covenants were met during the year ended 30 June 2018. Arrangement fees of £3.9 million were incurred on
the new facilities during the year, these are being released to the income statement over the life of the facilities.

Genera also has borrowing facilities of £6.9 million, of which £3.9 million was drawn down at 30 June 2018. Interest is fixed at 3.1%.

The maturity of the bank loans and overdrafts is as follows:

Payable:
Within one year
Between one and two years
Between two and five years

Further information on the interest profile of borrowings is shown in note 24.

2018
£m

1.2
1.3
292.0
294.5

2017
£m

1.0
1.2
179.4
181.6

138

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com22. Provisions

At start of period
Provision recognised
Provision utilised
Foreign exchange differences
At end of period

Deferred Rent
£m
(0.5)
—
—
—
(0.5)

Provision for
PPE grant
£m
(2.3)
—
0.5
—
(1.8)

Environmental
Health & Safety
£m
(0.4)
—
—
(0.1)
(0.5)

Total
£m
(3.2)
—
0.5
(0.1)
(2.8)

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 (PPE grant) 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 established 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.

23. Employee Benefit Obligations

The other defined benefit pension arrangements operated by the Company are unfunded: Jubilee awards of £0.1 million (2017: £0.2 million) for
employees in the Netherlands are recognised within other payables in the Consolidated Statement of Financial Position as at 30 June 2018.

The pension cost relating to the defined benefit pension arrangement in the Netherlands is assessed in accordance with the advice of an
independent qualified actuary using the projected unit method.

The major actuarial assumptions used by the actuary were:

Discount rate
Inflation assumption
Salary growth
Rate of increase in accrued pensions of active members
Rate of increase in pensions in payment
Rate of increase in pensions in deferment

2018
1.90%
1.90%
2.40%
0.34%
0.00%
0.00%

2017
2.10%
1.80%
2.30%
0.80%
0.00%
0.00%

In valuing the liabilities of the pension scheme at 30 June 2018 and 30 June 2017, mortality assumptions have been made as indicated below.

The mortality assumption follows the Prognosetafel AG2016 (2017: Prognosetafel AG2016) mortality tables with an experience adjustment
in line with the ES-P2 tables as published by the Dutch Alliance of Insurers.

Assumed life expectations on retirement age
Retiring today (age 68)
Retiring in 20 years (age 48)

Male
18.8
21.0

Female
21.0
23.3

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

2018
£m
(20.3)
17.3
(3.0)

2017
£m
(17.9)
14.9
(3.0)

139

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

23. Employee Benefit Obligations continued

Movements in Present Value of Defined Benefit Obligations

Defined benefit obligation at beginning of the period
Service cost
Interest cost
Employee contributions
Benefits paid
Remeasurements:
— Loss/(gain) from change in financial assumptions
— Loss from change in demographic assumptions
— Experience losses
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
Benefits paid
Remeasurements:
— Premium adjustment
— Return on plan assets
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

Cumulative Analysis of the Amount Charged to the Other Statement of Consolidated Income

Amounts charged in previous periods
Actuarial (gain)/loss on defined benefit pension scheme

Net pension expense

2018
£m
17.9
0.6
0.4
0.2
—

0.6
—
0.6
—
20.3

2018
£m
14.9
0.3
(0.1)
0.7
0.2
—

0.3
0.9
0.1
17.3

2018
£m
0.6
0.1
0.1
0.8

2018
£m
0.5
—

0.5

2017
£m
17.4
1.6
0.3
0.2
—

(3.5)
0.1
0.7
1.1
17.9

2017
£m
13.6
0.2
(0.1)
0.7
0.2
—

0.5
(1.1)
0.9
14.9

2017
£m
1.6
0.1
0.1
1.8

2017
£m
2.6
(2.1)

0.5

140

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com23. 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:

Total fair value of assets
Actual return on scheme assets
Discount rate used to value assets

2018
£m
17.3
1.5
1.90%

2017
£m
14.9
0.2
2.10%

The long term rate of return on pension plan assets is determined by aggregating the expected return for each asset class over the strategic
asset allocation as at the year end. This rate of return is then adjusted for any expected profit sharing based on market related returns on
notional loans.

The scheme’s assets do not include any of the Group’s own financial instruments or any property occupied by or other assets used by
the Group.

The employer has a contract with the insurance company Nationale-Nederlanden to cover the committed pension benefits.

The employer contributions expected to be paid into the scheme for the next financial period amount to £0.7 million (2017: £0.7 million).

History of Amounts in the Current Period

Present value of funded defined benefit obligations
Fair value of scheme assets
Deficit in the scheme

2018
£m
(20.3)
17.3
(3.0)

2017
£m
(17.9)
14.9
(3.0)

2016
£m
(17.4)
13.6
(3.8)

2015
£m
(7.2)
5.9
(1.3)

2014
£m
(6.0)
4.9
(1.1)

The sensitivity of the defined benefit obligation to change in the weighted principal assumptions is:

Discount rate
Salary growth rate
Inflation rate

Life expectancy

Change in
assumption
0.25%
0.25%
0.25%

Impact on defined benefit obligation

Increase in assumption Decrease in assumption
Increase by 7.3%
Decrease by 0.6%
Decrease by 0.4%
Decrease by 1 year
in assumption
Decrease by 2.9%

Decrease by 6.7%
Increase by 0.5%
Increase by 0.3%
Increase by 1 year
in assumption
Increase by 2.9%

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation
to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised within the
statement of financial position.

141

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

24. Financial Instruments and Related Disclosures

The Group’s financial instruments comprise cash deposits, bank loans and overdrafts, finance lease obligations, derivatives used for hedging
purposes and trade receivables and payables.

Treasury Policy
The Group reports in Sterling and pays dividends out of Sterling profits. The role of the Group’s treasury activities is to manage and monitor the
Group’s external and internal funding requirements and change to financing 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 2018, net borrowing was £211.4 million
(2017: net borrowing was £120.0 million), whilst shareholders’ equity was £505.0 million (2017: £302.6 million).

The Group maintains a strong capital base so as to maintain investors’, creditors’ and market confidence and to sustain future development of
the business.

The Group manages its capital structure to maintain a prudent balance between debt and equity that allows sufficient headroom to finance
the Group’s product development programme and appropriate acquisitions. There were no changes in the Group’s approach to capital
management during the year.

The Group operates globally, primarily through subsidiary companies established in the markets in which the Group trades. The Group’s
operating subsidiaries are generally cash generative and none are subject to externally imposed capital requirements.

There are financial covenants associated with the Group’s borrowings, which are interest cover, and net debt to underlying EBITDA. The Group
complied with these covenants in 2018 and 2017.

Operating cash flow is used to fund investment in the development of new products as well as to make the routine outflows of capital
expenditure, tax, dividends and repayment of maturing debt.

The Group’s policy is to maintain borrowing facilities centrally which are then used to finance the Group’s operating subsidiaries, either by way
of equity investments or loans.

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 half yearly. 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:

•

£235.0 million multi-currency revolving credit facility, with an accordion of £125.0 million;

£350.0 million Term Loan facility;

£6.9 million bank loans; and

various finance leases.

The Group’s revised borrowing facilities at 30 June 2018 are detailed in note 21.

142

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com24. Financial Instruments and Related Disclosures continued

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.

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. The Group has designated a US Dollar loan of
$97.0 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 £79.0 million (2017: £65.2 million), which is the total carrying value of the Group’s financial
assets excluding cash and cash equivalents.

Cash is only deposited with highly rated banks in line with our treasury policy.

The Group offers trade credit to customers in the normal course of business. Trade and bank references are obtained prior to extending credit.

Our principal customers are pharmaceutical 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 sits within the NA Pharmaceuticals segment and accounted for approximately 21.2% of gross trade
receivables at 30 June 2018 (2017: 15.4%). This customer accounted for 19.8% (2017: 18.5%) of total Group revenues. One other customer
accounted for more than 10% of total Group revenues (2017: one).

Receivables are written off when management considers the debt to be no longer recoverable.

Fair Value of Financial Assets and Liabilities
The following table presents the carrying amounts and the fair values of the Group’s financial assets and liabilities at 30 June 2018 and 30 June
2017. 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.

143

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

24. Financial Instruments and Related Disclosures continued

Analysis of Financial Instruments
The financial instruments of the Group are analysed as follows:

Financial assets
Cash and cash equivalents

Loans and receivables
— trade receivables
— other receivables

Total financial assets
Financial liabilities
Bank loans and overdrafts
Finance lease liabilities
Trade payables
Other payables
Accruals
Deferred and contingent consideration
Total financial liabilities
Net financial liabilities

2018

2017

Carrying
value
£m

79.7
79.7

76.0
3.0
79.0
158.7

(294.5)
—
(33.0)
(12.3)
(26.0)
(36.8)
(402.6)
(243.9)

Fair
value
£m

79.7
79.7

76.0
3.0
79.0
158.7

(294.5)
—
(33.0)
(12.3)
(26.0)
(36.8)
(402.6)
(243.9)

Carrying
value
£m

61.2
61.2

59.7
5.5
65.2
126.4

(181.5)
—
(21.4)
(18.7)
(16.4)
(35.0)
(273.0)
(146.6)

Fair
value
£m

61.2
61.2

59.7
5.5
65.2
126.4

(181.5)
—
(21.4)
(18.7)
(16.4)
(35.0)
(273.0)
(146.6)

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 2018
Available for sale financial instruments
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total

30 June 2017
Available for sale financial instruments
Derivative financial liabilities
Deferred and contingent consideration for business combinations
Total

Level 1
£m
—
—
—
—

Level 2
£m
—
—
—
—

Level 3
£m
—
—
(36.8)
(36.8)

Level 3
£m
—
—
(35.0)
(35.0)

Total
£m
—
—
(36.8)
(36.8)

Total
£m
—
—
(35.0)
(35.0)

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. The inputs relating to future cash flows will include cash flows relating to the relevant contractual
arrangements. There would be no material effect on the amounts stated from any reasonably probable change in such inputs at 30 June 2018.
Refer to note 4 for amounts recognised in the Consolidated Income Statement in the year.

144

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com
24. Financial Instruments and Related Disclosures continued

Credit Risk — Overdue Financial Assets
The following table shows financial assets which are overdue and for which no impairment provision has been made:

Overdue by:
Up to one month
Between one and two months
Between two and three months
Over three months

The movement in the impairment provision was as follows:

At start of period
Impairment provision recognised/(released)
Acquired through business combinations
Foreign exchange differences
Impairment provision utilised
At end of period

2018
£m

6.7
0.7
0.8
—
8.2

2018
£m
3.2
(0.1)
—
—
(2.5)
0.6

2017
£m

2.9
0.6
0.2
0.6
4.3

2017
£m
2.9
0.4
—
0.2
(0.3)
3.2

Liquidity Risk — Contracted Cash Flows of Financial Liabilities
The following table shows the cash flow commitments of the Group in respect of financial liabilities at 30 June 2018 and 30 June 2017. Where
interest is at floating rates, the future interest payments have been estimated using current interest rates:

At 30 June 2018
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

At 30 June 2017
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
£m
(36.8)
—
(25.2)
(62.0)

Bank loans
and
overdrafts
£m
(294.5)
3.4
(1.4)
(292.5)

(5.0)
(4.2)
(4.7)
(9.4)
(3.0)
(3.9)
(31.8)
(62.0)

(1.4)
(0.2)
(0.5)
(133.5)
0.8
(157.7)
—
(292.5)

Deferred and
contingent
consideration
£m
(35.0)
—
(26.8)
(61.8)

Bank loans
and
overdrafts
£m
(181.6)
0.4
(0.4)
(181.6)

(0.8)
(0.9)
(3.4)
(7.0)
(6.4)
(3.3)
(40.0)
(61.8)

(0.6)
(0.5)
(1.3)
(177.7)
(1.2)
(0.3)
—
(181.6)

Finance
leases
£m
—
—
—
—

—
—
—
—
—
—
—
—

Finance
leases
£m
—
—
—
—

—
—
—
—
—
—
—
—

Trade and
other
payables
£m
(45.3)
—
—
(45.3)

(43.2)
(2.1)
—
—
—
—
—
(45.3)

Trade and
other
payables
£m
(40.1)
—
—
(40.1)

(38.4)
(1.7)
—
—
—
—
—
(40.1)

Total
£m
(376.6)
3.4
(26.6)
(399.8)

(49.6)
(6.5)
(5.2)
(142.9)
(2.2)
(161.6)
(31.8)
(399.8)

Total
£m
(256.7)
0.4
(27.2)
(283.5)

(39.8)
(3.1)
(4.7)
(184.7)
(7.6)
(3.6)
(40.0)
(283.5)

145

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

24. Financial Instruments and Related Disclosures continued

Foreign Currency Exposure
The Sterling equivalents of financial assets and liabilities denominated in foreign currencies at 30 June 2018 and 30 June 2017 were:

At 30 June 2018
Financial assets
Trade receivables
Other receivables
Cash balances

Financial liabilities
Bank loans and overdrafts
Trade payables
Other payables
Finance lease

Net balance sheet exposure

At 30 June 2017
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
£m

1.6
—
1.3
2.9

—
—
—
—
—
2.9

Danish
Krone
£m

0.9
—
—
0.9

(13.0)
—
—
—
(13.0)
(12.1)

Euro
£m

3.9
—
1.5
5.4

(7.6)
(5.8)
—
—
(13.4)
(8.0)

Euro
£m

7.6
0.1
—
7.7

(7.9)
(7.0)
(0.5)
—
(15.4)
(7.7)

US
Dollar
£m

1.1
0.4
10.3
11.8

(107.9)
(0.2)
—
—
(108.1)
(96.3)

US
Dollar
£m

1.1
—
5.8
6.9

(127.1)
(1.1)
—
—
(128.2)
(121.3)

Other
£m

0.1
0.2
4.8
5.1

—
(0.3)
—
—
(0.3)
4.8

Other
£m

0.4
—
5.7
6.1

—
—
(0.4)
—
(0.4)
5.7

Sensitivity Analysis
Interest Rate Risk
A 2.0% increase in annual interest rates compared to those ruling at 30 June 2018 would reduce Group profit before taxation and equity by
£4.4 million (2017: £3.6 million).

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.

During 2018, we have been exposed to transactional and translational currency risk. In addition to the one-off transactional gain of £1.3
million being recognised in the Consolidated Income Statement, £0.4 million foreign exchange loss translational impact was recognised in the
Consolidated Statement of Comprehensive Income in the year.

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.

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 balance 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

146

Profit after
taxation
£m
0.3
(2.0)
(0.7)

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com24. Financial Instruments and Related Disclosures continued

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.

25. 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 1 pence each

2018

Number
93,178,756
9,150,879
102,329,635

£m
0.9
0.1
1.0

2017

Number
92,746,998
431,758
93,178,756

£m
0.9
—
0.9

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, 358,302 new ordinary shares of 1 pence each (2017: 431,758 new ordinary shares of 1 pence each) were issued following
the exercise of options under the Long Term Incentive Plan, the Approved, the Unapproved and the SAYE share option schemes. The
consideration received was £1,026,837 (2017: £931,342). 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 5,121,952 shares of 1 pence each by way of a placing at an issue price of 2050 pence per share on 30 January 2018.
The placing generated net proceeds of £102.3 million after costs of £2.7 million. The placing price of 2050 pence per share was a 0.6%
discount to the closing mid-market price per ordinary share on 24 January 2018, being the last practical date prior to the announcement of the
placing.

The Company issued 3,670,625 shares of 1 pence each to the sellers of AST Farma B.V. and Le Vet Beheer B.V. at an issue price of 2031
pence per share on 13 February 2018. The issue price of 2031 pence per share was the average of the middle market closing price of an
ordinary share for the 30 days up to and including 24 January 2018 (being the last business day prior to the announcement of the acquisition),
as derived from the Daily Official List.

26. Own Shares

At start of the period
Recycled to retained earnings
Purchase of own shares
At end of period

2018
£m
0.7
(0.3)
—
0.4

2017
£m
0.1
—
0.6
0.7

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 28 for details). The number of ordinary shares
held by the Employee Benefit Trust at 30 June 2018 was 21,033 (2017: 42,066).

27. Non-Controlling Interests

Following the acquisition of Genera in October 2015, the following non-controlling interest has been recorded in the Group financial
statements:

At start of period
Additional consideration paid to non-controlling interests
Loss on acquisition of remaining non-controlling interests
Profit/(loss) for the period
Foreign exchange differences
At end of period

2018
£m
1.6
(1.8)
0.2
—
—
—

On 1 February 2018, the Group completed the buy-out of the remaining minority interest (4.87% of the voting shares) in Genera for
HRK14.8 million (£1.8 million).

2017
£m
2.0
(0.6)
—
—
0.2
1.6

147

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

28. 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 2008
Vesting is dependent on two performance conditions which must be satisfied over a three year performance period commencing from the start
of the financial year within which the award is granted. 50% of the award will vest dependent on the Company’s TSR performance against an
appropriate comparator group. 50% of the award will vest subject to a performance condition based on annual earnings per share targets.
Each of the TSR and EPS elements is subject to an additional ROCE underpin. Unless the Company’s ROCE is 10% or more in the final year of
the performance period, the award will lapse in full.

SAYE Option Scheme
This scheme is open to all UK employees. Participants save a fixed amount of up to £500 per month for either three or five years and are
then able to use these savings to buy shares in the Company at a price fixed at a 20% discount to the market value at the start of the savings
period. Prior to 16 October 2012, participants were able to save for a seven year period. The SAYE options must ordinarily be exercised within
six months of the completion of the relevant savings period. The exercise of these options is not subject to any performance criteria.

Long Term Incentive Plan 2017
(a) Long Term Incentive Plan Awards
Vesting is dependent on three 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. One third of each award is subject to a performance condition based on the
Company’s TSR performance over the performance period relative to an appropriate comparator over the performance period. Two thirds of
each award is subject to a performance condition based on the growth in the Group’s underlying diluted EPS over the performance period.
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. For the purposes of this
note they are detailed under the heading Long Term Incentive Plan.

(b) Qualifying LTIP Awards
In addition, awards can be structured as Qualifying LTIP Awards, consisting of a Company Share Option Plan (CSOP) option and a nil-cost
LTIP award, with the ordinary award scaled back at exercise to take account of any gain made on exercise of the CSOP option. The Qualifying
LTIP Awards are granted to UK Senior Executive Team which includes the UK resident Executive Directors. The performance conditions are
the same as those attached to the awards granted under Approved Share Option Schemes and Long Term Incentives Plan 2017. For the
purposes of this note they are detailed under the heading Long Term Incentive Plan (Qualifying LTIP Awards).

(c) Market Value Options
Market value options may be granted under the LTIP 2017 as tax-advantaged CSOP options and as Unapproved share options. These
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. For the purposes of this note they are detailed under the headings Unapproved and Approved
Share Option Schemes.

148

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com28. Share-based Payments continued

Year ended 30 June 2018

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†
11 September 2014†
15 September 2015
18 March 2016
19 September 2016
2 March 2018

Approved Share Option Scheme
2 April 2008†*
1 March 2010†*
28 February 2011†*
16 September 2013†
11 September 2014†
15 September 2015
18 March 2016
19 September 2016
2 March 2018

Long Term Incentive Plan
15 September 2014
15 September 2015
22 March 2016
19 September 2016
10 October 2016
7 March 2017
7 March 2017
2 March 2018

Exercise
Period

2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
2018-2025
2019-2026
2019-2026
2020-2028

2011–2018
2013–2020
2014–2021
2016–2023
2017–2024
2018-2025
2019-2026
2019-2026
2021-2028

2017–2018
2018–2019
2019
2019–2020
2019–2020
2018
2019
2020–2021

Exercise
price
per share
Pence

336.15
364.63
381.15
418.81
461.97
541.00
721.00
763.00
975.00
1118.00
1369.00
2506.00

336.15
418.81
461.97
721.00
763.00
975.00
1118.00
1369.00
2506.00

—
—
—
—
—
—
—
—

Long Term Incentive Plan (Qualifying LTIP Awards)
2 March 2018
2 March 2018

2021-2028
2020–2021

2506.00
—

SAYE Option Scheme
13 December 2010*
16 October 2012
7 April 2014
13 October 2014
12 October 2015
13 October 2016
12 October 2017

Total
Weighted average exercise price*

2013–2017
2015–2018
2017–2019
2017–2020
2018–2021
2019–2022
2020–2023

375.64
471.00
552.00
614.00
792.00
1095.00
1646.00

At
1 July
2017
Number

3,266
2,722
8,709
2,177
3,221
26,000
17,765
44,009
48,060
950
88,852
—
245,731

1,088
466
44
3,249
10,991
13,440
5,050
9,148
—
43,476

195,258
155,834
8,786
149,463
5,319
21,033
21,033
—
556,726

—
—
—

4,542
7,576
22,383
100,129
82,804
49,429
—
266,863
1,112,796
430.64p

Exercised
Number

Granted
Number

Lapsed
Number

At
30 June
2018
Number

—
2,722
8,709
2,177
3,221
13,000
6,765
14,341
41,255
950
78,352
112,310
283,802

—
—
—
500
4,659
13,440
5,050
9,148
9,190
41,987

—
155,834
8,786
149,463
5,319
—
21,033
28,240
368,675

7,530
74,281
81,811

—
—
—
—
—
—
—
—
—
—
—
114,113
114,113

—
—
—
—
—
—
—
—
10,387
10,387

—
—
—
—
—
—
—
28,240
28,240

7,530
74,281
81,811

—
—
—
—
—
—
—
(4,000)
(4,805)
—
(10,500)
(1,803)
(21,108)

—
—
—
—
—
—
—
—
(1,197)
(1,197)

—
—
—
—
—
—
—
—
—

—
—
—

—
—
—
—
—
—
73,108
73,108
307,659
1405.23p

—
—
—
(1,717)
(2,046)
(6,945)
(3,560)
(14,268)
(36,573)
1251.43p

—
—
20,101
16,378
79,761
42,484
69,548
228,272
1,004,547
759.65

(3,266)
—
—
—
—
(13,000)
(11,000)
(25,668)
(2,000)
—
—
—
(54,934)

(1,088)
(466)
(44)
(2,749)
(6,332)
—
—
—
—
(10,679)

(195,258)
—
—
—
—
(21,033)
—
—
(216,291)

—
—
—

(4,542)
(7,576)
(2,282)
(82,034)
(997)
—
—
(97,431)
(379,335)
270.69p

* 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 2018 are 56,094.

149

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

28. Share-based Payments continued

Year ended 30 June 2017

Exercise
Period

2011–2018
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
2017–2024
2018-2025
2019-2026
2019-2026

2011–2018
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
2018-2025
2019-2026
2019-2026

2016–2017
2017–2018
2018–2019
2019–2019
2019–2020
2019–2020
2018–2019

2012–2016
2013–2017
2014–2017
2015–2018
2017–2019
2017–2020
2018–2021
2019–2022

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
19 September 2016

Approved Share Option Scheme
2 April 2008†*
1 March 2010†*
28 February 2011†*
10 September 2012†
16 September 2013†
11 September 2014
15 September 2015
18 March 2016
19 September 2016

Long Term Incentive Plan
27 November 2013
15 September 2014
15 September 2015
22 March 2016
19 September 2016
10 October 2016
7 March 2017

SAYE Option Scheme
12 October 2009*
13 December 2010*
17 October 2011*
16 October 2012
7 April 2014
13 October 2014
12 October 2015
13 October 2016

Total
Weighted average exercise price*

Exercise
price
per share
Pence

336.15
364.63
381.15
418.81
461.97
541.00
721.00
698.00
763.00
975.00
1118.00
1369.00

336.15
418.81
461.97
541.00
721.00
763.00
975.00
1118.00
1369.00

—
—
—
—
—
—
—

304.92
375.64
365.54
471.00
552.00
614.00
792.00
1095.00

At
1 July
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
300.46p

Exercised
Number

Granted
Number

Lapsed
Number

(3,383)
(2,722)
(2,177)
(2,177)
(4,943)
(5,000)
(29,863)
(2,000)
(9,104)
(1,911)
—
—
(63,280)

(2,524)
(4,894)
—
(500)
(7,909)
—
—
—
—
(15,827)

(257,052)
(7,046)
(5,170)
—
—
—
—
(269,268)

(3,418)
(2,431)
(6,326)
—
(69,726)
(1,482)
—
—
(83,383)
(431,758)
215.71p

—
—
—
—
—
—
—
—
—
—
—
96,798
96,798

—
—
—
—
—
—
—
—
9,202
9,202

—
—
—
—
149,463
5,319
42,066
196,848

—
—
—
—
—
—
—
52,877
52,877
355,725
570.71p

—
—
—
—
—
—
—
—
(4,600)
(5,089)
—
(7,946)
(17,635)

—
—
—
—
—
(1,096)
(5,500)
—
(54)
(6,650)

(10,018)
(63,854)
(59,617)
—
—
—
—
(133,489)

—
(91)
—
—
(2,934)
(4,966)
(9,358)
(3,448)
(20,797)
(178,571)
232.47p

At
30 June
2017
Number

3,266
2,722
8,709
2,177
3,221
26,000
17,765
—
44,009
48,060
950
88,852
245,731

1,088
466
44
—
3,249
10,991
13,440
5,050
9,148
43,476

—
195,258
155,834
8,786
149,463
5,319
42,066
556,726

—
4,542
—
7,576
22,383
100,129
82,804
49,429
266,863
1,112,796
430.64p

* 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 2017 are 68,707.

The weighted average exercise price of options eligible to be exercised at 30 June 2018 was 596.85p (2017: 470.86p). For options exercised
during the year, the weighted average market price at the date of exercise was 2,142.35p (2017: 1,415p). The weighted average remaining
contractual lives of options outstanding at the Consolidated Statement of Financial Position date was 3.8 years (2017: 3.3 years).

Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2017 were exercisable at 30 June 2018. No
options issued under SAYE plans were exercisable at 30 June 2018 (2017: nil).

150

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com28. Share-based Payments continued

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

07/03/17
21,033
1652p
Nil
2 years
0.12%
22%
1.54%
1500p

07/03/17
21,033
1652p
Nil
1 year
0.12%
22%
1.54%
1500p

10/10/16
5,319
1389p
Nil
3 years
0.12%
22%
1.54%
1108p

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

19/09/16
149,463
1379p
Nil
3 years
0.12%
22%
1.54%
1108p

19/09/16
106,000
1379p
1369p
6.5 years
0.47%
26%
1.54%
305p

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

02/03/18
02/03/18
30/09/20
30/09/20

Long Term Incentive Plan 2017
Valuation date
Award date
Vesting date
Expected exercise

Type of awards

Holding period restriction
Number of awards at grant
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share

Nil-cost options
(CSOP linked)

2 years

Conditional
share awards

2 years

Nil-cost options
(CSOP linked and
standalone options)

N/A

20,459
2506p
Nil
years
0.82%
23.21%
1.91%
1979p

40,918
2506p
Nil
years
0.82%
23.21%
1.91%
22.50p

4,033
2506p
Nil
years
0.82%
23.21%
1.91%
19.79p

8,066
2506p
Nil
years
0.82%
23.21%
1.91%
22.50p

9,682
2506p
Nil
years
0.82%
23.21%
1.91%
21.33p

19,363
2506p
Nil
years
0.82%
23.21%
1.91%
24.25p

Market value
options

N/A
114,113
2506p
Nil
years
1.20%
23.21%
1.91%
522p

151

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

28. Share-based Payments continued

Save As You Earn Option Scheme
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
— three year scheme
— five year scheme
Risk-free rate
— three year scheme
— five year scheme
Volatility
— three year scheme
— five year scheme
Dividend yield
Fair value per share
— three year scheme
— five year scheme

12/10/17
73,108
2175p
1646p

13/10/16
52,877
1370p
1095p

12/10/15
101,513
930p
792p

3.25 years
5.25 years

0.54%
0.79%

21.6%
22.2%
1.91%

551p
587p

0.22%
0.44%

22%
24%
1.51%

302p
346p

0.83%
1.17%

22%
26%
0.53%

215p
283p

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 2018 of £1.4 million (2017: £1.0 million), of which £0.2 million (2017: £0.1 million) 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.

29. Analysis of Net Borrowings

Bank loans
Finance leases and hire purchase contracts
Cash and cash equivalents
Net borrowings

30. Operating Leases

2018
£m
2.4
0.9
3.3

2018
£m
(291.1)
—
79.7
(211.4)

2017
£m
2.3
0.5
2.8

2017
£m
(181.2)
—
61.2
(120.0)

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
2017
£m
1.4
4.2
2.8
8.4

2018
£m
1.4
4.1
2.8
8.3

Other assets

Total

2018
£m
1.8
2.5
—
4.3

2017
£m
1.9
2.4
—
4.3

2018
£m
3.2
6.6
2.8
12.6

2017
£m
3.3
6.6
2.8
12.7

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.

152

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com31. Foreign Exchange Rates

The following exchange rates have been used in the translation of the results of foreign operations:

Danish Krone
Euro
US Dollar

32. Acquisitions

Average rate
for 2017
8.6901
1.1681
1.2735

Closing rate
at 30 June
2017
8.4571
1.1372
1.2978

Average rate
for 2018
8.4010
1.1286
1.3465

Closing rate
at 30 June
2018
8.4109
1.1286
1.3157

Acquisition of AST Farma and Le Vet
On 13 February 2018, Dechra acquired 100% of the share capital of AST Farma B.V. (AST Farma) and Le Vet Beheer B.V. (Le Vet), developers
of generic, generic plus and niche animal pharmaceutical products predominately for companion animals. Both companies are based in the
Netherlands. The Group paid £229.0 million (€257.5 million) consideration in cash and £82.7 million (€ 92.9 million) consideration in shares.

AST Farma
B.V.A

Le Vet Beheer
B.V.

Fair value £m
Total
£m

Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Intangible assets
Deferred income
Cash and cash equivalents
Current tax liability
Net deferred tax liability
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Settlement of balances with owners
Shares (note 25)
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less cash and cash equivalents
Net cash outflow arising on acquisition

0.1
9.9
0.9
(0.9)
62.7
—
0.4
—
(17.4)
55.7

—
2.3
3.0
(1.4)
197.7
(0.2)
2.9
(2.5)
(49.2)
152.6

0.1
12.2
3.9
(2.3)
260.4
(0.2)
3.3
(2.5)
(66.6)
208.3
102.3
310.6

229.0
(1.1)
82.7
310.6

229.0
(3.3)
225.7

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 being the recognition of fair value uplift on acquired inventory and intangibles in accordance with IFRS 3.

The goodwill of £102.3 million arising from the acquisition consists of future sales growth expected to be achieved, continued geographical
expansion in the Netherlands, and the technical expertise of the assembled workforce. None of the goodwill is expected to be deductible for
income tax purposes.

Acquisition related costs (included in operating expenses) amounted to £2.8 million. AST Farma and Le Vet’s results are reported within the
EU Pharmaceuticals Segment.

AST Farma and Le Vet contributed £14.5 million revenue and an underlying operating profit of £7.4 million to the Group’s pre-tax profit for the
period between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first date of the financial year,
the contribution to Group revenues for the period would have been £44.9 million and the Group underlying operating profit would have been
£17.3 million.

153

Stock Code: DPHNotes to the Consolidated Financial Statements
continued

32. Acquisitions continued

Acquisition of RxVet
On 13 December 2017, Dechra acquired 100% of the share capital of RxVet Limited (RxVet), a veterinary pharmaceuticals company based in
New Zealand. The Group paid £0.3 million (NZ$0.6 million) consideration in cash, with a further NZ$0.04 million deferred payment.

Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable intangible assets
Inventories
Trade and other payables
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Deferred consideration
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration

Fair value
£m

0.3
0.2
(0.2)
0.3
—
0.3

0.3
—
0.3

0.3
0.3

Acquisition related costs (included in operating expenses) amounted to £25,000. RxVet’s results are reported within the EU Pharmaceuticals
Segment.

RxVet contributed £0.5 million revenue and underlying operating profit of £11,000 to the Group’s pre-tax profit for the period between the date
of acquisition and the balance sheet date. If the acquisition of RxVet had been completed on the first date of the financial year, the contribution
to Group revenues for the period would have been £0.9 million and the Group underlying operating profit would have been £0.1 million.

Prior Year Acquisitions
Following the acquisition of Apex in October 2016, the disclosure of the final fair values of the assets and liabilities acquired has been included
in the financial statements for the year ended 30 June 2017.

154

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com33. Deferred and Contingent Consideration Liabilities

Deferred consideration – less than one year
Deferred consideration – more than one year

Contingent consideration – less than one year
Contingent consideration – more than one year

2018
£m
1.8
—
1.8

7.0
28.0
35.0
36.8

The consideration for certain acquisitions and licensing agreements includes amounts contingent on future events such as development
milestones or sales performance. The Group has provided for the fair value of this contingent consideration as follows:

As at 1 July 2016
Additions
Cash payments: investing activities
Finance expense
Foreign exchange adjustments
At 30 June 2017
Additions
Remeasurement through intangibles
Remeasurement through income statement
Cash payments: investing activities
Finance expense
Foreign exchange adjustments
Other movements
At 30 June 2018

Tri-Solfen®
—
26.4
—
—
(0.9)
25.5
—
(0.9)
—
—
—
(1.8)
—
22.8

StrixNB &
DispersinB
—
3.6
—
—
—
3.6
—
(2.2)
(0.1)
—
—
(0.2)
—
1.1

Injectable
Solution
—
—
—
—
—
—
6.5
—
—
—
—
0.1
—
6.6

Phycox
3.0
—
(0.5)
0.5
0.1
3.1
—
—
—
(0.6)
0.4
(0.1)
—
2.8

Other
0.6
—
—
(0.1)
—
0.5
2.4
—
—
(1.1)
0.2
—
(0.3)
1.7

2017
£m
—
2.3
2.3

1.6
31.1
32.7
35.0

Total
3.6
30.0
(0.5)
0.4
(0.8)
32.7
8.9
(3.1)
(0.1)
(1.7)
0.6
(2.0)
(0.3)
35.0

The consideration payable for Tri-Solfen® is expected to be payable over a number of years, and relates to development milestones and sales
performance. During the year, the development milestones have been remeasured and consequently are now expected to happen later than
initially anticipated.

The consideration payable for StrixNB and Dispersin B is expected to be payable over a number of years, and relates to developments
milestones and sales performance. During the year the contingent consideration has been remeasured and consequently one of the
development milestones is no longer expected to be achieved. To the extent possible this has been remeasured through intangibles with the
excess being credited to the income statement, and treated as non-underlying.

The consideration for a new licensing agreement for an injectable solution relates to development milestones, and Phycox relates to sales
performance.

Where a liability is expected to be payable over a number of years the total estimated liability are discounted to their present values.

34. 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 163 and 164.

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 83 to 98. The remuneration of key management is disclosed in note 8.

Non-Controlling Interests
Refer to note 27 for transactions with non-controlling interests during the year.

35. Off Balance Sheet Arrangements

The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.

155

Stock Code: DPHCompany Statement of Financial Position
At 30 June 2018

Non-current assets
Investments
Intangible assets
Tangible assets

Current assets
Trade and other receivables (includes amounts falling due after more than one year of £2.1 million
(2017: £1.4 million)
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
At 1 July
Profit for the year attributable to the owners
Other changes in retained earnings
Retained earnings
Total equity shareholders’ funds

Note

iv
v
vi

vii

ix
viii

2018
£m

647.2
9.7
0.2
657.1

11.5
—
11.5
(1.3)
(56.4)
(46.2)
610.9

(129.6)
481.3

1.0
359.3
0.6
—
66.4
71.5
(17.5)
120.4
481.3

2017
£m

447.5
7.7
0.1
455.3

15.1
—
15.1
(11.3)
(66.1)
(62.3)
393.0

(151.7)
241.3

0.9
173.4
0.6
—
68.8
11.9
(14.3)
66.4
241.3

The financial statements were approved by the Board of Directors on 3 September 2018 and are signed on its behalf by:
Richard Cotton
Ian Page
Chief Financial Officer
Chief Executive Officer
3 September 2018
3 September 2018

Company number: 3369634

156

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com
Company Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2018

Year ended 30 June 2017
At 1 July 2016
Profit for the period
Recycle of losses on available for sale financial assets
Total comprehensive income
Transactions with owners
Dividends paid
Share-based payment charge
Shares issued
Total contributions by and distributions to owners
At 30 June 2017
Year ended 30 June 2018
At 1 July 2017
Profit for the period
Total comprehensive income
Transactions with owners
Dividends paid
Share-based payment charge
Shares issued
Total contributions by and distributions to owners
At 30 June 2018

Attributable to owners of the parent

Called up
share
capital
£m

Share
premium
account
£m

Foreign
currency
translation
reserve
£m

Retained
earnings
£m

Total
shareholders’
funds
£m

0.9
—
—
—

—
—
—
—
0.9

0.9
—
—

—
—
0.1
0.1
1.0

172.5
—
—
—

—
—
0.9
0.9
173.4

173.4
—
—

—
—
185.9
185.9
359.3

0.6
—
—
—

—
—
—
—
0.6

0.6
—
—

—
—
—
—
0.6

68.8
11.9
0.3
12.2

(17.7)
3.1
—
(14.6)
66.4

66.4
71.5
71.5

(21.8)
4.3
—
(17.5)
120.4

242.8
11.9
0.3
12.2

(17.7)
3.1
0.9
(13.7)
241.3

241.3
71.5
71.5

(21.8)
4.3
186.0
168.5
481.3

157

Stock Code: DPHNotes to the Company Financial Statements

(i) Principal Accounting Policies of the Company

Accounting Principles
The Company Statement of Financial Position has been prepared on a going concern basis, under the historical cost convention, in
accordance with applicable UK accounting standards and the Companies Act 2006. The principle accounting policies applied in the
preparation of these financial statements are set out below, and have been applied consistently.

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 profit dealt
with in the accounts of the Company was £71.5 million (2017: £11.9 million).

The following exemptions have been taken in preparing the financial statements;

(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.

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).

(e) Exemption from disclosure

Under FRS 101, the Company has taken advantage of the requirements of Paragraphs 30 and 31 of IAS 8, ‘Accounting policies,
changes in accounting estimates and errors’.

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
Intangible assets are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on
a straight line basis over the estimated useful economic life of the asset. The estimated useful lives are:

• product rights
• software

10 to 15 years
5 to 7 years

Tangible Assets
Tangible assets are stated at cost less accumulated depreciation and impairment losses. Depreciation is charged to the income statement on
a straight line basis over the estimated useful economic life of the asset. The estimated useful lives are:

• plant and fixtures

3 to 15 years

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.

158

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com(i) Principal Accounting Policies of the Company continued

Dividends
Dividends are recognised in the period in which they are approved by the Company’s shareholders or, in the case of an interim dividend, when
the dividend is paid. Dividends receivable from subsidiaries are recognised when either received in cash or applied to reduce a creditor balance
with the subsidiary.

Interest-Bearing Borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective interest basis.

Related Parties
Under FRS 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 8 and 34 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 10 of the Consolidated Financial Statements).

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 Long Term Incentive Plans 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.

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.

159

Stock Code: DPHNotes to the Company Financial Statements
continued

(ii) Directors and Employees

Total emoluments of Directors (including pension contributions) amounted to £7.1 million (2017: £5.3 million). Information relating to Directors’
emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 83 to 98. Tony Griffin’s
remuneration is paid by Dechra Veterinary Products EU in Euros but reported in Sterling for the purposes of these figures. The exchange rate
used was 1.1286 (2017: 1.1681).

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 28)
Total

Related party transactions — the remuneration of key management was as follows:

Short term employee benefits
Post-employment benefits
Share-based payments charge

2018
Number
33
33

2017
Number
31
31

2018
£m
4.5
0.7
0.2
3.3
8.7

2018
£m
4.4
0.2
1.5
6.1

2017
£m
4.3
0.6
0.1
2.8
7.8

2017
£m
3.6
0.2
1.4
5.2

Key management comprises the Board and the Senior Executive Team.

The Group operates a stakeholder personal pension scheme for certain employees and contributed between 4% and 14% of pensionable
salaries. Total pension contributions amounted to £0.2 million (2017: £0.1 million).

(iii) Profit/(loss) Before Taxation

The following items have been included in arriving at profit/(loss) before taxation of continuing operations:

Depreciation of property, plant and equipment
— owned assets
Amortisation of intangible assets
Operating lease rentals payable
Auditor’s remuneration — audit of these financial statements

(iv) Investments

Cost

At 1 July 2017

Additions
At 30 June 2018
Impairment
At 1 July 2017
Charge for the period
At 30 June 2018
Net book value
At 30 June 2018
At 30 June 2017

2018
£m

0.1
0.9
0.2
0.1

2017
£m

0.1
0.6
0.1
0.1

Shares in
subsidiary
undertakings
£m

459.7

199.7
659.4

12.2
—
12.2

647.2
447.5

A list of subsidiary undertakings is given in note (xii). During the year, the Company invested in Dechra Investments Limited and Dechra Finance
Ireland DAC, both wholly owned subsidiaries.

160

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com(v)

Intangible Assets

Cost

At 1 July 2017

Additions
At 30 June 2018
Accumulated Amortisation
At 30 June 2017
Charge for the year
Impairment
At 30 June 2018
Net book value
At 30 June 2018
At 30 June 2017

Software assets in the course of construction included above

(vi) Tangible Assets

Cost

At 1 July 2017
Additions
At 30 June 2018

Accumulated Depreciation
At 1 July 2017
Charge for the year
At 30 June 2018
Net book value
At 30 June 2018
At 30 June 2017

(vii) Trade and Other Receivables

Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (x))
Other receivables
Prepayments and accrued income

Acquired
Intangibles
£m

Software
£m

Total Intangible
assets
£m

5.1

—
5.1

2.8
0.5
—
3.3

1.8
2.3

5.5

3.0
8.5

0.1
0.4
0.1
0.6

7.9
5.4

2018
£m
—

2018
£m
8.1
—
2.1
1.0
0.3
11.5

10.6

3.0
13.6

2.9
0.9
0.1
3.9

9.7
7.7

2017
£m
4.7

Tangible assets
£m

0.4
0.2
0.6

0.3
0.1
0.4

0.2
0.1

2017
£m
10.1
3.2
1.4
0.3
0.1
15.1

2017
£m
0.8
0.2
61.5
—
0.3
0.2
3.1
66.1

Included in debtors are amounts of £2.1 million (2017: £1.4 million) 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 (2017: £nil).

(viii) Trade and Other Payables

Trade payables
Other payables
Amounts due to subsidiary undertakings
Group relief payable
Current tax liabilities
Other taxation and social security
Accruals and deferred income

2018
£m
1.0
1.0
47.2
1.6
0.3
0.2
5.1
56.4

In accordance with IAS 10 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2018 of 18.17 pence
per share (2017: 15.33 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 2019. The total cost of the proposed final dividend is £18.6 million (2017: £14.3 million).

161

Stock Code: DPHNotes to the Company Financial Statements
continued

(ix) 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
Arrangement fees netted off

Total borrowings

2018
£m

1.3

132.9
(3.3)
129.6
130.9

2017
£m

11.3

152.1
(0.4)
151.7
163.0

In January 2018 the Group entered into a new Term Loan facility of £350.0 million until 31 December 2020. At 30 June 2018, £nil was drawn
against this facility in the Company. Interest will be charged at a minimum of 1.10% over LIBOR and at a maximum of 2.00% over LIBOR,
dependent upon the Leverage (the ration of Total Net Debt to Adjusted EBITDA) of the Group.

Arrangement fees of £3.9 million were incurred on the new facilities during the year, these are being released to the income statement over the
life of the facility.

No interest has been capitalised during the year (2017: £nil).

The Company guarantees certain borrowings of other Group companies under the above facilities, which at 30 June 2018 amounted to
£151.6 million (2017: £29.5 million).

(x) Deferred Tax

At 1 July 2017 (included in trade and other receivables)
Additions to the income statement
Additions to statement of changes in equity

At 30 June 2018 (included in trade and other receivables)

£m
1.4
(0.2)
0.9

2.1

Deferred tax has been calculated using the rate of 19% or 17% based on the timing of when each individual deferred tax balance is expected
to reverse in the future as follows (2017: 18%):

Short term timing differences
Accelerated capital allowances

2018
£m
2.5
(0.4)
2.1

2017
£m
1.6
(0.2)
1.4

Deferred tax assets in relation to losses amounting to £0.2 million have not been recognised due to uncertainty over their recoverability.

(xi) Called up Share Capital

Issued share capital
Allotted, called up and fully paid at 1 July 2017
New shares issued
Allotted, called up and fully paid at 30 June 2018

Ordinary shares
of 1p each

£m
0.9
0.1
1.0

Number
93,178,756
9,150,879
102,329,635

Details of new ordinary shares issued following the exercise of options under the Long Term Incentive Plan and the Approved, Unapproved and
SAYE Share Option Schemes are shown in notes 25 and 28 to the Consolidated Financial Statements.

Share Options
Details of outstanding share options over ordinary shares of 1 pence at 30 June 2018 under the various Group share option schemes are
shown in note 28 to the Consolidated Financial Statements.

162

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com(xii) Subsidiary Undertakings

Operating subsidiaries

Name

Apex Laboratories Pty
Limited

Country of
Incorporation

Australia

AST Farma B.V.

The Netherlands Marketer of veterinary pharmaceuticals

Dechra Development
LLC

USA

and distributor of veterinary
pharmaceuticals and equipment

Contract regulatory and product
development services for the Group

Principal Activity

Registered Address

Shareholder

Developer, regulatory, manufacturer and
marketer of veterinary pharmaceuticals

2 Cal Close, Somersby NSW 2250,
Australia

Dechra Holding Australia
Pty Limited

Dechra Finance B.V.

Wilgenweg 7, 3421TV Oudewater, The
Netherlands

Principal Place of Business: 7015 College
Blvd, Suite 510, Overland Park KS 66211,
United States

Dechra Holdings US Inc

Dechra Limited

England and
Wales

Developer, regulatory, product
development, manufacturer and
marketer of veterinary pharmaceuticals

24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom

Dechra Investments Limited

Dechra Finance
Australia Limited

England and
Wales

Financial Services

24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom

Dechra Limited

Dechra Finance B.V.

The Netherlands

Financial services and holding company Pettelaarpark 38, 5216PD

‘s-Hertogenbosch, The Netherlands

Dechra Pharmaceuticals
PLC

Financial services

6th Floor, 2 Grand Canal Square, Dublin 2,
Ireland

Dechra Pharmaceuticals
PLC

Dechra Finance Sterling
Limited

England and
Wales

Financial services

Dechra Finance Ireland
Designated Activity
Company

Dechra Finance Limited

Republic of
Ireland

England and
Wales

Dechra Veterinary
Products GmbH

Dechra Veterinary
Products N.V.

Dechra Veterinary
Products, Inc

Dechra Veterinary
Products A/S

Dechra Veterinary
Products Limited

Dechra Veterinary
Products Oy

Dechra Veterinary
Products SAS

Dechra Veterinary
Products Deutschland
GmbH (formerly known
as Albrecht GmbH)

Dechra Veterinary
Products S.r.l.

Dechra Veterinary
Products B.V.

Dechra Veterinary
Products NZ Limited
(formerly known as
RxVet Limited)

Dechra Veterinary
Products AS

Dechra Veterinary
Products Sp. z o.o.

Dechra Veterinary
Products, S.L.
Unipersonal

Dechra Veterinary
Products AB

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Italy

Netherlands

New Zealand

Norway

Poland

Spain

Sweden

England and
Wales

Marketer of veterinary pharmaceuticals
and pet diets

Financial services and holding company

24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom

Dechra Pharmaceuticals
PLC

Marketer of veterinary pharmaceuticals
and pet diets

Hintere Achmhlerstrasse 1a, 6850 Dornbirn,
Austria

Dechra Limited

Marketer of veterinary pharmaceuticals
and pet diets

Achterstenhoek 48 2275 Lille, Belgium

Eurovet Animal Health B.V.

100 King Street West, Suite 6100, 1 First
Canadian Place, Toronto ON M5X 1B8,
Canada

Mekuvej 9, DK-7171 Uldum, Denmark

24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom

Dechra Limited

Dechra Pharmaceuticals
PLC

Dechra Veterinary Products
A/S

Marketer of veterinary pharmaceuticals
and pet diets

Erottajankatu 9 B 3, 00130 Helsinki, Finland Dechra Veterinary Products

A/S

Marketer of veterinary pharmaceuticals
and pet diets

60 Avenue du Centre, 78180 Montigny le
Bretonneux, France

Dechra Veterinary Products
A/S

Marketer of veterinary pharmaceuticals
and distributor of veterinary
pharmaceuticals and equipment

Hauptstr. 6-8, Aulendorf, Germany

Eurovet Animal Health B.V.

Marketer of veterinary pharmaceuticals
and pet diets

Via Agostino da Montefeltro 2, 10134
Torino, Italy

Dechra Limited

Marketer of veterinary pharmaceuticals
and pet diets

Handelsweg 25, 5531AE Bladel, The
Netherlands

Dechra Veterinary Products
A/S

Marketer of veterinary pharmaceuticals
and distributor of veterinary
pharmaceuticals and equipment

Level 12, 55 Shortland Street, Auckland,
1010, New Zealand

Dechra Holding Australia
Pty Limited

Marketer of veterinary pharmaceuticals
and pet diets

Henrik Ibsens Gate 90, Postboks 2943 Solli,
0230 Oslo, Norway

Dechra Veterinary Products
A/S

Marketer of veterinary pharmaceuticals
and pet diets

1st Floor, 61 Moldlinska Str., 03-199
Warsaw, Poland

Dechra Limited

Marketer of veterinary pharmaceuticals
and pet diets

C/Balmes, 202, P.6-08006 Barcelona,
Spain

Dechra Veterinary Products
A/S

Marketer of veterinary pharmaceuticals
and pet diets

Dechra Veterinary
Products, LLC

USA

Marketer of veterinary pharmaceuticals
and pet diets

Principal Place of Business: Stora Wäsby
Orangeriet 3 , Upplands Väsby, 194 37 ,
Sweden

Principal Place of Business: 7015 College
Blvd, Suite 525, Overland Park KS 66211,
United States

Dechra Veterinary Products
A/S

Dechra Holdings US Inc

163

Stock Code: DPHNotes to the Company Financial Statements
continued

(xii) Subsidiary Undertakings continued

Name

Dechra-Brovel, S.A.
de C.V.

Country of
Incorporation
Mexico

Eurovet Animal Health
B.V.

The Netherlands

Genera d.d.

Croatia

Genera d.o.o Sarajevo

Bosnia and
Herzegovina

Principal Activity

Registered Address

Shareholder

Developer, regulatory, manufacturer and
marketer of veterinary pharmaceuticals

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

Principal Place of Business: Empresa
Numero 66, Colonia Mixcoac, Delegacion
Benito Juarez, Ciudad de Mexico, Distrito
Federal, Mexico

Dechra Limited

Handelsweg 25, 5531AE Bladel, The
Netherlands

Dechra Pharmaceuticals
PLC

Svetonedeljska cesta 2, Kalinovica, 10436
Rakov Potok , Croatia

Eurovet Animal Health B.V.

Hamdije Cemerlica 2, Sarajevo, Bosnia and
Herzegovina

Genera d.d.

Genera Pharma d.o.o.

Serbia

Marketer of veterinary pharmaceuticals

Gostivarska 70, Vozdovac, Beograd, Serbia Genera d.d.

Genera Sl d.o.o

Slovenia

Marketer of veterinary pharmaceuticals

Parmova Ulica, Ljubljana, Slovenia

Genera d.d.

Le Vet. Beheer B.V.

The Netherlands

Holding company

Wilgenweg 7, 3421TV Oudewater, The
Netherlands

Dechra Finance B.V.

Le Vet. B.V.

The Netherlands Marketer of veterinary pharmaceuticals Wilgenweg 7, 3421TV Oudewater, The

Le Vet. Beheer B.V.

Putney, Inc

USA

Developer, regulatory and marketer of
veterinary pharmaceuticals

Netherlands

Principal Place of Business: One Monument
Square, Suite 400, Portland ME ME 04101,
United States

Dechra Holdings US Inc

Other subsidiaries

Name

Apex Laboratories N.Z.
Limited

Country of
Incorporation

Principal Activity

Registered Address

Shareholder

New Zealand

Non-trading

Level 12, 55 Shortland Street, Auckland,
1010, New Zealand

Apex Laboratories Pty
Limited

Arnolds Veterinary
Products Limited

England and
Wales

Non-trading

Broomco 4263 Limited

England and
Wales

Non-trading

Dales Pharmaceuticals
Limited

England and
Wales

Non-trading

Dechra Holding
Australia Pty Limited

Australia

Holding company

Dechra Holdings US Inc USA

Holding company

Dechra Investments
Limited

England and
Wales

Holding company

DermaPet, Inc

USA

Non-trading

Farvet Laboratories B.V. The Netherlands

Non-trading

24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom

2 Cal Close, Somersby NSW 2250,
Australia

Principal Place of Business: 7015 College
Blvd, Suite 525, Overland Park KS 66211,
United States

24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom

Principal Place of Business: 7015 College
Blvd, Suite 525, Overland Park KS 66211,
United States

Handelsweg 25, 5531AE Bladel, The
Netherlands

Scanimalhealth ApS (in
liquidation)

Veneto Limited

Denmark

Marketer of veterinary pharmaceuticals

Radhustorvet 5 2, 3520 Farum, Denmark

England and
Wales

Holding company

24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom

Veneto Limited

Dechra Limited

Dechra Pharmaceuticals
PLC

Dechra Veterinary
Products LLC

Eurovet Animal Health
B.V.

Dechra Pharmaceuticals
PLC

164

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com
Financial History

Consolidated Income Statement
Revenue
Underlying operating profit
Underlying profit after taxation
Underlying earnings per share
— basic (pence)
— diluted (pence)
Continuing underlying earnings per share
— basic (pence)
— diluted (pence)
Dividend per share (pence)

Operating profit
Profit after taxation
Earnings per share
— basic (pence)
— diluted (pence)
Continuing earnings per share
— basic (pence)
— diluted (pence)

Consolidated Statement of Financial Position
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets held for sale
Shareholders’ funds

Consolidated Statement of Cash Flows
Net cash inflow from operating activities
Net cash (outflow)/inflow from investing activities

Net cash inflow/(outflow) from financing activities

2018
£m

407.1
99.2
74.5

76.85
76.45

76.85
76.45
25.50

34.1
36.1

37.24
37.04

2017
£m

359.3
81.3
60.1

64.68
64.33

64.68
64.33
21.44

33.2
26.1

28.09
27.93

2016
£m

247.6
52.9
38.4

42.95
42.65

42.95
42.65
18.46

19.5
12.5

14.00
13.90

769.4
247.9
(91.6)
(420.7)
—
505.0

453.1
185.0
(66.4)
(269.1)
—
302.6

393.4
162.4
(66.0)
(213.2)
—
276.6

64.0
(241.7)

193.8

77.4
(57.2)

1.6

43.6
(174.0)

125.3

2015
£m

203.5
44.4
35.3

40.17
39.90

40.17
39.90
16.94

26.0
19.5

22.14
21.99

184.9
108.6
(44.1)
(54.9)
—
194.5

41.0
(4.7)

(14.8)

2014
£m

193.6
42.2
31.8

37.61
37.48

36.45
36.32
15.40

25.0
19.4

67.57
67.33

22.22
22.14

214.4
86.3
(35.7)
(60.3)
—
204.8

11.5
76.6

(92.1)

165

Stock Code: DPHShareholder
Information

Providing shareholders with
information on how to manage
their shareholdings and remain
informed about Dechra.

Glossary
Shareholder Information
Advisers

168
170
IBC

166

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.com167

Stock Code: DPHGlossary

The following is a glossary of a number of the terms and acronyms
which can be found within this document:

DVP International
Dechra Veterinary Products International

ABC
Anti-Bribery and Anti-Corruption

Adriatic region
Croatia, Bosnia-Herzegovina, Serbia and Slovenia

DVP NA
Dechra Veterinary Products North America

DVP US
Dechra Veterinary Products US

AER
Actual Exchange Rate

API
Active Pharmaceutical Ingredient

APM
Alternative Performance Measures

BBSRC
Biotechnology and Biological Sciences Research Council

BEPS
Base Erosion Profit Sharing

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

bps
Basis Points

CAGR
Compound Annual Growth Rate

CAP
Companion Animal Products

Capex
Capital Expenditure

CER
Constant Exchange Rate

CPD
Continuing Professional Development

CRO
Contract Research Organisation

CSOP
Company Share Option Plan

Dechra Values or Values
Dedication, Enjoyment, Courage, Honesty, Relationships and Ambition

DPM
Dechra Pharmaceuticals Manufacturing

DSC
Dechra Service Center

DVP
Dechra Veterinary Products

DVP EU
Dechra Veterinary Products EU or Dechra Veterinary Products Europe

168

EBIT
Earnings before interest and tax. This is the same as non-underlying
operating profit

EBITDA
Earnings before interest, tax, depreciation and amortisation

EHS
Environment, Health and Safety

EPS
Earnings Per Share

ERP
Enterprise Resource Planning

ESPP
Employee Stock Purchase Plan

ETR
Effective Tax Rate

EU Pharmaceuticals
European Pharmaceuticals Segment comprising DVP EU, DVP
International and DPM

Executive Directors
The Executive Directors of the Company, currently Ian Page, Richard
Cotton and Tony Griffin

FAP
Food producing Animal Products

FDA
US Food and Drug Administration; a federal agency of the US
Department of Health and Human Services

FRC
Financial Reporting Council

FRS
Financial Reporting Standards

FTSE
Companies listed on the London Stock Exchange

FTSE 100 Index
An index comprising the 1st to 100th largest companies listed on the
London Stock Exchange in terms of their market capitalisation

FTSE 250/350 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

GDPR
General Data Protection Regulation

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comPOMs
Prescription Only Medicines

Qualifying LTIP Award
Qualifying LTIP Awards comprises a CSOP option and an ordinary nil-
cost LTIP award, with the ordinary award scaled back at exercise to take
account of any gain made on exercise of the CSOP option

R&D
Research and Development

RCF
Revolving Credit Facility

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

RPI
Retail Price Index

SAYE
Save As You Earn Share Scheme

SET
Senior Executive Team

SG&A
Selling, General and Administrative Expenses

TSR
Total Shareholder Return

VMD
Veterinary Medicines Directorate

GHG
Greenhouse Gas

GRT
Gross Registered Tonnage

HR
Human Resources

IAS
International Accounting Standards

IFRSs
International Financial Reporting Standards

IT
Information Technology

KPI
Key Performance Indicator

Leverage
The ratio of Net Debt to underlying EBITDA

LIBOR
The London Inter-Bank Offered Rate

LTA
Lost Time Accident

LTAFR
Lost Time Accident Frequency Rate

LTIP
Long Term Incentive Plan

M&A
Mergers and Acquisitions

MAT
Moving Annual Total

MHRA
Medicines and Healthcare products Regulatory Agency; an executive
agency of the Department of Health in the UK

MSC
Marine Stewardship Council

Non-Executive Directors
The Non-Executive Directors of the Company, currently Tony Rice, Julian
Heslop, Lawson Macartney and Ishbel Macpherson

NA Pharmaceuticals
North American Pharmaceuticals Segment comprising DVP US, Canada
and Dechra-Brovel

OECD
The Organisation for Economic Cooperation and Development

Ordinary Shares
An ordinary share of 1 pence in the share capital of the Company

Oracle Programme
Enterprise Resources Planning (ERP) software

PDRA
Dechra’s Product Development and Regulatory Affairs team

PEA
Palmitoylethanolamide

169

Stock Code: DPHShareholder Information

Financial Calendar
Interim Management Statement
2018 Annual General Meeting
Final Dividend Ex-Dividend Date
Final Dividend Record Date
Final Dividend Payment Date

19 October 2018
19 October 2018
25 October 2018
26 October 2018
16 November 2018

Annual General Meeting
The 2018 Annual General Meeting of the Company will be held at
10.30 am on 19 October 2018 at the offices of DLA Piper UK LLP,
160 Aldersgate Street, London, EC1A 4HT. The notice of meeting (the
Notice), which includes special business to be transacted at the Annual
General Meeting together with an explanation of the resolutions to be
considered at the meeting, is made available on the Company website
or mailed to shareholders, if they have elected to receive the Notice in
paper format.

Share History
Dechra floated on the London Stock Exchange in September 2000 at
£1.20 per share, with a market capitalisation of £60.0 million.

In relation to the acquisition of VetXX Holdings A/S, on 15 January
2008, Dechra undertook a placing and open offer on the basis of 11
Open Offer shares for every 50 existing shares held on 10 December
2007 at an issue price of 303 pence. On 9 January 2008, 11,624,544
shares were issued.

On 5 April 2012, a Rights Issue was announced on the basis of
three new ordinary shares for every existing ten shares held on
23 April 2012 at a subscription price of £3.00 per share. The Rights
Issue resulted in 20,040,653 shares being issued with dealings
commencing on 16 May 2012.

On 17 March 2016, 4,398,600 ordinary shares were offered by way of a
placing at an issue price of £11.00 per share.

On 30 January 2018, 5,121,952 ordinary shares were offered by way of
a placing at an issue price of £25.50 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.

Electronic Communications
Shareholders now have the opportunity to receive shareholder
communications electronically, e.g. Annual Reports, Notice of the Annual
General Meeting and Proxy Forms. You can elect to receive email
notifications of shareholder communications by registering at www.
shareview.co.uk, where you can also set up a bank mandate to receive
dividends directly to your bank account and to submit proxy votes
for shareholder meetings. Receiving the Company’s communications
electronically allows the Company to communicate with its shareholders
in a more environmentally friendly, cost effective and timely manner.

Registrar
Dechra’s Registrar is Equiniti Limited.

Equiniti should be contacted for any matters relating to your
shareholding, including:

• Notification of change in name and address

• Enquiries about dividend payments

• Submission of proxy form for voting at the Annual General Meeting

Shareholders who receive duplicate sets of Company mailings because
they have multiple accounts should contact Equiniti to have their
accounts amalgamated.

170

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

1.5%
0.25%

£60.00

Internet
share
dealing

1.5%
0.25%

£45.00

Postal
share
dealing

1.9%
1.9%

£70.00

0.5%

Equiniti Financial Services Limited and its agents are authorised and
regulated by the Financial Conduct Authority.

Please note that the price of shares can go down as well as up, and you
are not guaranteed to get back the amount you originally invested. If you
are in any doubt, you should contact an independent financial adviser.

Warning to Shareholders

Shareholders are advised to be wary of any unsolicited advice, offers
to buy shares at a discount or offers of free Company Annual Reports.
If you receive any unsolicited investment advice, whether over the
telephone, through the post or by email:

• make sure you get the name of the person and organisation;

• check that they are properly authorised by the FCA before getting

involved by visiting https://register.fca.org.uk/; and

•

report the matter to the FCA by calling 0800 111 6768 or by
completing the online form at www.fca.org.uk/consumers/report-
scam-unauthorised-firm.

More detailed information and guidance is available on the shareholder
information pages of our website.

Additionally, feel free to report and/or discuss any shareholder security
matters with the Company. To do this, please call +44 (0)1606 814 730
and ask to be put through to a member of the Company Secretarial
department.

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2018www.dechra.comAdvisers

Auditor
PricewaterhouseCoopers LLP
Cornwall Court
19 Cornwall Street
Birmingham
B3 2DT

Stockbroker & Financial Advisers
Investec Bank plc
30 Gresham Street
London
EC2V 7QN

Lawyers
DLA Piper UK LLP
Victoria Square House
Victoria Square
Birmingham
B2 4DL

Principal Bankers continued
HSBC Bank plc
Midlands Corporate Banking Centre
4th Floor
120 Edmund Street
Birmingham
B3 2QZ

Lloyds Bank plc
125 Colmore Row
Birmingham
B3 3SF

Raiffeisen Bank International AG
Am Stadtpark 9
1030 Vienna
Austria

Santander UK PLC
2nd Floor
100 Ludgate Hill
London
EC4M 7RE

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
Bank of Ireland (UK) plc
40 Mespil Road
Dublin
Ireland
B3 2QZ

BNP Paribas, London Branch
3rd Floor
10 Harewood Avenue
London
NW1 6AA

Fifth Third Bank
38 Fountain Square Plaza
Cincinnati
Ohio 45263
USA

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. Redonyl® is a trademark licensed from Innovet Italia S.r.l.

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