®
Annual Report and Accounts
for the year ended 30 June 2019
SUSTAINING
GROWTH
THROUGH
EXPERTISE
Company Number: 3369634
About Dechra
Pharmaceuticals PLC
Dechra is a global 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.
It is our mission to develop products sustainably to improve the welfare of
animals globally.
Our Products
Our products can be divided into four categories: Companion
Animal Products (CAP), Food producing Animal Products (FAP),
Equine, and Nutrition. All are targeted at providing veterinary
professionals with solutions for their customers’ needs.
Revenue Split by Product
CAP
Equine
FAP
Nutrition
Other
70.7%
7.1%
11.9%
6.0%
4.3%
Companion Animal Products (CAP)
Food producing Animal Products (FAP)
Species: Dogs and cats.
Key therapeutic sectors:
Endocrinology, dermatology,
analgesia and anaesthesia,
antibiotics, cardiovascular and
critical care.
Equine
Species: Horses and ponies.
Key therapeutic sectors: Lameness and
pain management.
Species: Poultry, pigs and an
increasing presence in cattle.
Key therapeutic sectors: Water
soluble antibiotics, poultry vaccines,
locomotion (lameness) and pain
management.
Nutrition
Species: Dogs and cats.
Key therapeutic sectors: Supporting the
wellbeing of cats and dogs with numerous
therapeutic conditions, such as allergies,
obesity, heart and kidney disease.
Our Product Pipeline
A key strategic priority for the Group is the delivery and strength of the pipeline. We currently have 56 projects in the product development process.
1
Feasibility
12
2
Research
16
3
Development
19
4
Registration
9
Read more about our
Product Development
on pages 40 to 43
Growing Our
Geographical Footprint
We currently have sales and marketing organisations in 25 countries and market our products in 68 other countries worldwide
through distributors or marketing partners.
North America
Dechra Veterinary Products markets
and sells Dechra’s products via its own
sales and marketing organisations or via
distributors across Canada, Mexico and USA,
the latter being the world’s largest animal health
market. In addition, there are manufacturing
sites in Florida and Mexico. Product Development
and Regulatory Affairs are also located in
the three countries.
Major geographies:
United States
68
Countries in which
our products are sold
via a distributor
25
Countries in which our
sales and marketing
teams are based
7
Manufacturing
sites
Europe
Dechra Veterinary Products markets
and sells Dechra’s products in 42
countries either via its own sales and
marketing organisations or via distributors.
Its main distribution centre is in Denmark.
There are manufacturing sites and Product
Development and Regulatory Affairs teams
in Croatia, the Netherlands and the UK.
Major geographies:
France, Germany,
The Netherlands and UK
Key to Map
Manufacturing Sites
Established Markets (Sales and Marketing)
Logistics Sites
Developing Markets (Sales and Marketing)
Emerging Markets (Distribution Partners)
Forward-Looking Statements
This document contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company during preparation
and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future and thereby
involve a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company.
Rest of World
Dechra has manufacturing facilities and
a Product Development and Regulatory
Affairs presence in Australia and Brazil. Dechra
Veterinary Products markets and
sells Dechra’s products in 34 countries
either via its sales and marketing
organisations (ANZ and Brazil) or
via distributors.
Major geographies:
ANZ, Asia, LATAM
Global Market Opportunity
Dechra is underweight in geographical
diversity compared to the wider market.
Dechra – Group Revenue by Region
North America 36.3%
Europe
55.6%
Rest of World
8.1%
Revenue
£481.8m
Growth
18.3%
2018 to 2019
Our strategic growth drivers ensure sustainable growth
Pipeline
Delivery
Portfolio
Focus
Geographical
Expansion
Acquisition
Read more about Our Marketplace
on pages 8 to 10
a
b
c
Read more about Our Strategy on pages 16 to 19
Europe
Dechra Veterinary Products markets
and sells Dechra’s products in 42
countries either via its own sales and
marketing organisations or via distributors.
Its main distribution centre is in Denmark.
There are manufacturing sites and Product
Development and Regulatory Affairs teams
in Croatia, the Netherlands and the UK.
Major geographies:
France, Germany,
The Netherlands and UK
Dechra’s Strengths
Well Recognised
Brand
We are recognised
as a global animal
healthcare company
with a strong and
growing reputation as
a provider of high
quality, specialist
veterinary medicines
and related products.
Expertise in Key
Therapeutic
Areas
We support our
customers in our key
therapeutic areas with
technical helplines,
continued education
through online learning,
webinars and lectures
by key opinion leaders.
Market Leading
Positions
We are a global leader
in veterinary endocrinology
and topical dermatology,
have the broadest portfolio
of pain and analgesia
pharmaceuticals, and
we are also recognised
as innovators in other
specialisations such as
equine lameness, nutrition
and differentiated generics
(generic plus).
Read more in the
Corporate Social
Responsibility
report on pages
46 to 61
Balance Sheet
Strength/Group’s
Cash Generative
Power
The Group targets
100% cash generation
and this strong cash
generation allows us
to pay down debt
quickly, resulting in a
strong balance sheet
which enables us to
fund internally the
majority of our strategic
opportunities.
Successful
Acquisition
History
In January 2008 we
made our first major
acquisition which,
at the time, was
transformational to our
EU Pharmaceuticals
business. We have
successfully replicated
the model since then
on several occasions
and have consistently
delivered pre-acquisition
strategic and financial
expectations on
significant transactions.
New Product
Development
Pipeline
We have a strong
pipeline of novel
pharmaceuticals,
generic pharmaceuticals
and a specialist nutrition
range with a track record
of pipeline delivery.
We are proactive in
recognising and bringing
new development
opportunities into the
portfolio.
Read more on
New Product
Development on
pages 42 and 43
03
Manufacturing
Our manufacturing
sites offer a wide range
of dosage forms and
packaging capabilities
which can be produced
in small to large-scale
production batches.
This flexibility is a
key requirement in
producing our varied
product portfolio.
Skilled People
We have attracted
and retained a
qualified and skilled
workforce throughout
the organisation. This
stable and motivated
team has many years’
experience within the
markets we serve.
Our people strategy
is underpinned by the
Dechra Values.
Read more in Our
Business Model
on pages 12 to 14
Our Global
Footprint
Our historic strength
was developing a
strong position in the
key companion animal
markets of Western
Europe and North
America. However,
over recent years we
have extended our
geographical footprint
through greenfield start
ups and acquisition
in targeted new
countries. We are
also looking to further
extend our footprint, as
international expansion
is one of our four key
strategic objectives.
Key
Relationships
Our relationships with
all key stakeholders
are very important to
the Group. Our sales
approach revolves
around partnership
with key practice
groups, individual
veterinarians, key
opinion leaders and
distributors. The
relationship with our
supply chain partners
is also important to
establish continuity of
supply. Furthermore,
our networking within
the industry is a key
driver in finding new
product development
and acquisition
opportunities.
Overview
Highlights
Financial Performance
• Revenue growth of 17.5% to £481.8
Total
Revenue
million.
• Underlying operating profit growth
of 27.3% to £127.4 million.
• Underlying EBIT margin expansion
of 200 bps to 26.4%.
• Underlying diluted EPS increased
by 16.6% to 90.01 pence.
• Reported operating profit growth
of 13.5%.
• Full year dividend increased by 23.9%
to 31.60 pence.
£481.8m
Underlying
Operating Profit
£127.4m
Underlying Diluted
Earnings Per Share
90.01p
2018: £407.1m
AER: +18.3% CER: +17.5%
2018: £99.2m
AER: +28.4% CER: +27.3%
2018: 76.45p
AER: +17.7% CER: +16.6%
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All of the above measures are at CER unless
otherwise stated.
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Read the Financial Review
on pages 25 to 31
Strategic Progress
• Recent acquisitions performing ahead
of expectations.
• CAP outperformance in all key markets;
• FAP growth continuing.
• Numerous product registrations
achieved, and new development
opportunities secured.
Read about Our Strategy
on pages 16 to 19
Dividend
Per Share
31.60p
Reported
Operating Profit
£39.0m
Reported Diluted
Earnings Per Share
30.07p
2018: 25.50p
AER: +23.9% CER: +23.9%
2018: £34.1m
AER: +14.4% CER: +13.5%
2018: 37.04p
AER: (18.8%) CER: (19.6%)
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04
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
CER is defined as Constant Exchange Rate against prior year, whilst £ is at reported, Actual Exchange Rate
(AER). A reconciliation of underlying to reported measures can be found on page 26.
Chairman’s View
We continued to execute
our strategy in relation to our
pipeline delivery, portfolio focus,
geographic expansion and
acquisition.
Tony Rice
Non-Executive Chairman
Welcome to the 2019 Annual Report in
which you will read about another year
of strategic and financial progress across
the business.
Summarising the year, I can report that
the business has delivered a strong
performance as we continued to execute
our strategy in relation to our pipeline
delivery, portfolio focus, geographic
expansion and acquisition.
The Board is confident in the long term
prospects of the global animal health
market. We see Companion Animal
Products (CAP) continuing to be the
main driver of growth, although we are
encouraged by the opportunity that Equine
and Food producing Animal Products (FAP)
offer. We have strengthened our product
development portfolio to which we expect
to add further products to and global
registrations over the coming years.
As the Group continues to go from strength
to strength, I take this opportunity on behalf
of all stakeholders, to sincerely thank all our
people (who now total 1,753 working across
25 countries) for their ongoing commitment
and dedication which continues to underpin
the success of Dechra.
More detail can be read as part of the
Strategic Report that follows my letter.
I hope that you will find this document
interesting and informative and, as always,
we welcome feedback or questions from
shareholders.
We look forward to keeping you and the
market updated on our positive progress
over the coming year.
Tony Rice
Non-Executive Chairman
Read about our Corporate
Governance on pages 70 to 82
Stock Code: DPH
Overview
Contents
Overview
About Dechra Pharmaceuticals PLC
Growing Our Geographical Footprint
Dechra’s Strengths
Highlights
Chairman’s View
Strategic Report
Our Marketplace
Our Business Model
Creating Value for Our Stakeholders
Delivering Our Strategy
Chief Executive Officer’s Statement
Q&A with Ian Page
Financial Review
Key Performance Indicators
Strategy in Action
Product Development
International Product Offering
Corporate Social Responsibility
How the Business Manages Risk
Understanding Our Key Risks
Governance
Letter from the Chairman on Governance
Corporate Governance
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors’ Report – Other Disclosures
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditors’ 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
Company Information
Glossary
Shareholder Information
Advisers
IFC
01
03
04
05
08
12
15
16
20
24
25
32
34
40
44
46
62
64
70
71
83
90
93
111
113
116
123
124
125
126
127
128
171
172
173
181
184
186
IBC
05
STRATEGIC
REPORT
Contents
Our Marketplace
Our Business Model
Creating Value for Our Stakeholders
Delivering Our Strategy
Chief Executive Officer’s Statement
Q&A with Ian Page
Financial Review
Key Performance Indicators
Strategy in Action
Product Development
International Product Offering
Corporate Social Responsibility
How the Business Manages Risk
Understanding Our Key Risks
08
12
15
16
20
24
25
32
34
40
44
46
62
64
CLEAR
STRATEGIC
FOCUS AND
CONSISTENT
DELIVERY
06
07
Strategic Report
Our Marketplace
Global Market Dynamics
The Animal Health Market
Animal health 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.
c.£33.5bn
+3%
Market Size
Source: Vetnosis Health for Animals (2018)
Real Market Growth
The Animal Health Market by Species
CAP/Other
FAP
38%
62%
Source: Vetnosis Health for Animals (2018)
Market Share by Competitor
Our Position in the Animal Health Market
There are few international businesses in our market, five of which have
59.2% of the world’s market share. Dechra’s objective is to continue
to outperform the market, increasing its market share, through the
execution of its strategy.
Animal Pharmaceuticals vs. Human Pharmaceuticals
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, adhere to 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 pharmaceutical 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 helping to build brand loyalty, which often
continues after the loss of patent protection
or regulatory exclusivity.
• Lower pricing pressure: Livestock producers and pet owners
generally pay for animal healthcare themselves. Pricing decisions
are not influenced by government payors that are involved in
product and pricing decisions for human medicines.
• Less price erosion by generic competition: Generic competition
in animal healthcare, whilst playing an important role, has a lower
impact on prices compared to human pharmaceuticals because
of the smaller average market size of each product opportunity,
stronger customer relationships and brand loyalty.
17.39%
Zoetis
Boehringer Ingelheim 13.96%
12.57%
Merck
9.16%
Elanco
16.17%
Idexx Laboratories
5.29%
Bayer Animal Health
4.05%
Ceva Sante Animal
Virbac
3.06%
Phibro Animal Health 2.45%
1.64%
Dechra
08
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Types of veterinary practices
The majority of our sales are made into veterinary practices that
tend to specialise in either companion animal or food producing
animal treatment; however, there are numerous practices that are
classified as mixed and who service all species.
There is also an increasing number of equine practices and
referral hospitals that provide high levels of specialisation.
The veterinary profession is going through huge change as
incorporated practice groups are consolidating practices at an
increasing rate.
With the ongoing integration of professional farming units,
our FAP sales efforts are now often focused on these major
integrators; however, the integrators themselves employ
veterinarians who remain responsible for the prescribing and
administration of our products.
Veterinary practices – Europe
Independents
Buying Groups
Corporates
58%
27%
15%
Source: DVP EU Sales Data March 2019
Veterinary practices – North America
Independents
Corporates
80%
20%
Source: Cleveland Research 30 June 2019
Key Trends and Our Response
Recent market trend: The development of Covetrus
in the USA reflects the recent trend of the distributors
looking to change their historic veterinary supply route to
provide a direct to consumer (dog and cat owner) model.
Our response
The final route to the pet owner is not a major issue to
Dechra. Our products are predominantly Prescription
Only Medicines (POMs), so our ultimate partner in the
supply chain will remain the veterinarian who will continue
to write a prescription. Through education, technical
support and innovation we endeavour to ensure that the
prescription continues to be for a Dechra brand.
Ongoing market trend: The veterinary profession
has been going through a period of change for several
years as incorporated practice groups are consolidating
practices at an increasing rate.
Our response
Our relationship with these groups is very important; we
are increasingly focused on key account management.
We have modified our sales and marketing approach to
focus on building relationships with our corporate and
buying group customers and to understand better their
needs and expectations. We have dedicated corporate
account teams in Europe and North America.
Ongoing market trend: We have seen growth in
the companion animal market for many years due to
veterinarians’ capabilities, improved nutrition, increased
longevity of pets and the owner’s willingness to continue
to increase spending on pets. This trend has historically
been in Western Europe, North America and other
selected markets; however, in the developing world
we are now seeing the status of pets increase, creating
new markets.
Our response
We will continue to innovate in specialist medicine and
increase our portfolio in our key areas of therapeutic
specialisations. We are also expanding our geographical
footprint and investing money in product registration in
new developing markets.
Long term market trend: With the global increase
in the population and the improvement in developing
countries’ economies, there is a huge increase in demand
for high quality poultry and fish protein.
Our response
We are consistently strengthening our FAP business both
with new products and by international expansion. We are
enhancing our range which includes our market leading
pig and poultry water soluble antibiotics with vaccines and
are increasing our registration activity to obtain marketing
authorisations in new markets. We also own the global
marketing rights to Animal Ethics’ ethical pain treatment
for farm animals, Tri-Solfen®, which we are registering for
sheep, cattle and pigs in numerous global markets.
Stock Code: DPH
09
Strategic Report
Our Marketplace
continued
Product Market Dynamics
Our products can be divided into four categories: Companion Animal Products (CAP), Food producing Animal Products (FAP), Equine, and Nutrition.
All are targeted at providing veterinary professionals with solutions for their customers’ needs.
CAP
70.7%
% of Group Revenue
Species: Dogs and cats
Key therapeutic sectors: Endocrinology,
dermatology, analgesia and anaesthesia,
cardiovascular and critical care.
Products: The majority of products in our
portfolio are Prescription Only Medicines
(POMs); prescribed, administered and
dispensed by veterinarians working in
companion animal practices. We also have
a range of associated non-prescription
products which complement the licensed
pharmaceuticals, such as ear cleaners,
dermatologically active shampoos and other
topical and nutritional supplements.
FAP
11.9%
% of Group Revenue
Species: Poultry, pigs and an increasing
presence in cattle.
Key therapeutic sectors: Water soluble
antibiotics, poultry vaccines, locomotion
(lameness) and pain management.
Products: Our products are predominately
POMs that are prescribed by veterinarians
who work in either specialist veterinary
practices or professional farming units.
Market Description
The principal driver of growth in companion
animal markets is the pet owners’
compassion for their animals. The market
has historically been orientated around
developed countries such as Western
Europe, North America, Australia and
Japan. However, with increasing wealth in
several developing regions, the companion
animal market is now also expanding.
Key Trends Shaping our Markets
Expenditure on companion animals continues
to grow due to increasing pet ownership,
advances in better nutrition, increased
competence in managing complex conditions
by veterinarians, preventative healthcare and
wellness and by increasing availability of more
specialist pharmaceuticals.
Our Market Position
This is the basis upon which Dechra
established its market position and
continues to be our strongest sector.
Dechra has developed a strong position in
providing specialist and clinically necessary
novel products. We also supply a range of
products which complement these products
in key therapeutic sectors where we are
seen as the company of choice by many
veterinarians.
Market Description
As over 60% of all global animal health sales
are FAP, Dechra is underweight relative to
the market and our competitors and it is an
increasing area of focus.
Key Trends Shaping our Markets
The key driver for growth in this sector is a
huge increase in the global demand for high
quality animal protein and dairy products.
Vaccines are the biggest growth sector of
the veterinary market and are anticipated to
continue to outgrow therapeutic treatments.
There is also a growing awareness to the
need for better animal welfare standards,
including pain control during procedures
such as pig castration and tail docking.
Our Market Position
Dechra entered the FAP sector through the
acquisition of Eurovet in 2012; it currently
represents 11.9% of revenue. The majority of
our sales are currently antibiotics which are sold
mainly into Western Europe. This market has
been extremely proactive over the last five years
in reducing antibiotic use due to concerns over
antimicrobial resistance and ‘super bugs’.
Dechra’s portfolio is positioned to
match current best practice prescribing
habits; additionally, our recent move into
poultry vaccines should provide growth
opportunities in future years as we seek
global registrations.
10
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Equine
7.1%
% of Group Revenue
Species: Horses and ponies.
Key therapeutic sectors: Lameness and
pain management.
Products: Dechra offers a wide range of
products supporting the equine veterinarian,
from pain management to products for
anaesthesia, dermatology, critical care,
reproduction and euthanasia.
Nutrition
6.0%
% of Group Revenue
Species: Dogs and cats.
Key therapeutic sectors: Our pet diets
are available to support the wellbeing of
cats and dogs with numerous therapeutic
conditions.
Products: Our range of pet foods is
predominantly focused on high quality
nutrition to support therapeutic conditions
in dogs and cats such as allergies, joint
disorders, obesity, heart and kidney disease.
Market Description
Veterinarians that specialise in horses
operate out of either mixed practices or,
increasingly, specialist equine centres. The
horse is classed as a minor species as there
are relatively few of them, even in major
countries such as the USA where current
estimates are only seven million and the UK
at approximately one million. The market
can be divided roughly into performance
sports horses and leisure horses and
ponies.
Key Trends Shaping our Markets
The market is variable and can be linked to
the economy; however, high value sports
horses will be treated at almost any cost.
Our Market Position
This is a sector in which few animal health
companies specialise due to the relatively
small number of horses in the world and
the fact that in the majority of European
countries the horse is classed as a food
producing species which adds complexity
to the licensing process.
Dechra has developed a strong position
in lameness and pain management with
unique products that have superior efficacy
compared to historic treatments.
Market Description
Premium quality products for both everyday
pet nutrition and special therapy needs sold
through veterinary channels.
Key Trends Shaping our Markets
Expenditure on companion animals continues
to grow due to increasing pet ownership,
advances in nutrition, increased competence
in managing complex conditions by
veterinarians, preventative healthcare and
wellness and by increasing availability
of more specialist diets.
Our Market Position
Dechra’s focus is predominantly therapeutic
diets which are not available for self-selection
through supermarkets, and require advice
from the veterinarian. There are very few
competitors in this specialist sector of the pet
food market and although we compete with
huge global multinational companies, we are
able to differentiate our position through the
use of higher quality ingredients and through
innovation.
The ability to offer our wide range of
products, branded Specific®, is necessary
to remain competitive in this sector.
Stock Code: DPH
11
Strategic Report
Our Business Model
Our objectives are to innovate, develop, register, manufacture, sell and market high quality products to the veterinary profession worldwide. We also
offer high levels of service, technical support and educational training to promote the Dechra brand and to develop a strong relationship with, and be
recognised as an important partner to, veterinarians.
1
Our Key Resources
and Relationships
2
Innovation, Development
and Registration
Values
Our culture and Values are important and have helped
drive the Group’s success.
People
Our people strategy underpins everything we do in the
business. We have a well defined plan to build talent,
develop people and strengthen the Dechra culture.
Relationships and Partnerships
Our sales approach revolves around partnerships
with key practice groups, individual veterinarians, key
opinion leaders and distributors. The relationship with
our supply chain partners is also important to establish
continuity of supply.
Financial Resources
Our strong cash generation allows us to pay down
debt quickly, resulting in a strong balance sheet which
allows us to fund internally the majority of our strategic
opportunities.
Technology
We are implementing a strong technology platform
to enable us to operate efficiently. We also offer CPD
training via our e-learning system to veterinarians and
veterinary nurses.
Read Corporate Social Responsibility
on pages 46 to 61
Strategic Enablers
Technology
People
Manufacturing and
Supply Chain
Read Delivering Our Strategy
on pages 16 to 19
Product Development Portfolio
Novel
Entities
Generics
Differentiated
Generics
Lifecycle
Management
Read more about our Product Development
on pages 40 to 43
Product development ideas are generated in numerous ways,
including:
•
regular cross functional meetings where all senior staff are
encouraged to bring new ideas from their experience in the
marketplace;
• networking with key opinion leaders, especially in our focus
therapeutic areas, to identify and develop ideas; and
• employing talented veterinary scientists who extensively
screen scientific papers looking for new technologies that
might have an application in our marketplace.
In addition, our profile gives us exposure to human pharmaceutical
and biotech companies that are developing technologies, usually
for human medicine, but often with a veterinary application.
We spread our development portfolio across novel entities,
differentiated generics, generics and lifecycle management
projects across multiple species.
Our formulation and development laboratories are located at our
manufacturing sites which allows manufacturing and product
development to work closely together to scale up to commercial
production, which is a key expertise for in-house product
development. After opportunities have been identified we have
an evaluation phase where we assess opportunities and ideas to
determine whether we can technically manufacture the product
and whether it is commercially viable to do so. Once a product has
been classed as suitable for development it will be allocated to an
internal development team who will be responsible for taking the
product all the way through feasibility, research and development
to regulatory submission. Once all the studies are concluded, if the
product reaches the required safety, efficacy and stable chemical
criteria, regulatory dossiers are prepared for registration and filing
with the relevant regulatory authorities.
Read Pipeline Delivery Case Study
on page 35
12
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
3
Manufacturing
4
Supply Chain
Range of competencies
Tablets and
Capsules
Creams
Liquids
Ointments
Powders
Vaccines
Sterile
Injections
s
e
t
i
s
s
c
i
t
s
g
o
L
i
Veterinary
distributors &
wholesalers
Direct supply of products
Manufacturing is a key competency of the Group; the
prime objective is to deliver safe, efficacious, cost-
effective, quality products. Veterinary products come in
many dosage forms, and often, batch runs for veterinary
medicines are relatively small compared to human
production; therefore outsourcing can prove difficult
and expensive. We have a wide range of competencies
across our seven sites including tablets, creams, liquids,
ointments, powders, vaccines and sterile injections that
can be packed in a multitude of different presentations.
We do however outsource approximately 50% of our
products. There are numerous active pharmaceutical
ingredient types and dosage forms that we are unable
to manufacture in-house and we also have numerous
historical long term supply agreements with contract
manufacturing organisations (CMO) which have been
evolved due to historic agreements with businesses
we have acquired. Therefore our CMO network is an
important part of our business.
Our products are distributed to wholesalers and distributors
through two major logistics sites. Our European and
International markets are serviced from our own logistics
facility based in Uldum, Denmark, and North America is
supplied out of a third party logistics supplier in Kentucky.
The principal objective is to deliver a customer’s order on
time and in full every time.
The majority of veterinary practices are supplied through
specialised veterinary distribution companies that operate as
one-stop shops. They stock the majority of items veterinary
practices need and offer high levels of service, often with
a next day delivery. These distributors, on the whole, are
not proactive in selling product; they predominantly supply
to demand where the demand is driven by Dechra’s own
sales activities within veterinary practices. There are a few
markets where we offer direct supply, such as Germany and
the Netherlands that are not fully supported by veterinary
distributors or where legislation enforces all pharmaceuticals
to be sold through pharmacies, such as Denmark, Italy,
Norway and Sweden.
Stock Code: DPH
13
Strategic Report
5
Our Customers
Sales and Marketing
6
Veterinary
practices &
professional
farming
units
Veterinary
professionals
All of our products and sales and marketing activities
are targeted at veterinary professionals. The majority of
veterinarians prescribe and dispense the drugs, although
there are a few territories in the world where the veterinarian
writes a prescription and the drugs are purchased by the
animal owner at a pharmacy.
The majority of our products are POMs, however we have
a range of complementary non-prescription products. Our
product range includes both novel and generic products
in key therapeutic areas, in particular endocrinology, and
anaesthesia and analgesia.
Generating Demand for our Customers
Telephone
sales
representatives
Field based
representatives
Educational
programmes
Technical
support
helplines
Dechra operates its own sales force and provides
in-house marketing and technical support in 25 countries,
predominantly in Europe and North America. In almost
all these countries we have highly skilled field based
representatives who make regular calls with all major
veterinary practices. The representatives’ brief is to sell
the product on a technical basis, outlining the beneficial
aspects of our products and to provide educational
support on how best to treat animals in our key therapeutic
areas. We also provide high levels of technical support and
pharmacovigilance through helplines in every country in
which we operate. These helplines provide veterinarians
with support on how best to use our products and with
free advice on any difficult or complex cases that may be
encountered.
The relationship with veterinarians is key and, to this
end, we provide added value services. We offer high
level educational programmes focused on the treatment
of conditions in our key therapeutic areas. We deliver
this education through many channels, including major
conferences, regional groups, individual practices and
increasingly through digital channels.
These programmes are certified to offer veterinarians
and veterinary nurses the continuing professional
education hours they require to maintain their
professional qualification.
Stock Code: DPH
14
Strategic Report
Creating Value for Our Stakeholders
The Board appreciates that wider engagement with stakeholders is a key component of long term sustainability and success and
believes that by engaging effectively with stakeholders, it will in turn strengthen the business, promoting long term success to the
benefit of stakeholders and shareholders alike. Some examples of the ways in which the Board and/or the Group have engaged
with stakeholders are detailed below:
Shareholders
Suppliers
The Board’s principal role is to promote the long term success
of the Company on behalf of its shareholders.
• A rolling programme of meetings between institutional
shareholders and the Chief Executive Officer and Chief
Financial Officer have been held throughout the year.
• The Board reviewed and considered feedback, collated by the
Company’s brokers, after Investor Presentations by the Board.
• The Board is provided with market summary reports which
detail share price and share register movements.
• All members of the Board attended the 2018 Annual
General Meeting. This provided an opportunity for informal
communications between shareholders and Directors.
• Board approval of significant announcements.
Employees
The Board believes that the Group’s employees are its greatest
asset. Our ongoing objective is to continue to be a high
performing business driven by highly skilled and committed
teams. A key element of our People Plan is that we want
Dechra to be a great and safe place to work.
• Results of the employee engagement survey have been
presented and action planning sessions have taken place
with employee groups to determine areas of focus to
maintain and improve employee engagement.
• The Group HR Director provided an update to the Board
in June 2019 on the actions taken by teams throughout
the Group on the agreed key areas of focus from the 2018
employee engagement survey.
• Three scheduled Board meetings were held at business
units, which provided the Board the opportunity to walk
around the facilities with senior employees, to engage with
employees at the sites and to experience the values and
culture of the Company. In addition, they attended dinner
with senior managers from the sites.
• The Board met formally and informally with the Senior
Executive Team (SET).
• Twice a year a comprehensive health and safety report is
provided to the Board for its review.
• Senior Leaders held regular functional and cross functional
Town Hall meetings to keep employees informed and
updated.
• Formal communications with Works Council employee
representatives.
• Group-wide newsletter published twice a year along with
other Group news via the Company intranet.
• 16 new courses added to our e-learning platform and 1,803
courses have been completed by our employees.
• The appointment of Lisa Bright as the Non-Executive
Director designated for employee engagement.
The Company is committed to acting responsibly and with
integrity, respecting the laws, regulations, traditions and cultures
of the countries within which it operates. It expects its suppliers
to trade with honesty and integrity.
• The Board reviewed and approved the Anti-Bribery and
Anti-Corruption (ABC) training course for Dechra’s third party
network, which has been rolled out, and the updated internal
ABC policies and procedures.
• The Board reviewed and approved the Modern
Slavery Statement.
• The Manufacturing and Supply Director presented to the
Board and this included a discussion on the contract
manufacturing organisation strategy.
Customers
Our objectives are to innovate, develop, register, manufacture,
supply and market high quality products to the veterinary
profession worldwide. We provide high levels of service, technical
support and educational training to develop a strong relationship
with, and be recognised as an important partner to, veterinarians.
• Each of the SET members for DVP EU, NA, and
International have provided in-depth presentations on
their markets, customer requirements and customer
consolidation.
• Approval of licensing arrangements which will bring new
technologies and products into our pipeline and product
portfolios.
• A presentation from the DVP International Managing
Director which included a distribution strategy discussion.
• Launch of Dechra Cat and Dog App, an anaesthesia
education and support tool.
• 40 new courses have been created this year in the strategic
therapy areas of Endocrinology and Dermatology in the
Dechra Academy, our continuous professional development
platform.
• A total of 676 CPD presentations to an aggregate total of
18,680 attendees in North America and Mexico.
Communities
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.
• 878 hours in the Community, working on a variety of
projects, including beach clean ups in the Netherlands
and supporting animal shelters in the US.
• The lease of land, free of charge, in Zagreb for use by the
local community as a children’s playground.
• The provision of training to local residents and students
in Denmark and Brazil.
15
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Delivering Our Strategy
Since 2013, our priorities for each Strategic Growth Driver and Enabler have been clearly defined and communicated and are outlined
in the table on pages 18 and 19. In this section of the Annual Report we describe the progress we have made towards achieving our
strategic objectives.
1
Dechra Values
2
Strategic Enablers
Technology
People
Manufacturing
and Supply
Chain
2013
Number of product
registrations
1,327
Number of countries
distributed to
40
Number of countries with
own sales and marketing
organisations
13
Number of
manufacturing sites
3
Number of employees
1,287
Commenced
trading in
Italy
a
b
c
Acquired
PSPC
US product
Acquired
Apex
Access to
Australian
CAP market
Acquired
Putney
Transformational
US deal
2013
2014
2015
2016
a
b
c
Acquired
Genera
Entry into poultry
vaccines
Acquired
Brovel
Access to
Mexican market
Commenced
trading in
Canada
and Poland
16
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
3
Strategic Growth Drivers
a
b
c
Pipeline
Delivery
Portfolio
Geographical
Acquisition
Focus
Expansion
Read about our Strategic Growth
Drivers on page 34 to 39
Acquired AST Farma
Strengthens Dutch market
position and provides
direct-to-vet relationship
a
b
c
Acquired Le Vet
Adds to EU
product portfolio
2017
2018
Acquired
RxVet
Access to
New Zealand
Acquired
33% of
Medical Ethics
Access to novel product
development
Acquired
trade and
assets of
Caledonian
Access to
equine products
International
specialist veterinary
pharmaceuticals
and related
products business
Generate long term
value for
shareholders
2019
Number of product
registrations
5,407
Number of countries
distributed to
68
a
b
c
Acquired
Venco
Access to Brazil and South
American markets
2019
Number of countries with
own sales and marketing
organisations
25
Acquired
a further 15% of
Medical Ethics
Number of
manufacturing sites
7
Number of employees
1,753
Stock Code: DPH
17
Strategic Report
Delivering Our Strategy
continued
Our Strategic Growth
Drivers
Pipeline Delivery
2014
• Dossiers submitted in USA and EU for
2015
• Seven new projects started in
Our Achievements
a novel canine endocrinology product
• Pivotal clinical trial commenced for
•
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
canine endocrinology opportunity
• Ongoing characterisation studies for
canine dermatological and canine
ophthalmology products
• A number of generic and range
extension dossiers submitted in EU
• Osphos® submitted in Australia and
Canada
Portfolio Focus
• Delivered growth in almost all target
therapeutic sectors
• Cardisure® exceptional growth of
32% across European markets, while
Comfortan® grew by 40%
• Brought in house a number of products
acquired through Eurovet enabling the
Group to retain full margin and enhance
sales focus
• Updated Dechra Online Academy tool,
a platform for CPD for all veterinarians
Feasibility
Two product approvals: Osphos
in EU (April 2015) and TAF Spray®
(December 2014)
August 2014 and in the UK in
September 2014, with dedicated
sales representatives recruited to
support the launch
TAF Spray launched in several EU
countries
•
Vetoryl® grew by 24% globally
•
• Dechra Academy was updated and
launched successfully in 11 countries
with 5,000 new users
• All core therapeutic areas in CAP,
including dermatology, as well as
Equine growing at double digit in
Europe
• Started trading in Italy – the first
• Strengthening of distributor
greenfield start up since the USA
in 2004
• Sales office established in Canada
• Recruiting additional regulatory support
to accelerate product registrations in
other territories
relationships
• New start up in Poland
• Commenced trading from
Canadian entity
• Osphos launched in the USA in
• Several FAP approved, notably
• Acquisition of trade and assets of PSPC
Inc. and PSPC facility in USA
• Purchase of new Levothyroxine product
to be launched in first half of 2015
financial year
• Successful integration of the assets
of PSPC with sales exceeding
expectations
•
Three acquisitions completed:
Genera, Brovel and Putney
• Putney integration helped strengthen
• Conditional offer for Genera d.d.,
our USA presence
a Croatian animal health company,
announced post year end on
3 August 2015
• Genera integration on plan, new
business structure defined
• Registration process of Dechra
products commenced in Mexico
Strategic Enablers
• Significant investments in the liquids,
• On time first order delivery to new
• Good progress in our Oracle roll out
creams and ointments suite, tablet
compression machines and the
encapsulation production line in Skipton
country operations in Italy and Poland
• Completed transition of dry diets
manufacturing to new third party site
• Brought production of Cardisure and
• Completed investments in Dechra
Forthyron® in house – improving margin
and giving greater flexibility and control
over production of these key CAP
products
€2 million investment in our new
enlarged central European distribution
centre in Uldum
•
• New supplier of Specific pet diets identified
and transfer of production started
Pharmaceuticals Manufacturing
(DPM) to improve yield and capacity
• Successful FDA pre-approval
in 16 countries
inspection at Skipton to manufacture
Zycortal®
• Completed implementation of Group
Finance Oracle consolidation module
• Personal Development Review (PDR)
rolled out to all Dechra employees
• Sales and Operations Planning (S&OP)
process implemented in DVP EU
and DPM
See our Key Performance Indicators
on pages 32 and 33
See the Understanding Our Key Risks
section on pages 64 to 67
18
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
a
b
c
Maximise our revenue
by increasing market
penetration, focusing on
targeted therapeutic
sectors within CAP,
Equine, FAP and Nutrition
Geographical
Expansion
Leverage our product
portfolio into new
geographic regions through
distribution partners, in-
country presence and
new country product
registrations
Acquisition
Expand our geographical
footprint and/or enhance
our product portfolio
through acquisition
Our strategic enablers,
Manufacturing and
Supply Chain, People and
Technology, support the
execution of our strategy
2016
•
Zycortal approved and launched in the
USA in March 2016 and in 14 European
markets
• Osphos launched in 17 additional
European countries
Phenocillin® and Solamocta® (for turkeys
and ducks) launched in Germany and
launch planned for 17 other territories
• Amoxi-Clav tablet development
including Redonyl® Ultra, Vetradent®
rest of world
Read about our Pipeline Delivery
and BioEquin®
•
15 product launches from Le Vet
on page 35
• A number of minor FAP market
• Progress in co-development licensing
pipeline
authorisations gained
opportunities
• Double digit growth in key therapeutic
• Strong CAP and Equine growth
• Resolution of Nutrition supply and
• Moved key Le Vet products from
areas
• Roll out of digital technologies
progressed to plan, with the
implementation of our Learning
Management System, Delta, enabling
product training to be disseminated to
sales representatives
• Regulatory approvals were obtained in
several countries such as Brazil, Egypt
and Sri Lanka
• New start up in Austria
Our Achievements
2018
•
•
• Signed Animal Ethics licensing
Two further poultry vaccines registered
•
Entered into a number of licensing
agreement, and building pipeline of
in EU: Avishield® IBH120 and ND B1
agreements, including a novel
other in-licensing opportunities
Launch of further Amoxi-Clav dose
canine sedative and an equine
•
Vaccines development strategy
sizes to complete range for the USA
gastric product
defined and new opportunities
market
• A number of novel and generic
•
In-licensing of major new products
registrations in EU, Mexico and
2017
identified
completed
Our
Progress
2019
Links
Link to KPIs and Risks
2 3 4
3 4 5
1
5
2
9
continuing across the Group,
palatability issues, and launch of
FAP returned to growth
refreshed cat diets
Increased effective use of CRM tools
• Strong growth in European FAP
distributors to Dechra marketing
companies to generate significant
synergies through retention of full
following antibiotic product alignment
margin and enhancing sales focus
Expanded sales force effectiveness
and range additions
• Development and launch of Dechra
•
•
in EU and NA
training
• Unblocking of distribution channels
increase penetration across Group
•
FAP growth accelerating against
on page 37
for Putney products in the US
• Continued growth in Equine, with
a backdrop of declining antibiotic
•
Leveraging CAP product success to
Dog & Cat Anaesthesia App
Read about our Portfolio Focus
Link to KPIs and Risks
1
5
2 3 4
3 4 5
1
7
9
opened up market for enlarged NA
stronger growth in Europe from
markets
business growth
market penetration and range
additions
• Several international product
• Over 80 new country registrations of
•
Expanded into Latin America via
registrations achieved
existing portfolio products
the acquisition of Laboratorios
•
Established Dechra Veterinary
• Acquisition of RxVet expanded our
Vencofarma do Brasil Ltda (Venco)
Link to KPIs and Risks
1 2 3 4
4 5 6 7
Products (DVP) International business
presence in New Zealand
•
43 Product registrations across Israel,
• Commenced appointment of the DVP
• Successful establishment of the DVP
South Korea, Macau, Macedonia,
International team
International team
Malaysia, Malta, Namibia, Serbia,
Read about our Geographical
Expansion on page 39
• Development of international
Ukraine, UAE and Zambia
registrations strategy and
• ANZ business leveraged by
prioritisation plan
Caledonian bolt-on
• Successful integration and operation
• Acquisition and successful integration
•
Acquisition and successful integration
Link to KPIs and Risks
of Genera, Brovel, Putney and Apex
of RxVet, expanding our presence in
of Venco
• Acquisition of Apex, opening up
New Zealand
• Acquisition of trade and assets of
1 2 3 5
6 8
new bridgehead into Australasia
First full year of Apex
•
•
Acquisition and successful initial
integration of AST Farma and Le
Vet, providing transformation in EU
Pharmaceuticals’ portfolio and pipeline
Caledonian Holdings Ltd in New
Zealand strengthening market
position in Equine
Read about our Acquisition
on page 39
and South East Asia
• Acquisition of 33.0% of Medical
Ethics Pty Ltd provides the
Group with secure access to
novel therapeutic areas/product
development
• Developed new Manufacturing and
•
Progress in execution of Manufacturing
• Appointment of additional
Supply Chain strategy
remodelling strategy, in Zagreb
Non-Executive Director and Group
• Ongoing progress in Oracle
(inbound transfers) and Bladel (FDA)
Manufacturing and Supply Director
deployment
•
12 months without a lost time
• Strengthened Manufacturing
Link to KPIs and Risks
1
5
2
6
3
7
4
3 6 9
•
IT user hardware standardised
accident
Leadership team
across the Group
• Completion of employee engagement
•
Investments in manufacturing and
survey, providing valuable feedback
packing at Skipton, a new solid dose
• Successful implementation of
facility in Zagreb and an upgrade to
the European Oracle project and
the sterile facility in Bladel
completion of Hyperion suite
• Oracle ERP now embedded and
Phase II completed in DVP EU
Read about our People
on pages 49 to 55
with DVP US live in April 2016
• Commencement of a new Group
Intranet platform for improved
communication and information sharing
with all employees
• HR Cloud based IT system implemented
Our Achievements
Our Achievements
2017
• Signed Animal Ethics licensing
2018
•
•
agreement, and building pipeline of
other in-licensing opportunities
Vaccines development strategy
defined and new opportunities
identified
•
•
• Amoxi-Clav tablet development
completed
Two further poultry vaccines registered
in EU: Avishield® IBH120 and ND B1
Launch of further Amoxi-Clav dose
sizes to complete range for the USA
market
In-licensing of major new products
including Redonyl® Ultra, Vetradent®
and BioEquin®
• A number of minor FAP market
• Progress in co-development licensing
authorisations gained
opportunities
Strategic Report
Our
Progress
2019
•
Entered into a number of licensing
agreements, including a novel
canine sedative and an equine
gastric product
• A number of novel and generic
registrations in EU, Mexico and
rest of world
15 product launches from Le Vet
pipeline
•
Links
Link to KPIs and Risks
2 3 4
1
5
3 4 5
2
9
Read about our Pipeline Delivery
on page 35
• Strong CAP and Equine growth
continuing across the Group,
FAP returned to growth
Increased effective use of CRM tools
in EU and NA
Expanded sales force effectiveness
training
•
•
• Unblocking of distribution channels
for Putney products in the US
opened up market for enlarged NA
business growth
• 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
Leveraging CAP product success to
increase penetration across Group
• Continued growth in Equine, with
stronger growth in Europe from
market penetration and range
additions
• Moved key Le Vet products from
distributors to Dechra marketing
companies to generate significant
synergies through retention of full
margin and enhancing sales focus
• Development and launch of Dechra
•
Dog & Cat Anaesthesia App
FAP growth accelerating against
a backdrop of declining antibiotic
markets
Link to KPIs and Risks
2 3 4
1
5
1
7
3 4 5
9
Read about our Portfolio Focus
on page 37
• Several international product
• Over 80 new country registrations of
•
•
registrations achieved
Established Dechra Veterinary
Products (DVP) International business
• Commenced appointment of the DVP
existing portfolio products
• Acquisition of RxVet expanded our
presence in New Zealand
•
• Successful establishment of the DVP
International team
International team
• Development of international
registrations strategy and
prioritisation plan
Expanded into Latin America via
the acquisition of Laboratorios
Vencofarma do Brasil Ltda (Venco)
43 Product registrations across Israel,
South Korea, Macau, Macedonia,
Malaysia, Malta, Namibia, Serbia,
Ukraine, UAE and Zambia
Link to KPIs and Risks
1 2 3 4
4 5 6 7
Read about our Geographical
Expansion on page 39
• ANZ business leveraged by
Caledonian bolt-on
• Acquisition of trade and assets of PSPC
• Successful integration of the assets
•
Three acquisitions completed:
• Successful integration and operation
• Acquisition and successful integration
•
of Genera, Brovel, Putney and Apex
• Acquisition of Apex, opening up
new bridgehead into Australasia
and South East Asia
• Acquisition of 33.0% of Medical
Ethics Pty Ltd provides the
Group with secure access to
novel therapeutic areas/product
development
•
•
of RxVet, expanding our presence in
New Zealand
First full year of Apex
Acquisition and successful initial
integration of AST Farma and Le
Vet, providing transformation in EU
Pharmaceuticals’ portfolio and pipeline
Acquisition and successful integration
of Venco
• Acquisition of trade and assets of
Caledonian Holdings Ltd in New
Zealand strengthening market
position in Equine
Link to KPIs and Risks
1 2 3 5
6 8
Read about our Acquisition
on page 39
Strategic Enablers
• Significant investments in the liquids,
• On time first order delivery to new
• Good progress in our Oracle roll out
• Developed new Manufacturing and
•
Supply Chain strategy
• Ongoing progress in Oracle
•
deployment
IT user hardware standardised
across the Group
Progress in execution of Manufacturing
remodelling strategy, in Zagreb
(inbound transfers) and Bladel (FDA)
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
• Appointment of additional
Link to KPIs and Risks
Non-Executive Director and Group
Manufacturing and Supply Director
• Strengthened Manufacturing
1
5
2
6
3
7
4
3 6 9
Leadership team
Investments in manufacturing and
packing at Skipton, a new solid dose
facility in Zagreb and an upgrade to
the sterile facility in Bladel
Read about our People
on pages 49 to 55
• Oracle ERP now embedded and
Phase II completed in DVP EU
Key to KPIs
1
2
3
4
5
6
7
Revenue Growth
Underlying Diluted EPS Growth
Return on Capital Employed
Cash Conversion
New Product Revenue
Lost Time Accident Frequency Rate (LTAFR)
Employee Turnover
Stock Code: DPH
3
2
1
Key to Risks
Market Risk
Product Development and Launch Risk
Supply Chain Risk
Competitor Risk
Regulatory Risk
People Risk
Antibiotic Regulatory Risk
6
7
5
4
8
9
Acquisition Risk
Retention of People Risk
19
2014
2015
2016
Pipeline Delivery
• Dossiers submitted in USA and EU for
• Seven new projects started in
•
Zycortal approved and launched in the
a novel canine endocrinology product
Feasibility
USA in March 2016 and in 14 European
Portfolio Focus
• Delivered growth in almost all target
•
Vetoryl® grew by 24% globally
• Double digit growth in key therapeutic
• Pivotal clinical trial commenced for
•
Two product approvals: Osphos
markets
canine endocrinology opportunity
in EU (April 2015) and TAF Spray®
• Osphos launched in 17 additional
• Ongoing characterisation studies for
(December 2014)
European countries
canine dermatological and canine
• Osphos launched in the USA in
• Several FAP approved, notably
ophthalmology products
• A number of generic and range
extension dossiers submitted in EU
August 2014 and in the UK in
September 2014, with dedicated
sales representatives recruited to
Phenocillin® and Solamocta® (for turkeys
and ducks) launched in Germany and
launch planned for 17 other territories
• Osphos® submitted in Australia and
support the launch
Canada
•
TAF Spray launched in several EU
countries
therapeutic sectors
• Dechra Academy was updated and
areas
• Cardisure® exceptional growth of
launched successfully in 11 countries
• Roll out of digital technologies
32% across European markets, while
with 5,000 new users
progressed to plan, with the
Comfortan® grew by 40%
• All core therapeutic areas in CAP,
implementation of our Learning
• Brought in house a number of products
including dermatology, as well as
Management System, Delta, enabling
acquired through Eurovet enabling the
Equine growing at double digit in
product training to be disseminated to
Group to retain full margin and enhance
Europe
sales representatives
sales focus
• Updated Dechra Online Academy tool,
a platform for CPD for all veterinarians
• Started trading in Italy – the first
• Strengthening of distributor
• Regulatory approvals were obtained in
greenfield start up since the USA
relationships
several countries such as Brazil, Egypt
in 2004
• New start up in Poland
and Sri Lanka
• Sales office established in Canada
• Commenced trading from
• New start up in Austria
• Recruiting additional regulatory support
Canadian entity
to accelerate product registrations in
other territories
Our Strategic Growth
Drivers
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
a
b
c
Maximise our revenue
by increasing market
penetration, focusing on
targeted therapeutic
sectors within CAP,
Equine, FAP and Nutrition
Geographical
Expansion
Leverage our product
portfolio into new
geographic regions through
distribution partners, in-
country presence and
new country product
registrations
Acquisition
Inc. and PSPC facility in USA
of PSPC with sales exceeding
Genera, Brovel and Putney
• Purchase of new Levothyroxine product
expectations
• Putney integration helped strengthen
to be launched in first half of 2015
• Conditional offer for Genera d.d.,
our USA presence
financial year
Expand our geographical
footprint and/or enhance
our product portfolio
through acquisition
a Croatian animal health company,
• Genera integration on plan, new
announced post year end on
business structure defined
3 August 2015
• Registration process of Dechra
products commenced in Mexico
creams and ointments suite, tablet
country operations in Italy and Poland
with DVP US live in April 2016
compression machines and the
• Completed transition of dry diets
• Commencement of a new Group
encapsulation production line in Skipton
manufacturing to new third party site
Intranet platform for improved
Our strategic enablers,
Manufacturing and
Supply Chain, People and
Technology, support the
execution of our strategy
• Brought production of Cardisure and
• Completed investments in Dechra
communication and information sharing
Forthyron® in house – improving margin
Pharmaceuticals Manufacturing
with all employees
and giving greater flexibility and control
(DPM) to improve yield and capacity
• HR Cloud based IT system implemented
over production of these key CAP
• Successful FDA pre-approval
in 16 countries
products
inspection at Skipton to manufacture
• Sales and Operations Planning (S&OP)
•
€2 million investment in our new
Zycortal®
process implemented in DVP EU
enlarged central European distribution
• Completed implementation of Group
and DPM
centre in Uldum
Finance Oracle consolidation module
• New supplier of Specific pet diets identified
• Personal Development Review (PDR)
and transfer of production started
rolled out to all Dechra employees
Strategic Report
Chief Executive Officer’s Statement
The Group has delivered another strong
performance throughout the financial year.
We have continued to outperform in almost all
markets in which we operate and strategically
it has also been an excellent year.
Ian Page
Chief Executive Officer
the end of the period we were beginning to see real traction from new,
core product introductions and from the additional expertise added
through the recently appointed, experienced management team.
Product Group Performance
In the commentary which follows, all references will be to CER
movement unless otherwise stated.
CAP
Companion Animal Products (CAP), which represent 70.7% of Group
turnover, grew by 23.1% (14.6% organically) in the Period with all
therapeutic categories performing well. We have developed a broad
portfolio, especially in internal medicine and critical care products such
as anaesthesia and analgesia, where we have a wide range providing
the veterinarian with an optimal solution for every case. We recently
developed a mobile application by which a veterinarian can evaluate the
optimum anaesthetic or analgesic protocol for many species of animals
in numerous clinical conditions.
FAP
Food producing Animal Products (FAP), which represent 11.9% of
Group turnover, grew by 19.1% (4.2% organically). This growth was
driven by a strong organic performance in our EU business (as we are
not in the FAP sector in NA) and by the acquisition of Venco, whose
product portfolio is mainly FAP vaccines. Whilst the overall market in
Europe is still seeing a decline in antibiotic usage, we are no longer
being affected as our range is aligned to best prescribing practice.
15.4%
18.7%
Revenue Growth in NA
Revenue Growth in EU
Read the Financial Review
on pages 25 to 31
I am pleased to report that the Group has delivered another strong
performance throughout the financial year (the Period). Financially
we have continued to outperform in almost all markets in which we
operate, especially in the USA where we have delivered another year of
exceptional organic growth. Strategically it has also been an excellent
year; our pipeline has delivered new products and has been significantly
enhanced with new technology; geographically we have extended our
footprint through the acquisition of Laboratorios Vencofarma do Brasil
Ltda (Venco) and we have successfully integrated the acquisitions
completed in the previous financial year.
Portfolio Focus
EU Pharmaceuticals Segment
In the Period our European (EU) Pharmaceuticals Segment reported
revenues increased by 18.7% at CER (17.5% at AER). Excluding third
party contract manufacturing and acquisitions, revenues increased
by 7.8% at CER (6.9% at AER). This growth was partly offset by the
ongoing decline in non-core business, such as agrochemicals. Although
market growth in European countries has been very slow or flat, all of
Dechra’s major markets outperformed and delivered solid growth on the
previous year.
International Business
Our Australian, New Zealand and recently acquired Brazilian businesses
are outperforming our expectations. Sales through third party
marketing partners have been marginally slower than expected; clearly
demonstrating our ability to drive products under our control and under
the Dechra brand to a higher level. This supports our international
expansion strategy which can be demonstrated through the acquisitions
in Australia, New Zealand and Brazil over the last few years.
NA Pharmaceuticals Segment
Total North America (NA) Pharmaceuticals Segment revenues increased
by 15.4% at CER (19.8% at AER). This strong performance was driven
by further market penetration of our key, unique brands such as Vetoryl
and Zycortal and also by increased market share of our generics
portfolio. We continue to benefit from the full year effect of the sales
team that was significantly enlarged in the prior financial year. As the
team is now the correct scale relative to our size, new headcount will
only be added commensurate to growth. The USA is the main driver
of this sales growth; however, we have also had a solid performance in
Canada. Whilst not material to the Group, the strategic restructuring and
repositioning of our Mexican business is behind schedule; however, at
20
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
• Equibactin® Oral Powder, an antibiotic for horses, approved in
20 EU territories;
•
•
•
•
•
•
•
EquiShield® EHV Vaccine, a herpes virus vaccine for horses,
approved in 15 EU territories;
Intubeaze® Oromucosal Spray, an anaesthetic pre-treatment
for cats, approved in 14 additional EU territories;
Laxatract® Syrup, a laxative for cats and dogs, approved in
28 EU territories;
Rominervin Injection, a sedative for horses, approved in 27 EU
territories;
Solacyl® Powder, an antibiotic for cattle and pigs, approved in six
additional EU territories;
Solupam® Solution, for the management of convulsion disorders and
skeletal muscle spasm or sedation for dogs and cats, approved in
28 EU territories;
Sympagesic® Injection, an analgesic and for the treatment of
smooth muscle spasms in horses, cattle, pigs and dogs, approved
in 28 EU territories;
•
Domidine® Solution, a sedative for horses, approved in Canada;
• Sedator® Solution and Atipam® Solution, a sedative and a reversal
agent for dogs, Domidine, a sedative for horses, HY-50® for equine
lameness and Felimazole® for hyperthyroidism, approved in Mexico;
and
• Panapex Ear Ointment for dogs, Intubeaze Oromucosal Spray
an anaesthetic pre-treatment for cats, Meloxicam Oral Suspension
an anti-inflammatory for dogs and Pimobendan Oral Solution a
cardiovascular treatment for dogs, approved in Australia.
Also, the International Regulatory Affairs team achieved 43 product
registrations across Israel, South Korea, Macau, Macedonia, Malaysia,
Malta, Namibia, Serbia, Ukraine, United Arab Emirates, and Zambia.
Glossary
Terms used within this section:
CER: Constant Exchange Rates
AER: Actual Exchange Rates
CAP: Companion Animal Products
ERP: Enterprise Resource Planning
EU Pharmaceuticals: 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
Equine
Equine, which represents 7.1% of Group turnover, grew by 21.1%
(3.1% organically). This growth was mainly driven by the EU and by
acquisition. Performance in NA was a little disappointing, predominantly
due to some concerns about the risk of bisphosphonates (Osphos)
when administered incorrectly and off-label. We have reinforced the
need to use medicines as directed and have run an extensive marketing
campaign and believe we have now addressed all concerns.
Nutrition
Nutrition represents 6.0% of Group turnover. Sales on the year were flat;
however, we have arrested the decline seen last year and in the first half
of this financial year. We have changed the management structure of
this business unit to provide better focus. Following on from the launch
of the refreshed cat diets, the dog diets are about to be relaunched in
improved livery, new pack sizes and improved formulations.
Product Development
Achievements
We have restructured the global clinical department with a new
organisational strategy into which we have integrated the vaccine
development team and the regulatory control of the recent acquisitions:
AST Farma, Le Vet and Venco.
We have implemented and rolled out a new project management
software platform utilising Microsoft Project Server which will improve
transparency, planning and delivery of our product pipeline.
Product Approvals
There have been numerous marketing authorisations received
throughout the year, which included:
•
•
•
•
•
Carbifusion® Solution for Infusion, an electrolyte solution for cattle
and horses, approved in four EU territories;
Cardisure Liquid, a cardiovascular treatment for dogs, approved
in 23 EU territories;
Clindabactin® Flavoured Tablets, an antibiotic for dogs and cats,
approved in 28 EU territories;
Cyclosporine Soft Gel Capsules, for allergic dermatitis in dogs,
approved in the US;
Dormazolam® Injection, a sedative for horses, approved in
18 EU territories;
Stock Code: DPH
21
Strategic Report
Chief Executive Officer’s Statement
continued
which provide a better focus on sales and we capture the full margin
chain. To date we have terminated approximately two thirds of these
distribution agreements where there were change of ownership clauses;
synergies from the remaining third are expected to be delivered over the
next two years.
Caledonian Holdings Ltd
In October 2018 we acquired the trade and assets of a small bolt-on
business, Caledonian Holdings Ltd (Caledonian) for a cash consideration
of £4.4 million. The business, which had sales of £1.8 million to the
end of June 2017, was entirely equine products, which are sold across
Australia and New Zealand and also in Hong Kong. The acquisition was
made to strengthen our market position in the equine sector in these
territories and to complement our existing equine product portfolio
and pipeline.
Laboratorios Vencofarma do Brasil Ltda
In December 2018 we acquired Laboratorios Vencofarma do Brasil Ltda
(Venco) for a consideration of £34.8 million. This acquisition gives us a
foothold within the third largest FAP market in the world, Brazil. It is also
an important expansion to our FAP vaccine portfolio, the fastest growth
sector of the global market. As with all of our acquisitions, we had a
clear vision and strategic plan of how to integrate the business into
Dechra which we shared with the management team on the first day of
ownership. We have subsequently strengthened the team with a new
Finance Director, a new HR Manager and a new Regulatory Manager.
The team have integrated well with our culture and Values and to date
have outperformed our expectations. Over the next two years we will
invest in the manufacturing facility and in new product registrations to
extend our presence in Brazil and will look at opportunities to increase
further our presence in the wider South American market.
Animal Ethics Pty Ltd
Post the year end we acquired an additional 15% of the shares of
Medical Ethics Pty Ltd, the parent company of Animal Ethics Pty Ltd,
for a consideration of AUD$13.5 million (£8.0 million). Following the
acquisition of 33% for AUD$18 million in 2017 this takes our total holding
to 48%. The strong progress made on the global development of Tri-
Solfen® for pigs, cattle and sheep and the ongoing trials for its application
for debriding of venous leg ulcers in humans has resulted in separate
independent valuations of the business, both in excess of AUD$100
million. Following recent trials in South-East Asia, Tri-Solfen® has also
been found to be highly effective in alleviating the clinical signs of Foot
and Mouth Disease in cattle. Given the effectiveness in the trials and the
catastrophic problem that this disease causes, the government in Laos
has already approved the product for use in their country. We anticipate
that other countries in South-East Asia will shortly follow suit. This could
represent a significant revenue opportunity as the disease is endemic in
many parts of the world and affects millions of cattle annually.
Strategic Enablers
Manufacturing and Supply Chain
At the half-year we announced the appointment of Simon Francis,
formerly of Novartis, as our new Director of Manufacturing and Supply
Chain. Simon immediately undertook and completed a full review of
our facilities and capabilities to make improvements, including the
strengthening of the Manufacturing and Supply Chain management
team. The improvements needed to be implemented as we were
experiencing a number of supply issues from our own sites and contract
manufacturers. These issues are now in the process of being mitigated.
Filling the Pipeline
We consider that it is important to our market position, as an innovative
company, that we retain a balance of both novel and generic products
in our portfolio and are conscious that as a consequence of the
acquisitions we have made over the last two years, the balance of our
pipeline has a greater generic and generic plus weighting than we have
had historically. We have therefore increased resources and placed
greater emphasis into screening opportunities, and have subsequently
secured numerous development agreements for new technologies, the
most significant of which are detailed below:
• Post year-end we are delighted to have completed a significant
agreement with Akston Biosciences who have developed a unique
version of insulin with a sustained duration of activity;
•
•
•
We have entered into three agreements to evaluate two products
for equine lameness and one product for equine gastric ulcers;
We have signed a licensing agreement with Vetcare Ltd for a
combination, novel canine sedative; and
We have also entered into multiple agreements to evaluate new
vaccine technologies against viral and bacterial diseases in pigs;
proof of concept studies are commencing with these vaccines.
Acquisitions
AST Farma B.V. and Le Vet Beheer B.V.
AST Farma B.V. and Le Vet Beheer B.V., which were acquired in the
previous financial year, are both performing well. AST Farma has
significantly increased our presence in the Dutch market where we now
offer a wider range of products, both existing Dechra and AST Farma,
on a direct to vet basis. The commercial teams and product ranges of
both Dechra and AST Farma have been combined with both businesses
benefiting from the leverage of the enlarged company. Le Vet has
started to deliver significant growth to Dechra in the second half of the
financial year following the disintermediation of their previous distribution
agreements which were held by a number of Dechra’s competitors.
Significant synergies are now being realised as Dechra branded
products are sold through our own sales and marketing organisations
22
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Brexit
In preparation for a potential hard Brexit, we have changed the
ownership of all UK marketing authorisations to a newly established
subsidiary in the Netherlands. We have also transferred all the analytical
testing methods for products manufactured at our Skipton site to a new
laboratory in Zagreb, Croatia, and to our existing laboratory at our Bladel
manufacturing site; this will allow us to perform batch release within the
EU in the likely event that there will be no mutual recognition of quality
standards. We have increased inventory in the supply chain to mitigate
the potential delays at ports. We do not expect any material effect from
the potential import or export tariffs.
Dividend
The Board is proposing a final dividend of 22.10 pence per share (2018:
18.17 pence per share). Added to the interim dividend of 9.50 pence per
share, this brings the total dividend for the financial year ended 30 June
2019 to 31.60 per share, representing 23.9% growth over the previous year.
Subject to shareholder approval at the Annual General Meeting to be
held on 18 October 2019, the final dividend will be paid on 15 November
2019 to shareholders on the Register at 25 October 2019. The shares
will become ex-dividend on 24 October 2019.
Outlook
Our strong growth, both organic and through acquisition, and our
broadening product portfolio and increasing geographic reach
positions us well for continued growth in this new financial year and
beyond. Despite the challenges from the supply chain issues, outlined
earlier in this report, the outlook for the year ahead remains in line
with management expectations. We continue to identify and deliver
opportunities for growth in line with our strategy and remain confident in
our current and future prospects.
Ian Page
Chief Executive Officer
2 September 2019
As planned within our strategic capital expenditure programme we
have made infrastructure improvements at our three main European
sites. In Skipton, UK, we have completely upgraded the packaging,
manufacturing and washing facilities. In Zagreb, Croatia, we have built
and commissioned a new solid dose facility and in Bladel, Netherlands,
we are close to completing an upgrade of our sterile facility hopefully to
achieve FDA status in 2020. In conjunction with grants from the Croatian
government, we have implemented the largest green solar energy
installation in the country at our Zagreb facility which will provide the site
with 30% of its energy requirements from this natural resource.
Technology
Following the successful roll out of Oracle across DVP EU in May 2018,
we have subsequently implemented and completed phase two of the
project which deals with new legislation changes, improved reporting
and post go-live system efficiencies. We have commenced a number
of development projects and interfaces to deal with recent logistics
changes to Oracle in the USA.
The IT team has also implemented numerous other IT developments,
including improvements to the Group network, overseeing the
installation of the project management software in Product
Development, a regulatory information system for Regulatory Affairs,
the deployment of a new AI-based cyber defence solution and the
support of a pilot for a new cash management solution for our Treasury
Department. Our Digital team has also been very productive with new
modules in the Dechra Academy for veterinarians and veterinary nurses,
new training courses in Delta, the in-house educational programme, and
an upgrade and relaunch of Insite, the Group’s intranet.
People
In April 2019 we announced the resignation of Richard Cotton, Group
Chief Financial Officer. The process to identify a suitable replacement is
continuing. Since April, Paul Sandland, who has been with the Group for
nine years, and has demonstrated strong financial and commercial skills
as both Group Financial Controller and DVP EU Finance Director, has
been Acting Chief Financial Officer.
In February 2019 we announced the appointment of Lisa Bright
as a new Non-Executive Director to complement the strong skills
already in existence on the Board. Lisa’s appointment strengthens the
Board through her strategic and operational leadership knowledge
in pharmaceutical and biotechnology companies; her experience
and strong interpersonal skills will be invaluable in our international
expansion strategy and the development of our employee engagement
programme.
Operationally we have developed a pilot for a new approach to
performance management that is currently being trialled in
North America.
For a number of years we have offered a Save As You Earn scheme in
the UK which has proved very successful in providing additional reward
and retention of UK employees. We will soon be rolling out similar
schemes across the Group, with the first launch being in North America
in 2019 prior to further roll out in 2020.
On behalf of the Board I would like to thank all employees for their hard
work, determination, skill and ambition. They are the main driving force
behind Dechra’s success.
Stock Code: DPH
23
Strategic Report
Ian Page
Chief Executive Officer
Q How are the recent acquisitions progressing and is
Q You have had a number of significant management
there anything else in the pipeline?
A I will start with the acquisitions made in the previous financial year
to the year being reported which would be AST/Le Vet. AST now
has been completely amalgamated with our Dutch commercial
business and we are now beginning to see revenue synergies from
the enlarged product offering. The most significant part of this
acquisition was Le Vet. The Le Vet products, to remind you, were
sold through Dechra but also about 80% of them were sold through
our competitors. We have now disintermediated about two thirds
of those distribution agreements and have now started to bring the
products back in-house to sell through our own sales organisations
in Dechra livery and, clearly, there is a big uplift to margin by us
doing that. We are actually delivering everything that we promised
shareholders at the time of acquisition and that can be seen within
the growth that we are starting to deliver within our European
Segment in the second half of the financial year being reported
and from which we will start to realise a greater benefit in the next
financial year. So, all in all, it has been a terrific acquisition. The more
recent significant acquisition has been Venco, a vaccine business in
Brazil. A great step forward into what is now the third largest animal
health country in the world, an excellent product portfolio and since
working with the management team since we owned it, we have
realised that we have got a great management team there as well.
We will continue to develop the business, particularly looking at Brazil
in the short term because there is a little bit of investment required
over the next few years in the facility, particularly the upstream facility,
the way that the vaccines are actually produced needs a little bit of
investment to improve the quality systems and then we will hopefully
get to expand the product sales into other South American markets.
In terms of the pipeline, yes, we always have companies that we
can talk to that we see as being ideal acquisition opportunities.
Unfortunately, it is not an exact science; you are never entirely sure
whether a business is going to sell or if they do sell, whether you will
be considered the right partner. We do win more than our fair share
of deals and we hope that that will continue, but we cannot rely on
acquisitions because it is not a certainty, but to caveat that, we do
and to repeat, we do have a decent pipeline and I would be very
disappointed if we cannot bring more companies into the Group
over the next few years.
Watch the video at dechra.annualreport2019.com
changes recently; does this suggest some underlying
issues?
A No, absolutely categorically not. As you are aware Dechra has grown
rapidly over the last few years. Commensurate with that growth
you have to develop your sales team and add new skills into the
Senior Executives. We did lose the Chief Financial Officer, Richard,
recently, but that was nothing to do with the business in terms of
disagreements or performance, but was entirely a personal decision.
We have also appointed recently to the Senior Executive Team a
new Manufacturing and Supply Chain Director which will add new
skills into an ever expanding supply chain and complexity within our
Manufacturing organisation. So, no, there is absolutely no reflection
in the performance or issues within the business at all, it is all about
strengthening the team to make us suitable for the future growth that
is going to come.
Q Can you provide the background and any more detail
on the Akston licensing deal?
A The first thing I would like to say is that we are really delighted to
have completed this deal. We have been working hard for a long
time now to convince Akston that we are the right partners from
a sales perspective, from our market reach, but also because we
are a good company to work with, we make decisions quickly and
also, of course, because our key area of focus is endocrinology. The
product is extremely exciting; it is the last major step that we need
to complete our endocrine portfolio; it could be by far the biggest
product in our portfolio once approved; it could change the welfare
of pets with diabetes, both dogs and eventually cats; and could be
a major product for veterinarians to dispense. Currently, insulins are
given on a daily basis which you can imagine giving an injection to a
dog every day is not a simple process, so to change that to a weekly
injection is a major step forward for compliance; it makes it easier
for the pet and it makes it easier for the pet owner. Whilst there is a
big step up in our development costs over the next few years, the
returns on this product could be huge and, as I said at the outset, it
could become the biggest product in our portfolio and could help to
drive the novel products within our portfolio.
24
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Review
Strategic Report
Our existing business performed strongly this
year and was further enhanced by the realisation
of significant revenue synergies. The Group’s
balance sheet is strong and we continue
to invest both organically and through
acquisitions to deliver shareholder value.
Ian Page
Chief Executive Officer
Overview of Reported Financial Results
To assist with understanding our reported financial performance, the
consolidated results below are split between existing and acquired
businesses; acquisition includes the incremental effect of 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 £14.6 million and non-underlying
items of £38.9 million. These non-underlying items are comprised of
amortisation of acquired intangibles of £30.1 million, non-cash uplift on
acquired inventory of £5.1 million and acquisition costs of £3.7 million.
Including non-underlying items, the Group’s consolidated operating
profit increased by 13.5% at CER (14.4% at AER) whilst consolidated
profit before tax decreased by 4.8% at CER (3.8% at AER) due to the
increased finance charges arising from the financing of prior and current
year acquisitions.
As Reported
Revenue
Gross profit
Gross profit %
Operating profit/(loss)
EBIT %
Profit/(loss) before tax
Diluted EPS (p)
2019
Existing
£m
2019
Acquisition
£m
2019
Consolidated
£m
447.6
258.8
57.8%
63.3
14.1%
53.7
34.2
14.3
41.8%
(24.3)
(71.1%)
(25.9)
481.8
273.1
56.7%
39.0
8.1%
27.8
30.07
Growth at
AER
Growth at
CER
2018
£m
Consolidated
%
Consolidated
%
407.1
222.4
54.6%
34.1
8.4%
28.9
37.04
18.3%
22.8%
210bps
14.4%
(30bps)
(3.8%)
(18.8%)
17.5%
21.9%
200bps
13.5%
(30bps)
(4.8%)
(19.6%)
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
Read the Geographical Expansion and Acquisition
case study on page 39
Stock Code: DPH
25
Strategic Report
Financial 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 2019 is provided in the table below. In the commentary which follows, all references
will be to CER movement unless otherwise stated.
Non-underlying Items
Amortisation
and related
costs of
acquired
intangibles
£m
–
–
(70.0)
(6.8)
(76.8)
–
(0.2)
(77.0)
17.4
(59.6)
–
Acquisition,
impairments
and
restructuring
costs
£m
–
–
(6.5)
–
(6.5)
–
–
(6.5)
1.5
(5.0)
–
Non-cash
uplift on
acquired
inventory
£m
–
(5.1)
–
–
(5.1)
–
–
(5.1)
1.5
(3.6)
–
Tax rate
changes
and finance
expenses
£m
–
–
–
–
–
(1.0)
–
(1.0)
7.6
6.6
–
2019
Reported
Results
£m
481.8
273.1
(202.2)
(31.9)
39.0
(10.8)
(0.4)
27.8
3.1
30.9
30.07
2019
Underlying
Results
£m
481.8
278.2
(125.7)
(25.1)
127.4
(9.8)
(0.2)
117.4
(24.9)
92.5
90.01
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 £481.8 million, representing an increase of 17.5% on the prior year. This included £447.6 million
from its existing business, an increase of 8.9%, and a £34.2 million contribution from acquired businesses.
Consolidated underlying operating profit of £127.4 million, represents a 27.3% increase on the prior year. This included £112.8 million from Dechra’s
existing business, an increase of 12.2% on a like-for-like basis, and a £14.6 million contribution from acquired businesses.
Underlying EBIT margin increased by 200 bps to 26.4%, with the accretion coming from both the existing and acquired businesses in EU
Pharmaceuticals.
Underlying diluted EPS grew by 16.6% to 90.01 pence reflecting the profit growth from the existing and acquired businesses, partially offset by
higher finance charges from the increase in debt and equity issuance to fund the 2018 and 2019 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
2019
Existing
£m
447.6
258.8
57.8%
112.8
25.2%
122.2
–
–
2019
Acquisition
£m
34.2
19.4
56.7%
14.6
42.7%
15.0
–
–
2019
Consolidated
£m
481.8
278.2
57.7%
127.4
26.4%
137.2
90.01
31.60
2018
£m
407.1
227.5
55.9%
99.2
24.4%
106.6
76.45
25.50
Growth at CER
Existing
%
8.9%
12.7%
190bps
12.2%
80bps
13.2%
–
–
Consolidated
%
17.5%
21.5%
180bps
27.3%
200bps
27.7%
16.6%
23.9%
26
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Reported Segmental Performance
Reported segmental performance is presented in note 2 on pages 136 to 138. The effect of acquisitions in the year was material; the reported
segmental performance is analysed between existing and acquired businesses, and at AER and CER in the table below. The acquisition elements
capture the additional base business coming into the Group up to the first anniversary of their acquisition, including 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 acquired 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
2019
Existing
£m
2019
Acquisition
£m
2019
Consolidated
£m
269.8
177.8
447.6
84.5
59.2
(23.9)
119.8
(7.0)
112.8
(49.5)
63.3
34.2
–
34.2
15.8
–
(1.2)
14.6
–
14.6
(38.9)
(24.3)
304.0
177.8
481.8
100.3
59.2
(25.1)
134.4
(7.0)
127.4
(88.4)
39.0
2018
£m
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
%
4.3%
19.8%
9.9%
17.5%
19.8%
18.3%
5.2%
15.4%
8.9%
18.7%
15.4%
17.5%
9.7%
22.6%
(30.6%)
12.0%
10.3%
13.7%
30.3%
22.6%
(37.2%)
25.6%
10.3%
28.4%
10.6%
17.8%
31.7%
17.8%
(30.1%)
10.6%
(36.6%)
24.6%
10.3%
12.2%
10.3%
27.3%
–
14.4%
–
13.5%
Underlying Segmental Performance
European Pharmaceuticals
Revenue in European (EU) Pharmaceuticals grew by 18.7%. The existing business grew by 5.2% including like-for-like year-on-year RxVet Limited
revenue, and AST Farma B.V. and Le Vet Beheer B.V. revenue; excluding third party contract manufacturing, which is being reduced in line with our
strategy and replaced with own product manufacturing, revenues increased by 7.8%. This growth was achieved through the robust performance of
our core business and through the realisation of significant synergies from Le Vet. The acquisitions of RxVet, AST Farma and Le Vet, Laboratorios
Vencofarma do Brasil Ltda (Venco) and the trade and assets of Caledonian Holdings Ltd (Caledonian) contributed a combined £34.2 million to
revenue for the period where there is no comparative and are reported within EU Pharmaceuticals.
Underlying Diluted
Earnings Per Share
90.01p
p
1
0
0
9
.
p
5
4
6
7
.
p
3
3
4
6
.
EU Pharmaceuticals
Revenue
£304.0m
.
m
0
4
0
3
EU Pharmaceuticals
Operating Profit
£100.3m
.
m
7
8
5
2
m
9
.
6
2
2
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
Stock Code: DPH
.
m
3
0
0
1
m
0
7
7
.
m
7
.
0
6
7
1
0
2
8
1
0
2
9
1
0
2
27
Strategic Report
Financial Review
continued
Operating Profit from existing business grew 10.6%, with operating margin expanding to 31.3% and consolidated operating margin increasing to
33.0%. This was principally due to operating leverage, the accretive operating margin of Le Vet and the curtailment of our Dutch defined benefit
pension scheme which resulted in a £3.5 million non-cash credit (presented on a consistent basis as underlying given previous curtailments and
current service costs which substantially gave rise to this balance).
Underlying
Revenue
EBITDA
EBITDA %
Operating Profit
Operating Profit %
2019
Existing
£m
269.8
92.4
34.2%
84.5
31.3%
2019
Acquisition
£m
34.2
16.2
47.4%
15.8
46.2%
2019
Consolidated
£m
304.0
108.6
35.7%
100.3
33.0%
2018
£m
258.7
82.9
32.0%
77.0
29.8%
Growth at CER
Existing
%
5.2%
12.3%
220bps
10.6%
150bps
Consolidated
%
18.7%
32.3%
370bps
31.7%
320bps
North American Pharmaceuticals
Revenue from North American (NA) Pharmaceuticals grew by 15.4% to £177.8 million. All of the growth was in the existing business, with
no acquisitions in NA Pharmaceuticals within the current or prior year. The growth was driven by our CAP portfolio and represents strong
outperformance of the market. This was partially offset by a reduction in Equine as there was confusion in the market about the use of
bisphosphonates and the discontinuation of a human product which was non-core and a legacy of the Putney business acquired in April 2016.
Operating Profit from the business grew by 17.8% with the operating margin growing 70 bps to 33.3% as further investments were made in the
commercial team to drive future growth.
Underlying
Revenue
EBITDA
EBITDA %
Operating Profit
Operating Profit %
2019
Existing
£m
177.8
60.0
33.7%
59.2
33.3%
2019
Acquisition
£m
–
–
–
–
–
2019
Consolidated
£m
177.8
60.0
33.7%
59.2
33.3%
2018
£m
148.4
49.1
33.1%
48.3
32.5%
Growth at CER
Existing
%
15.4%
17.5%
60bps
17.8%
70bps
Consolidated
%
15.4%
17.5%
60bps
17.8%
70bps
Pharmaceuticals Research and Development
Pharmaceuticals Research and Development (R&D) expenses increased by 36.6% from £18.3 million to £25.1 million, with existing business
research and development increasing by 30.1%. R&D activities of the acquisitions of AST Farma and Le Vet, and Venco added £1.2 million. Overall
R&D expenses as a percentage of revenue increased from 4.5% to 5.2%, excluding the acquired R&D expenses, the increase was from 4.5% to
5.3%. This was in line with the previously communicated strategic intent to expand the Group’s product pipeline and to increase investment in more
novel opportunities to drive enhanced future growth.
R&D expenses
% of Revenue
2019
Existing
£m
(23.9)
5.3%
2019
Acquisition
£m
(1.2)
3.5%
2019
Consolidated
£m
(25.1)
5.2%
2018
£m
(18.3)
4.5%
Growth at CER
Existing
%
(30.1%)
Consolidated
%
(36.6%)
NA Pharmaceuticals
Revenue
£177.8m
.
m
8
7
7
1
.
m
4
8
4
1
.
m
4
2
3
1
NA Pharmaceuticals
Operating Profit
£59.2m
m
2
9
5
.
m
3
8
4
.
m
2
.
3
4
Research and Development
Spend
£25.1m
7
1
0
2
8
1
0
2
9
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
m
1
5
2
.
m
3
8
1
.
m
0
.
5
1
7
1
0
2
8
1
0
2
9
1
0
2
28
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Revenue by Product Category
CAP revenue continues to be the largest proportion of Dechra’s
business at 70.7%, up from 67.0% in the prior year. CAP grew 23.1%
in the year from market penetration, product launches and the addition
of the AST Farma and Le Vet portfolio. Equine revenue grew strongly by
21.1% in the year, with growth driven by the EU and by acquisition. FAP
revenue accelerated by 19.1% driven by strong core growth in the EU
and the acquisition of Venco. Nutrition revenue was broadly flat on the
prior year; however, performance in the second half of the year improved
with increased focus and the relaunch of the cat diet range.
Other revenue reduced by 25.1% to £20.8 million, now representing
only 4.3% 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 Pharmaceutical
Nutrition
Other
Total
2019
£m
340.2
34.4
57.3
431.9
29.1
20.8
481.8
%
%
Change
Change
at AER
at CER
24.8% 23.1%
21.1% 21.1%
17.7% 19.1%
23.5% 22.4%
(1.0%)
0.0%
(25.4%)
(25.1%)
18.3% 17.5%
2018
£m
272.7
28.4
48.7
349.8
29.4
27.9
407.1
Revenue by Product Category (at AER)
CAP
Equine
FAP
Nutrition
Other
70.7%
7.1%
11.9%
6.0%
4.3%
Underlying Gross Profit
Underlying Gross Margin for the existing business increased by 190 bps
to 57.8% and the consolidated Underlying Gross Margin grew by
180 bps to 57.7%, reflecting the greater proportion of CAP sales and
also the realisation of accretive Gross Margin in the acquired AST Farma
and Le Vet business.
Underlying Selling, General and Administrative Expenses
(SG&A)
SG&A costs at AER grew from £110.0 million in the prior year to
£125.7 million in the current year, an increase of 14.3% (at AER). This
represents growth from both acquired and the existing businesses,
and infrastructure cost added to manage the acquisitions and drive
further growth.
We also benefited from a £3.5 million non-cash credit through the
income statement as a result of the curtailment of our Dutch defined
benefit pension scheme.
SG&A as a percentage of revenue contracted in the year from 27.0% in
2018 to 26.1% (26.8% excluding the pension credit) in 2019.
Non-underlying Items
Non-underlying items incurred in the year are fully described in note 5
on page 139. In summary, they relate to the following:
• Amortisation of acquired intangibles of £76.8 million – the
amortisation of the acquired intangibles has grown significantly in
the year from £54.1 million following the acquisitions in the 2018
and 2019 financial years;
• 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 AST Farma and
Le Vet, Caledonian and Venco. It is the result of the fair value
exercise carried out in accordance with IFRS 3 ‘Business
Combinations’ on acquisition;
• Expenses relating to acquisition and subsequent integration
activities of £3.7 million – this includes the transaction and
integration costs associated with the acquisitions of AST Farma
and Le Vet, Caledonian and Venco;
• Rationalisation of manufacturing organisation of
£2.0 million – this comprises the costs associated with this strategic
programme;
• Brexit preparation costs of £0.9 million – this represents regulatory
and technology transfer costs incurred in advance of Brexit;
• Finance expense of £1.0 million – this represents the unwinding of
the present value discounts relating to deferred consideration due
and associated foreign exchange;
• Taxation credit of £28.0 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, most notably the
reduction in the Netherlands tax rate from 25.0% to 22.5% in 2020
and 20.5% in 2021.
Taxation
The reported effective tax rate (ETR) for the year is a credit of 11.2%
(2018: credit of 24.9%), primarily reflecting the one-off impact of the
reduction in the Netherlands tax rates on deferred tax balances; this
includes both the underlying and non-underlying business. On an
underlying basis the ETR is 21.2% (2018: 20.5%); the main differences
to the UK corporation tax rate applicable of 19.0% (2018: 19.0%) relate
to patent box allowances, and differences in overseas tax rates,
particularly in NA Pharmaceuticals.
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 Key Risks on pages 64 to 67.
Reported Profit
Reported profit before tax decreased by 3.8% at AER reflecting the
reported operating profit growth of 14.4% at AER offset by the increase
in the finance charges arising from the financing of prior and current
year acquisitions.
Stock Code: DPH
29
Strategic Report
Financial Review
continued
Earnings per Share and Dividend
Underlying diluted EPS for the year was 90.01 pence, a 16.6% growth
on the prior year. The EBIT growth of 27.3% was partially offset by
higher interest costs from the increase in debt and the impact of the
shares issued to fund the acquisitions of Venco, AST Farma and Le Vet.
The weighted average number of shares for the year was 102.8 million
(2018: 97.5 million).
The reported diluted EPS for the year was 30.07 pence (2018: 37.04
pence). This 18.8% reduction (at AER) in reported EPS reflects significantly
higher intangible amortisation as a result of recent acquisitions.
The Board is proposing a final dividend of 22.10 pence per share
(2018: 18.17 pence), added to the interim dividend of 9.50 pence,
the total dividend per share for the year ended 30 June 2019 is
31.60 pence. This represents 23.9% growth over the prior year.
Dividend cover based on underlying diluted EPS is 2.8 times (2018:
3.0 times). The Board continues to operate a progressive dividend
policy recognising investment opportunities as they arise.
Currency Exposure
The average rate for £/€ increased by 0.5%, and the £/$ rate has
decreased by 3.9% 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 basis applying constant exchange rates.
£/€
£/$
Average rates
2019
1.1345
1.2945
2018
1.1286
1.3465
% Change
0.5%
(3.9%)
Currency Sensitivity
Euro €: a 1% variation in the £/€ exchange rate affects underlying diluted
EPS by approximately +/- 0.8%.
US Dollar $: a 1% variation in the £/$ exchange rate affects underlying
diluted EPS by approximately +/- 0.5%.
Current exchange rates are £/€ 1.1010 and £/$ 1.2203 as at 28 August
2019. If these rates had applied throughout the year, the underlying
diluted EPS would have been approximately 5.6% higher.
Statement of Financial Position
The Statement of Financial Position is summarised in the table below.
• Non-current assets decreased from £765.6 million to £755.5 million
mainly due to the acquisition of Venco and Caledonian being more
than offset by amortisation of acquired intangibles, most notably AST
Farma and Le Vet.
Total non-current assets
Working capital
Net debt
Current and deferred tax
Other liabilities
Total net assets
2019
£m
755.5
108.4
(227.8)
(89.0)
(38.0)
509.1
2018
£m
765.6
92.5
(211.4)
(98.9)
(42.8)
505.0
Cash Flow, Financing and Liquidity
The Group enjoyed strong cash generation during the year, with the
EBITDA margin strengthening from 26.2% to 28.5%. However, as
mentioned above, working capital has increased by £19.5 million,
mainly due to increases in inventory as a result of Brexit and growth of
the Group’s trading activities. This resulted in net cash generated from
operations of £108.3 million, representing cash conversion of 85.0%.
It is expected that the increased working capital levels will unwind to a
certain extent during the forthcoming year.
Underlying operating profit
Depreciation and amortisation
Underlying EBITDA
Underlying EBITDA %
Working capital movement
Other
Cash generated from operations
before interest, taxation and non-
underlying items
Non-underlying items
Cash generated from operations
before interest and taxation
Cash conversion (%)
2019
£m
127.4
9.8
137.2
28.5%
(19.5)
(2.0)
115.7
(7.4)
108.3
85.0%
2018
£m
99.2
7.4
106.6
26.2%
(23.4)
2.4
85.6
(4.4)
81.2
81.9%
• Working capital has increased from £92.5 million to £108.4 million
partly due to a planned increase in inventory to support the potential
disruption arising as a result of Brexit and also the growth of the
Group.
Net Assets
£509.1m
• Net Debt has increased in the year by £16.4 million from £211.4 million
to £227.8 million; this includes cash generation from operations at
£108.3 million and £39.7 million of outflows relating to the acquisitions
of Venco and Caledonian. Exchange rate variations adversely affected
the Net Debt position by £5.4 million.
• Current and deferred tax has reduced from £98.9 million to
£89.0 million principally due to the reduction in deferred tax liabilities
following the reduction in the Netherlands rate and also the release
relating to the amortisation of acquired intangibles.
.
m
1
9
0
5
.
m
0
5
0
5
m
6
.
2
0
3
7
1
0
2
8
1
0
2
9
1
0
2
30
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Net Debt Bridge
Notable cash items are listed below in the Net Debt reconciliation table:
• Net capital expenditure on tangible and intangible assets increased to
£22.2 million (2018: £12.6 million), representing 2.3 times depreciation
and amortisation.
• Acquisition of subsidiaries of £39.7 million includes the acquisition of
Caledonian and Venco. Further details are provided in note 32 to the
Accounts on pages 166 and 167.
Net Debt 30 June 2018
Net cash generated from operations before
non-underlying items
Non-underlying items
Net capital expenditure
Acquisition of subsidiaries
Acquisition of subsidiary borrowings
Interest and tax
Net equity issued
Dividend paid
Other non-cash movements
Foreign exchange on net debt
Net Debt 30 June 2019
£m
(211.4)
115.7
(7.4)
(22.2)
(39.7)
(2.8)
(26.5)
1.2
(28.4)
(0.9)
(5.4)
(227.8)
• 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 1.64 times (2018: 1.75
times) versus a covenant of 3 times.
Borrowing Facilities
Revolving Credit Facility
The Group has committed facilities to July 2024 under a Revolving Credit
Facility (RCF) 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. The total drawn
at 30 June 2019 is £128.8 million.
There are two covenants governing the RCF:
• Leverage: Net Debt to underlying EBITDA not greater than 3:1
(30 June 2019: 1.64); and
Return on Capital Employed (ROCE)
ROCE grew to 15.5% in the year (2018: 15.4%) as the Group continues
to benefit from consolidation of the acquisitions and by further leveraging
the asset base.
Acquisitions
The Group has made several acquisitions in recent years. Performance
of the acquisitions made during the 2018 and 2019 financial years
is separately summarised compared to the existing business in the
sections above.
In October 2018, the Group acquired the trade and assets of Caledonian,
an equine veterinary pharmaceuticals sales and distribution company
based in New Zealand and Australia for a total consideration of £4.4
million. The business has been successfully integrated into the Group
and is outperforming our expectations. The acquisition was financed
from the Group’s existing working capital resources.
In December 2018, the Group completed the acquisition of Venco
for a total consideration of £34.8 million. The business has been
successfully integrated into the Group and is outperforming our
expectations. The acquisition was financed from an additional draw
down from the Group’s RCF.
Accounting Standards
The accounting policies adopted are outlined in note 1 to the Accounts.
There are no accounting policy changes which have materially impacted the
2019 financial year.
Note 1 to the Accounts outlines the impact of adopting IFRS 9
(financial instruments) and IFRS 15 (revenue recognition) in 2019 and
also the Group’s impact assessment of IFRS 16 (leases) which will be
adopted in 2020.
Summary
Our existing business performed strongly this year and was further
enhanced by the realisation of significant Le Vet revenue synergies which
have resulted in improved operating leverage.
We have increased our R&D expenditure enabling us to expand the
number of pipeline projects, novel opportunities and overseas product
registrations we invest in and our acquisitions of Caledonian and Venco
strengthen both our geographical and market presence.
•
Interest Cover: underlying EBITDA to Net Finance Charges not less
than 4:1 (30 June 2019: 13:1).
The Group’s balance sheet is strong, enabling us to continue to consider
further relevant acquisition and investment opportunities as they arise.
The current RCF is committed and has 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.
Ian Page
Chief Executive Officer
2 September 2019
Term Loan Facility
On 24 January 2018, the Group put in place a Term Loan facility of
£350.0 million to provide funding for acquisitions. The committed facility
has an availability period to 31 December 2019 and a termination date of
31 December 2020. 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 and further drawings were made to finance the acquisition of
Venco. The total drawn at 30 June 2019 is £179.3 million.
The facility has the same covenants as the RCF above.
Stock Code: DPH
31
Strategic Report
Key Performance Indicators
KPI and Definition
Performance
Commentary
Relevance to Strategy
1
Revenue Growth
Year-on-year CER sales growth
including new products and
excluding revenue from acquired
businesses.
8.9%
m
6
.
7
4
4
m
1
.
7
0
4
m
3
.
9
5
3
Dechra’s existing business grew by 7.8%
in EU Pharmaceuticals (excluding third party
contract manufacturing which declined), and
by 15.4% in NA Pharmaceuticals.
a
b
c
A key driver of our strategy is to
deliver sustainable sales growth
through delivering our pipeline,
maximising our existing portfolio
and expanding geographically.
2
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.
£
3
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).
£
7
1
0
2
8
1
0
2
9
1
0
2
16.6%
p
1
0
.
0
9
p
5
4
.
6
7
p
3
3
.
4
6
7
1
0
2
8
1
0
2
9
1
0
2
This includes a 27.3% increase in underlying
operating profit partially offset by higher
finance costs from the increase in debt
and equity issuance to fund acquisitions.
a
b
c
Underlying diluted 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.
10bps
There was a small improvement in ROCE
during the year as we continue to consolidate
acquisitions and leverage the asset base.
a
b
c
%
7
.
7
1
%
5
.
5
1
%
4
.
5
1
7
1
0
2
8
1
0
2
9
1
0
2
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:
Pipeline Delivery
a
b
c
Portfolio Focus
Technology
People
Key:
£
Long Term Incentive Plan (LTIP)
performance condition
Geographical Expansion
Manufacturing and Supply Chain
Acquisition
32
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
KPI and Definition
Performance
Commentary
Relevance to Strategy
4
Cash
Conversion
Cash generated from operations
before tax and interest payments
as a percentage of underlying
operating profit.
%
9
.
5
1
1
310bps
Cash conversion improved during the year
despite the increase in inventory as a result of
Brexit and also the growth of the Group.
a
b
c
%
0
5
8
.
%
9
1
8
.
Our stated aim is to be a cash
generative business. Cash generation
supports investment in the pipeline,
acquisition and people.
5
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.
6
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.
7
1
0
2
8
1
0
2
9
1
0
2
480bps
%
7
.
6
1
%
9
.
1
1
%
9
.
7
7
1
0
2
8
1
0
2
9
1
0
2
6
2
.
0
*
1
2
.
0
*
0
8
1
0
2
7
1
0
2
9
1
0
2
* excludes AST Farma and
Le Vet
7
Employee Turnover
Number of leavers during the
period as a percentage of the
average total number of employees
in the period.
230bps
*
%
9
5
1
.
%
7
5
1
.
†
%
6
3
1
.
New product revenues reflect the strong
market penetration of products launched
in the year to 30 June 2019 and the previous
four years.
a
b
c
The LTAFR increased from nil to 0.21. None
of these incidents resulted in a work-related
fatality or disability.
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 more about Corporate
Social Responsibility
on pages 46 to 61
We saw a decrease in employee turnover in
the period despite operating in competitive
markets.
Attracting and retaining the best
employees is critical to the successful
execution of our strategy.
7
1
0
2
8
1
0
2
9
1
0
2
* excludes RxVet, AST Farma and Le Vet
† excludes Venco
Stock Code: DPH
33
Strategy in Action
Pipeline
Delivery
Delivering our pipeline on time, at the right
costs and with the expected returns
34
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Delivering our pipeline
through licensing
opportunities
Increasing our novel product pipeline
£25.1m 19
Development Spend
New Products in Development
Dechra’s pipeline is, and will remain, one of
the key organic strategic growth drivers. It is
important that the pipeline is the correct scale
with a complementary portfolio of novel and
generic products to reflect the current size of
the business, enabling it to continue to make a
meaningful contribution in the future. We have
therefore invested additional time and effort over
the last few years licensing new technologies to
strengthen our in-house development capabilities.
We have a business development group
that screens products developed by outside
innovators to determine the suitability and quality
of the science and the strategic fit with our core
therapeutic areas. This group attends external
meetings and conferences to keep up-to-date
with current cutting edge science and to meet with
biotechnology companies, human pharmaceutical
companies and educational establishments to
propose Dechra as a future partner. Over the
last two years we have been very successful
in securing numerous agreements, the most
significant of which are outlined below:
• A liquid formulation of pimobendan, a
cardiovascular treatment for dogs. The new
product was recently approved in 23 EU
territories. Dechra will be responsible for the
marketing and distribution and will sell the
product under the Cardisure trademark;
• With a goal to help reduce the development
of antimicrobial resistance in food animals,
Dechra has been evaluating alternative
therapies for prevention of disease in pigs and
chickens. In the last year, we have entered
into multiple agreements to evaluate new
vaccine technologies against viral and bacterial
diseases in pigs. By preventing the diseases
there will be less use of prophylactic and
therapeutic antimicrobials. Proof of concept
studies are ongoing with these vaccines;
• We have entered into agreements to evaluate
two products for equine lameness. One
product, licensed from Glasgow University,
is still in the proof of concept phase;
the other, licensed from Anzac, is in full
development. Both will contribute to our
position as a market leader in equine
medicine. Additionally, we are evaluating
an equine ulcer treatment;
• One of our most recent licensing deals is with
Vetcare Ltd for a patented canine sedative.
This novel combination product provides
greater cardiovascular safety as compared
to other products of a similar class. The
development programme is complete, and
with our licensing partner, Vetcare, we expect
to launch the new sedative into the first market
in early 2021 with other territories to follow;
• As global market leaders in endocrinology,
we have been looking for several years to
complete the portfolio with the inclusion of
insulin products for dogs and cats. Post
the year-end, we are delighted to have
completed a significant agreement with
Akston Biosciences who have developed
a unique version of insulin with a sustained
duration of activity. If we are able to prove
that we can deliver a weekly injection, as
opposed to the current insulin products for
dogs and cats that are daily, it will become
one of Dechra’s most significant products in
its portfolio. Studies are ongoing to further
prove the concept and to optimise dosing
options prior to moving the product into full
development.
Stock Code: DPH
35
Strategy in Action
a
b
c
Portfolio
Focus
Maximise our revenue by increasing market penetration focusing
on targeted therapeutic sectors
3
22,000
Languages
Downloads
36
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Dechra Dog & Cat App
Anaesthesia Education and Support Tool
Although anaesthesia and sedation are
performed daily in small animal practices,
it can be a daunting decision for both
veterinarians and nurses to decide what
products to use. The extensive range of
medications available, varying procedures,
and the relative safety risk of each
treatment, need to be considered for each
individual patient. Additionally, as new
scientific anaesthetic research is being
published continually, retaining this volume
of information can be overwhelming.
Dechra, already well known for our
comprehensive anaesthesia product
range, recognised the need to support
veterinarians and veterinary nurses by
providing them with a timely and easily
accessible means to access the most
up-to-date anaesthetic protocols for
different types of patients undergoing
varying treatments.
As a result, the Dechra Dog & Cat
Anaesthesia App was developed. It was
launched at the Association of Veterinary
Anaesthetists (AVA), Spring Meeting in
March 2019.
Developed in collaboration with two
leading European Specialists in Veterinary
Anaesthesia and Analgesia and endorsed
by the Association of Veterinary
Anaesthetists (AVA), the App provides
specialist information in a format that
is periodically updated to reflect new
products, any changes in practice and
new research findings.
Matt Gurney BVSc, CertVA, DipECVAA,
MRCVS, one of the authors of the App and
an RCVS and EBVS European Veterinary
Specialist in Anaesthesia and Analgesia
commented “The Dechra Anaesthesia App
fills a clear gap in the market in the age
of instant information. The App provides
reassurance to veterinary practitioners that
the recommendations provided are up to
date and delivered by specialists in the
field of anaesthesia and pain management.
This is a clear benefit to the patients being
treated.”
The App is an intuitive tool. It is designed
to assist veterinarians in developing
appropriate anaesthetic protocols for
different types of patients and their unique
circumstances. It contains information on
the full range of relevant and commonly
used molecules. It assists veterinarians in
choosing the most appropriate product
for each procedure and it has an in-built
dose calculator that helps to simplify the
process and save time for busy vets.
Potential medication doses and
combinations suggested in the App are
based on the extensive expertise and
clinical experience of the authors. In
addition to providing routine protocols
which are up-to-date with current
opinion, the App is particularly valuable to
veterinarians who will frequently be asked
to treat challenging patients; from paediatric
to geriatric, aggressive to moribund, across
a wide range of procedures varying from
non-painful imaging to severely painful
orthopaedic and soft tissue surgery.
orthopaedic and soft tissue surgery.
orthopaedic and soft tissue surgery.
orthopaedic and soft tissue surgery.
Many of these situations are not covered
in individual product data sheets (SPCs)
or textbooks. The App is therefore
unique in providing this up-to-date expert
knowledge at veterinarians’ fingertips.
The App also contains the AVA Anaesthetic
Safety Checklist, a pre-anaesthetic checklist
designed to improve veterinary patient
safety. This follows a similar checklist
developed and used in human medicine
which has been shown to almost halve the
anaesthetic death risk.
This is an innovative and unique way to
provide veterinarians with useful, practical
anaesthesia support. It will make the
day-to-day life of veterinarians in practice
easier, improve patient safety and provide
more animals with an optimal anaesthetic
experience.
In turn, our investment in the development
and launch of this important service
reinforces Dechra’s reputation as leaders
in veterinary anaesthesia.
The Dechra Dog & Cat Anaesthesia App,
which is already immensely popular with
veterinarians, is freely available on both
iOS and Android operating systems and
can also be downloaded directly from the
Dechra and AVA websites.
Stock Code: DPH
37
Strategy in Action
Geographical
Expansion
Leverage our product portfolio
into new geographical regions
through in-country presence
Acquisition
Expand our geographical footprint
and enhance our product portfolio
through acquisition
38
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Laboratorios Vencofarma
do Brasil Ltda, Brazil
Bringing an acquisition into the Dechra organisation
60
3rd
Registered Vaccines
Largest World Animal Health Market
Successful integration of an acquired business is a
key skill that Dechra has developed over numerous
transactions. When we buy a business we have an in
depth understanding of its products, its markets and
where it will fit strategically within the Dechra Group.
We believe it is important that we implement a strategic
plan from day one of ownership and outline to our new
employees a very clear vision of what our objectives
are. People do not like uncertainty, therefore an honest,
straightforward and up front approach is always well
received and also helps us to retain the key people
who are one of the key strengths of any business.
With our most recent acquisition of Laboratorios
Vencofarma do Brasil Ltda (Venco), we implemented
swift change that has had a positive impact on the new
team. By investing up front in our integration plan, we
relieved some of the pressures on the management to
allow them to focus on the employees, customers and
driving sales. Over our first six months since acquiring
Venco we have made ‘excellence in communication’ a
key goal to obtain engagement and collaboration.
On day one a presentation was given to all staff, the
majority of whom were on site, with others watching via
a video stream. The purpose of this presentation was to
highlight who Dechra are, where we have come from,
and what the benefits would be for Venco being part
of the Dechra Group. We also outlined the values we
aspire to both as a Company and as individuals. Over
the subsequent days we held mini group meetings with
every department to provide an opportunity for questions
and to clarify points that directly affected them.
This was only the start of the communication process
which was followed up with a major conference
where every single person in the Venco business
attended. The presentations included a celebration
of the past performance, expectations for the future,
the importance of brand and an outline of the
integration plan that was to be rolled out over the
next 18 months. This conference was a high tempo
and professionally organised event that generated a
great atmosphere and a desire to embrace change.
It was explained that visually the business will look
different but, more importantly, culturally it will behave
differently. Fundamentally, we were asking people to
take responsibility for their own actions, decisions and
ambitions. For some this change was a frightening
experience, for others a chance to express themselves
and put forward their own ideas on how to change,
improve and grow. The majority of the team responded
extremely positively and have embraced the transition
to Dechra.
We have worked hard to strengthen the team with
the appointment of key management positions;
a new Finance Director started within four weeks,
a HR Manager within eight weeks and a Regulatory
Manager within 12 weeks.
In the early days, the excitement and anticipation
provided good momentum within the team, which
has continued with the delivery of our promises and
implementation of the integration plan. We have
maintained regular communication to drive an informed,
open and honest culture.
We have taken a number of key engagement actions,
which includes:
•
implementing a programme of English lessons
which has had an uptake of over 70 people. This
was seen as an opportunity for everyone in the
business to grow their skills and enable them to
engage better with the parent company and new
colleagues;
•
starting the “Great Place to Work” survey where we
can listen to people’s views and ideas;
• planning the site investments and the initiation of
some early essential projects. It is important to start
these as this is seen as a tangible expression of our
commitment to developing the business; and
•
introducing the change of corporate brand with
new uniforms, site signage and website changes.
Ultimately, we want our employees to live and breathe
our Values because it is important they share the same
beliefs and culture.
In Brazil we have just started on this exciting journey;
while there is a great deal to do, we know the team
will enjoy delivering Dechra’s goal of becoming a major
animal health player in the South American market.
Stock Code: DPH
39
Strategic Report
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 .
12
16
19
9
Projects in Feasibility
Projects in Research
Projects in Development
Projects in Registration
Dechra employs a structured process in its pharmaceutical and
vaccine development pipeline while retaining an opportunistic and
entrepreneurial approach. Focus is given to the Group’s therapeutic
sectors and 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 medium to long term realisation with attractive high value returns;
while generic developments generally have shorter time scales with
returns dependent upon the number of other entrants and speed to
market relative to competition.
In addition to developing new products, Dechra is also 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 lifecycle projects 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 our Marketing and Business
Development functions, 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 whether the cost benefit
ratio is favourable considering market need, market value, strategic fit
and the probability of technical and regulatory success. The team also
defines the work required to be completed in the Feasibility phase.
Making the Chemistry Work
In the second phase of the development process, Feasibility , proof
of concept level data is generated for pharmaceutical development
(formulation and manufacturing process), efficacy and safety, 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);
• enable 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 straightforward, 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 between two to 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 Development phase
demonstrate the required safety, efficacy and chemical stability of the
product, regulatory dossiers are prepared for Registration .
The whole process from beginning to end can take between three and
ten years before Launch , depending on the complexity and nature of
the product.
Stage Gate Process
The Pipeline Review Committee analyses each project after each phase
for technical or regulatory risks and issues, and for any changes to the
business case. Project decisions are endorsed by the Strategic Portfolio
Prioritisation Committee which also prioritises projects based on their
overall commercial and strategic value within resource constraints.
Read about the Product Pipeline
on pages 42 and 43
40
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Strategic Portfolio Prioritisation Committee (SPCC)
Senior Management of Commercial, PDRA,
DPM and Finance
Prioritisation considering resource availability, commercial value,
pipeline balance, risk and Company strategy
Recommendations
Approvals and Prioritisation
Decisions
Experts and stakeholders from all relevant departments
Project recommendations based on technical feasibility,
valid business case and commercial need
Pipeline Review Committee (PRC)
GO/
NO GO
GO/
NO GO
GO/
NO GO
GO/
NO GO
GO/
NO GO
Evaluation
Feasibility
Research
Development
Registration
Launch
Preliminary
Evaluation
of Ideas
Proof of
Concept
to Identify
Early Kill Points
Pilot Studies
to De-risk
Development
Programme
Pivotal
Development
Programme
Dossier
Submission
and Evaluation
Launch
Campaign
Output
Initial Target
Profile and
Feasibility Plan
Output
Feasibility
Report and
Research Plan
Output
Research Report
and Development
Plan
Output
Pivotal Data
Dossier
Approvals/
Authorisation
and Launch Plan
Product
Launch
s
a
e
d
I
e
s
i
t
i
r
o
i
r
P
:
l
e
n
n
u
F
a
e
d
I
Stock Code: DPH
41
Strategic Report
Product Development
continued
Product Pipeline
A key strategic priority for the Group is
the delivery and strength of the pipeline.
The 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.
Key to Product Pipeline
Our Key Therapeutic Sectors
Analgesic, Anaesthesia,
Anti-inflammatory
Antimicrobial
Antiparasitic
Cardiology
Dermatology
Endocrinology
Gastrointestinal
Vaccines
Locomotion
Urology
1
Evaluation
2
Feasibility
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
New opportunities are
constantly being evaluated
and will move into Feasibility
quickly if of interest
Analgesic
therapy for dogs
and cats
Anti-inflammatory
for horses
Gastrointestinal
therapy for horses
Endocrine therapy
for dogs
Swine vaccines
Antibiotic for pigs
Antibiotic for
Antibiotic for dogs
Poultry vaccines
Dermatological
therapy for dogs
Endocrine
diagnostic
cattle
and cats
Swine vaccines
Swine vaccines
Swine vaccines
Analgesic therapy
Paraciticide
for dogs
for poultry
Dermatological
therapy for dogs
Analgesic therapy
Poultry vaccines
for dogs
Antibiotic for pigs
Lameness therapy
Anaesthetic for
Poultry vaccines
Antibiotic for
cattle, dogs,
cats, horses
Antibiotic for
cattle and pigs
for horses
Antibiotic for
Lameness therapy
cattle, pigs and
for horses
poultry
Read about the Evaluation process
on page 40
Anaesthetic for
dogs
Poultry vaccines
Anti-inflammatory
for horses
Poultry vaccines
Endocrine therapy
dogs
dogs
Paraciticide for
Cardiovascular
therapy for cats
Urological therapy
for dogs
Dermatological
therapy for dogs
Dermatological
therapy for dogs
Endocrine therapy
for horses
for cats
Ocular
for dogs
anti-inflammatory
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Antibiotic for dogs
and cats
Anaesthetic for
dogs and cats
Antibiotic for dogs
and cats
Analgesic therapy
for horses
Analgesic therapy
for horses
Endocrine therapy
for dogs
Gastrointestinal
therapy for dogs
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Anti-inflammatory
for dogs
Gastrointestinal
therapy for dogs
Anti-inflammatory
for horses
Anaesthetic for
dogs
Antibiotic for dogs
and cats
Anti-inflammatory
for cats
42
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
New opportunities are
constantly being evaluated
and will move into Feasibility
quickly if of interest
Analgesic
therapy for dogs
and cats
Swine vaccines
Anti-inflammatory
Swine vaccines
for horses
Gastrointestinal
therapy for horses
Swine vaccines
Endocrine therapy
Swine vaccines
for dogs
dogs
Anaesthetic for
Poultry vaccines
Anti-inflammatory
Poultry vaccines
for horses
Strategic Report
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
3
Research
4
Development
5
Registration
Dermatological
therapy for dogs
Antibiotic for pigs
Endocrine
diagnostic
Antibiotic for
cattle
Antibiotic for dogs
and cats
Poultry vaccines
Analgesic therapy
for dogs
Paraciticide
for poultry
Dermatological
therapy for dogs
Antibiotic for
cattle, dogs,
cats, horses
Analgesic therapy
for dogs
Poultry vaccines
Poultry vaccines
Anaesthetic for
dogs
Paraciticide for
dogs
Cardiovascular
therapy for cats
Urological therapy
for dogs
Dermatological
therapy for dogs
Dermatological
therapy for dogs
Endocrine therapy
for horses
Endocrine therapy
for cats
Ocular
anti-inflammatory
for dogs
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Antibiotic for dogs
and cats
Anaesthetic for
dogs and cats
Antibiotic for dogs
and cats
Antibiotic for pigs
Lameness therapy
for horses
Antibiotic for
cattle and pigs
Antibiotic for
cattle, pigs and
poultry
Lameness therapy
for horses
Analgesic therapy
for horses
Analgesic therapy
for horses
Endocrine therapy
for dogs
Gastrointestinal
therapy for dogs
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Anti-inflammatory
for dogs
Gastrointestinal
therapy for dogs
Anti-inflammatory
for horses
Anaesthetic for
dogs
Antibiotic for dogs
and cats
Anti-inflammatory
for cats
Stock Code: DPH
43
Strategic Report
International Product Offering
The tables below show the key products in our focus therapeutic areas in territories where we have sales and marketing organisations.
Endocrinology
Dermatology
and Care
Anaesthesia
and Analgesia
Cardiovascular
Opthalmology
Key Product
Felimazole
Forthyron
Vetoryl
Zycortal
Key Product
Canaural
DermaPet
Isaderm
Malaseb
Key Product
Alfaxan
Atipam
Comfortan
Phycox
Sedator
Vetivex
Key Product
Cardisure
Key Product
Isathal
Antibacterial and
Antibiotics
Key Product
Amoxi-Clav
Clavubactin
Cefpodoxime Proxetil
Enroquin/Enrofloxacin
Metrobactin
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44
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
e
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Equine
Medicine
Food producing
Animal Products
Nutrition
Key Product
Domidine
Equipalazone
HY-50
Osphos
Key Product
Cyclospray
Methoxasol
Octacillin
Rapidexon
Soludox
Centidox
Altidox
Key Product
Specific
Vaccines
Key Product
Avishield ND
Companion
Animal Products
Key Product
Phenoleptil
Prevomax
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Stock Code: DPH
45
Strategic Report
Corporate Social Responsibility
Tony Griffin
Managing Director, Dechra
Veterinary Products EU
Melanie Hall
Company Secretary
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.
Dechra Values and Culture
Everything we do is underpinned by our culture and Values. They 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. Our businesses deliver high quality products and
services to veterinarians worldwide through our employees and the
network of third parties that we work with.
We are committed to acting responsibly and with integrity, respecting the
laws, regulations, traditions and cultures of the countries within which
we do business. This is reflected in our Values, which define the
core principles by which we operate.
Throughout this report you will find examples of how our Values guide
our behaviours and actions.
Our Values are supported by our Code of Conduct, originally established
in August 2009 and subsequently revised in 2018. This sets out the
standards of conduct to be adopted by all employees 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.
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.
Non-Financial Information Statement
We aim to comply with the Non-Financial Reporting requirement as detailed in Sections 414CA and 414CB of the UK Companies Act 2006.
The table below sets out where you can find the non-financial matters within our Strategic Report that, taken together, comprises the
Non-Financial Information Statement.
Reporting requirement
Environmental Matters*
Employees*
Social Matters*
Respect for Human
Rights*
Anti-Bribery and Anti-
Corruption*
Business Model
Principal Risks
Non-Financial KPIs
Where to read more
Corporate Social Responsibility: Our
Environment
Creating Value for Our Stakeholders
Chief Executive Officer’s Statement
Understanding our Key Risks
Creating Value for Our Stakeholders
Creating Value for Our Stakeholders
15
Page
number Where to read more
58 and 59
Page
number
15
20 to 23
64 to 67
15
39
Case Study: Bringing an acquisition into the
Dechra organisation
Corporate Social Responsibility: Our People
Corporate Social Responsibility: Our
Community
Corporate Social Responsibility: Our Business 60 and 61
49 to 55
56 and 57
Creating Value for Our Stakeholders
Corporate Social Responsibility: Our Business
Our Business Model
How the Business Manages Risk
Key Performance Indicators
Audit Committee Report
15
60 and 61
12 to 14 Creating Value for Our Stakeholders
62 and 63 Understanding our Key Risks
32 and 33
83 to 89
15
64 to 67
* References to our polices, due diligence processes and information on how we are performing on various measures in these areas are contained throughout
the Strategic Report.
46
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
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
We are goal
oriented and
shall deliver solid
results through
our energetic and
resilient approach
throughout the
organisation. Our
ambitions shall
not built on the performance of an
individual, therefore we encourage
co-operation and cross-organisational
team working to produce better results
together.
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: DPH
47
Strategic Report
Corporate Social Responsibility
continued
Our
People
Our
Community
Our
Environment
• Employees
• Local Community
• Employees
Pillar
Stakeholder(s)
Involved
Key Focus
Areas
• Attracting, retaining and
developing talent
• Diversity
• Culture and Values
• Employee engagement
and productivity
• Safe working practices
Policy
• A great and safe place
to work
• We value difference and
believe diversity of people,
skills and abilities is a
strength that helps us
to achieve our best
• Charities and non-profit
• Local Community
organisations
• Community investment
through charitable
donations and
volunteering
• Energy use
• Greenhouse gas
emissions
• Waste disposal
• Sustainable raw materials
• To engage in community
activities focussing on
animal welfare, human
service and environmental
stewardship
• 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
Objectives
• Leverage the Dechra
Values and culture
• Maintain high levels of
employee engagement
• Reinforce a culture of safe
working practices
• Contribute towards
• Minimise our environmental
charitable causes through
the donation of time,
products and skills
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 nutrition
range
Our
Business
•
Veterinary Professionals
•
•
Universities
Suppliers and Distributors
• Animal welfare
• Anti-bribery and
anti-corruption
• Education of veterinary
professionals
• Compliance of suppliers
with Code of Conduct
• 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
• We expect our third parties
to trade with honesty and
integrity
• 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
•
To work with third parties
who comply with our Code
of Conduct
Read more about
Our People on pages
49 to 55
Read more about
Our Community on
pages 56 and 57
Read more about
Our Environment on
pages 58 and 59
Read more about
Our Business on pages
60 and 61
48
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Our People
Key Facts:
• 74% of employees returned to work after
parental leave
• 14% of current DSC employees have been
recruited via the apprenticeship programme
• 2 of our manufacturing facilities have had
24 months of no LTA
13.6%
Employee Turnover
52%
of workforce is female
We now employ 1,753 people in 25 different countries and in a wide
range of working environments. We have increased our cultural diversity
even further in the last year with the addition of the team in Brazil. At
Dechra, we have always acknowledged that our people are our greatest
asset and know that an inclusive culture is beneficial for our business’s
performance. Our ongoing objective is to continue to be a high performing
business driven by highly skilled and committed teams. Accordingly, we
are committed to:
We were delighted that 84% of our employees responded positively to
the statement regarding diversity in the workplace in our first employee
engagement survey (2018 Engagement Survey) which took place in
March 2018. We firmly believe that our Dechra Values support the
culturally diverse business that we have become, and although we are
separated by time zones, geographically and by language we share
common goals and ways of working that are underpinned by our Values.
•
strengthening and communicating the Dechra culture and striving to
ensure our Values encompass our business ethics and standards;
Age Range
Split
• attracting, retaining and developing talent to build and maintain a
top quality team; and
• developing effective succession plans to enable 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 seeing 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 or harassment.
We are committed to fair employment practices and comply with national
legal requirements regarding wages and working hours. In the UK, only one
of our subsidiaries is required to report under Gender Pay Gap regulations,
and we are pleased to report that our gender pay median gap has reduced
from 17.7% in 2017 to 9.2% in 2018. This reduction is largely driven by an
increase in the number of women in senior and technical roles.
Headcount Per Country
1,753
employees
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Stock Code: DPH
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49
5
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a
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v
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S
l
Strategic Report
Corporate Social Responsibility
continued
Accelerate
Performance
Our original people plan was developed five 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 and the
continuous expansion of the Group.
Grow Our
Own Talent
Accelerate Performance:
Align employee efforts and drive productivity through effective
goal setting, feedback and focus on development.
Creation
of Shared
Services
Healthy
Workplace
Strong
Culture and
Values
Engaged and
Committed
Workforce
Grow Our Own Talent
Dechra is committed to enhancing the skills of our workforce, planning
for a successful future and creating a sustainable talent pipeline.
Delta
Since July 2016, we have been utilising a learning management
system, Delta, which hosts e-learning materials ranging from induction,
compliance training such as pharmacovigilance, and software skills.
There are 147 internal modules available on Delta to enable Dechra
employees to continue to be the best partners to the veterinary
profession. During the year, we have launched 16 new courses.
Dechra Veterinary Products North America (DVP NA)
The US Commercial sales team offers an extensive training programme
for its new territory sales managers and inside sales representatives. A
team of 18 recently spent two full weeks in Kansas City onboarding and
building their product knowledge, equipping them to be productive from
the first visit or the first call they make. Veterinary Professional Services,
Veterinary Technical Services, and Marketing Managers facilitate the
training workshops, which allows the field team to learn from our own
internal experts. Additionally, regional managers continue their education
with sales operations training offered during their first six months, at
regional meetings, and during the national sales meeting.
Apprentices and Interns
We believe that offering internships and apprenticeships is a great way
to attract new employees to Dechra. We have a small number of intern
opportunities each year both in the UK and the US. We have successfully
supported student interns at our Sansaw and Northwich offices and
have an annual programme running. We have been delighted with the
quality of the young people who have worked with us and we hope that
the experiences of working with Dechra will support them in their future
careers. We currently have nine apprentices in Europe in a variety of roles,
including administration and logistics. In 2018 we had ten apprentices
join our site in Croatia through a government sponsored scheme of which
eight have been retained on a permanent basis.
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 around 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.
Case Study
A series of four webinars on
the New EU Regulations for the
Registration of Veterinary Medicines
Product Development has recently run a series of four, one hour
training webinars for PDRA colleagues globally to alert them to
the major changes in the EU regulations for the registration and
maintenance of veterinary medicines, which have been approved
by the European Commission and will come into EU law on
22 January 2022. These new regulations are very wide ranging
and include a total of 97 objectives with major impacts on our
business. The webinars were delivered by Dr Julian Braidwood,
MD of the international CRO Triveritas Ltd., and have proved
very popular and thought provoking, with an audience of over 70
Dechra colleagues listening from their desks and asking a wide
range of questions. Not only is this training format convenient
and user friendly for our employees, but it is also an extremely
cost effective way of delivering a bespoke and high quality
training session on a key topic for our business. The webinars are
recorded so that those unable to attend are still able to participate
at a time which suits them.
In addition, the Product Development’s global clinical team
members attended an advanced Word training class for technical
report writing. This programme complimented the basic training
provided in Delta; geared more toward their job requirements.
22 team members from the US, the Netherlands and the UK
participated in the training.
50
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Case Study
Case Study
Apprentices in the Dechra Service
Center (DSC), Uldum
There is a long running tradition of having apprentices at the DSC,
primarily in the offices but also in the warehouse. The apprentices
follow a formal education scheme and during the two year
apprenticeship, they also attend 8 to 12 weeks of training courses
at one of the local business colleges. They start with simpler
tasks working alongside their colleagues, and as their skills evolve
through on-the-job training, they ultimately perform the same
role as their colleagues. In the final part of their training, the office
trainees write a report on a project that is relevant to their work
at Dechra. This report will often contain efficiency or cost savings
proposals, and as such we have found that apprentices are of
great value to both the Company and the employees. Out of the
current employees in Uldum, 14% have been recruited through
the apprentice programme, two of whom have been employed for
over 20 years.
Sales and
Marketing
Assistant/
Placement
Student
Katy Mellor joined the UK
marketing team last July for
a one year placement from
Harper Adams University as part of her BSc Agriculture course.
Katy has enjoyed learning about the veterinary industry and
Dechra’s vast and growing range of products whilst being part
of a team working in a fast paced environment. She has been
integral to the implementation of the Le Vet product launches
within the UK, being involved in product forecasting, positioning,
pricing and promotion of the products. All of which has furthered
her understanding of commercial and marketing business
practices. During the last year, Katy has embraced all of the
Dechra Values and was formally recognised at a recent UK sales
meeting for her contribution and support of her colleagues.
Case Study
Ben Poulter,
Placement
Student
“Working at Dechra as the
Finance Placement Student
I have gained invaluable
experience which I will be taking
forward into my future career.
Throughout the year I have learnt a lot about working life and working
within a finance team. I have gained a deeper understanding of
how the different sections of a finance team function within a large
company. Dealing with foreign currencies and the different situations
created in an international company has expanded my knowledge
beyond what I had at university.
The thing that attracted me to Dechra is the opportunity to work
within a relatively small Head Office finance team for the size of
the Company. This has allowed me to feel like an integral part of
the team and it is clear to see the results of my work. I was also
interested in the opportunities available within this placement to
help with different parts of the finance function and also experience
different aspects of the Company. Having the opportunity to have
a tour around the factory at Skipton and spending a day with a
salesperson provided a new perspective on Dechra which was
different to what I had experienced at Head Office. The experience
that I have gained working within Dechra will not be forgotten.”
Martin Thimes Henriksen
“On a search of the job market, I found the apprentice role at
Dechra logistics. After a very nervous job interview, my first ever
actually, I was sold. Luckily, Dechra thought the same of me. I
started my two years as an apprentice in September 2016, and
my first few months was quite calm, and I learned the processes
piece by piece, which was very nice. Along the way, I got more
and more responsibility, and learned a lot from it. I personally
think this is the way to train apprentices, I liked it that way.
On my training courses, I both shared experiences with fellow
apprentices, as well as learned the basics of logistics. I really
liked the two years as a trainee, and I do recommend this kind
of education to friends and family. As I am now a regular full time
employee in the Logistics department in Denmark, I am now
the one trying to pass on my knowledge to the new apprentices
arriving. If I follow in the footsteps of my boss, Anders, I will enjoy
a long and successful time with the Company, and I sincerely strive
to do so.”
Stock Code: DPH
51
Strategic Report
Corporate Social Responsibility
continued
Case Study
Rachel Gilroy, Product Development
Intern Testimonial
“Coming to the end of your PhD marks a time when you need to make
decisions on how you want to progress your future career. Making the
move from academia to a career in industry is undeniably daunting, and
with no industry connections, it can be difficult to take that first step.
For me, I was keen to explore the veterinary pharmaceutical industry,
and when I attended a talk given by Dechra at Durham University
about career options of veterinarians in industry with focus on R&D,
it provided me with an invaluable opportunity to approach Dechra
regarding an internship in R&D. Having a long established history within
the animal health market alongside a fundamental values system,
Dechra represented a growing global market brand able to offer
a unique internship experience.
Funded as part of the fully integrated BBSRC DTP PhD Internship
programme, my three month placement was based primarily in the
Product Development offices in Shrewsbury, UK.
During the initial phase of my internship, tasks were mainly focused on
exploring published research to generate a comprehensive literature
review which would determine subsequent clinical trial protocols.
Moreover, I was involved in the creation of a technical training
presentation which would be used for the roll out of a referencing
software throughout the Group. Importantly it was during this early stage
of my internship that great effort was made by all members of the Dechra
team, both UK and international, to introduce themselves, their role
and their wealth of previous experience. Not only did this make me feel
particularly welcome but was valuable in illustrating how different industry
roles are not defined by a single career path.
With a clinical team based largely in the US, Dechra allowed me
the opportunity to visit teams in both Maine and Kansas. Working
closely with the clinical team in this way gave me tangible experience
with procedures and software that formed the basis of clinical
operations. Having one-to-one discussions with colleagues working
in areas including regulatory affairs, safety and marketing gave me
an appreciation of the multi-faceted nature of drug discovery and
development, and how each role interlinks with another.
Most notably, I was heavily involved in the formation of a final study report
for the submission of pilot clinical trial data to the FDA. Not only did this
allow me to assess critically and interpret clinical data, but also present
this in a way that complies with current guidelines. Dechra gave me the
independence of being able to approach tasks in a manner that suited
my skill set, while offering continued mentorship and encouragement
during processes with which I was particularly unfamiliar. Being able to
participate in clinical operations review meetings highlighted fundamental
drug development milestones and challenges, but more importantly, how
these are handled.
The ability to overlap my internship with my PhD has allowed me to
apply some of the project management and trial protocol techniques
to my ongoing research. Furthermore, I was able to present my
current PhD research to teams in both the Netherlands and Croatia,
sharing knowledge and feedback that could develop my research to
application in both academia and industry.
Before working with Dechra, I had little sense of product development
processes in the veterinary pharmaceutical industry. Thanks to
the dedicated team at Dechra, I now have first-hand industrial
experience relating to pharmaceutical research and development,
alongside a strong network of industry professionals that have
already contributed greatly in my future career. It is with both the
confidence and knowledge foundation gained through this internship
that I can decisively progress my career toward a role in veterinary
pharmaceutical product development.”
Engagement and Committed Workforce
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 management and team changes, progress in relation to strategic
objectives and updates on corporate social responsibility objectives.
At Dechra, people are our greatest asset. In order to continue to retain
our qualified and skilled employees, and to attract new employees we
conducted an Employee Engagement Survey in March 2018 using the
Great Place to Work (GPTW) survey. The results of the survey were
disclosed in the 2018 Annual Report.
Given the diverse nature of our workforce, due to the geographical
spread and the differing roles and segments in which our employees
operate, we were very pleased with the overall results of our first survey.
Since the survey took place we have spent time communicating the
results to our employees. Initially, we produced a short video with the
overall highlights of the survey, and this was followed with feedback of
the results at a business unit, department, site or country level utilising
any key meetings with employees or team briefings.
Action planning took place with employee groups across the Group
where employees had the opportunity to identify areas that they
wanted to address as a result of the survey and we built a database
of plans, predominantly led by the employee groups. A huge variety of
approaches has been taken depending on the size of the teams and
their types of issues.
We have scheduled a second Group-wide survey for March 2020 where
we hope to see maintained or improved scores.
During the year, Lisa Bright has been appointed as the Non-Executive
Director designated for employee engagement. She is currently
investigating, along with the Group HR Director, the most effective
way in which the Board can engage with our employees to readily
understand their views. During the forthcoming year, an employee
engagement forum will be piloted.
52
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Engagement Survey
Announcing the engagement survey
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.
Aiding the understanding of the survey
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.
Employee participation
Following the completion of the engagement
survey, videos were posted to thank our teams
for their input.
Case Study
DVP EU
The EU team had a strong set of
results with an overall response
rate of 88% of their employees
and a trust index of 76% (+9%
higher than the Dechra Average
score). The strengths of the
EU survey were Culture (85%),
Engagement (83%) Job Security
(81%), Teamwork (80%) and
Wellbeing (74%).
Following the feedback of the
results,the DVP EU Senior
Management team chose to
focus on improving the area of
Communication and Involvement
(66%) across their region. Several
work streams were created to
focus on improving the level and
frequency of communication both
formal and informal. These include
more focused use of the intranet
for sharing news, creation of a
monthly newsletter, regular sales
updates to all staff, updates on
the strategy from Tony Griffin and
communication of the new EU
marketing plan. More frequent
conference calls have been put
in place to allow Tony to talk
directly to the EU teams, and the
team has been utilising external
social media such as Linkedin to
promote our employee brand.
In addition to this, each of
the Country and Functional
managers within DVP EU has
also undertaken the same
action planning process with
the support of the HR team
and had their own action plan
documented. Activities vary
from additional training sessions,
creation of dashboards to keep
teams informed, bi-weekly town
hall meetings and arranging
cross-functional meetings on a
quarterly basis to promote better
alignment.
Stock Code: DPH
53
Strategic Report
Corporate Social Responsibility
continued
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 wellbeing of our employees,
contractors and on-site visitors.
We have seven manufacturing facilities worldwide, employing 748
people representing 42.7% of our total workforce. Due to the nature of
their roles, we have identified these as our higher risk employees with
regards to health and safety. We have recently appointed a Group Dechra
Pharmaceuticals Manufacturing (DPM) Health and Safety Manager who
will initially be overseeing four of the main manufacturing facilities with the
remit of standardising our procedures and working to ensure that high
standards of health and safety are maintained.
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
is in place in DPM.
Risk assessments are undertaken at our DPM sites to identify hazards
and apply control measures to reduce or eliminate the risk of injury.
Risk assessments may be conducted internally for routine activities or
external specialists may be requested to conduct risk assessments
for safety critical tasks. Where hazards are identified, these are scored
according to the likelihood of an injury or incident occurring and the
potential severity of this. Control measures are applied to reduce the risk
of injury according to a hierarchy of control. We would firstly assess if a
task was necessary and look for other safer ways to do a task before
progressively applying other control measures.
All employees, contractors and visitors across the DPM sites are
requested to remain vigilant at all times and to report any non-routine
hazards they see using the local reporting procedures. We encourage
employees to act immediately to warn others and control immediate
risks whilst a more permanent solution may then be required to prevent
the hazard from recurring. Because we work in a dynamic environment,
we believe an increase in hazard reporting is an important leading
indicator of the maturity of our safety culture.
DPM encourages local hazard reporting by both employees and
contractors. The purpose of each report is to capture information about
hazards and to track each hazard to an effective closure. It also allows
us to provide feedback to the employees who have raised the hazards
that action has been taken.
Each site periodically reviews any hazards raised and looks for trends.
In addition to tackling each individual hazard, trend analysis allows each
site to focus safety interventions on particular topics. This may include
targeted safety training or safety communications.
For a number of years the Group has reported Lost Time Accident
Frequency Rate (LTAFR) as a non-financial key performance indicator (see
page 33). 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. Despite maintaining a rigorous focus on health and
safety, over the course of the last 12 months the number of incidents has
increased from nil to six. All six incidents occurred in our manufacturing
facilities; there were no fatalities. Two of the manufacturing facilities, Bladel
and Melbourne, have now had over 24 months without a LTA.
All accidents and incidents are investigated by Line Managers with
the cooperation of safety representatives or other employees who
are aligned to an area. When an accident occurs, each site conducts
an investigation which aims to identify the root cause of the incident
including any workplace hazards, system or behavioural errors.
Corrective and preventative actions are then implemented.
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.
We are routinely investing in safety, and during the 2019 financial year
this has included:
• Refurbishment of floors in our Melbourne facility to reduce the risks
of slips and falls;
• The purchase of new equipment to reduce the risk from manually
handling heavy drain covers in Zagreb and the installation of a mist
shower for personal decontamination;
• The installation of three defibrillators at our Skipton facility, along with
the provision of first aid training to 40 employees; and
• An independent health and safety report was conducted at our site
in Sydney, Australia with findings being implemented.
Group Causality
DPM Hazards (Bladel, Florida,
Skipton, Zagreb)
2
2
200
1
1
1
1
1
100
0
0
1
32
4 5
1
32
4 5
1. Slipped/tripped or fell on the same level
2. Ergonomic injury
3. Contact with moving machinery or material
being machined
4. Contact with a hot/cold surface or substance
5. Hit something fixed or stationary
1. Reportable >7 days
2. LTA
3. Investigated accidents
4. Investigated (damage only)
5. Minor or First Aid accidents
54
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Health and Safety Theme of the Month was introduced at
Skipton in 2019 and is an opportunity to build awareness and
competence around safety topics that are likely to be relevant to
everyone working at a site. Topics such as Fire Safety, Manual
Handling, Personal Protective Equipment and Workplace
Transport and Pedestrian Safety are just some of the topics which
have been covered.
Subject Matter Experts – Across the Group there are many
employees who are trained in specialist health and safety roles.
These roles support the overall health and safety management
system to enable risks to be controlled on a day-to-day basis.
Examples of such roles are first aiders, fire wardens, and spillage
responders. For each of these roles training is provided and this is
refreshed according to the required frequency.
•
Post-accident reviews – following any accident the need
for retraining is reviewed as part of the accident or incident
investigation.
Case Study:
Health and Safety Training
Working to ensure that our employees understand their health and
safety obligations is critical to maturing and stabilising our safety
culture. Employees receive general health and safety training at
various stages:
•
•
Induction – all new employees receive a health and safety
induction on day one of their employment. This means that they
understand the site emergency procedures, key health and safety
rules and any welfare arrangements. This is supplemented in their
departments with a local area induction.
•
Job Training – Employees receive regular health and safety
training according to their role and any hazards that exist in the
work they are conducting. Role specific training, for example safe
use of equipment, is delivered as part of operator training within
their departments.
•
General Health and Safety Training – General Health and Safety
training is sometimes delivered to whole employee populations.
Stock Code: DPH
55
Strategic Report
Corporate Social Responsibility
continued
Our Community
• Committed to give every employee one day
in the community
• Provided work experience and educational
£322,894
£60,123
programmes to local community
Product donations
Cash donations
Local Community Engagement
We believe that it is important to give back to the communities in which
we live and operate. Our community ethos is aligned with our business
purpose and Values, in particular, our Relationships and Enjoyment
Values. We encourage our employees to engage in community
activities, in particular, in the fields of animal welfare, human service
and environmental stewardship. There is a particular focus on animal
welfare. Below are examples of the community activities, financial and
non-financial donations and areas of community employment that we
have been involved in:
Community Activities
We have committed to giving our employees one day in the community,
preferably as a team activity; and whilst this is in its infancy, we have
seen teams in Brazil, the Netherlands, UK and USA engage in a variety
of activities. In the US, 80 employees served two animal shelters local
to our Portland and Kansas City offices. Employees dedicated their time
to physical projects supporting the shelters, enabling shelter staff to
dedicate more time to serving the animals in need. Both shelters are the
respective area’s largest shelters and have programmes that support
elementary students on the necessary care and compassion for animals.
In addition, the Veterinarian Technical Services simulated a well visit to
minimise potential stress or triggers of veterans suffering from PTSD
or brain injuries.
Community Service Hours by Type
Animal Welfare
57.2%
Human Service
17.8%
Environmental
25.0%
Community Service Hours by Country
USA
UK
Brazil
Netherlands
362
140
4
80
56
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Case Study
Head Office Community Activity
The Northwich Head Office team embarked on a CSR activity
day in June, volunteering at a local Wildlife Reserve known as
Lower Moss Wood, which is an educational nature reserve
and wildlife hospital. It provides a place for schools, disabled
visitors, environmental groups and others to go and learn about
conservation and the environment. The wildlife hospital on site
takes in any orphaned, sick or injured wild animals or birds and
provides around the clock care. It is also a private nature reserve.
Twenty employees volunteered at the reserve across two days and
collectively worked on digging out and restoring a natural peat bog.
The aim was to allow the surrounding wildlife, most specifically
dragonflies, to reach the water so they could survive and flourish.
Strategic Report
Community Donations
For the last eight years we have operated a Group Donations scheme,
whereby we encourage all employees to nominate a charity or
non-commercial organisation for a charitable donation. This year
we donated to eleven charities each receiving £2,500.
Group Annual Charitable Giving
Animal
Human
£17,500
£10,000
In addition to the annual Group donation, each business unit has the
discretion to allocate funds and/or products to local community charities
and/or animal welfare charities.
Business Unit Donations by Type
Product
Cash
£322,894
£32,623
The majority of the above product donations are short dated product
which otherwise would have had to be destroyed.
At our Zagreb site, we have provided some land to the local community
for use as a children’s playground for ten years.
Community Employment
Our IT and Finance teams located in the Uldum office supported three
work readiness and retraining efforts for members of the greater Uldum
community. This effort was another way to give back to the communities
in which we live and work. Community members with special needs and
circumstances were able to apply their skills and interests with a work
assignment and work schedule that helped them build their confidence
and transition back into productive members of the working community.
Dechra team members who had the opportunity to learn about their
circumstances and goals and watched their progress were also rewarded
by the positive experience.
Similarly, our Brazilian business employed eleven apprentices, all of which
were students working part-time to allow them to gain practical work
experience, in both administrative areas such as Human Resources and
also in production and maintenance. They worked four hours a day,
over a period of either one or two years, in the business and attended
a complementary qualification programmes for the remaining part of
the day. The aim of the scheme was to help young people gain work
experience prior to joining the labour market.
Stock Code: DPH
57
Strategic Report
Corporate Social Responsibility
continued
Our Environment
• 5,540 photovaltic panels installed in Zagreb
• Reduce CO2 emissions per DSC Shipment 4.9%
Reduction in CO2 per kg
(DSC shipments)
100%
Certified fish in
dry cat diets
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
Recovered, recycled
and reused
Landfill
Waste & Controlled
Drugs
Bladel
Florida
Skipton
Zagreb
2019
2018
2019
2018
2019
2018
2019
2018
100%
–
100%*
–
31.0%
69.0%
32.0%
68.0%
–
–
–
–
100%**
–
–
83.5%
–
44.0%
41.0%***
95.8%
–
16.5%
15.0%
4.2%
* Recycled.
** 47.7% is recovered and 52.3% is recycled.
*** The increase was due to the removal of asbestos from the majority of the roofs at the Zagreb facility.
Our central logistics hub for Europe (the 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 2018
to 30 June
2019
5,554
3,712
2,209
11,475
23.8
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
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 increased by 1.7 tonnes of CO2e per total £ million sales revenue. The increase is partially due to the increase in vehicle
emissions (0.4 tonnes of CO2e per total £ million sales revenue), and mainly due to the additional manufacturing facility in Brazil. During the
forthcoming year, the Brazilian business will assess its emissions and identify equipment or processes that could be replaced or improved.
58
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
The Group has continued with its policy of replacing all non-LED lighting
within its control over the next four years, and has installed 450 LED
lighting units at the Zagreb facility, which represents 15% of the internal
lighting units. The Northwich Head Office has moved to green tariff energy.
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.
As reported in last year’s Annual Report, the installation of the 5,540
photovoltaic (PV) panels have been fitted onto the existing roof
structures across the Zagreb site. This is the largest installation of its
type in Croatia, and has been in full operation since 28 June 2019.
Any surplus electricity is distributed to the municipal electrical grid.
Sustainable Raw Materials in Our Nutrition Range
The raw materials of our dry diets 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. In addition, as
part of our environmental road map, we have rationalised our pack sizes
which has reduced our use of plastic.
Eco-friendly and Financially Cost-Effective Distribution Systems
The transportation of goods is the largest activity for DSC. They handled
79,300 orders this year, an increase of 28.8%, to customers worldwide
as well as receiving and storing approximately 1,500 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.
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
2019
36,905
19,399,330
1,670,037
11.6
2018
30,409
16,665,247
1,393,046
12.2
The increase in shipments, 36,905 in 2019 compared to 30,409 in
2018, is mainly due to the increase in inventory following the Le Vet
acquisition and the transfer of products from distributors to Dechra
marketing companies. This has resulted in an increase in the CO2 gross
outlet figure, however, the CO2 per kg is lower as the size of each
shipment was larger. In addition, the optimisation of the pack sizes for
the Nutrition products and the packing into cartons has resulted in the
pallets being more stable and therefore can be double-stacked. We
have implemented more efficient packing methods which enables us to
include more products in each delivery and therefore reduce our CO2
emissions per delivery.
Reduction in Packaging Materials and Pallets
Historically, pallets of products received have been split for onward
delivery which has meant additional packaging being required. However,
recently whole pallets of products have been shipped out of DSC
reducing the requirement to repackage the pallets and leading to a
reduction in packaging costs per order as detailed in the table below:
Packaging Costs Per Order
Reused Pallets
2019
£3.05
68.0%
2018
£4.40
64.5%
2017
£4.25
67.1%
68% of all pallets used in DSC are reused, and any damaged pallets
are sold.
Stock Code: DPH
59
Strategic Report
Corporate Social Responsibility
continued
Our Business
• 168 hours accredited content across
11 countries in our Academy
• 676 CPD presentations to an aggregate total
of 18,680 attendees in North America and
Mexico
317
Customers and Suppliers
provided with ABC course
63%
Increase in Academy
courses completed
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 areas. 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, aiding the appropriate use of Dechra products.
The Dechra Academy offer is internationally oriented and provides
Continuous Professional Development (CPD) recognition by individual
countries’ authorities.
There are 189 courses available in our Dechra Academy, offering 168
hours of accredited content across 11 markets in 13 languages. 40 new
courses have also been created this year in the strategic therapy areas
of Endocrinology and Dermatology.
13,140 courses have been completed by veterinarians during the year,
a 63% increase over last year.
As Dechra grows globally, more CPD content is becoming available to
more countries all the time, with recognition approval obtained during
the year for Canada, and plans are in progress to launch in Mexico,
Australia and New Zealand during the forthcoming year.
Case Study
Webinar: Comfortan
Analgesia for ovariohysterectomy in dogs and cats and the role
of Comfortan was presented by Dr Jo Murrell BVSc. (Hons), PhD,
Dipl ECVAA, MRCVS and had the highest registration rate in
Dechra history.
There was a staggering 3,122 registrations from across the EU
and even further afield, including Saudi Arabia and Peru. The
success of the webinar is a result of everyone pulling together to
engage with their customers and promote the event. As a follow up
to the webinar we invited everyone who registered to “watch again”
on the Academy. Within the first week we had 88 new enrolments
and 29 completions of the recording.
Seminar: Specific
27 delegates from Turkey, Estonia, Lithuania, Greece, Hungary,
Czech Republic, Serbia, Slovakia, Switzerland, Romania, Russia
and Ukraine as well as most of the International sales team took
the chance to participate in the training programme.
The seminar started with lectures on recent developments in diabetes
mellitus by Dr. Eric Zini (PD, PhD, Dipl. ECVIM-CA, Internal Medicine)
on the first day to set the scene for the new diabetic cat diet, followed
by presentations on the second day from Philip Wells, Dominic Ebery,
Francis Pastoor and David Southey that focused more on the technical
and marketing aspects of our Specific cat range.
The seminar provided an ideal opportunity to learn all about the
Specific brand, the formulation improvements to the cat range,
benchmarking against competition and to be informed about the
support material available for the whole Specific range. It was
also an excellent opportunity for all participants to exchange
experiences as well as for Dechra to demonstrate our expertise
in nutrition and to connect with our customers.
60
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Case Study:
Collaboration with Industry
The combination of the skills and expertise of academic organisations
and industry can lead to positive and practical outcomes. We work
with academia to support the development of new drugs and
techniques as well as educational programmes. An example of this
type of collaboration was when PhD student Alice Denyer from the
Royal Veterinary College recently spent three months at Sansaw.
After initial familiarisation with the existing Dechra Academy modules
and understanding the history of development of the Specific
Endocrine Support Diets, she carried out small-scale research into
what veterinarians find most challenging about dealing with diabetes
mellitus (DM) in practice. Alice subsequently developed the content
for the canine and feline DM Academy modules, as well as additional
downloadable resources for owners and veterinarians. The modules
were completed on-time and both went live in the UK in June.
The placement formed an important part of Alice’s career
development, offering insight into the veterinary pharmaceutical
industry and providing an opportunity to learn about marketing, project
management and cross-functional teamwork. The EU team were
welcoming, ensuring Alice was fully involved and providing a highly
enjoyable three months. Not to be underestimated was the positive
impact Alice had on the wider team during her time at Sansaw due to
her personality, professionalism and dedication to animal welfare. To
date, Alice has won the 2018 Postgraduate Student Inspiration Award,
an International Canine Health Award and was recently awarded first
place at the RVC Postgraduate day for her impact statement.
Alice is a member of the Canine Diabetes Genetics Partnership
(CDGP), a multi-disciplinary group of expert clinicians and scientists
from a range of UK institutions, sharing a special interest in the
genetics of diabetes mellitus in dogs. The Partnership was formed
in 2017 with the aim of using Whole Genome Sequencing to
explore the genetic risk of canine diabetes in breeds considered
to be at low risk (e.g. Boxer) and high risk (e.g. Samoyed) of
developing the disease. Alice’s placement at Dechra has provided
an excellent opportunity to understand the potential impact of
this research, as an ideal complement to the PhD training she has
received in laboratory techniques and bioinformatics. The CDGP
is supported by the PetPlan Charitable Trust and sponsored by
Dechra Veterinary Products.
To 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. 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. Our
Modern Slavery Statement can be found at www.dechra.com.
Anti-Bribery and Anti-Corruption
It is our policy to conduct all business in an honest and ethical manner.
We take a zero tolerance approach to bribery and corruption and
are committed to acting professionally, fairly and with integrity in all
our business dealings and relationships wherever we operate, and
to implement and enforce effective systems to counter bribery and
corruption.
During the year, we have successfully rolled out an ABC training course
for Dechra’s third party network, updated and published internal ABC
policies and procedure, and have developed a new internal ABC training
programme which will be rolled out during the forthcoming year across
the business as compulsory training.
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; and
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.
All employees, except manufacturing shop floor workers, receive
pharmacovigilance training within one month of joining Dechra. This
is then verified by the pharmacovigilance e-learning module on Delta.
These employees undertake an annual pharmacovigilance refresher
training. The pharmacovigilance training outlines the procedure that
should be followed by all Dechra personnel if they are informed of a
product complaint.
Any time that Dechra receives a report of an adverse event occurring
after the administration of one of its products, the Company treats the
report seriously and believes that it is Dechra’s obligation to review the
case to determine whether its product may have caused or contributed
to the adverse event. All suspect adverse reactions are reported to the
appropriate regional regulatory authority.
Stock Code: DPH
61
Strategic Report
How the Business Manages Risk
Effective risk management and control is key to the delivery of our business
strategy and objectives.
Our risk management and control processes are designed to identify, assess, mitigate and monitor significant risks, and 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. The SET
is responsible for conducting self-assessments of their risks and the
effectiveness of their control processes. Where control weaknesses are
identified, remedial action plans are developed, and these are included
in the risk reports presented to the Board.
Internal Audit co-ordinates the risk reporting process and provides
independent assurance on the internal control framework.
62
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Dechra Culture
The Dechra Values are the foundation of our entire business culture
including our approach to risk management and control. The Board
expects that these Values should drive the behaviours and actions of
all employees. We encourage an open communication style where it is
normal practice to escalate issues promptly so that appropriate action
can be taken quickly to minimise any impact on the business.
Internal Control Framework
Our internal control framework is designed to ensure:
• proper financial records are maintained;
•
the Group’s assets are safeguarded;
• compliance with laws and regulations; and
• effective and efficient operation of business processes.
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, review
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: Each of 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.
The key controls in place to manage our principal risks are described in
further detail on pages 65 to 67.
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 2019
We have continued to strengthen and improve our governance and
control processes and the following changes have been implemented:
• a Strategic Portfolio Prioritisation Committee has been established
to prioritise better our product development projects and new
project management tools have been implemented to improve the
planning and delivery of our product pipeline;
•
•
a Treasury management system and Zero Balancing processes have
been implemented to enable more effective cash pooling;
our Third Party Code of Conduct and online training have been
communicated to our higher risk third parties as part of our ongoing
Anti-Bribery and Anti-Corruption (ABC) compliance programme;
• changes to the leadership team in our Manufacturing and Supply
organisation and additional investments to strengthen our
manufacturing and supply capabilities; and
• we are in the process of embedding our financial control framework
and have implemented our ABC compliance programme in Venco,
our recent acquisition in Brazil.
Plans for 2020
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. Our Manufacturing and Supply processes
are the primary focus area for 2020.
Our business growth and the continued expansion of our product
portfolio through acquisition, has contributed to increased complexity
in our Manufacturing and Supply network. We have experienced
challenges with the production and supply of some products from both
our internal and external network in 2019, but these have not had a
material impact on the Group’s performance. The majority of issues have
now been remedied with all but two products to be back in supply in the
first six months of the year.
We are committed to maintaining a robust network that complies with
rigorous product quality and regulatory standards, in order to provide a
reliable supply of high quality products to our worldwide customer base.
To continue to meet this commitment, we plan to make further investments
in our people, manufacturing, quality and supply processes, and production
facilities. We are also making improvements to the governance and
oversight processes and the performance measures to monitor our
internal and external network.
Stock Code: DPH
63
Strategic Report
Understanding Our Key Risks
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
opposite, 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.
The risk profile is shown post mitigation.
h
g
H
i
t
c
a
p
m
I
3
2
1
6
5
9
8
4
7
w
o
L
Low
Likelihood
High
Risk increasing
Risk stable
Risk decreasing
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 and
is expected to benefit from the reduction in the Netherlands corporate tax rate in 2020. We continue to monitor
developments in the tax reform globally which may cause future movements in the Group’s ETR.
• The EU is currently challenging the legality of the UK Controlled 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, and we have increased inventory accordingly.
• We have established a cross-functional team to assess and monitor the situation and have completed the
implementation of a hard Brexit mitigation plan as outlined below:
•
We have transferred our UK registered Marketing Authorisations for products that are sold in the EU to a
subsidiary in the Netherlands; and
• We have transferred the analytical testing methods for products manufactured at our Skipton facility to our
laboratories in Bladel and Zagreb.
• These changes will enable us to batch release UK manufactured products within the EU in the event that there
will be no mutual recognition of quality standards.
Iran
• We continue to monitor the potential impact of US sanctions on our existing business with Iran, the world’s fourth
largest poultry market, where we currently sell approximately £1.0 million per annum of products that are on the UN
exempt sanctions list.
64
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Link to
Strategic
Growth
Driver and
Enabler
a
b
c
Risk
Potential Impact
Control and Mitigating Actions
Trends
1 Market Risk:
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.
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 our EU
markets
2 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.
Our market position in key
therapeutic areas could be
affected, resulting in reduced
revenues and profits.
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.
Where we are unable to recoup
the costs incurred in developing
and launching a product this
would result in impairment of any
intangible assets recognised.
a
b
c
3 Supply Chain Risk:
Inability to maintain supply of key products
due to manufacturing, quality or product
supply problems in our own facilities or
from third party suppliers.
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.
Delay in
delivery
of some
projects
Growth in
our product
portfolio
and
increased
complexity
in our
supply
network
Potential new development opportunities 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.
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.
Contracts with suppliers are reviewed from both
a commercial and legal perspective to enable
reassignment of the contract should there be a
change of control of any of the contracting parties.
Processes are in place to monitor and improve
product robustness, including Quality and Technical
analyses of key products and engagement with
internal and external Regulatory stakeholders.
A business continuity plan is in place at Skipton and
similar plans are being developed for other sites.
A project is in progress to review and improve our
supply planning processes.
Stock Code: DPH
65
Strategic Report
Understanding Our Key Risks
continued
Link to
Strategic
Growth
Driver and
Enabler
a
b
c
a
b
c
4 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.
5 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.
Risk
Potential Impact
Control and Mitigating Actions
Trends
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 such that they can 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.
Impact of
competitor
launches
on our key
products
reduced
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 teams 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.
We have appointed a new Global Quality Director
with additional resources to improve oversight and
performance monitoring across our end-to-end
supply chain.
External consultants are used to audit our
manufacturing quality systems.
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.
6 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.
In the UK, the uncertainty created by Brexit
could impact the hiring and retention of staff
in some areas.
66
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Strategic Report
Link to
Strategic
Growth
Driver and
Enabler
a
b
c
Risk
Potential Impact
Control and Mitigating Actions
Trends
7 Antibiotic Regulatory Risk:
Continuing pressure on reducing antibiotic
use.
The issue of the potential transfer of
antibacterial resistance from food producing
animals to humans is subject to regulatory
discussions.
In some countries this has led to government
recommendations on reducing the use of
antibiotics in food producing animals.
8 Acquisition Risk:
Identification of acquisition opportunities
and their potential integration.
Identification of suitable opportunities 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.
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.
Antibiotic
sales are
stable or
growing in
most EU
markets
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.
Implementation
of standard
integration
planning,
resourcing
and execution
processes
a
b
c
9 Retention of People Risk:
Failure to retain high calibre, talented
senior managers and other key roles in the
business.
Loss of key skills and experience
could erode our competitive
advantage and could have an
adverse impact on results.
Our growth plans and future success are
dependent on retaining knowledgeable and
experienced senior managers and key staff.
Inability to attract and retain key
personnel may weaken succession
planning.
The Nomination Committee oversees succession
planning for the Board and the SET.
Succession plans are in place for the SET together
with development plans for key senior managers.
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.
Challenges
in attracting
talent for key
roles in some
geographies
and specialist
functions
Key to Strategic Growth Drivers:
Key to Strategic Enablers:
Key to Risk Trend:
Pipeline Delivery
a
b
c
Portfolio Focus
Technology
People
Increased risk
Decreased risk
No change
Geographical Expansion
Manufacturing and Supply Chain
Acquisition
Stock Code: DPH
67
GOVERNANCE
Contents
Letter from Chairman on Governance
Corporate Governance
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors’ Report – Other Disclosures
Statement of Directors’ Responsibilities
70
71
83
90
93
111
113
A STRONG,
BALANCED AND
ACCOUNTABLE
BOARD
68
69
Governance
Letter from the Chairman on Governance
recruitment process can be found in the Nomination Committee report
on page 91; however, in the meantime the Dechra Veterinary Products
EU Finance Director, Paul Sandland, has stepped in as the Acting
Chief Financial Officer in accordance with our emergency succession
planning.
The Senior Executive Team (SET) has the responsibility for the overall
leadership of the Group, driving the successful implementation and
execution of the strategy.
Learn more about the Directors’ skills and experience on
pages 72, 75 and 91
Board Effectiveness
As Chairman, I am responsible for the leadership of the Board and
driving its effectiveness in all aspects of its role. During the 2019
financial year we undertook an internal evaluation of the Board, its
Committees and individual Directors. I am delighted to report that the
overall outcome from the evaluation was that the Board and its individual
Directors are performing effectively, and that the Board is dynamic and
consistent with the organisational culture of openness.
Read more about the Board’s Effectiveness on pages 79 and 80
During the year the Board undertook the annual review of the Diversity
Policy. I am pleased to report that the female representation of our Board
has increased from 14.3% to 28.6%. The Board is proud of the diversity
within the Group and monitors and reviews our position in this area.
Read more about the Board Diversity on pages 90 and 91
Accountability
We are required by the Code to include an assessment of the viability of
the Group. This is covered on pages 81 and 82. The Audit Committee
Report contains further details on how it has assisted the Board in
reviewing the financial reporting and internal financial control effectiveness,
and managing the relationship with the external auditor.
Read more about our approach to Risk Management on
page 87
Remuneration
Our Remuneration Policy is designed to promote the long term success of
the Group and to reward the creation of long term value for shareholders.
During the year, work has commenced on our Global SAYE Plan and
preparations are in place for the initial launch to our USA employees.
Read more on our Remuneration Policy on pages 106 to 110
Relations with Shareholders
The Annual General Meeting will be held in Northwich on 18 October
2019 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 this report, please
feel free to contact me or the Company Secretary.
Tony Rice
Non-Executive Chairman
2 September 2019
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 2019.
Our Values
Dechra has a Code of Conduct which sets out the standards of conduct
to be adopted by all employees. The Board is committed to the highest
possible standards of openness, integrity and accountability and
encourages any individual who has genuine concerns about any form
of malpractice, including any breaches of the Dechra Values, to raise
those concerns.
For further details on our Values please refer to page 47
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 2016 (the Code). During the
year, we have reviewed the UK Corporate Governance Code 2018 (the
New Code) and assessed its impact on our Governance structure.
We have put in place an action plan in readiness to enable us to
comply with the New Code, which will apply from 1 July 2019.
Leadership
We have a strong and balanced Board with a range of complementary
skills to support the strategic and operational direction of the Group.
During the year there were two membership changes to the Board.
We welcomed Lisa Bright as Non-Executive Director in February 2019.
Lisa’s biographical details can be found on page 75. She will act as the
Employee Engagement Designated Non-Executive Director, working
closely with the Group HR Director. Lisa has been appointed as a
member of the Audit, Nomination and Remuneration Committees.
Richard Cotton stood down in April 2019 as the Chief Financial
Officer. We are currently looking for his successor (further details of the
70
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Corporate Governance
Governance
Compliance with the Code
The UK Corporate Governance Code 2016 (the Code) establishes the principles of good governance for companies; the following report describes
how the Company has applied these principles to its activities and where it has applied the principles of the UK Corporate Governance Code 2018
(the New Code). 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 Board oversees the effective delivery of our strategy which is developed and implemented by the Senior Executive Team (SET). Further details of the
Board and SET can be found on pages 72 to 75.
Non-Executive Chairman
Senior Independent Non-Executive Director
Chief Executive Officer
• Leads the Board in the determination
of Group strategy and achievement
of its objectives.
• Drives the effectiveness of the Board
in all aspects of its role.
• Facilitates the effective contribution
of the Non-Executive Directors,
ensuring that all decisions are subject
to constructive debate and supported
by sound decision making processes.
• Arranges for shareholder views to be
brought to the attention of the Board.
• Provides a sounding board for
• Manages day-to-day operations of the
the Chairman and is available to
shareholders if they have concerns
that have failed to be resolved through
the normal channels.
• 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.
Group and leads the SET.
• Drives performance and results of the
Group.
• Proposes strategy.
• Executes strategy agreed by the
Board.
Non-Executive Director
Role of the Board
Chief Financial Officer
All of the Non-Executive Directors:
•
are considered independent;
• are free of any business or other
relationship which could materially
interfere with, or compromise, their ability
to exercise independent judgement;
• are considered to have 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;
• provide independent and constructive
challenge;
•
evaluate strategy and risks.
• 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:
a
b c
• KPIs have been designed to measure
progress and delivery of the strategic
plan and our four growth drivers.
Further details are provided on
pages 32 and 33.
Company Secretary
Senior Executive Team
• Advises the Board on matters of
procedure and governance.
• Provides all required information to the
Board on a timely basis.
• Leads the development and
implementation of the business
strategy.
• Responsible for financial planning and
reporting for the Group.
• Manages financial risk.
• Develops and executes the strategic
plan in conjunction with the Chief
Executive Officer.
• Secures funding as required.
Managing Director Dechra Veterinary
Products (DVP) EU
• Management of the segment which
contributes the majority of Group
revenue.
• Nominated Director for health, safety
and environmental matters.
• Development and execution of
strategy in the EU.
Stock Code: DPH
71
Governance
Board
Executive Directors
Ian 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:
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:
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 and Chair at Ultra Electronics Holdings plc.
Pets: None
Non-Executive
Chairman
Non-Executive Director
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 Non-Executive
Director at Workspace Group PLC (appointed
January 2019) and Lloyd’s Registrar Group Limited
(appointed August 2018).
Pets:
72
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Senior Executive Team
The Senior Executive Team comprises the Executive Directors, the Acting Chief Financial Officer and the following:
Governance
Dr Susan Longhofer: Business Development and Regulatory Affairs Group Director
Background: Susan joined the Group in June
2005. A veterinarian with 30 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 assumed the Business
Development role in 2015, 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 has 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 around 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 USA, he has built
the USA and Canadian team to 181 people and
has grown sales revenue to £177.8 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
and Venco in 2019.
In his role of Dechra Veterinary Products International
Group Director, his responsibilities are extremely
varied and involve managing and growing our
existing business through ANZ and Latin American
business 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
73
Governance
Katy Clough: Group HR Director
Background: Katy joined Dechra 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.
Pets: None
Allen Mellor: Group IT Director
Background: Allen joined Dechra in
April 2012 and has developed and
implemented the Group IT strategy during
this time. During the last 25 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. He has 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:
Simon Francis: Group Manufacturing and Supply Director
Background: Simon joined Dechra in 2019.
He has over 20 years’ experience in various
senior roles within the Pharmaceutical
industry. After completing a chemistry
degree, Simon started his career with
Bayer in Quality Control. He had a variety
of UK pharmaceutical roles within quality,
supply chain, production and operations,
before moving to China as the site head for
Boehringer Ingelheim. He then moved to
their German headquarters, subsequently
joining Sandoz (Novartis) as a Managing
Director covering three German generic
manufacturing sites. Latterly, Simon was
the Head of Strategy Global Solids and a
Novartis Senior Executive Team member
based in Switzerland, responsible for
product strategy, supply chain and product
lifecycle across 35 manufacturing sites.
Simon is responsible for our manufacturing
sites in Europe and the USA.
He is located at Head Office, Northwich,
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 Head Office, Northwich, UK.
Pets:
Stock Code: DPH
74
Governance
Non-Executive Directors
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 (GSK)
between 2005 and 2011, having previously
been appointed its Senior Vice President,
Operations Controller between 2001 and
2005 and as Financial Controller of Glaxo
Wellcome PLC between 1998 and 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: None.
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. Lawson was with
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 Committees. He is also a strategic adviser
to several investment and private equity groups in
both Europe and USA.
Pets:
Lisa Bright: Non-Executive Director
Committee Membership: Audit,
Nomination and Remuneration.
Skills and Experience: Lisa has strategic
and operational leadership experience in
global market leading pharmaceutical and
emerging biotech companies gained over
her 30 year career in the industry.
Background: Lisa joined the Board in
February 2019. She is currently President
International, and previously Chief
Commercial and Corporate Affairs Officer
of Intercept Pharmaceuticals, Inc, a global
biopharmaceutical company focused on
the development and commercialisation
of novel therapeutics. Prior to this, Lisa
held various Vice President roles at
Gilead Sciences, Inc and GlaxoSmithKline
plc, in Regional General Management,
Government Affairs, and sales and
marketing.
External Appointments: Lisa is also a
Non-Executive Director at Ascendis
Pharma A/S.
Pets:
Board Attendee
Paul Sandland: Acting Chief Financial Officer
Committee Membership: Not applicable.
Skills and Experience: Paul qualified as
a Chartered Certified Accountant in 2005.
He spent five years post qualification at
KPMG, during which time he was part of
the team which advised the Group on its
acquisition of VetXX in 2008.
Background: Paul was appointed as
Acting Chief Financial Officer on 3 April
2019. Prior to this he was the Dechra
Veterinary Products EU Finance Director.
He was the Group Financial Controller of
Dechra and Finance Director of Dechra
Laboratory Services and Dechra Specialist
Laboratories between January 2010 and
April 2015.
External Appointments: None.
Pets:
75
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Corporate Governance
continued
Main Responsibilities
The Board is responsible, under section 172 of the Companies Act 2006, for the long term success of the Company for the benefit of its
shareholders, having regard for its stakeholders. Further details on how the Board considers key stakeholders can be found on pages 15 and 78.
Shareholders
The Dechra Board
Key Responsibilities
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 the 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 Group and 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. Approval of Annual and Half-Year
Reports
Audit Committee
Disclosure Committee
Remuneration Committee
Nomination Committee
• 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 that all significant
regulatory announcements,
the Annual Report and
other documents issued by
the Company comply with
applicable requirements.
• To determine the
remuneration, bonuses,
long term incentive
arrangements, contract
terms and other benefits
in respect of the Executive
Directors and the
Chairman.
• To oversee any major
changes in employee
benefit structures.
• To approve the design
of any employee share
scheme.
• To oversee the plans for
management succession.
• To recommend
appointments to the
Board.
• To evaluate the
effectiveness of the
Non-Executive Directors.
• To review and oversee
the Group’s financial
and narrative reporting
processes and to monitor
the integrity of the financial
statements, and advises
the Board on whether 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
87 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.
See pages 83 to 89
See page 77
See pages 93 to 110
See pages 90 to 92
76
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Board Membership
Details of the Directors together with details of their respective Committee membership, skills and experience, backgrounds and external
appointments can be found on pages 72 to 75. In line with the Code, at least half the Board, excluding the Chairman, is determined by the
Company to be independent.
The Board has determined that the Non-Executive Directors have sufficient time to meet their Board responsibilities and any proposed new
appointments are disclosed to enable the Board to assess whether there are any conflicts of interest or time.
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. The
Board has formally delegated specific responsibilities to Committees, namely the Audit, Remuneration, Nomination and Disclosures Committees.
The Disclosure Committee members are the Chief Executive Officer, the Chief Financial Officer, the Corporate Development Director 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. Other matters have been delegated to the SET and other committees such as the Data Protection Committee
and Treasury Committee.
The schedule of matters are reviewed periodically and were last reviewed in November 2018 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 seven times per year. Attendance at the Board meetings during the year to 30 June 2019 is set out in the table
below:
Tony
Rice
5 May
2016
Ian
Page
13 June
1997
Tony
Griffin
1 November
2012
Richard
Cotton†
3 January
2017
Lisa
Bright‡
1 February
2019
Julian
Heslop
1 January
2013
Lawson
Macartney
1 December
2016
Ishbel
Macpherson
1 February
2013
7
7
7
4
4
7
7
7
Appointment
Date
Board
Met 7 times
Meetings attended
† Richard Cotton resigned as a Director of Dechra Pharmaceuticals PLC on 3 April 2019, he attended all meetings prior to his resignation.
‡
Lisa Bright has attended all meetings since her appointment.
The Non-Executive Directors met informally before every meeting, and they also met twice with the SET on an informal basis during the year.
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 have their
view recorded in the minutes.
In the months where there is no Board meeting scheduled, an update is provided on the business. In addition, arrangements are in place should
Board approval be required outside of the scheduled meeting dates.
Director Insurance and Indemnities
The Company maintains an appropriate level of Directors’ and Officers’ insurance in respect of legal action against Directors as permitted under
the Company’s Articles of Association and the Companies Act 2006. The Company also indemnifies the Directors under an indemnity deed with
each Director in respect of legal action to the extent allowed under the Company’s Articles of Association and the Companies Act 2006. As at the
date of this report, qualifying third party indemnity provisions are in force. A copy of the indemnity provisions will be available for inspection at the
forthcoming Annual General Meeting.
Stock Code: DPH
77
Governance
Corporate Governance
continued
Board Activities
At each meeting the Board receives trading, financial and strategic updates from the Chief Executive Officer and Chief Financial Officer. During the
year each SET member will present to the Board, providing the Board the opportunity to take a deep dive into the operations and strategic plans
of the respective businesses as well as reviewing their specific risks. In addition to its routine business, the table below details the other matters
discussed during the year and the respective key stakeholders affected.
Topic
Key activities and discussions in 2018/2019
Stakeholder
Strategy and
performance
•
•
•
•
Interim and full Strategy Review
Approval of five year plan
Bi-annual update on product pipeline and product development
Various acquisition and licensing agreements approvals, including the acquisition of Venco
Risk management
and internal controls
• Approval of Half Year and Full Year principal risks and emerging risks
•
•
•
Presentations from the SET on their respective risks
Risk Assessment Review and Viability Statement review
Review of Schedule of Matters and Delegation of Authority
Governance
• Review of Disclosure Terms of Reference
• Review of 2019 Internal Board Evaluation
•
•
•
•
Approval of 2019 Half-Yearly Results and interim dividend
Approval of 2019 Full Year Results and final dividend recommendation
Approval of Non-Executive Director appointment and Committee membership
Review of the bi-annual Health and Safety Report
• Review of Diversity Policy and Modern Slavery Statement
•
Review of How To Raise Concern Policy and Reports
Oversight of the
Group’s operations
•
•
•
•
•
Functional presentations from the SET and Head of Legal
Report from Quality Director
Approval of the 2019/2020 budget and capital expenditure projects
Site visits to Sansaw, Skipton and Uldum
Review of people strategy and employee engagement
Key:
Customers
People
Shareholders
Suppliers
Case Study
Board Site Visits:
Skipton Facility/Denmark Facility
Following the recent investment at the Skipton Manufacturing site,
the May Board meeting was held in Skipton. This gave the Board the
opportunity to have a tour of the manufacturing facility, in particular the
recently refurbished tablets suite. At this meeting the Group Manufacturing
Director and Quality Director gave presentations to the Board.
The June Board meeting was held in Uldum, Denmark, which was the
Board’s first visit to the main EU distribution centre of the Group. Anders
Rasmussen, the Logistics Manager, conducted a tour of the facility which
enabled the Board to gain a better understanding of the EU distribution
of Dechra products. They also had the opportunity to have their lunch in
the staff canteen facility which gave the Danish employees the chance to
interact directly with the Board members in a relaxed setting.
Both Board visits were scheduled over two days which enabled the
Board to meet and interact with senior managers during the evening
before the meetings, on a more informal basis.
Skipton site visit
Uldum site visit
78
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Effectiveness
Board Structure, Size and Composition
The Board seeks to ensure that the Board and the Committees have
an appropriate composition to manage their duties effectively and to
manage succession issues. 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. The
Nomination Committee Report on pages 90 to 92 provides further
information on the diversity of the Board in terms of gender and skills.
Board Composition as at 30 June 2019
Non-Executive Chairman
Executive Directors
Non-Executive Directors
14%
29%
57%
Board Balance and Independence
The Board understands the importance of balance and refreshment in
terms of its composition and keeps these matters under review. There
have been the following changes at Board level over the past 12 months:
• Lisa Bright (Non-Executive Director) joined the Board on 1 February
2019; and
• Richard Cotton (Executive Director) resigned on 3 April 2019. Until
a successor is appointed, Paul Sandland is Acting Chief Financial
Officer during this interim period.
As disclosed in the 2018 Annual Report, the Nomination Committee
retained an independent recruitment consultancy, Dzaleta Consulting,
to assist in the appointment of Lisa Bright. Further details relating to the
recruitment process and appointment can be found in the Nomination
Committee Report on page 91.
The Nomination Committee Report on page 92 provides further
information on succession planning measures taken by the Company,
together with how we are developing the talent pool internally.
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
appointment of new Directors. During the financial year under review
no actual conflicts have arisen.
None of the Executive Directors have external Board appointments.
Induction and Training
In order to assist the Board to maintain its knowledge and familiarity with
the Group’s operations, at least one Board meeting per year is held at
one of the Group’s operational sites. This year, Board meetings were
held at Sansaw and Skipton, UK and Uldum, Denmark (see case study
on page 78 for further details).
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. An introduction to Remuneration Committee responsibilities
was provided to Lisa Bright by our remuneration advisers, Deloitte LLP.
Lisa Bright has visited Uldum, and plans have been made for her to
attend a field visit and one manufacturing site, as well as meet key Head
Office employees during the forthcoming year.
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, and all Directors are encouraged to raise any training needs
with the Company Secretary.
Each Director is entitled, upon 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.
Induction Process
Understanding the Business
Key documentation is provided such as a schedule
of Board and Committee dates, Schedule of Matters
and Delegation of Authority, Programmes of Business,
Articles of Association, and Group Policies and
Procedures
One to one with the CEO
Meeting the Management Team
Meet the SET informally and formally
Meet key management at Head Office and leadership
teams at the main sites
Director and Committee Responsibilities
Receive induction/training on Director and Committee
responsibilities (if applicable)
Market Abuse Regulations online training course
Visit the Business
Visit a key site for each function (PDRA,
Manufacturing, Sales and Marketing, and Head Office)
Stock Code: DPH
79
Governance
Corporate Governance
continued
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 2018 External Board Evaluation
An external evaluation of the Board and its Committees was completed during 2018 by Independent Audit Limited. The findings of the external
evaluation were discussed at the June 2018 Board meeting. Overall, the review indicated that the Board operates effectively and is robust and
challenging, but noted some areas for improvement. The actions which were taken are shown in the table below:
Action
Increase the diversity of the Board
Continue to develop the organisational design to meet future
growth requirements
Concise Operational and Functional Board reports
Bi-annual update on product pipeline and product development
Progress
Female representation at Board level increased to 25% following the
appointment of Lisa Bright on 1 February 2019
Ongoing
A standard operational and functional Board paper format has been
adopted
An update on the product pipeline and product development was presented
to the meetings in November 2018 and May 2019
The 2019 Internal Board Evaluation
Following the external evaluation last year, it was agreed to undertake an internal evaluation for the 2019 financial year, focusing on the following areas:
(i) Board composition; (ii) strategy review and delivery process; (iii) the format of Board meetings and the decision process; (iv) training and development;
(v) the performance of the Board and the individual Directors; (vi) Corporate Governance; (vii) leadership and culture; and (viii) risk assessment.
The internal evaluation process is detailed below and took the format of a questionnaire which was distributed to all of the Board, with the survey results
presented on an anonymous basis. The responses were received in April, and were discussed with the individual directors. In addition, the Senior
Independent Director discussed the performance of the Chairman with the Directors in April and the Chairman in May.
Internal Board Evaluation Process
The process of the Internal Evaluation of the Board and its Committees were as follows:
The survey results were presented on an anonymous
basis to the Chairman and the Senior Independent
Director for discussion with the individual directors.
The Senior Independent Director discussed the
performance of the Chairman with the Directors in April
and the Chairman in May
Please see below
1
Preparation
2
Questionnaire
3
Interviews
4
Review
5
Outcomes
Two questionnaires were made available electronically
for online completion and submission. One was
in relation to the effectiveness of the Committees,
and was forwarded to both the members of the
Committees and the regular attendees which included
Group HR Director, Head of Risk and Assurance and
the Company Secretary. The other related to the Board
and was sent to the Board members only.
A presentation was provided to:
• each of the Committees, to allow them
to discuss their effectiveness; and
•
the Board in relation to the various
findings and suggested actions.
Outcomes of the 2019 Internal Board Evaluation
Following an initial review of the responses, the Chairman discussed with the Executive and Non-Executive Directors at the June 2019 Board
meeting the general themes raised by the survey, and any other survey-related points they wished to discuss.
Overall, the review once again indicated that the Board operates effectively but noted the following focus areas:
• Succession Planning; and
•
Employee Engagement.
The Board will perform a further external evaluation in two years’ time. Internal evaluations will be completed during the intervening period.
80
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
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 113 and
116 to 122 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
can 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:
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 16 to 19 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
the Group’s business activities together with factors likely to impact
the future growth and operating performance;
• a sound track record of successful acquisitions to expand our
product portfolio and geographic reach.
•
•
•
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 2019 the Group had cash balances of £80.3 million and
net borrowings of £227.8 million (2018: cash balances of £79.7 million
and net borrowings of £211.4 million). Further information on available
resources and committed bank facilities is provided in notes 18 and 21
to the financial statements.
As reported in preceding Annual Reports, 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
RCF is committed for five years until July 2022 with two optional one year
extensions, both of which were exercised. The RCF is now committed
until July 2024.
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 2019.
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, both of 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 confirm that adequate
financing facilities are in place. This review is based on the reasonable
assumption that the Group will be able to refinance its revolving credit
facility and its term loan facility which are currently committed to 25 July
2024 and 31 December 2020 respectively.
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
2019 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 2022
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.
Stock Code: DPH
81
Governance
Corporate Governance
continued
The Board’s assessment has considered the Group’s current position, its
future prospects, adequacy of financing facilities, 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.
These 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 64 to 67 of the Strategic Report.
A number of severe but plausible stress tests have been conducted
on these areas including a significant pipeline delay; significant profit
reduction on top ten products, and loss of key high margin 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.
Relations with Shareholders
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 is shown below).
Investor Presentations
Full Year: London and Edinburgh
Half Year: London and Edinburgh
September 2018
February/March 2019
Investor Roadshows
USA: New York
Investor Conferences
UK
USA
UK
October 2018
November 2018
December 2018
March 2019
December 2018 and
March 2019
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.
Site Visits
UK
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 2019.
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 62 and 63.
How to Raise a Concern
The Board is committed to the highest possible standards of openness,
integrity and accountability and encourages any individual who has
genuine concerns about any form of malpractice, including any breaches
of the Values, within Dechra (or in relation to its business) to raise those
concerns at an early stage via its How to Raise a Concern procedure.
A summary of any reported concerns is provided to the Board.
These meetings are in addition to the Annual General Meeting and
seek to foster a mutual understanding of both 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.
Tony Rice
Non-Executive Chairman
2 September 2019
82
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Letter from the Audit Committee Chairman
Governance
Anti-Bribery and Anti-Corruption Policy
The Committee approved an amendment to the policy to give further
information and guidance to the policy audience on the relevance of this
area of law to them, and reviewed the third party e-learning course.
Committee Membership
We have welcomed Lisa Bright to the Committee and look forward
to the additional perspective she will bring given her international
pharmaceutical background.
Annual Report 2019
The judgements and factors that the Committee considered in reviewing
the Annual Report and Accounts for 2019 (2019 Annual Report) are set
out in its report on page 86.
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 viability statement, which 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 2019 Annual Report was fair, balanced and understandable and
concluded that it was. The basis supporting our conclusion is set out
on page 87.
I will be available at the Annual General Meeting to answer any questions
about our work.
Julian Heslop
Audit Committee Chairman
4
Audit Committee
Meetings Held
Areas of Focus this Year
•
Impact of New Accounting Standards
• Venco Compliance and Controls Implementation
• Anti-Bribery and Anti-Corruption Policy
Committee membership and attendance
Julian Heslop
Date Joined:1 January 2013
Ishbel Macpherson
Date Joined: 1 February 2013
4/4
4/4
Lawson Macartney
Date Joined: 1 December 2016
4/4
Lisa Bright
Date Joined: 1 February 2019
2/2
Julian Heslop
Audit Committee Chairman
2 September 2019
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 the impact of a number of new
accounting standards, compliance and control implementation in our
newly acquired business in Brazil and Anti-Bribery and Anti-Corruption
compliance.
Impact of New Accounting Standards
The Committee endorsed the amendments to the Group accounting
policies following the adoption of IFRS 9 and IFRS 15 from 1 July 2018
and reviewed the impact assessment and adoption approach for IFRS
16 from 1 July 2019.
Venco Compliance and Controls Implementation
The acquisition of Laboratorios Vencofarma do Brasil Ltda (Venco) in
December 2018 has been a key focus area for this year given the higher
risk inherent in doing business in Brazil. Internal Audit has designed
a compliance and financial controls improvement plan to implement
Dechra’s global standards in the Brazilian business, and are providing
updates to the Committee on its implementation.
Stock Code: DPH
83
Governance
Audit 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 and internal financial control effectiveness, and to oversee the
relationship with the external auditor. The main responsibilities are summarised on page 76 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 83. Lisa Bright joined the
Committee on her appointment to the Board in February 2019. All Committee members are Non-Executive Directors.
The Board considers that all members of the Committee are independent and have competences relevant to the sector in which the Company operates.
Julian Heslop has recent and relevant financial experience as a result of his financial background and qualification. Ishbel Macpherson, Lawson Macartney
and Lisa Bright provide different but relevant skills and experience which support the Committee in meeting its objectives. The biographies of all Committee
members are detailed on pages 72 and 75.
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. In
addition, the Committee Chairman meets with the Chief Financial Officer, the Head of Internal Audit and Risk Assurance and the Lead Audit Partner outside
of the Committee meetings in order to understand fully the key topics to enable these subjects to be discussed meaningfully at the meetings.
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.
Effectiveness of the Committee
The Committee’s performance was evaluated as part of the 2019 Board and Committee Internal Evaluation (further details of which can be found on
page 80 of the Corporate Governance Report). The Committee considered the results of the evaluation and it was agreed that the Committee remained
effective. The structure and content of the papers and quality of discussions held gave the Committee further assurance of its effectiveness.
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’s website at
www.dechra.com. The Board reviewed the Committee’s terms of reference at the November 2018 meeting and amended them to reflect the 2018
UK Corporate Governance Code requirements.
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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Major Activities of the Committee during the Year
The Committee met four times since the last Annual Report was issued. These meetings were scheduled meetings, and are generally timed
to coincide with the financial reporting timetable of the Company. The Committee Chairman and the Company Secretary have developed an annual
programme of business. This allows the Committee to consider standing items of business 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 shows the other key areas of the Committee activities:
Purpose and
Function
(see page 84)
Financial and
Narrative
Reporting
(see pages 86
and 87)
Internal Controls
and Risk
Management
(see page 87)
External Audit
(see pages 88
and 89)
• Review of the Committee’s terms of reference
• Review of the effectiveness of the Committee
• Review of the implication of the 2018 Corporate
Governance Code on the Committee’s activities
• Review and approval of Accounting Policy amendments
due to the adoption of IFRS 9 and IFRS 15 from 1 July
2018
• Review of impact assessment and proposed adoption
• Review of the Group’s preliminary statement, draft Annual
Report (including the Audit Committee Report) for the year
ended 30 June 2019 and management presentation to
investors
approach for IFRS 16 from 1 July 2019
• Consideration of the Audit Memorandum prepared by the
• Review of year end accounting treatment for acquisitions,
non-underlying items and new accounting standards
external auditor, including:
•
review of accounting treatment of non-underlying items
• Review and endorsement of key judgements made by
• assessment of acquired intangible assets and goodwill
management in determining half-year and full year results
including impairment assessments undertaken
• Review of the Group’s Half-Yearly Report and supporting
• commentary on the general control environment across
papers
the Group
• Consideration of the Half-Year Review Memorandum
• Review of viability statement process
prepared by the external auditor
• Review and commend the going concern and viability
• Review of the dividend policy and interim and final dividend
statements
proposals
• Review of Anti-Bribery and Anti-Corruption and How to
Raise a Concern Policies
• Fair, balanced and understandable recommendation
of the Annual Report
• GDPR compliance update
• Review and approval of the internal control and risk
• Anti-Bribery and Anti-Corruption and Sanction progress
management statements
update
• Review of Internal Audit Plan and effectiveness of
• Half-year and full year review of internal financial controls
Internal Audit
• Review of tax strategy and policy framework
• Review of Internal Audit Charter
• Review of treasury policy and practice
• Review and approval of PwC Half-Yearly review plan
• Review and approval of PwC full year external audit
• Review of the external audit effectiveness, external auditor’s
independence and level of non-audit fees
strategy (including timetable, scope and fees)
• Review of the non-audit fee policy
• Discussion in relation to the Company’s expectations
• Review of findings from the external audit
of the external auditor and audit process
Stock Code: DPH
85
Governance
Audit Committee Report
continued
Financial and Narrative Reporting
All significant matters under consideration by the Committee during the year were supported by relevant justification papers and were fully discussed
so 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
£687.0 million, which represents 65.5% of total Group assets.
The Committee reviewed management’s process for reviewing and
testing goodwill and other intangible assets for potential impairment.
In respect of assets not subject to amortisation, it reviewed the papers
provided by management and noted the headroom between the value
in use and the carrying value of goodwill. In addition, it considered the
ongoing viability of capitalised R&D projects compared to their carrying
value. Finally it reviewed the process adopted by management to review
amortised assets for impairment. It endorsed management’s conclusion
that no impairment of these assets had taken place. The Committee
considered PwC’s report on these matters.
Review of the remeasurement of the intangibles and associated
contingent consideration for the 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 £37.5 million.
Valuation and accounting for the acquired commercial licensing
agreement intangibles of £7.9 million together with the related
deferred consideration.
Review of the corporate tax rate for the year being a credit of 11.2%
(21.2% 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 costs,
manufacturing rationalisation restructuring costs, and the fair value uplift
on inventory acquired through business combinations.
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.
The Committee discussed the key risks in respect of corporate tax
and reviewed that appropriate controls were in place to confirm 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 any material one-off income and costs
within the underlying results, and ensured these were clearly disclosed
within the financial statements and notes.
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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Going Concern and Viability Statements
The Committee reviewed the Group’s going concern and viability statements set out on pages 81 and 82 of the Corporate Governance Report. In
considering the viability statement the Committee paid particular attention to the robustness of the stress testing scenarios, the cash flows forecast
by the business and the committed bank facilities available to the Group. The external auditor reviewed management’s assessment and discussed
this review with the Committee.
Fair, Balanced and Understandable Assessment of the Annual Report
At the request of the Board, the Committee considered whether the 2019 Annual Report was fair, balanced and understandable and whether it
provided the necessary information for shareholders to assess the Group’s performance (pages 25 to 31), business model (pages 12 to 14) and
strategy (pages 16 to 19).
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; and
the Executive Directors and Company Secretary providing confirmation that each section of the report has been subject to a rigorous review
process built around four tiers:
•
•
•
•
ongoing internal review by members of the Annual Report project team;
Board review of a full printed draft copy of the Annual Report with all comments received being considered by the owners of the
respective reports;
external review by advisers including the external auditor; and
a final review by all members of the Senior Executive Team (SET).
The above is an integral part of the process and each tier is invited to comment so that issues could be debated and a final assessment made.
The Annual Report project team concluded that the Annual Report 2019 met the fair, balanced and understandable test. In addition, the final draft
document was reviewed by all members of the 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 2019 was fair, balanced and understandable, which can be found on pages
116 to 122.
This assessment was carried out by the Committee on 27 August 2019, following which the Committee reported to the Board that it was satisfied
that, taken as a whole, the Annual Report 2019 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 62 and 63 of the Strategic Report and
the Board’s statements on the effectiveness of these processes are provided on page 82 of the Corporate Governance Report.
Review of Policies and Procedures
During the year the Committee reviewed the following policies:
• Finance Policies
The Committee endorsed amendments to three Accounting Policies (Receivables, Intercompany and Revenue) which had been impacted by the
adoption of IFRS 9 and IFRS 15. In addition, the Committee undertook the annual review of the Group Tax Policy and Strategy and Treasury Policy.
• Anti-Bribery and Anti-Corruption Policy
This policy was amended to give further information and guidance to the policy audience on the relevance of this area of law to them, and
included the newly developed Third Party Risk Identification Questionnaire and guidance.
Stock Code: DPH
87
Governance
Audit Committee Report
continued
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 operates a resourcing arrangement with KPMG LLP (KPMG) with a mix of seconded and specialist resources 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. 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 2020 was approved by the Committee in May 2019.
The acquisition of Laboratorios Vencofarma do Brasil Ltda (Venco) in December 2018 has been a key focus area for this year given the higher risk inherent
in doing business in Brazil. A compliance and financial controls improvement plan to implement Dechra’s global standards in the Brazilian business has
been designed by Internal Audit, who are also monitoring its implementation by the Venco management team. This plan includes:
•
implementation of Dechra’s standard financial control framework;
• communication and training on the Group’s compliance policies with a significant focus on the Anti-Bribery and Anti-Corruption (ABC) Policy;
•
implementation of Dechra’s ABC third party compliance programme to complete a risk assessment of Venco’s customer and suppliers,
communicate Dechra’s Third Party Code of Conduct to higher risk parties and conduct due diligence on these higher risk relationships; and
• a review and assessment of the internal controls in the recently implemented ERP system.
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, based on an assessment of its work, concluded that Internal
Audit continued to be effective.
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 Markets 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 fees paid to the external auditor, which were 6.7% (2018: 70.0% 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 27 August 2019.
Based on the review set out above, the Committee is satisfied with the external auditor’s independence, effectiveness and objectivity.
88
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
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.
In recommending the re-appointment of the external auditor at the Annual General Meeting, the Committee also takes into account EU guidance and
the Competition and Markets Authority (CMA) Order on mandatory audit tendering. Dechra will be required to retender its audit no later than for 2026
financial year and we also note that the next regular PwC partner rotation will take place after the 2020 audit. The Committee has therefore started
to consider the factors that would be taken into account during the tender process to enable access to an appropriate pool of external auditors for
consideration.
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.
Non-Audit Assignments
With respect to non-audit services undertaken by the external auditor, the Company’s policy is that the provision of such services does not impair
their independence or objectivity.
The 2018 fee was higher than in previous years, and was due to the external auditor providing the services of reporting accountant with respect to
the acquisition of AST Farma B.V. and Le Vet Beheer B.V. in February 2018. The Committee fully considered this engagement and concluded that the
performance of this non-audit work did not affect or impair the external auditor’s integrity for the reasons outlined in the 2018 Audit Committee Report.
As previously disclosed, 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. This principle is stricter than the FRC guidance as it is expected that non-audit
work performed by the external auditor will be limited to the review of the half-year accounts and any other work required to be carried out by the
auditor in accordance with legislation. The annual review of the policy was undertaken in May 2019 with no major changes being made.
The approval of the Committee must be obtained before the external auditor is engaged to provide any permitted non-audit services. Should another
professional firm be unable to provide the same or similar service 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. Safeguards are in place to provide for continued external auditor independence, including the use of separate teams to
undertake the non-audit work and the audit work. As such, non-audit fee spend is a standing item on the agenda for every Committee meeting.
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 6.7% (2018: 70.0%) of the annual audit fee. The 2019 non-audit fees relate to the engagement
of PwC to provide an annual attestation to NOMA (the regulator in Norway), an attestation in respect of the Mexican Social Security Institute filings
and an expert’s opinion in relation to the capital reduction of the Group’s Irish subsidiary, as such the services were permitted under the non-audit
fee policy.
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 fees
* The 2018 Audit Committee Report sets out the reasons for the engagement of PwC.
Julian Heslop
Audit Committee Chairman
2 September 2019
2019
PwC
0.89
0.04
0.02
6.7%
2018
PwC
0.80
0.04
0.52*
70.0%
2017
PwC
0.57
0.04
0.05
15.8%
2016
PwC
0.50
0.04
0.02
12.0%
Stock Code: DPH
89
Governance
Nomination Committee Report
The following report provides an overview of the work carried out during
the year under review.
Should you have any questions in relation to this report or the
Committee, please contact me or the Company Secretary.
Tony Rice
Nomination Committee Chairman
2 September 2019
Committee Membership and Attendance
The membership of the Committee, together with appointment dates and
attendance at meetings during the year, is set out above. Other attendees
at the meetings include the Chief Executive Officer, the Group HR Director
and the Company Secretary (who acts as secretary to the Committee).
The Chairman does not chair the Committee meeting if it is dealing with
the appointment of his successor. The Senior Independent Director,
Ishbel Macpherson, takes the chair when required.
Role and Responsibilities
The role and responsibilities of the Committee are set out in the written
terms of reference, which are available on the Company’s website at
www.dechra.com. The Committee’s terms of reference are reviewed
on an annual basis. During the 2019 financial year this took place at
the February meeting and they were amended to reflect the 2018 UK
Corporate Governance Code requirements. An overview of the terms of
reference is detailed on page 76 of the Corporate Governance Report.
Principal activities of the Committee during the year included:
• Diversity
The Board reviews its policy on diversity and its implementation every
year and during 2019 this review took place in February. The Group
recognises that the diversity of teams and an inclusive culture is
beneficial for the Dechra business, its processes, and its performance.
Our objective is to continue to be a high performing business driven
by highly skilled and committed teams. In the context of the market
in which we compete, we believe that the diversity of our workforce
contributes significantly to developing strong relationships with
veterinarians, a significant and growing proportion of which are women,
in the many markets and cultures in which we trade.
The Board believes that everyone should be recruited and promoted
on the basis of their personal ability, contribution and potential. The
Board is committed to promoting and supporting a culture of fairness,
respect and equal opportunity across the Group.
The Board is generally opposed to the idea of stated gender quotas;
however, it acknowledged in the 2018 Annual Report that there was
a low representation of female Directors (14.3%) on the Board, and
it committed to restoring the balance. Following the appointment of
Lisa Bright in February 2019, the female representation at Board level
increased to 25%. Following Richard Cotton’s resignation this has
increased to 28.6%. Female representation below Board level is 27.3%
of the Senior Executive Team and 52% of the overall workforce.
Tony Rice
Nomination Committee
Chairman
4
Nomination Committee
Meetings Held
Areas of Focus this Year
• Diversity
• Board Appointments and Succession Planning
• SET Succession Planning and Leadership needs of the Group
• Board Evaluation and Committee Effectiveness
Committee membership and attendance
Tony Rice
Date Joined: 5 May 2016
Julian Heslop
Date Joined: 1 January 2013
Ishbel Macpherson
Date Joined: 1 February 2013
4/4
4/4
4/4
Lawson Macartney
Date Joined: 1 December 2016
4/4
Lisa Bright
Date Joined: 1 February 2019
1/1
Dear Shareholder
On behalf of the Board, I am pleased to present the Nomination
Committee (the Committee) report.
During the year there was one additional meeting which dealt with the
appointment of Lisa Bright as a Non-Executive Director and her role as
the designated director for employee engagement. In last year’s report
we made a commitment to improve our diversity balance on the Board
and I am pleased to report that with the appointment of Lisa this is now
at 28.6%.
The Committee regularly considers succession and emergency planning
both for the Executive Directors and the Senior Executive Team (SET).
Following the resignation of Richard Cotton, Executive Director and
Chief Financial Officer, Paul Sandland, our DVP EU Finance Director,
was appointed to the post of Acting Chief Financial Officer in line
with our emergency succession planning. 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 believes that the Group has an experienced SET
to lead the development and implementation of this strategy.
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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
The Board
as at 30 June 2019
Senior Executive Team
as at 30 June 2019
Female
Male
29%
71%
Female
Male
27%
73%
Overall Workforce
as at 30 June 2019
Management Team below
the Senior Executive Team
as at 30 June 2019
Female
Male
52%
48%
Female
Male
43%
57%
Board Skills, Knowledge and Experience
Industry knowledge/experience
Industry experience
Knowledge of sector
Understanding of regulatory process
Skills/experience of the Board
Strategic thinking
Governance
Risk management
Financial
5
6
5
7
7
7
6
• Board Appointments
During the 2018 financial year, the Committee commenced the
recruitment for an additional Non-Executive Director which resulted
in the appointment of Lisa Bright in February 2019.
Governance
Nomination
Committee
One of the criteria was that the candidates should
have 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
Engage
Dzaleta Consulting (Dzaleta) was appointed
Meet
To assist Dzaleta with the understanding of the
requirements of the role, they met with the Group
HR Director, Chief Executive Officer and the
Chairman
Consider
The long list of candidates was circulated to the
Committee for comments before a short list was
agreed
Select
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
Interview
The first interviews were with the Chief Executive
Officer and Group HR Director, the second interviews
were held with the Chairman, and successful
interviewees met with the remaining Non-Executive
Directors prior to appointment
Select
Following a rigorous recruitment process, Lisa
Bright was selected. Lisa’s other appointments were
considered to check there was no conflict of interest
or time. References were taken
Appoint
Lisa Bright was appointed to the Board on 1 February
2019. Further details relating to her background and
experience can be found on page 75
Induct
See page 79
We are currently assessing our options in relation to a replacement
for Richard Cotton, who resigned as Executive Director and
Chief Financial Officer on 3 April 2019, which may include the
appointment of an external recruitment consultant as well as the
consideration of internal candidates.
Stock Code: DPH
91
Governance
Nomination Committee Report
continued
• Board Succession Planning
The Committee has reviewed the Board succession plans during the
year, which have, in particular, taken into account the key dates of the
Non-Executive Directors’ terms of appointment. This has highlighted
that over the next two years at least one Non-Executive Director will
need to be recruited in order to have orderly succession.
Ian Page
Tony Griffin
Tony Rice
Lisa Bright
Julian Heslop
Lawson Macartney
Ishbel Macpherson
0
5
10
Number of years
15
20
25
• 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 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. The Committee
discusses the succession plan for the SET, which includes the
Executive Directors, at least annually. 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, secondment
of a key resource into a different role for a defined period or assume
a key role until a successor can be identified and appointed. 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. This planning has facilitated the DVP EU
Finance Director, Paul Sandland, being appointed as the Acting
Chief Financial Officer, with his post being backfilled by the DVP
International Finance Director.
In addition to this, a forward looking review of the future anticipated
shape of the organisation has been undertaken to identify any
potential gaps that may emerge and plans have been outlined to
enable the organisation’s structure to remain 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. In order to support this plan, it has been agreed that the SET
will undertake a development programme, which will focus on each
individual SET member, their behavioural traits and preferences,
leadership styles and contribution to the team.
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.
During the year Simon Francis was appointed as Group Manufacturing
and Supply Director to continue the evolution of the team.
• Effectiveness of Committee and Directors
The Committee’s performance was evaluated as part of the 2019
Board and Committee Internal Evaluation (further details of which
are provided on page 80 of the Corporate Governance Report). The
Committee considered the results of the evaluation and it was agreed
that the Committee remained effective and was covering all areas
within its remit. The findings of the internal evaluation were presented
to the Committee for its discussion at the June 2019 meeting and it
was agreed that more work on succession planning was required as
well as implementing employee engagement initiatives.
Following the internal evaluation, which concluded that the Board
is dynamic, robust and challenging (further details of which,
including the outcomes and actions, are provided on page 80 of
the Corporate Governance Report), the Committee has concluded
that each of the Directors continue 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, Lisa Bright, who was
appointed to the Board on 1 February 2019, will offer herself for
election, and all of the remaining Directors will retire and offer
themselves for re-election.
Tony Rice
Nomination Committee Chairman
2 September 2019
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Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Letter from the Remuneration Committee Chairman
Governance
No changes to the Policy are proposed for the forthcoming year. The
performance metrics for the bonus and LTIP awards for 2020 are set
out on page 104. 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.
Executive Director Remuneration Decisions in 2019
The table below summarises the implementation of the Policy for Executive
Directors in respect of the 2019 financial year.
Element
Implementation
Salary
Richard Cotton’s and Tony Griffin’s salaries were
increased by 3.0%, which was broadly in line with
the average range of increases awarded to
employees throughout the Group. Ian Page notified
the Committee that he did not wish to be considered
for a salary increase in 2019 and, accordingly, his
salary for 2019 was not increased
Ishbel Macpherson
Remuneration Committee Chairman
4
Remuneration Committee
Meetings Held
Retirement
Benefit
Pension contribution of 14%
Annual Bonus Maximum opportunity of 100% of base salary
Areas of Focus this Year
• 2019 Salary and Bonus review
• Review and approval of grant of share options/awards and vesting
of share awards
• Review of Employee Stock Purchase Plan
•
Implications of 2018 Corporate Governance Code
Committee membership and attendance
Ishbel Macpherson
Date Joined: 1 February 2013
Tony Rice
Date Joined: 5 May 2016
Julian Heslop
Date Joined: 1 January 2013
4/4
4/4
4/4
Lawson Macartney
Date Joined: 1 December 2016
4/4
Lisa Bright
Date Joined: 1 February 2019
2/2
Dear Shareholder
I am pleased to present the Directors’ Remuneration Report for the year
ended 30 June 2019.
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 2019 financial year and how the Directors’
Remuneration Policy (the Policy) will be implemented in the 2020
financial year.
The Directors’ Remuneration Report (excluding the Policy) will be subject
to an advisory vote at the 2019 Annual General Meeting.
Our Directors’ Remuneration Policy
The 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, with a view to ensuring it remains appropriate, linked to
strategy and reflective of developing market practices.
Long Term
Incentive
Plan
We have delivered underlying profit before tax during
the year of £117.4 million at AER, an improvement
of 24.1% at constant exchange rates (25.3% 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
97, bonuses for the year equal to 72% of salary have
been earned by Ian Page and Tony Griffin. Richard
Cotton resigned from the Company in the year and
consequently did not earn a bonus for the year.
The annual bonus is subject to malus and clawback
provisions
Awards of 200% for Ian Page, 150% for Richard
Cotton, and 100% for Tony Griffin were granted
during the year. These awards are subject to a two
year holding period. Richard Cotton’s award lapsed
in connection with his resignation from the Company.
LTIP awards granted to Ian Page and Tony Griffin
in September 2016 are scheduled to vest on
16 September 2019:
• 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 28.3% was above the maximum
threshold of 25%.
In aggregate, taking into account the ROCE underpin
(reflecting that the ROCE at 15.5% had not fallen below
15.0%), the LTIP awards vested as to 100%.
See page 98 for further details.
Awards made under the LTIP are subject to malus
and clawback provisions
Stock Code: DPH
93
Governance
Letter from the Remuneration Committee Chairman
continued
Directorate Changes
As previously announced, Richard Cotton resigned as an Executive Director on 3 April 2019 and left the business on 28 June 2019. In accordance with the
rules of the Company’s LTIP, all of his LTIP awards lapsed. In addition, he was not entitled to a bonus for the year ended 30 June 2019.
Global SAYE
The Committee recognises the benefits of employee share ownership and following shareholder approval at the Annual General Meeting in October
2018 the Directors have adopted a qualifying Employee Stock Purchase Plan for USA employees. We are proposing to make an initial offer to our
USA employees in October 2019.
Forward Looking
This is the final year under the current remuneration framework as we will seek approval for a new Directors’ Remuneration Policy at the 2020 Annual
General Meeting. Therefore, the Committee will be reviewing the current remuneration framework with its advisers during the forthcoming year with a
view to ensuring that the remuneration package continues to:
• promote the long term success of Dechra;
• provide appropriate alignment between Dechra’s strategic goals, shareholder returns and executive reward; and
• have a competitive mix of base salary and short and long term incentives, with appropriate performance conditions attached to variable
remuneration.
The Committee will also look to revise the Policy to continue the alignment between remuneration and the evolving strategic direction of our
business, as well as to align with the new UK Corporate Governance Code (2018 Code). In particular, it will seek to ensure that the Remuneration
policy and practices are clear, simple, predictable, proportionate, identify and mitigate against risk, and are aligned to the Company’s purpose,
Values and strategy.
The 2018 Code and new regulations on the reporting of directors’ remuneration were published during the year, and have introduced a number of
remuneration reporting reforms. Compliance with the 2018 Code and new regulations is effective for Dechra’s financial year beginning 1 July 2019,
and will be reported on in Dechra’s 2020 Annual Report. However, the Company has already adopted the following:
New Regulations 2018
Chief Executive Pay Ratio
See page 103
2018 UK Corporate Governance Code
Requirement for the Committee chair to have previously served on a
remuneration committee for at least a year
The Committee complies with this requirement and the terms of reference
have been amended accordingly
Minimum vesting and post-vesting holding periods for executive share
awards extended to five years
The LTIP awards are subject to a three year vesting period and, in respect
of awards granted from 2018 onwards, a two year holding period
Remuneration schemes and policies should enable the use of discretion
to override formulaic outcomes
The performance conditions for the LTIP awards to be made in respect of
the year ending 30 June 2020 and future years will include discretion to
override formulaic outcomes, as described on page 104
The Board/Committee will address the following in the forthcoming year:
• Review of workforce remuneration and related policies, and the alignment of incentives and rewards with culture when setting the policy for
Executive Director remuneration;
• Formal policy for post-employment shareholding requirements;
• The requirement to align pension arrangements to those of the wider workforce;
• Engagement with the workforce to explain how executive remuneration aligns with wider Group pay policy;
• The review of the Senior Executive Team’s remuneration; and
• Share price impact and scenario reporting.
The Committee will also be considering the remuneration arrangement for the Chief Financial Officer once an appointment has been made.
Shareholder Views
We consult with shareholders on policy and on any significant events and take shareholders’ views into account before finalising our proposals. 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
2 September 2019
94
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Remuneration at a Glance
Governance
Remuneration Philosophy
The Link between our Directors’ Remuneration Policy and our Strategy
Dechra’s Policy is designed to promote the long term success of the Group and to reward the creation of long term value for shareholders. The
performance targets for all incentive elements are designed to reward high performance, whilst not encouraging inappropriate business risk taking.
The table below describes how certain remuneration elements are linked to our strategy.
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.
Link to our Key
Performance Indicators
Strategic
Growth
Driver and
Enabler
Sales Growth
Strong sales performance is
required to maximise profit
a
b
c
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 2019 and 2020 financial year awards, the weightings are two thirds EPS and one third total
shareholder return.
a
b
c
The application of a ROCE underpin focuses Executives on using capital efficiently and appropriately
to allow the business to capitalise on growth opportunities in new territories and
markets whilst maintaining returns.
The post vesting holding period aligns management with the long term interests of shareholders
and the delivery of sustained performance.
Underlying Diluted EPS
Growth
Return on Capital
Employed
New Product Sales
This measure encourages
innovation, growth and
sustainability
The performance conditions for the LTIP awards to be made in respect of the year ending 30 June
2020 and future years will include discretion to override formulaic outcomes.
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 further aligned 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.
Executive Director Total Remuneration
Ian Page
2019
2018
Tony Griffin
2019
2018
How Did We Perform
During 2019?
£117.4m
Underlying Profit
Before Tax
16.6%
Underlying Diluted EPS
Growth (CER)
15.5%
ROCE
Stock Code: DPH
Fixed
Salary
Benefits
Pension
2018 2019
16.4% 16.8%
2.1% 2.0%
2.5% 2.4%
Performance-linked
Bonus
LTIP
Fixed
Salary
Benefits
Pension
12.4% 12.1%
66.6% 66.7%
2018 2019
28.2% 27.1%
0.9% 0.9%
3.0% 3.0%
Performance-linked
Bonus
LTIP
20.7% 19.5%
47.2% 49.5%
95
Governance
Directors’ Remuneration Report
2019 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 2020 financial year. The sections of the 2019 Annual Report on Remuneration that are audited by PricewaterhouseCoopers LLP (PwC) are
indicated on pages 96 to 102.
Executive Directors’ Remuneration (Audited)
Single Total Figure of Remuneration
The table below sets out the total remuneration for each person who has served as an Executive Director in the period ended 30 June 2019. The
table shows the remuneration for each such person in respect of the year ended 30 June 2019 and the year ended 30 June 2018:
Ian Page
Richard Cotton
Tony Griffin
Total
Salaries
Benefits
2019
£000
500
275
309
1,084
2018
£000
500
356
303
1,159
2019
£000
60
26
10
96
2018
£000
65
29
10
104
Annual Bonus
2018
2019
£000
£000
380
360
272
–
223
223
875
583
Long Term
Incentive
2019
£000
1,984
–
565
2,549
2018
£000
2,036
906
508
3,450
Pension
Total
2019
£000
70
38
34
142
2018
£000
77
40
32
149
2019
£000
2,974
339
1,141
4,454
2018
£000
3,058
1,603
1,076
5,737
Please note the following methodologies have been used in respect of the above table:
Salaries – this is the cash paid or received in respect of the relevant period.
1.
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
3.
4.
5.
6.
car, medical cover and life assurance. SAYE options granted in the year have also been included in the benefits column in respect of any year in which there was a
grant. These have been valued using the fair value as per note 28 to the Group’s financial statements.
Annual Bonus – this is the amount of cash bonus paid in respect of the financial year.
Long Term Incentives – this is the value of any long term incentives vesting where the performance period ended in the relevant period.
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.
The 2018 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 £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). This
has been restated to show the actual value determined by reference to a price of £22.44 (being the market value of a share on 22 October 2018, the date of vesting).
The 2018 value for Richard Cotton in last year’s Annual Report was based on the value of his recruitment awards which vested half on 3 January 2018 and half on
22 October 2018. The value included in last year’s Annual Report (£1,404,000) has been updated for the latest available information, including, in the case of the
second half of the awards, a price of £22.44 (being the market value of a share on 22 October 2018, the date of vesting).
7. Richard Cotton resigned as an Executive Director on 3 April 2019 and left the business on 28 June 2019. The salary and pension figure disclosed in the table relates
8.
to the period to 3 April 2019. Payments made to Richard Cotton after this date are set out on page 100.
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 1.1286 for 2018 and
1.1345 for 2019. His salary was €351,100 for 2019 (reflecting two months at a salary of €342,537 and ten months at a salary of €352,813) and €341,144 for 2018
(reflecting two months at a salary of €334,182 and ten months at a salary of €342,537).
96
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Additional Disclosures in Respect of the Single Figure Table
Salaries and Fees
As disclosed in the Directors’ Remuneration Report in the 2018 Annual Report, the Executive Directors’ base salaries were reviewed in September
2018, in alignment with the Group’s performance development review calendar to provide a clearer link between performance and reward. Following
that review, Richard Cotton’s and Tony Griffin’s salaries were increased by 3.0%, to £369,513 and €352,813 respectively, with effect from 1 September
2018, broadly in line with the average range of increases awarded to employees in the wider Group. Ian Page notified the Remuneration Committee (the
Committee) that he did not wish to be considered for a salary increase in 2019.
The Committee’s approach to Executive Directors’ salaries for the year ending 30 June 2020 is summarised on page 104.
Benefits
The Company provides benefits in line with market practice and each Executive Director has the use of a fully expensed car, medical cover and life
assurance.
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 2019 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 2019 against targets for the 2019 financial year is as follows:
Measure
Underlying profit before tax
Threshold
(10% of
salary)
£99,920,050
Target (50% of
salary)
£105,179,000
Maximum
(90% of
salary)
£115,696,900
Actual (at
budgeted
rates)
£107,866,933
Ian Page
62%
Tony Griffin
62%
Personal Objectives
(see table below)
Up to 10% of salary. The objectives are based on key aspects of
delivering the Group’s strategy1
10%
10%
1.
The Committee considers that the objectives for the forthcoming financial year (2020) 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 2020 Annual Report.
2. Richard Cotton resigned as an Executive Director on 3 April 2019 and left the business on 28 June 2019 and therefore was not entitled to receive a bonus.
The personal objectives of each Executive Director for the year ended 30 June 2019 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
Link to Strategic Enabler Objective
Acquisition
Build the pipeline of M&A opportunities;
and ensure strategic value is derived
from the 2018 financial year acquisitions
Product Pipeline
People
Manufacturing
Tony Griffin
Acquisition
People
Customers
Manufacturing
Expand new product pipeline through
acquisition, investment or partnering
arrangements
Recruit and onboard a new
Non-Executive Director
Review the Group Manufacturing and
Supply organisation and develop future
proof structure to deliver strategic goals
Integration of AST Farma and Le Vet
Support the development of the global
marketing approach in key therapeutic
areas
Develop Corporatisation Plan
Support Manufacturing and Supply Chain
to ensure improved processes and more
robust Sales and Operations planning
Performance
Completed the acquisition of Laboratorios
Vencofarma do Brasil Ltda (Venco) and derived
significant value from the AST Farma and Le Vet
acquisition
Completion of licensing agreements and the
launch of the Le Vet pipeline
Lisa Bright joined on 1 February 2019
Recruited Simon Francis to lead the
Manufacturing and Supply organisation.
restructured Quality and Supply Chain, adding
key personnel
Achieved key milestones
Key global roles implemented for CAP and
Equine
Defined and communicated plan; milestones
on track
Restructured Supply and Demand teams
preparing to implement Integrated Business
Planning
Stock Code: DPH
97
Governance
Directors’ Remuneration Report
continued
Long Term Incentive Plan
The LTIP awards granted on 19 September 2016 are due to vest on 19 September 2019. Ian Page and Tony Griffin were granted LTIP Awards
on 19 September 2016, 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 relative to the constituent companies of the FTSE 250 index (excluding investment trusts)
over the performance period as follows:
TSR performance
Below median
Median
Between median and upper quartile
Upper quartile
Vesting percentage
0%
25% of the TSR portion will vest
Pro rata vesting between 25% and 100% based on the Company’s ranking in
the comparator group
100% of the TSR portion will vest
50% of each award is subject to a performance condition based on the growth in the Group’s underlying diluted earnings per share (EPS) over the
performance period as follows:
EPS compound annual growth rate (CAGR)
<8% CAGR
8% CAGR
CAGR between 8% and 25%
>25% 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 20%, to reflect the acquisition of AST
Farma B.V. and Le Vet Beheer B.V., as disclosed in the Directors’ Remuneration Report for the 2018 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 148.2% compared with a 55.8% 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 28.3%. Accordingly, 100% of the EPS element will vest. Overall, taking into account that
ROCE performance for 2019 was 15.5%, the LTIP awards will vest as to 100% of the maximum opportunity. In the single figure table on page 96,
the value attributable to this award is calculated by multiplying the number of shares in respect of which the award is expected to vest by £27.085
(being the average market value of a share over the last quarter of the Company’s financial period ended on 30 June 2019).
SAYE
There were no exercises under the SAYE Scheme by Executive Directors during the year.
The aggregate gain made by the Executive Directors on share options and LTIP awards exercised during 2019 was £2,897,470 (2018: £3,497,837).
Pension
Ian Page and Richard Cotton were both members of the Dechra Pharmaceuticals PLC Group Stakeholder personal pension scheme throughout the
year. Richard Cotton elected to receive a salary supplement in lieu of the employer contribution over and above £10,000 and Ian Page elected to
receive his entire pension contributions as a salary supplement.
Tony Griffin was a member of the Basispensioen, a defined benefit pension plan established in the Netherlands up to 31 December 2018. The table
below sets out the arrangements for Tony Griffin for the period under review.
Accrued benefit at 1 July 2018
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 2018
Transfer value at 31 December 2018
Increase in transfer value over the period after member contribution
€274,000
€6,000
€9,000
€282,000
€274,000
€283,000
€8,000
The defined benefit pension plan was capped at €50,000. Pensionable salary over this cap was paid into a defined contribution plan. From 1 January
2015 there has been a cap on maximum amount of pensionable income set by the Dutch government, which for the period to 31 December 2018
was €105,075 and for the period to 30 June 2019 was €107,583. Tony Griffin elected to receive a salary supplement in lieu of the pension premium
entitlement for earnings above this cap. The earliest date that a non-reduced pension is payable is 10 February 2040. From 1 January 2019, Tony Griffin
has received contributions to a defined contribution pension scheme in the Netherlands in respect of earnings up to the cap and a salary supplement in
respect of earnings above the cap.
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.
98
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Non-Executive Directors’ Remuneration (Audited)
Single Total Figure of Remuneration
The table below sets out the total remuneration for each person who has served as a Non-Executive Director in the period ended 30 June 2019. The
Chairman and the other Non-Executive Directors are paid a fee for their role. The table shows the remuneration for each such person in respect of
the year ended 30 June 2019 and the year ended 30 June 2018:
Tony Rice
Additional responsibilities
Chairman and Nomination
Committee Chair
Ishbel Macpherson Senior Independent Director and
Julian Heslop
Lawson Macartney
Lisa Bright*
Total
Remuneration Committee Chair
Audit Committee Chair
Employee Engagement Designated
Non-Executive Director
* Lisa Bright was appointed on 1 February 2019.
Base fee
£000
Additional fee
£000
Total
£000
2019
2018
2019
2018
2019
2018
126
126
50
50
50
21
297
50
50
50
–
276
5
13
10
–
2
30
–
8
5
–
–
13
131
126
63
60
50
23
327
58
55
50
–
289
The Senior Independent Director and the chairmen of the Audit Committee and Remuneration Committee receive an additional fee for those roles.
From 1 July 2018, the Nomination Committee Chairman also received an additional fee for this role and on the appointment of the Employee
Engagement Designated Non-Executive Director it was agreed that an additional fee should be paid for this role due to the additional time
commitment required. As disclosed in the Directors’ Remuneration Report in the 2018 Annual Report, it had been agreed that there would be no
changes to the base fees (£126,000 for the Chairman and £50,000 for the Non-Executive Directors); however, there would be an increase to the
additional fees as disclosed in the table below.
Office
Audit Committee Chairmanship additional fee
Nomination Committee Chairmanship additional fee
Remuneration Committee Chairmanship additional fee
Senior Independent Director additional fee
Employee Engagement Designated Non-Executive additional fee
2019
Fee
£000
10
5
8
5
5
2018
Fee
£000
5
–
5
3
–
The Committee’s approach to the Chairman’s and Non-Executive Directors’ fees for the year ending 30 June 2020 is summarised on page 104.
Stock Code: DPH
99
Governance
Directors’ Remuneration Report
continued
Further Information on Directors’ Remuneration
Long Term Incentive Arrangement and Share Scheme awards during the financial year
Long Term Incentive Awards (Audited)
Awards were made under the Dechra 2017 Long Term Incentive Plan on 26 October 2018, as set out in the table below.
Ian Page
Richard Cotton1
Tony Griffin
Maximum
opportunity
Type of award
200% of salary
Nil cost option under the LTIP
Nil cost option under the LTIP
150% of salary
Conditional award under the LTIP 100% of salary
Number of
shares
46,168
25,589
14,444
Face value
at grant
£999,999
£554,258
£312,857
% of award
vesting at
threshold
Performance Period
25% 1 July 2018 – 30 June 2021
25% 1 July 2018 – 30 June 2021
25% 1 July 2018 – 30 June 2021
1. Richard Cotton’s award lapsed on 28 June 2019 when he left the Company
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) 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 2018 Annual Report, the Committee concluded that the EPS growth target
required for maximum vesting should be the same as for the March 2018 grant. Accordingly, the EPS target is as follows:
EPS compound annual growth rate (CAGR)
<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,
no shares acquired may be sold before the second anniversary of vesting.
SAYE (Audited)
There were no SAYE options granted to Executive Directors during the year ended 30 June 2019.
Payments to Past Directors (Audited)
Richard Cotton resigned as an Executive Director on 3 April 2019; he remained employed by the Company until 28 June 2019. The following
payments were made during the period 3 April to 28 June 2019:
• £103,000 in relation to his salary; and
• £13,000 in relation to his pension.
Richard Cotton continued to receive private medical cover for him and his family and a fully insured car up to the last day of his employment with the
Company. The value of these benefits for the full year is included in the Single Total Figure of Remuneration table on page 96.
He was not entitled to receive a bonus for the year ended 30 June 2019 and his outstanding LTIP and SAYE awards lapsed on 28 June 2019.
Payments for Loss of Office (Audited)
There were no payments for loss of office made to Directors during the period.
100
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Shareholding Guidelines and Statement of Directors’ Shareholdings and Interests:
Executive Directors Interest under Share Schemes (Audited)
Awards held under the Long Term Incentive Plan by each person who was a Director during the year ended 30 June 2019 are as follows:
Ian Page
Award date
15 September 2015
19 September 2016
2 March 20182
26 October 2018
7 March 20173
Richard Cotton
2 March 20182
26 October 2018
15 September 2015
Tony Griffin
19 September 2016
2 March 2018
26 October 2018
Number
of shares
at 30 June
2018
90,721
Granted
during the
year
–
Lapsed
during the
year
–
Exercised
during the
year
90,721
Number
of shares
at 30 June
2019
–
73,260
39,904
–
21,033
21,473
–
22,641
20,858
12,099
–
–
–
46,168
–
–
25,589
–
–
–
14,444
–
–
–
–
21,473
25,589
–
–
–
–
–
–
–
21,033
–
–
22,641
73,260
39,904
46,168
–
–
–
–
–
–
–
20,858
12,099
14,444
Status
Vested and
exercised in
the year
Unvested1
Unvested
Unvested
Vested and
exercised in
the year
Lapsed
Lapsed
Vested and
exercised in
the year
Unvested1
Unvested
Unvested
Performance
Period
2015–2018
2016–2019
2017–2020
2018–2021
2015–2018
2017–2020
2018–2021
2015–2018
2016–2019
2017–2020
2018–2021
1. Will vest on 19 September 2019 as to 100%.
2.
3.
Each of Ian Page and Richard Cotton was 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.
This award was a Recruitment Award granted to Richard Cotton as referred to on page 87 of 2018 Annual Report. This was granted outside the rules of the LTIP.
Executive Directors may participate in the SAYE Scheme on the same basis as other employees. Awards held under the SAYE Scheme by each
person who was a Director during the year ended 30 June 2019 are as follows:
Ian Page
Richard Cotton
* These options lapsed on 28 June 2019.
Number of
Date of grant
12 October 2017
12 October 2017
options Option price
£16.46
£16.46
1,093
1,093*
Exercise date
December 2020
December 2020
Dilution Limits
Awards granted under Company LTIP, Executive Share Option Schemes and SAYE Schemes are met by the issue of new shares when the awards/
options are exercised. The Committee monitors the number of shares issued under each of these schemes and their impact on dilution limits. The
Company’s usage of shares compared to the Investment Association dilution limits as at 30 June 2019 is as follows:
Executive Share Plans
Limit: 5%
Usage: 2.3%
All Share Plans
Limit: 10%
Usage: 3.1%
Stock Code: DPH
101
Governance
Directors’ Remuneration Report
continued
Shareholdings (Audited)
Executive Directors
In respect of the financial year ended 30 June 2019, 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 2019 and their families as at 30 June 2019 are as follows:
Name
Ian Page
Tony Griffin
Richard Cotton
* Calculated using the share price as at 28 June 2019.
Appointment date
13 June 1997
1 November 2012
3 January 2017
Ordinary
shares
Number
786,650
70,606
63,384
Ordinary
shares
£000* % of salary
4320
21,601
626
1,939
471
1,741
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
2019 are as follows:
Name
Tony Rice
Ishbel Macpherson
Julian Heslop
Lawson Macartney
Lisa Bright
Appointment date
5 May 2016
1 February 2013
1 January 2013
1 December 2016
1 February 2019
* Calculated using the share price as at 28 June 2019.
Ordinary
shares
number
40,000
5,848
10,000
5,880
–
Ordinary
shares
£000*
1,098
161
275
161
–
% of base
fee
872
321
549
323
–
There have been no changes in the holdings of the Company’s continuing Directors between 30 June and 2 September 2019.
Performance and Chief Executive Remuneration
TSR
The graph below shows the TSR performance of the Company over the past ten financial years compared with the TSR over the same period for the
FTSE 250 Total Return Index. Throughout the financial year ended 30 June 2019 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.
1200
1000
800
600
400
200
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Dechra
FTSE 250
102
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Chief Executive Officer Remuneration for Ten Previous Years
Year ended
30 June 2019
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
Governance
Total single
figure
remuneration
£000
2,974
3,058
3,420
2,480
1,934
1,589
1,201
682
984
768
Annual
bonus
payout (%
of maximum
opportunity)
72
76
92
72
80
80
36
60
60
44
LTIP vesting
(% of
maximum
number of
shares)
100.0
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 2018 and the year ended 30 June 2019. 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.
Chief Executive Officer
Average per all UK based employees
1.
Excludes SAYE options granted during the year.
% change (2018–2019)
Salary
–
8.3%
Taxable
benefits1
(7.7%)
16.7%
Annual
Bonus
(5.3%)
(8.5%)
Chief Executive Officer’s Pay Ratio
The table below shows the ratio of the Chief Executive Officer’s remuneration for 2019 and 2018 using the Single Total Figure as disclosed on page 96 to
the full time equivalent remuneration of the UK employee whose remuneration was ranked at the 25th percentile, median and 75th percentile. Employees’
pay was calculated on the same basis as the Single Total Figure Remuneration except that anyone who joined or left the business part way through the year
has been excluded from the calculations along with anybody on reduced pay for illness, maternity, paternity, adoption and shared parental leave. Although
we are not required to include this disclosure as the applicable regulations apply only for financial years starting on or after 1 January 2019, we have
chosen to do so on a voluntary basis.
Year
2018
2019
25th
percentile
pay ratio
137:1
136:1
Median pay
ratio
109:1
105:1
75th
percentile
pay ratio
58:1
55:1
Method
Option A1
Option A1
1.
The applicable regulations provide for three methods of calculating the pay ratio. We have chosen Option A and have calculated the pay and benefits of all of the
Group’s UK employees in order to identify the employees at the 25th, median and 75th percentile. We have chosen this approach reflecting that guidance recognises
this as the most statistically accurate method.
Chief Executive Officer
25th percentile employee
Median employee
75th percentile employee
20191
Total pay
and benefits
£000
2,974
22
28
54
20182
Total pay
and benefits
£000
3,058
22
28
53
1.
2.
The 2019 figure includes share options and awards, which have been valued by reference to £27.085 (being the average market value of a share over the last quarter
of the Company’s financial period ended 30 June 2019). SAYE options granted in 2018 and 2019 financial years have also been included in the benefits column in
respect of any year in which there was a grant. These have been valued using the fair value as per note 28 to the Group’s financial statements.
The 2018 figure includes share options and awards, which have been valued by reference to the actual value for the LTIP of £22.44 and the value at the exercise
date for the Approved and Unapproved Share Options (£25.00).
In 2019, there were a total of 380 UK employees (2018: 357 UK employees), 87 of which have been excluded for the above stated reasons
(2018: 77), leaving 293 employees in the data set (2018: 280). Of these 178 worked in our Manufacturing business which is predominately shop
floor workers (2018: 178). We believe that the final figures detailed above are representative of the majority of the data set.
Stock Code: DPH
103
Governance
Directors’ Remuneration Report
continued
Relative Importance of Spend on Pay
The following table sets out the percentage change in distributions to shareholders (by way of dividend and share buyback) and total remuneration
paid to or receivable by all Group employees comparing the year ended 30 June 2018 and the year ended 30 June 2019. The significant increase in
the distributions to shareholders is directly attributable to the 8.8 million new shares issued at the time of the AST Farma and Le Vet acquisition.
Distributions to shareholders by way of dividend and share buyback
Overall expenditure on pay
Year ended
30 June 2019
£000
28,400
92,700
Year ended
30 June 2018
£000
21,810
88,200
% change
30.3%
5.1%
Implementation of the Directors’ Remuneration Policy in the Year Ending 30 June 2020
The Directors’ Remuneration Policy outlined on pages 106 to 110 will be implemented in the year ending 30 June 2020, as set out below.
Salary and Fees
The next review of Executive Directors’ salaries will be undertaken in September 2019. It is planned that the Executive Directors’ salaries for 2020
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 additional fees for the year
ending 30 June 2020, with the exception of the Remuneration Committee Chair additional fee which will increase form £8,000 to £10,000. With regards to
the base fees, subject to shareholder approval of the resolution at the 2019 Annual General Meeting to amend Article 99 of the Articles of Association which
will increase the cap on Non-Executive fees to £0.75 million, the fees will increase as follows:
Office
Chairman
Non-Executive Director
2019
Fee
£000
126
50
2020
Fee
£000
130
52
It is proposed that the base fee increases and the increase in the additional fee for Remuneration Committee Chair will apply with effect from 1 July 2019.
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 2020, on the same basis as for the year ended 30 June 2019. Details of the bonus structure can be found on page 97. 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 97 in
respect of bonuses for the Group’s 2019 financial year.
LTIP
The Committee proposes that LTIP awards for the year ending 30 June 2020 (the 2020 Grant) will be made at the level of 200% of salary for Ian
Page and 100% of salary for Tony Griffin. The performance measures remain as per the grant of LTIP awards made on 26 October 2018, details
of which can be found on page 100. In setting the EPS growth targets for the 2020 Grant, the Committee recognised that the base year for those
awards will include a full year of AST Farma and Le Vet and also took into account the impact of the Akston licensing agreement on the R&D
spend, and have reduced the maximum target from 18% to 16% but have maintained the minimum target recognising that significant growth is still
forecast. The Committee will be considering the impact of this licensing agreement on the awards granted on 2 March 2018 (the 2018 Grant) and
the awards granted on 26 October 2018 (the 2019 Grant) during the forthcoming year and will disclose any adjustments to the targets for those
awards and the Committee rationale in the 2020 Directors’ Remuneration Report.
Having regard to the provisions of the 2018 Code, the performance conditions for the 2020 Grant and future awards will include an ability on the
part of the Committee to adjust the vesting outcome where the formulaic outcome is inappropriate in the context of underlying performance or other
factors considered by the Committee to be relevant.
The awards will ordinarily be subject to a two year post vesting holding period.
Consideration by the 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. The task of determining and monitoring the remuneration packages for the SET has been delegated to the Committee in relation to the
2020 financial year onwards.
Membership
Details of each member’s attendance at the Committee’s meetings is detailed on page 93. The Chief Executive Officer and Group HR Director both
attended all meetings held during the financial year in order to assist on matters concerning remuneration of other senior executives within the
Group. However, neither was present during the part of the meetings where their own remuneration was discussed.
104
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
Responsibilities
The Committee has its own terms of reference, which are approved by the Board. These are reviewed on an annual basis so that they continue to
adhere to best practice. During the 2019 financial year this review took place at the June 2019 meeting and they were amended to reflect the 2018 UK
Corporate Governance Code requirements. 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 76.
Service Contracts and Letters of Appointment
Details of Executive Directors’ service contracts and Non-Executive Directors’ letters of appointment are set out below:
Notice Period
Name
Tony Rice
Ian Page
Tony Griffin
Lisa Bright
Julian Heslop
Lawson Macartney
Ishbel Macpherson
Commencement date
5 May 2016
1 September 2008
1 November 2012
1 February 2019
1 January 2013
1 December 2016
1 February 2013
Director
3 months
6 months
6 months
3 months
3 months
3 months
3 months
Company
3 months
12 months
12 months
3 months
3 months
3 months
3 months
There are no expiry dates applicable to either Executive or Non-Executive Directors’ service contracts/letters of appointment. 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.
No Executive Directors currently hold external appointments.
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 £9,000 for the year ended 30 June 2019. 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 tax advisory work for Dechra.
Alignment of Wider Workforce Pay
The Committee takes into account the general base salary increases for the wider employee population when determining the Executive Directors
pay increases. The Committee also reviews, and from the 2020 financial year will determine, the pay increases awarded to the Senior Executive
Team and approves the Long Term Incentive awards to this group as well as the share options granted to the senior employees below the SET.
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 at the Annual General Meeting on 19 October 2018, the binding
vote on the Company’s new SAYE scheme at that meeting, 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 SAYE Scheme
Ishbel Macpherson
Remuneration Committee Chairman
2 September 2019
Votes
for
76,045,670
72,932,631
76,738,556
% of vote
98.58
98.88
99.45
Votes
against
1,092,914
823,955
423,701
% of vote
1.42
1.12
0.55
Votes
withheld
25,330
8,619
1,658
Stock Code: DPH
105
Governance
Directors’ 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 at www.dechra.com. We have set out a summary below of those parts of the
Remuneration Policy which we consider shareholders will find most useful.
Policy Table for Executive Directors:
Element
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Base Salary
Core element of fixed remuneration
reflecting the individual’s role and
experience
Retirement Benefits
Provide a competitive means of saving
to deliver appropriate income in
retirement
Salaries are ordinarily reviewed annually taking into account a number of factors
including the value of the individual, their skills and experience and performance
Whilst there is no maximum salary, increases will normally be within the range of salary
While no formal performance conditions apply, an individual’s
increases awarded (in percentage of salary terms) to other employees in the Group.
performance in role is taken into account in determining any
The Committee also takes into consideration:
• pay increases within the Group more generally; and
• Group organisation, profitability and prevailing market conditions
The Company operates a Group Stakeholder personal pension scheme
The Company contributes up to 14% of salary to a pension scheme on behalf
Not applicable
Tony Griffin participated 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
However, higher increases may be awarded in certain circumstances, such as:
salary increase
• 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
of the Executive Directors, and/or as a salary supplement in lieu of pension
contributions where appropriate
Benefits
Provided on a market competitive basis The Company provides benefits in line with market practice and includes the
Whilst the Committee has not set an absolute maximum on the level of benefits
Not applicable
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
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
Annual Bonus
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
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 maximum bonus opportunity for Executive Directors is 100%
Operational targets (which may be based on financial or
of base salary
strategic measures) and individual objectives are determined to
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
reflect the Company’s strategy
The personal objectives for:
•
the Chief Executive Officer are set by the Chairman;
• other Executive Directors are set by the Chief Executive
The personal objectives are reviewed and endorsed by the
Officer
Committee
At least 75% of the bonus opportunity is based on financial
measures (such as profit before tax)
For financial measures, up to 15% of the maximum is earned for
threshold performance, rising to up to 50% of the maximum for
target performance and 100% of the maximum 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
106
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Governance
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 at www.dechra.com. We have set out a summary below of those parts of the
Remuneration Policy which we consider shareholders will find most useful.
Policy Table for Executive Directors:
Element
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Base Salary
Core element of fixed remuneration
Salaries are ordinarily reviewed annually taking into account a number of factors
reflecting the individual’s role and
including the value of the individual, their skills and experience and performance
experience
The Committee also takes into consideration:
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:
While no formal performance conditions apply, an individual’s
performance in role is taken into account in determining any
salary increase
• 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
Retirement Benefits
Provide a competitive means of saving
The Company operates a Group Stakeholder personal pension scheme
to deliver appropriate income in
retirement
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
Not applicable
Benefits
Provided on a market competitive basis The Company provides benefits in line with market practice and includes the
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
Not applicable
• pay increases within the Group more generally; and
• Group organisation, profitability and prevailing market conditions
Tony Griffin participated 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
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
Annual Bonus
The executive bonus scheme rewards
Targets are reviewed annually and any pay-out is determined by the Committee
Executive Directors for achieving
after the year end based on targets set for the financial period
The maximum bonus opportunity for Executive Directors is 100%
of base salary
financial and strategic targets in
the relevant year by reference to
operational targets and individual
The Committee has discretion to amend the pay-out should any formulaic output
not reflect the Committee’s assessment of overall business performance
objectives
Recovery provisions apply, as referred to below
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;
• 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 (such as profit before tax)
For financial measures, up to 15% of the maximum is earned for
threshold performance, rising to up to 50% of the maximum for
target performance and 100% of the maximum 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: DPH
107
Governance
Directors’ Remuneration Report
continued
Element
Long Term Incentive
Plan (LTIP)
Purpose and link to strategy
The LTIP provides a clear link between
the remuneration of the Executive
Directors and the creation of value
for shareholders by rewarding the
Executive Directors for the achievement
of longer term objectives aligned to
shareholders’ interests
All Employee Share
Plans
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 plans as
may be introduced from time to time
Operation
Under the LTIP 2017, the Committee may grant awards as:
• conditional shares;
• nil (or nominal cost) options;
•
forfeitable shares;
• market value share options with a per share exercise price equal to the
market value of a share at the date of grant; or
• 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, and will either:
• not be released until the end of a holding period of two years beginning on
the vesting date; or
• be released at vesting so that the participant is entitled to acquire shares,
but on the basis that he is not able to dispose of those shares (other than
as regards sales to cover tax liabilities) 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
Tax qualifying monthly savings scheme facilitating the purchase of shares
at a discount
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
200% of salary
The maximum award level under the LTIP in respect of any financial year is
Performance measures under the LTIP will be based on financial
Performance measures
measures (such as, earnings per share growth, relative total
shareholder return, return on capital employed and free
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
cash flow)
the provisions for the scale back of the ordinary LTIP award
Awards will vest as to 25% for threshold performance,
increasing to 100% for maximum performance
The limit on participation and the permitted discount under the SAYE scheme
There are no performance conditions attached to awards under
will be those set in accordance with the applicable tax legislation from time to
the SAYE
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
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 Chairman’s fees are determined by the Committee and the Non-Executive
Directors’ fees 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;
• may be eligible to receive benefits such as travel and other reasonable
expenses
Maximum opportunity
Performance measures
Fees are set taking into account the responsibilities of the role and expected
Not applicable
time commitment. Non-Executive Directors are paid a basic fee with additional
fees paid for:
•
•
•
circumstances
the chairing of Committees;
the role of Senior Independent Director; and
the role of Employee Engagement Designated Non-Executive 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
108
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Element
Purpose and link to strategy
Operation
Long Term Incentive
The LTIP provides a clear link between
Under the LTIP 2017, the Committee may grant awards as:
Plan (LTIP)
the remuneration of the Executive
• conditional shares;
Directors and the creation of value
for shareholders by rewarding the
Executive Directors for the achievement
of longer term objectives aligned to
shareholders’ interests
• nil (or nominal cost) options;
•
forfeitable shares;
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
Performance measures
Performance measures under the LTIP will be based on financial
measures (such as, 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
Governance
• market value share options with a per share exercise price equal to the
market value of a share at the date of grant; or
• 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, and will either:
the vesting date; or
• not be released until the end of a holding period of two years beginning on
• be released at vesting so that the participant is entitled to acquire shares,
but on the basis that he is not able to dispose of those shares (other than
as regards sales to cover tax liabilities) 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
All Employee Share
Provision of the Save As You Earn
Tax qualifying monthly savings scheme facilitating the purchase of shares
Plans
Scheme (SAYE) to Executive Directors
at a discount
creates staff alignment with the Group
and provides a sense of ownership.
Executive Directors may participate in
such other all employee share plans as
may be introduced from time to time
employees
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
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
There are no performance conditions attached to awards under
the SAYE
Policy Table for Non-Executive Directors:
Element
Purpose and link to strategy
Operation
Maximum opportunity
Fees and benefits
To provide fees within a market
The Chairman’s fees are determined by the Committee and the Non-Executive
competitive range reflecting the
Directors’ fees are determined by the Board following a recommendation from
experience of the individual,
both the Chief Executive Officer and the Chairman
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:
Performance measures
Not applicable
responsibilities of the role and the
expected time commitment
Non-Executive Directors:
• are not eligible to participate in any of the Company’s share schemes,
incentive schemes or pension schemes;
• may be eligible to receive benefits such as travel and other reasonable
expenses
•
•
•
the chairing of Committees;
the role of Senior Independent Director; and
the role of Employee Engagement Designated Non-Executive 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: DPH
109
Governance
Directors’ 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 105.
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
2 September 2019
110
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Directors’ Report – Other Disclosures
Governance
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
2019. 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 67 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 financial risk management (including the exposure to price, credit and liquidity risk) and post-balance sheet events can be
found in notes 24 and 38 respectively 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. A resolution will be put to shareholders at the
forthcoming Annual General Meeting to adopt new Articles of Association in order to increase the cap on the Non-Executive Director’s fees to
£0.75 million and to update the Company’s existing Articles of Association with regards to the utilisation of hybrid meetings.
Significant Agreements/Change of Control
As detailed in the Going Concern Statement on page 81, 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 subsidiary Genera d.d., has established branches in Bosnia-Herzegovina and Serbia.
Political Donations and Expenditure
No political donations were made during the year ended 30 June 2019 (2018: 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.
Stock Code: DPH
111
Governance
Directors’ Report – Other Disclosures
continued
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 40 to 43. The expense on this activity for the year ended 30 June 2019 was £25.1 million (2018: £18.3 million) and a further
£1.2 million (2018: £1.7 million) was capitalised as development costs.
Results and Dividends
The results for the year and financial position at 30 June 2019 are shown in the Consolidated Income Statement on page 123 and Consolidated
Statement of Financial Position on page 125. The Directors are recommending the payment of a final dividend of 22.10 pence per share which, if
approved by shareholders, will be paid on 15 November 2019 to shareholders registered at 25 October 2019. The shares will become ex-dividend
on 24 October 2019. An interim dividend of 9.50 pence per share was paid on 8 April 2019, making a total dividend for the year of 31.60 pence per
share (2018: 25.50 pence per share). The total dividend payment is £32.5 million (2018: £26.1 million).
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 102,651,602 fully paid ordinary shares were in issue, which included 321,967 ordinary shares issued during the year in connection with the
exercise of options under the Company’s share option schemes.
The holders of shares are entitled to receive dividends when declared, to receive the Company’s Report and Accounts, to attend and speak at
general meetings of the Company, to appoint proxies and to exercise voting rights. There are no restrictions on transfer or limitations on the holding
of shares in the Company, nor are there any requirements to obtain prior approval in respect of any transfer of shares. The Directors are not aware of
any agreements which limit the transfer of shares or curtail voting rights attached to those shares.
At the Annual General Meeting of the Company held on 19 October 2018, the Company was authorised to purchase up to 10,232,963 of its
ordinary shares, representing 10% of the issued share capital of the Company as at 7 September 2018. 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 2018 Annual General Meeting and resolutions to renew these authorities will be proposed at the 2019
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.
Standard Life Aberdeen
Fidelity Management & Research
BlackRock Inc
Royal London Mutual Assurance Society
The Vanguard Group, Inc
Aviva plc
30 June 2019
14 August 2019
Aggregate
voting
rights
11,686,914
9,251,752
5,685,115
4,445,623
3,559,800
3,093,151
Percentage
11.39
9.01
5.54
4.33
3.47
3.01
Aggregate
voting
rights
11,472,230
9,272,915
5,856,519
4,396,255
3,530,100
3,109,875
Percentage
11.18
9.03
5.71
4.28
3.44
3.03
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
2 September 2019
112
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Statement of Directors’ Responsibilities
Governance
Each of the Directors as at the date of the Annual Report, whose names
and functions are set out on pages 72 and 75, 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
2 September 2019
Tony Rice
Non-Executive Chairman
2 September 2019
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.
Stock Code: DPH
113
FINANCIAL
STATEMENTS
Contents
125
116
123
124
Independent Auditors’ 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
127
Notes to the Consolidated Financial Statements 128
Company Statement of Financial Position
171
Company Statement of Changes in
172
Shareholders’ Equity
Notes to the Company Financial Statements
Financial History
173
181
126
STRONG
FINANCIALS
SUPPORTING
STRATEGIC
OPPORTUNITIES
114
115
Financial Statements
Independent Auditors’ 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 2019 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 2019; the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income; the Consolidated Statement of Cash Flows; and 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 2018 to 30 June 2019.
116
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
Our audit approach
Overview
• Overall Group materiality: £3.8 million, based on 3% of underlying operating profit.
•
In determining overall Group materiality for the prior year, we 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. Applying
our professional judgement, we determined Group overall materiality in the prior year to be £2.3 million.
• Overall Company materiality: £2.4 million (2018: £2.4 million), based on 0.5% of net assets.
• Following our assessment of the risks of material misstatement of the Group 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, 90% of Group underlying operating profit and 92% of Group profit before tax.
• As part of our supervision process, the Group engagement team have reviewed the work of 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 of the areas of particular focus of our
work which are listed below:
• Business combinations – assessment of the acquisition accounting in respect of Laboratorios Vencofarma do
Brasil Ltda, Caledonian Holdings Limited and Caledonian Holdings Distribution Pty Limited;
•
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; and
• Taxation – assessment of uncertain tax provisions.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to the Listing Rules, Tax legislation, Employment regulation, Health and Safety legislation, and other legislation specific to the industries in which
the Group operates, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of
controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure
to manipulate the financial performance of the business, and management bias in accounting estimates. The Group engagement team shared this
risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work.
Audit procedures performed by the Group engagement team and/or component auditors included:
• Discussions with management, internal audit and the Group’s legal counsel, including consideration of known or suspected instances of
non-compliance with laws and regulation and fraud;
• Review of internal audit reports in so far as they related to the financial statements;
• Assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s investigation of such matters;
• Reading key correspondence with regulatory authorities, such as the Medicines & Healthcare products Regulatory Agency;
• Enquiries with component auditors;
•
Identifying and testing unusual journal entries which increase revenue or reduce expenditure to manipulate the financial performance of the
business;
• Consideration of the policy for the recognition of revenue and performed substantive testing to ensure compliance with this policy, namely
in respect of the cut-off of revenue recognised in Dechra Veterinary Products NA; and
• Assessing key judgements and estimates made by management for evidence of inappropriate bias. Key judgements and estimates include the
business combinations, impairment of intangible assets, licensing agreements, and uncertain tax positions. Details of our procedures in these
areas are included in our key audit matters below.
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. Also, 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.
Stock Code: DPH
117
Financial Statements
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
continued
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
Business combinations – assessment of the acquisition
accounting in respect of Laboratorios Vencofarma do Brasil
Ltda, Caledonian Holdings Limited and Caledonian Holdings
Distribution Pty Limited.
How our audit addressed the key audit matter
We read the sale and purchase agreement in order to understand the
nature of the transaction and ensure that relevant clauses that impact the
accounting had been considered by the Directors. Additionally we agreed the
consideration paid back to the terms of the sale and purchase agreement.
Refer to the Audit Committee Report on page 86, the critical accounting
estimates and judgements in note 1 (b) to the accounts
on page 128, and note 32 (Acquisitions).
We reviewed and challenged management’s assessment of the
acquired assets and liabilities to ensure that the identification process
was complete and accurate.
The Group completed the acquisition of the entire share capital of
Laboratorios Vencofarma do Brasil Ltda on 17 December 2018 and the
acquisition of the trade and assets of Caledonian Holdings Limited and
Caledonian Holdings Distribuition Pty Limited on 8 October 2018.
We focused on this area because the accounting for business
combinations including the valuation of the opening balance sheet
position is inherently judgemental.
IFRS 3 (revised) requires that consideration is given to the existence
and measurement of separately identifiable intangible assets that have
been acquired as part of each respective acquisition agreement. For
the acquisitions significant value has been attributed to the developed
technology, brand, in process research and development, and existing
product rights, 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 separately
identifiable intangible assets is reliant on the correct application of
local tax regulations and applicable rates.
Impairment of intangible assets – assessment of the carrying
value of acquired intangible assets and other relevant assets.
Refer to the Audit Committee Report on page 86, the critical accounting
estimates and judgements in note 1 (b) to the accounts on page 128, 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 assumption 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 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 a reasonable change could
have a significant impact over the value recorded.
We engaged our valuation specialists who confirmed that the methodology
used to value each intangible asset is in line with expectation. 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, including attending a stock count and
performing a physical asset verification exercise close to the acquisition
date where material.
We recalculated the deferred tax liabilities arising on the acquired
intangibles assets and agreed that relevant tax rates have been used.
Additionally, we reviewed the disclosure note associated with the
acquisition and confirmed that this was appropriate.
We reviewed the forecast financial performance of individual intangible
assets and held discussions with management in respect of future market
conditions to identify any potential indicators of impairment.
We reviewed management’s impairment model and reperformed all
calculations within the discounted cash flow. We agreed that the current
and future cash flow forecasts used as the basis of the model are
consistent with previous performance. Valuation specialists were utilised
to benchmark, within a reasonable range, the discount rate assumptions
and certain growth rates 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.
Additionally, we reviewed the disclosure note associated with the
impairment review and confirmed that this was appropriate.
118
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
Key audit matter
Licensing agreements – recognition and subsequent
remeasurement of acquired intangible assets in respect of
licensing agreements.
Refer to the Audit Committee Report on page 86, the critical accounting
estimates and judgements in note 1 (b) to the accounts on page 128, and
note 33 (Deferred and contingent consideration).
New licensing agreements
On 26 February 2019, a license and distribution agreement to market
and supply 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 validation studies carried out in respect of the first three
commercial and full-scale batches of the licensed product have been
successfully completed.
The milestone and other payments of the contract are forecast to reflect the
probability of a successful product launch and subsequent performance
under the contractual terms of the agreement. The future payments are
contingent on these factors and therefore represent an area of judgement.
On 19 November 2018, a licensing agreement was entered into in the
equine market. A commercially stable product is yet to be achieved and
thus in accordance with the Group’s accounting policies set out within note
1 (g) all milestone payments have been expensed to the Income Statement.
Remeasurement of existing agreements
During the year related liabilities in respect of the exclusive distribution
agreement for StrixNB and DispersinB with Kane Biotech Inc., the in-licensing
agreement with Animal Ethics Pty Ltd for Tri-Solfen® and the Injectable
Solution with Anzac Animal Health LLC were reassessed for the timing and
quantum of future contingent cash flows. The variability of the timing and
quantum of the future cash flows represents an area of judgement.
Taxation – assessment of uncertain tax provisions
Refer to the Audit Committee Report on page 86, the critical accounting
estimates and judgements in note 1 (b) to the accounts on page 129, 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.
How our audit addressed the key audit matter
• 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 confirmed 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 obtained management’s model and reperformed the calculations
forming the basis of the valuation.
We have assessed the changes made to the assumptions underpinning
the licensing agreements with Kane Biotech Inc., Animal Ethics Pty Ltd.
and Anzac Animal Health LLC. In doing so we corroborated the revised
cash flow assumptions to updated forecasts and performed sensitivity
analysis to take into consideration reasonably possible alternatives.
Additionally, we reviewed the disclosure note associated with licensing
agreements and confirmed that this was appropriate.
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.
Additionally, we reviewed the disclosure note associated with uncertain
tax provisions and confirmed that this was appropriate.
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 73 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 73 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, 90% of underlying operating profit and 92% of profit before tax. Of these reporting units, 17 were considered to be significant
components due to their size or risk characteristics, being those units located in the UK, the USA, Denmark, the Netherlands and Germany.
Stock Code: DPH
119
Financial Statements
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
continued
The Group consolidation, Financial Statements disclosures and a number of centralised functions were audited by the Group engagement team at
the head office. These included, but were not limited to, central procedures on treasury operations, 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, overseas significant components in the USA, Denmark and the Netherlands were visited and the work of all
significant components reviewed 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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Overall materiality £3.8 million (2018: £2.3 million).
How we
determined it
3% of underlying operating profit.
In the prior year, we 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 and applied professional judgement in
determining Group overall materiality to be £2.3 million.
Company financial statements
£2.4 million (2018: £2.4 million).
0.5% of net assets.
Rationale for
benchmark
applied
In the current year we have revised our rationale to be based on underlying
operating profit.
We have revised our rationale as we believe the Group’s principal measure
of performance and earnings is underlying operating profit. Management
uses this measure as it believes that it eliminates material non-operational
items that may obscure the key trends and factors in determining the
Group’s operational performance. Furthermore it is this measure which
represents the primary focus for management and key stakeholders.
We took these considerations into account in determining our materiality
and concluded that this represents an appropriate benchmark for assessing
the performance of the Group.
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 £0.02 million and £2.4 million. Certain components were audited to a local statutory audit materiality that
was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2 million (Group audit) (2018:
£0.2 million) and £0.2 million (Company audit) (2018: £0.2 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 twelve months from the date of approval of the financial
statements.
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.
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. For example,
the terms on which the United Kingdom may withdraw from the
European Union are not clear, and it is difficult to evaluate all of the
potential implications on the Group’s trade, customers, suppliers
and the wider economy.
We have nothing to report.
120
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
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).
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 2019 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
70 to 82) 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 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 this information. (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 70
to 82) 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 page 82 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 page 82 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 inquiries 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 87, 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 86 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.
Stock Code: DPH
121
Financial Statements
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
continued
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)
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 113, 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 4 years, covering the years ended
30 June 2016 to 30 June 2019.
Andrew Hammond (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
2 September 2019
122
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Consolidated Income Statement
For the year ended 30 June 2019
Financial Statements
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
481.8
(203.6)
278.2
(125.7)
(25.1)
127.4
0.7
(10.5)
(0.2)
117.4
(24.9)
92.5
92.5
–
92.5
2
3
4
6
7
9
11
11
10
2019
Non-
underlying*
(notes
4 & 5)
£m
–
(5.1)
(5.1)
(76.5)
(6.8)
(88.4)
–
(1.0)
(0.2)
(89.6)
28.0
(61.6)
(61.6)
–
(61.6)
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)
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
Total
£m
481.8
(208.7)
273.1
(202.2)
(31.9)
39.0
0.7
(11.5)
(0.4)
27.8
3.1
30.9
30.9
–
30.9
30.15p
30.07p
31.60p
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
* The Group presents a number of non-GAAP Alternative Performance Measures (APMs). This allows investors to understand better the underlying performance of the
Group, by excluding non-underlying items as set out in note 5.
Stock Code: DPH
123
Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2019
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:
Foreign currency translation differences for foreign operations
Income tax relating to components of other comprehensive income/(expense)
Total comprehensive income for the period
Attributable to:
Owners of the parent
Non-controlling interests
2019
£m
30.9
–
–
–
3.8
–
3.8
34.7
34.7
–
34.7
2018
£m
36.1
–
–
–
(0.4)
–
(0.4)
35.7
35.7
–
35.7
124
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Consolidated Statement of Financial Position
At 30 June 2019
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Deferred tax assets
Total non-current assets
Current assets
Inventories
Current tax receivables
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
* Restated as detailed in note 1
Note
12
13
6
15
16
20
17
18
21
19
33
20
21
33
23
22
15
25
26
27
Financial Statements
2019
£m
687.0
58.4
10.1
0.9
756.4
104.0
7.9
99.9
80.3
292.1
1,048.5
(1.2)
(95.5)
(5.1)
(16.3)
(118.1)
(306.9)
–
(30.9)
–
(2.0)
(81.5)
(421.3)
(539.4)
509.1
1.0
277.9
–
21.6
84.4
124.2
509.1
–
509.1
Restated*
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
276.7
(0.4)
17.8
84.4
125.5
505.0
–
505.0
The financial statements were approved by the Board of Directors on 2 September 2019 and are signed on its behalf by:
Ian Page
Chief Executive Officer
2 September 2019
Tony Rice
Non-Executive Chairman
2 September 2019
Company number: 3369634
Stock Code: DPH
125
Financial Statements
Consolidated Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2019
Attributable to owners of the parent
Issued
share
capital
£m
0.9
–
Share
premium
account
£m
173.4
–
Foreign
currency
translation
reserve
£m
18.2
–
Own
shares
£m
(0.7)
–
Merger
reserve
£m
1.8
–
Retained
earnings
£m
107.4
36.1
–
–
–
–
0.1
–
–
0.1
1.0
1.0
–
1.0
–
–
–
–
–
–
–
–
–
–
–
103.3
–
–
103.3
276.7
276.7
–
276.7
–
–
–
–
–
1.2
–
–
1.0
1.2
277.9
–
–
–
–
–
0.3
–
0.3
(0.4)
(0.4)
–
(0.4)
–
–
–
–
–
–
0.4
0.4
–
(0.4)
(0.4)
–
–
–
–
–
–
17.8
17.8
–
17.8
–
3.8
3.8
–
–
–
–
–
—
–
–
82.6
–
–
82.6
84.4
84.4
–
84.4
–
–
–
–
–
–
–
–
36.1
(21.8)
4.3
–
(0.3)
(0.2)
(18.0)
125.5
125.5
(4.9)
120.6
30.9
–
30.9
(28.4)
1.5
–
(0.4)
–
21.6
–
84.4
(27.3)
124.2
Non-
controlling
interests
£m
1.6
–
Total
equity
£m
302.6
36.1
–
–
–
–
–
–
(1.6)
(1.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.4)
35.7
(21.8)
4.3
186.0
–
(1.8)
166.7
505.0
505.0
(4.9)
500.1
30.9
3.8
34.7
(28.4)
1.5
1.2
–
(25.7)
509.1
Total
£m
301.0
36.1
(0.4)
35.7
(21.8)
4.3
186.0
–
(0.2)
168.3
505.0
505.0
(4.9)
500.1
30.9
3.8
34.7
(28.4)
1.5
1.2
–
(25.7)
509.1
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 (Restated)*
Recycle of own shares to retained earnings
Acquisition of non-controlling interests
Total contributions by and distributions to
owners
At 30 June 2018 (Restated)*
Year ended 30 June 2019
At 1 July 2018
Change in accounting policy
At 1 July 2018 (Restated)†
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
Total contributions by and distributions to
owners
At 30 June 2019
* Restated as detailed in note 1 Accounting Policies.
† Restated as detailed in note 36 Changes in Accounting Policies.
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.
126
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Consolidated Statement of Cash Flows
For the year ended 30 June 2019
Financial Statements
Cash flows from operating activities
Operating profit
Non-underlying items
Underlying operating profit
Adjustments for:
Depreciation
Amortisation and impairment
Release of government grant
Profit on disposal of tangible assets
Gain on curtailment of pension scheme
Equity settled share-based payment expense
Underlying operating cash flow before changes in working capital
Increase in inventories
Increase 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
Proceeds from disposal of tangible assets
Acquisition of subsidiaries (net of cash acquired)
Acquisition of non-controlling interests
Purchase of property, plant and equipment
Capitalised development expenditure
Purchase of other intangible non-current assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
New borrowings
Expenses of raising borrowing facilities
Repayment of borrowings
Dividends paid
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net borrowings
Net (decrease)/increase in cash and cash equivalents
New borrowings
Repayment of borrowings
Expenses of raising borrowing facilities
Acquisition of subsidiary borrowings
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net borrowings in the period
Net borrowings at start of period
Net borrowings at end of period
Note
13
2
7
23
28
27
13
12
12
10
18
18
29
2019
£m
39.0
88.4
127.4
5.7
4.1
(0.5)
(0.3)
(3.5)
2.3
135.2
(14.1)
(11.7)
6.3
115.7
(7.4)
108.3
(9.2)
(17.3)
81.8
0.3
(39.7)
–
(12.0)
(1.0)
(9.5)
(61.9)
1.2
44.1
(0.2)
(36.8)
(28.4)
(20.1)
(0.2)
79.7
0.8
80.3
(0.2)
(44.1)
36.8
0.2
(2.8)
0.8
(6.2)
(0.9)
(16.4)
(211.4)
(227.8)
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)
Cash conversion is defined as cash generated from operating activities before interest and taxation as a percentage of underlying operating profit.
Stock Code: DPH
127
Financial Statements
Notes 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 with the exception of the adoption of new accounting standards as outlined below.
(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 171 to 180.
(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 67. 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 81 for details.
The consolidated financial statements are presented in Sterling, rounded to the nearest million. They are prepared on a going concern
basis and under the historical cost convention, except where IFRSs 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.
Prior Year Restatement
The comparative amounts for 30 June 2018 have been restated to provide for the statutory merger relief from share premium on shares
issued by the company when acquiring shares in AST Farma and Le Vet in February 2018. During the measurement period the share
premium amount has been reclassified to the merger reserve. As a consequence share premium has been reduced by £82.6 million and
the merger reserve increased by £82.6 million. The impact on net assets is nil.
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) Carrying value 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. The determination of an
appropriate discount rate involves estimation, and is based on the advice of third party valuers. Further detail on the assumptions
used in determining value in use calculations is provided in note 14.
(ii) Valuation of Assets & Liabilities acquired through Business Combinations
Judgement is required as part of the purchase price allocation of a business combination, specifically around the identification of
acquired assets and liabilities, such as product rights, commercial relationships, pharmacological processes and brand intangibles.
The identification is based on the Group’s industry experience and the advice of third party valuers. As part of a business
combination, fair values are attributed to the identifiable assets and liabilities of the acquired business. This requires a number of
estimates to be made, including future cash flows of the acquired business and the determination of an appropriate discount rate.
The Group will generally engage an independent valuer to advise on the determination of these fair values. Further details can be
found in note 32.
(iii) Valuation of Licensing Agreements and associated Deferred Considerations
The recognition of intangible assets and associated deferred considerations in respect of licensing agreements are recorded initially
at fair value. This is based on management’s best estimate of the timing, likelihood and quantum of future cash flows discounted
at an appropriate discount rate. The assumptions relating to future cash flows are based on management’s industry expertise and
assessment of project viability. The determination of an appropriate discount rate also involves estimation and is based on the
advice of third party valuers. A range of discount rates between 2.4% and 12.5% have been determined as being appropriate as
applicable for each specific deferred consideration liability. Further details can be found in note 33.
128
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
1. Accounting Policies continued
(iv) Uncertain Tax Positions
Provision is made for any uncertain tax positions that the Group may be exposed to at the statement of financial position date.
Uncertain tax positions are considered on an individual basis. Where management considers it probable that an additional outflow
will result from any given position, a provision is made. Such provisions are measured using management’s best estimate and
where appropriate, consideration of external advice.
At 30 June 2019 the Group held a current provision of £3.8 million (2018: £2.6 million) in respect of uncertain tax positions. The
resolution of these tax matters may take many years.
(v) 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: amortisation of acquired intangibles; remeasurement and accounting for
the passage of time in respect of contingent considerations; unwind of fair value adjustments to inventory arising from business
combinations; non-recurring expenses relating to Brexit; expenses relating to acquisition and subsequent integration activities;
rationalisation of the manufacturing organisation; loss on extinguishment of debt; and the revaluation of deferred tax balances
following substantial tax legislation changes. Management utilise this measure to isolate the impact of exceptional, one-off or non-
trading related items and consequently the classification of these items requires judgement. Further details can be found in note 5.
Adoption of New and Revised Standards
The following standards, amendments to standards or interpretations have been adopted for the first time from 1 July 2018. Please refer
to note 36 for more detail on the impact of adoption on the financial statements.
•
•
IFRS 15 ‘Revenue from contracts with customers’ 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 Group expects to be entitled to
receive.
IFRS 9 ‘Financial Instruments’ 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.
New Standards and amendments to Standards or Interpretations
The following standards, amendments to standards or interpretations are mandatory for the first time from 1 July 2019;
•
•
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 £16.4 million.
The Group will adopt IFRS16 from 1 July 2019 using the modified retrospective approach with the right of use asset on transition
equalling the lease liability. The cumulative effect of initially adopting IFRS16 will be recognised as an increase to assets and
liabilities at 1 July 2019 with no restatement of comparative information. The Group intends to avail itself of the exemptions for short
term leases and leases of low value items.
•
Based on the information currently available the estimated impact of the adoption of IFRS 16 is:
•
•
•
the recognition of additional fixed assets and lease liabilities of approximately £14.0 million on the Consolidated Statement of
Financial Position at 1 July 2019;
an increase in operating profit of £0.2 million due to the differential between the IAS 17 lease cost and the IFRS 16
depreciation cost;
a decrease in profit before tax of £0.2 million due to the differential between the IAS 17 lease cost and the IFRS 16
depreciation and interest cost.
There are no other 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.
(c) Basis of Consolidation
Subsidiary Undertakings
Subsidiary undertakings are fully consolidated from the date on which control is transferred to the Group. They cease to be consolidated
from the date that the Group no longer has control. All subsidiary undertakings have been consolidated. Inter-company transactions,
balances and unrealised gains and losses on transactions between Group companies are eliminated on consolidation. Non-controlling
interests represent the portion of shareholders’ earnings and equity attributable to third party shareholders. The financial statements of
all subsidiary undertakings are prepared to the same reporting date as the Company, with the exception of Genera Pharma d.o.o.,
Laboratorios Vencofarma do Brasil Ltda and Dechra-Brovel S.A. de C.V. (all of which prepare local financial statements to 31 December
each year, in line with local tax authority regulations).
Stock Code: DPH
129
Financial Statements
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(c) Basis of Consolidation continued
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.
(d) Foreign Currency Translation
(i)
Functional and Presentational Currency
The consolidated financial statements are presented in Sterling, which is the Group’s presentational currency, and are rounded to
the nearest 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).
(ii) Foreign Currency Translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, with the exception of
differences on transactions that are subject to effective cash flow hedges, which are recognised in other comprehensive income.
(iii) Foreign Operations
The 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
Financial Assets
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through
profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial
assets carried at FVPL are expensed in profit or loss.
Management determines the classification of its financial assets at initial recognition in accordance with IFRS 9, which defines 3
categories that debt instruments may be classified as, depending on the purpose for which the assets are held. These categories are;
•
•
•
Amortised cost;
Fair value through other comprehensive income (FVOCI);
Fair value through the profit and loss (FVPL)
Amortised cost relates to assets that are held for collection of contractual cash flows. Where those cash flows represent solely payments
of principal and interest, they are measured at amortised cost. Interest income from these financial assets is included in finance income
using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in the income statement. All
material financial assets of the Group are held at amortised cost.
130
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
1. Accounting Policies continued
(e) Accounting for Financial Assets and Liabilities, Derivative Financial Instruments and Hedging Activities continued
Financial Assets continued
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.
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 receivables are recorded at aggregate invoice value (including value added tax or other sales taxes) less loss allowances, which are
calculated using the expected loss model. Where trade receivables contain a significant financing component, they are then carried at
amortised cost using the effective interest rate method, less loss allowances. Other receivables are recorded at their transaction value.
The Group assesses, on a forward-looking basis, the expected credit losses associated with its trade and other receivables. The Group
applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of
the receivables. Where there is a specific risk surrounding a receivable then a credit loss allowance of 100% is applied.
Trade and Other Payables
Trade and other payables are initially recognised at fair value and subsequently at amortised cost.
Borrowings and Borrowing Costs
Borrowings are recognised initially at fair value net of directly attributable transaction costs incurred. Borrowings are subsequently stated
at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the
Group has a right to defer settlement of the liability for at least 12 months after the reporting date.
Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, which are assets that take a
substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets
are substantially ready for their intended use. All other borrowing costs are recognised in the income statement in the period in which
they are incurred.
(f) Property, Plant and Equipment
Owned Assets
Items of property, plant and equipment are stated at cost less accumulated depreciation 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.
Stock Code: DPH
131
Financial Statements
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued.
(f) Property, Plant and Equipment continued
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.
(h)
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.
132
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
1. Accounting Policies continued
(h)
Intangible Assets Subsequent Expenditure continued
Amortisation continued
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
5 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 lifecycle of
the product.
(i)
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.
(j) Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the
statement of cash flows.
(k)
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 an appropriate rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount
is determined for the cash generating unit to which the asset belongs.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is
estimated at each consolidated statement of financial position date and when there is an indication that the asset is impaired.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill
allocated to the cash generating units (group of units), and then to reduce the carrying amount of the other assets in the units (group of
units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Stock Code: DPH
133
Financial Statements
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(l) Dividends paid
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.
(m) 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 sponsored defined benefit arrangements in certain countries, the most material being a defined benefit pension plan in the
Netherlands. This was a funded career average pay arrangement, where pensionable salary was subject to a cap. The arrangement was
funded through an insurance contract.
From 1 January 2019 the employee pension benefit in the Netherlands is being provided through contributions to a defined contribution
scheme and the Group’s obligations under the previous pension arrangements ceased.
The Group’s net obligation in previous years in respect of defined benefit pension plans was calculated by estimating the amount of
future benefit that employees had earned in return for their service in the current and prior periods.
That benefit was 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 was performed by a qualified actuary using the projected unit credit method.
All actuarial gains and losses that arose in calculating the Group’s obligation in respect of a scheme were recognised immediately in
reserves and reported in the consolidated statement of comprehensive income. Where the calculation resulted in a benefit to the Group,
the asset recognised was 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.
134
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
1. Accounting Policies continued
(n) Revenue Recognition
Revenue from the sale of goods is measured at the fair value of the consideration and excludes intra-group sales and value added and
similar taxes. The primary performance obligation is the transfer of goods to the customer. Revenue from the sale of goods is recognised
when control of the goods is transferred to the customer, at an amount that reflects the consideration to which an entity expects to be
entitled in exchange for those goods. 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.
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 control of the goods have passed 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.
Provision for rebates, returns, discounts and other variable consideration is reflected in the transaction price at the point of recognition to
the extent that it is highly probable there will not be a significant reversal. The methodology and assumptions used to estimate rebates
and returns are based on the most likely method of calculation. This is adjusted 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.
(o) 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.
(p) Net Financing Costs
Net financing costs comprise interest payable on borrowings, unwinding of discount on provisions and deferred considerations
measured at amortised cost, 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.
(q) Contingent Considerations
The Group has adopted the financial liability model when accounting for contingent consideration in respect of licensing agreements.
The estimated future amounts payable for contingent consideration are recorded on initial recognition at the present value of the future
cash flow payable, discounted with an appropriate discount rate, with a corresponding intangible asset recorded. The unwind of the
liability, reflecting discounting for the passage of time, is recognised within the income statement as a finance expense and calculated
using a risk-free discount rate. Contingent considerations are remeasured at each reporting date and any downward remeasurement of
the related liability is adjusted against the intangible, with any excess over the carrying value of the intangible recognised in the income
statement. Any upwards remeasurement is recognised as an increase to the intangible asset.
(r) 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 an interest expense.
Stock Code: DPH
135
Financial Statements
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(s) 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.
(t) 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 26. 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 Laboratorios Vencofarma do Brasil Ltda (Venco) and the trade and assets of
Caledonian Holdings Ltd.
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.
136
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
2. Operating Segments continued
Reconciliation of reportable segment revenues, profit or loss and liabilities and other material items:
Revenue by segment
European Pharmaceuticals
NA Pharmaceuticals
– total
– total
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
Expenses relating to Brexit
Fair value uplift of inventory acquired through business combinations
Rationalisation of manufacturing organisation
Expenses relating to acquisitions and subsequent integration 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
* Restated for the reallocation of £6.0 million of revenue from the Equine category to the CAP category in 2018.
Financial Statements
2019
£m
304.0
177.8
481.8
100.3
59.2
(25.1)
134.4
(7.0)
127.4
(76.8)
0.1
(0.9)
(5.1)
(2.0)
(3.7)
39.0
0.7
(11.5)
(0.4)
27.8
(80.9)
(44.0)
(2.1)
(127.0)
(308.1)
(6.5)
(97.8)
(539.4)
340.2
34.4
57.3
29.1
20.8
481.8
48.6
–
0.3
0.5
49.4
Restated*
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)
272.7
28.4
48.7
29.4
27.9
407.1
370.2
6.9
0.4
0.5
378.0
Stock Code: DPH
137
Financial Statements
Notes to the Consolidated Financial Statements
continued
2. Operating Segments continued
Additions to Property, Plant and Equipment by segment
(including through business combinations)
European Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
Depreciation and amortisation by segment
European Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research and Development
Corporate and central costs
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
2019
£m
2018
£m
17.4
0.3
0.4
0.1
18.2
68.1
17.8
0.3
0.4
86.6
70.0
6.8
76.8
4.1
5.7
9.8
4.9
0.2
0.2
0.2
5.5
41.8
19.0
0.3
0.4
61.5
46.1
8.0
54.1
2.6
4.8
7.4
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
2019
Non-
current
assets
£m
20.1
3.7
443.8
175.8
113.0
756.4
2019
Revenue
£m
56.4
48.2
163.5
169.1
44.6
481.8
2018
Non-
current
assets
£m
18.9
2.4
493.9
180.1
74.1
769.4
2018
£m
0.2
1.3
1.5
2018
Revenue
£m
56.1
40.4
138.3
139.8
32.5
407.1
2019
£m
–
0.7
0.7
138
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
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
Fair value and other movements on deferred and contingent consideration
Non-underlying finance expense/(income)
Total finance expense
5. Non-underlying Items
Non-underlying items charged/(credited) comprise:
Amortisation of acquired intangibles
– classified within selling, general and administrative expenses
– classified within research and development expenses
Remeasurement of contingent consideration
Fair value uplift of inventory acquired through business combinations
Expenses relating to Brexit
Expenses relating to acquisitions and subsequent integration activities
Rationalisation of manufacturing organisation
Non-underlying operating profit items
Amortisation in relation to Medical Ethics Pty Ltd
Loss on extinguishment of debt
Fair value and other movements on deferred and contingent consideration
Non-underlying profit before tax items
Tax on non-underlying profit before tax items
Revaluation of deferred tax balances following the change in Dutch tax rates/US tax rates
Non-underlying profit after tax items
Financial Statements
2019
£m
10.5
–
10.5
2019
£m
–
1.0
1.0
11.5
2019
£m
70.0
6.8
(0.1)
5.1
0.9
3.7
2.0
88.4
0.2
–
1.0
89.6
(20.0)
(8.0)
61.6
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
0.2
0.4
(0.9)
64.8
(16.4)
(10.0)
38.4
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, including a full year impact in 2019 of the amortisation of the acquired intangible relating to AST Farma
and Le Vet Beheer BV.
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 Brexit represents regulatory and technology transfer costs incurred in advance of Brexit that are not expected to be
recurring.
Expenses relating to acquisitions and subsequent integration activities represents costs incurred during the acquisition and integration of
Venco (£1.3 million), Caledonian (£0.1 million), and AST Farma and Le Vet (£2.1 million).
Rationalisation of manufacturing organisation relates to the income statement cost associated with this strategic programme. Costs since the
inception of the programme have been £4.9 million. The total planned spend on this project is now £7.6 million.
Stock Code: DPH
139
Financial Statements
Notes to the Consolidated Financial Statements
continued
Interests in Associate
6.
(a) Losses in Associate
Set out below is the summarised financial information of Medical Ethics Pty Ltd for the year ended 30 June, 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
Share of underlying loss after tax
Share of amortisation of intangible asset identified on acquisition
30 June
2019
£m
0.4
(1.4)
(0.8)
2019
£m
1.9
4.1
6.0
–
(0.2)
(0.2)
5.8
2019
£m
10.5
(0.2)
(0.2)
10.1
2018
£m
0.8
(0.1)
(0.1)
2018
£m
1.9
5.2
7.1
–
(0.4)
(0.4)
6.7
2018
£m
10.8
(0.1)
(0.2)
10.5
In 2017 the Group acquired a 33.0% interest in Medical Ethics Pty Ltd, 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.
The Group’s share of the loss arising from its investment in Medical Ethics includes the effect of amortising the fair value adjustments, which
are treated as non-underlying.
On 5 July 2019 the Group acquired a further 15.0% of the issued share capital of Medical Ethics Pty Ltd for a total consideration of
AUD13.5 million (£8.0 million). Following the acquisition the Group will hold 48.0% of the issued share capital of Medical Ethics. Please
also refer to note 38.
(c) Reconciliation of summarised financial information presented to the carrying amount of its interest in associates
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
2019
£m
1.9
–
(0.2)
(0.2)
1.5
8.6
10.1
140
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
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
Profit on disposal of property, plant and equipment
Impairment of intangible assets – underlying
Recognition/(release) of impairment of receivables
Operating lease rentals payable
Research and development expenditure as incurred
Net pension (credit)/expense in relation to defined benefit pension scheme (see note 23)
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 – audit related assurance services*
Other assurance services – transaction services
Total fees paid to Auditors
* This includes £0.04 million (2018: £0.04 million) in relation to the review of the Half-Yearly Report.
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
Curtailment of defined benefit pension scheme (see note 23)
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
Financial Statements
2019
£m
158.8
2.1
5.7
80.9
(0.3)
–
0.6
3.3
25.1
(2.8)
1.0
0.4
0.5
0.1
–
1.0
2018
£m
140.4
2.0
4.8
56.6
–
0.1
(0.1)
2.8
18.3
0.8
1.4
0.4
0.5
–
0.5
1.4
2019
Number
591
151
989
1,731
2018
Number
480
128
829
1,437
2019
£m
78.8
10.5
4.5
(3.5)
2.4
92.7
2019
£m
5.7
0.3
1.4
7.4
2018
£m
72.0
9.2
3.7
–
3.3
88.2
2018
£m
5.5
0.3
1.6
7.4
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 93 to 105.
The Group operates a stakeholder personal pension scheme for certain employees and contributed between 4% and 14% of pensionable
salaries. The Group also participates in state-run pension arrangements for certain employees in Dechra Veterinary Products SAS and Dechra
Veterinary Products BV. Total pension contributions amounted to £4.5 million (2018: £3.7 million). Contributions to defined benefit pension
schemes included in the above figures total £0.3 million (2018: £0.7 million).
Stock Code: DPH
141
Financial Statements
Notes to the Consolidated Financial Statements
continued
9.
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 credit in the Consolidated Income Statement
2019
£m
1.0
16.5
1.6
19.1
(14.0)
(8.0)
(0.2)
(22.2)
(3.1)
2018
£m
2.3
11.5
(0.4)
13.4
(9.2)
(11.2)
(0.2)
(20.6)
(7.2)
The tax on the Group’s profit before taxation differs from the standard rate of UK corporation tax of 19.0% (2018: 19.0%). The differences to
this rate are explained below:
Profit before taxation
Tax at 19.0% (2018: 19.0%)
Effect of:
– expenses not deductible
– acquisition expenses
– research and development related tax credits
– patent box tax credits
– impact of financing (income not taxable)
– share in results of associates
– effects of overseas tax rates
– movement in unrecognised deferred tax
– adjustment in respect of prior years
– change in tax rates
Total income tax credit in the Consolidated Income Statement
2019
£m
27.8
5.3
1.2
0.4
(0.1)
(2.6)
(0.9)
(0.1)
0.4
–
1.3
(8.0)
(3.1)
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 -11.2% (excluding non-underlying items the effective tax rate is 21.2%).
Tax (Charge)/Credit 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
2019
£m
–
–
0.4
(1.2)
(0.8)
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)
2018
£m
–
–
1.0
0.9
1.9
The UK current tax rate used for the period is 19.0% 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 17.0% with effect from 1 April 2020. Deferred tax has
been calculated using the rate of 19.0% and 17.0% based on the timing of when each individual deferred tax balance is expected to reverse
in the future.
The Dutch current tax rate used for the period is 25.0%, however this rate is reducing to 22.5% in 2020 and to 20.5% in 2021. The tax rate
applied for deferred tax purposes is based on the timing of when each individual deferred tax balance is expected to reverse in the future. The
impact of revaluing the deferred tax balances has been included within non-underlying items.
In the results to 30 June 2018 US tax reform gave rise to a transitional one-off non-underlying tax credit of £10.0 million primarily due to the
revaluation of the US deferred tax assets and liabilities following the reduction in the US Federal rate from 35.0% to 21.0%.
Similarly, deferred tax arising in other overseas jurisdictions has been based on the enacted rate.
142
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
9.
Income Tax Expense continued
EU CFC Challenge
In October 2017 the European Commission (the Commission) opened a State Aid investigation into the Group Financing Exemption in the
UK Controlled Foreign Company (CFC) rules. On 25 April 2019 the Commission issued its decision on the CFC Group Financing Exemption
concluding that part of the UK measures were unlawful and incompatible instructing the UK Government to recover the State Aid. The UK
Government filed an annulment appeal on 12 June 2019. In common with other UK-based international companies Dechra have financing
arrangements in line with the current UK legislation. We have calculated the maximum potential State Aid claimed as £4.0 million excluding
penalties and interest.
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.
10. Dividends
Final dividend paid in respect of prior year but not recognised as a liability in that year:
18.17 pence per share (2018: 15.33 pence per share)
Interim dividend paid: 9.50 pence per share (2018: 7.33 pence per share)
Total dividend 27.67 pence per share (2018: 22.66 pence per share) recognised as distributions
to equity holders in the period
Proposed final dividend for the year ended 30 June 2019: 22.10 pence per share
(2018: 18.17 pence per share)
Total dividend paid and proposed for the year ended 30 June 2019: 31.60 pence per share
(2018: 25.50 pence per share)
2019
£m
18.6
9.8
28.4
22.7
32.5
2018
£m
14.3
7.5
21.8
18.6
26.1
In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2019 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 2020. There are no
income tax consequences. The final dividend for the year ended 30 June 2018 is shown as a deduction from equity in the year ended 30 June 2019.
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
* Underlying measures exclude non-underlying items as defined in note 1.
2019
Pence
90.24
30.15
90.01
30.07
2019
£m
92.5
30.9
2018
Pence
76.85
37.24
76.45
37.04
2018
£m
74.5
36.1
Number
102,504,510
257,838
102,762,348
Number
96,942,002
509,209
97,451,211
At 30 June 2019, there are 421,486 options (2018: 231,551) that are excluded from the EPS calculations as they are not dilutive for the period
presented but may become dilutive in the future.
Stock Code: DPH
143
Financial Statements
Notes to the Consolidated Financial Statements
continued
12. Intangible Assets
Goodwill
£m
Software
£m
Development
costs
£m
Patent
rights
£m
Marketing
authorisations
£m
Acquired
intangibles
£m
Cost
At 1 July 2017
Additions
Acquisitions through business
combinations
Remeasurement
Disposals
Foreign exchange adjustments
At 30 June 2018 and 1 July 2018
Additions
Acquisitions through business
combinations
Remeasurement
Disposals
Foreign exchange adjustments
At 30 June 2019
Accumulated Amortisation
At 1 July 2017
Charge for the year
Acquisitions through business
combinations
Impairment
Disposals
Foreign exchange adjustments
At 30 June 2018 and 1 July 2018
Charge for the year
Foreign exchange adjustments
At 30 June 2019
Net book value
At 30 June 2019
At 30 June 2018
128.1
–
102.3
–
–
(1.1)
229.3
–
18.8
–
–
4.0
252.1
–
–
–
–
–
–
–
–
–
–
252.1
229.3
12.7
4.2
–
–
–
(0.2)
16.7
2.8
0.1
–
–
0.1
19.7
2.9
0.8
–
0.1
–
(0.1)
3.7
2.5
(0.1)
6.1
13.6
13.0
11.7
1.7
–
–
(0.2)
–
13.2
1.2
–
–
(0.3)
(0.1)
14.0
6.1
1.2
–
–
(0.2)
–
7.1
1.3
0.1
8.5
5.5
6.1
5.3
0.9
(2.1)
–
(0.2)
–
3.9
–
0.4
–
–
–
4.3
3.1
0.5
(0.4)
–
(0.2)
–
3.0
0.3
–
3.3
1.0
0.9
1.0
–
–
–
–
(0.1)
0.9
–
–
–
–
–
0.9
–
–
–
–
–
–
–
–
–
–
0.9
0.9
409.4
8.7
262.3
(3.1)
–
(3.3)
674.0
7.9
18.2
(1.5)
–
11.2
709.8
159.8
54.1
–
–
–
0.5
214.4
76.8
4.7
295.9
413.9
459.6
Total
£m
568.2
15.5
362.5
(3.1)
(0.4)
(4.7)
938.0
11.9
37.5
(1.5)
(0.3)
15.2
1,000.8
171.9
56.6
(0.4)
0.1
(0.4)
0.4
228.2
80.9
4.7
313.8
687.0
709.8
The assets within patent rights comprises the rights to Equidone® (which was launched in the USA during 2011, and has a carrying value of
£0.3 million with a remaining amortisation period of 2 years), and the in-licensed products within Canada (acquired in 2016 with a carrying
value of £0.3 million and has a remaining amortisation period of 7.5 years). During the year, £0.4 million was added to patent rights within
EU Pharmaceuticals Segment from the acquisition of Venco.
£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.
144
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
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 2017
Additions
Acquisitions through business combinations
Remeasurement
Foreign exchange adjustments
At 30 June 2018 and 1 July 2018
Additions
Reclassification*
Acquisitions through business
combinations
Remeasurement
Foreign exchange adjustments
At 30 June 2019
Accumulated Amortisation
At 1 July 2017
Charge for the year
Foreign exchange adjustments
At 30 June 2018 and 1 July 2018
Charge for the year
Reclassification*
Foreign exchange adjustments
At 30 June 2019
Net book value
At 30 June 2019
At 30 June 2018
1.7
–
4.9
–
0.1
6.7
–
–
–
–
0.1
6.8
0.6
0.7
–
1.3
2.3
–
0.1
3.7
3.1
5.4
50.5
–
–
–
(0.9)
49.6
–
–
–
–
1.8
51.4
12.2
8.0
–
20.2
6.8
–
0.9
27.9
23.5
29.4
13.3
–
2.4
–
(0.3)
15.4
–
–
0.6
–
0.3
16.3
2.3
2.1
–
4.4
1.6
–
0.1
6.1
10.2
11.0
114.5
–
255.0
–
(2.2)
367.3
–
2.9
17.6
–
5.8
393.6
20.4
26.9
0.1
47.4
55.0
0.2
1.7
104.3
289.3
319.9
229.4
8.7
–
(3.1)
–
235.0
7.9
(2.9)
–
(1.5)
3.2
241.7
124.3
16.4
0.4
141.1
11.1
(0.2)
1.9
153.9
87.8
93.9
* Apex IPR&D acquired October 2016 has been reclassified from Patent rights to Capitalised development costs.
Total
£m
409.4
8.7
262.3
(3.1)
(3.3)
674.0
7.9
–
18.2
(1.5)
11.2
709.8
159.8
54.1
0.5
214.4
76.8
–
4.7
295.9
413.9
459.6
Stock Code: DPH
145
Financial Statements
Notes to the Consolidated Financial Statements
continued
12. 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
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
Intangible assets arising from the acquisition
of Putney
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 asset related to a US dental licensing
agreement
Intangible asset related to Bioveta
Intangible asset related to an injectable solution
licensing agreement
Intangible assets arising from the acquisition of
RxVet
Intangible assets arising from the acquisition
of AST Farma and Le Vet
Marketing and distribution rights
Marketing and distribution rights
Marketing and distribution rights
Marketing and distribution rights
Brand
Product, brand, technology,
marketing and distribution rights
Intangible asset related to Premune
Intangible assets related to an injectable
solution licensing agreement
Intangible assets arising from the acquisition
of Caledonian
Intangible assets arising from the acquisition
of Venco
Product
Marketing and distribution rights
Product, brand, technology, marketing
and distribution rights
Product, brand, technology, marketing
and distribution rights
Carrying value
£m
20.4
Sub-Total
carrying value
£m
20.4
Remaining
amortisation
period
6 ½ years
0.8
25.3
3.2
0.5
1.3
0.8
0.4
7.4
6.8
23.9
46.8
13.4
2.1
0.2
27.3
0.6
2.1
6.1
0.1
72.1
108.3
15.3
1.4
1.8
0.1
7.9
3.9
11.9
0.7
0.6
0.4
0.8
1 ½ years
25.3
3 years
3.2
0.5
1.3
5 years
3 years
2 ½ years
3 ½ years
6 ½ years
11 ½ years
8.6 Genera – total
7 years
7 years
9 years
77.5 Putney – total
14 years
11 years
2 years
Apex – total
10 years
8 years
10 years
10 years
½ year
15.7
27.3
0.6
2.1
6.1
0.1
8 ½ years
7 ½ years
9 years
1 ½ years
3 ½ years
242.198.9 AST Farma and
Le Vet – total
2 years
15 years
0.1
7.9
3.9
4 ½ years
9 ½ years
4 ½ years
7 ½ years
1 ½ years
Venco –total
13.6
413.9
146
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
13. Property, Plant and Equipment
Cost
At 1 July 2017
Additions
Acquired through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2018 and 1 July 2018
Additions
Acquired through business combinations
Disposals
Foreign exchange adjustments
At 30 June 2019
Accumulated Depreciation
At 1 July 2017
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2018 and 1 July 2018
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2018
Net book value
At 30 June 2019
At 30 June 2018
Contracted capital commitments
Assets in the course of construction included above
Freehold
land and
buildings
£m
Short
leasehold
buildings
£m
Motor
vehicles
£m
Plant and
fixtures
£m
39.2
0.1
–
–
0.1
39.4
2.5
4.5
–
0.4
46.8
12.1
1.2
(0.2)
0.1
13.2
1.2
–
0.1
14.5
32.3
26.2
4.4
–
–
(0.2)
–
4.2
–
–
–
–
4.2
2.7
0.3
(0.3)
–
2.7
0.3
–
–
3.0
1.2
1.5
0.4
0.1
–
–
–
0.5
–
0.2
(0.1)
(0.2)
0.4
0.2
0.1
–
–
0.3
0.1
(0.1)
(0.1)
0.2
0.2
0.2
36.4
5.2
0.1
(1.7)
–
40.0
9.0
2.0
(2.1)
0.5
49.4
20.2
3.2
(1.4)
0.6
22.6
4.1
(2.1)
0.1
24.7
24.7
17.4
2019
£m
0.8
4.7
Total
£m
80.4
5.4
0.1
(1.9)
0.1
84.1
11.5
6.7
(2.2)
0.7
100.8
35.2
4.8
(1.9)
0.7
38.8
5.7
(2.2)
0.1
42.4
58.4
45.3
2018
£m
1.5
0.2
Stock Code: DPH
147
Financial Statements
Notes to the Consolidated Financial Statements
continued
14. 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.
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. A review was performed to ensure that the carrying value of individual products capitalised are
reflective of the projected cash flow generation 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 for years three, four and five of 3% (2018: 3%) for Dechra Veterinary
Products EU and Dechra Veterinary Products NA and 11% (2018: 3%) for Dechra Veterinary Products International; and
Thereafter, a terminal value is calculated based on year five cash flows, and assuming a long term growth rate of 0% (2018: 0%) for
Dechra Veterinary Products EU and Dechra Veterinary Products NA and 1.5% (2018: 0%) for Dechra Veterinary Products International.
The projections covered a period of five 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 2019 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 Veterinary Products International
Goodwill
carrying
value
£m
169.4
54.9
27.8
252.1
2019
Indefinite
life assets
carrying
value
£m
0.9
–
–
0.9
2018
Goodwill
carrying
value
£m
167.5
Indefinite
life assets
carrying value
£m
0.9
52.9
8.9
229.3
–
–
0.9
Pre-tax
discount
rate
%
12.4
12.5
17.1
Pre-tax
discount
rate
%
11.6
11.2
14.7
Total
value
£m
170.3
54.9
27.8
253.0
Total
value
£m
168.4
52.9
8.9
230.2
148
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
14. Impairment Reviews continued
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 used (as set out above) 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.
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
(b) Unrecognised Deferred Tax
Assets
Liabilities
Net
2019
£m
–
–
1.1
1.4
1.0
1.6
–
0.3
5.4
2018
£m
–
–
0.9
1.2
2.4
2.1
1.2
1.0
8.8
2019
£m
(80.8)
(5.2)
–
–
–
–
–
–
(86.0)
2018
£m
(98.4)
(3.4)
–
–
–
–
–
–
(101.8)
2019
£m
(80.8)
(5.2)
1.1
1.4
1.0
1.6
–
0.3
(80.6)
2018
£m
(98.4)
(3.4)
0.9
1.2
2.4
2.1
1.2
1.0
(93.0)
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 (2018: £1.8 million). The estimated unprovided deferred tax liability in relation to these temporary differences
is £0.1 million (2018: £0.1 million).
Deferred tax assets in relation to losses amounting to £0.7 million (2018: £0.9 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.
Stock Code: DPH
149
Financial Statements
Notes to the Consolidated Financial Statements
continued
15. Deferred Taxes continued
(c) Movements during the Year
Intangible assets
Property, plant and equipment
Inventories
Receivables/payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations
Intangible assets
Property, plant and equipment
Inventories
Receivables/payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations
Balance at
30 June
2017
£m
(61.3)
(3.8)
0.8
3.5
1.6
8.4
1.3
1.0
(48.5)
Restated*
Balance at
30 June
2018
£m
(98.4)
(3.4)
0.9
2.8
2.4
2.1
1.2
1.0
(91.4)
Acquired
through
business
combinations
£m
(64.6)
–
(2.0)
–
–
–
–
–
(66.6)
Acquired
through
business
combinations
£m
(5.1)
(1.4)
(0.7)
–
–
–
–
–
(7.2)
Recognised
in income
£m
26.6
0.4
2.0
(2.3)
(0.1)
(6.1)
0.1
–
20.6
Recognised
in income
£m
25.6
(0.3)
1.0
(1.6)
(0.2)
(0.5)
(1.1)
(0.7)
22.2
Recognised
in equity/OCI
£m
–
–
–
–
0.9
–
–
–
0.9
Recognised
in equity/OCI
£m
–
–
–
–
(1.2)
–
–
–
(1.2)
Foreign
exchange
adjustments
£m
0.9
–
0.1
–
–
(0.2)
(0.2)
–
0.6
Foreign
exchange
adjustments
£m
(2.9)
(0.1)
(0.1)
0.2
–
–
(0.1)
–
(3.0)
Balance at
30 June
2018
£m
(98.4)
(3.4)
0.9
1.2
2.4
2.1
1.2
1.0
(93.0)
Balance at
30 June
2019
£m
(80.8)
(5.2)
1.1
1.4
1.0
1.6
–
0.3
(80.6)
* The receivables/payables deferred tax asset at 1 July 2019 has been restated as detailed in note 36 Changes to Accounting Policies.
Deferred tax assets and liabilities are analysed in the statement of financial position after offset, to the extent there is a legally enforceable right,
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
2019
£m
0.9
(81.5)
(80.6)
2019
£m
25.2
8.8
70.0
104.0
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 £nil (2018: £5.2 million) 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
2019
£m
91.1
4.9
3.9
99.9
2018
£m
76.0
3.0
2.6
81.6
150
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
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 and deferred income
20. Current Tax Liabilities
Corporation tax receivable
Corporation tax payable
21. Borrowings
Current liabilities:
Bank loans
Non-current liabilities:
Bank loans
Arrangement fees netted off
Total borrowings
Financial Statements
2019
£m
80.3
2019
£m
31.9
1.9
5.1
56.6
95.5
2019
£m
7.9
(16.3)
(8.4)
2019
£m
1.2
1.2
309.6
(2.7)
306.9
308.1
2018
£m
79.7
2018
£m
33.0
12.3
4.4
26.0
75.7
2018
£m
–
(5.9)
(5.9)
2018
£m
1.2
1.2
293.3
(3.4)
289.9
291.1
At 30 June 2019, £128.8 million was drawn against the £235.0 million Revolving Credit Facility maturing 25 July 2024. The facility is not
secured on any specific assets of the Group but is supported by a joint and several cross guarantee structure. Interest is charged on this
facility at a minimum of 1.30% over LIBOR and a maximum of 2.20% over LIBOR, dependent upon the Leverage (the ratio of Total Net Debt
to Adjusted EBITDA) of the Group. As at 30 June 2019, interest being charged on this facility is 1.70% above LIBOR. All covenants were met
during the year ended 30 June 2019.
At 30 June 2019, £179.3 million was drawn against the £350.0 million Term Loan Facility maturing 31 December 2020. The facility is not
secured on any specific assets of the Group but is supported by a joint and several cross guarantee structure. Interest is charged on this
facility at a minimum of 1.10% over LIBOR and a maximum of 2.00% over LIBOR, dependent upon the Leverage (the ratio of Total Net Debt
to Adjusted EBITDA) of the Group. As at 30 June 2019, interest being charged on this facility is 1.50% above LIBOR. All covenants were met
during the year ended 30 June 2019. The availability period of the Term Loan Facility expires on 31 December 2020.
Arrangement fees of £0.2 million were incurred on the two facilities during the year, these being released to the income statement over the life
of the facility.
No interest has been capitalised during the year (2018: £nil).
Genera also has borrowing facilities of £5.8 million, of which £2.7 million was drawn down at 30 June 2019. 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.
Stock Code: DPH
2019
£m
1.2
180.5
129.1
310.8
2018
£m
1.2
1.3
292.0
294.5
151
Financial Statements
Notes to the Consolidated Financial Statements
continued
22. Provisions
At start of period
Provision recognised
Provision utilised
Foreign exchange differences
At end of period
Provision for
PPE grant
£m
(1.8)
–
0.5
0.1
(1.2)
Environmental
Health &
Safety
£m
(0.5)
–
0.2
–
(0.3)
Deferred Rent
£m
(0.5)
–
–
–
(0.5)
Total
£m
(2.8)
–
0.7
0.1
(2.0)
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
In the prior year and for the period to 31 December 2018 the Group sponsored a defined benefit pension scheme in the Netherlands. This was
a funded career average pay arrangement, where pensionable salary was subject to a cap and was financed through an insurance contract.
The scheme ceased on 31 December 2018.
From 1 January 2019 the employee pension benefit in the Netherlands is being provided through contributions to a new defined contribution
scheme and the Group’s obligations under the previous pension arrangement ceased. Accordingly the Group ceased to recognise assets and
liabilities in respect of the previous arrangement from 1 January 2019 and recognised a curtailment gain of £3.5 million through the income
statement.
The other defined benefit pension arrangements operated by the Company are unfunded: Jubilee awards of £0.1 million (2018: £0.1 million) for
employees in the Netherlands are recognised within other payables in the Consolidated Statement of Financial Position as at 30 June 2019.
The pension cost relating to the defined benefit pension arrangement in the Netherlands was 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
31 December
2018
1.90%
1.90%
2.40%
0.34%
0.00%
0.00%
30 June
2018
1.90%
1.90%
2.40%
0.34%
0.00%
0.00%
In valuing the liabilities of the pension scheme at 31 December 2018 and 30 June 2018, mortality assumptions were made as indicated below.
The mortality assumption follows the Prognosetafel AG2016 (2018: 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
18.7
20.8
Female
20.6
22.7
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
2019
£m
–
–
–
2018
£m
(20.3)
17.3
(3.0)
152
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
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 from change in financial assumptions
– Gain from change in demographic assumptions
– Experience losses
Settlement
Curtailment
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
Settlement
Foreign exchange difference on translation
Fair value of scheme assets at end of the period
Analysis of the Amount (Credited)/Charged to the Income Statement
Service cost
Net interest cost
Gain on curtailment of pension scheme
Additional charges
Net pension (credit)/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
Financial Statements
2019
£m
20.3
0.6
0.2
0.1
–
0.1
(0.3)
–
(17.5)
(3.5)
–
–
2019
£m
17.3
0.2
(0.1)
0.3
0.1
–
0.1
(0.3)
(17.5)
(0.1)
–
2019
£m
0.6
–
(3.5)
0.1
(2.8)
2019
£m
0.5
–
0.5
2018
£m
17.9
1.2
0.4
0.2
–
0.6
–
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
1.2
0.1
(0.6)
0.1
0.8
2018
£m
0.5
–
0.5
Stock Code: DPH
153
Financial Statements
Notes to the Consolidated Financial Statements
continued
23. Employee Benefit Obligations continued
Scheme Assets
The Group’s defined benefit pension scheme in the Netherlands was financed through an insurance contract. Under this contract, a market
price for the assets in respect of this insurance contract was not available. In accordance with IAS 19 for such insurance policies, an asset
value was calculated by discounting expected future cash flows. The discount rate used for this calculation reflected 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 was as follows:
Total fair value of assets
Actual return on scheme assets
Discount rate used to value assets
2019
£m
–
–
–
2018
£m
17.3
1.5
1.90%
The long term rate of return on pension plan assets was determined by aggregating the expected return for each asset class over the strategic
asset allocation as at the year end. This rate of return was then adjusted for any expected profit sharing based on market related returns on
notional loans.
History of Amounts in the Current Period
Present value of funded defined benefit obligations
Fair value of scheme assets
Deficit in the scheme
2019
£m
–
–
–
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)
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.
During the year the Group has implemented physical cash pooling. This has resulted in increased cash being held in Dechra Pharmaceuticals
PLC as the Master Account Holder.
154
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
24. Financial Instruments and Related Disclosures continued
Capital Management
The capital structure of the Group consists of net borrowings and shareholders’ equity. At 30 June 2019, net borrowing was £227.8 million
(2018: net borrowing was £211.4 million), whilst shareholders’ equity was £509.1 million (2018: £505.0 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 2019 and 2018.
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; and
£5.8 million bank loans;
The Group’s revised borrowing facilities at 30 June 2019 are detailed in note 21.
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.
Stock Code: DPH
155
Financial Statements
Notes to the Consolidated Financial Statements
continued
24. Financial Instruments and Related Disclosures continued
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations.
The Group considers its maximum credit risk to be £96.0 million (2018: £79.0 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 22.0% of gross trade
receivables at 30 June 2019 (2018: 21.2%). This customer accounted for 20.4% (2018: 19.8%) of total Group revenues. One other customer
accounted for more than 10% of total Group revenues (2018: one).
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of
recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group.
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 2019 and 30 June
2018. The following assumptions were used to estimate the fair values:
•
•
•
•
Cash and cash equivalents – approximated to the carrying amount.
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.
Analysis of Financial Instruments
The financial instruments of the Group measured at amortised cost are analysed as follows:
2019
2018
Financial assets
Cash and cash equivalents
Financial assets measured at amortised cost
– trade receivables
– other receivables
Total financial assets
Financial liabilities
Bank loans and overdrafts
Trade payables
Other payables
Accruals
Deferred and contingent consideration
Total financial liabilities
Net financial liabilities
Carrying
value
£m
80.3
80.3
91.1
4.9
96.0
176.3
(310.8)
(31.9)
(1.9)
(56.6)
(36.0)
(437.2)
(260.9)
Fair
value
£m
80.3
80.3
91.1
4.9
96.0
176.3
(310.8)
(31.9)
(1.9)
(56.6)
(36.0)
(437.2)
(260.9)
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)
156
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
24. Financial Instruments and Related Disclosures continued
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 2019
Financial instruments held at fair value through the profit and loss
Derivative financial liabilities
Deferred and contingent consideration
Total
30 June 2018
Available for sale financial instruments
Derivative financial liabilities
Deferred and contingent consideration
Total
Level 1
£m
–
–
–
–
Level 1
£m
–
–
–
–
Level 2
£m
–
–
–
–
Level 2
£m
–
–
–
–
Level 3
£m
–
–
(36.0)
(36.0)
Level 3
£m
–
–
(36.8)
(36.8)
Total
£m
–
–
(36.0)
(36.0)
Total
£m
–
–
(36.8)
(36.8)
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 2019.
Refer to note 4 for amounts recognised in the Consolidated Income Statement in the year.
Credit Risk
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade receivables.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics, and the days
past due. The expected loss rates are based on the payment profiles of sales over a period of 36 months before 30 June 2019 and the
corresponding historical losses experienced within this period. The historical loss rates are adjusted to reflect current and forward- looking
information on macroeconomic factors affecting the ability of the customers to settle the receivables.
The loss allowance provision as at 30 June 2019 is determined as follows:
30 June 2019
Expected loss rate
Gross carrying amount - trade receivables
Loss allowance
Specific loss allowance
Total loss allowance
Past due
(up to one
month)
£m
0.03%
4.2
–
–
–
Past due
(one to three
months)
£m
0.03%
1.3
–
–
–
Past due
(over three
months)
£m
75.0%
0.9
0.2
0.7
0.9
Not due
£m
0.03%
85.8
–
0.2
0.2
Total
£m
92.2
0.2
0.9
1.1
The loss allowance provisions for trade receivables as at 30 June 2018 is not materially different to the balance reported and therefore no
restatement is necessary through the opening retained earnings for 1 July 2018.
Stock Code: DPH
157
Financial Statements
Notes to the Consolidated Financial Statements
continued
24. Financial Instruments and Related Disclosures continued
Credit Risk continued
The movement in the loss allowances for trade debtors at 30 June 2019 reconcile to the opening loss allowances as follows:
At start of period
Impairment provision recognised/(released)
Impairment provision utilised
At end of period
2019
£m
0.6
0.6
(0.1)
1.1
2018
£m
3.2
(0.1)
(2.5)
0.6
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 2019 and 30 June 2018. Where
interest is at floating rates, the future interest payments have been estimated using current interest rates:
At 30 June 2019
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 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
Deferred and
contingent
consideration
£m
Bank loans
and
overdrafts
£m
Trade and
other
payables
£m
(36.0)
–
(26.4)
(62.4)
(2.9)
(2.7)
(10.7)
(9.3)
(3.2)
(3.8)
(29.8)
(62.4)
(308.1)
(2.7)
(1.9)
(312.7)
(2.6)
(0.6)
(180.7)
–
–
–
(128.8)
(312.7)
(33.8)
–
–
(33.8)
(33.8)
–
–
–
–
–
–
(33.8)
Deferred and
contingent
consideration
£m
Bank loans
and
overdrafts
£m
Trade and
other
payables
£m
(36.8)
–
(25.2)
(62.0)
(5.0)
(4.2)
(4.7)
(9.4)
(3.0)
(3.9)
(31.8)
(62.0)
(291.1)
(3.4)
(1.4)
(295.9)
(1.9)
(0.6)
(1.3)
(134.3)
–
(157.8)
–
(295.9)
(45.3)
—
—
(45.3)
(45.3)
–
–
–
–
–
–
(45.3)
Total
£m
(377.9)
(2.7)
(28.3)
(408.9)
(39.3)
(3.3)
(191.4)
(9.3)
(3.2)
(3.8)
(158.6)
(408.9)
Total
£m
(373.2)
(3.4)
(26.6)
(403.2)
(52.2)
(4.8)
(6.0)
(143.7)
(3.0)
(161.7)
(31.8)
(403.2)
158
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
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 2019 and 30 June 2018 were:
At 30 June 2019
Financial assets
Trade receivables
Other receivables
Cash balances
Financial liabilities
Bank loans and overdrafts
Trade payables
Other payables
Deferred consideration
Net balance sheet exposure
At 30 June 2018
Financial assets
Trade receivables
Other receivables
Cash balances
Financial liabilities
Bank loans and overdrafts
Trade payables
Deferred consideration
Net balance sheet exposure
Australian
Dollar
£m
Danish
Krone
£m
–
–
0.6
0.6
–
–
–
(21.9)
(21.9)
(21.3)
–
–
–
–
(2.2)
–
–
–
(2.2)
(2.2)
Australian
Dollar
£m
Danish
Krone
£m
–
–
0.8
0.8
–
–
(24.1)
(24.1)
(23.3)
1.6
–
1.3
2.9
–
–
–
–
2.9
Euro
£m
7.8
0.1
31.7
39.6
(2.7)
(2.7)
(0.7)
(6.7)
(12.8)
26.8
Euro
£m
3.9
–
1.5
5.4
(7.6)
(5.8)
(2.0)
(15.4)
(10.0)
US
Dollar
£m
0.5
–
15.2
15.7
(92.2)
(0.4)
(0.3)
(6.6)
(99.5)
(83.8)
US
Dollar
£m
1.1
0.4
10.3
11.8
(107.9)
(0.2)
(9.6)
(117.7)
(105.9)
Other
£m
1.6
–
15.7
17.3
–
–
–
–
–
17.3
Other
£m
0.1
0.2
4.0
4.3
–
(0.3)
–
(0.3)
4.0
Sensitivity Analysis
Interest Rate Risk
A 2.0% increase in annual interest rates compared to those ruling at 30 June 2019 would reduce Group profit before taxation and equity by
£6.0 million (2018: £4.4 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 2019, we have been exposed to transactional and translational currency risk. In addition to the transactional gain of £0.7 million being
recognised in the Consolidated Income Statement, £3.8 million foreign exchange gain 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
Stock Code: DPH
Profit after
taxation
£m
(0.2)
–
3.7
159
Financial Statements
Notes to the Consolidated Financial Statements
continued
24. Financial Instruments and Related Disclosures continued
The sensitivities on the previous page 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
2019
Number
102,329,635
321,967
102,651,602
£m
1.0
–
1.0
2018
Number
93,178,756
9,150,879
102,329,635
£m
0.9
0.1
1.0
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, 321,967 new ordinary shares of 1 pence each (2018: 358,302 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 £1,239,011 (2018: £1,026,837). 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.
During the 2018 financial year, 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
2019
£m
0.4
(0.4)
–
–
2018
£m
0.7
(0.3)
–
0.4
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). There were no ordinary shares
held by the Employee Benefit Trust at 30 June 2019 (2018: 21,033).
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
2019
£m
–
–
–
–
–
–
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).
160
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
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 the 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.
Stock Code: DPH
161
Financial Statements
Notes to the Consolidated Financial Statements
continued
Exercised
Number
Granted
Number
Lapsed
Number
28. Share-based Payments continued
Year ended 30 June 2019
Unapproved Share Option Scheme
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
26 October 2018
Approved Share Option Scheme
16 September 2013†
11 September 2014†
15 September 2015†
18 March 2016†
19 September 2016
2 March 2018
26 October 2018
Long Term Incentive Plan
15 September 2015
22 March 2016
19 September 2016
10 October 2016
7 March 2017
2 March 2018
26 October 2018
Exercise
Period
2011–2018
2012–2019
2013–2020
2014–2021
2015–2022
2016–2023
2017–2024
2018–2025
2019–2026
2019–2026
2020–2028
2021–2028
2016–2023
2017–2024
2018–2025
2019–2026
2019–2026
2021–2028
2021–2028
2018–2019
2019
2019–2020
2019–2020
2019
2020–2021
2021–2022
Long Term Incentive Plan (Qualifying LTIP Awards)
2 March 2018
2 March 2018
26 October 2018
26 October 2018
1 March 2019
1 March 2019
2021-2028
2020–2021
2021-2028
2021-2022
2022-2029
2022-2023
SAYE Option Scheme
7 April 2014
13 October 2014
12 October 2015
13 October 2016
12 October 2017
29 November 2018
Total
Weighted average exercise price*
2017–2019
2017–2020
2018–2021
2019–2022
2020–2023
2021-2024
Exercise
price
per share
Pence
364.63
381.15
418.81
461.97
541.00
721.00
763.00
975.00
1118.00
1369.00
2506.00
2166.00
721.00
763.00
975.00
1118.00
1369.00
2506.00
2166.00
–
–
–
–
–
–
–
2506.00
–
2166.00
–
2429.00
–
552.00
614.00
792.00
1095.00
1646.00
1974.00
At
1 July
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
–
(6,532)
—
(3,221)
(13,000)
(3,765)
(7,341)
(22,436)
(475)
–
–
–
(56,770)
–
(2,659)
(12,485)
(5,050)
–
–
–
(20,194)
(155,834)
(5,857)
–
–
(21,033)
–
–
(182,724)
–
–
–
–
–
–
–
20,101
16,378
79,761
42,484
69,548
–
228,272
1,004,547
759.65p
(18,471)
(431)
(63,536)
(519)
(355)
–
(83,312)
(343,000)
360.10p
At
30 June
2019
Number
–
–
2,177
–
–
3,000
7,000
18,983
475
72,352
98,639
120,036
322,662
500
2,000
955
–
9,148
7,993
2,906
23,502
–
–
143,969
–
–
28,240
98,679
270,888
5,136
49,217
1,350
3,115
1,235
4,940
64,993
–
13,419
15,373
39,192
61,576
33,389
162,949
844,994
994.14p
–
–
–
–
–
–
–
–
–
–
–
130,209
130,209
–
–
–
–
–
–
4,291
4,291
–
–
–
–
–
–
124,268
124,268
–
–
1,350
3,115
1,235
4,940
10,640
–
–
–
–
–
34,527
34,527
303,935
958.52p
(2,722)
(2,177)
–
–
–
–
–
164
–
(6,000)
(13,671)
(10,173)
(34,579)
–
–
–
–
–
(1,197)
(1,385)
(2,582)
–
(2,929)
(5,494)
(5,319)
–
–
(25,589)
(39,331)
(2,394)
(25,064)
–
–
–
–
(27,458)
(1,630)
(2,528)
(852)
(2,773)
(7,617)
(1,138)
(16,538)
(120,488)
772.84p
* 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 2019 are 35,090.
162
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
28. 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
2020–2028
2017–2018
2018–2019
2019–2019
2019–2020
2019–2020
2018
2019
2020–2021
Long Term Incentive Plan (Qualifying LTIP
Awards)
2 March 2018
2 March 2018
2021–2028
2020–2021
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
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
–
–
–
–
–
–
–
–
2506.00
–
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
(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
–
–
–
–
–
–
–
–
–
–
–
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
* 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.
Stock Code: DPH
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
–
–
20,101
16,378
79,761
42,484
69,548
228,272
1,004,547
759.65p
163
Financial Statements
Notes to the Consolidated Financial Statements
continued
28. Share-based Payments continued
The weighted average exercise price of options eligible to be exercised at 30 June 2019 was 862.72p (2018: 596.85p). For options exercised
during the year, the weighted average market price at the date of exercise was 2,365.36p (2018: 2,142.35p). The weighted average remaining
contractual lives of options outstanding at the Consolidated Statement of Financial Position date was 4.3 years (2018: 3.8 years).
Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2018 were exercisable at 30 June
2019. No options issued under SAYE plans were exercisable at 30 June 2019 (2018: nil).
The fair values for shares granted under the Unapproved, Approved and SAYE Option Schemes have been calculated using the Black–Scholes
option pricing model. The fair values of shares awarded under the Long Term Incentive Plan have been calculated using a Monte Carlo
simulation model which takes into account the market-based performance conditions attaching to those shares. The assumptions used in
calculating fair value are as follows:
Long Term Incentive Plan
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share
Unapproved and Approved Share Option Schemes
07/03/17
21,033
1652p
Nil
2 years
0.12%
22%
1.54%
1500p
26/10/18
& 01/03/19
6,876
2188p
2166p
6.5 years
1.05%
28%
0.90%
596p
10/10/16
5,319
1389p
Nil
3 years
0.12%
22%
1.54%
1108p
02/03/18
17,917
2548p
2506p
6.5 years
1.20%
23%
1.91%
521p
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
26/10/18 & 01/03/19
26/10/18 & 01/03/19
30/09/21
30/09/21
Standalone
Nil-cost options
2 years
Conditional
share awards
2 years
23,919
2188p
Nil
2.93 years
0.75%
27.95%
0.90%
943p
47,838
2188p
Nil
2.93 years
0.75%
27.95%
0.90%
1939p
4,815
2188p
Nil
2.93 years
0.75%
27.95%
0.90%
943p
9,629
2188p
Nil
2.93 years
0.75%
27.95%
0.90%
1939p
Nil-cost options
(CSOP linked and
standalone options)
N/A
15,374
2188p
Nil
2.93 years
0.75%
27.95%
0.90%
1036p
30,748
2188p
Nil
2.93 years
0.75%
27.95%
0.90%
2131p
Market value
options
N/A
130,209
2188p
2166p
2.93 years
1.05%
27.95%
0.90%
596p
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
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
164
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
28. Share-based Payments continued
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
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
Nil-cost options
(CSOP linked)
2 years
Conditional
share awards
2 years
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
Nil-cost options
(CSOP linked and
standalone options)
N/A
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
02/03/18
02/03/18
30/09/20
30/09/20
Market value
options
N/A
114,113
2506p
Nil
years
1.20%
23.21%
1.91%
522p
29/11/18
34,527
2136p
1974p
12/10/17
73,108
2175p
1646p
13/10/16
52,877
1370p
1095p
12/10/15
101,513
930p
792p
3.4 years
5.4 years
3.25 years
5.25 years
3.25 years
5.25 years
3.25 years
5.25 years
0.77%
0.91%
27.94%
25.09%
0.95%
485p
530p
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 2019 of £1.0 million (2018: £1.4 million), of which £0.2 million (2018: £0.2 million) related to vested
options. The total charge to the Consolidated Income Statement within administrative expenses in respect of share-based payments was:
Equity settled share-based transactions
Cash settled share-based transactions
29. Changes in Net Debt
Cash and cash equivalents
Bank loans within one year
Bank loans after one year
Net debt
2019
£m
2.3
0.1
2.4
2018
£m
2.4
0.9
3.3
At
1 July 2018
£m
79.7
(1.2)
(289.9)
(211.4)
Cash
flows
£m
(0.7)
4.0
(11.1)
(7.8)
Acquisitions
£m
0.5
(2.8)
–
(2.3)
Foreign
exchange
movements
£m
0.8
–
(6.2)
(5.4)
Other
non-cash
movements
£m
–
(1.2)
0.3
(0.9)
At
30 June 2019
£m
80.3
(1.2)
(306.9)
(227.8)
Stock Code: DPH
165
Financial Statements
Notes to the Consolidated Financial Statements
continued
30. Operating Leases
At the balance sheet date the Group had outstanding commitments for future minimum rentals payable under non-cancellable operating leases
as follows:
Within one year
Between one and five years
In five years or more
Land and buildings
2019
£m
1.8
4.5
5.7
12.0
2018
£m
1.4
4.1
2.8
8.3
Other assets
Total
2019
£m
1.9
2.5
–
4.4
2018
£m
1.8
2.5
–
4.3
2019
£m
3.7
7.0
5.7
16.4
2018
£m
3.2
6.6
2.8
12.6
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.
31. Foreign Exchange Rates
The following primary exchange rates have been used in the translation of the results of foreign operations:
Australian Dollar
Danish Krone
Euro
US Dollar
32. Acquisitions
Average rate
for 2018
1.7372
8.4010
1.1286
1.3465
Closing rate
at 30 June
2018
1.7817
8.4109
1.1286
1.3157
Average rate
for 2019
1.8097
8.4651
1.1345
1.2945
Closing rate
at 30 June
2019
1.8118
8.3248
1.1154
1.2693
Acquisition of Venco
On 17 December 2018, Dechra acquired the entire share capital of Laboratorios Vencofarma do Brasil Ltda (Venco), a company with a
large portfolio of vaccines and other Food producing Animal Products which it sells predominantly in Brazil. The Group paid £34.8 million
(BRL163.8 million) consideration in cash.
Recognised amounts of identifiable assets acquired
Identifiable assets
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Cash
Borrowings
Intangible assets
Current tax liabilities
Deferred taxation
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Less cash and cash equivalents
Net cash outflow arising on acquisition
Fair Value
£m
6.7
6.1
4.5
(6.4)
0.5
(2.8)
14.7
(0.5)
(6.0)
16.8
18.0
34.8
34.8
34.8
34.8
(0.5)
34.3
166
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
32. Acquisitions continued
The fair values shown above are provisional and may be amended if information not currently available comes to light. The provisional fair
value adjustments made principally relate to harmonisation with Group IFRS accounting policies, including the application of fair values on
acquisition, principally the recognition of fair value uplift on acquired inventory and intangibles in accordance with IFRS 3.
The goodwill of £18.0 million arising from the acquisition consists of geographical expansion in the Brazilian and South American markets,
cross-selling synergies with other Dechra products, and the technical expertise of the assembled workforce.
Acquisition related costs (included in non-underlying operating expenses) amounted to £1.3 million. Venco’s results are reported within the
EU Pharmaceuticals Segment.
Venco contributed £8.3 million revenue and £2.1 million underlying operating 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 £15.7 million and the contribution to Group underlying operating profit would have been £3.8 million. The reported
operating profit after taking into account non-underlying items for the amortisation of intangible assets and the fair value uplift on inventory
would be £0.1 million.
The fair value of the assets and liabilities acquired have been reconsidered since the Half Yearly Report at 31 December 2018 as part of the
measurement period. Hindsight adjustments have been made in relation to consideration for the completion payment (£1.6 million), cash
(£0.6 million), inventory (£1.5 million), intangibles (£0.1 million), tangible assets (£0.4 million) following an independent valuation of the land and
buildings acquired, payables predominantly due to the reclassification of other taxes from current tax liabilities (£3.5 million), borrowings (£0.8
million), current tax liabilities (£3.1 million) and deferred tax (£0.3 million) predominantly due to fair value adjustments.
Acquisition of Caledonian
On 8 October 2018, Dechra acquired the trade and assets of Caledonian Holdings Ltd, an equine veterinary pharmaceuticals sales and
distribution company based in New Zealand and Australia. The Group paid £4.4 million (NZD8.7 million) consideration in cash.
Recognised amounts of identifiable assets acquired and liabilities assumed
Inventory
Trade and other receivables
Trade and other payables
Intangible assets
Deferred taxation
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Total consideration transferred
Net cash outflow arising on acquisition
Cash consideration
Net cash outflow arising on acquisition
Fair value
£m
0.8
0.3
(0.3)
4.0
(1.2)
3.6
0.8
4.4
4.4
4.4
4.4
4.4
The fair values shown above are provisional and may be amended if information not currently available comes to light. The provisional fair
value adjustments made principally relate to harmonisation with Group IFRS accounting policies, including the application of fair values on
acquisition, principally the recognition of fair value uplift on acquired inventory and intangibles in accordance with IFRS 3.
The goodwill of £0.8 million arising from the acquisition consists of continued geographic expansion into Australia and New Zealand, and also
enables Dechra to grow its market penetration of equine products in the Asian market. None of the goodwill is expected to be deductible for
income tax purposes.
Acquisition related costs (included in non-underlying operating expenses) amounted to £0.1 million. Caledonian’s results are reported within the
EU Pharmaceuticals Segment.
Caledonian contributed £1.5 million revenue and £0.8 million to the Group’s underlying operating 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 £2.0 million and the contribution to Group underlying operating profit would have been £1.0 million.
The reported operating profit after taking into account non-underlying items for the amortisation of intangible assets and the fair value uplift on
inventory would be £0.2 million.
Prior Year Acquisitions
Following the acquisition of RxVet in December 2017, and AST Farma and Le Vet in February 2018, 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 2018.
Stock Code: DPH
167
Financial Statements
Notes to the Consolidated Financial Statements
continued
33. 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
2019
£m
–
–
–
5.1
30.9
36.0
36.0
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 2017
Additions
Remeasurement through intangibles
Remeasurement through income
statement
Cash payments: investing activities
Finance expense
Foreign exchange adjustments
Other movements
At 30 June 2018
Additions
Remeasurement through intangibles
Remeasurement through income
statement
Cash payments: investing activities
Finance expense
Foreign exchange adjustments
Other movements
At 30 June 2019
Tri-Solfen®
25.5
–
(0.9)
StrixNB® &
DispersinB®
3.6
–
(2.2)
Injectable
Solution 1
–
6.5
–
Injectable
Solution 2
–
–
–
Phycox®
3.1
–
–
Other
0.5
2.4
–
–
–
–
(1.8)
–
22.8
–
(1.0)
–
–
0.6
(0.4)
–
22.0
(0.1)
–
–
(0.2)
–
1.1
–
(0.3)
(0.1)
(0.1)
0.1
–
–
0.7
–
–
–
0.1
–
6.6
–
(0.3)
–
(2.1)
0.2
–
–
4.4
–
–
–
–
–
–
7.9
–
–
(3.0)
–
0.3
–
5.2
–
(0.6)
0.4
(0.1)
–
2.8
–
–
–
(0.7)
0.1
–
–
2.2
–
(1.1)
0.2
–
(0.3)
1.7
–
0.1
–
(0.4)
–
0.1
–
1.5
Total
32.7
8.9
(3.1)
(0.1)
(1.7)
0.6
(2.0)
(0.3)
35.0
7.9
(1.5)
(0.1)
(6.3)
1.0
–
–
36.0
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. A delay in the timing of contingent cash flows of one year would result in a decrease of the liability and intangible asset of
£3.5 million. An increase in the discount rate by 1% would result in a decrease of the deferred consideration and associated intangible of
£1.1 million.
The consideration payable for StrixNB® and DispersinB® is expected to be payable over a number of years, and relates to development
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 two separate licensing agreements for injectable solutions both relate to development milestones, and Phycox relates
to sales performance. The consideration payable is expected to be payable for these agreements within the next five years.
Where a liability is expected to be payable over a number of years the total estimated liability is discounted to its present value.
168
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
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 178 to 180.
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 93 to 105. The remuneration of key management is disclosed in note 8.
Non-Controlling Interests
Refer to note 27 for transactions with non-controlling interests, there were no transactions 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.
36. Changes in Accounting Policies
This note explains the impact of the adoption of IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’ on the
Group’s Financial Statements and also discloses the new accounting policies that have been applied from 1 July 2018, where they are different
to those applied in prior periods.
The table below shows the impact on the opening balance sheet retained earnings as at 1 July 2018, from the adoption of IFRS 15; note only
the line items affected by the change have been included:
Statement of Financial Position (extract)
Current Liabilities
Trade and other payables
Non-Current Liabilities
Deferred tax liabilities
Equity
Retained Earnings
Reported
30.06.18
£m
IFRS 15
£m
Restated
01.07.18
£m
(75.7)
(96.8)
125.5
(6.5)
1.6
(4.9)
(82.2)
(95.2)
120.6
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ from 1 July 2018 which resulted in changes in accounting policies
and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions of IFRS 15, the Group
has adopted the modified retrospective approach, recognising a cumulative adjustment to decrease equity at 1 July 2018. This adjustment
represents the earlier recognition of rebates and discounts based on the most likely method of calculation, and the associated tax impact.
Following the clarification IFRS 15 provides over the treatment of variable consideration, the timing of rebates and the deductions and
discounts recognition has been refined through adoption of the most likely amount method.
The adoption of IFRS 15 has resulted in revenue and profit being £0.2 million higher in the current period compared to IAS 18. There is a
corresponding deferred tax debit of £0.04 million recognised in relation to this.
IFRS 9 Financial Instruments – Impact of Adoption
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 ‘Financial Instruments’
from 1 July 2018 resulted in changes in accounting policies but did not have a material impact on the financial statements for the year to
30 June 2019, or retained earnings at 1 July 2018. The new accounting policies are set out in note 1. In accordance with the transitional
provisions in IFRS 9, comparative figures have not been restated.
The Group has trade receivables for sales of inventory that are subject to IFRS 9’s new expected credit loss model. The Group was required to
revise its impairment methodology under IFRS 9 for this class of asset which uses a lifetime expected loss allowance for all trade receivables.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past
due. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation
of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual
payments for a period of greater than 120 days past due.
Cash and cash equivalents are also subject to the impairment requirements of IFRS 9; however, the identified impairment loss of this financial
asset was immaterial.
Stock Code: DPH
169
Financial Statements
Notes to the Consolidated Financial Statements
continued
37. Contingent Liabilities
In October 2017 the European Commission (the Commission) opened a State Aid investigation into the Group Financing Exemption in the
UK Controlled Foreign Company (CFC) rules. On 25 April 2019 the Commission issued its decision on the CFC Group Financing Exemption
concluding that part of the UK measures were unlawful and incompatible instructing the UK Government to recover the State Aid. The UK
Government filed an annulment appeal on 12 June 2019. In common with other UK-based international companies Dechra have financing
arrangements in line with the current UK legislation. We have calculated the maximum potential State Aid claimed as £4.0 million excluding
penalties and interest. Given the current position no provision has been recognised in the financial statements.
At 30 June 2019, contingent liabilities arising in the normal course of business amounted to £15.0 million relating to license and distribution
agreements entered into during the year. The stage of development of the projects underpinning the agreements dictates that a commercially
stable product is yet to be achieved, and accordingly an intangible asset and contingent liability have not been recognised.
38. Subsequent Events
On 5 July 2019 the Group acquired a further 15.0% of the issued share capital of Medical Ethics Pty Ltd, the parent company of Animal Ethics,
for a total consideration of AUD13.5 million (£8.0 million) from the current shareholders. Following this acquisition the Group will hold 48.0% of
the issued share capital of Medical Ethics Pty Ltd, and this has not resulted in a change of control or accounting treatment of the entity.
On 2 August 2019 the Group announced the signature of a licensing and supply agreement with Akston Biosciences Corporation for a patent
pending long acting protein for the treatment of diabetes in dogs. Following the initial upfront payment of USD2.0 million there are subsequent
milestone payments totalling USD14.0 million due on the achievement of major milestones in the development process which should be
completed within five years.
On 28 August 2019 the Group acquired Ampharmco LLC and its associated holding companies, Dragon Fire Holdings LLC and Black Griffin
Holdings LLC together with its manufacturing site based in Fort Worth, Texas, for a cash consideration of USD30.0 million (£24.5 million).
39. Underlying Operating Profit and Profit Before Taxation
Operating profit
Underlying operating profit/EBIT is calculated as follows:
Operating profit
Non-underlying operating expenses (note 5)
Underlying operating profit/EBIT
Depreciation
Amortisation and impairment
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA)
Profit before taxation
Underlying profit before taxation is calculated as follows:
Profit before taxation
Non-underlying operating expenses
Amortisation of fair value adjustments relating to Medical Ethics
Fair value and other movements on deferred and contingent consideration
Loss on extinguishment of debt
Underlying profit before taxation
2019
£m
39.0
88.4
127.4
5.7
4.1
137.2
27.8
88.4
0.2
1.0
–
117.4
2018
£m
34.1
65.1
99.2
4.8
2.6
106.6
28.9
65.1
0.2
(0.9)
0.4
93.7
170
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Company Statement of Financial Position
At 30 June 2019
Non-current assets
Investments
Intangible assets
Tangible assets
Current assets
Trade and other receivables (includes amounts falling due after more than one year of £1.2 million
(2018: £2.1 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
Merger reserve
At 1 July
Profit for the year attributable to the owners
Other changes in retained earnings
Retained earnings
Total equity shareholders’ funds
* Restated as detailed in note (i)
Financial Statements
2019
£m
743.6
10.1
0.2
753.9
28.8
50.9
79.7
–
(220.4)
(140.7)
613.2
(114.5)
498.7
1.0
277.9
0.6
82.6
120.4
43.1
(26.9)
136.6
498.7
Restated*
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
276.7
0.6
82.6
66.4
71.5
(17.5)
120.4
481.3
Note
iv
v
vi
vii
viii
x
ix
x
xii
The financial statements were approved by the Board of Directors on 2 September 2019 and are signed on its behalf by:
Ian Page
Chief Executive Officer
2 September 2019
Tony Rice
Non-Executive Chairman
2 September 2019
Company number: 3369634
Stock Code: DPH
171
Financial Statements
Company Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2019
Attributable to owners of the parent
Called up
share
capital
£m
Share
premium
account
£m
Foreign
currency
translation
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
0.9
–
–
–
–
0.1
0.1
1.0
1.0
–
–
–
–
–
–
1.0
173.4
–
–
–
–
103.3
103.3
276.7
276.7
–
–
–
–
1.2
1.2
277.9
0.6
–
–
–
–
–
–
0.6
0.6
–
–
–
–
–
–
0.6
–
–
–
–
–
82.6
82.6
82.6
82.6
–
–
–
–
–
–
82.6
66.4
71.5
71.5
(21.8)
4.3
–
(17.5)
120.4
120.4
43.1
43.1
(28.4)
1.5
–
(26.9)
136.6
241.3
71.5
71.5
(21.8)
4.3
186.0
168.5
481.3
481.3
43.1
43.1
(28.4)
1.5
1.2
(25.7)
498.7
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 (Restated)*
Total contributions by and distributions to owners
At 30 June 2018 (Restated)*
Year ended 30 June 2018
At 1 July 2018
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 2019
* Restated as detailed in note (i) Principal Accounting Policies of the Company.
172
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Notes to the Company Financial Statements
Financial Statements
(i) Principal Accounting Policies of the Company
Accounting Principles
The separate financial statements of the Company have been prepared on a going concern basis, under the historical cost convention, in
accordance with applicable UK accounting standards and the Companies Act 2006.
Basis of Preparation
The Directors opted to prepare the financial statements for the year ended 30 June 2019 in accordance with FRS 101 ‘Reduced Disclosure
Framework’ and the Companies Act 2006. The principal accounting policies applied in the preparation of these financial statements are set out
below, and have been applied consistently.
No income statement is presented for the Company as permitted by Section 408(2) and (3) of the Companies Act 2006. The profit dealt
within the accounts of the Company was £43.1 million (2018: £71.5 million).
The following exemptions have been taken in preparing the financial statements;
a.
b.
c.
d.
e.
f.
g.
The requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 ‘Share-based Payment’, exempting the Company from preparing share
based payment disclosures.
The requirements of IFRS 7 ‘Financial Instruments: Disclosures’
The following requirements of IAS 1:
−
−
−
−
−
Paragraphs 10(d) and 111, exempting the Company from providing a cash flow statement and information;
Paragraph 16, exempting the Company from providing a statement of compliance with all IFRSs;
Paragraph 38A, exempting the Company from the requirement for a minimum of two of each primary statement and the related notes;
Paragraph 38B to D, exempting the Company from the requirement to present additional comparative information; and
Paragraphs 134 to 136, exempting the Company from presenting Capital Management disclosures.
The requirements of IAS 7 ‘ Statement of Cash Flows’, exempting the company from preparing a cash flow statement
The requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’, exempting the Company from disclosing details of all key
management compensation.
The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions with wholly-owned members of the Group.
The requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ exempting the
company from disclosing the impact of new accounting standards that have been issued but are not yet effective.
Adoption of New and Revised Standards
The following relevant standards, amendments to standards or interpretations have been adopted for the first time from 1 July 2018.
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 ‘Financial Instruments’
from 1 July 2018 resulted in changes in accounting policies but did not have a material impact on the financial statements for the year 30 June
2019, or retained earnings at 1 July 2018. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.
Prior Year Restatement
The comparative amounts for 30 June 2018 have been restated to provide for the statutory merger relief from share premium on shares
issued by the company when acquiring shares in AST Farma and Le Vet in February 2018. During the measurement period the share premium
amount has been reclassified to the merger reserve. As a consequence share premium has been reduced by £82.6 million and the merger
reserve increased by £82.6 million. The impact on net assets is nil.
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
Stock Code: DPH
173
Financial Statements
Notes to the Company Financial Statements
continued
(i) Principal Accounting Policies of the Company continued
Dividends
Dividends are recognised in the period in which they are approved by the Company’s shareholders or, in the case of an interim dividend, when
the dividend is paid. Dividends receivable from subsidiaries are recognised when either received in cash or applied to reduce a creditor balance
with the subsidiary.
Interest-Bearing Borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective interest basis.
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.
National Insurance contributions payable by the Company on the intrinsic value of share-based payments at the date of exercise are
treated as cash settled awards and revalued to market price at each statement of financial position date.
Where the Company grants options over its own shares to the employees of its subsidiaries, it recharges the expense to those
subsidiaries.
Foreign Currency
Foreign currency transactions are translated into Sterling using the exchange rates prevailing at the dates of the transactions. Monetary
assets and liabilities are translated at the closing rate at the reporting date. Foreign exchange gains and losses are recognised in the income
statement.
Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes. Deferred tax is measured on a non-discounted basis at the tax rates that are
expected to apply and have been substantively enacted in the periods in which the timing differences reverse and is provided in respect of all
timing differences which have arisen but not reversed by the balance sheet date, except as otherwise required by IAS 12 ’Income Taxes’.
Financial Guarantee Contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the
Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee
contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the
guarantee.
Amounts owed by Subsidiary Undertakings
Amounts owed by subsidiary undertakings are initially recognised at fair value and subsequently measured at this value less loss allowances,
calculated using the three stage IFRS 9 model.
On transition to IFRS 9, an assessment has been performed of the Company’s loss allowance provision and noted that there is no material
difference in the carrying amount of the amounts owed by subsidiary undertakings. On this basis no transitional adjustment has been
recognised.
174
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
(ii) Directors and Employees
Total emoluments of Directors (including pension contributions) amounted to £4.7 million (2018: £6.0 million). Information relating to Directors’
emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 93 to 105. Tony Griffin’s
remuneration is paid by Eurovet Animal Health B.V. in Euros but reported in Sterling for the purposes of these figures. The exchange rate used
was 1.1345 (2018: 1.1286).
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
2019
Number
37
37
2018
Number
33
33
2019
£m
4.5
0.6
0.2
2.4
7.7
2018
£m
4.5
0.7
0.2
3.3
8.7
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 (2018: £0.2 million).
(iii) Profit Before Taxation
The following items have been included in arriving at profit 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 2018
Additions
At 30 June 2019
Impairment
At 1 July 2018
Charge for the period
At 30 June 2019
Net book value
At 30 June 2019
At 30 June 2018
2019
£m
0.1
1.9
0.3
0.1
2018
£m
0.1
0.9
0.2
0.1
Shares in
subsidiary
undertakings
£m
659.4
96.4
755.8
12.2
–
12.2
743.6
647.2
A list of subsidiary undertakings is given in note (xiv). During the year, the Company invested in Dechra Finance Sterling Limited, a wholly
owned subsidiary.
Stock Code: DPH
175
Financial Statements
Notes to the Company Financial Statements
continued
(v)
Intangible Assets
Cost
At 1 July 2018
Additions
At 30 June 2019
Accumulated Amortisation
At 1 July 2018
Charge for the year
Impairment
At 30 June 2019
Net book value
At 30 June 2019
At 30 June 2018
(vi) Tangible Assets
Cost
At 1 July 2018
Additions
At 30 June 2019
Accumulated Depreciation
At 1 July 2018
Charge for the year
At 30 June 2019
Net book value
At 30 June 2019
At 30 June 2018
(vii) Trade and Other Receivables
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (xi))
Other receivables
Prepayments and accrued income
Acquired
Intangibles
£m
Software
£m
Total Intangible
assets
£m
5.1
–
5.1
3.3
0.5
–
3.8
1.3
1.8
8.5
2.3
10.8
0.6
1.4
–
2.0
8.8
7.9
2019
£m
25.8
1.4
0.6
0.4
0.6
28.8
13.6
2.3
15.9
3.9
1.9
—
5.8
10.1
9.7
Tangible
assets
£m
0.6
0.1
0.7
0.4
0.1
0.5
0.2
0.2
2018
£m
8.1
–
2.1
1.0
0.3
11.5
Included in debtors are amounts of £0.6 million (2018: £2.1 million) due after more than one year relating to deferred tax assets.
Of the amounts owed by subsidiary undertakings, £0.6 million is due after more than one year (2018: £nil). The provision for impairment against
amounts owed by subsidiary undertakings is immaterial and has been considered in accordance with IFRS 9. Amounts owed by subsidiary
undertakings are primarily unsecured and repayable on demand. £9.3 million attracts interest between 0.85% and 3.04% above LIBOR, the
balance is interest free. £0.6m of the £9.3 million is repayable in 2023.
(viii) Cash at bank and in hand
Cash at bank and in hand
2019
£m
50.9
50.9
2018
£m
–
–
During the year the Company has implemented physical cash pooling. This has resulted in increased cash being held in the Company as the
Master Account Holder.
176
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
(ix) 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
Financial Statements
2019
£m
1.0
0.8
214.8
–
–
0.2
3.6
220.4
2018
£m
1.0
1.0
47.2
1.6
0.3
0.2
5.1
56.4
Amounts due to subsidiary undertakings are primarily unsecured and repayable on demand. £186.4 million attracts interest between 0.25%
below LIBOR and 1.8% above LIBOR, the balance is interest free. £96.4 million of the £186.4 million is repayable in 2020.
In accordance with IAS 10 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2019 of 22.10 pence
per share (2018: 18.17 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 2020. The total cost of the proposed final dividend is £22.7 million (2018: £18.6 million).
(x) 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
2019
£m
–
117.2
(2.7)
114.5
114.5
2018
£m
1.3
132.9
(3.3)
129.6
130.9
At 30 June 2019, £117.2 million was drawn against the £235.0 million Revolving Credit Facility maturing 25 July 2024 in the Company. Interest
is charged on this facility at a minimum of 1.30% over LIBOR and a maximum of 2.20% over LIBOR, dependent upon the Leverage (the ratio
of Total Net Debt to Adjusted EBITDA) of the Group. As at 30 June 2019, interest being charged on this facility is 1.70% above LIBOR.
At 30 June 2019, £nil was drawn against the £350.0 million Term Loan Facility maturing 31 December 2020 in the Company. Interest is
charged on this facility at a minimum of 1.10% over LIBOR and a maximum of 2.00% over LIBOR, dependent upon the Leverage (the ratio
of Total Net Debt to Adjusted EBITDA) of the Group. As at 30 June 2019, interest being charged on this facility is 1.50% above LIBOR. The
availability period of the Term Loan Facility expires on 31 December 2020.
Arrangement fees of £0.2 million were incurred on the two facilities during the year, these being released to the income statement over the life
of the facility.
No interest has been capitalised during the year (2018: £nil).
The Company guarantees certain borrowings of other Group companies under the above facilities, which at 30 June 2019 amounted to
£193.6 million (2018: £151.6 million).
(xi) Deferred Tax
At 1 July 2018 (included in trade and other receivables)
Additions to the income statement
Additions to statement of changes in equity
At 30 June 2019 (included in trade and other receivables)
Deferred tax has been calculated using the rate of 19.0% or 17.0% based on the timing of when each individual deferred tax balance is
expected to reverse in the future as follows (2018: 19.0% or 17.0%):
Short term timing differences
Accelerated capital allowances
2019
£m
1.0
(0.4)
0.6
Deferred tax assets in relation to losses amounting to £nil (2018: £0.2 million) have not been recognised due to uncertainty over their
recoverability.
Stock Code: DPH
£m
2.1
(0.3)
(1.2)
0.6
2018
£m
2.5
(0.4)
2.1
177
Financial Statements
Notes to the Company Financial Statements
continued
(xii) Called up Share Capital
Issued share capital
Allotted, called up and fully paid at 1 July 2018
New shares issued
Allotted, called up and fully paid at 30 June 2019
Ordinary shares
of 1p each
£m
1.0
–
1.0
Number
102,329,635
321,967
102,651,602
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 2019 under the various Group share option schemes are
shown in note 28 to the Consolidated Financial Statements.
(xiii) Operating Leases
At the balance sheet date the Company 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
2019
£m
0.1
0.4
0.6
1.1
2018
£m
0.1
0.5
0.7
1.3
Other assets
Total
2019
£m
0.1
0.1
–
0.2
2018
£m
0.1
0.1
–
0.2
2019
£m
0.2
0.5
0.6
1.3
2018
£m
0.2
0.6
0.7
1.5
The Company 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.
(xiv) Subsidiary Undertakings
Operating subsidiaries
Name
Dechra Veterinary
Products Pty Limited
Country of
Incorporation
Australia
Principal Activity
Developer, regulatory, manufacturer and
marketer of veterinary pharmaceuticals
Registered Address
2 Cal Close, Somersby NSW 2250,
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
Dechra Limited
England and
Wales
Developer, regulatory, product
development, manufacturer and
marketer of veterinary pharmaceuticals
Dechra Finance
Australia Limited
England and
Wales
Financial Services
Wilgenweg 7, 3421TV Oudewater, The
Netherlands
Principal Place of Business: 7015 College
Blvd, Suite 510, Overland Park KS 66211,
United States
Snaygill Industrial Estate, Keighley Road,
Skipton, BD23 2RW, United Kingdom
Dechra Finance B.V.
The Netherlands
Financial services and holding company Pettelaarpark 38, 5216PD
Shareholder
Dechra Holding Australia
Pty Limited
Dechra Finance B.V.
Dechra Holdings US Inc
Dechra Investments Limited
Dechra Finance Ireland
Designated Activity
Company
Dechra Finance Limited
Republic of
Ireland
England and
Wales
Financial services
Financial services and holding company
Dechra Finance Sterling
Limited
England and
Wales
Financial services
Dechra Holdings Brasil
Ltda
Brazil
Holding Company
Dechra Regulatory B.V.
The Netherlands
Regulatory
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
Dechra Limited
‘s-Hertogenbosch, The Netherlands
6th Floor, 2 Grand Canal Square, Dublin 2,
Ireland
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
Travessa Dalva de Oilveira No. 237, office
ADM I, Industrias Leves, Londrina, Parana
86030-370, Brazil
Dechra Pharmaceuticals
PLC
Dechra Limited
Dechra Pharmaceuticals
PLC
Dechra Pharmaceuticals
PLC
AST Farma B.V.
Handelsweg 25, 5531AE Bladel, The
Netherlands
Dechra Pharmaceuticals
PLC
Dechra Veterinary
Products GmbH
Austria
Marketer of veterinary pharmaceuticals
and pet diets
Hintere Achmhlerstrasse 1a, 6850 Dornbirn,
Austria
Dechra Limited
178
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial Statements
(xiv) Subsidiary Undertakings continued
Name
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
Dechra Veterinary
Products S.r.l.
Dechra Veterinary
Products B.V.
Dechra Veterinary
Products NZ Limited
Dechra Veterinary
Products AS
Dechra Veterinary
Products Sp. z o.o.
Dechra Veterinary
Products, S.L.
Unipersonal
Dechra Veterinary
Products AB
Country of
Incorporation
Belgium
Canada
Denmark
Principal Activity
Marketer of veterinary pharmaceuticals
and pet diets
Marketer of veterinary pharmaceuticals
and pet diets
Marketer of veterinary pharmaceuticals
and pet diets
England and
Wales
Marketer of veterinary pharmaceuticals
and pet diets
Registered Address
Achterstenhoek 48 2275 Lille, Belgium
Shareholder
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
Finland
France
Germany
Italy
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
The Netherlands Marketer of veterinary pharmaceuticals
New Zealand
and pet diets
Marketer of veterinary pharmaceuticals
and distributor of veterinary
pharmaceuticals and equipment
Wilgenweg 7, 3421TV Oudewater, The
Netherlands
Dechra Veterinary Products
A/S
Level 11, 41 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
Norway
Poland
Spain
Sweden
Marketer of veterinary pharmaceuticals
and pet diets
Dechra Veterinary
Products, LLC
USA
Marketer of veterinary pharmaceuticals
and pet diets
Dechra-Brovel, S.A.
de C.V.
Mexico
Developer, regulatory, manufacturer and
marketer of veterinary pharmaceuticals
Eurovet Animal Health
B.V.
The Netherlands
Genera d.d.
Croatia
Genera d.o.o Sarajevo
Bosnia and
Herzegovina
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
Genera Sl d.o.o
Laboratorios
Vencofarma do Brasil
Ltda
Slovenia
Brazil
Developer, regulatory, manufacturer and
marketer of veterinary pharmaceuticals
Le Vet. Beheer B.V.
The Netherlands
Holding company
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
Principal Place of Business: Empresa
Numero 66, Colonia Mixcoac, Delegacion
Benito Juarez, Ciudad de Mexico, Distrito
Federal, Mexico
Dechra Veterinary Products
A/S
Dechra Holdings US Inc
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.
Travessa Dalva de Oilveira, 237,
administrative office I, Industrias Leves,
Londrina, Parana 86030-370, Brazil
Wilgenweg 7, 3421TV Oudewater, The
Netherlands
Dechra Holdings Brasil Ltda
Dechra Finance B.V.
Genera Pharma d.o.o.
Serbia
Marketer of veterinary pharmaceuticals
Gostivarska 70, Vozdovac, Beograd, Serbia Genera d.d.
Marketer of veterinary pharmaceuticals
Parmova Ulica, Ljubljana, Slovenia
Genera d.d.
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: 7015 College
Blvd, Suite 525, Overland Park KS 66211,
United States
Dechra Holdings US Inc
Stock Code: DPH
179
Financial Statements
Notes to the Company Financial Statements
continued
(xiv) Subsidiary Undertakings continued
Other subsidiaries
Name
Apex Laboratories N.Z.
Limited
Country of
Incorporation
New Zealand
Principal Activity
Non-trading
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
Registered Address
Level 11, 41 Shortland Street, Auckland,
1010, New Zealand
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
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
(Liquidated)
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
Shareholder
Apex Laboratories Pty
Limited
Veneto Limited
Veneto Limited
Veneto Limited
Dechra Limited
Dechra Limited
Dechra Pharmaceuticals
PLC
Dechra Veterinary
Products LLC
Eurovet Animal Health
B.V.
Eurovet Animal Health
B.V.
Dechra Pharmaceuticals
PLC
180
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Financial History
Consolidated Income Statement
Revenue
Underlying operating profit
Underlying profit after taxation
Underlying earnings per share
– basic (pence)
– diluted (pence)
Dividend per share (pence)
Operating profit
Profit after taxation
Earnings per share
– basic (pence)
– diluted (pence)
Consolidated Statement of Financial Position
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Shareholders’ funds
Consolidated Statement of Cash Flows
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash (outflow)/inflow from financing activities
Financial Statements
2019
£m
481.8
127.4
92.5
90.24
90.01
31.60
39.0
30.9
30.15
30.07
2018
£m
407.1
99.2
74.5
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
21.44
33.2
26.1
28.09
27.93
2016
£m
247.6
52.9
38.4
42.95
42.65
18.46
19.5
12.5
14.00
13.90
756.4
292.1
(118.1)
(421.3)
509.1
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
81.8
(61.9)
(20.1)
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
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)
Stock Code: DPH
181
COMPANY
INFORMATION
Contents
Glossary
Shareholder Information
Advisers
184
186
IBC
GENERATING
AND PROTECTING
VALUE FOR
SHAREHOLDERS
182
183
Company Information
Glossary
The following is a glossary of a number of the terms and acronyms
which can be found within this document:
CSR
Corporate Social Responsibility
ABC
Anti-Bribery and Anti-Corruption
AER
Actual Exchange Rate
ANZ
Australia and New Zealand
API
Active Pharmaceutical Ingredient
APM
Alternative Performance Measures
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
AVA
Association of Veterinary Anaesthetists
BBSRC
Biotechnology and Biological Sciences Research Council
BEPS
Base Erosion Profit Shifting
DVP International
Dechra Veterinary Products International
DVP NA
Dechra Veterinary Products North America
DVP US
Dechra Veterinary Products US
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
EBIT
Earnings before interest and tax. This is the same as operating profit
EBITDA
Earnings before interest, tax, depreciation and amortisation
EBVS
European Board of Veterinary Specialists
bps
Basis Points
CAGR
Compound Annual Growth Rate
CAP
Companion Animal Products
Capex
Capital Expenditure
CDGP
Canine Diabetes Genetics Partnership
CER
Constant Exchange Rate
CMO
Contract Manufacturing Organisation
Code
UK Corporate Governance Code 2016
CRM
Client Relationship Management
CRO
Contract Research Organisation
CSOP
Company Share Option Plan
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 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
184
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Company Information
FTSE
Companies listed on the London Stock Exchange
New Code
UK Corporate Governance Code 2018
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
GHG
Greenhouse Gas
GRT
Gross Registered Tonnage
GPTW
Great Place To Work
HR
Human Resources
IAS
International Accounting Standards
IFRSs
International Financial Reporting Standards
IT
Information Technology
KPI
Key Performance Indicator
LATAM
Latin America
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
Non-Executive Directors
The Non-Executive Directors of the Company, currently Tony Rice, Lisa
Bright, 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
POMs
Prescription Only Medicines
PTSD
Post-Traumatic Stress Disorders
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
RCVS
Royal College of Veterinary Surgeons
SAYE
Save As You Earn Share Scheme
SET
Senior Executive Team
SG&A
Selling, General and Administrative Expenses
S&OP
Sales & Operations Planning
TSR
Total Shareholder Return
Stock Code: DPH
185
Company Information
Shareholder Information
Financial Calendar
2019 Annual General Meeting
Final Dividend Ex-Dividend Date
Final Dividend Record Date
Final Dividend Payment Date
Announcement of Half Yearly Results
18 October 2019
24 October 2019
25 October 2019
15 November 2019
24 February 2020*
Dates marked with an asterix are provisional and subject to change
Annual General Meeting
The 2019 Annual General Meeting of the Company will be held at
1.00 pm on 18 October 2019 at Dechra Pharmaceuticals PLC,
6 Cheshire Avenue, Cheshire Business Park, Lostock Gralam, Northwich,
CW9 7UA. The notice of meeting (the Notice), which includes special
business to be transacted at the Annual General Meeting together with
an explanation of the resolutions to be considered at the meeting, is
made available on the Company website or mailed to shareholders,
if they have elected to receive the Notice in paper format.
Share History
Dechra floated on the London Stock Exchange in September 2000 at
£1.20 per share, with a market capitalisation of £60.0 million.
In relation to the acquisition of VetXX Holdings A/S, on 15 January 2008,
Dechra undertook a placing and open offer on the basis of 11 Open Offer
shares for every 50 existing shares held on 10 December 2007 at an issue
price of 303 pence. On 9 January 2008, 11,624,544 shares were issued.
On 5 April 2012, a Rights Issue was announced on the basis of
three new ordinary shares for every existing ten shares held on
23 April 2012 at a subscription price of £3.00 per share. The Rights
Issue resulted in 20,040,653 shares being issued with dealings
commencing on 16 May 2012.
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 £20.50 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.
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 0345 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%
0.5%
0.5%
Equiniti Financial Services Limited and its agents are authorised and
regulated by the Financial Conduct Authority.
Please note that the price of shares can go down as well as up, and you
are not guaranteed to get back the amount you originally invested. If you
are in any doubt, you should contact an independent financial adviser.
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.
186
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2019
www.dechra.com
Advisers
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
120 Edmund Street
Birmingham
B3 2QZ
Lloyds Bank plc
Phase 1, Ground Floor
Lovell Park
1 Lovell Park Road
Leeds
LS1 1NS
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. StrixNB® and DispersinB® are trademarks licensed from Kane Biotech
Inc. Redonyl® is a trademark licensed from Innovet Italia S.r.l.
Designed and published by Jones and Palmer
®
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