Job Number 7 September 2020 4:17 pm Proof NumberDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020Company Number: 3369634Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020Improving Global Animal Health and WelfareDechra-AR2020-Strategic.indd 307-Sep-20 4:43:30 PM Contents
Overview
Welcome to Dechra's 2020 Annual Report
Chairman’s View
Dechra’s Strengths
Highlights
Our Purpose and Strategy
Our Geographical Footprint
Strategic Report
Our Marketplace
Our Business Model
Creating Value for Our Stakeholders
Delivering Our Strategy
Chief Executive Officer’s Statement
Financial Review
Key Performance Indicators
Strategy in Action
Product Development
International Product Offering
Section 172 Statement
Corporate Social Responsibility
Non-Financial Information Statement
How the Business Manages Risk
Understanding Our Key Risks
Viability Statement
Governance
IFC
01
02
03
04
06
10
14
17
18
22
26
34
36
40
44
46
48
69
70
73
77
Letter from the Chairman on Governance
80
Board of Directors and Senior Executive Team 82
Board Leadership and Company Purpose
86
Division of Responsibilities
92
Composition, Succession and Evaluation
96
Audit, Risk and Internal Control
105
Directors’ Remuneration Report
112
Directors’ Report – Other Disclosures
139
Statement of Directors’ Responsibilities
141
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
144
153
154
155
156
157
158
204
205
206
215
218
220
IBC
Welcome to Dechra’s
2020 Annual Report
About Dechra
Pharmaceuticals
Dechra is a global specialist veterinary
pharmaceuticals and related products business.
Our expertise is in the development, manufacture,
marketing and sales of high quality products
exclusively for veterinarians worldwide.
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
70.1%
Equine
7.1%
FAP
14.5%
Nutrition
Other
5.6%
2.7%
Companion Animal Products
(CAP)
Species: Dogs and cats
Key therapeutic sectors: Endocrinology,
dermatology, analgesia and
anaesthesia, cardiovascular and
critical care
Food producing Animal
Products (FAP)
Species: Poultry, pigs and an
increasing presence in cattle
Key therapeutic sectors: Water soluble
antibiotics, poultry vaccines, the
treatment of mastitis, lameness and
pain management
Equine
Species: Horses and ponies
Nutrition
Species: Dogs and cats
Key therapeutic sectors: Lameness
and pain management
Key therapeutic sectors: Our pet diets
are available to support the wellbeing
of animals with numerous therapeutic
conditions
Our Product Pipeline
A key strategic priority for the Group is the delivery and strength of the pipeline.
We currently have 37 projects through the product development process:
Feasibility
Research
Development
Registration
12
7
10
8
Read more about Product Development
on pages 40 to 43
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Job Number 7 September 2020 4:17 pm Proof NumberChairman’s ViewTony Rice Non-Executive ChairmanThe true strength of the Group's Culture and Values have come to the fore during the pandemicWelcome to the 2020 Annual Report in which you will read about the strong performance in a year impacted by the COVID-19 pandemic.The true strength of the Group’s Culture and Values have come to the fore during the pandemic and have been demonstrated by the response from our employees.EmployeesI would like to express the thanks of myself and the Board to each and every one of our employees for their continued hard work and dedication throughout the year, especially during the lockdown period. I have been extremely impressed by the versatility of all our teams in adapting to new ways of working and responding to the COVID-19 pandemic in such a positive manner. I would, in particular, like to thank our front line workers in manufacturing, laboratories and logistics who have continued to work on-site throughout the period with dedication and professionalism. Our employees’ actions during this period have demonstrated to the Board how our Values underpin everything we do at Dechra. They outline the type of people we are, the services we provide and the way we aim to conduct business.Environmental, Social and GovernanceDuring the year we have seen an increased interest from investors in our Environmental, Social and Governance framework. On analysing this interest we have realised that although our Culture and business practices are very strong in this critical area, our disclosures could be vastly improved. We have made concerted efforts in this Annual Report and on our website to publish more detailed information. Dechra’s purpose is the sustainable improvement of global animal health and welfare and this is intrinsic in our Values, the way we do business and in the decisions we make when developing and implementing our Environmental, Social and Governance (ESG) framework.We look forward to keeping you and the market updated on the delivery of our strategy throughout the coming year.Our Purposeis the sustainable improvement of global animal health and welfareRead more about Our Purpose and its alignment with our strategy, values and culture on pages 04 and 05Read more about Our Purpose and its application to our business model on pages 14 to 16Our ESG StrategyOur new ESG strategy is based on our Purpose and ValuesWe have chosen to support the United Nations Sustainable Development Goals (SDGs). Three SDGs have been identified as being most material to our business operations and the products we sell. They are Quality Education, Decent Work and Economic Growth, and Responsible Consumption and Production.Read more about our ESG strategy on pages 48 to 68Stock Code: DPH01OverviewDechra-AR2020-Strategic.indd 107-Sep-20 4:43:39 PM Overview
Dechra’s
Strengths
Market
Leading
Positions
Well-Recognised
Brand
Expertise
in Key
Therapeutic
Areas
Balance Sheet
Strength/
Cash Generative
Power
Successful
Acquisition
History
We are a global
leader in veterinary
endocrinology and topical
dermatology,
have a broad portfolio of
analgesia, anaesthetics
and products for the
treatment of pain, and
we are also recognised
as innovators in other
specialisations such as
the treatment of equine
lameness, nutrition and
differentiated generics
(generic plus).
New Product
Development
Pipeline
We have a strong
pipeline of novel,
generic and generic
plus pharmaceuticals,
vaccines and a specialist
nutrition range. We
have a track record
of pipeline delivery.
We are proactive in
recognising and bringing
new development
opportunities into the
portfolio.
Read more
in Product
Development on
pages 40 to 43
We are recognised
as a global animal
healthcare company
with a strong reputation
as a provider of high
quality, specialist
veterinary medicines and
related products.
We support our
customers in our key
therapeutic areas with
technical helplines,
continuing education
through online learning,
webinars and lectures by
key opinion leaders.
The Group targets
strong cash generation
allowing us to pay down
debt quickly, resulting in
a robust balance sheet
which enables us to fund
internally many of our
strategic opportunities.
Read more in the
Our Business
Model report on
pages 14 to 16
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 numerous occasions
and have consistently
delivered strategic and
financial expectations on
significant transactions.
Manufacturing
Skilled People
Key
Relationships
Our Global
Footprint
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.
We have attracted
and retained a qualified
and skilled workforce
throughout the
organisation with many
years’ experience within
the markets we serve.
Our people strategy
is underpinned by the
Dechra Values.
Read more in the
Corporate Social
Responsibility
report on pages 52
to 55
Dechra’s traditions
lie in the companion
animal markets of
Western Europe and
North America. In recent
years we have built on
that platform, extending
our footprint globally
through greenfield sites
and acquisitions. Further
international expansion is
one of our four strategic
growth drivers.
Relationships
with stakeholders are
fundamental to the
success of the Group.
Our sales approach relies
on strong partnerships
with practice groups and
individual veterinarians,
strengthened by key
opinion leaders and
distribution partners. The
relationship with supply
chain partners is also
important to establish
continuity of supply.
Effective and consistent
industry networking
delivers insight to new
development and
acquisition opportunities.
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Job Number 7 September 2020 4:17 pm Proof Number201613.90p27.93p37.04p30.07p32.76p20172018201920202016£19.5m£33.2m£34.1m£39.0m£52.2m2017201820192020201618.46p21.44p25.50p31.60p34.29p2017201820192020201642.65p64.33p76.45p90.01p92.19p20172018201920202016£52.9m£81.3m£99.2m£127.4m£128.3m20172018201920202016£247.6m£359.3m£407.1m£481.8m£515.1m2017201820192020HighlightsFinancial Performance• Revenue growth of 6.8% to £515.1 million.• Underlying operating profit increased to £128.3 million.• Underlying EBIT margin (excluding the impact of pension credit) reduced by 80 bps to 24.9% due to mix effect.• Underlying diluted EPS increased by 1.7% to 92.19 pence.• Reported operating profit growth of 33.3%.• Full year dividend increased by 8.5% to 34.29 pence.• Strong cash generation with cash conversion of 99.4%.Read the Financial Review on pages 26 to 33Strategic Progress• Ampharmco integration progressing well, Mirataz acquisition completed in April 2020 and Osurnia completed in July 2020.• CAP performance robust.• FAP growth accelerating.• Numerous product registrations achieved, and significant progress made on Akston and Tri-Solfen.Read more about Our Strategy on pages 18 to 21Total Revenue£515.1m2019: £481.8mAER: +6.9%CER: +6.8%Dividend Per Share34.29p2019: 31.60pAER: +8.5%CER: +8.5%Underlying Operating Profit£128.3m2019: £127.4mAER: +0.7%CER: +0.4%Reported Operating Profit£52.2m2019: £39.0mAER: +33.8%CER: +33.6%Underlying Diluted Earnings Per Share92.19p2019: 90.01pAER: +2.4%CER: +1.7%Reported Diluted Earnings Per Share32.76p2019: 30.07pAER: +8.9%CER: +7.3%View our online Annual Report at:dechra.annualreport2020.comForward-Looking StatementsThis 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.Stock Code: DPH03OverviewDechra-AR2020-Strategic.indd 307-Sep-20 4:43:44 PM Overview
Our Purpose
and Strategy
Purpose
The sustainable improvement of global animal health and welfare
Strategy
Strategic Growth Drivers
Strategic Enablers
Pipeline
Delivery
Portfolio
Focus
Geographical
Expansion
Acquisition
Manufacturing &
Supply Chain
Technology
People
a
b
c
Read more about Strategic Growth Drivers on page 20 to 21
Read more in the Case Studies on pages 36 to 39
Values
Dedication
Enjoyment
Courage
Honesty
Relationships
Ambition
Culture
Our Values, entrepreneurial attitude and agile approach to the way we do things are the backbone of our Culture.
We expect our people to make a difference by collaborating with each other and we support them by providing clear
guidance on expectations.
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Overview
Aligning Purpose, Strategy,
Values and Culture
Everything we do is underpinned by our Culture and Values. They
are important to us and have helped drive the Group’s success. We
believe that our Values encapsulate our business ethics and set out 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. We deliver high quality products and services to
veterinarians worldwide through our employees and a network of third
parties with the aim of sustainably improving global animal heath and
welfare.
Global Policies that support Culture:
• Code of Conduct and Third Party Code of Conduct
• Dignity at Work
• Anti-Bribery and Anti-Corruption Policy
• How to Raise a Concern Procedure
• Health and Safety Policy
Dechra Values:
Our Values are a consistent part of how we lead the Dechra business.
From recruitment through to investment in development and growth
of our employees we use our Values to describe what matters at
Dechra. To maintain that integrity we have formed a small group of
communications ambassadors who have helped us build the content for
the Group intranet further enabling us to demonstrate how the Values
are being lived every day.
As the Dechra business grows through acquisition, we have recognised
the importance of onboarding new employees into the Dechra way and
enabling them to share and build on our Values as a route to unlocking
value and success.
Read more about our monitoring of culture in
Our Governance Report on pages 86 to 88.
Stock Code: DPH
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Job Number 7 September 2020 4:17 pm Proof NumberOur Geographical FootprintWe currently have sales and marketing organisations in 25 countries and market our products in 72 other countries worldwide through distributors or marketing partners.Manufacturing SitesLogistics SitesEstablished markets (Sales and Marketing)Developing markets (Sales and Marketing)Emerging markets (Distribution Partners)Key to map72Countries in whichour products are soldvia a distributor25Countries in which our sales and marketing teams are based7Countries in which we manufactureEuropeDechra 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 UKNorth AmericaDechra 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, Mexico and Texas. Product Development and Regulatory Affairs are also located in the three countries.Major geographies:United States37.2%Group revenue by region52.9%Group revenue by regionDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com06OverviewDechra-AR2020-Strategic.indd 607-Sep-20 4:43:53 PM Job Number 7 September 2020 4:17 pm Proof NumberGeographical Expansion is one of our Growth DriversGrowth6.8%Our strategic growth drivers ensure sustainable growthPipeline DeliveryPortfolio FocusabcGeographical ExpansionAcquisitionRead more about Our Strategy on pages 18 to 21Read more about Our Marketplace on pages 10 to 13Rest of WorldDechra 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 45 countries either via its sales and marketing organisations (Australia, New Zealand (ANZ) and Brazil) or via distributors.Major geographies: ANZ, Asia and Brazil9.9%Group revenue by regionat CER from 2019 to 2020Sales£515.1mStock Code: DPH07OverviewDechra-AR2020-Strategic.indd 707-Sep-20 4:43:55 PM Job Number 7 September 2020 4:17 pm Proof NumberAcquisitions OsurniaAcquisition date: July 2020Cost of acquisition: $135 millionKey benefits of acquisition:• Acquisition of a long-acting treatment of otitis externa in dogs• New global leading brand to add to Dechra portfolio• Registered in 51 countries around the worldAmpharmcoAcquisition date: August 2019Cost of acquisition: $29.6 millionKey benefits of acquisition:• Acquisition of manufacturing facilities to establish a US manufacturing base for Dechra• Addition of CAP portfolio productsMiratazAcquisition date: April 2020Cost of acquisition: $43 million(excluding royalty fees)Key benefits of acquisition:• First and only FDA and EMA approved transdermal medication for management of weight loss in cats• A new global brand to add to the Dechra portfolio marketed in US and licensed in all EU markets. Registered in 32 countries globallyDelivering Our PurposeRead more about our Our Strategy on pages 18 to 21Growing Our Global Influence on Improving Animal Health and WelfareWe have continued the expansion of our product portfolio and global reach, with the 18th, 19th and 20th acquisitions in Dechra’s history.Dechra-AR2020-Strategic.indd 807-Sep-20 4:43:59 PM Job Number 7 September 2020 4:17 pm Proof NumberContentsOur Marketplace10Our Business Model14Creating Value for Our Stakeholders17Delivering Our Strategy18Chief Executive Officer's Statement22Financial Review26Key Performance Indicators34Strategy in Action36Product Development40International Product Offering44Section 172 Statement46Corporate Social Responsibility48Non-Financial Information Statement69How the Business Manages Risk70Understanding Our Key Risks73Viability Statement77StrategicReportDechra-AR2020-Strategic.indd 907-Sep-20 4:44:02 PM Strategic Report
Our
Marketplace
Global Market Dynamics
The Animal Health Market
Animal health globally is generally described as comprising two
segments: Food producing Animal Products (FAP) and Companion
Animal Products (CAP). FAP continued to show global growth due to
an increased demand for high quality protein production. 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.
$47.1bn
Market Size
Source: Grand View Research 2019
The Animal Health Market by Species
CAP
FAP
38%
62%
Source: Vetnosis Health for Animals 2018
Market Share by Competitor 2019
Zoetis
13.40%
Boehringer Ingelheim
Animal Health
9.50%
Merck/MSD Animal health 9.30%
Elanco
IDEXX Laboratories
Bayer Animal Health
Ceva Sante Animal
Virbac
Philbro Animal Health
6.60%
4.90%
3.80%
2.80%
2.30%
1.70%
Dechra Pharmaceuticals
1.27%
Source: Animal Pharma 2020
& Grand View Research 2019
Data as at 31 December 2019
except Dechra and Philbro (as
at 30 June 2019)
Veterinary Practices – Europe
Independents
Buying Groups
Corporates
54%
27%
19%
Source: DVP EU Sales Data March 2020
Veterinary Practices – North America
Independents
Corporates
80%
20%
Source: Cleveland Research 30 June 2019
Our Position in the Animal Health Market
There are few international businesses in our market, five of which have
43.7% of the world’s market share. Dechra’s objective is to continue
to outperform the market and increase 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:
• Generally faster, cheaper, more predictable and sustainable
product development: Development of animal medicines typically
requires fewer clinical studies with fewer subjects and is conducted
directly in the target species. Decisions on product safety, efficacy and
likelihood of success can therefore be made more quickly.
• Diversified product portfolios: Animal pharmaceuticals
businesses are generally less reliant on a small number of
‘blockbuster’ products. Animal health products are sold across
different regions which may have distinct product requirements. As a
result, animal health products often have a smaller market size and
the performance of any single product typically has less impact on
overall business performance.
• Stronger customer relationships and brand loyalty: Companion
Animal Products are directly prescribed and often dispensed and sold
by veterinarians which contributes to building brand loyalty, which
continues after the loss of patent protection or regulatory exclusivity.
• Lower pricing pressure: Livestock producers and pet owners
generally pay for animal healthcare themselves. Pricing decisions are
not influenced by government payors that are involved in product
and pricing decisions for human medicines.
• Less price erosion by generic competition: Generic competition
in animal healthcare, whilst playing an important role, has a lower
impact on prices compared to human pharmaceuticals because
of the smaller average market size of each product opportunity,
stronger customer relationships and brand loyalty.
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 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 significant
change as incorporated practice groups are consolidating practices at
an increasing rate.
In many countries, our relationships with these corporate groups are very
important, and we continue to increase our focus through experienced
key account managers and technical support services. With the ongoing
integration of professional farming units, our Food producing Animal
Product 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.
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Strategic Report
Key Trends and Our Response
1
2
3
4
5
Market Trends
Recent market trend: 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
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 the medicine
prescribed and dispensed continues to be for a Dechra product.
Market Trends
Ongoing market trend: The veterinary profession
has been going through a period of change for
several years as corporates are continuing to
consolidate independent practices.
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.
Market Trends
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. To further
the optimal use of our medicines we are increasing the provision
of technical support services through experienced veterinarians.
We are also expanding our geographical footprint and investing
money in product registration in new developing markets.
Market Trends
Ongoing market trend: The veterinary
market is seeing a continued increase in
global regulatory requirements and quality
production standards through more
stringent site inspections.
Our Response
We are strengthening our regulatory teams so we can
comply with the respective medicines agencies’ requirements and
expanding our quality function to enable manufacturing sites to
produce products to meet the highest standards.
Market Trends
Long term market trend: With the global
increase in population and the improvement
in developing countries’ economies, there
is a huge increase in demand for high quality
animal protein and dairy products.
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 swine and poultry water
soluble antibiotics, and with our vaccines we are increasing our
registration activity to obtain marketing authorisations in new markets.
We also own the global marketing rights (excluding ANZ) 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
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Job Number 7 September 2020 4:17 pm Proof NumberOur Marketplace continued Product Market DynamicsOur 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.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.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 emerging, particularly in South America and Eastern Europe.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 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 reputation 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.Species: Poultry, pigs and an increasing presence in cattle.Key therapeutic sectors: Water soluble antibiotics, poultry vaccines, the treatment of mastitis, lameness and pain management.Products: Our products are predominantly POMs that are prescribed by veterinarians who work in either specialist veterinary practices or professional farming units.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 of the need for better animal welfare standards, including pain control during procedures such as pig castration and tail docking in sheep.Our Market Position: Dechra entered the FAP sector through the acquisition of Eurovet in 2012; it currently represents 14.5% of revenue. The majority of our sales are currently antibiotics which are sold mainly into Europe. Western Europe 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 Brazilian vaccines business and Croatian poultry vaccines are providing growth and are anticipated to continue to provide growth opportunities in future years as we seek global registrations.CAP 70.1% of Group RevenueFAP 14.5% of Group RevenueDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com12Strategic ReportDechra-AR2020-Strategic.indd 1207-Sep-20 4:44:37 PM Job Number 7 September 2020 4:17 pm Proof Number 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.Market Description: Veterinarians that specialise in horses operate out of either mixed practices or, increasingly, specialist equine centres. There are approximately seven million horses in the USA, approximately one million horses in France and Germany and less than one million in the UK. As such the market potential is limited. The market can be divided roughly into high performance sports horses, leisure horses and ponies.Key Trends Shaping Our Markets: The market is variable and can be linked to the economy; however, high value, insured, 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.Species: Dogs and cats.Key therapeutic sectors: Our pet diets are available to support the wellbeing of animals 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, obesity, heart disease and kidney disease.Market Description: The global pet food market is huge and dwarfs the animal health pharmaceuticals market. The veterinarian's recommendation is respected by pet owners which allows them to take a small but significant part of this nutrition market.Key Trends Shaping Our Markets: Expenditure on companion animals continues to grow due to increasing pet ownership, advances in nutrition and increased competence in managing complex conditions in dogs and cats such as allergies, joint disorders, obesity, heart disease and kidney disease.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.Equine 7.1% of Group RevenueNutrition 5.6% of Group RevenueStock Code: DPH13Strategic ReportDechra-AR2020-Strategic.indd 1307-Sep-20 4:44:51 PM Strategic Report
Our Business
Model
Our objectives are to innovate, develop, acquire, register, manufacture, supply 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.
Our Offering to Veterinarians
Our Key Resources and Relationships
Innovative Products that Treat a Range of Conditions
Dechra develops and manufactures drugs and therapies to improve the
prevention, diagnosis, care and treatment of animals.
Value created for veterinarians: Our products give veterinarians the
solutions they need in the treatment of animals. The majority of Dechra’s
key products are novel or have clear advantages over competitor
products. This allows veterinarians to offer a high standard of care to
animals that they treat.
Educational and Training Programmes
We offer high level educational programmes focused on the diagnosis
and 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.
Value created for veterinarians: We help to improve the knowledge
and education of veterinarians. These programmes are certified to offer
veterinarians and veterinary nurses the continuing professional education
hours they require to maintain their professional qualification.
Customer Support
Dechra provides high levels of technical support and pharmacovigilance
through helplines in every country in which we operate.
Value created for veterinarians: These helplines provide veterinarians
with support on how best to use our products and free advice on
any difficult or complex cases that may be encountered. This enables
veterinarians to be fully informed and have the knowledge they need to
apply best practice approaches to their care and treatment of animals.
How This Fulfils Our Purpose
Our products enable the improvement of animal health and welfare. Our
customer support, educational and training programmes help to inform
veterinarians around the globe and further improve animal health and
welfare.
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.
Technology
We are implementing a strong technology platform to
enable us to operate efficiently. We also offer Continuing
Professional Development (CPD) training via our e-learning
system (the Dechra Academy) to veterinarians and veterinary
nurses.
Relationships and Partners
Our sales approach relies on strong partnerships with practice
groups and individual veterinarians, strengthened by key
opinion leaders and distribution partners. The relationship with
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 robust balance sheet which enables us
to fund internally many of our strategic opportunities.
Read Delivering Our Strategy
on pages 18 to 21
Technology
People
Manufacturing and
Supply Chain
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Strategic Report
Innovation, Development and Registration
Manufacturing
Product Development Portfolio
Range of Competencies
Novel
entities
Generics
Differentiated
genetics
Lifecycle
management
Tablets and
capsules
Creams
Liquids
Ointments
Read more about Our Product
Development on pages 40 to 43
Powders
Vaccines
Sterile
injections
Manufacturing
Manufacturing is a key competency of the Group; the
prime objective is to deliver safe, efficacious, cost-effective,
quality products. We have a wide range of competencies
across our eight sites including tablets, creams, liquids,
ointments, powders, vaccines and sterile injections that can be
packed in a multitude of different presentations, which facilitates
the manufacture of less than 50% of our products in-house.
However, there are other competencies and dosage forms that
we do not have along with long term agreements that prevent
manufacture in-house of the other products.
Batch runs for veterinary medicines are often relatively small
compared to human production. Therefore, in some instances,
outsourcing can prove difficult and expensive. Our Contract
Manufacturing Organisation (CMO) network is an important part
of our business.
Product development ideas are generated in numerous ways,
including:
• regular cross functional meetings where all 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 crucial 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 formula,
regulatory dossiers are prepared for registration and filing with
the relevant regulatory authorities.
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Strategic Report
Supply Chain
Our Customers
Sales and Marketing
Veterinary
distributors and
wholesalers
Veterinary
practices and
professional
farming units
Veterinary
professionals
Telephone sales
representatives
Field based
representatives
Generating Demands for
our Products
s
e
t
i
s
s
c
i
t
s
g
o
L
i
All 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.
Direct supply of products
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 wholesalers 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 wholesalers generally 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 wholesalers
or where legislation enforces all
pharmaceuticals to be sold through
pharmacies, such as Denmark, Italy,
Norway and Sweden.
Educational
programmes
Technical
support
programmes
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 of 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 to best use
our products and 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
sectors. We deliver this education
through many channels, including
major conferences, regional
groups, to 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.
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Strategic Report
Creating Value For
Our Stakeholders
Shareholders
We have consistently delivered on our strategic objectives
resulting in a strong record of growth.
Communities
We contribute to the social and economic welfare of the local
communities in which we operate. Our community ethos is
aligned with our business Purpose and Values.
Dividend Per Share (p)
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
1
0
-
6
0
-
0
3
2
0
-
6
0
-
0
3
3
0
-
6
0
-
0
3
4
0
-
6
0
-
0
3
5
0
-
6
0
-
0
3
6
0
-
6
0
-
0
3
7
0
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6
0
-
0
3
8
0
-
6
0
-
0
3
9
0
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6
0
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1
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0
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3
1
1
-
6
0
-
0
3
2
1
-
6
0
-
0
3
3
1
-
6
0
-
0
3
4
1
-
6
0
-
0
3
5
1
-
6
0
-
0
3
6
1
-
6
0
-
0
3
7
1
-
6
0
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0
3
8
1
-
6
0
-
0
3
9
1
-
6
0
-
0
3
0
2
-
6
0
-
0
3
20
Years of Dividend
per Share Growth
34.29
Total Dividend per
Share in 2020
People
Our employees are our greatest asset. We employ 1,889
employees in 25 countries in a wide range of working
environments. Our ongoing objective is to continue to be a high
performing business, driven by highly skilled and committed
teams.
182
New Employees
239
Delta (Employee)
Training Courses
935
Service Hours
£279.5k
Total Donations
Veterinary Professionals
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.
We invest in our Manufacturing and Supply Chain competencies
to meet demand.
334
Veterinary
Academy Courses
39,067
Shipments from
Uldum, Denmark
17
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Strategic Report
Delivering
Our Strategy
Since 2013, we have clearly defined and communicated our priorities for each Strategic Growth Driver and Enabler
and these are outlined in the table on pages 20 and 21. In this section of the Annual Report we describe the progress
we have made towards achieving our strategic objectives.
Dechra Values
Strategic Enablers
Dedication
Enjoyment
Courage
Manufacturing &
Supply Chain
Technology
People
Honesty
Relationships
Ambition
Read more about our Strategic
Enablers on pages 36 to 39
1,327
Product
registrations
40
Countries
distributed to
13
Countries with
own sales and
marketing
organisations
3
Manufacturing sites
1,287
Employees
a
b
c
Commenced
trading in
Canada and
Poland
Acquired Genera
Entry into
poultry
vaccines
Acquired
RxVet
Access to
New Zealand
Acquired 33% of
Medical Ethics
Access to
novel product
development
2014
2015
2016
2017
Commenced
trading
in Italy
Acquired
PSPC
US bolt-on
a
b
c
Acquired Putney
Transformational
US deal
Acquired Apex
Access to
Australian CAP
market
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Job Number 7 September 2020 4:17 pm Proof NumberabcabcAcquired a further 15% of Medical EthicsStrengthens pipelinePortfolio FocusabcPipeline DeliveryGeographical ExpansionAcquisition20182019Acquired trade and assets of Caledonian Access to equine productsAcquisition of Ampharmco Supports US manufacturingAcquired Venco Access to Brazil and South American marketsAcquired Le Vet Adds to EU product portfolioAcquired AST Farma Strengthens Dutch market position and provides direct-to-vet relationshipabc2020Acquisition of Mirataz Expands our product portfolioStrategic Growth DriversGlobal specialist veterinary pharmaceuticals and related products businessGenerate long term value for shareholders5,388Product registrations72Countries distributed to25Countries with own sales and marketing organisations8Manufacturing sites1,889EmployeesStock Code: DPH19Strategic ReportDechra-AR2020-Strategic.indd 1907-Sep-20 4:45:16 PM Strategic Report
Delivering
Our Strategy continued
Our Strategic
Growth Drivers
2016
2017
2018
Our Achievements
Our Achievements
2019
Our Progress
2020
Future Priorities
Link to KPIs and Risks
Pipeline Delivery
• Zycortal® approved and
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.
launched in the USA in March
2016 and in 14 European
markets
• Osphos launched in 17
additional European countries
• Several FAP approved, notably
Phenocillin® and Solamocta® (for
turkeys and ducks) launched in
18 other territories
• Signed Animal Ethics licensing
agreement, and building
pipeline of other in-licensing
opportunities
• Two further poultry vaccines
registered in EU: Avishield®
IBH120 and ND B1
• Launch of further Amoxi-Clav
• Vaccines development strategy
defined and new opportunities
identified
•
• Amoxi-Clav tablet development
completed
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
authorisations gained
licensing opportunities
Portfolio Focus
• Double digit growth in key
a
b
c
Maximise our revenue
by increasing market
penetration, focusing on
targeted therapeutic sectors
within CAP, Equine, FAP
and Nutrition.
therapeutic 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
• 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
Geographical Expansion
• Regulatory approvals were
• Several international product
obtained in several countries
such as Brazil, Egypt and
Sri Lanka
• New start-up in Austria
registrations achieved
• Established Dechra Veterinary
Products (DVP) International
business
• Commenced appointment of the
DVP International team
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.
• Three acquisitions completed:
Genera, Brovel and Putney
• Putney integration helped
strengthen our USA presence
• Genera integration on plan, new
business structure defined
• Registration process of Dechra
products commenced in Mexico
• Acquisition of Apex, opening up
new bridgehead into Australasia
and South East Asia
• Acquisition of 33% of Medical
Ethics Pty Ltd provides the
Group with secure access to
novel therapeutic areas/product
development
• Developed new Manufacturing
and Supply Chain strategy
• Ongoing progress in Oracle
Strategic Enablers
• Good progress in our Oracle
roll-out with DVP US live in April
2016
Our strategic enablers,
Manufacturing and
Supply Chain, People and
Technology, support the
execution of our strategy.
• Commencement of a new Group
Intranet platform for improved
communication and information
sharing with all employees
•
• HR Cloud based IT system
implemented in 16 countries
deployment
IT user hardware standardised
across the Group
• 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 addition
• Over 80 new country registrations
of existing portfolio products
• Acquisition of RxVet expanded
our presence in New Zealand
• Successful establishment of the
DVP International team
• Development of international
registrations strategy and
prioritisation plan
• First full year of Apex
• Acquisition and successful initial
integration of AST Farma and Le
Vet, providing transformation in
EU Pharmaceuticals’ portfolio
and pipeline
• Progress made in Manufacturing
remodelling strategy, in Zagreb
and Bladel
• 12 months without a lost time
accident
• Completion of employee
engagement survey
• Successful implementation of
the Oracle project in DVP EU
• Successful integration and
• Acquisition and successful
• Acquisition and successful
• Acquisition of an additional 15%
• Complete and integrate the
operation of Genera, Brovel,
Putney and Apex
integration of RxVet, expanding
our presence in New Zealand
• Entered into a number of
• Marboquin tablets, a CAP
• Secure additional novel and
licensing agreements, including
antibiotic, approved in USA
innovative opportunities for the
a novel canine sedative and an
• Cosacthen® approved in 23 EU
Group
equine gastrointestinal product
territories and Canada
• A number of novel and generic
• Akston proof of concept study
registrations in EU, Mexico and
commenced
• Progress pipeline development
programmes for key projects
such as Akston and Tri-Solfen®
1
2
2
3
3
4
4
5
5
9
Read more about Product
Development on pages
40 to 43
• 15 product launches from Le Vet
rest of world
pipeline
• Moved key Le Vet products from
• Delivered growth across all key
• Continue to outperform
distributors to Dechra marketing
therapeutic sectors through
organically the markets in which
companies to generate significant
educational focus
we operate
synergies through retention of full
• Continued to generate significant
•
Maximise key brands market
margin and enhancing sales focus
synergies from AST Farma and
penetration
2
2
3
4
4
5
5
8
1
1
9
• Development and launch of Dechra
Le Vet acquisition
Read more about our
Product Categories on
pages 12 and 13
Dog & Cat Anaesthesia App
• FAP growth accelerating against
a backdrop of declining antibiotic
markets
• Expanded into Latin America via
• 34 product registrations across
•
Intensify focus on growing
the acquisition of Laboratorios
Indonesia, South Korea,
our own branded international
Vencofarma do Brasil Ltda (Venco)
Myanmar, Nicaragua, Oman,
organisations
1
2
2
5
3
7
4
8
• 43 Product registrations across
Tanzania, Thailand, UAE, Uruguay
•
Further extend our distribution
Israel, South Korea, Macau,
and Vietnam
business through product
Macedonia, Malaysia, Malta,
• Key endocrine brands Vetoryl®,
registrations and by strengthening
Namibia, Serbia, Ukraine, UAE
Felimazole® and Zycortal being
relationships with key marketing
Read more about our
Geographical Footprint
on pages 06 and 07
and Zambia
brought back in-house in ANZ
partners
• ANZ business leveraged by
and progressing through the fast
Caledonian bolt-on
track process in Brazil
integration of Venco
of Medical Ethics Pty Ltd
acquisition of worldwide rights
• Acquisition of trade and assets of
• Acquisition of Ampharmco LLC
and assets of Osurnia®, a long
Caledonian Holdings Ltd in New
in Fort Worth, Texas, a FDA
acting treatment for Otitis Externa
Zealand strengthening market
registered facility
in dogs
position in Equine
• Acquisition of worldwide rights
•
Leverage prudent balance sheet
3
4
5
1
6
2
7
Read more about our
Acquisitions on page 24
and assets of Mirataz®, a
position to capitalise on future
transdermal medication for cats
opportunities
• Appointment of additional Non-
• Appointment of Non-Executive
• Extend our digital capabilities
Executive Director and Group
Director and Chief Financial Officer
• Strengthen our IT Systems
Manufacturing & Supply Director
• Restructured Product Development
•
Invest in the development
•
Investments in manufacturing and
team and created new position of
and infrastructure at our sites
packing at Skipton, a new solid
Chief Scientific Officer
to facilitate more in-house
dose facility in Zagreb and an
• Remedied internal supply issues
manufacturing
upgrade to the Bladel sterile facility
• Oracle ERP embedded
• Execution of our Environmental,
Social and Governance strategy
4
5
6
7
1
4
2
7
3
9
Read more about our
Stratgeic Enablers on
pages 36 to 39
20
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Our Strategic
Growth Drivers
Pipeline Delivery
Deliver our pipeline on time,
at the right costs and with
the expected returns. Refill
a constant flow of new
products in future years.
• Zycortal® approved and
• Signed Animal Ethics licensing
• Two further poultry vaccines
launched in the USA in March
agreement, and building
registered in EU: Avishield®
2016 and in 14 European
pipeline of other in-licensing
IBH120 and ND B1
markets
opportunities
• Launch of further Amoxi-Clav
• Osphos launched in 17
• Vaccines development strategy
dose sizes to complete range for
additional European countries
defined and new opportunities
the USA market
the pipeline so that we get
• Several FAP approved, notably
identified
•
In-licensing of major new
Phenocillin® and Solamocta® (for
• Amoxi-Clav tablet development
products including Redonyl®
Portfolio Focus
• Double digit growth in key
• Strong CAP and Equine growth
• Resolution of Nutrition supply
a
b
c
Maximise our revenue
by increasing market
penetration, focusing on
targeted therapeutic sectors
within CAP, Equine, FAP
and Nutrition.
therapeutic areas
continuing across the Group,
and palatability issues, and
• Roll-out of digital technologies
FAP returned to growth
launch of refreshed cat diets
progressed to plan, with the
•
Increased effective use of CRM
• Strong growth in European
implementation of our Learning
tools in EU and NA
Management System, Delta,
• Expanded sales force
FAP following antibiotic product
alignment and range additions
enabling product training to
effectiveness training
• Leveraging CAP product success
be disseminated to sales
• Unblocking of distribution
to increase penetration across
representatives
channels for Putney products
Group
in the US opened up market for
• Continued growth in Equine,
enlarged NA business growth
with stronger growth in Europe
from market penetration and
range addition
Geographical Expansion
• Regulatory approvals were
• Several international product
• Over 80 new country registrations
obtained in several countries
registrations achieved
of existing portfolio products
such as Brazil, Egypt and
• Established Dechra Veterinary
• Acquisition of RxVet expanded
Sri Lanka
Products (DVP) International
our presence in New Zealand
• New start-up in Austria
business
• Successful establishment of the
• Commenced appointment of the
DVP International team
DVP International team
• Development of international
registrations strategy and
prioritisation plan
Leverage our product
portfolio into new geographic
regions through distribution
partners, in-country
presence and new country
product registrations.
Key to KPIs:
1 Revenue Growth
5 New Product Revenue
Key to Risks:
1 Market Risk
2 Underlying Diluted EPS Growth
6 Lost Time Accident Frequency Rate
2 Competitor Risk
6 Acquisition Risk
7 People Risk
3 Return on Capital Employed
7 Employee Turnover
3 Product Development and Launch Risk
8 Antibiotic Regulatory Risk
4 Cash Conversion
4 Supply Chain Risk
5 Regulatory Risk
9 Retention of People Risk
No change
Increasing risk
Strategic Report
2016
2017
2018
Our Achievements
Our Achievements
2019
Our Progress
2020
Future Priorities
Link to KPIs and Risks
• Entered into a number of
licensing agreements, including
a novel canine sedative and an
equine gastrointestinal product
• A number of novel and generic
registrations in EU, Mexico and
rest of world
• 15 product launches from Le Vet
• Marboquin tablets, a CAP
antibiotic, approved in USA
• Cosacthen® approved in 23 EU
territories and Canada
• Akston proof of concept study
commenced
• Secure additional novel and
innovative opportunities for the
Group
• Progress pipeline development
programmes for key projects
such as Akston and Tri-Solfen®
1
2
2
3
3
4
4
5
5
9
Read more about Product
Development on pages
40 to 43
turkeys and ducks) launched in
completed
Ultra, Vetradent® and BioEquin®
pipeline
18 other territories
• A number of minor FAP market
• Progress in co-development
authorisations gained
licensing opportunities
• 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
• Delivered growth across all key
therapeutic sectors through
educational focus
• Continued to generate significant
synergies from AST Farma and
Le Vet acquisition
•
• Continue to outperform
organically the markets in which
we operate
Maximise key brands market
penetration
2
2
3
4
4
5
5
8
1
1
9
Read more about our
Product Categories on
pages 12 and 13
• 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
• ANZ business leveraged by
Caledonian bolt-on
• 34 product registrations across
•
Indonesia, South Korea,
Myanmar, Nicaragua, Oman,
Tanzania, Thailand, UAE, Uruguay
and Vietnam
•
• Key endocrine brands Vetoryl®,
Felimazole® and Zycortal being
brought back in-house in ANZ
and progressing through the fast
track process in Brazil
Intensify focus on growing
our own branded international
organisations
Further extend our distribution
business through product
registrations and by strengthening
relationships with key marketing
partners
1
2
2
5
3
7
4
8
Read more about our
Geographical Footprint
on pages 06 and 07
Acquisition
• Three acquisitions completed:
• Successful integration and
• Acquisition and successful
• Acquisition and successful
• Acquisition of an additional 15%
• Complete and integrate the
Genera, Brovel and Putney
operation of Genera, Brovel,
integration of RxVet, expanding
integration of Venco
of Medical Ethics Pty Ltd
• Putney integration helped
Putney and Apex
our presence in New Zealand
• Acquisition of trade and assets of
Expand our geographical
footprint and/or enhance
our product portfolio
through acquisition.
strengthen our USA presence
• Acquisition of Apex, opening up
• First full year of Apex
• Genera integration on plan, new
new bridgehead into Australasia
• Acquisition and successful initial
business structure defined
and South East Asia
integration of AST Farma and Le
• Registration process of Dechra
• Acquisition of 33% of Medical
Vet, providing transformation in
products commenced in Mexico
Ethics Pty Ltd provides the
EU Pharmaceuticals’ portfolio
Caledonian Holdings Ltd in New
Zealand strengthening market
position in Equine
• Acquisition of Ampharmco LLC
in Fort Worth, Texas, a FDA
registered facility
• Acquisition of worldwide rights
and assets of Mirataz®, a
transdermal medication for cats
•
acquisition of worldwide rights
and assets of Osurnia®, a long
acting treatment for Otitis Externa
in dogs
Leverage prudent balance sheet
position to capitalise on future
opportunities
3
4
5
1
6
2
7
Read more about our
Acquisitions on page 24
Group with secure access to
and pipeline
novel therapeutic areas/product
development
Strategic Enablers
• Good progress in our Oracle
• Developed new Manufacturing
• Progress made in Manufacturing
• Appointment of additional Non-
• Appointment of Non-Executive
Our strategic enablers,
Manufacturing and
Supply Chain, People and
Technology, support the
execution of our strategy.
roll-out with DVP US live in April
and Supply Chain strategy
remodelling strategy, in Zagreb
2016
• Ongoing progress in Oracle
and Bladel
• Commencement of a new Group
deployment
• 12 months without a lost time
•
Intranet platform for improved
•
IT user hardware standardised
accident
communication and information
across the Group
• Completion of employee
Executive Director and Group
Manufacturing & Supply Director
Investments in manufacturing and
packing at Skipton, a new solid
dose facility in Zagreb and an
upgrade to the Bladel sterile facility
Director and Chief Financial Officer
• Restructured Product Development
team and created new position of
Chief Scientific Officer
• Remedied internal supply issues
• Oracle ERP embedded
sharing with all employees
• HR Cloud based IT system
implemented in 16 countries
engagement survey
• Successful implementation of
the Oracle project in DVP EU
• Extend our digital capabilities
• Strengthen our IT Systems
Invest in the development
•
and infrastructure at our sites
to facilitate more in-house
manufacturing
• Execution of our Environmental,
Social and Governance strategy
4
5
6
7
1
4
2
7
3
9
Read more about our
Stratgeic Enablers on
pages 36 to 39
Stock Code: DPH
21
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Job Number 7 September 2020 4:17 pm Proof NumberChief Executive Officer’s StatementIan Page Chief Executive OfficerI am pleased to report that Dechra has remained resilient throughout a challenging year. This is testament to our strategy, the strength of our product portfolio and through the innovation and dedication of our people. Our portfolio focus on prescription only medicines, our continued international expansion and the delivery of targeted acquisitions have ensured that we have, yet again, outperformed the market.COVID-19Throughout the pandemic we have successfully managed to remain operational. We took the decision that we would not furlough any of our employees and therefore did not take advantage of, or utilise, any government assistance in any country. There is no doubt that this has provided job security to our people which has enhanced their loyalty and commitment. All manufacturing, logistics and front line laboratories have remained open and operational throughout the period and our employees in these areas have been awarded a one-off bonus payment; all other employees have functionally operated from home. Many of our sales teams created new and innovative ways to communicate with and support our veterinary customer base.Sadly, we were all touched by the loss to COVID-19 of our Group Manufacturing and Supply Chain Director, Simon Francis. In the 18 months that he was with the Group, Simon had implemented a robust strategy and significantly strengthened the management team who will continue to deliver this strategy as his legacy.Across the world the majority of veterinary practices have still operated; however, service provision varied on a country-by-country basis, further details of which will be provided later in this report. Our sales have remained robust because of our strategy to focus on essential and chronic prescription medicines, this has served us well, as veterinarians have worked to ensure that sick animals have continued to be treated.Operational ReviewEU Pharmaceuticals SegmentDuring the financial year our European (EU) Pharmaceuticals Segment reported net revenues increased by 7.8% at CER (6.4% at AER). The Segment includes our International business, which is detailed below. It also includes non-core business, such as third party contract manufacturing, which we continue to exit as strategically planned. Existing revenues, excluding third party contract manufacturing and including the like-for-like impact of recent acquisitions, increased by 6.4% at CER (5.0% at AER).This growth has been driven across all our key therapeutic sectors, due to veterinary educational programmes on our existing portfolio and the continued delivery of synergies from the AST Farma and Le Vet acquisition completed in February 2018. Two of the products from this acquisition, Tralieve® and Prevomax®, have performed exceptionally well.Performance by country is varied with the COVID-19 effect being particularly prevalent in the UK and France, both of which have underperformed. The UK was subject to more practice closures than anyGlossaryCER: Constant Exchange RatesAER: Actual Exchange RatesCAP: Companion Animal ProductsEMA: European Medicines AgencyERP: Enterprise Resource PlanningEU Pharmaceuticals: European Pharmaceuticals Segment comprising DVP EU, DVP International and Dechra Pharmaceuticals ManufacturingFDA: US Food and Drug Administration; a federal agency of the US Department of Health and Human ServicesFAP: Food producing Animal ProductsNA Pharmaceuticals: North American Pharmaceuticals Segment comprising DVP US, Canada and Dechra-BrovelTerms used within this section:We believe in the capability of our people and our ability to execute our strategy5.1% at CER Revenue Growth in NA7.8% at CERRevenue Growth in EUDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com22Strategic ReportDechra-AR2020-Strategic.indd 2207-Sep-20 4:45:24 PM Strategic Report
other country and also appears to have been affected by wholesalers
reducing Brexit contingency stock. The UK started to show signs of
recovery in June and returned to near normal in July. Performance in
France showed a marked improvement in June. All other territories
performed well in this difficult COVID-19 affected environment.
Five years ago we had a greenfield start-up of a new Dechra subsidiary
in Poland, focusing entirely on FAP products. In line with our strategy, we
started to introduce CAP products there. It is pleasing to report that we
have more than quadrupled our total in-market revenues in this territory
since formation and it is now our fastest growing CAP market.
International Business
Our international expansion strategy continues to deliver growth,
especially in Australia, New Zealand and Brazil where we have our
own Dechra branded organisations. Core performance in Australia has
been strong and will be enhanced in the new financial year as our key
endocrine brands, Vetoryl, Felimazole and Zycortal, revert to Dechra
following the termination of the prior distribution agreement. The Venco
team in Brazil have transitioned the business to the Dechra brand and our
capital investment programme continues as we modernise and improve
the facilities. The vaccine portfolio in Brazil will be diversified as we start
to introduce Dechra products with Vetoryl now being marketed and
Felimazole and Zycortal in the fast track approval process. Our distribution
business continues to be extended through product registrations and by
stronger relationships with these key marketing partners.
NA Pharmaceuticals Segment
Our North America (NA) Pharmaceuticals Segment net revenues
increased by 5.1% at CER (7.8% at AER). This is an excellent second
half performance given the decline seen in the first half due to supply
issues and a strong comparable period in the previous year which
benefited from exceptional sales of Zycortal.
On the whole, the US market has been reasonably robust with veterinary
practices offering kerbside and online consultations.
Following the acquisition of Mirataz, we appointed 11 talented
members of the Kindred Biosciences Incorporated (Kindred Bio) team
which extended our overall sales capabilities and added to our digital
marketing skills.
Performance in Mexico continues to improve as we now have several
key Dechra products registered in the territory which provide a higher
margin than the legacy products.
Performance in Canada remains solid; however, it has been partly offset
by an ongoing supply issue with Canaural®, an older product produced
in-house that we are in the process of modernising to bring testing
methods up to current standards.
Product Group Performance
CAP
Companion Animal Products (CAP), which represent 70.1% of Group
turnover, grew by 5.5% at CER. This steady performance benefitted
from the launch of Mirataz but was impacted by lower sales rates in the
UK and France in the last quarter.
FAP
Food producing Animal Products (FAP), which represents 14.5%
of Group turnover, grew by 33.5% at CER, a strong performance
benefitting from a full year of sales from DVP Brazil (Venco) and with a
lower impact from COVID-19 disruptions.
Equine
Equine, which represents 7.1% of Group turnover, grew by 6.1% at CER
benefitting from a full year of the Caledonian acquisition portfolio.
Nutrition
Nutrition represents 5.6% of Group turnover and declined by 0.7%. This is
a solid performance as these nutritional diets are subject to discretionary
spend unlike much of the rest of the portfolio which is predominantly
clinically necessary pharmaceuticals. Following the relaunch of the cat diets
last year, the dog diets have now also all been refreshed with improved
formulation, packaging and presentation and have been positioned at a
lower price point to give us an additional competitive advantage.
Product Development
Structural Changes
As reported at the half year, Dr Susan Longhofer, who has been with
the Group for 15 years, was promoted to a new position of Group
Chief Scientific Officer. Following this promotion, we have restructured
product development, regulatory affairs and pharmaceutical business
development teams. Nancy Zimmerman, formerly head of Companion
Animal Marketing, was promoted to Group Director of Pharmaceutical
Business Development, a role predominantly focused around identifying
and screening new development opportunities. Trish Logie, a recent
appointment within the EU, who has industry and regulatory agency
experience, has been promoted to Group Director, Regulatory Affairs.
Anthony Lucas remains as the Group Product Development Director.
Our product development laboratory in Zagreb has been completely
refurbished to GMP standards; with double the amount of space, new
equipment and the appointment of new analysts. This investment
enables us to increase the amount of analytical and formulation work
conducted at this facility significantly.
Product Approvals
Numerous marketing authorisations have been achieved throughout
the year. Although none is material in its own right, they all strengthen
the existing portfolio in Dechra territories and enhance our International
portfolio, an increasing area of strategic importance. Major approvals in
Dechra territories were:
• Cosacthen for the diagnosis of Cushing’s Disease and Addison’s
Disease (which Vetoryl and Zycortal treat) was approved in 23 EU
territories and Canada;
• Avishield IB Plus and Avishield IB GI-13, both poultry vaccines, were
approved in the EU territories;
• Marboquin tablets, a companion animal antibiotic, were approved in
the USA;
• eight new products were registered in Australia and New Zealand,
two in Mexico and one in Brazil;
• a number of established products already registered in the EU have
now received approval in new territories, including Clavudale®,
Felimazole, Isathal®, Spectrabactin and Octacillin®. Our market
leading equine non-steroidal anti-inflammatory, Equipalazone®, has
been reformulated with the addition of a flavouring agent, which has
now been approved in 13 European territories; and
•
Internationally we have received 34 approvals across our key brands
in countries including Indonesia, Korea, Myanmar, Nicaragua, Oman,
Tanzania, Thailand, United Arab Emirates, Uruguay and Vietnam.
Stock Code: DPH
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Strategic Report
Chief Executive
Officer’s Statement continued
Filling the Pipeline
At the beginning of the financial year, in August 2019, we announced the
signing of a licensing and supply agreement with Akston Biosciences to
co-develop a long acting treatment for diabetes in dogs. Subsequently
we have exercised our rights to evaluate the cat product. The initial
proof of concept study in dogs was positive with high efficacy rates and
satisfied dog owners who only had to administer an injection once a
week as opposed to twice daily. We still have many significant hurdles
to cross but initial indications look positive for what could be a huge
opportunity for the Group. We continue to screen numerous other
opportunities and are hoping shortly to commence another proof of
concept study for a novel ophthalmic product.
Acquisitions
In July 2019, we acquired an additional 15.0% of the shares of Medical
Ethics Pty Ltd, the parent company of Animal Ethics Pty Ltd, for a
consideration of AUD13.5 million (£7.6 million). Following the acquisition
of 33.0% for AUD18.0 million in 2017 this takes our total holding to 48%.
Strong progress continues to be made on the global development of
Tri-Solfen® for pigs, cattle and sheep. I am pleased to report that the
Committee for Veterinary Medicinal Products (CVMP) has recommended
that a maximum residue limit (MRL) be granted for the topical use of the two
local anaesthetic constituents of Tri-Solfen® for use in cattle and pigs. This
is a major positive step forward towards gaining market approvals in the EU
and UK with submission of the dossier for approval for use in pigs expected
to be made through the European decentralised process before the end
of the calendar year. The ongoing trials for its application for debriding of
venous leg ulcers in humans have been delayed due to COVID-19.
In August 2019, we announced the acquisition of Ampharmco LLC in
Fort Worth, Texas, USA for a cash consideration of USD29.6 million
(£24.3 million). Ampharmco, an FDA registered facility, was acquired to
support our manufacturing strategy and to provide us with a US base to
manufacture solid dose, liquids, creams and ointments for the American
market. It also had three FDA approved generic products: Gentamicin-
Betamethasone Topical Spray was already marketed by Dechra;
Carprofen Chewable Tablets have now been launched under the Dechra
brand; and Carprofen Flavoured Tablets have recently been approved
but not yet launched.
In April 2020, we completed the acquisition of the worldwide rights
and assets of the Mirataz product portfolio from Kindred Bio for cash
consideration of USD43.0 million (£34.9 million) and a royalty on future
sales. Mirataz is the first and only FDA and EMA approved transdermal
medication for the management of weight loss in cats, a major problem
encountered by veterinarians and owners when treating other underlying
medical conditions. The product is an excellent fit with Dechra’s existing
portfolio as many of the conditions our products treat are complicated
by weight loss in cats. It is a product that will need our technical
expertise, marketing capabilities and educational tools to drive sales. It is
currently sold in the USA and has recently been approved in the EU with
an expected launch towards the end of the 2020 calendar year. We are
also planning registration in several other territories.
In July 2020, post the year end, we completed the acquisition of the
worldwide rights to the Osurnia product portfolio from Elanco Animal
Health Incorporated for consideration of USD135.0 million
(£104.7 million). Osurnia is a long acting treatment for otitis externa
(inflammation of the outer ear) in dogs. The addition of Osurnia to our
dermatology portfolio will significantly enhance our presence in this
key therapeutic area and increase the range of solutions we offer to
veterinarians in treating otitis. Osurnia is sold in all our main markets,
North America and the EU and also in a number of our International
markets including Brazil and Australia.
24
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
www.dechra.com
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Strategic Report
Strategic Enablers
Manufacturing and Supply Chain
It has been an extremely challenging year for the Manufacturing and Supply
Chain team, especially with the loss to COVID-19 of the head of the team.
The strong management team has been further enhanced in the year,
especially in the areas of quality control and quality assurance. We have also
added further personnel to the team that manage our network of third party
suppliers, who currently make more than 50% of all the products we sell.
There has been a huge amount of activity to resolve in-house quality control
problems, mainly revolving around older products at our facility in Skipton.
We are also accelerating our strategic plan to increase the
in-house manufacture of our products and also to secure stronger,
long term relationships with Contract Manufacturing Organisations for
the balance. We are developing a team and infrastructure to enable
us to exceed the ever increasing and exacting standards expected in
pharmaceutical manufacturing and also to deal with the external work
streams involved in the technical transfer of products to new manufacturing
sites. Although the majority of in-house issues have been remedied, with
only a few of our older products out of stock, it will be several months
before some of our outsourced products are back in full supply.
We have continued to invest in the development and in the infrastructure
at our sites:
• Skipton, UK has been refreshed and refurbished;
• Bladel, Netherlands is being prepared for FDA inspection for the
sterile facility;
• Zagreb, Croatia has efficiently increased capacity and infrastructure
throughout;
• Londrina, Brazil continues improvements in its upstream vaccine
production; and
• Sydney, Australia is investing to gain Therapeutic Goods
Administration (TGA) approval, a higher quality standard, which will
allow us to export products outside Australia and New Zealand.
Technology
Technology is a major enabler and support function for the Group.
Numerous projects are being delivered including the:
• continued roll out and development of the Group ERP network;
•
•
standardisation of systems and hardware across the world,
including integration of recent acquisitions; and
support and strengthening of the network to provide enhanced security
and good connectivity for increased numbers of home workers.
Technology for education continues to be developed providing training
modules for employees through an in-house system branded Delta and
educational tools for veterinarians and veterinary nurses through the Dechra
Academy. Throughout the COVID-19 pandemic our digital capabilities
have proven to be very successful tools. In Europe 15,000 unique users
completed Dechra Academy courses; several thousand veterinarians
attended webinars during the pandemic; and there were over 230,000
views of Dechra YouTube content. In the US we held 500 webinar
presentations in the year with approximately 20,000 attendees.
People
In March 2020 we announced the appointment of Alison Platt as an
additional Non-Executive Director. Alison has extensive experience of
leadership in both Executive and Non-Executive roles and will strengthen
the Board and provide continuity through our next phase of growth,
especially as both the Senior Independent Director and the Audit
Committee Chairman are on nine year terms which expire in 2022.
After ten years with the Group and several months as Acting Chief
Financial Officer, in October 2019 Paul Sandland was appointed to the
role on a permanent basis and joined the Board.
In February 2020, Clint Morris, an experienced finance lead, was
appointed to Paul Sandland's previous role as DVP EU Finance Director.
Following the retirement of a long-serving senior EU Manager, Jan Jaap
Korevaar, we have appointed Nathalie Miara, who has extensive industry
experience, to Director of European Marketing.
Within the year we have rolled out a Save As You Earn (SAYE) scheme
in the United States; the launch exceeded all our expectations with over
50% of employees demonstrating their commitment to the success of
Dechra by enrolling on the scheme. We are looking to launch similar
schemes in the EU and other major territories where regulations permit.
In line with our CSR programme, we have encouraged our people to
get involved in community projects and volunteer services and have
given all employees the opportunity to participate in local schemes
during working days, further details are provided in the Corporate Social
Responsibility section of the Annual Report and Accounts.
The level of commitment and dedication to Dechra has always been
evident; however, throughout the COVID-19 pandemic it has been truly
exceptional. I would like to thank all employees for their hard work,
dedication, innovation and commitment throughout the year.
Dividend
The Board is proposing a final dividend of 24.00 pence per share (2019:
22.10 pence per share). Added to the interim dividend of 10.29 pence
per share (2019: 9.50 pence per share), this brings the total dividend for
the financial year ended 30 June 2020 to 34.29 per share (2019: 31.60
pence per share), representing 8.5% growth over the previous year.
Subject to shareholder approval at the Annual General Meeting to be held
on 27 October 2020, the final dividend will be paid on 27 November 2020
to shareholders on the Register at 6 November 2020. The shares will
become ex-dividend on 5 November 2020.
Outlook
Trading in the first few weeks of the new financial year has been
encouraging. However, the underlying COVID-19 affected longer term
trend cannot yet be ascertained as there is a degree of correction
in current sales as markets, such as the UK, return to growth and
wholesaler stocks return to more normalised levels. The indications at
this stage, however, are positive. A key area of focus over the coming
months will be the sales and marketing of our recently acquired brands,
Osurnia and Mirataz, which offer solid growth prospects and strengthen
our portfolio. We believe in the capability of our people and our ability to
execute our strategy and therefore remain confident in our future growth
prospects.
Ian Page
Chief Executive Officer
7 September 2020
Stock Code: DPH
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Job Number 7 September 2020 4:17 pm Proof NumberFinancial ReviewPaul Sandland Chief Financial OfficerOur existing business performed robustly this year, recovering well from first half supply issues and through the disruption caused by COVID-19Overview of Reported Financial ResultsTo 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 operating loss includes underlying operating profit of £1.6 million and non-underlying charges of £6.9 million. These non-underlying charges comprise amortisation of acquired intangibles of £2.6 million and acquisition costs of £4.3 million.Including non-underlying items, the Group’s consolidated operating profit increased by 33.6% at CER (33.8% at AER) whilst consolidated profit before tax increased by 45.3% at CER (47.1% at AER). Diluted EPS growth was restricted to 7.3% at CER (8.9% at AER) primarily reflecting the one-off impact in the prior year of the reduction in the Netherlands tax rates on deferred tax balances.GlossaryTerms used within this section:IFRSs: International Financial Reporting Standards as adopted by the EUCER: Constant Exchange RatesAER: Actual Exchange RatesCAP: Companion Animal ProductsFAP: Food producing Animal Productsbps: basis pointsAs Reported2020Existing£m2020Acquisition£m2020Consolidated£m2019£mGrowth at AERGrowth at CER Consolidated%Consolidated%Revenue502.113.0515.1481.86.9%6.8%Gross profit285.46.2291.6273.16.8%6.7%Gross profit %56.8%47.7%56.6%56.7%(10bps)(10bps)Operating profit/(loss)57.5(5.3)52.239.033.8%33.6%EBIT %11.5%(40.8%)10.1%8.1%200bps200bpsProfit/(loss) before tax47.3(6.4)40.927.847.1%45.3%Diluted EPS (p)32.7630.078.9%7.3%Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com26Strategic ReportDechra-AR2020-Strategic.indd 2607-Sep-20 4:45:36 PM Strategic Report
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 2020 is provided in the table below. In the commentary which follows, all references
will be to CER movement unless otherwise stated.
Revenue
Gross profit
Selling, general and administrative expenses
R&D expenses
Operating profit
Net finance costs
Share of associate profit/(loss)
Profit before tax
Taxation
Profit after tax
Diluted EPS (p)
Amortisation
and related
costs of
acquired
intangibles
£m
–
–
(63.9)
(5.7)
(69.6)
–
(0.6)
(70.2)
17.0
(53.2)
–
Non-underlying Items
Acquisition,
impairments
and
restructuring
costs
£m
–
–
(6.5)
–
(6.5)
–
–
(6.5)
0.9
(5.6)
–
Tax rate
changes
and finance
expenses
£m
–
–
–
–
–
(2.5)
–
(2.5)
(0.2)
(2.7)
–
2020
Underlying
Results
£m
515.1
291.6
(134.9)
(28.4)
128.3
(8.5)
0.3
120.1
(24.7)
95.4
92.19
2020
Reported
Results
£m
515.1
291.6
(205.3)
(34.1)
52.2
(11.0)
(0.3)
40.9
(7.0)
33.9
32.76
In the year, Dechra delivered consolidated revenue of £515.1 million, representing an increase of 6.8% on the prior year. This included £502.1 million
from its existing business, an increase of 4.1%, and a £13.0 million contribution from acquired businesses.
Consolidated underlying operating profit of £128.3 million represents a 0.4% increase on the prior year. This included £126.7 million from Dechra’s
existing business, a reduction of 0.8% on a like-for-like basis, and a £1.6 million contribution from acquired businesses.
Underlying EBIT margin reduced by 150 bps to 24.9%, with the erosion attributable to a combination of the £3.5 million curtailment credit of our
Dutch defined benefit pension scheme in the prior year, the dilutive impact of acquired businesses and increased Research and Development
expenses. Excluding the credit relating to the curtailment of the Dutch defined benefit pension scheme in the prior year, the EBIT margin reduction
would be 80 bps.
Underlying diluted EPS grew by 1.7% to 92.19 pence reflecting the profit growth from the existing and acquired businesses.
Underlying
Revenue
Gross profit
Gross profit %
Underlying Operating profit
Underlying EBIT %
Underlying EBITDA
Underlying Diluted EPS (p)
Dividend per share (p)
2020
Existing
£m
502.1
285.4
56.8%
126.7
25.2%
140.2
–
–
2020
Acquisition
£m
13.0
6.2
47.7%
1.6
12.3%
2.3
2020
Consolidated
£m
515.1
291.6
56.6%
128.3
24.9%
142.5
–
–
92.19
34.29
2019
£m
481.8
278.2
57.7%
127.4
26.4%
137.2
90.01
31.6
Growth at CER
Existing
%
4.1%
2.5%
(90bps)
(0.8%)
(120bps)
2.0%
Consolidated
%
6.8%
4.7%
(110bps)
0.4%
(150bps)
3.7%
–
–
1.7%
8.5%
Stock Code: DPH
27
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Strategic Report
Financial
Review continued
Reported Segmental Performance
Reported segmental performance is presented in note 2 on pages 166 to 168. 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
2020
Existing
£m
2020
Acquisition
£m
2020
Consolidated
£m
314.3
187.8
502.1
98.6
62.9
(27.8)
133.7
(7.0)
126.7
(69.2)
57.5
9.2
3.8
13.0
1.4
0.8
(0.6)
1.6
–
1.6
(6.9)
(5.3)
323.5
191.6
515.1
100.0
63.7
(28.4)
135.3
(7.0)
128.3
(76.1)
52.2
2019
£m
304.0
177.8
481.8
100.3
59.2
(25.1)
134.4
(7.0)
127.4
(88.4)
39.0
Growth at AER
Growth at CER
Existing
%
Consolidated
%
Existing
%
Consolidated
%
3.4%
5.6%
4.2%
(1.7%)
6.2%
(10.8%)
(0.5%)
0.0%
(0.5%)
6.4%
7.8%
6.9%
4.7%
3.0%
4.1%
(0.3%)
7.6%
(0.6%)
3.4%
7.8%
5.1%
6.8%
0.8%
4.7%
(13.1%)
0.7%
(10.0%)
(0.8%)
(12.4%)
0.4%
0.0%
0.7%
0.0%
(0.9%)
0.0%
0.4%
47.4%
33.8%
47.2%
33.3%
Underlying Segmental Performance
European Pharmaceuticals
Revenue in European (EU) Pharmaceuticals grew by 7.8%. The existing business grew by 4.7% including like-for-like year-on-year Dechra Brazil (Venco)
revenue, and Caledonian Holdings Ltd (Caledonian) revenue; excluding third party contract manufacturing, which is being reduced in line with our strategy and
replaced with own product manufacturing, revenues increased by 6.4%. This growth was driven by a strong performance in a number of countries, including
Germany, Iberia, Poland and Italy, and through the continued realisation of synergies from Le Vet partly offset by COVID-19 related weakness driving lower sales
in the UK. The acquisitions of Venco and Caledonian contributed a combined £9.2 million to revenue for the period where there is no comparative and are
reported within EU Pharmaceuticals.
Operating Profit from existing business declined by 0.6%, with operating margin reducing to 31.4% and consolidated operating margin declining to
30.9%. This was principally due to the prior year curtailment of our Dutch defined benefit pension scheme which resulted in a £3.5 million
non-cash credit in addition to the adverse product mix impact from the acceleration of our lower margin FAP business. Excluding the curtailment
gain, operating profit from existing business grew by 3.0% with operating margins reducing by 50 bps.
Underlying Diluted
Earnings Per Share
EU Pharmaceuticals
Revenue
EU Pharmaceuticals
Operating Profit
92.19p
2019: 90.01p
p
5
4
.
6
7
p
3
3
.
4
6
p
5
6
.
2
4
p
9
1
.
2
9
p
1
0
.
0
9
£323.5m
2019: £304.0m
£100.0m
2019: £100.3m
m
5
.
3
2
3
£
m
0
.
4
0
3
£
m
7
.
8
5
2
£
m
3
.
0
0
1
£
m
0
.
0
0
1
£
m
0
.
7
7
£
m
7
.
0
6
£
m
7
.
1
5
£
m
9
.
6
2
2
£
m
9
.
8
8
1
£
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
28
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
www.dechra.com
Dechra-AR2020-Strategic.indd 28
Job Number
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Strategic Report
Underlying
Revenue
EBITDA
EBITDA %
Operating Profit
Operating Profit %
2020
Existing
£m
314.3
109.6
34.9%
98.6
31.4%
2020
Acquisition
£m
9.2
1.8
19.6%
1.4
15.2%
2020
Consolidated
£m
323.5
111.4
34.4%
100.0
30.9%
2019
£m
304.0
108.6
35.7%
100.3
33.0%
Growth at CER
Existing
%
4.7%
1.9%
(90bps)
(0.6%)
(170bps)
Consolidated
%
7.8%
3.7%
(130bps)
0.8%
(220bps)
North American Pharmaceuticals
Revenue from North American (NA) Pharmaceuticals grew by 5.1% to £191.6 million. The existing business grew by 3.0% due to a strong second half
of the year which benefitted from the resolution of most of our internal supply issues and the retention of market share for Zycortal. The acquisitions of
Ampharmco and Mirataz added £3.8 million to revenue for the period.
Operating Profit from existing business grew 3.4% with operating margin increasing slightly by 10 bps to 33.5%. Further margin expansion was
hampered by the loss of our sterile ophthalmic range for the entire financial year. We expect to be back in supply of this range in the second half of
the 2021 financial year. Acquisitions did not impact significantly on segmental performance in the period with a small contribution from Ampharmco
relating to third party contract sales in addition to the initial sales of Mirataz in the last two months of the financial year.
Underlying
Revenue
EBITDA
EBITDA %
Operating Profit
Operating Profit %
2020
Existing
£m
187.8
64.3
34.2%
62.9
33.5%
2020
Acquisition
£m
3.8
1.1
28.9%
0.8
21.1%
2020
Consolidated
£m
191.6
65.4
34.1%
63.7
33.2%
2019
£m
177.8
60.0
33.7%
59.2
33.3%
Growth at CER
Existing
%
3.0%
4.3%
50bps
3.4%
10bps
Consolidated
%
5.1%
6.2%
40bps
4.7%
(10bps)
Pharmaceuticals Research and Development
Pharmaceuticals Research and Development (R&D) expenses increased by 12.4% from £25.1 million to £28.4 million, with existing business
research and development increasing by 10.0%. R&D activities from the acquisition of Ampharmco and Venco added £0.6 million. Overall R&D
expenses as a percentage of revenue increased from 5.2% to 5.5%. This included £2.2 million of spend in relation to Akston, and 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
2020
Existing
£m
(27.8)
5.5%
2020
Acquisition
£m
(0.6)
4.6%
2020
Consolidated
£m
(28.4)
5.5%
2019
£m
(25.1)
5.2%
Growth at CER
Existing
%
(10.0%)
Consolidated
%
(12.4%)
NA Pharmaceuticals
Revenue
NA Pharmaceuticals
Operating Profit
Research and
Development Spend
£191.6m
2019: £177.8
m
6
.
1
9
1
£
m
8
.
7
7
1
£
£63.7m
2019: £59.2m
m
7
.
3
6
£
m
2
.
9
5
£
£28.4m
2019: £25.1m
m
4
.
8
2
£
m
1
.
5
2
£
m
4
.
8
4
1
£
m
4
.
2
3
1
£
m
7
.
8
5
£
m
3
.
8
4
£
m
2
.
3
4
£
m
5
.
7
1
£
m
3
.
8
1
£
m
0
.
5
1
£
m
4
.
0
1
£
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
Stock Code: DPH
29
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Strategic Report
Financial
Review continued
Revenue by Product Category
CAP revenue continues to be the largest proportion of Dechra’s business at
70.1%, down from 70.6% in the prior year. CAP grew 5.5% in the year from
market penetration, product launches and the addition of Mirataz. Equine
revenue grew by 6.1% in the year, with growth driven by the Caledonian
acquisition. FAP revenue accelerated by 33.5% driven by strong core growth
in the EU and the acquisition of Venco. Nutrition revenue slightly declined on
the prior year.
Other revenue reduced by 34.1% to £13.7 million, now representing only
2.7% 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
2020
£m
361.6
36.4
74.8
472.8
28.6
13.7
515.1
2019
£m
340.2
34.4
57.3
431.9
29.1
20.8
481.8
Revenue by Product Category (at AER)
%
Change
at AER
6.3%
5.8%
%
Change
at CER
5.5%
6.1%
30.5% 33.5%
9.3%
(0.7%)
(34.1%)
6.8%
9.5%
(1.7%)
(34.1%)
6.9%
CAP
Equine
FAP
Nutrition
Other
70.1%
7.1%
14.5%
5.6%
2.7%
Underlying Gross Profit
Underlying Gross Profit for the existing business declined by 90 bps to
56.8% and the consolidated Underlying Gross Profit declined by
110 bps to 56.6%, reflecting the greater proportion of FAP sales.
Underlying Selling, General and
Administrative Expenses (SG&A)
SG&A costs grew from £125.7 million in the prior year to
£134.9 million in the current year, an increase of 7.3% (at AER). This
represents growth from both acquired and the existing businesses,
and infrastructure cost added to manage the acquisitions and drive
further growth.
For the 2019 financial year the SG&A costs included 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 at 26.2% remained in line with 2019
at 26.1% (26.8% excluding the pension credit).
Non-underlying Items
Non-underlying items incurred in the year are fully described in note 5
on page 169. In summary, they relate to the following:
• Amortisation of acquired intangibles of £69.6 million – the
amortisation of the acquired intangibles has declined from
£76.8 million principally due to a lower charge from the AST Farma
and Le Vet acquisition;
• Expenses relating to acquisition and subsequent integration activities
of £4.3 million (2019: £3.7 million) – this includes the transaction
and integration costs associated with the acquisitions made in
recent years including AST Farma and Le Vet, Caledonian, Venco,
Ampharmco, Mirataz and the prospective acquisition of Osurnia
which completed in July 2020;
• Rationalisation of manufacturing organisation of £2.2 million (2019:
£2.0 million) – this comprises the costs associated with this strategic
programme;
• Finance expense of £2.5 million (2019: £1.0 million) – this represents
the charge arising on the acceleration of the amortisation of
arrangement fees relating to the Term Loan on termination (see
Borrowing Facilities section below) and also unwinding of the
present value discounts relating to contingent consideration due and
associated foreign exchange; and
• Taxation credit of £17.7 million (2019: £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 including
a further revision to the 2021 Netherlands tax rate which will now
decrease to 21.7% in 2021 (previously this was expected to be 20.5%).
Taxation
The reported effective tax rate (ETR) for the year is 17.1% (2019: credit of
11.2%). The significant credit in the prior year reflected the one-off impact
of the reduction in the Netherlands tax rates on deferred balances. On an
underlying basis the ETR is 20.6% (2019: 21.2%); the main differences to
the UK corporation tax rate applicable of 19.0% (2019: 19.0%) relate to
patent box allowances and differences in overseas tax rates.
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 73 to 76.
Reported Profit
Reported profit before tax increased by 47.1% at AER reflecting the
reported operating profit growth of 33.8% at AER and the proportionate
decrease in the finance charges arising from the financing of prior and
current year acquisitions.
30
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Strategic Report
• Net debt has decreased in the year by £100.2 million from
£227.8 million to £127.6 million; this includes cash generation from
operations at £127.5 million, the net proceeds from the share placing
of £131.5 million, outflows of £66.8 million relating to the acquisitions
of Ampharmco, Mirataz and the additional investment in Medical
Ethics along with £33.3 million in dividends. Exchange rate variations
adversely affected the net debt position by £3.0 million.
• Current and deferred tax has reduced from £82.0 million to
£78.7 million principally due to the realisation of deferred tax liabilities
relating to the amortisation of acquired intangibles.
Non-current assets
Working capital
Net debt
Current and deferred tax
Other liabilities
Total net assets
2020
£m
786.0
116.5
(127.6)
(78.7)
(58.7)
637.5
2019
£m
749.1
107.8
(227.8)
(82.0)
(38.0)
509.1
Cash Flow, Financing and Liquidity
The Group enjoyed strong cash generation during the year, with a
strong EBITDA margin of 27.7% (2019: 28.5%). However, as mentioned
above, working capital has increased by £8.7 million, mainly due to
increases in inventory as a result of additional stock cover during
COVID-19 and growth of the Group’s trading activities. This resulted in
net cash generated from operations of £127.5million, representing cash
conversion of 99.4%.
Earnings per Share and Dividend
Underlying diluted EPS for the year was 92.19 pence, a 1.7% growth on
the prior year in line with the EBIT growth of 0.4%. The weighted average
number of shares for the year was 103.5 million (2019: 102.8 million).
The reported diluted EPS for the year was 32.76 pence (2019: 30.07
pence). This represents an increase of 8.9% (at AER) in reported EPS
much lower than the reported EBIT growth of 33.8% (at AER) and reflects
an increase in the reported tax charge due to the year on year impact of
rate changes, which gave rise to a tax credit in the previous year.
The Board is proposing a final dividend of 24.00 pence per share
(2019: 22.10 pence), added to the interim dividend of 10.29 pence,
the total dividend per share for the year ended 30 June 2020 is 34.29
pence. This represents 8.5% growth over the prior year. Dividend cover
based on underlying diluted EPS is 2.7 times (2019: 2.8 times). The
Board continues to operate a progressive dividend policy recognising
investment opportunities as they arise.
Currency Exposure
The average rate for £/€ increased by 0.4%, and the £/$ rate has
decreased by 2.7% during the financial year. The effect in the
Consolidated Income Statement and Statement of Financial Position
is analysed in the above paragraphs of this review between performance
at AER and CER. CER analysis compares the performance of the
business on a like-for-like basis applying constant exchange rates.
£/€
£/$
Average rates
2020
1.1396
1.2601
2019
1.1345
1.2945
% Change
0.4%
(2.7%)
Currency Sensitivity
Euro €: a 1% variation in the £/€ exchange rate affects underlying diluted
EPS by approximately +/- 0.4%.
Underlying operating profit
Depreciation and amortisation
US Dollar $: a 1% variation in the £/$ exchange rate affects underlying
diluted EPS by approximately +/- 0.4%.
Current exchange rates are £/€ 1.1256 and £/$ 1.3351 as at 2 September
2020. If these rates had applied throughout the year, the underlying diluted
EPS would have been approximately 2.1% lower.
Statement of Financial Position
The Statement of Financial Position is summarised in the table below.
• Non-current assets (excluding deferred tax) increased from £750.0
million to £788.7 million and includes the intangible assets recognised
on the acquisitions of Ampharmco and Mirataz and the additional
investment in Medical Ethics being partly offset by amortisation of
acquired intangibles.
• Working capital has increased from £107.8 million to £116.5 million
partly due to an increase in inventory to enable service levels to
be maintained whilst customer inventory levels fluctuate due to
COVID-19 uncertainty but also due to the growth of the Group.
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 (%)
2020
£m
128.3
14.2
142.5
27.7%
(8.7)
1.0
134.8
(7.3)
127.5
99.4%
2019
£m
127.4
9.8
137.2
28.5%
(19.5)
(2.0)
115.7
(7.4)
108.3
85.0%
Stock Code: DPH
31
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Strategic Report
Financial
Review continued
Net Debt Bridge
Notable cash items are listed below in the net debt reconciliation table:
• Net capital expenditure on tangible and intangible assets (excluding the
Mirataz acquisition) decreased to £14.2 million (2019: £22.2 million),
representing 1.0 times depreciation and amortisation.
• Acquisitions of subsidiaries, intangible assets and investment in
associates of £67.6 million includes the acquisitions of Ampharmco
and Mirataz, the additional investment in Medical Ethics and the
royalty payment for Phycox. Further details are provided in
notes 6 and 31.
Net Debt 30 June 2019
Net cash generated from operations before
non-underlying items
Non-underlying items
Net capital expenditure
Acquisition of subsidiaries & Mirataz product rights
Investment in associates
Acquisition of subsidiary borrowings
New borrowing (finance leases)
Interest and tax
Net equity issued
Dividend paid
Changes in accounting policy for leases
Other non-cash movements
Foreign exchange on net debt
Net Debt 30 June 2020
£m
(227.8)
134.8
(7.3)
(14.2)
(60.0)
(7.6)
(0.1)
(5.5)
(20.4)
131.5
(33.3)
(12.7)
(2.0)
(3.0)
(127.6)
• 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 0.80 times (2019: 1.64
times) versus a covenant of 3 times.
Net Assets
£637.5m
m
5
.
7
3
6
£
.
m
1
9
0
5
£
m
0
.
5
0
5
£
m
6
.
2
0
3
£
m
6
.
6
7
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
Borrowing Facilities
As reported in preceding Annual Reports, the Group completed a
refinancing and entered into a multi-currency 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 (replaced by Credit Industriel et Commercial, London branch
(CIC) in August 2019), Raiffeisen Bank International AG and Santander UK
plc (the Banks). The Facility agreement included a committed revolving
credit facility (the RCF) of £235.0 million, together with an ‘Accordion’
facility of £125.0 million. The RCF is committed until July 2024.
On 1 October 2019 the Accordion on the RCF was invoked, removing the
Accordion facility and increasing the committed facilities on the RCF to
£340.0 million.
In January 2018, the Group also 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, Banco Santander SA, London branch
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
were the same as in the RCF. The maturity date on the Term Loan
was 31 December 2020 with a drawdown period expiring on
31 December 2019.
In January 2020 the Group undertook a Private Placement raising
€50.0 million and USD 100.0 million (under seven and ten year new senior
secured notes respectively), the proceeds of which were used to repay
existing debt and enabled the Term Loan to be fully repaid and cancelled.
The placement achieved the Group’s aims of diversifying the sources of
debt financing and extending the debt maturity profile.
On 4 June 2020 the Group successfully completed a share placing of
5,132,500 new ordinary shares, representing approximately 5% of the
existing issued share capital of the Company, at a price of 2600 pence
per placing share, raising gross proceeds of £133.4 million which were
largely deployed to fund the Osurnia acquisition upon its completion on
27 July 2020.
Covenants
There are two covenants governing the RCF and the Private Placement:
• Leverage: Net Debt to underlying EBITDA not greater than 3:1 for
the RCF and 3.5:1 for the Private Placement (30 June 2020: 0.80:1);
and
•
Interest Cover: underlying EBITDA to Net Finance Charges not less
than 4:1 (30 June 2020: 14.5:1).
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.
The weighted average coupon of the Private Placement fixed rate notes
will equate to 2.8%.
Return on Capital Employed (ROCE)
ROCE reduced to 15.4% in the year (2019: 15.6%) reflecting the lower
initial contribution in the year from the investments made in Ampharmco
and Medical Ethics.
32
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
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Strategic Report
Summary
Our existing business performed robustly despite the disruption caused
by first half supply issues and COVID-19 in the second half. In-house
manufacturing issues were mostly resolved by the end of the calendar
year resulting in our performance being more second half weighted than
is typical for Dechra.
Our acquisition of Ampharmco strengthens our in-house manufacturing
capabilities, while Mirataz and Osurnia increase our geographical and
market presence. 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.
The Group’s balance sheet is strong, enabling us to continue to consider
further relevant acquisition and investment opportunities as they arise.
Paul Sandland
Chief Financial Officer
7 September 2020
Acquisitions
The Group has made several acquisitions in recent years. The
incremental performance during the first year of ownership of the
acquisitions made during the 2019 and 2020 financial years is separately
summarised compared to the existing business in the sections above.
In July 2019, the Group acquired an additional 15.0% of the shares of
Medical Ethics Pty Ltd for a consideration of £7.6 million. This takes our
total holding to 48.0%. The acquisition was financed from the Group’s
existing working capital resources.
In August 2019, we announced the acquisition of Ampharmco LLC, an
FDA registered facility in Fort Worth, Texas for a cash consideration of
£24.3 million. The business has been successfully integrated into the
Group and will support our manufacturing strategy to produce more
in-house. The acquisition was financed from the Group’s existing
working capital resources.
In April 2020, the Group completed the acquisition of the worldwide
rights and assets of the Mirataz product portfolio from Kindred
Biosciences Incorporated for consideration of £34.9 million plus a royalty
on future revenues. The addition of Mirataz significantly enhances the
Dechra portfolio and is complementary to its existing product offering to
veterinarians. The acquisition was financed from an additional drawdown
from the Group’s RCF.
Accounting Standards
The accounting policies adopted are outlined in note 1 to the Accounts.
IFRS16 'Leases' was adopted in the period and resulted in a lease liability
of £12.7 million with a corresponding fixed asset increase of £12.7 million.
There are no other accounting policy changes which have materially
impacted the 2020 financial year.
Going Concern
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis of accounting
in preparing these annual financial statements.
In reaching this conclusion the Directors have given due regard to the
following:
•
•
The Group’s business activities together with factors likely to impact
the future growth and operating performance;
The financial position of the Group, its cash flows, available debt
facilities and compliance with the financial covenants associated
with the Group’s borrowings, which are described in the financial
statements; and
• The cash generated from operations, available cash resources
and committed bank facilities and their maturities, which taken
together provide confidence that the Group will be able to meet its
obligations as they fall due.
As at 30 June 2020 the Group had net debt of £127.6 million (2019: net
debt of £227.8 million), and had available cash balances and unutilised
committed borrowings facilities of £353.2 million. The Group acquired the
worldwide product rights to Osurnia after the year end in July 2020 for
USD 135.0 million (£104.7 million). Inventory of USD6.6 million (£1.5
million) was also acquired as part of the transaction. Further information on
available resources and committed bank facilities is provided in notes 18
and 21 to the financial statements.
Stock Code: DPH
33
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Strategic Report
Key Performance
Indicators
KPI and Definition
Performance
Commentary
Relevance to Strategy
m
1
.
2
0
5
£
m
8
.
1
8
4
£
m
1
.
7
0
4
£
Dechra’s existing business grew by 6.4%
in EU Pharmaceuticals (excluding
third party contract manufacturing
which declined), and by 3.0% in NA
Pharmaceuticals.
a
b
c
1
Revenue Growth
Year-on-year CER sales growth
including new products and
excluding revenue from acquired
businesses.
4.1%
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.
1.7%
£
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).
20bps
£
4
Cash Conversion
Cash generated from operations
before tax and interest payments
as a percentage of underlying
operating profit.
1440bps
8
1
0
2
9
1
0
2
0
2
0
2
8
1
0
2
9
1
0
2
0
2
0
2
p
9
1
.
2
9
p
1
0
.
0
9
p
5
4
.
6
7
8
1
0
2
9
1
0
2
0
2
0
2
%
4
.
5
1
%
6
.
5
1
%
4
.
5
1
8
1
0
2
9
1
0
2
0
2
0
2
This includes a 0.4% increase in underlying
operating profit, further improved by lower
net finance costs attributable to foreign
exchange gains and a lower tax charge
driven by tax rate impact of a change in
geographical mix of profit.
There was a small decline in ROCE
during the year. The reduction is due to
the increased investments in acquisitions
during the year without the corresponding
increase in underlying operating profit in
the period. This still exceeds our target
of 15%.
%
4
.
9
9
%
0
.
5
8
%
9
.
1
8
Cash conversion increased sharply
during the year as a result of strong cash
collection in quarter four following the
sales spike in quarter three.
A key driver of our strategy is to
deliver sustainable sales growth
through delivering our pipeline,
maximising our existing portfolio
and expanding geographically.
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.
a
b
c
As we look to grow the business,
it is important that we use our
capital efficiently to generate
returns superior to our cost
of capital in the medium to
long term. It underpins the
performance conditions of
the LTIP.
a
b
c
Our stated aim is to be a cash
generative business. Cash
generation supports investment
in the pipeline, acquisition and
people.
34
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
www.dechra.com
Dechra-AR2020-Strategic.indd 34
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Strategic Report
KPI and Definition
Performance
Commentary
Relevance to Strategy
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
Employee Turnover
Number of leavers during the
period as a percentage of
the average total number of
employees in the period.
%
7
.
6
1
%
7
.
6
1
%
9
.
1
1
New product revenues reflect the strong
market penetration of products launched
in the year to 30 June 2020 and the
previous four years.
a
b
c
00bps
8
1
0
2
9
1
0
2
0
2
0
2
1
2
.
0
7
1
.
0
The LTAFR decreased from 0.21 to 0.17.
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.
19.0%
0
8
1
0
2
9
1
0
2
0
2
0
2
%
9
.
5
1
%
6
.
.
3
1
%
4
.
2
1
8
1
0
2
9
1
0
2
0
2
0
2
120bps
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.
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
Stock Code: DPH
35
Dechra-AR2020-Strategic.indd 35
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Strategy
in Action
Strategic Enabler
People
Impact of COVID-19
We believe that we have both a legal and moral duty to protect the
health, safety and wellbeing of our employees. At the early stage of
the COVID-19 pandemic we formed a Dechra Corona Committee to
coordinate our health, safety and wellbeing response to keep all our
employees safe.
The Dechra Leadership Teams have maintained regular communication
throughout the crisis with employees across the whole business and
have provided financial, physical and mental support. We have made
it clear to our employees consistently that their safety and the safety
of our customers is our number one priority. We have used the Group
intranets and global emails to communicate key messages, in addition,
we have encouraged everyone to share ideas for improvement and to
raise any concerns they may have. In June, we carried out a COVID
Survey hosted by Great Place to Work which approximately 650 of our
employees were able to respond to. We were very pleased with the
survey results where we scored either on or above the benchmark in 14
of the 16 elements of the survey. We also collected some valuable free
format responses that have helped us continue to shape our employee
centric response. We are very pleased that our employees have
responded so positively during the crisis and adapted quickly to new
ways of working, demonstrating the agility that is a core part of
our culture.
Given the current financial position the Company is in, we took
the decision not to furlough any of our employees and have been
supportive and flexible with employees to assist with their individual
personal circumstances. We supported our manufacturing and logistics
employees, who have remained on-site throughout the pandemic.
This support has included free lunches, vegetable boxes, support with
transport to and from site, thank you letters and a special COVID award
payment that was paid in June 2020 in recognition of the efforts of the
team. In North America, the HR department visited the homes of all our
employees in the Kansas and Maine areas, maintaining social distancing
whilst dropping off care packages and staying in touch. All employees
globally have been provided with reusable face masks for their personal
use. Our inventive teams have come up with a wide range of ways to
stay connected with their colleagues such as meeting virtually for coffee
breaks, happy hours and exercise classes!
During the pandemic, where necessary we have continued to recruit
for critical roles within the business and have developed virtual
onboarding processes to support new employees joining us at this
unusual time.
As we have planned how to return to our workplaces safely, we will
continue to adapt the way that we work to maximise productivity,
employee engagement and most importantly the ongoing health and
safety of our team.
Health and Safety
We closely followed the guidance issued by the UK government and
Public Health England and introduced new control measures and
enhanced existing controls where appropriate. This guidance was
enhanced with any specific country recommendations. We put in place
the following measures:
• Vulnerable colleagues – All employees who had been advised to
shield by the relevant governments stayed at home. We remain in
contact with these employees, and any return to work will depend
on a thorough individual risk assessment.
• Homeworking – All employees who were able to work from home
did so. They were encouraged to take additional equipment home if
this was needed and advice was issued to support ergonomic and
mental health issues.
• Manufacturing and Logistics – We implemented staggered start and
finish times to facilitate physical distancing when clocking in and
out and when using changing rooms. This also allowed cleaning
between shifts. We increased the frequency of cleaning across all of
our sites and introduced increased sanitisation of communal areas
and common touch points.
• Our Sales Representatives – Our mobile employees were asked
to remain at home until travel, including international travel and
overnight accommodation, can safely resume. From day one,
they demonstrated their entrepreneurial spirit by arranging online
Continuing Professional Development (CPD) events and arranging
virtual meetings with veterinary clinics.
•
Business travel – All non-essential business travel has been
paused, including travel between Dechra locations. Attendance
at conferences and large meetings has also ceased.
• Health checks and self-isolation – All employees have been
encouraged to complete a daily health check, and any employee
who has COVID-19 symptoms is encouraged to self-isolate in line
with the relevant government guidelines, unless subsequent testing
confirms a negative result. We have also asked all employees with
household members with COVID-19 symptoms to self-isolate.
• Training – All employees have or will need to complete a Dechra
training module ‘COVID-19 Protective Measures’, prior to returning
to work so that everyone understands all the new hygiene and
safety procedures. All mobile workers have completed additional
training in the new hygiene precautions, and in readiness to return
to the field, they have been provided with Hygiene Kits, so that they
can achieve the high standards of hygiene when they resume travel.
36
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
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Strategy
in Action
Strategic Enabler
Technology
Impact of COVID-19
Remote Working
During the initial phases of lockdown, the IT teams were tasked to consider
the imminent needs of Dechra employees who would be required to 'Work
away from the Office' for sustained periods. Although we do have a sizeable
mobile user base who are already serviced remotely, we experienced a
significant increase in users requiring extra IT kit: monitors, keyboards,
laptops and VPN keys to access services securely from home. Once the
initial configuration and supply of equipment had been overcome the team
were inundated with calls to the helpdesk for support and training in the use
of these remote services.
As the international communities moved to lockdown, we planned for an
increase in home working and the need for extra IT hardware. The Global
IT team also made several other arrangements in anticipation of a change
in operational working. The IT managers commenced weekly meetings to
review the overall performance of the remote services such as virtual meeting
rooms, Internet connections into the office locations, the use of Skype and
messaging, the increase of malicious attacks on employees devices, the
amount of remote connections into head office from home users at any one
time and the influx of helpdesk call logs across the IT Group.
Within the first few weeks of lockdown, virtual meeting room usage
increased by 200%, Skype meetings increased by 500%, the number of
remote connections increased to a new daily high of 623, our network
Internet connections increased traffic to 90% of capacity and the influx
of calls into the helpdesk increased by 31%. The team had worked to
implement counter measures in advance doubling our virtual meeting
room capacity, increasing our Skype business server’s memory capacity
by 300%, increasing the numbers of remote connection licences by 200%
and where possible our Internet connections flexed up to their maximum
bearer capacity to accommodate extra remote connectivity.
It is to the credit of the team that they have managed to provide a
consistent level of service to the Group throughout this difficult time
and were able to transition over 60% of our workforce to home
working virtually overnight. In addition, the entire IT team also moved
to predominantly homeworking themselves in line with lockdown
measures, with a skeleton crew supporting the hardware on-site.
Academy Usage
8,000
Dechra Academy
There is no escaping the
impact that the COVID-19
outbreak has had on the
veterinary community
globally, but as it is an
online resource, our
Academy was able to
meet the increased
demand for support.
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Two Global Market research activities* highlighted The Dechra Academy
as one of the most useful resources to the profession. One UK veterinarian
cited that “the best advice/support received during the COVID-19 outbreak
was Vetoryl and Zycortal webinars on managing conditions within fewer
clinics”.
The Academy was also able to support the launch of an online clinical trial,
the first of its kind, to enable a Diabetic Clinical Study to continue, despite
the restrictions of the pandemic.
Normally, a detailed protocol describing the steps involved in reaching the
study objective is developed over months by the Dechra study team and
shared with the veterinary hospital performing the study through a half-day
intensive training session. Typically, the Dechra study team is on-site to
deliver this training, but in the midst of the COVID-19 pandemic, we had
to deliver the training remotely. Therefore, the study team members pre-
recorded key training modules and collaborated with the Digital Learning
team to upload these to the Dechra Academy for access by study site
personnel. Modules were kept under 30 minutes each to allow viewers
greater flexibility in how they could complete the training. A quiz was put
in place to confirm comprehension. The Academy tracked the time and
date in each module, quiz score, and percentage completed. Results were
emailed to the study team daily for easy tracking. Additionally, a feedback
survey was added to obtain important information for the improvement of
the process and platform.
These pre-recorded modules were supplemented with a shorter,
live GoToMeeting with the study team to answer questions, confirm
compliance, review critical procedures, and discuss any concerns the
sites may have. Having reviewed the study background and procedures
through the recorded modules prior to the live training, site personnel
arrived at the live training better prepared with questions for the study
team making the live interaction shorter and more efficient.
Building strong relationships with study site personnel is crucial to
running a good clinical study and it is unfortunate that the study team
missed an opportunity to visit the veterinary clinics carrying out our
research. Despite this setback, the study team’s partnership with Digital
Learning created an alternative that enabled the study to start on time
whilst maintaining everyone’s safety. Whilst this approach will not be
suitable with every new study and every site, it provides an alternative in
delivering training to both internal and external parties.
Feedback from attendees has been very positive and they appreciate
Dechra’s solutions to provide training in the COVID-19 environment.
Study participants commented that it would be helpful to have a
combination of remote and live training in the future. The training
modules would provide background and general knowledge about the
study whilst the live training would be focused and more productive and
hands-on while building strong relationships.
February
March
April
May
Users starting a course
Number of courses
* CM Research – Impact of COVID-19 on Veterinary Practices (Wave 4) & Kadence –
Veterinary COVID study.
Stock Code: DPH
37
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Uldum, Denmark
Bladel, Netherlands
Sydney, Australia
Melbourne, USA
Skipton, UK
Aulendorf, Germany
Zagreb, Croatia
Londrina, Brazil
Dechra-AR2020-Strategic.indd 38
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Strategy
in Action
Strategic Enabler
Manufacturing
and Supply Chain
Impact of COVID-19
Our manufacturing and logistics facilities have remained open and fully
operational throughout the COVID-19 pandemic. We are proud of the
way our employees quickly adapted to the new ways of working and the
commitment they showed during this difficult time. All our Manufacturing
and Logistics facilities adopted safe ways of working such as physical
distancing, and increased respiratory, hand and environmental hygiene
measures in line with their respective country guidance, the alert level
present in each country and our own internal risk assessment.
To protect our workforce further we limited access to our sites for any
non-essential visitors and contractors. Although we allowed all essential
statutory visits and inspections to progress, these were strictly controlled
using health declarations for anyone coming to our sites. For deliveries
and collection of materials, where drivers were likely to have crossed
borders, protective measures were taken at each site to meet the
welfare requirements of the drivers, whilst keeping them away from our
own employees.
We are pleased to report that our controls have been successful in
preventing the transmission of the virus across our workplaces whilst
fully maintaining the supply to our customers. Where we have had
colleagues who have acquired the infection in the community we have
supported them throughout their illness and self-isolation periods
until a safe return to work was agreed. This has meant that we have
experienced increased absence levels; however, the impact of absence
has been minimal.
Throughout the pandemic we have regularly communicated and
consulted with our Manufacturing and Logistics employees. We have
also encouraged our whole workforce to share ideas for improvements
and to raise any concerns they may have. Whilst the pandemic remains,
our controls will be maintained and enhanced to continue to protect our
employees.
Although all the changes which were implemented were essential to
protect our employees, these have affected our Manufacturing and
Logistics output in some areas particularly where line speeds were
reduced and product schedules changed to enable employees to
continue to work safely.
Personal Protective Equipment (PPE) is essential across our
manufacturing facilities as it provides protection to our employees from
exposure to hazardous substances. At various times throughout the
pandemic PPE became scarce and more costly. We were also acutely
aware that we and other sectors may be competing with the needs of
essential healthcare services. Therefore we strictly controlled our existing
supplies, sourced reusable items to reduce our consumption and
avoided stockpiling items that may be in short supply. Despite increased
costs and depleted availability we have maintained the required high
level of protection for our employees throughout the pandemic and have
never compromised on safety.
The hygiene standards at our manufacturing and logistics facilities are
already high and in line with Good Manufacturing Practice standards.
However, we enhanced these where we felt this was necessary and in
some cases this necessitated us losing time in the production schedule
to create time separation and allow cleaning between our shifts. This not
only protected our employees from contact with members of other shifts
but also significantly limited opportunities for transmission of the virus,
reducing the risk of absence due to self-isolation.
Supporting our essential workers was paramount during these difficult
times, from checking that they had the correct permissions to be at
work during the lockdown periods to providing a safe commute to the
workplace. We provided items to maintain good hygiene when travelling
via public transport and provided alternative or adapted means of
communal transport where appropriate.
Stock Code: DPH
39
Simon Francis (featured on the left in the photo above)
Sadly missed by all of us. Simon’s passion for health and safety,
his ‘look out for each other’ approach lives on as his legacy.
Dechra-AR2020-Strategic.indd 39
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Job Number 7 September 2020 4:17 pm Proof NumberProduct DevelopmentDechra 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 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 timescales 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 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, treatment compliance for the patient 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 IdeasIdeas 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 WorkIn 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 PhaseThe 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 ProcessThe 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.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.12Projects in Feasibility7Projects in Research10Projects in Development8Projects in RegistrationRead more about our Product Development on page 63Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com40Strategic ReportDechra-AR2020-Strategic.indd 4007-Sep-20 4:46:12 PM Strategic Report
Strategic Portfolio Prioritisation Committee (SPPC)
Senior Management of Commercial, PDRA,
DPM&S and Finance
Prioritisation considering resource availability, commercial value,
pipeline balance, risk and Company strategy
Recommendations
Approvals and Prioritisation
Decisions
Pipeline Review Committee (PRC)
Experts and stakeholders from all relevant departments
Project recommendations based on technical feasibility,
valid business case and commercial need
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
Registration
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
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Strategic Report
Product
Development continued
Product Pipeline
Delivering a strong and robust pipeline
is one of the Group’s strategic priorities.
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
Lameness
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
Read more about the Evaluation
Process on page 40
Ocular
anti-inflammatory
for dogs
Endocrine therapy
for dogs
Poultry vaccine
Anaesthetic for
dogs and cats
Antibiotic for
cattle, pigs and
poultry
Antibiotic for dogs
Poultry vaccine
and cats
Antibiotic for
cattle and pigs
Poultry vaccine
Endocrine therapy
Antibiotic for pigs
Analgesic therapy
Paraciticide for
for dogs
poultry and pigs
Endocrine therapy
for dogs
Antibiotic for pigs
and poultry
Endocrine therapy
for cats
Swine vaccine
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Swine vaccine
Swine vaccine
for cats
Gastrointestinal
therapy for horses
Endocrine therapy
for horses
Anaesthetic for
cats
Analgesic therapy
for horses
Lameness therapy
for horses
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Lameness therapy
for horses
Dermatological
therapy for dogs
Cardiovascular
therapy for cats
(Le Vet)
Gastrointestinal
therapy for dogs
Analgesic therapy
for dogs
Dermatological
therapy for dogs
(Le Vet)
Analgesic therapy
for dogs
Gastrointestinal
therapy for dogs
Anaesthetic for
dogs
42
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
www.dechra.com
Dechra-AR2020-Strategic.indd 42
Job Number
7 September 2020 4:17 pm
Proof Number
07-Sep-20 4:46:18 PM
Strategic Report
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
CAP/Equine
FAP
3
Research
4
Development
5
Registration
New opportunities are
constantly being evaluated
and will move into Feasibility
quickly if of interest
Ocular
for dogs
anti-inflammatory
Poultry vaccine
Endocrine therapy
Poultry vaccine
for dogs
Endocrine therapy
Antibiotic for pigs
for dogs
and poultry
Endocrine therapy
Swine vaccine
for cats
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Swine vaccine
Swine vaccine
Anaesthetic for
dogs and cats
Endocrine therapy
for cats
Gastrointestinal
therapy for horses
Endocrine therapy
for horses
Anaesthetic for
cats
Antibiotic for
cattle, pigs and
poultry
Antibiotic for pigs
Antibiotic for dogs
and cats
Poultry vaccine
Analgesic therapy
for dogs
Paraciticide for
poultry and pigs
Analgesic therapy
for horses
Lameness therapy
for horses
Gastrointestinal
therapy for dogs
Dermatological
therapy for dogs
Lameness therapy
for horses
Dermatological
therapy for dogs
Antibiotic for
cattle and pigs
Cardiovascular
therapy for cats
(Le Vet)
Gastrointestinal
therapy for dogs
Analgesic therapy
for dogs
Dermatological
therapy for dogs
(Le Vet)
Analgesic therapy
for dogs
Gastrointestinal
therapy for dogs
Anaesthetic for
dogs
Read more about running a clinical
study during COVID-19 on page 37
Stock Code: DPH
43
Dechra-AR2020-Strategic.indd 43
Job Number
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Proof Number
07-Sep-20 4:46:19 PM
Strategic Report
International
Product Offering
Endocrinology
Dermatology
and Care
Anaesthesia
and Analgesia
Key Product
Felimazole
Forthyron
Vetoryl
Zycortal
Key Product
Canaural
Isaderm
Malaseb/Miconahex
Key Product
Atipam/Sedastop
Comfortan
Sedator/Sedastart
Tralieve/Tramadol
Vetivex
Cardiovascular
Key Product
Cardisure
Opthalmology
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 2020
www.dechra.com
Dechra-AR2020-Strategic.indd 44
Job Number
7 September 2020 4:17 pm
Proof Number
07-Sep-20 4:46:21 PM
Strategic Report
e
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Equine
Medicine
Food
producing
Animal
Products
Nutrition
Vaccines
Other
Companion
Animal
Products
a
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Key Product
Domidine
Equipalazone
HY-50
Osphos
Key Product
Cyclospray
Methoxasol
Octacillin/Solamocta
Rapidexon
Soludox
Centidox
Altidox
Key Product
Specific
Key Product
Avishield ND
Excell 10
Vencomax
Key Product
Carprofen
Libromide
Phenoleptil
Phycox
Prevomax
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Stock Code: DPH
45
Dechra-AR2020-Strategic.indd 45
Job Number
7 September 2020 4:17 pm
Proof Number
07-Sep-20 4:46:22 PM
Strategic Report
Section 172
Statement
The Board is responsible under section 172 of the Companies Act 2006 for promoting the long term success of the Company for the benefit of its
shareholders, and acknowledges that its decisions have a long term impact on other stakeholders, the environment and the Company’s reputation
for high standards of business conduct. The Board appreciates that wider engagement with stakeholders is an important component of long term
sustainability and success and believes that by engaging with all important stakeholders, the business is made stronger and more resilient. The table
below shows who the Board has identified as important stakeholders, why they feel it is important to engage, how they have engaged and where
you can read more information on the Board’s approach to their section 172 duty.
Stakeholder
Employees
Why it is important to
engage
To make Dechra a great and
safe place to work, and attract,
retain and develop talent
How we engage
Material interests
Where you can read more
• Group intranet
• Development opportunities
• Strategy in Action: People
• Town Hall meetings
• Making a difference
• Engagement surveys
• Agile and friendly place
• Corporate Social
Responsibility
to work
• Governance
• Employee Engagement
Designated Non-Executive
Director
• Performance Development
Reviews, and employee
development and training
Veterinary
Professionals
To improve animal health
and welfare
• Educational and training
•
programmes
Innovative and effective
products
• Corporate Social
Responsibility
• Technical support via
helplines and product
information
• PhD veterinary student
funding
•
Information on correct use
of products
• Educational opportunities
• Governance
Shareholders To instil trust and confidence
• Annual Report and RNS
• Financial performance
and allow informed investment
decisions to be made
announcements
• Delivery of strategy
• Corporate Social
Responsibility
• Annual General Meeting
•
Investor presentations
• Environmental, Social and
Governance performance
• Governance
• Financial Review
• Corporate website
• One-on-one meetings
Communities To give back to the
• Community activities
• Prosperity within our
• Financials
• Corporate Social
Responsibility
communities in which
we operate
• Group donations
• Product and local
donations
• Development and
education of young people
communities
• Community projects
• Governance
and initiatives
Suppliers
To trade with honesty and
integrity, and to source
quality raw materials, finished
products and services
• Quality audits
• Due diligence
• ABC training
• Third Party Code of
Conduct
• Fair Payment Terms
• Long term relationships
• Corporate Social
Responsibility
• Governance
• Other Disclosures
Regulatory
Authorities
To meet high standards of
product safety and efficacy
• Regulatory training for
• Safety
• Product Development
employees
• Efficacy
• Responsible marketing of
regulated pharmaceuticals
• Manufacturing facility
inspections
• Market authorisation
applications
• Product safety update
reports (PSURs)
• Corporate Social
Responsibility
46
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
www.dechra.com
Dechra-AR2020-Strategic.indd 46
Job Number
7 September 2020 4:17 pm
Proof Number
07-Sep-20 4:46:24 PM
Strategic Report
The following examples give an insight on how Directors have considered section 172 factors in their decision making in relation to material
transactions during the year:
of foreign exchange volatility on leverage. A fundraising would
provide additional prudence to the balance sheet. In particular:
•
•
the fundraising would enable the Group to continue with the
decision of not furloughing during the pandemic; and
the business had invested significant resources to maintain an
adequate supply of raw materials and finished goods to meet
the market demands during the pandemic for customers.
Although the placing would only be offered to a select number of
holders and non-holders, the Annual General Meeting authority
permitted the allotment of ordinary shares for cash on a non-
pre-emptive basis. The Directors considered the likely impact of
COVID-19 on a conservative basis for the next financial year ended
June 2021, and that this could impact the likely pricing of the equity
issue and have a subsequent effect on the price of Dechra shares
and the value of shareholder’s investments, particularly those who
were not able to participate in the placing.
The Board agreed that both of the acquisitions would:
• enhance Dechra’s presence and provide a unique offering
to veterinarians;
• deliver increased shareholder returns;
• broaden the portfolio of products for the sales team; and
•
improve animal welfare.
Equity
Raising
In May, the Board considered the proposal to conduct a
non-pre-emptive placing representing approximately 5%
of the Company’s existing issued share capital.
In consideration of section 172 duties, it was agreed by the
Board that the placing would provide enhanced financial strength,
resilience and flexibility through a period of uncertainty arising from
COVID-19. This would improve the long term prospects for the
business as it would not be constrained in taking advantage of any
bolt-on acquisitions as these arise, with Acquisition and Pipeline
Delivery being two of the strategic drivers of the business.
The Company had previously communicated a strategy of
maintaining leverage below 2 times which could be increased to
2.5 times for the right acquisition. It was noted that following the
proposed completion of the acquisition of Osurnia the pro forma
leverage would be at the top end of the Company’s policy.
In addition, the placing would be in the best interests of employees,
suppliers and customers as although trading remains robust it is
unclear how long the current COVID-19 situation would last, which
may impact business performance, cash generation and the effect
Product
Acquisitions
The Board approved the Mirataz and Osurnia product
acquisitions during the year. The Board, in considering both
proposals, noted that the acquisitions were in line with the
strategic driver of portfolio focus. In relation to:
• Mirataz, the product is the only approved transdermal
medication for weight gain in cats, and as it is indicated for cats
with underlying medical conditions it would keep more cats
alive; and
• Osurnia, the product is a two-dose effective treatment for otitis
externa (inflammation of the outer ear) in dogs. This enables
veterinarians to be in control of the accuracy and compliance of
the medication, and therefore owners do not have to participate
in what they (and their dog) often perceive as the painful daily or
twice daily administration of ear medication.
In addition, the Board took into consideration the viewpoints of key
commercial leads within the organisation in relation to the market
opportunities of both of these products. In relation to Osurnia, it also
considered a summary of the Group Quality and Supply Chain audit
of the existing Contract Manufacturing Organisation.
Stock Code: DPH
47
Dechra-AR2020-Strategic.indd 47
Job Number
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Job Number 7 September 2020 4:17 pm Proof NumberCorporate Social ResponsibilityOur Purposeis the sustainable improvement of global animal health and welfare.The Board takes ultimate responsibility for Corporate Social Responsibility (CSR) and is committed to developing and implementing appropriate policies that create and maintain long term value for shareholders. During the year, our newly formed CSR committee, made up of representatives from across the Group, reviewed the Group's CSR strategy along with the various frameworks for reporting, and published sustainability reports on Dechra, the latter identified reporting gaps where we could have provided more information on our activities. Our Community Our People Our EnvironmentOur BusinessDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com48Strategic ReportDechra-AR2020-Strategic.indd 4807-Sep-20 4:46:25 PM Strategic Report
With this in mind and sustainability at the heart of our Purpose, we have chosen to link our CSR strategy to the United Nations Sustainable
Development Goals (SDGs) as we felt that this would provide a framework for our activities and subsequent communication thereof. We have
retained the four pillars (Community, Business, Environment and People) of our CSR strategy, and we compared our objectives for these pillars with
the SDGs. We identified that our activities would impact ten of the 17 SDGs of which three would be material. The three SDGs in which we can have
the most material impact are Quality Education, Decent Work and Economic Growth and Responsible Consumption and Production.
We are in the process of gathering data so that we can set targets for our objectives and hope to report on these targets next year.
Most material UN SDGs
UN Goal: Ensure inclusive and
equitable quality education
and promote lifelong learning
opportunities for all.
Dechra’s Impact: Providing
educational programmes and
solutions to improve animal health
and welfare
Relationships with veterinarians are core
to the business and we:
• enhance the health of animals by
providing vital education for animal
health professionals;
• provide added value services in the form
of educational programmes focused on
key therapeutic areas; and
• work with academia to support the
development of new drugs as well as
educational programmes.
UN Goal: Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment and
decent work for all.
Dechra’s Impact: Enhancing the
skills of our workforce, planning for
a successful future and improving
the working lives of our people
Committed to enhancing the skills of our
workforce by:
• aligning employee efforts and driving
productivity through effective goal
setting, feedback and focus on
development;
• offering internships, apprenticeships and
placements Group-wide;
• providing training opportunities to young
people and/or disadvantaged people;
• routinely investing in safety of
employees; and
• providing a healthy workplace to
improve the working lives of our people.
UN Goal: Ensure sustainable
consumption and production
patterns
Dechra’s Impact: Minimising the
impact of our operations on the
environment
Adopting responsible environmental
practices and giving consideration to
minimising the impact of operations on
the environment by:
• reducing packaging materials and
pallets;
• using sustainable raw materials in
nutrition range;
• optimising energy use through various
means; and
• investing in eco-friendly and cost-
effective distribution systems.
Stock Code: DPH
49
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Job Number 7 September 2020 4:17 pm Proof NumberCorporate Social Responsibility continued Our People Stakeholders Involved• EmployeesLinkage to UN SDGsKey Focus Areas• Culture and Values• Talent Management and Engagement• Fair Employment Practices• Diversity and Inclusion• Safe Working PracticesPolicy• A great and safe place to work.Objectives• strengthen and communicate the Dechra culture and strive to ensure our Values encompass our business ethics and standards;• attract, retain and develop talent to build and maintain a top quality team;• comply with national legal requirements regarding wages and working hours;• value the difference and diversity of people, recognise that their skills and abilities are strengths that can help us to achieve our best; and• reinforce a culture of safe working practices.Read more about Our People on pages 52 to 57 Our Environment Stakeholders Involved• Employees• Local CommunityLinkage to UN SDGsKey Focus Areas• Waste• Energy• Sustainable raw materialsPolicy• We are committed to minimising the impact of our operations on the environment by adopting responsible environmental practices and complying with applicable environmental legislations.Objectives• prudent use of all natural resources, the minimisation of waste in all activities, and the appropriate disposal of waste;• optimise the energy we use, improve energy effectiveness through initiatives on transport and reduce our greenhouse gas emissions; and• use sustainable raw materials in our nutrition range wherever practicable.Read more about Our Environment on pages 58 to 62Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com50Strategic ReportDechra-AR2020-Strategic.indd 5007-Sep-20 4:46:29 PM Job Number 7 September 2020 4:17 pm Proof Number Our Community Stakeholders Involved• Local Community• Charities and non-profit organisationsLinkage to UN SDGsKey Focus Areas• Community Activities• Community Donations• Community EmploymentPolicy• To contribute to the social and economic welfare of the local communities in which we operate. Objectives• contribute towards charitable causes through the donation of time, products and skills.Read more about Our Community on pages 67 and 68 Our Business Stakeholders Involved• Employees• Veterinary Professionals• Suppliers and Distributors• Universities and Key Opinion LeadersLinkage to UN SDGsKey Focus Areas• Life of our Products• Veterinary Professionals• EthicsPolicy• To provide innovative products and, technical and educational support to veterinarians.• We are committed to acting responsibly and with integrity. Objectives• develop and promote products to improve animal welfare;• maintain and improve the knowledge and skills of veterinarians who prescribe and use our products; and• act with honesty and with integrity.Read more about Our Business on pages 63 to 66Stock Code: DPH51Strategic ReportDechra-AR2020-Strategic.indd 5107-Sep-20 4:46:31 PM Strategic Report
Corporate Social
Responsibility continued
Our People
Our original people plan was developed six
years ago to support the delivery of the Group’s
five year plan.
12.4%
52%
0.17
Employee Turnover
Females in Workforce
Lost Time Accident
Frequency Rate
We employ approximately 1,900 employees in 25 countries in a wide
range of working environments including manufacturing, logistics,
laboratories, offices and mobile working. At Dechra, we acknowledge
that our people are our greatest asset and know that an inclusive culture
is beneficial for our business performance. Our ongoing objective is to
continue to be a purpose focused business driven by high performing
and committed teams.
We are committed to the following focus areas:
• Culture and Values: strengthening and communicating the Dechra
culture and striving to ensure our Values encompass our business
ethics and standards;
• Talent Management and Engagement: attracting, retaining and
developing talent to build and maintain a top quality team;
• Fair Employment Practices: complying with national legal
requirement regarding wages and working hours;
• Diversity and Inclusion: valuing the difference and diversity of people,
recognising that their skills and abilities are strengths that can help
us to achieve our best; and
• Safe working practices: reinforcing a culture of safe working practices.
Headcount Per Country
7
7
3
3
6
2
1
8
2
8
5
2
6
Shared
Services and
Systems
5
Healthy
Workplace
1
Accelerate
Performance
One
Dechra
A great place
to work
4
Engaged &
Committed
Workforce
2
Grow Our
Own Talent
3
Strong Culture
and Values
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.
1
Accelerate Performance:
Align employee efforts and drive productivity through
effective goal setting, feedback and focus on development.
2
Grow Our Own Talent:
Attract, retain and develop the right talent in the right place
at the right time.
3
Strong Culture and Values:
How we do things around here.
4
Engaged and Committed Workforce:
A great place to work.
5
Healthy Workplace:
Improving the working lives of our people.
3
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Shared Services and Systems:
Efficient infrastructure supporting commercial operations.
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Strategic Report
Culture and Values
Our Values, entrepreneurial attitude and agile approach to the way we do things are the backbone of our Culture. We expect our people to make
a difference by working together and we support them by providing clear guidance on expectations.
We believe that our Values encapsulate our business ethics and set the standards that we wish to achieve and ultimately exceed. They outline the
type of people we are, the services we provide and the way we aim to do business.
Dedication
Enjoyment
Courage
• We are dedicated to delivering
• We provide challenge for our people
products and services that meet the
highest level of service and quality to
our customers
• We continually look to better our ways
of working, resulting in a culture of
continuous improvement
• We encourage people to make
decisions
within their roles to help them
be motivated and engaged and
encourage learning and development
• We endeavour to create an
environment where our people want
to come to work and feel a part of
Dechra
• We generate enthusiasm and energy
through positive thinking and actions
• We want a business where we dare
to challenge each other, where
innovation and creativity can flourish
• We encourage each person to be
proactive and to take initiatives,
creating a strong and competitive
spirit
• We encourage everyone to have
confidence in themselves and have
the strength and character to question
the status quo
Honesty
Relationships
Ambition
• We act with integrity and fairness and
treat everyone with respect; in our
business every job is important
• We are honest and open in all
interactions
• Openness is supported at all levels of
the organisation
• We see our customers and suppliers
as business partners and thereby
work together to achieve common
success
• We know that success is built on
collaboration and cross-organisational
teamwork to produce better results
together
• We are purpose driven and deliver
solid results through our energetic and
resilient approach
• Our ambitions mean that we deliver
the highest possible levels of quality
and services to our customers and to
each other
Our Values are supported by our Code of Conduct. We encourage all employees if they see or suspect something which they believe to be a breach of
Dechra’s standards of conduct, to report their concerns via our How to Raise a Concern procedure. We offer four reporting channels for concerns to be
raised: Line Manager; the Senior Management Team; Group Management Team; and a mailbox accessed only by the Company Secretary. Every effort
will be made to protect confidentiality to encourage reporting. The How to Raise a Concern procedure has been translated into eight languages.
We will fully investigate reports and take appropriate actions to address these. The actions taken will depend on the circumstances and the severity
of the issues identified. These actions may include process improvements, training and coaching, or formal disciplinary actions up to and including
termination of employment for the most severe issues. The Board receives a summary of the investigation reports.
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Corporate Social
Responsibility continued
Talent Management
and Engagement
28
Interns
239
Delta Courses
Talent Management
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 an e-learning management
system, Delta, which hosts courses on topics ranging from induction
and software skills to compliance matters such as pharmacovigilance
and ABC. In February the Digital Learning Team launched a new version
of Delta, the culmination of 18 months of effort. The new system is part
of our five year Learning and Development strategy and is intended to
DPM Leadership
Programme
Under Simon Francis’ leadership, a number of internal promotions
were made whilst he built the management team of Dechra
Pharmaceuticals Manufacturing & Supply (DPM&S), and he also
recruited a number of new team members from outside the Dechra
Group. As part of bringing this team together to perform at their best,
a progressive approach to leadership development was implemented.
The development programme’s strategic intent was:
•
to develop fit for purpose senior leadership by improving
readiness and capabilities that deliver success; and
• building confidence for internal and external stakeholders that the
business has access to talented, ready now and emerging leaders.
The key learning objectives of the programme for the team are to
build on executional excellence, develop the capacity to build and
establish value creating teams, have an agile and future facing
leadership, and continue to focus on having an inclusive approach
and being culturally aware.
As the programme content was being developed, the pandemic
broke out and the brunt of the impact of COVID-19 fell on the
DPM&S leadership team as they managed to maintain site
operations throughout. Keeping our people safe through the
constantly changing working environment was the number one
priority, together with maintaining supply of vital products to our
customers. During this difficult time the team sadly lost their leader,
colleague and friend Simon Francis to COVID-19.
Following the appointment of Milton McCann into the Interim
Manufacturing Director role it was agreed that investing in the team
was even more important now. Although, now no longer able to meet
face to face to undergo planned development sessions, delivery of
the programme has transitioned to a digital platform. This has been
co-designed with Create Express using a variety of leading edge tools
including gamification, social learning, learn and unlearn techniques,
forming excellence as a habit and broadening business acumen.
improve the user experience, accessibility and compliance. This also
marks a shift in training methodology from one where we push training
onto our employees, to one in which the user pulls the desired training
content themselves.
In addition to using the most up-to-date design principles, we are now
also running internal communications and HR campaigns from within the
system, maximising the exposure to our employees.
Over the past 12 months 71 new courses, including a number of COVID-19
courses and our new onboarding course, were made available. More
recently, the impacts of COVID-19 have demonstrated just how valuable a
resource our Delta platform is, with a surge in usage of over 200%.
Planned projects for next year include the expansion of the Digital
Learning Team, additional soft skill training courses and the introduction
of artificial intelligence (A.I.) powered content recommendations.
However, this is only one element of training that we provide, and although
we do not currently collate training hours across the Group, we provide other
forms of training to our employees, placement students and graduates.
Moving the programme into the virtual realm, for 16 people, across
four time zones and six global locations together with keeping
business as usual running during a pandemic has been no mean
feat. The launch of the programme took place at the start of June,
commencing with psychometric and cognitive assessments of the
team, and has been followed by online team business simulations,
team and peer coaching and virtual content which will continue to
be delivered during the rest of 2020.
Kevin Villalongo, who joined the Company as the Site Director at
Fort Worth on 16 March 2020 said: "This programme has enabled
me to meet the team virtually, gain a rapid understanding of the
skills I need for the future and has shown me that the Company
wants to invest in me, especially at this time which is really
encouraging. Facing our future together is really positive."
Catherine Dent, Group HSE Director commented: "It’s been great that
we have been able to continue with our personal and team development
throughout the pandemic. Over the last few months many things
have been paused due to our response to the global crisis, therefore
it demonstrated real commitment from Dechra and it was exciting
when we received our invitations to the virtual Leadership Development
programme. In addition to learning more things about ourselves and our
own development areas, doing this virtually also helps us to adapt to
new remote ways of working and is helping us reach out across country
borders and work more effectively with colleagues. We may not be in the
same room but we are all still really connected and having fun."
The programme is being designed using an iterative approach
which enables the team and individual inputs to be tailored based
on the initial stages. The next steps for the programme are to roll
out a similar model to the emerging leaders across DPM&S and,
where appropriate, to other key functional groups across the Group.
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Apprenticeships and Internships
We believe that offering internships and apprenticeships is a great
way to attract new employees to Dechra. We offer a small number of
internship opportunities each year. We have been delighted with the
quality of 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 14 interns in Europe and 10 in Brazil.
Engagement
Informing and engaging our employees through internal channels of
communication is of utmost importance to the Group. We have multiple
channels of communication to provide both formal and informal updates
including a Group newsletter that is issued twice a year (following the
half-yearly and year end results), intranets, management and team
meetings at the 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. Wherever possible, we
seek to engage our employees in change projects. We also have a small
number of Works Councils we regularly meet with.
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. The survey was rolled out
to the newly acquired Brazilian business in May 2019, the results of which are
detailed in the below case study. We were proposing to launch the second
Group-wide survey in March 2020; however, due to COVID-19 we decided to
postpone this. In June, we carried out a COVID survey hosted by Great Place
to Work which approximately 650 of our employees were able to respond
to. We were very pleased with the survey results where we scored above the
benchmark in the majority of the 16 statements.
During the year, Lisa Bright, in her role as the Employee Engagement
Designated Non-Executive Director, met with the employee elected Works
Council at our Skipton, UK site. Further information on this can be found on
page 90.
Employee Engagement
Survey in Brazil
Our Dechra entity in Brazil is a relatively new acquisition (December
2018) and a clear step into a fascinating market both culturally
and commercially. One of the first activities the management team
decided upon was to make employees feel engaged with the parent
company and understand that they were now employed by a larger
multinational organisation who would have different demands,
expectations and opportunities.
To support the strategic people plan, in May 2019 they took part
in 'The Great Place to Work' survey. One of the statistics, not
unsurprisingly, was a certain level of mistrust with the Trust Index only
reaching 63%. It was important to demonstrate tangibly that Dechra’s
intentions were to invest in the business to increase site capacity,
production quality and regulatory compliance. However, of equal
importance was to also invest in improving the working conditions.
The survey highlighted the rest facilities for use between shifts and
the parking arrangements, as both being inadequate.
The business quickly addressed these concerns by converting:
• a redundant maintenance building into two spaces, the first a quiet
zone with comfy seating for people to sleep, read or listen to music
and a second space for a more communal area where there is a
coffee machine, a table tennis table and other rest facilities; and
• a disused area, known locally as a chacara, a small plot of land,
into parking. This space had become over grown and unsightly, so
whilst needing some attention, it provided an excellent opportunity
to build a 120 parking space car park with secure electronic gates.
The other action the Brazilian management team took was to create
Engagement Teams, which consist of a communication team, a
Values team and a people development team. These three teams
are composed of employees from different areas of the business,
with each team sponsored by one of the managers. Their role and
responsibility is to bring ideas and solutions from the employees.
This has meant that Dechra’s employees can genuinely be part of
the solution and evolution of the Company in South America.
Chacara before
Chacara after
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Strategic Report
Corporate Social
Responsibility continued
Diversity and
Inclusion
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.
84% of our employees responded positively to the statement regarding
diversity in the workplace in our employee engagement survey (2018
Engagement Survey). 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.
The Board, via the Nomination Committee, reviews the Diversity Policy
and its implementation on an annual basis. Further details can be found
in the Nomination Committee Report on pages 101 to 103.
Fair Employment
Practices
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 and
further again to 7.4% in 2019. This reduction is largely driven by an
increase in the number of women in senior and technical roles.
Read more about our Fair Employment
Practices on page 66
Dignity at
Work
Last year we acknowledged that as we continue to grow our
business globally, we have to provide clear and accessible
guidelines that make clear to all our employees how to behave
whilst at work or representing Dechra. Our Values are at the heart
of everything that we do, and we have developed a framework
of guidance that all managers and staff need to know about. We
want an open and transparent working environment where all our
staff are treated equally and have the same opportunities, where
problems can be raised and resolved in a timely fashion and where
there is zero tolerance of inappropriate behaviours.
With this in mind, we introduced a new Dignity at Work policy
that includes our approach to diversity and inclusion, bullying
and harassment and employment of relatives and relationships
at work. The policy has been launched in the UK and we are
rolling out a global version of the policy by region.
In order to support this new policy, we partnered with ACAS* to
develop an in-house training programme for all managers in the
UK. The training was delivered over four days and in addition to
covering the content of the policies, we also focused on provision of
skills training to help managers deal with any of the issues covered
in our employment policies, including handling investigations, when
and how to escalate issues, dealing with the consequences of
unacceptable behaviour and handling difficult conversations.
We also spent a day of the training focused on dealing with mental
health issues in the workplace. Given the impact of COVID-19 on our
face-to-face training options, we are now in the process of finding a
digital delivery solution for the remainder of the programme during
2020. We plan to roll out similar management training across our
other territories during the 2020/2021 financial year.
* Advisory, Conciliation and Arbitration Service
Gender Split – By Country
(Leadership Level)*
300
250
200
150
100
50
0
4
7
4
a
i
l
a
r
t
s
u
A
0
2
6
2
K
U
8
2
l
i
z
a
r
B
Female
Male
6
1
1
9
2
1
U
E
6
5
6
8
A
N
Gender Split – By Country
(Senior Leadership Level)†
100
90
80
70
60
50
40
30
20
10
0
3
2
3
1
K
U
1 4
6
a
i
l
a
r
t
s
u
A
l
i
z
a
r
B
* Leader means managing a small to mid-size team.
† Senior Leader means Senior Executive Team and the leadership level immediately below.
Gender Split
Across Group
Female
Male
1
4
4
5
A
N
1
2
0
2
U
E
Female
52%
Male
48%
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Strategic Report
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. 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.
During the year, we have promoted the Manufacturing Health and Safety
Manager, Catherine Dent, to the post of Group HSE Director. She has
the remit of standardising our procedures and working so that high
standards of health and safety are maintained.
Due to the nature of our Manufacturing employees' roles, we have
identified these as our higher risk employees with regards to health and
safety. Health and Safety is a critical part of our Manufacturing business
and we aim to always put safety first to prevent injury and harm to
everyone working on behalf of Dechra. Everyone has the right to work
safely, whatever their role, and it is our vision to make our business an
environment where no one gets hurt. To develop further a strong culture
of health and safety within this employee group, the Occupational Health
and Safety Policy for Manufacturing and Supply was launched.
The Policy states our commitment to safeguarding the Health and Safety
of all employees, contractors and visitors and also describes our Health
and Safety Principles. These clear statements are directly aligned to the
Dechra Values and summarise our shared beliefs about the importance
of Health and Safety within our business:
We are also proud to report that during the current year using the existing
reporting framework, our employees continued to engage proactively
with our Health and Safety improvement programme and reported
1,149 hazards versus 558 for the previous year. Each of these hazards
represents an unsafe condition, which if left unchallenged could potentially
cause an accident or incident. Our employees have proactively sought out
opportunities to make our workplaces safer and we have fully supported
them in reducing any risks. In recognition of a ‘Positive Contribution to
Safety’ a number of our sites have implemented schemes to recognise
employees and/or teams for their actions to make the workplace safer for
all colleagues. We will continue to focus on proactive safety measures and
will encourage everyone across the business to bring our Safety Principles
to life and step in if they see unsafe conditions or actions.
LTA
For a number of years the Group has reported Lost Time Accident Frequency
Rate (LTAFR) as a non-financial key performance indicator (see page 36). A
LTA is any absence or the inability of employees to conduct their full range
of 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. We have maintained a rigorous focus on health and safety. Over the
course of the last 12 months the LTAFR has reduced from 0.21 to 0.17. The
number of incidents has remained the same at six. Four incidents occurred in
our manufacturing facilities and two in the sales and marketing organisations.
There were no fatalities (employees or contractors). Two of the manufacturing
facilities, Bladel and Melbourne, have now had over 24 months without an
LTA and one of the manufacturing facilities, Zagreb, has had over 12 months
without an LTA.
Dedication: We will never look away and always step in if we see
someone in danger.
LTA
Enjoyment: Everyone has the right to work in safe and healthy conditions.
Courage: Everyone is empowered to stop any process or work that
they feel is unsafe.
Honesty: No activity is so urgent or important that it cannot be done safely.
Relationships: Health and Safety is everyone’s responsibility.
Ambition: We believe that work related injuries and ill health are preventable.
1
2
.
0
7
1
.
0
This Policy was sponsored by the Group Manufacturing & Supply Director
and launched with a Line Manager led cascade to all employees. The Policy
will be further promoted by each Site Director throughout the coming year.
0
2018
2019
2020
To provide clear governance for health and safety across DPM&S, the
Health, Safety and Environmental (HSE) Steering Committee was formed.
Chaired by the Group Manufacturing & Supply Director and attended by all
Manufacturing Site Directors and subject matter experts, this Committee
aims to establish clear health and safety standards across the Group and
monitor risks to drive the continual improvement of our health and safety
performance. This Committee meets bi-monthly and reviews performance,
key risks, safety alerts and also works to support the implementation of
enabling systems. One of the key decisions in the current year was to support
the implementation of a HSE software system to centralise HSE reporting.
This software tool will open up opportunities to report accidents, near misses
and hazards to all employees using a simple reporting portal and will provide
greater insight into the health and safety culture across the sites. This will help
to direct future investment in infrastructure, standards and training to achieve
zero harm across our Manufacturing and Supply business.
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. For all LTAs and high potential hazards or high potential
near miss incidents, a safety alert is issued to share any learnings and enable
preventative actions to be implemented quickly across all sites.
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.
Stock Code: DPH
57
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Corporate Social
Responsibility continued
Our Environment
Total Waste – Fate of Waste
43%
29.6%
waste incineration
with energy recovery
energy used by
Zagreb by solar
We recognise the importance of good environmental practices. We
are committed to minimising the impact of our operations on the
environment by adopting responsible and sustainable environmental
practices and complying with applicable environmental legislation.
Our key focus areas are:
• Waste: prudent use of all natural resources, minimising waste in all
activities, and the appropriate disposal of waste;
• Energy: optimising the energy we use; and improving energy
effectiveness through initiatives on transport and reducing our
greenhouse gas emissions; and
• Sustainable raw materials: to use sustainable raw materials in our
nutrition range wherever practicable.
During the financial year we have upgraded our carbon emission
software, so in addition to energy usage, the impacts from waste
generation, water use, effluent disposal and refrigerant gas losses are
also captured from locations where this is likely to be material. The sites
that have a material impact are our manufacturing and logistics facilities.
Waste
We are committed to the prudent use of all natural resources and
the minimisation of waste in all activities from the specification of
incoming raw materials, the use of materials in production activities and
packaging, and the distribution of products into the supply chain. Where
waste is unavoidably created we will manage its disposal in the most
appropriate manner giving full consideration to environmental issues.
One of the most important impact areas for Manufacturing and Supply
is waste generation, the management of which must be carefully
controlled so that any hazardous substances or contaminated materials
are disposed of correctly. In the 2020 financial year 21% of all our waste
was classified as hazardous.
Our ultimate aim is to be zero to landfill and to achieve this target all of
our sites are encouraged to increase reuse, recovery, or recycling of
waste (where locally available).
300,000
250,000
200,000
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g
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150,000
100,000
50,000
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Reused – materials or components directly reused
Recycling – materials recycling
Recovery – solvent recovery
Recovery – reclaiming components (acids/bases/metals)
Recovery – incineration with energy recovery
Recovery – compositing/anaerobic digestion
Landfill
Disposed – incineration (no energy recovery)
Waste is reported according to the EU Waste Directive categorisation
system, including the definitions for the environmental fate of the waste.
The following diagram shows the waste disposal method for the total
waste volume generated across Dechra Manufacturing and Supply sites
in the 2020 financial year:
Total Waste – Waste Disposal Method
Reused – materials or
components directly reused
2%
Recycling – materials recycling
28%
Recovery – solvent recovery
1%
Recovery – reclaiming
components (acids/bases/metals) 3%
Recovery – incineration
with energy recovery
Recovery – compositing/
anaerobic digestion
Landfill
Disposed – incineration
(no energy recovery)
43%
8%
14%
1%
Reduction in Packaging Materials and Plastics
The Dechra Service Center in Uldum (DSC) has taken steps to be as
environmentally friendly as possible by using 100% recycled paper for
stuffing in shippers. All cardboard used for packing is made from 70%
to 90% recycled material and all the cardboard boxes for the nutrition
range are made from Forest Stewardship Council (FSC) material. In the
rare situations where air pillows are required, these are made from eco-
58
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Strategic Report
friendly plastic material that is biodegradable. The distribution centre in
Auldendorf, Germany, uses old newspapers as fillers in packaging. We
are in the process of developing our sustainable packaging strategy and
have established a taskforce to look at this. We hope to be able to report
further in our report next year about their recommendations and actions.
Water
This is the first year we have collated data on our water consumption
at our manufacturing sites. The sites aim to use water responsibly so
that usage does not negatively affect the communities where they
operate, by diminishing the supplies of clean water or degrading the
quality of that water. Water consumption is low in comparison with other
manufacturing sectors. Water is used from two sources: the local towns'
water supply; and abstracted from borehole (local aquifer). Both the
facilities in Zagreb and Brazil abstract water under a licence.
Any contaminated water generated throughout the production process
is disposed of as process effluent. Any waste water with the potential to
adversely impact the environment is appropriately managed, controlled and
treated prior to release. For Dechra Manufacturing sites, this includes all
water used for cleaning purposes. In accordance with GMP requirements,
to prevent cross contamination and to enable product reconciliation, used
process equipment is generally drained, vacuumed or wiped clean prior to
being washed. This reduces contamination washed to the effluent stream.
At the Zagreb site, large quantities of water are used for process
cooling. Although this is a large quantity of water, this process is used
instead of refrigerated cooling systems. At this site there is an on-site
effluent treatment plant where settlement and pH correction occurs prior
to discharge to the public sewer. The water used for cooling is returned
to the environment warmer but clean.
Water Consumption
Energy
Groundwater/borehole
Municipal supply/towns' water
350,000
300,000
250,000
200,000
3
M
150,000
100,000
50,000
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Water is used in products, for cleaning and general production, and for
cooling equipment and in processes.
Other
Used in general production
Used in product
Water Usage
350,000
300,000
250,000
200,000
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M
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Greenhouse Gas Emissions
In order to determine our carbon emissions, we use the GHG Protocol
Corporate Accounting and Reporting Standard and we report on emissions
arising from those sources over which we have operational control. 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 emissions from combustion of fuel and operation of
facilities (excluding combustion from company cars);
Scope 2: includes emissions from purchased electricity, heat, steam
and cooling; and
Scope 3: includes emissions from vehicles and from purchased
electricity (which are not included in Scope 2) and, in the case of the
2020, financial year waste.
1 July
2019 to
30 June
2020
6,403
4,989
1,962
% relates
to UK
6.3%
9.8%
6.1%
1 July
2018 to
30 June
2019
5,521
3,712
2,149
1 July
2017
to 30 June
2018
3,823
3,628
1,659
13,354
11,382
9,110
25.9
23.6
22.4
Scope 1 (tonnes)
Scope 2 (tonnes)
Scope 3 (tonnes)
Total Carbon
Footprint (tonnes
of CO2e)
Intensity Ratio
(tonnes of CO2e
per £m)
Stock Code: DPH
59
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Strategic Report
Corporate Social
Responsibility continued
Emissions by Operation
Manufacturing
Office
Warehouse
Manufacturing
Emissions by Site (excludes mileage)
2
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Our Manufacturing is the main contributor to our carbon footprint, and in
particular the main contributors to Scope 1 are:
• Zagreb, due to the production of the nutrition supplement that is
manufactured at Genera. The coating spray solution is ethanol
based, and on completion of the coating, the ethanol vapour is
extracted into a recovery plant which recycles 95% of the ethanol
back into the production process. To meet environmental legislation,
the site has an ethanol recycling unit which alone consumes
approximately 60% of the energy utilised in this production area.
Additionally, during the financial year we have transferred some
of the production volumes of liquids and solids to this site. The
higher production volumes in both of these as well as Vaccines
and Disinfectants, has resulted in the site operating two shifts. We
have, also, installed new energy capacities in renovated facilities
and laboratories such as new equipment, additional HVAC (heating,
kWh used – All Sites
3,500,000
3,000,000
2,500,000
h
W
k
2,000,000
1,500,000
1,000,000
500,000
0
ventilation and air conditioning system) and cooling systems.
All HVAC and cooling systems in production, laboratories and
warehouses are now working 24 hours/365 days due to GMP
requirements for temperature and humidity control.
• Londrina, due to the use refrigerated gas. A total of 307.1 kgs of gas
were lost to the atmosphere across the Group which has a carbon
equivalent of 903 tonnes, of which 99% was generated from the
Londrina site. This is a 47% reduction from the previous year. Equipment
containing refrigerant gases is used to control the temperature of the
working environment and is also necessary for freeze drying and general
process cooling applications. The site is continually reviewing their
strategy to manage equipment containing refrigerant gases, including
equipment management to prevent leakages and switching to refrigerant
gases that have a reduced environmental impact.
Offices
Offices include our sales representatives and Scope 3 (which includes
vehicle emissions) account for 1,159 tonnes of the 1,221 tonnes total. The
number of electric vehicles within our fleet is increasing year on year.
Warehousing
Our warehousing facilities contribute 650 tonnes of carbon and 57%
of this is in relation to the fuel used in the buildings. Our main facility in
Uldum, Denmark is looking at alternatives to fossil fuel, which have a
lower environmental impact and other energy improvements.
Kilowatt-Hour (kWh)
The kWh figures in the table below are the quantities of energy from
activities for which the Group is responsible worldwide and the annual
quantity of energy consumed resulting from the purchase of electricity,
heat, steam or cooling and vehicle fuel by the Group for its own use and
arising from those sources over which we have operational control.
Scope 1
Scope 2
Scope 3
Total kWh
1 July 2019 to
30 June 2020
31,454,319
16,180,991
8,372,040
56,007,350
% relates to energy
consumed in UK
6.7%
11.5%
6.0%
8.0%
The principal measures that are been taken to improve the Group's
energy efficiency are described within this section of the CSR report and
include the use of sustainable energy, improving energy effectiveness
through transport initiatives, reviewing the strategy to manage
equipment containing refrigerant gases and continuing with the policy
of replacing all non-LED lighting.
Steam/heat
Other petroleum gas
Natural gas
Liquid petroleum gas
Generated electricity on site
Gas oil
Electricity
Diesel
AU
HR
UK
DK
US
US
FR
DE
MX
MX
NL
NL
NZ
UK
BA
RS
ES
US
BR
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Strategic Report
Sustainable Energy
Dechra has the largest solar panel installation of its type in Croatia,
and it has been operational since 28 June 2019. The solar panels have
generated 29.6% of the energy used at the site.
HEP (kWh)
Solar power plant (kWh)
Total
% of solar
Total
5,366,447
2,254,633
7,621,080
29.58%
a form of transportation with the lowest carbon footprint. The majority
of the pharmaceutical products received by DSC are supplied from our
manufacturing sites in Bladel, the Netherlands and Skipton, the UK. The
products from Bladel are transported by road, whereas the products
from the UK are shipped by sea and road. All road transport is only to
be made with companies who can guarantee that the vehicles used
conform to the Euro6 standard or higher. All sea transport agreements
are with Shipping Conference companies, which requires high standards
for shipping.
Improve energy effectiveness through transport initiatives
The transportation of goods is the largest activity for the Dechra Service
Center (DSC) in Uldum, Denmark. They handled 39,067 orders in the
2020 financial year, an increase of 5.9%, to customers worldwide.
Although the cost of transport is the predominant factor for choice of
transportation, DSC has reviewed the method of transportation to find
Shipments
Total Weight (GRT)
CO2 Outlet (kg)
CO2 per kg
2020
39,067
19,304,216
1,684,872
2019
36,905
19,399,930
1,670,037
2018
30,409
16,665,247
1,393,046
11.5
11.6
12.2
Taskforce for Climate-related Financial Disclosure (TCFD)
The TCFD was established to help identify the information needed by investors, lenders, and insurance underwriters to assess and price climate-
related risks and opportunities appropriately. The Taskforce structured its recommendations around four thematic areas that represent core elements
of how organisations operate: governance; strategy; risk management; and metrics and targets.
Recommendation
Governance
Disclose the organisation’s
governance around climate-related
risks and opportunities.
Dechra Approach
The Board is accountable for approving our CSR strategy and overseeing
the delivery of our climate-related objectives. Our Senior Executive Team
(SET) are responsible for delivering on these objectives within their
functional areas and business units.
Further Information
The Board and the SET are supported by a cross-functional CSR Committee
who work with them to define our CSR strategy, and set objectives and targets
which are aligned with the United Nations Sustainable Development Goals.
Our environment strategy and objectives are described in our Corporate
Social Responsibility Report.
Corporate Social Responsibility
(pages 58 to 61)
Our policy is that we are committed to minimising the impact of our
operations on the environment by adopting responsible environmental
practices and complying with applicable environmental legislation.
Strategy
Disclose the actual and potential
impacts of climate-related risks and
opportunities on the organisation’s
businesses, strategy, and financial
planning where such information is
material.
Risk Management
Disclose how the organisation
identifies, assesses, and manages
climate-related risks.
We have assessed the impact of climate change as part of our normal
risk management process and concluded that there is likely to be some
financial risks which would need to be managed, but none that would
materially impact our business model.
How the Business Manages Risk
(pages 70 to 72)
Emerging Risks (page 76)
Metrics and Targets
Disclose the metrics and targets
used to assess and manage
relevant climate-related risks
and opportunities where such
information is material.
This assessment is consistent with the Sustainability Accounting Standards
Board’s (SASB) Materiality Map which indicates that the issue is not likely
to be material for the pharmaceutical sector.
Our environmental metrics and targets are described in our Corporate
Social Responsibility Report. The key targets are:
Corporate Social Responsibility
(pages 58 to 61)
• minimise waste disposal in our manufacturing sites;
•
reduce carbon emissions by optimising our energy usage and
an eco-friendly, cost-effective distribution system;
•
reduce packaging materials and pallets; and
• use sustainable raw materials in our nutrition range.
Stock Code: DPH
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Job Number 7 September 2020 4:17 pm Proof NumberCorporate Social Responsibility continuedSustainable Raw Materials in Our Nutrition RangeRecipes and IngredientsAll of the krill, fish oil and fish meal used in the dry SPECIFIC diets are certified by either Marine Stewardship Council (MSC), IFFO RS Standard or Friends of the Sea. We regularly review our top ten ingredients, assessing the risk of scarcity and putting in place plans if we feel there is a growing risk. We have recently started to use algae, in our new sardine cat food, this ingredient is a rich source of omega-3 and has a number of benefits:• commercial algae production takes place on shore, so has no impact on the marine environment; • it uses a highly controlled process that takes very little land and does not use valuable drinking water or arable soil and, • directly using algae as an ingredient helps preserve fish stocks.As well as ensuring the provenance of our ingredients we are also interested in how these ingredients are produced. The sardine used in our new cat food are caught, in MSC certified fisheries, using a low impact ring netting system. With trawl netting the nets are towed through the water. With ring netting, a net is used to encircle a shoal of fish forming a deep curtain of netting suspended vertically through the water, the net is then drawn in. There are a number of advantages to ring netting, and they are:• by-catch is reduced because if the wrong species are in the net, the whole catch can be released unharmed;• less seabed impact as the net does not come into contact with the seabed; and• lower fuel consumption as the ring net is not towed through the water and the vessels used are small inshore vessels.PackagingIn 2018 we changed the packaging of our cat food, reducing bag height, using thinner bags and introducing a flat bottom. This reduced plastic use by 3,000kgs per year. In 2020, we have made the same changes to our range of dog food, which is projected to save a further 18,000kgs of plastic per year. All of our cardboard cartons are now FSC certified.In 2020, we are launching a new range of organic diets including dry foods in recyclable bags. Virtually no dry pet foods are currently in recyclable packaging. The reason is that dry pet food bags have to provide both excellent barrier properties and strength to handle the supply chains, and up to now the only way to achieve this was to use bags made from two or three layers of different types of plastic. Because they are a mix of different types of plastic, they are generally unsuitable for recycling.Our new organic dry food bags are made from layers of the same type of plastic but with a gas barrier between the layers. This gives packaging that is both lighter and stronger than conventional bags but because it is a single type of plastic, it can be recycled where collection systems allow.The organic diets are the start and we are committed to having all of our Specific diets in recyclable packaging by 2023.Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com62Strategic ReportDechra-AR2020-Strategic.indd 6207-Sep-20 4:46:48 PM Strategic Report
Our Business
37
68,000
Product Development Projects
Academy Users
Our key focus areas are:
• Life of our Products: the development and promotion of products
to improve animal welfare;
• Veterinary Professionals: maintaining and improving the knowledge
and skills of veterinarians who prescribe and use our products; and
• Ethics: acting honestly and with integrity.
Life of our Products
Support:
• Pharmacovigilance
Idea
• Education
• Technical Help
Desks
• Technical Sales
Proof of
Concept
End Users
Product Development
It is our mission to develop products to improve animal welfare. In line
with that commitment, we carefully consider the responsible use and
humane treatment of animals in all of our required studies. When we
are required to conduct studies to achieve product registrations, we
minimise the number of animals to achieve the necessary outcomes.
Whenever possible, we will use information that can be derived from
existing publications in an effort to limit the number of studies needed.
The scientific purpose of involving animals in the development of our
products is reviewed and approved by Regulatory Agencies. For each
individual study, an Animal Welfare Committee approves the protocol.
We are committed to the following principles:
• animals must 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 by
in vitro methods, or the procedures refined to minimise distress.
The Animal Welfare Committee ensures that a minimal number of
animals are used and that their treatment is humane, and Dechra
inspects all facilities which perform testing to confirm proper care and
treatment of animals is evident. Additionally, a full review of the study
design will be approved by their Animal Welfare Committee for clinical
studies. In all instances only animals with the disease the product is
intended to treat will be used and owner consent for the trial is obtained.
Pharmacovigilance
All employees, except production and logistics operatives, 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 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 regulatory authorities.
Product
Development
Product
Read more about our Product
Development on pages 40 to 43
Registration
Sales and
Marketing
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Veterinary
Professionals
Our relationship with veterinarians is key to our business and
therefore, we provided added value services in the form of educational
programmes and technical support to maintain and improve the
knowledge and skills of veterinarians who prescribe and use our
products. In addition, we provide scholarships to the next generation of
veterinarians.
Education
We deliver education through many channels, including conferences and
our online digital e-learning environment, the Dechra Academy.
Academy
During the year, the Dechra Academy has received substantial effort and
investment with the launch of a new system in February 2020.
The benefits of the new system include:
• A.I. Powered, the system can recommend similar courses based
upon what the user has viewed;
• new promotional capabilities which allow us to highlight new
courses and products for our customers; and
• multiple domains which allow us to have a global site and create
bespoke versions for each of our key markets.
Strategic Report
Corporate Social
Responsibility continued
Promotion of Products
To maintain the trust of veterinarians and the public, it is important that
we provide accurate, fair and objective information on our products and
medicines to support their safe and effective use. We do not make false
or misleading claims about our products.
We advertise and promote our products fairly using promotional materials
which contain balanced, accurate and truthful information. We only
promote based on the information included on the Summary of Product
Characteristics (SPC)/Product Insert which is a document that is approved
by the regulators as part of the marketing authorisation of each medicine.
We are members of the industry associations in the majority of countries
where we have our own sales teams, and follow the industry association’s
marketing and promotional guidelines in these countries. All our
promotional material is approved internally by an appropriately qualified
regulatory manager, technical product manager or veterinarian. In addition,
we train all customer-facing employees so that they have sufficient
product and disease knowledge to enable them to present information on
our products accurately and responsibly. We only promote our products
to veterinary professionals, using promotional materials approved by
authorised persons independent of the sales force.
Promotional compliance is monitored by our country managers and
regional sales managers and the internal audit team also conduct a
regular review of compliance processes, and corrective actions are
taken to address any issues identified.
The volume and value of payments to animal health professionals is
very modest compared to payments to healthcare professionals by the
human pharmaceutical industry. We only make modest
fee-for-service payments to key opinion leaders who help us develop
and deliver educational materials events and to veterinarians who we
use to conduct clinical trials. There are currently no regulatory or industry
requirements to publicly disclose promotional violations or payments
to healthcare professionals.
Our Products
Our products are all targeted at providing veterinary professionals with
solutions for their customer needs. Our products can be divided into
four categories: Companion Animal Products (CAP), Food producing
Animal Products (FAP), Equine, and Nutrition.
We have developed a strong position in providing specialist and clinically
necessary novel CAP products, 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
most cases.
Our FAP products are positioned to match current best practice
prescribing habits and to meet the growing awareness for the need for
better animal welfare standards.
Using modern design and up-to-date training methodologies we are
growing our position as one of the best educational resources for
veterinary professionals. The Dechra Academy is a key differentiator for
Dechra and our most important digital asset.
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Strategic Report
Italy
Our team in Italy have taken the provision of veterinary technical
support one step further. They have secured the services of
the University of Bologna in order to offer a comprehensive
service for veterinarians with questions about endocrinology
and anaesthesia – two of our key therapy areas. This service is
available to all veterinarians in Italy and is promoted through the
sales team and on social media.
Over the financial year there were nearly 500 contacts from
veterinarians, 75% of them by telephone. As with the UK, a
large number of these calls concerned Cushing’s and Addison’s,
with the majority looking for help with treatment and monitoring
of these cases.
“This is a very important service for our customers”, says
Riccardo Data, the Country Manager for Dechra Italy. “Not only
are we helping veterinarians to deal with issues that they are
facing on a daily basis, we are also working with the University
on interrogating the questions asked and the specific areas
that veterinarians are seeking advice on. We can then develop
resources that will help support these veterinarians in the future.”
As our technical veterinarians have an in-depth knowledge of our products
and the diseases they treat they are often called upon to provide education for
veterinarians, recent graduates and veterinary students. Their expertise is also
put to good use in supporting Dechra’s own sales and marketing teams and
our distribution partners, enabling all sales teams to be well trained and our
marketing messages to be relevant and technically accurate.
We have put a lot of effort into providing a good level of support for
our customers and this is reflected in the fact that our UK Veterinary
Technical Services team has been ranked by our customers as the ‘best
in class’ technical helpline for four out of the last five years.*
* CM Research Syndicated Sales Rep Survey (over years 2016–2020).
Noticeable achievements over the last 12 months are:
• courses available in 18 languages (2019: 16 languages)
• 68,000 registered users (2019: 52,000 registered users)
• 334 courses (2019: 168 courses)
• 2,200 average users per month (2019: 1,060 average users)
•
four local market domains (2019: two local market domains)
• promotion and demonstration at two European Congresses
In the EU alone, we held 200 Dechra Academy Live Events with over
7,000 veterinarians attending and 60 Dechra Academy Webinars with
over 16,000 veterinarians attending.
Our focus for the next 12 months will be the continued roll out of the
local domains, supported by local Marketing Teams, to increase usage
of The Academy across the globe. In addition, we are in the process
of developing a mobile app to increase our usability and appeal to a
younger audience. These will also include a variety of new content for
our customers.
CPD Events
During the financial year, we held 2,000 Continuing Professional
Development (CPD) sessions in the EU with over 10,000 veterinarians
attending and 323 CPD events in North America with 8,023 attendees.
Our International business:
• held a two day distributor meeting in Zagreb where training was
provided to 39 participants;
• delivered education via seminars to a further 275 veterinarians; and
• held the equivalent of 249 distributor training days.
Technical Support
With the wide range of products we offer which includes those that treat
complex and less frequently occurring disorders such as Cushing’s and
Addison’s, the provision of a high quality veterinary technical support is a
service that the veterinarians truly value.
Veterinarians across the globe can email technical services or call the
telephone support lines provided in all the countries where Dechra
operates. Veterinarians call Dechra to discuss:
• diagnosis;
•
•
treatment options; and
the ongoing monitoring and management of conditions, particularly
those that are lifelong.
Our aim is to help veterinarians optimise the case management of each
individual patient, and some veterinarians will call a number of times for
support and advice on more complex cases.
In our smaller markets we will have a veterinarian responsible for providing
veterinary support. This compares to our larger markets where we have
more veterinarians that will collaborate across all sectors of the industry.
The UK has one of our largest teams, and in the last financial year this team
handled around 8,000 customer enquiries, 52% of which were related to
our endocrine treatments Vetoryl and Zycortal. In 2020, the US Veterinary
Technical Support team provided technical support for over 9,000 new
cases, with close to 40% specific to Vetoryl and Zycortal products. In
addition, these larger markets will also have field based veterinarians
providing technical support and carrying out 'lunch and learns'.
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Strategic Report
Corporate Social
Responsibility continued
Ethics
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 in which we operate.
Honesty and Integrity
We are committed to acting responsibly and with integrity. This is
reflected through our Values. We expect our third parties to trade with
honesty and integrity, and to support this we have 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.
During the year, we have reviewed all of our policies which underpin our
internal Code of Conduct and compiled one page summaries which
have been used as a basis for an internal training programme. During
the forthcoming year, the training programme will be translated into
nine languages and it will be rolled out to all of our employees. Our
employees are encouraged to report behaviours that are contrary to
our Code of Conduct via our How to Raise a Concern Procedure.
Anti-Bribery and Anti-Corruption
As Dechra continues to launch new products in new markets and enter
into collaborative partnerships across the world, Anti-Bribery and Anti-
Corruption (ABC) risk continues to be a key focus.
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. The Audit Committee is kept regularly informed of the
ABC programme.
All employees are required to comply with the Dechra ABC Policy, which
was updated during the 2020 financial year. The ABC Policy clearly
defines what constitutes bribery and corruption, outlining prohibited
activities and providing guidance on what activities are allowed around
the world. A new e-learning course for employees will be rolled out
during the forthcoming year across the Group as compulsory training, to
be repeated annually. Face-to-face bespoke training has been delivered
to the Dechra Veterinary Products International and the Product
Development and Regulatory Affairs teams, designed to specifically
address areas of risk in the markets in which they operate.
We have also reviewed and updated our customer and supplier
onboarding programme during this period, rolling it out across the Group
as part of a dedicated training and monitoring exercise. We utilise ABC
and Sanctions screening software which assesses Dechra’s third party
network on a continuous basis. Any new third parties are assessed for
ABC risk and are required to complete a due diligence exercise where
necessary. There is also an ongoing review of existing third parties at
regular intervals (the frequency of which is determined by their ABC risk
assessment level). Equally, ABC due diligence procedures are an integral
part of all acquisition activity.
Human Rights
Dechra is committed to upholding and respecting human rights both
within our business and from our suppliers. During the year, the Board
approved a Human Rights Policy, a copy of which can be found on our
website. The following sets out our Human Rights principles which are
all embedded into our Code of Conduct for employees and our Third
Party Code of Conduct for our suppliers and customers.
We do not use forced, bonded or indentured labour or involuntary
prison labour or take part in human trafficking. We have a zero-tolerance
approach to modern slavery and we are committed to acting ethically
and with integrity in all our business dealings and relationships. We
are also committed to implementing and enforcing effective systems
and controls to prevent modern slavery from taking place anywhere
in our own business or any of our supply chains. Our Modern Slavery
Statement can be found at www.dechra.com.
• We do not use child labour. We comply with international standards
on the minimum age for employment. The minimum age for
employment is 16 years of age. However, if the local minimum age
law stipulates a higher age for work or mandatory schooling, then
the higher age will apply.
• We treat people fairly and do not tolerate bullying and harassment.
We do not discriminate for reasons such as age, gender, sexual
orientation, marital status, race, colour, ethnicity, disability, religion,
political affiliation or union membership.
• We provide a workplace free of harsh and inhumane treatment,
including any sexual harassment, sexual abuse, corporal
punishment, mental or physical coercion or verbal abuse of workers,
and no threat of any such treatment.
• We recruit and promote people on the basis of their personal
ability, contribution and potential. We are committed to promoting,
supporting and maintaining a culture of fairness, respect and equal
opportunity for all.
• We are committed to fair employment practices and comply with
national legal requirements regarding wages, including minimum
wages, overtime hours and mandated benefits, and working hours.
• We provide a safe working environment for those who work for us
or with us. We reinforce good safety management practices and
maintain awareness of safe ways of working.
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Strategic Report
Our Community
2020 Financial Year Community Volunteer Hours
Animal Welfare
Environment
Human Service
77%
21%
2%
935
£32.3k
£247.2k
Community Hours
Cash Donations
Product Donations
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. Our Community pillar focuses on:
• Community Activities
•
•
Community Employment
Community Donations
Community Activities
We encourage our employees to engage in community activities, in
particular, volunteering in the fields of animal welfare, human service
and environmental stewardship. There is a particular focus on animal
welfare driven by the passion of our employees. We have committed
to giving our employees one day per year in the community. A lot of
our community activities this year have been postponed due to the
social distancing restrictions imposed by COVID-19. Fortunately,
our employees in North America held six events earlier in the year,
volunteering a total of 935 hours. Two of the events were held during
North America’s annual sales meeting, where over 100 volunteers
arrived a day early for the week long meeting to give back to the local
community that would host them. Four of the six events were focused
on animal welfare, primarily supporting animal shelters, while one was
a large-scale beach clean-up preserving our environment, and another
serving local grade school children interested in science. In preparation
for expanding volunteerism globally at Dechra, a Volunteer Service Tool
Kit was developed and is now available to all Dechra employees for the
purpose of encouraging and instructing how to properly engage their
community and organise a volunteer event.
We also support professional staff volunteering time in their local
community. Andrea Brownstein, US Territory Sales Manager volunteered
with the National Disaster Medical System (NDMS), deployed earlier
this year to help COVID-19 positive Wuhan evacuees at the start of the
pandemic.
Community Employment
We recognise that the Group has a responsibility to its stakeholders and
we strive to contribute to the social and economic welfare of the local
communities in which we operate. We recognise that by taking voluntary
action in this area, it is helping to protect and develop our business:
• Offer employment opportunities to all sectors of the community
through non-discriminatory policies and promoting opportunities to
disadvantaged and vulnerable groups; and
•
Support local initiatives for the development and education of young
people in the areas we serve, such as Dechra product development
staff located in the Maine office educating and exciting our next
generation of scientists during the annual Bioscience Day for Maine
grade school students.
Community Donations
For the last 9 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 15 charities each receiving £2,000 each. In addition to
the annual Group Donations, each business unit has the discretion
to allocate funds and/or products to local community charities and/
or animal welfare charities. The majority of product donations are short
dated product which otherwise would have had to be destroyed.
Group Donations
Animal
Human
£20,000
£10,000
Business Unit Donations by Type
Product
£247,159
Cash
£2,328
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Strategic Report
Corporate Social
Responsibility continued
Bioscience
Day
Australian
Wild Fires
In January 2020, the team at Dechra Australia supported efforts
to help animals injured in the bushfires in New South Wales by
donating antibiotics and pain medications to local veterinary
clinics. The majority of the medications provided were used
to treat wildlife, such as koalas and possums, brought to the
clinics.
Tony Flint, NSW North Territory Manager, cited instances
where companion animals belonging to people who had lost
their homes had also been treated by medications donated
by Dechra: "One story that was very touching came from
Greencoss Port Macquarie, who used some of the products
received to treat burns to a dog whose owner had lost
everything. He and his dog managed to escape from their
burning house but his dog sustained burns to his feet. The
owner was very touched when he learned that the clinic could
treat his best friend at no cost."
Tony went on to describe the impact of what he had seen and
heard over the last week whilst travelling around some of the
worst affected areas: "Some of the stories I’ve heard have given
me a real sense of the positive effect our support has had on
people and animals in a time of great need. It puts a very human
face to what we do."
Growing a strong, sustainable bioscience community is
fundamentally important to attracting talent. This involves
developing a workforce for the future, and the first step in this
process is often focused on exciting young students about
science. To this end, the Bioscience Association of Maine
(BioME) organises an annual event, Bioscience Day, which is
all about engaging students and giving them insight into working
in a science-based role. Two employees from the Dechra office
in Maine, Roberto Garcia and Caryn Thompson, were delighted
to join the fourth annual Bioscience Day as volunteers and
to share their experiences with the eighth-grade students at
Bioscience Day.
The event involved 24 schools and over 3,300 participants with
58 volunteers from 25 companies.
Caryn presented on measuring biodiversity and the children
were given an exercise to simulate sampling forest birds and
learnt how to assess species diversity via simple statistics,
while Roberto gave an overview of the teamwork involved in
developing veterinary drugs. He also gave the students an
exercise which involved working in groups to create sample
project plans and Gantt charts. He explained why he was
eager to participate in the day:
“Today is an opportunity for me to give back to the community,
and I think it’s important to try and help the students figure out
what they want to do as there are so many opportunities out
there.”
Roberto and Caryn will be attending the fifth annual Bioscience
Day, and have already begun recruiting other Dechra volunteer
scientists to join them. Whether the event is held in person
or virtually, exciting the next generation with the importance
of science to solve real world concerns is something Dechra
employees are committed to.
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Non-Financial
Information Statement
Strategic Report
We aim to comply with the Non-Financial Reporting requirement as detailed in Sections 414 CA and 414 CB 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
1 Environmental matters
(including the impact of
the Company’s business
on the environment)*
2 Employees*
3 Social matters*
4 Respect for human rights*
5 Anti-Bribery and Anti-
Corruption*
6 Business Model
Where to read more
• Corporate Social Responsibility:
Page number
Policies and Handbook
• Code of Conduct
Our Environment
• Understanding our Key Risks
58 to 62
73 to 76
• Creating Value for Our
Stakeholders
17
• Chief Executive Officer’s
Statement
22 to 25
• Strategy in Action: People
36
• Corporate Social Responsibility:
Our People
• Section 172 Statement
• Understanding our Key Risks
• Creating Value for Our
52 to 57
46 and 47
73 to 76
Stakeholders
17
• Staff Handbook
• Dignity at Work Policy
• Health & Safety Policy
• How to Raise a Concern
Handbook
• HR Policies
• Volunteer Service Toolkits for
Large and Small Events
• Corporate Social Responsibility:
• Donations Policy
Our Community
• Section 172 Statement
• Corporate Social Responsibility:
Our Business
• Section 172 Statement
67 and 68
46 and 47
63 to 66
46 and 47
• Corporate Social Responsibility:
Our Business
66
• Audit, Risk and Internal Control
107 and 109
• Our Business Model
14 to 16
• Human Rights Policy
• Modern Slavery Statement
• Code of Conduct
• ABC Policy
• Third Party Code of Conduct
• How to Raise a Concern
Handbook
7 Principal Risks in relation
to (1) to (5)
• How the Business Manages Risk
• Understanding our Key Risks
17
70 to 72
73 to 76
• Creating Value for Our
Stakeholders
8 Relevant non-financial KPIs
• Key Performance Indicators
34 and 35
* References to our policies, due diligence processes and information on how we are performing on various measures in these areas are contained throughout the
Strategic Report.
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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
Audit Committee
Review the effectiveness
of the risk management
and internal audit
framework
R
O
T
I
N
O
M
Management
Structure
Policies and Procedures
Business Planning
Operational Level Controls
• Product Portfolio Reviews • Lifecycle Management
• Pricing Policies • Product Supply
• 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
Internal
Audit
Independent
assurance on the
design and operation
of the internal control
framework
MITIGATE
Business Units
Identification,
mitigation and
monitoring of risks
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Strategic Report
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. Operational, financial,
compliance and emerging risks are identified as an integral part of our
functional planning and budget setting processes.
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 coordinates the risk reporting process and provides
independent assurance on the internal control framework.
COVID-19
We have continued to operate our normal risk management and control
processes throughout the COVID-19 pandemic, including a formal
assessment of emerging risks, climate risk and the potential longer term
impact of COVID-19 on the business.
The operational impact of COVID-19 on the business during the last
quarter of the financial year and the actions we have taken in response
are described in various parts of the Strategic and Governance Reports.
Whilst the virus has had a significant impact on how we conduct our
day-to-day activities, we have continued to operate successfully
throughout the pandemic in all of our worldwide locations. Following
record demand in March as veterinarians stocked up on essential
medicines, trading softened in the last quarter, but we have seen
demand recover in most markets as lockdown restrictions are eased.
We have disclosed COVID-19 as an emerging risk and have also
considered its impact on the principal risk profile. Given the uncertainty
about the potential lifecycle of the virus and the impact of future events
we will continue to monitor and respond to further changes where
needed.
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.
The Dechra Values are the foundation of the control framework and it
is the Board’s aim that these values should drive the behaviours and
actions of all employees. The key elements of the control framework are
described below:
Management Structure
Our management structure has clearly defined reporting lines,
accountabilities and authority levels. The Group is organised into
business units. Each business unit is led by a SET member and has its
own management team.
Policies and Procedures
Our key financial, legal and compliance policies that apply across the
Group are:
• Code of Business Conduct and How to Raise a Concern;
• Delegation of Authorities;
• Dechra Finance Manual, including Tax and Treasury policies;
• Anti-Bribery and Anti-Corruption;
• Data Protection;
• Sanctions; and
• Charitable Donations.
Strategy and Business Planning
We have a five year strategic plan which is developed by the SET and
endorsed by the Board annually. Business objectives and performance
measures are defined annually, together with budgets and forecasts.
Monthly business performance reviews are conducted at both Group
and business unit levels.
Operational Controls
Our key operational control processes are as follows:
• Product Pipeline Reviews: We review our pipeline regularly to identify
new product ideas and assess fit with our product portfolio, prioritise
development projects, 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.
• Product Supply: We continue to develop our demand forecasting
and supply planning processes, with monthly reviews of demand
and production forecasts, inventory controls, and remediation plans
for products that are out of supply.
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Strategic Report
How the Business
Manages Risk continued
• Quality Assurance: Each of our manufacturing sites has an
and supply network;
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 and product
complaints 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:
• Recruitment of a new External Network Director and expansion of
the external network team, including the appointment of a dedicated
External Network Quality Director to improve our ability to manage
the increased scale and complexity of our external supply network;
• Recruitment of a new Internal Network Director to strengthen the
management of our internal manufacturing sites;
•
We have continued to make improvements to our manufacturing,
quality and supply processes, with additional investments in people
and production facilities;
− Entity Level Controls performed by senior managers at Group
• Our financial control framework in Dechra Brazil has been
and business unit level;
completed; and
− 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.
• Our Environmental, Social and Governance (ESG) strategy has
been developed and a team to monitor its implementation has been
established.
The key controls in place to manage our principal risks are described in
further detail on pages 73 to 76.
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 2020
We have continued to strengthen and improve our governance and
control processes and the following changes have been implemented:
• New governance and oversight processes to provide transparency
of performance, decisions and actions across the manufacturing
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, cybersecurity, IT
systems failure and non-compliance with legislation. The risk profile
below therefore details the nine principal risks that are specific to our
business and provides information on:
•
their prioritisation;
• how they link to Group strategy;
•
their potential impact on the business; and
• what controls are in place to mitigate them.
Plans for 2021
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 continue to be the primary
focus area for 2021.
We also plan to make further improvements and enhancements to our
financial control framework and our Group policies.
h
g
H
i
t
c
a
p
m
I
4
3
2
1
6
7
5
9
8
w
o
L
Low
Likelihood
High
Risk increasing
Risk stable
Risk decreasing
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Understanding
Our Key Risks
Strategic Report
Link to
Strategic
Growth
Driver and
Enabler
Risk
Potential Impact
Control and Mitigating Actions
Trends
a
b
c
1 Market Risk:
a
b
c
The growth 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
have established buying groups to
consolidate their purchasing, and corporate
customers are continuing to expand.
2 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.
3 Product Development
and Launch Risk:
Failure to deliver major products either
due to pipeline delays or newly launched
products not meeting revenue expectations.
The development of pharmaceutical
products is a complex, risky and lengthy
process involving significant financial, R&D
and other resources.
Products that initially appear promising
may be delayed or fail to meet expected
clinical or commercial expectations or
face delays in regulatory approval.
It can also be difficult to predict whether
newly launched products will meet
commercial expectations.
The growth 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.
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.
Increasing
competition
on a number
of our key
products
A succession of clinical trial failures
could adversely affect our ability to
deliver shareholder expectations
and could also damage our
reputation and relationship with
veterinarians.
Our market position in key
therapeutic areas could be
affected, resulting in reduced
revenues and profits.
Where we are unable to recoup
the costs incurred in developing
and launching a product this
would result in impairment of any
intangible assets recognised.
COVID-19 may cause some clinical
trial delays due to challenges in
recruiting patients.
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 project leaders
who chair project team meetings.
Before costly pivotal studies are initiated, smaller proof of
concept pilot studies are conducted to assess the effects of
the drug on target species and for the target indication.
In respect of all new product launches a detailed
marketing plan is established and progress against that
plan is regularly monitored.
The Group has a detailed market knowledge and
retains close contact with customers through its
management and sales teams which are trained to a
high standard.
Stock Code: DPH
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Strategic Report
Understanding
Our Key Risks continued
Link to
Strategic
Growth
Driver and
Enabler
a
b
c
4 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.
a
b
c
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.
Risk
Potential Impact
Control and Mitigating Actions
Trends
Raw material supply failures may
cause:
•
increased product costs due to
difficulties in obtaining scarce
materials on commercially
acceptable terms;
We monitor the performance of our key suppliers
and act promptly to source from alternative suppliers
where potential issues are identified.
The top ten Group products are regularly reviewed
in order to identify the key suppliers of materials or
finished products.
• product shortages due to
manufacturing delays; or
• delays in clinical trials due to
shortage of trial products.
Shortages in manufactured
products and third party supply
failures on finished products may
result in lost sales.
We have now addressed the
majority of our in-house quality and
supply challenges which contributed
to an increased supply chain risk
last year. However, the risk level has
maintained because COVID-19 may
impact our product supply due to:
•
•
•
•
unexpected fluctuations in
demand;
reduced output in
manufacturing sites;
challenges in securing raw
materials; and
increased product costs due
to scarce supply.
Delays in regulatory reviews and
approvals could impact the timing
of a product launch and have
a material effect on sales and
margins.
Any changes made to the
manufacturing, distribution,
marketing and safety surveillance
processes of our products may
require additional regulatory
approvals, resulting in additional
costs and/or delays.
Non-compliance with regulatory
requirements may result in delays
to production or lost sales.
A dedicated external network team who manage and
support our CMOs to deliver quality products to our
regulatory specifications.
Demand forecasting and supply planning processes,
with monthly reviews of demand and production
forecasts, inventory levels, and remediation plans for
products that are out of supply.
We plan to increase our working capital and carry
higher levels of safety stock on critical raw materials,
and finished products.
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,
Zagreb and Uldum, and similar plans are being
developed for other sites.
A project is in progress to review and improve our
supply planning processes.
Increasing
regulatory
requirements
and CMO
compliance
with our
regulatory
specifications
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.
A dedicated External Network Quality Director has
been appointed to support our CMOs in complying
with our regulatory specifications.
Regular contact is maintained with all relevant
regulatory bodies in order to build and strengthen
relationships and facilitate good communication lines.
The Regulatory and Quality teams update their
knowledge of regulatory developments and implement
changes in business procedures to comply with new
requirements.
Where changes are identified which could affect
our ability to market and sell any of our products,
a response team is created in order to mitigate
the risk.
External consultants are used to audit our
manufacturing quality systems.
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Link to
Strategic
Growth
Driver and
Enabler
a
b
c
Strategic Report
Risk
Potential Impact
Control and Mitigating Actions
Trends
6 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.
7 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.
8 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.
9 Retention of People Risk:
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,
environmental 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.
Managing the
integration of
new product
acquisitions
Failure to recruit or develop quality
people could result in:
•
•
•
capability gaps in new markets;
challenges in integrating new
acquisitions; or
overstretched resources.
This could delay implementation
of our strategy and we may not
meet shareholders’ expectations.
The Group HR Director reviews the organisational
structure with the SET and the Board twice a year
to confirm 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.
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.
We communicate appropriate antibiotic use in line with
best practice.
Loss of key skills and experience
could erode our competitive
advantage and could have an
adverse impact on results.
Inability to attract and retain key
personnel may weaken succession
planning.
The Nomination Committee oversees succession
planning for the Board and the SET.
Succession plans are in place for the SET together
with development plans for key senior managers.
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.
Failure to retain high calibre, talented
senior managers and other key roles
in the business.
a
b
c
Our growth plans and future success are
dependent on retaining knowledgeable and
experienced senior managers and key staff.
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
Geographical Expansion
Manufacturing and Supply Chain
No Change
Acquisition
Stock Code: DPH
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Strategic Report
Understanding
Our Key Risks continued
Emerging Risks
Given current macroeconomic and geopolitical uncertainty we have identified the following emerging risks:
COVID-19
The following key actions have been taken in response to the pandemic:
• We reacted immediately to government guidance by introducing changes to shift patterns and staffing rotas in our
manufacturing and logistics facilities to enable our employees to continue to produce and supply essential medicines
safely;
• We provided office workers with the technology required to work from home;
• At a leadership level, the SET met weekly to review and discuss the business impact of the pandemic with regular
updates provided to the Board;
• A Corona Committee was established to provide health and safety guidance and procedures for our employees and to
prepare office locations to enable employees to return as lockdown restrictions are eased;
• Following the sad loss of Simon Francis, our Group Manufacturing and Supply Director to the virus, we implemented
our emergency succession planning procedures to appoint Milton McCann as the Interim Group Manufacturing and
Supply Director;
• We increased our communication and engagement with investors and have raised equity through a share placing in
order to maintain a prudent balance sheet and provide increased financial flexibility; and
• We have conducted additional viability stress testing to assess the impact of a severe and sustained reduction in demand.
Longer Term Impact
The pandemic may result in a global recession and increased trade restrictions, which could impact demand for our
products and increase costs. However, the pharmaceutical industry is resilient to economic downturns and many products
are not subject to tariffs under the World Trade Organisation Pharmaceutical Tariff Elimination Agreement.
Climate Change
• Our governance and approach to climate change, including our first voluntary disclosure using recommendations of
the Taskforce for Climate-related Financial Disclosure (TCFD) are set out on page 61 of the Strategic Report.
• We have assessed the impact of climate change and concluded that there is likely to be some financial risks which
would need to be managed, but none that would materially impact our business model. This assessment is consistent
with the Sustainability Accounting Standards Board’s (SASB) Materiality Map which indicates that the issue is not likely
to be material for the pharmaceutical sector.
• The expected impacts are likely to be weather related disruption at internal and external manufacturing sites, and
increased cost of fossil fuels.
• We plan to continue to develop our business continuity plans and CMO second sourcing strategy to mitigate these impacts.
Taxation
• The Group’s effective tax rate (ETR) is subject to taxation policy in the territories in which it operates. We continue to
monitor developments in tax reform globally which may cause future movements in the Group’s ETR.
• The EU is currently challenging the legality of the Group Financing Exemption in the UK Controlled Foreign Company
tax legislation from which the Group has previously benefitted. We continue to monitor developments. Please also see
Note 9.
• The Group currently benefits from patent and innovation box tax incentives in the UK and the Netherlands. The Group’s
ETR will increase as qualifying patents expire.
Brexit
• We have completed our Brexit preparations and continue to monitor the advice from the UK and EU governing bodies.
Our priority is to maintain continuity of supply of our products to our customers in the UK and EU, and we have increased
inventory accordingly.
• The changes outlined below 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. We have:
{{ transferred our UK registered Marketing Authorisations for products that are sold in the EU to a subsidiary in the
Netherlands;
{{ transferred the analytical testing methods for products manufactured at our Skipton facility to our laboratories in
Bladel and Zagreb; and
{{ established a bonded customs warehouse at our EU distribution in Uldum, so that UK products do not require EU
testing on entry to the facility.
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Strategic Report
Assessment of Viability and Time Period
The Board has determined that a three year period to 30 June 2023 is
an appropriate period over which to provide its viability statement. This
time period is supported by the Group’s budget process, which includes
detailed projections for the next two financial years, and broader
projections from the third year of the five year strategic planning process.
The Board believes this provides a sound framework for providing
reasonable assurance on the Group’s viability given the inherent
uncertainty associated with longer term forecasts.
The Board’s assessment has 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 73 to 75 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. In response to
the COVID-19 pandemic, additional stress tests have been conducted
to assess the impact of a severe and sustained reduction in demand
should a significant global economic downturn occur.
The Board believes the results of the stress testing demonstrate that
the Group should be able to withstand the impact in each case due to
its strong cash generation, strong balance sheet, and existing financing
arrangements.
Viability Statement
Based on the results of this analysis and the assumptions used in the
Group’s planning process, the Board has a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as
they fall due over the three year period from 30 June 2020.
Viability
Statement
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 18 to 21 of the Strategic Report. The key
factors supporting the Group’s prospects are explained throughout the
Annual Report and are summarised below:
•
•
•
•
•
•
•
•
•
•
a clear strategic focus;
a growing global animal health market;
a clear portfolio focus with strong market positions in a number
of key therapeutic areas;
a strong development pipeline and a track record of pipeline
delivery;
manufacturing flexibility, with a wide range of dosage forms, small
and large-scale production batches;
an entrepreneurial and experienced management team;
a recognised brand with a strong reputation for providing high
quality products with technical support;
an expanding international focus;
talented people and expertise; and
a sound track record of successful acquisitions to expand our
product portfolio and geographic reach.
The Board believes that the business model is sustainable and 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 strategic planning process is conducted over a five year time
horizon and is updated annually. It:
• assesses market and environmental changes and the opportunities
and threats such changes may present;
• considers risks to sales and cost forecasts for each part of the
Group; and
•
includes key assumptions to support longer term projections.
The financial plans are reviewed to confirm that adequate financing
facilities are in place. The revolving credit facility is currently committed
to July 2024, the Euro placement to January 2027 and the US dollar
placement to January 2030.
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 underperformance. The latest updates to the plans were
reviewed in June 2020 and considered the Group’s current position,
its future prospects and reaffirmed the Group’s stated strategy.
Stock Code: DPH
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Job Number 7 September 2020 4:17 pm Proof NumberProviding Quality Education to Empower Veterinarians to Improve Their Care and Treatment of AnimalsDelivering Our PurposeThe App, launched in March 2019, 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 veterinarians.The App is invaluable 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.Many of these situations are not covered in individual product data sheets or textbooks. The App is therefore unique in providing this up-to-date expert knowledge at veterinarians’ fingertips.3Languages52,187DownloadsCat and Dog AppDechra-AR2020-Governance.indd 7807-Sep-20 4:44:02 PM e
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Contents
Letter from the Chairman
on Governance
Board of Directors and
Senior Executive Team
Board Leadership and
Company Purpose
Division of Responsibilities
Composition, Succession
and Evaluation
Audit, Risk and Internal Control
Directors' Remuneration Report
Directors' Report -
Other Disclosures
Statement of Directors'
Responsibilities
80
82
86
92
96
105
112
139
141
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Job Number 7 September 2020 4:17 pm Proof NumberLetter from the Chairman on GovernanceTony Rice Non-Executive ChairmanOur Values, entrepreneurial attitude and agile approach to the way we do things are the backbone of our CultureDear ShareholderOn behalf of the Board, I am pleased to present Dechra’s Governance report for the year ended 30 June 2020.Board AppointmentsDuring the year there were two membership changes to the Board. We welcomed Alison Platt as Non-Executive Director in March 2020. Alison brings significant capabilities and experience both in Executive and Non-Executive roles, which will strengthen the Board and provide continuity during the next phase of Dechra’s growth and development, as well as providing continuity over the forthcoming years with both the Senior Independent Director/Remuneration Committee Chairman and Audit Committee Chairman's nine year terms expiring in 2022. Alison’s biographical details can be found on page 85. Alison has been appointed as a member of the Audit, Nomination and Remuneration Committees. I was delighted to confirm Paul’s appointment as Dechra’s permanent Chief Financial Officer in October 2019. Paul had proven to be an excellent acting Chief Financial Officer and, over a much longer period, has clearly demonstrated a strong practical understanding of all parts of the Group and its needs, as well as an independence of mind and strong technical, strategic and commercial skills. He has been a core part of the Dechra leadership team over the last ten years and his biographical details can be found on page 82.Purpose and CultureOur Purpose is clearly defined and underpinned by our Culture and Values. Further details can be found on pages 4 and 5 and 86 to 88. Our Values, entrepreneurial attitude and agile approach to the way we do things are the backbone of our Culture. We expect our people to make a difference by working together and support them by providing clear guidance on expectations.Stakeholders and Section 172 Companies ActThe impact of our decisions on our key stakeholders has always been prevalent in our decision making. However, this is the first year that we are disclosing details of how we consider stakeholders in the Board’s decisions and approvals of material transactions. Details of our engagement with stakeholders and our approach to section 172 of the Companies Act 2006 can be found on pages 46 and 47, 52 to 68, and 89 to 91.COVID-19COVID-19 and its impact on our business and stakeholders has been at the forefront of the Board’s mind during the last few months of our financial year. Measures have been put in place to enable all front line employees to operate safely; this has allowed all manufacturing and logistic sites and laboratories to remain open and continue to function effectively. All employees who can work from home have done so successfully. Whilst the Group has put all the necessary preparations in place, we took the decision not to utilise any Government assistance and currently the Board has no intention to use any such assistance.Continuity of product supply for our customers has been a key priority for Dechra during the pandemic. We invested significant resources to maintain an adequate supply of raw materials and finished goods to meet the market demands. In addition, we expanded our webinar programme in our Academy across the US and Europe.Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com80GovernanceDechra-AR2020-Governance.indd 8007-Sep-20 4:44:10 PM Board Activities
The current financial year has been busy for Dechra both operationally
and in terms of acquisition activity. We approved a placing of
5,132,500 new ordinary shares (the Share Placing), which represented
approximately 5% of the Company’s existing issued share capital, raising
£133.4 million (gross). This allows us to maintain a prudent balance
sheet, whilst retaining the flexibility to make the most of the Group’s well
established and proven four key growth drivers: portfolio focus; pipeline
delivery; geographic expansion; and acquisition.
The net proceeds from the Share Placing will also provide the Group
with enhanced financial strength, resilience and flexibility through a
period of possible disruption arising from COVID-19, so that the Group
is not constrained in maximising its long term potential.
Compliance with the Code
The UK Corporate Governance Code 2018 (the Code) establishes
the principles of good governance for companies; the following report
describes how the Company has applied these principles and provisions
to its activities. In the opinion of the Directors, the Company has
complied with the Code throughout the period. In respect of provision
38 of the Code, the steps intended to be taken to ensure more effective
alignment of incumbent Executive Director pension contributions
to those available to the workforce are set out on page 132. The
Board remains committed to maintaining high standards of corporate
governance. The Code can be found at www.frc.org.uk.
Relations with Shareholders
The Annual General Meeting will be held in Northwich on
27 October 2020. However, due to the COVID-19 pandemic we are
asking all of our shareholders not to attend our Annual General Meeting
for their own safety and that of others. The only shareholders physically
attending are the Chief Executive Officer, Chief Financial Officer and
Company Secretary. All other members of the Board are scheduled to
attend the Annual General Meeting (the Meeting) via video conference.
We request that any shareholders with questions submit these to the
Board in advance of the meeting and, subject to appropriateness, the
Board will look to respond to those questions on the website.
Looking Forward
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
7 September 2020
Governance
Board Leadership and Company Purpose
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.
This entrepreneurial spirit and agility is illustrated on pages 86 to 88.
Division of Responsibility
We have a strong and balanced Board with a range of complementary
skills to support the strategic and operational direction of the Group.
The Senior Executive Team (SET) has the responsibility for
the overall leadership of the Group, driving the successful
implementation and execution of the strategy.
Composition, Succession and Evaluation
The Nomination Committee Report on pages 96 to 104 sets
out the appointment process, its approach to succession for
appointments to the Board and Senior Executive Team, the
implementation and progress of the Group’s diversity policy.
Details in relation to our succession planning and the internal Board
evaluation can be found on pages 100, 101 and 104.
Audit, Risk and Internal Control
The Audit Committee Report on pages 105 to 111 contains details
on how it has assisted the Board in reviewing the financial reporting
and internal financial control effectiveness, and the monitoring of
the effectiveness of the external audit process and internal audit
function. Further details in respect of the Group’s risk management
and internal control processes are provided on pages 70 to 76 of
the Strategic Report, along with the principal risks, controls and
mitigating actions and emerging risks.
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.
The Remuneration Committee has taken into account the wider
workforce pay and principles and the culture of the Company when
setting the remuneration of both the Executive Directors and the
Senior Executive Team. Further details of which can be found on
pages 116 and 117.
Stock Code: DPH
81
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Job Number 7 September 2020 4:17 pm Proof NumberBoard of DirectorsIan Page Chief Executive OfficerCommittee 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:Paul SandlandChief Financial OfficerCommittee Membership: Disclosure.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 joined Dechra in January 2010. Between 2012 and 2013 Paul was Acting Chief Financial Officer prior to becoming the Group’s 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. Paul was appointed as Acting Chief Financial Officer on 3 April 2019, and was appointed as an Executive Director and permanent Chief Financial Officer of the Company on 30 October 2019.External Appointments: None.Pets:Tony GriffinManaging Director, Dechra Veterinary Products EUCommittee 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 RiceNon-Executive ChairmanCommittee 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.Executive DirectorsNon-Executive ChairmanDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com82GovernanceDechra-AR2020-Governance.indd 8207-Sep-20 4:44:31 PM Job Number 7 September 2020 4:17 pm Proof NumberSenior Executive TeamDr Susan LonghoferChief Scientific OfficerBackground: Susan joined the Group in June 2005. A veterinarian with over 30 years’ experience in the industry, she leads a team of approximately 150 staff around the globe responsible for product development, 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. Susan was appointed as Chief Scientific Officer in January 2020, bringing together Business Development, Product Development and Regulatory Affairs.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 LucasGroup Product Development DirectorBackground: 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 70 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 EldredPresident North AmericaBackground: 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, Mexican and Canadian teams to 234 people and has grown sales revenue to £191.6 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: None.Giles ColeyDechra Veterinary Products International Group DirectorBackground: 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:83GovernanceStock Code: DPHDechra-AR2020-Governance.indd 8307-Sep-20 4:44:56 PM Job Number 7 September 2020 4:17 pm Proof NumberKaty CloughGroup HR DirectorBackground: 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: Allen MellorGroup IT DirectorBackground: Allen joined Dechra in April 2012 and has developed and implemented the Group IT strategy during this time. During the last 26 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:Milton McCannInterim Group Manufacturing and Supply DirectorBackground: Milton was appointed as Interim Group Manufacturing & Supply Director on 1 May 2020. He joined Dechra in January 2016 as Group Manufacturing Finance Director. In February 2019, he was the Interim Site Director at our Skipton Facility until being appointed as Group Supply Chain and Procurement Director, Dechra Pharmaceuticals Manufacturing & Supply in October 2019. Before joining Dechra, Milton had senior financial roles in different manufacturing industries including coatings, adhesives and chemicals. Just prior to joining Dechra, he worked for Aramark in the food and facilities services sector.Milton is responsible for our internal and external manufacturing sites in Europe and the USA.He is located in Skipton, UK.Pets: None.Melanie HallCompany SecretaryCommittee 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:Governance84Stock Code: DPHDechra-AR2020-Governance.indd 8407-Sep-20 4:45:15 PM Job Number 7 September 2020 4:17 pm Proof NumberNon-Executive DirectorsIshbel MacphersonSenior Independent Non-Executive DirectorCommittee 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 Lloyd’s Register Group Limited.Pets: Julian HeslopNon-Executive DirectorCommittee 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 MacartneyNon-Executive DirectorCommittee Membership: Audit, Nomination and Remuneration.Skills and Experience: Lawson is a veterinarian, with over 30 years experience in a range of senior roles in pharmaceutical R&D, sales and marketing, as well as spending several years in veterinary practices.Background: Lawson joined the Board in December 2016. He was 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. His final role at GSK was to lead the strategic marketing, outcomes and reimbursement, project management and portfolio teams. Lawson also 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: He is the Chairman of Viking Therapeutics Inc. as well as the Chairman of the Nomination and Corporate Governance Committees.Pets:Lisa BrightEmployee Designated Non-Executive DirectorCommittee 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 pharmaceutical 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: Alison PlattNon-Executive DirectorCommittee Membership: Audit, Nomination and Remuneration.Skills and Experience: Alison has extensive international and leadership experience in customer-driven organisations in the healthcare, insurance and property sectors. Background: Alison joined the Board in March 2020. She was the CEO of Countrywide between 2014 and 2018. Prior to this Alison held various international positions at Bupa (1993 to 2014). She was Chair of Opportunity Now between 2010 and 2012 and a Non-Executive Director at Cable and Wireless Communications PLC between 2012 and 2016. Alison was awarded a CMG for services to the Foreign Office in 2011 after six years on the FCO Board.External Appointments: Alison is a Non-Executive Director at Tesco PLC, Chair of Legal & General Financial Advice and member of the Hampton-Alexander Review steering group.Pets: None.85Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.comGovernanceDechra-AR2020-Governance.indd 8507-Sep-20 4:45:41 PM Job Number 7 September 2020 4:17 pm Proof NumberRead more about our Purpose on pages 04 and 05Board Leadership and Company PurposeBoard Leadership and Company PurposeEffective and Entrepreneurial BoardThe Board’s primary responsibility is to promote the long term success of the Company by the creation and delivery of sustainable shareholder value.Our Board is composed of highly skilled professionals who bring a range of skills, perspectives and corporate experience to our boardroom. Our entrepreneurial roots have led us to evolving an agile approach to the way we do things.The Board oversees the effective delivery of the Group’s strategy. 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 18 to 21 of the Strategic Report. The key factors supporting the Group’s prospects are explained throughout the Annual Report and are summarised below:• a clear strategic focus;• a growing global animal health market;• a clear portfolio focus with strong market positions in a number of key therapeutic areas;• a strong development pipeline and a track record of pipeline delivery;• manufacturing flexibility, with a wide range of dosage forms, small and large scale production batches;• an entrepreneurial and experienced management team;• a recognised brand with a strong reputation for providing high quality products with technical support;• an expanding international focus;• talented people and expertise; and• a sound track record of successful acquisitions to expand our product portfolio and geographic reach.The Board believes that the Group is resilient 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 Board undertook a review of the Strategy in December 2019, which included high-level discussions to challenge whether the strategy remains fit for purpose and responsive enough to the market and environment. Some of the key aspects discussed by the Board during its strategy review included:• our market strategy for the next five to ten years;• our innovative product development strategy;• our vaccines strategy;• the overall manufacturing strategy; and• responsibility matters including our future net zero carbon emissions strategy.KPIs have been designed to measure progress and delivery of the strategic plan and our four growth drivers. Further details are provided on pages 34 to 35.Entrepreneurial and Agile – Acquisition of Mirataz from Kindred Biosciences IncorporatedDechra has a long history of growth through acquisition. This year, a collaborative group of Dechra employees across our Business Development, Commercial, Regulatory, Legal and Finance Teams worked together to meet an extremely short timeframe to close the transaction with Kindred Biosciences, Inc for the acquisition of Mirataz® (mirtazapine transdermal ointment). The highly agile team moved from the initial contact on 8 February 2020 to a fully completed acquisition by 15 April 2020. Dechra’s first commercial sale of Mirataz occurred on 22 April 2020.Without the agility of the Dechra team members, this transaction would not have been possible. It is a great example of how Dechra can move quickly and meet the expectations of our business partners, behaving as entrepreneurial spirits and achieving the conclusion of the desired outcome for Dechra’s future.Read more about our Principal Decisions on page 47Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com86GovernanceDechra-AR2020-Governance.indd 8607-Sep-20 4:45:43 PM Governance
Culture, Purpose and Values
Culture
Our Values, entrepreneurial attitude and agile approach to the way we do things are the backbone of our culture.
We expect our people to make a difference by collaborating with each other and support them
by providing clear guidance on expectations
Our Purpose
The sustainable improvement of global animal health and welfare
Our Values
Everything we do is underpinned by our Values
Dedication
We are dedicated
to delivering
products and
services that meet
the highest level of
service and quality
to our customers
Enjoyment
We endeavour
to create an
environment
where our people
want to come to
work and feel a
part of Dechra
Courage
We want a
business where we
dare to challenge
each other, where
innovation and
creativity can
flourish
Honesty
We are honest
and open in all
interactions and
act with integrity
and fairness
Relationships
We see our
customers and
suppliers as
business partners
and thereby work
together to achieve
common success
Ambition
We are goal
oriented and
deliver solid
results through
our energetic and
resilient approach
Our Culture Defined
Entrepreneurial & Agile
We move quickly to make
decisions and have ‘light touch’
bureaucracy supported by
strong governance. We expect
accountability and encourage
our people to seek out new
opportunities to help us grow
Transparent
We are open and honest
with our people and our
suppliers and customers.
We tell it like it is
Collaborative
We know that the best
outcomes arise from true
team working and operate in a
matrix structure, sharing best
practices around the globe and
harnessing the power of our
different cultures
Enthusiastic/Energetic
We want our people to enjoy
coming to work; we are informal
and look for people who share
our passion for what we do. We
love people that want to make
a difference
Our Measures
• Engagement survey helps to determine
levels of employee engagement on a
wide range of matters
• Employee engagement with the Board
via designated Non-Executive Director
• Raise a Concern Reports
•
Internal Audit Reports
• External Culture audit planned with Great
• Moving Annual Turnover of Employees
Place to Work for the UK
Read more about Employee Engagement on pages 55 and 90
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Governance
Board Leadership and
Company Purpose continued
Entrepreneurial and Collaboration: Polish
Team – Webinars During Lockdown
Within the European Commercial organisation our team in Poland
has consistently demonstrated the key cultural strengths that makes
Dechra a success not only in Poland but globally. Dechra Poland
celebrated their fifth anniversary earlier this year and has previously
organised a hugely successful Dechra Academy live event with
more than 400 Polish veterinarians attending over a weekend, to
listen to a number of Key Opinion Leaders (KOL’s) who had flown
in from across Europe. The Polish team has established Dechra
as a leading force in their market in organising CPD events for our
customers.
The next event had been planned for the end of March 2020, and
450 veterinarians had registered to attend. Unfortunately, due to
COVID-19 travel restrictions the event had to be cancelled, which
was a huge disappointment for the team. However, this did not stop
the team and they demonstrated their enormous entrepreneurial
and collaborative spirit. Instead of complaining, they quickly planned
a complete new programme of CPD webinars, which were held
at the end of May. In total they organised 18 webinars, covering
topics in Dermatology, A&A, Cardiology, Cattle issues and Pig
and Poultry. KOL’s from Poland and other European countries
presented and collaborated with the team of veterinarians in the
Dechra FAP Business Unit. In total 7,994 veterinarians and 187
veterinary students attended these webinars, with an amazing 2,000
attendees for the two A&A events. The enthusiastic way in which
the Polish team managed these events, which took place mainly in
the evening, is typical of the commitment delivered across the whole
Dechra organisation during the COVID-19 period.
Prudent and Effective Controls
Internal Controls and Risks
The Board retains overall responsibility for determining the nature and
extent of the risks it is willing to take in achieving its strategic objectives.
The Board is responsible for reviewing the effectiveness of the Group’s
risk management and internal control systems, and confirms that:
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 schedule of matters is reviewed periodically and was last reviewed
in December 2019 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.
•
•
•
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 internal control and risk management can be
found in the Governance Report on page 109 and the Strategic Report
on pages 70 to 72.
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Governance
Constructive use of the Annual General Meeting
Due to the COVID-19 pandemic we are asking all of our shareholders
not to attend our Annual General Meeting for their own safety and that of
others. The only shareholders physically attending are the Chief Executive
Officer, Chief Financial Officer and Company Secretary. All other members
of the Board are scheduled to attend the Annual General Meeting (the
Meeting) via video conference. We request that any shareholders with
questions submit these to the Board in advance of the meeting and,
subject to appropriateness, the Board will look to respond to those
questions on the website.
The 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.
Key Stakeholders
The Board is responsible, under section 172 of the Companies Act 2006,
for promoting 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 46 and 47.
As disclosed above our Delegation of Authority Policy outlines who is
authorised to make decisions and financial commitments throughout
the Group. This also supports our entrepreneurial nature and agile
approach. Therefore a lot of decisions relating to the business and
stakeholder engagement are carried out below Board level. However,
all material decisions are discussed and approved by the Board and the
following provides an outline of some of the matters that the Board had
considered and engaged with our stakeholders.
Shareholders
Principle: The Board’s principal role is to promote the long term success of the Company for the benefit of its 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). These meetings 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.
Full Year:
London
Capital
Markets Day:
Zagreb
USA:
New York
UK
UK
Key:
Site Visits
Investor Conferences
Investor Roadshows
Sept
2019
Oct
2019
Nov
2019
Feb
2020
Mar
2020
June
2020
UK
Half Year:
London and Edinburgh
Equity
Raising
UK
• The Board reviewed and considered feedback, collated by the
• All members of the Board attended the 2019 Annual General
Company’s brokers, after investor roadshows.
• Where material changes in respect of remuneration or governance
are proposed, the Board seeks to consult with its major
shareholders before implementing such changes. During the year,
the Remuneration Chair consulted with our major shareholders with
regard to the new Remuneration Policy.
Meeting. This provided an opportunity for informal communications
between shareholders and Directors.
• Board approval is required for significant announcements.
• The Company’s brokers provided a presentation supporting the
case for the equity placing in June 2020 to the Board.
• The Chairman and Senior Independent Director are available to
meet shareholders upon request.
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Governance
Board Leadership and
Company Purpose continued
Employee
Engagement
We appointed Lisa Bright to the Board in February 2019. During the
recruitment process we had established that we were looking for
someone who could take on the role of the Employee Engagement
Designated Non-Executive Director (EED Non-Executive Director)
who would represent the voice of our employees in the Boardroom.
As part of Lisa’s onboarding to the Group she attended the Group
Head office in Northwich, and has also visited our employees at our
Logistics centre in Uldum, Denmark, where she had a number of
meetings with key stakeholders in the business. She also attended
several sessions for Non-Executive Directors taking on this new
responsibility to share best practice.
Lisa worked closely with Katy Clough, Group HR Director, to
determine the best approach. A proposal was taken to the Board for
discussion and ultimately it was agreed that Lisa would meet with
small groups of employees initially two or three times a year with a
pre-determined agenda to discuss topics of Board relevance and
then to have a broader employee led discussion. It was agreed that
for practical purposes, meetings would be held in Europe and North
America, with an initial pilot to take place in Skipton where we have
an employee elected Works Council. Meetings were also scheduled
to take place in Sansaw in the UK in May and at our facility in
Zagreb in June 2020.
Board agree
priority for Non-
Executive Director
engagement
Board debrief
and review
bi-annually
Group
discussion with
Non-Executive
Director – ideally
in person
Repeat
discussion with
Non-Executive
Director at
6 months
Review
progress on
actions arising with
management
+5 months
The pilot meeting took place in Skipton in December 2019. The
meeting was well attended, and after an initial presentation by Lisa
Bright to explain the reason for her role and what she hoped to
achieve, we then worked through an agenda which covered the
outcomes of the previous and most recent engagement surveys, any
areas of concern, how improvements could be made and a plan on
how to follow up on the actions discussed during the meeting.
Unfortunately, the pandemic has forced a postponement of the
other two sessions planned for this financial year. However, a
video conference meeting was held to follow up on the actions
arising from the Skipton session with the management team. At
this meeting, we discussed a summary of the actions taken at site,
which included: improvement to internal communication; review of
the QC laboratory; and an action on training and development. Lisa
Bright will also attend a virtual Works Council meeting in September
2020 to understand first-hand what the impact has been for the
employees.
In presenting the results of the engagement pilot to the Board, the
following points were noted:
•
•
•
feedback from the employees suggests the meeting was well
received;
it is important to delineate difference between Board and
management remit during the sessions; and
it would be useful for the EED Non-Executive Director to get
a broader perspective on employee communications and, as
such, now has access to the Company intranet which is the
primary tool for internal communication.
We plan to resume the original schedule in the new calendar year
and are planning a virtual alternative, but acknowledge that in
person meetings are likely to generate greater trust and openness.
Whilst we are limited to virtual meetings, we will focus on meetings
in English speaking countries.
We are also planning on using internal communications to publicise
the EED Non-Executive Director role more broadly to the wider
organisation and we are planning a brief video with some comments
from the Skipton Works Council team about their interaction and the
value for them.
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Governance
Employees
Principle: 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.
• The Board was provided with the results of the COVID survey.
• The Group HR Director provided an update to the Board in June
2020 on the actions taken by teams throughout the Group on
the agreed priority actions emerging from the 2018 employee
engagement survey.
• 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.
• The Board were provided with updates from the Corona Committee
on actions taken in respect of employee’s welfare and safety during
the pandemic.
• Lisa Bright, the Non-Executive Director designated for employee
engagement, provided two reports to the Board.
Due to COVID-19, the scheduled Board meeting at a business unit was
postponed.
Customers
Principle: 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.
• The Board reviews the Product Development Pipeline twice a year.
Community
Principle: 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.
Suppliers
Principle: The Company is committed to acting responsibly and with
integrity, respecting the laws, regulations, of the countries in which it
operates. It expects its suppliers to trade with honesty and integrity.
• The Board reviewed and approved the Modern Slavery Statement.
• The Group Manufacturing and Supply Director presented to the
Board and this included a discussion on the contract manufacturing
organisation strategy.
• The Board reviewed and approved a number of material API
contracts during the year.
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.
We offer four reporting channels for concerns to be raised: Line
Manager; the Senior Management Team; Group Management Team;
and a mailbox accessed only by the Company Secretary. Every effort
is made to protect confidentiality to encourage reporting. We fully
investigate reports and take appropriate actions to address these.
A summary of any reported concerns is provided to the Board.
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.
• Twice a year a report of the Group’s CO2 emissions are provided to
None of the Executive Directors have external Board appointments.
the Board for its review.
• The Company Secretary provided an update of the progress of the
CSR Committee in refreshing and implementing the ESG strategy.
Tony Rice
Non-Executive Chairman
7 September 2020
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Governance
Division of
Responsibilities
Division of Responsibilities
The Board oversees the effective delivery of our strategy which is
developed and implemented by the SET. Further details of the Board
and SET can be found on pages 82 to 85.
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 82 and 85. As detailed in
the pie chart below, the Board consists of one Non-Executive Chairman,
five independent Non-Executive Directors and three Executive Directors.
Therefore, in line with the Code, at least half the Board, excluding the
Chairman, is determined by the Company to be independent.
The Chairman was deemed independent on appointment in accordance
with provision 10 of the Code.
Board Membership
Non-Executive Chairman 14.3%
Non-Executive Directors 57.1%
Executive Directors 28.6%
The Board has determined, following the results of internal board
evaluation, that the Non-Executive Directors have sufficient time to meet
their Board responsibilities and any proposed new appointments are
disclosed to the Board, for their approval, to assess whether there are
any conflicts of interest or time.
The Board has formally delegated specific responsibilities to Committees,
namely the Audit, Remuneration, Nomination and Disclosure 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, Strategic Portfolio
Prioritisation Committee and Treasury Committee.
The SET is led by the Chief Executive Officer and is comprised of the
three Executive Directors and the Business Directors responsible for
leading each of the Group’s key functions. The SET is scheduled to meet
formally four times a year to discuss the implementation of the strategy,
share best practice and provide updates on their business or function as
well as sharing market trends which impact the business.
However, during the height of the COVID-19 pandemic it met weekly to
discuss the impact of the pandemic on the business, in relation to suppliers
and customers, and received reports from the Corona Committee, which
was established to implement policies and procedures for the safety of our
employees. The Board was provided with regular updates.
Board Meetings
The Board is scheduled to meet seven times per year. During the year
four additional meetings were held to discuss the proposed acquisition
of the Osurnia and Mirataz products, the appointment of an Executive
Director and the equity placing. Attendance at the Board meetings
during the year to 30 June 2020 is set out in the table below.
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. Both Tony Rice and Lisa Bright were unable to
attend one ad hoc short notice meeting each; however, prior to the
meeting they submitted questions and comments on the subject matter
in question.
The Non-Executive Directors normally meet informally before every
meeting; however since March, due to the pandemic, this has not been
possible. They also met once with the SET on an informal basis during
the year.
Tony Rice
Joined: 5 May 2016
Ian Page
Joined: 13 June 1997
Tony Griffin
Joined: 1 November 2012
Paul Sandland
Joined: 30 October 2019
Lisa Bright
Joined: 1 February 2019
Julian Heslop
Joined: 1 January 2013
Lawson Macartney
Joined: 1 December 2016
Ishbel Macpherson
Joined: 1 February 2013
† Alison Platt
Joined: 1 March 2020
10
11
11
11
11
11
9
9
10
11
11
11
11
11
11
11
‡
5
5
† Paul Sandland attended all meetings since his appointment as an Executive Director, however, he was present at the two other meetings held during the year as an
invitee.
‡ Alison Platt has attended all meetings since her appointment.
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.
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Governance
1. Non-Executive Chairman
• 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, enabling all
decisions to be subject to constructive
debate and supported by sound
decision making processes.
• Arranges for shareholder views to be
brought to the attention of the Board.
2. Chief Executive Officer
• Manages day-to-day operations of the
Group and leads the Senior Executive
Team (SET).
• Drives performance and results of the
Group.
• Proposes strategy.
• Executes strategy agreed by the Board.
1
Non-Executive
Chairman
2
Chief Executive
Officer
9
Senior
Independent
Director
8
Non-Executive
Director
7
Company
Secretary
3
Chief Financial
Officer
4
Managing
Director Dechra
Veterinary
Products
(DVP) EU
Division of
Responsibilities
6
Employee
Engagement
Director
5
Senior Executive
Team
3. Chief Financial Officer
4. Managing Director
Dechra Veterinary
Products (DVP) EU
5. Senior Executive Team
6. Employee Engagement
Director
• Responsible for financial
• Management of the
• Leads the development
planning and reporting for
the Group.
• Manages financial risk.
• Develops and executes the
strategic plan in conjunction
with the Chief Executive
Officer.
segment which contributes
the majority of Group
revenue.
• Nominated Director
for health, safety and
environmental matters.
• Development and execution
• Secures funding as
of strategy in the EU.
required.
and implementation of the
business strategy.
• Manage day-to-day
operations of respective
functions.
• Gathers and understands
the views of the workforce.
• Enables the voice of the
workforce to be heard in the
boardroom.
7. Company Secretary
8. Non-Executive Director
9. Senior Independent Director
• Advises the Board on matters of
procedure and governance.
• Provides all required information to the
Board on a timely basis.
• Enables information flows between the
SET, the Board and its Committees.
• Provides support to the Chairman and
Non-Executive Directors.
• Responsible for compliance with relevant
statutory and regulatory requirements.
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 an independent and constructive
challenge; and
• evaluate strategy and risks.
• Provides a sounding board for the
Chairman and is available to shareholders
if they have concerns that have failed to
be resolved through the normal channels.
• Leads the annual evaluation of the
performance of the Chairman by the
Non-Executive Directors.
• Chairs the Nomination Committee
when it is considering the succession
of the Chairman.
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Governance
Division of
Responsibilities continued
Shareholders
The Dechra Board
Key Responsibilities
Responsibilities
Actions
Strategy and
performance
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
• To review and oversee the Group’s financial and narrative
Remuneration Committee
• To determine the policy for remuneration and setting the
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.
remuneration of the Company’s Chairman, Executive Directors
and Senior Executive Team.
• To establish remuneration schemes that promote long term
• To review the effectiveness of the Group’s internal financial
shareholding by Executive Directors.
control systems as described on page 109 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.
• To design remuneration policies and practices to support strategy
and promote long term sustainable success.
• To review the design of all share incentive plans.
• To oversee any major changes in employee benefit structures.
• To review workforce remuneration and related policies.
Disclosure Committee
• To develop and maintain adequate procedures, systems and
controls to comply with the Company’s obligations regarding
identification and disclosure of inside information.
• To verify that all significant regulatory announcements and other
documents issued comply with applicable requirements.
Nomination Committee
• To oversee the development of a diverse pipeline and to satisfy
itself that plans are in place for orderly succession.
• To recommend appointments to the Board.
• To review the results of the performance evaluation of the
Board, its individual members and its Committees.
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Governance
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
Strategy and
performance
Key activities and discussions in 2019/2020
•
Interim and full Strategy Review
• Approval of five year plan
Stakeholder
• Bi-annual update on product pipeline and product development
• Various acquisition and licensing agreements approvals, including the acquisition of Ampharmco
LLC, the increased investment in Medical Ethics Pty Ltd and acquisition of the Mirataz and Osurnia
products
• Financing update and Share Placing
• 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
Risk
management
and internal
controls
Governance
• Review of Schedule of Matters and Delegation of Authority
• Review of Disclosure Terms of Reference
• Review of 2020 Internal Board Evaluation
• Approval of 2020 Half-Yearly Results and interim dividend
• Approval of 2020 Full Year Results and final dividend recommendation
• Approval of Non-Executive Director appointment and Committee membership
• Approval of Executive Director appointment
• Review of the bi-annual Health and Safety Report
• Review of Modern Slavery Statement
• Review of How To Raise Concern Policy and Reports
• Approval of revised Articles of Association
• Employee Engagement update
• Functional presentations from the SET and Head of Legal
• Report from Group Quality Director
• Approval of the 2020/2021 budget and capital expenditure projects
• Review of the people strategy and employee engagement
Oversight of
the Group’s
operations
• Approval of API Contracts
• Approval of Leases
• COVID-19 Update
• Review of the Group’s ESG strategy
Key
Customers
People
Shareholders
Suppliers
Tony Rice
Non-Executive Chairman
7 September 2020
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Job Number 7 September 2020 4:17 pm Proof NumberComposition, Succession and EvaluationTony Rice Nomination Committee ChairmanLetter from the Nomination Committee Chairman4Nomination Committee Meetings HeldAreas of Focus this Year• Diversity• Board Appointments and Succession Planning• SET Succession Planning and Leadership needs of the Group• Board Evaluation and Committee EffectivenessCommittee Membership and AttendanceTony Rice Joined: 5 May 2016 4 4Lawson Macartney Joined: 1 December 2016 4 4Julian Heslop Joined: 1 January 2013 4 4Lisa Bright Joined: 1 February 2019 4 4Ishbel Macpherson Joined: 1 February 2013 4 4Alison Platt Joined: 1 March 2020 1 1Dear ShareholderOn behalf of the Board, I am pleased to present the Nomination Committee (the Committee) report.The Committee has continued the work it commenced last year to address the Board succession plans in relation to Non-Executive Directors, and during the year Alison Platt was appointed as a Non-Executive Director. This appointment brings our Board gender diversity from 14.3% in 2018 to the threshold recommended by the Hampton Alexander Review.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, we are pleased, after a successful period as Acting Chief Financial Officer, to have appointed Paul Sandland as Chief Financial Officer and Executive Director. With over ten years’ experience in senior finance roles in Dechra, Paul brings with him a strong practical understanding of all parts of the Group and its needs, as well as an independence of mind and strong technical, strategic and commercial skills. The Group had to utilise its emergency succession planning again this year, but unfortunately in very sad circumstances as we lost our Group Manufacturing & Supply Director, Simon Francis, due to COVID-19. I would like to take this opportunity to acknowledge that in the relatively short period that Simon was with Dechra, he brought a high level of capability and professionalism to the business and galvanised a vital area of our operations. He left behind a strong infrastructure and management team which has continued to operate and make progress under the interim leadership of Milton McCann.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.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 RiceNomination Committee Chairman 7 September 2020Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com96GovernanceDechra-AR2020-Governance.indd 9607-Sep-20 4:45:53 PM Governance
Purpose
The purpose of the Committee is to lead the appointment process,
satisfy itself that plans are in place for orderly succession for
appointments to the Board and Senior Management, and oversee the
development of a diverse pipeline for succession.
Membership, Meetings and Attendance
The membership of the Committee, together with appointment dates
and attendance at meetings during the year, is set out above. Alison
Platt joined the Committee on her appointment to the Board in March
2020. All Committee members are Non-Executive Directors, all of which
we deem to be independent. 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.
Effectiveness of the Committee
The Committee’s performance was evaluated as part of the 2020 Board
and Committee Internal Evaluation (further details of which are provided
on page 104 of the Governance Report). The findings of the internal
evaluation were presented to the Committee for discussion at the June
2020 meeting. The Committee considered the results and it was agreed
that the Committee remained effective and was covering all areas
within its remit, however acknowledged that more work on succession
planning was required.
The table below shows the other key areas of the Committee activities:
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 2020 financial year this took place at
the February meeting and they were amended to include additional
wording around the Committee’s duties and in particular the widening of
their remit to include senior management. Additional wording has also
been included in relation to induction and training of Directors and the
requirement to consider diversity in any appointments. An overview of
the terms of reference is detailed on page 94 of the Governance Report.
The Committee provides a report to the Board on its activities at the
Board’s next scheduled meeting.
Major Activities of the Committee during the Year
The Committee met four times since the last Annual Report was issued,
three of these meetings were scheduled and one was ad hoc and
dealt with the nomination of the Chief Financial Officer. 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.
Purpose and Function
(see page 97)
Composition
(see pages 97 and 98)
Succession
(see pages 100 and 101)
Evaluation
(see pages 97 and 103)
Diversity and Inclusion
(see pages 101 to 103)
• Review of the Committee’s terms of reference
• Review of the effectiveness of the Committee
• Review of Board skills, knowledge and experience
• Recruitment of Non-Executive Director
• Nomination of Executive Director
• Consideration of Non-Executive Directors’ tenure
• Review of SET succession plans and leadership needs
• Review of composition of Board
• Review of Director effectiveness
• Review and approval of Diversity Policy
• Review of the Dignity at Work Policy
Composition
The Board seeks to ensure that both the Board and the Committees have an appropriate composition to manage their duties effectively and 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 Committee reviews the
structure, size and composition (including the skills, knowledge, experience and diversity) of the Board at least once a year and usually at the June
meeting. Both the Audit Committee and Remuneration Committee undertake an annual review of their composition, and any concerns would be
reported to the Board.
Information on diversity of the Board can be found on page 101 to 103.
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Governance
Composition, Succession
and Evaluation continued
Board Skills, Knowledge and Experience
7
Financial
7
Industry
Experience
9
Risk
9
Governance
Board Skills,
Knowledge and
Experience
6
Sector
Knowledge
6
9
Understanding
of Regulatory
Processes
Strategic
Thinking
Industry knowledge/expertise
Skills/experience of the Board
Following the review of the Board, the Committee concluded that the
Board had a combination of skills, experience and knowledge as illustrated
in the diagram above, and subject to the forthcoming retirement of two
Non-Executive Directors in 2022 was of a sufficient size. The Committee
concluded that the temporary increase in size was of benefit in the short
term for effective succession, and to allow for wealth of knowledge and
experience of Dechra to be shared with the new Non-Executive Directors.
Training
In order to assist the Board in maintaining 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. Unfortunately, this year’s visit to Zagreb in June
2020 was postponed due to COVID-19’s restrictions on travel.
Regular briefings are provided to the Directors, which cover a number
of legal and regulatory changes and developments relevant to each
Director’s area 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. During the year, DLA provided training on
Director’s duties, which included ongoing responsibilities and obligations
to Paul Sandland, on his appointment as an Executive Director. In
addition, the Remuneration Committee has been provided with updates
from Deloitte LLP.
Each Director is entitled, upon request, to receive information to enable them
to make informed judgements in order to discharge their duties adequately. In
addition, all Directors have access to the advice and services of the Company
Secretary and senior managers, and may take independent professional
advice at the Company’s expense in connection with their duties.
Board Appointments
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:
• Paul Sandland (Executive Director) joined the Board on 30 October
2019; and
• Alison Platt (Non-Executive Director) joined the Board on 1 March 2020.
Executive Director
Following the resignation of the Chief Financial Officer in April 2019,
the emergency succession planning was utilised and Paul Sandland,
the then DVP EU Finance Director, was appointed as the Acting Chief
Financial Officer. Paul had previously acted as Interim Chief Financial
Officer in 2012, and at this time he was identified as a potential future
candidate for the role of Chief Financial Officer, however the Board
felt he would benefit from experience outside of a central finance role.
As part of his development programme and an integral part of the
succession planning, he was deployed to DVP EU, the largest sales and
marketing organisation of the Company.
The Committee members undertook extensive and in depth one-to-one
interviews with Paul Sandland for the permanent Chief Financial Officer
role. The Committee members were unanimous in support of Paul’s
appointment and agreed to proceed to the formal process of a discussion
and confirmation of the appointment. In addition to the lengthy discussions
Paul had with each Non-Executive Director, he had an interview with
the Relationship Partner at Investec, who was also supportive of his
appointment. The same feedback had been received from the External
Audit Engagement Partner, and the Committee concluded that Paul had
demonstrated that he was a suitable candidate for the role and would
provide continuity for the Chief Executive Officer. In addition, he had clearly
demonstrated a strong practical understanding of all parts of the Group and
its needs, as well as having an independence of mind and strong technical,
strategic and commercial skills.
The Committee members provided their feedback on the development
needs and required support, which has been supplemented with suggestions
provided by Paul, and a robust development plan has been put in place
taking advantage of the network of the Board to enable Paul to transition
into the role. The development plan was presented to the Nomination
Committee for their approval and its progress has been reviewed twice by the
Committee. The development programme has consisted of external training
and internal mentoring, with the Audit Committee Chairman assisting with the
mentoring programme.
On 29 October 2019, the Committee recommended to the Board that
Paul Sandland be appointed as an Executive Director and permanent
Chief Financial Officer of the Group.
Non-Executive Director
During the 2018 financial year the Committee commenced the recruitment
of an additional Non-Executive Director who would both further strengthen
the Board and also take the lead on the Board’s responsibilities regarding
Employee Engagement. The search produced two outstanding potential
candidates who went through the full scrutiny process. Both were considered
fully capable for the role and we were delighted in March 2019 to appoint
Lisa Bright. In the 2019 financial year, when the Board and Committee
were looking at Board succession given the approaching time limitation on
independent Non-Executive Director service for our two Committee Chairs,
we went back to the other candidate who had withdrawn late on in the
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Governance
original process due to the possible time constraints of another likely role
which subsequently did not materialise. That candidate was Alison Platt, and
we were equally pleased to appoint her to the Board, following an additional
interview process, given her range of executive and non-executive Board
experience in several major companies.
The recruitment process was as follows:
1 Nomination Committee
One of the criteria was that the candidates should have Human Resources
experience 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.
2 Engage
Dzaleta Consulting (Dzaleta) was appointed.
3 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.
4 Consider
The long list of candidates was circulated to the Committee for comments
before a short list was agreed.
5 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.
6 Interview
The Committee recommended the appointment of Alison due to: her
international commercial industry experience which will assist as Dechra
expands its international footprint; her experience as a Chief Executive
Officer which will enable her to provide challenge and advice to the
Board; and her FSTE 100 experience. In addition, her appointment will
provide continuity for the Board in light of the forthcoming retirements of
the Audit Committee Chairman and Remuneration Committee Chairman
in 2022.
Dzaleta Consulting were previously retained in 2016 in relation to the
recruitment of a SET member, an Executive Director and the Chairman
of the Board, and has no other connection with the Company or
individual Directors.
Induction
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. Alison’s appointment unfortunately coincided with the impact
of COVID-19, which placed some restrictions around her induction,
however, during the initial couple of months we scheduled a number of
one-to-one virtual meetings with the Senior Executive Team, Corporate
Development Director, Head of Internal Audit and Risk Assurance, Group
Financial Controller, Group Treasury Manager, Business Development
Director and the Regulatory Affairs Director.
It is hoped that in the Autumn we will be able to recommence a more
traditional induction and enable Alison to complete step four of our
induction process.
Induction Process
1 Understanding the Business
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.
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.
Alison Platt withdraws from the process.
The 2020 financial year recruitment process:
The Committee became aware that Alison Platt was available for
a Non-Executive Director position.
7 Interview
The Committee agreed that a further one-to-one interview should take place but
this time with each member of the Board and Company Secretary. Alison’s other
appointments were considered to check there was no conflict of interest or time.
References were taken.
8 Appoint
Alison Platt was appointed to the Board on 1 March 2020. Further details
relating to her background and experience can be found
on page 85.
9 Induct
See case study on page 100.
2 Meeting the Management Team
Meet the SET informally and formally.
Meet key management at Head Office and leadership teams at the main
sites.
3 Director and Committee Responsibilities
Receive induction/training on Director and Committee responsibilities (if
applicable).
Market Abuse Regulations online training course.
4 Visit the Business
Visit a key site for each function (PDRA, Manufacturing, Sales and Marketing,
and Head Office).
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Job Number 7 September 2020 4:17 pm Proof NumberComposition, Succession and Evaluation continuedAlison Platt’s Induction“Having joined the Dechra Board formally at the beginning of March this year, the comprehensive induction programme the Company Secretary and the team constructed for me was somewhat frustrated by the lockdown enforced by COVID-19. As the business focused on keeping operations going safely, it was terrific that colleagues all across the business shifted rapidly to home working, and the use of digital platforms to ensure the start of my education in Dechra could begin undeterred. My experience has been that this is an additional and valuable period of learning rather than a substitute for walking the patch and meeting the wider teams in person. I genuinely believe that I will be better placed now to make use of that time when it comes. I am also immensely grateful for the additional time I’ve had to capture learnings – whether that’s technical terminology, regulatory frameworks or business processes – and indeed to check back with colleagues that I have fully understood. I have no doubt that would have been harder had roads, rail and planes been involved.As a result of the more than 20 hours of virtual meetings I have had with our leaders across the Dechra Group I am incredibly impressed with the depth of experience and commitment that each carries. The robust health of the business is no doubt a consequence of that created over many years and I look forward to building on my start.”Board Succession Planning Non-Executive DirectorsThe Committee has over the last two years factored diversity into its Non-Executive Directors succession plans. Following the appointment of Lisa Bright in February 2019 and Alison Platt in March 2020, the Board gender diversity has increased to the threshold recommended by the Hampton Alexander Review.As reported in the previous year’s Committee report, its review in the 2019 financial year highlighted that over the forthcoming two years at least one Non-Executive Director will need to be recruited in order to have orderly succession.During the year, an independent recruitment consultancy, Robert Walters, was retained. Robert Walters was provided with a role description, detailing the skills (both cognitive and personal strengths) and experience required for the role of Audit Committee Chairman. The Committee, in drafting the role description took into account the challenges and opportunities facing the Group and what skills and expertise was needed. In particular, it was determined that the individual should have relevant financial experience in an international company. In addition, they were required to have a broad business experience and be a good fit with the Culture and Values of the Company.Robert Walters were previously retained in relation to the appointment of the DVP EU Finance Director following the promotion of Paul Sandland to Chief Financial Officer and has no other connection with the Company or individual Directors.To assist Robert Walters with the understanding of the requirements of the role, they met with the Group HR Director.Non-Executive Directors’ Tenureas at 30 June 2020Tony RiceJulian HeslopIshbel MacphersonLawson McCartneyLisa BrightAlison Platt012345678Number of YearsDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com100GovernanceDechra-AR2020-Governance.indd 10007-Sep-20 4:45:57 PM Governance
Diversity and Inclusion
The Committee reviews the policy on diversity and its implementation
every year and, during 2020 this review took place in February and
again in June. 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 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. This belief
is supported by our employment policies and practices which reflect a
culture where people decisions are made solely on the basis of individual
capability and potential in relation to the needs of the business practices.
The Board is committed to promoting and supporting a culture of
fairness, respect and equal opportunity across the Group.
Hampton and Alexander Review
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2017
● % of females on Board
● % of females on SET (excluding Executive Directors)
● % of females on SET and direct reports
2018
2019
June 2020
Dechra excludes the Executive Directors from the Senior Management
data as per guidance from Hampton Alexander. However, the data
includes their direct reports.
Direct reports will cover employees at various grades of the Group and
will cover managers and junior professionals.
SET Succession Planning (including Executive Directors)
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 presents to the Committee
on the Group’s succession planning annually. The Committee discusses
the succession plan for the SET, which includes the Executive Directors
and the Non-Executive Board. Plans are in place for sudden, unforeseen
absences, for medium term orderly succession and for longer term
succession as well as supporting any significant acquisitions that require
full time Dechra leadership during the integration phase. For each SET
member, we have either identified an internal candidate who is in the
pipeline for succession, or we accept that for some roles, where we
have no successor we will need to approach the open market. In these
cases, we aim to build strength and depth in the team below to allow
a smooth transition in the event of bringing a new leader on board
where we 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 Group Supply Chain and Procurement
Director for Dechra Pharmaceuticals Manufacturing & Supply (DPM&S),
Milton McCann, being appointed as the Interim Group Manufacturing &
Supply Director. We have also accelerated changes planned for 2021
financial year to the DPM&S structure and have appointed a Group
Internal Network Director who joined Dechra on 15 June 2020. In
addition, an experienced interim candidate was appointed to backfill the
Supply Chain Director role.
Furthermore, 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.
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.
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Composition, Succession
and Evaluation continued
Progress on Diversity Policy
Policy
Dignity at Work
Progress
During the year, a Dignity at Work Policy was launched within the UK followed shortly by a global version. In accordance with the
Dechra Values, we believe that our position on diversity and inclusion is key to providing a place of work that is free from bullying and
harassment, and which is characterised by respect, collaboration, openness, safety and equality. One of our aims is to promote a
climate in which employees feel able to raise complaints of harassment, bullying or discrimination without fear of victimisation.
For this reason we have chosen to incorporate the following within our Dignity at Work Policy:
• Diversity and Inclusion
• Bullying and Harassment
• Employment of Relatives and Relationships at Work
In tandem with this, a comprehensive face to face training programme for line managers was delivered over four days to
44 managers. A further four days had been scheduled for a second cohort, which is now being moved online. The training
programme covered some key elements including understanding our policies and procedures, essential managers skills,
tackling unacceptable behaviours, having difficult conversations and mental health in the workplace. Similar programmes
will follow for our international businesses.
We encourage all employees to speak out and report any direct or indirect discrimination, harassment or bullying. This is
supported by our Grievance Policy and our How to Raise a Concern Handbook. All reports are investigated and acted upon.
Fair Pay
In the UK, only one of our subsidiaries, Dechra Limited, has to report under the Gender Pay Gap regulation. Dechra Limited
employees sit within our UK manufacturing, product development and regulatory affairs businesses.
We are pleased to report that as a result of our proactive management, the gender pay gap has reduced from 17.7% in
2017 to 9.2% in 2018 and further again to 7.4% in 2019. This is something that we are looking to continue to build upon
as we continue to make Dechra an increasingly attractive place to work. Over the last 12 months in particular, we have
focused efforts around our talent development and organisational design, and in particular we have:
• continued to develop our engineering department leveraging our talent;
• created a new role and employed a training co-ordinator to maintain our standards and focus in delivering skills fit for
the future; and
•
reviewed and updated our enhanced parental leave policies.
Applicant
Tracking System
We are planning to launch a new applicant tracking system in the forthcoming financial year, with the aim of using the
insight to improve our application process and enables us to reach a wider and more diverse pool of talent.
The applicant tracking system will allow us to create a baseline report on the levels of recruitment and the pools from which we
are attracting our talent. From this baseline we will be able to assess voluntary diversity statistics provided to us by candidates
which will allow us to set and assess clear objectives in relation to our diversity agenda and maintain reporting capability on this.
In addition, we are aiming to recruit a Group Talent Partner who, in conjunction with the Group Head of HR and Group
HR Director, will set and lead the recruitment strategy of our Company, be responsible for maintaining the Group
Applicant Tracking System (ATS) and reporting on the KPIs set.
UK Employee Ethnicity by Grade
140
120
100
80
60
40
20
0
s
e
e
y
o
p
m
E
l
f
o
.
o
N
2
9
49
A
A
2
40
B
B
9
23
95
C
C
3
3
57
E
E
5
7
50
D
D
Grade
1
1
15
F
F
1
G
5
G
White (All Backgrounds)
Other (All Backgrounds)
Not Stated
More details of our actions can be found in the
Corporate Social Responsibility report on page 56
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Governance
The Board is generally opposed to the idea of stated gender quotas;
however, since the 2018 Annual Report it has addressed a low
representation of female Directors (14.3%) on the Board, and following
the appointment of Alison Platt in March 2020, the female representation
at Board level increased to 33%. Female representation below Board
level is 27.3% of the Senior Executive Team (including the Executive
Directors) and 52% of the overall workforce.
The Board
as at 30 June 2020
Female
Male
33%
67%
Senior Executive Team (including Executive Directors)
as at 30 June 2020
Female
Male
27%
73%
Evaluation
Annual Evaluation
The Board undertakes an annual evaluation of its performance and that
of its Committees to monitor that they remain fit for purpose, details of
which can be found on page 104. This year’s evaluation was internal.
The Committee’s review of the structure, size and composition of the
Board can found above on page 97.
Effectiveness of Directors
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 pages 97 and 98 of
the Governance Report), the Committee has concluded that each
of the Directors continues to perform effectively and demonstrates
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, Alison Platt, who was appointed to the Board
on 1 March 2020, will offer herself for election, and all of the remaining
Directors will retire and offer themselves for re-election.
In addition, the Board has evaluated and determined that each
Non-Executive Director has 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. The Committee has noted that prior to last year’s Annual General
Meeting there were some concerns that Lisa Bright was overboarded.
Lisa Bright holds an executive director equivalent role at Intercept
Pharmaceuticals, Inc. and, including her role at Dechra, two
Non-Executive Directorships. Therefore, this is within the best practice
limits in relation to overboarding, and the Committee is satisfied that she
has sufficient time to meet her Board and Committee responsibilities.
The Chair, at the time of his appointment on 5 May 2016, met the
independence criteria as set out in the Code.
Employee at Senior Leadership Level
as at 30 June 2020
Tony Rice
Nomination Committee Chairman
7 September 2020
Female
Male
51%
49%
Overall Workforce
as at 30 June 2020
Female
Male
52%
48%
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Governance
Composition, Succession
and Evaluation continued
Board Evaluation
The Chairman manages the Board and oversees the operation of its
Committees with the aim of monitoring that they operate effectively by
utilising the diverse range of skills and experience of the various Board
members. The effectiveness of the Board is imperative for 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 last external evaluation was in 2018.
The 2019 Internal Board Evaluation
The findings of the internal evaluation were discussed at the June 2019
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
Succession
Planning
Employee
Engagement
Progress
The Board agrees that there is still some work to
be undertaken on succession but the open and
well informed nature of the dialogue means that
the quality of these discussions are good and
continue to improve.
Lisa attended a meeting of the Works Council
in Skipton where she had the opportunity to
discuss a range of topics that are key to both the
Board and our employees. A follow up meeting
was held in July with the Site Director and the
HR Business Partner to review what actions had
been taken since the initial meeting and how they
had been received by the employees, further
details of which can be found on page 90.
The 2020 Internal Board Evaluation
Following the external evaluation in 2018, it was agreed to undertake an
internal evaluation for the 2020 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:
1 Preparation
The questionnaires were updated to reflect the 2018 Corporate
Governance Code requirements.
2 Questionnaire
Questionnaires were made available electronically for online
completion and submission. One was in relation to the
effectiveness of the Audit Committee and one in relation to the
Remuneration and Nomination Committees, and were forwarded
to both the members of the Committees and the regular attendees
which included Group HR Director, Head of Internal Audit and Risk
Assurance and the Company Secretary. The third questionnaire
related to the Board and was sent to the Board members only.
3 Interviews
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.
4 Review
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.
5 Outcomes
Following an initial review of the responses, the Chairman
discussed with the Executive and Non-Executive Directors at the
June 2020 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; and
• Strategy.
Progress made on these action points during the forthcoming year
will be reported in next year’s Annual Report. The Board has agreed
that an external evaluation will be undertaken during the 2021
financial year. The results of the 2021 internal Board evaluation will
be reported in next year’s Annual Report.
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Job Number 7 September 2020 4:17 pm Proof NumberAudit, Risk and Internal ControlDear ShareholderOn 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 External Audit Engagement Partner Rotation and the impact of COVID-19 on our business and internal control framework.Committee MembershipWe have welcomed Alison Platt to the Committee and look forward to the additional perspective she will bring given her international commercial experience.External Audit Engagement Partner RotationThe current External Audit Engagement Partner, Andrew Hammond, was appointed during the 2016 financial year and as such this is his last audit, after which he will stand down in line with the FRC Ethical Standard. During the year, the Board approved the Committee’s recommendation with regards to the replacement External Audit Engagement Partner. Further details can be found on page 111.COVID-19The global coronavirus pandemic has resulted in disruption and rapid change in how we all live and work. As an essential pharmaceuticals 4Audit Committee Meetings HeldAreas of Focus this Year• External Audit Engagement Partner Rotation• Impact of COVID-19 on the internal controls and viability of the Company • Accounting Treatment of R&D ProjectsCommittee Membership and AttendanceJulian Heslop Joined:1 January 2013 4 4Lisa Bright Joined: 1 February 2019 4 4Ishbel Macpherson Joined: 1 February 2013 4 4Alison Platt Joined: 1 March 2020 1 1Lawson Macartney Joined: 1 December 2016 4 4business the Group has continued to manufacture and supply its products and has rapidly adapted its operational processes to enable employees to work safely to deliver these. The Group has also assessed the changes required to its management and governance processes including financial reporting and internal control. At its April meeting, the Committee reviewed the principal areas of focus and change from a financial reporting and internal control perspective and I am pleased to say that overall our reporting processes remain robust and the Committee believes that our control environment remains strong. The Committee will continue to keep this closely under review as circumstances change.FRCDuring the year, the Company received a letter from the Financial Reporting Council (FRC) in relation to its review of the Company’s Annual Report and Accounts for the year ended 30 June 2019. I am pleased to report that based on their review, there were no questions or queries that they wish to raise at this stage. They did note a number of matters where they believe that the users of the accounts would potentially benefit from improvements to our existing disclosures and these have been considered in the preparation of our 2020 Annual Report and Accounts.Annual Report 2020The following report sets out how the Committee has complied with the principles of the Corporate Governance Code 2018 and specifically provisions 25 and 26, and assisted the Board with its compliance in respect of provisions 24, and 27 to 31.The judgements and factors that the Committee considered in reviewing the Annual Report and Accounts for 2020 (2020 Annual Report) are set out in its report on pages 107 and 108. The report 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 undertook a review of the independence and effectiveness of both the external auditor and the internal audit function, and concluded that they were both independent, objective and effective. The details of these reviews can be found on page 110. Finally, we specifically reviewed, at the request of the Board, whether the 2020 Annual Report was fair, balanced and understandable and concluded that it was. The basis supporting our conclusion is set out on page 109.Should you have any questions in relation to this report or the Committee, please contact me or the Company Secretary.Julian HeslopAudit Committee Chairman 7 September 2020Letter from the Audit Committee ChairmanJulian Heslop Audit Committee ChairmanStock Code: DPH105GovernanceDechra-AR2020-Governance.indd 10507-Sep-20 4:46:06 PM Governance
Audit, Risk and
Internal Control continued
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
monitor the effectiveness of the external audit process and internal
audit function.
Membership, Meetings and Attendance
The membership of the Committee, together with appointment dates
and attendance at meetings, are detailed on page 105. Alison Platt
joined the Committee on her appointment to the Board in March 2020.
All Committee members are Non-Executive Directors.
The Board considers that all members of the Committee are
independent and have competencies 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, and
Ishbel Macpherson, also brings financial experience to the Committee
following her career as an Investment Banker. Alison Platt provides
international commercial experience, and Lawson Macartney and Lisa
Bright provide product development and the commercialisation of
pharmaceuticals experience which support the Committee in meeting
its objectives. The biographies of all Committee members are detailed
on page 85.
The Company Secretary attends each meeting and acts as its secretary,
assisting the Chairman in circulating all papers 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) External Audit
Engagement 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 External Audit Engagement 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 usually 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.
The Committee provides a report to the Board on its activities at the
Board’s next scheduled meeting.
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 2020
Board and Committee Internal Evaluation (further details of which can
be found on page 104 of the 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, as well as the level of challenge of the Committee with
management, external auditors and the internal audit function.
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 December 2019 meeting and these were updated to
include additional wording around going concern, viability statements
and reporting, and in relation to the non-audit fee policy in the Annual
Report. The main responsibilities are summarised on page 94 of the
Governance Report.
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 and reporting, global tax management
and compliance;
• non-audit fees (including actual and projected spend); and
•
the internal audit progress and assurance report.
106
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Governance
The table below shows the other key areas of the Committee activities:
Purpose and
Function
(see page 106)
Financial and
Narrative
Reporting
(see pages 107 to 109)
Internal Controls
and Risk
Management
(see page 109)
Internal Audit
(see pages 110)
External Audit
(see pages 110 and
111)
• Review of the Committee’s terms of reference
• Review of the effectiveness of the Committee
• FRC 2018/2019 Annual Report Key Matter Letter
• Review and approval of the Accounting Policy
• Review of the Group’s preliminary statement, draft
amendments due to the adoption of IFRS 16 ‘Leases’
• Review of the impact of IFRIC 23 ‘Uncertainty over
income tax treatments’
• Review of the Accounting Treatment of R&D Projects
• Review of year end accounting treatment for
acquisitions, non-underlying items and new accounting
standards
• Review and endorsement of key judgements made
by management in determining half-year and full year
results
Annual Report (including the Audit Committee Report)
for the year ended 30 June 2020 and management
presentation to investors
• Consideration of the Audit Memorandum prepared
by the external auditor, including:
− review of accounting treatment of non-underlying
items
− assessment of acquired intangible assets and
goodwill including impairment assessments
undertaken
• Review of the Group’s Half-Yearly Report and supporting
− commentary on the general control environment
papers
across 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
statements
dividend proposals
• Fair, balanced and understandable recommendation
of the Annual Report
• Review of Anti-Bribery and Anti-Corruption (ABC) Policy
• General Data Protection Regulation (GDPR) compliance
• ABC and Sanction compliance update
update
• Half-year and full year review of internal financial controls
• Review and approval of the internal control and
• Review of tax strategy and policy framework
• Review of treasury policy and practice
• Review of the annual Internal Audit Plan and
effectiveness of Internal Audit
risk management statements
• Review of Internal Audit Charter
• Review and approval of PwC Half-Yearly review plan
• Review of the external audit effectiveness
• Review and approval of PwC full year external audit
strategy (including timetable, risk assessment,
materiality, scope and fees)
• External Audit Engagement Partner Rotation
• Review of external auditor’s independence and level
of non-audit 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
Financial and Narrative Reporting
All significant matters that the Committee considered 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 significant 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 users of the accounts 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 to 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.
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Audit, Risk and
Internal Control continued
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
£692.2 million, which represents 55.9% 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 £21.6 million.
Valuation and accounting for the acquired commercial licensing
agreement intangibles of £46.2 million together with the related deferred
consideration.
The Committee reviewed the calculations and assumptions provided by
management and third party experts which support the valuation of these
acquired assets and these valuations were assessed for completeness.
The Committee reviewed the useful economic lives of the identifiable
intangible assets and the future growth rate assumptions applied in the
valuations.
Review of the corporate tax rate for the year being a charge of 17.1%
(20.6% 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.
These measures are reconciled to the figures provided in the financial
statements and exclude items 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 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 the previous year’s figures. It also sought
confirmation from the external auditor, PwC, that they were satisfied that
the application of the accounting policy relating to this treatment was
appropriate.
The Committee also reviewed any material one-off income and costs
within the underlying results, and required that these were clearly
disclosed within the financial statements and notes.
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Going Concern and Viability Statements
The Committee reviewed the Group’s going concern and viability
statements set out on pages 33 and 77 of the Strategic 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 Committee agreed that the process be
amended this financial year to disclose COVID-19 as an emerging Group
risk and to develop additional viability stress testing scenarios. The
external auditor reviewed management’s assessment and discussed this
review with the Committee.
Fair, Balanced and Understandable Assessment of the
Annual Report
At the request of the Board, the Committee considered whether the
2020 Annual Report was fair, balanced and understandable and whether
it provided the necessary information for shareholders to assess the
Group’s performance (pages 26 to 33), business model (pages 14 to 16)
and strategy (pages 18 to 21).
This assessment was carried out by the Committee on 1 September
2020, following which the Committee reported to the Board that it was
satisfied that, taken as a whole, the 2020 Annual Report 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, and has
delegated the ongoing monitoring and review of the effectiveness of
the Group’s internal financial controls to the Committee.
The Group’s risk management and internal control processes include:
• 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
The Committee based its assessment on a review of the processes
and controls put in place by management. This included:
• a review of baseline financial controls and management
representations on their effectiveness across the Group.
•
•
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 2020 Annual
Report met the fair, balanced and understandable test. In addition,
all members of the SET 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 Committee were satisfied that all material matters which had
been disclosed in the Senior Executive Team’s reports to the Board
throughout the year had been adequately reflected in the Annual Report
and that the business model, strategy and the Group’s performance
were correctly reflected and clearly presented.
The external auditor confirmed that in their opinion the Annual Report
2020 was fair, balanced and understandable and their report can be
found on pages 144 to 152.
At the April meeting, the Committee conducted an additional review
of key internal financial controls to assess if they remain effective and
are adequately designed to mitigate the new and heightened risks due
to COVID-19, such as increased credit risk (risk of slower payment),
and fraud risk (increased due to home working and related process
changes). The Committee was provided with management assurances
on the key risk areas and concluded that the mitigating controls were
appropriate, and that the financial control framework remains effective.
Further details in respect of the Group’s risk management and internal
control processes are provided on pages 70 and 73 of the Strategic
Report, along with the principal risks, controls and mitigating actions and
emerging risks. The Board’s statements on the effectiveness of these
processes are provided on page 88 of the Governance Report.
Review of Policies and Procedures
During the year the Committee undertook the annual review of the
Group Tax Policy and Strategy, the Group Treasury Policy and the
Anti-Bribery and Anti-Corruption Policy. In addition, the Committee
endorsed the adoption of a new accounting policy to comply with
IFRS 16 (‘Leases’) and reviewed the current accounting policy for the
treatment of R&D spend and Acquired Intangibles.
The Committee is provided with regular updates on the outcomes of the
risk assessments as part of both Anti-Bribery and Anti-Corruption and
Sanctions due diligence processes, as well as updates to procedures.
During the year, the internal Anti-Bribery and Anti-Corruption e-learning
course has been updated and will be rolled out during the forthcoming
year across the Group as compulsory training.
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Audit, Risk and
Internal Control continued
Internal Audit
Function
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.
A five year plan to develop the Internal Audit function in line with
projected business growth has been approved by the Committee and an
additional in-house resource will be recruited in the 2021 financial year.
Internal Audit Plan
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 control reviews on
new acquisitions and reviews of major business process and systems
changes. The annual audit 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 2021 was approved by
the Committee in April 2020.
The Internal Audit process was amended due to COVID-19, and all of
the audits are currently being delivered virtually where practicable, which
has increased the time spent on each audit.
The Committee, based on this, concluded that the Internal Audit
function was effective and independent.
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
External Audit Engagement Partner understands the business and
constructively challenges management and the quality and clarity
of the technical and governance review provided;
•
the results of a questionnaire on external auditor effectiveness and
efficiency (further detail on which is provided below);
The key areas addressed in this year’s audit plan have been:
• a report prepared by PwC setting out its processes to ensure
• Financial: Treasury, Sales Order to Cash, Purchase to Pay and
Payroll processes and the baseline financial control framework;
• Operational: Distributor Management, Pricing and Discounting, and
Cybersecurity; and
• Compliance: Group policy framework, Promotional compliance
processes and the ABC third party programme.
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.
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 5.5% (2019: 6.7% in relation to
services rendered by PwC).
Responses to the questionnaire have been received from the Finance
Leadership Team 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;
Independence and Effectiveness of Internal Audit
During the year, the Committee reviewed the Internal Audit Charter and,
based on an assessment of the Internal Auditor’s work, agreed that:
•
•
interaction with audit specialists; and
timeliness and adequacy of communication by the external auditor.
The results of the questionnaire were reported to the Committee at the
meeting on 1 September 2020.
Based on the review set out above, the Committee is satisfied with the
external auditor’s independence, effectiveness and objectivity.
•
•
•
•
•
•
the Internal Audit findings and reporting had well defined rating
scales and were clear and concise;
the function added value and additional assurance;
Internal Audit constructively challenged management and displayed
independence in providing their opinion and recommendations;
the dual reporting lines into the Chief Financial Officer and Audit
Committee Chairman worked well;
the Internal Audit delivery was based on clearly defined audit plans
which adapted when relevant;
the Internal Audit resources were lean but sufficient at the present time;
and
• a clear Internal Audit plan, based on the major risks approved by the
Board, was presented annually to and approved by the Committee.
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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
the 2026 financial year. The Committee will complete this process well before the start of the year preceding the 2026 financial year to maximise the
firms able to tender and ensure that the firm selected have sufficient time to meet the required independence regulations.
External Audit Engagement Partner Rotation
In line with the FRC Ethical Standard, the External Audit Engagement Partner is rotated every five years. The current External Audit Engagement
Partner, Andrew Hammond, was appointed during the 2016 financial year and consequently will stand down after the completion of the audit of the
2020 financial year. The Audit Committee Chairman, Chairman of the Company, the Chief Executive Officer and Chief Financial Officer interviewed
the candidates and provided feedback to the Audit Committee. The Board, on the recommendation of the Audit Committee, has appointed Mark
Skedgel to replace Andrew Hammond. Mark has been fully briefed during the audit of the 2020 Annual Report, to facilitate a smooth handover in
readiness for the audit of the 2021 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.
Since May 2018, the policy for the use of the auditors, PwC, for non-audit work, is capped at 30% for the ratio of non-audit fees to the audit fee and
the underlying principle is 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 statutory auditor in accordance with legislation. The annual review of the
policy was undertaken in April 2020 with no major changes being made.
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 any non-audit work (other than the review of the Half-Yearly Report) 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 5.5% (2019: 6.7%) of the annual audit fee. The 2020 other non-audit fees relate to the
engagement of PwC (as statutory auditor) to provide an annual attestation to NOMA (the regulator in Norway), 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
2020
PwC
1.1
0.06
0.002
5.5%
2019
PwC
0.89
0.04
0.002
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%
* The 2018 Audit Committee Report sets out the reasons for the engagement of PwC.
Julian Heslop
Audit Committee Chairman
7 September 2020
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Job Number 7 September 2020 4:17 pm Proof NumberDirectors’ RemunerationReport Ishbel Macpherson Remuneration Committee ChairmanLetter from the Remuneration Committee ChairmanDear ShareholderI am pleased to present the Directors’ Remuneration Report for the year ended 30 June 2020.The report is divided into two sections: the Directors’ Remuneration Policy, followed by the Annual Report on Remuneration. The Policy sets out our forward looking policy for Directors’ remuneration and is a replacement for the Policy approved in 2017, which had 98.88% of votes cast in favour of it. The Annual Report on Remuneration provides details of the amounts earned in respect of the 2020 financial year and how the new Policy, if approved by shareholders, will be implemented in the 2021 financial year.The new Policy and the Directors’ Remuneration Report will be subject to a binding vote and advisory vote respectively, at the 2020 Annual General Meeting.Our Directors’ Remuneration PolicyThe new Policy is proposed in the context of the business being significantly larger and more complex now in terms of size, geographic coverage, complexity and scale. Since our Policy was last approved, our market capitalisation has almost doubled from c.£1.4 billion to c.£2.75 billion, and we now have c.1,900 employees globally compared to c.1,300 in 2017. This growth has been driven by the successful execution of our well established and proven four key growth drivers: portfolio focus; pipeline delivery; geographic expansion; and acquisition. Since the 2017 Policy was approved, acquisitions have included: • AST Farma and Le Vet (€340 million), which added to our EU product portfolio and strengthened our Dutch market position, providing direct-to-vet relationships; • Laboratorios Vencofarma do Brasil Ltd (£34.8 million), providing us with a strategically significant presence within the rapidly growing Brazilian and South American markets; and • Ampharmco LLC (Ampharmco) and its associated holding companies (£24.3 million), which significantly strengthened our manufacturing capabilities for the North American market.We also finalised a licensing and supply agreement with Akston Biosciences Corporation (Akston) in August 2019 for a patent pending, long acting protein for the treatment of diabetes in dogs and cats that will enhance our position as world leaders in veterinary endocrinology.7Remuneration Committee Meetings HeldCommittee Membership and AttendanceIshbel Macpherson Joined: 1 February 2013 7 7Lawson Macartney Joined: 1 December 2016 7 7Tony Rice Joined: 5 May 2016 7 7Lisa Bright Joined: 1 February 2019 6 7Julian Heslop Joined: 1 January 2013 7 7Alison Platt Joined: 1 March 2020 2 2Areas of Focus this Year• 2020 Salary and Bonus review• Review and approval of grant of share options/awards and vesting of share awards• Directors’ Remuneration Policy 2020• Wider Workforce Pay Principles• Chief Financial Officer Remuneration Package• Global SAYE offer to USA employeesDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020www.dechra.com112GovernanceDechra-AR2020-Governance.indd 11207-Sep-20 4:46:12 PM Governance
The 2020 financial year has been another busy one for Dechra operationally and in terms of acquisition activity, with the acquisitions of Mirataz,
Ampharmco and the increased investment in Medical Ethics, and, post year end, the completion of Osurnia.
We are aware of the impact of the 2018 UK Corporate Governance Code (the Code) on companies and want to align business requirements to
the Code as much as practically possible and take into account market practice and investor expectations. Overall, we consider that the current
remuneration framework remains fit for purpose. Therefore, the changes in the new Policy are to provide further alignment with best practice and to
allow sufficient flexibility over the next three years.
A summary of the changes is as follows:
Reward element
Pension
Current Policy
• Defined contribution pension or cash
New Policy
• The maximum pension contribution for Executive Directors
allowance.
• Maximum of 14% of base salary.
appointed before 1 July 2019 will initially remain at its current
level of 14% of salary, but will be aligned with the rate available
to the wider workforce by the end of 2022 (this will include
enhancing the wider workforce rate alongside a reduction in the
rate for Executive Directors).
• Pension for Executive Directors appointed after 1 July 2019 will
be aligned with the wider workforce (currently 4% of base salary).
Annual bonus
• Maximum opportunity of 100% of salary.
• The maximum opportunity, which has been in place since
• Paid in cash.
• At least 75% of the opportunity to be based
on financial measures.
LTIP
• Maximum opportunity of 200% of salary.
• Vesting by reference to performance over
three years, with awards then subject to
a further two year holding period.
• Threshold vesting: up to 25%.
Shareholding
requirements
• Executive Directors are required to build a
shareholding of 200% of salary, and half
of any LTIP shares (and, where relevant,
recruitment award shares) must be retained
until this is achieved.
2009, is increased to 150% of salary. This increase is to provide
flexibility and to recognise the increase in the size of the Group
and the responsibilities of the Executive Directors. However, the
maximum opportunity for financial year 2021 will remain at 100%
of salary.
•
If the increased opportunity is applied, we will balance this by
requiring up to 33% of the bonus to be deferred into shares for
two years. The level of deferral will be set so that the cash paid is
not increased by the increase in the opportunity.
• At least 50% of the total opportunity to be based on financial
measures with this change reflecting the increase in the
opportunity and to give flexibility over the life of the Policy,
although for financial year 2021, 85% of the opportunity will be
based on financial measures.
• No change to the maximum opportunity. No change is proposed
at the current time to the actual award levels, which are intended
to be 200% of salary for Ian Page, 150% of salary for Paul
Sandland and 100% of salary for Tony Griffin.
• The three year performance period and two year holding period
will continue to apply.
• No change is proposed to the performance measures or their
weightings.
• The same level applies, and the requirement to retain half of the
vested shares has been extended to any shares acquired under
the deferred bonus.
• We have introduced a post-employment requirement which
applies to LTIP and deferred bonus shares acquired in respect
of awards granted after 1 July 2020. For the first year after
employment the Executive Director must retain such of those
shares as have a value equal to the 'in-service' guideline, and
for a further year such of those shares as have a value equal to
half of the in-service guideline. We consider that this 'tapered'
approach, in the light of the two year holding period for LTIP
awards and the introduction of bonus deferral, is a balanced way
of achieving alignment with longer term shareholder interests.
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Directors’ Remuneration
Report continued
Governance Changes
In the new Policy, we have enhanced the discretion to override formulaic
outturns for the annual bonus, and introduced such a discretion for the
LTIP. The Committee will now have discretion to vary formulaic outturns
if they do not reflect the Committee’s assessment of overall business
performance or if the Committee considers them inappropriate in the
context of other relevant factors.
We have also formally included in the new Policy the ability to operate
malus and clawback in the event of corporate failure, which in practice
has been the case since 2019. The full malus and clawback provisions
are described on page 123.
Other Changes
Other changes have been made to the Policy to reflect the changes
referred to above (such as increasing the maximum variable
remuneration on recruitment from 300% of salary to 350% of salary
to reflect the increase in the bonus maximum).
Other minor changes have also been made, such as introducing the
ability to pay additional fees to Non-Executive Directors for additional
time commitments.
Alignment of Policy with Code
In determining the new Policy, the Committee took into account the principles
of clarity, simplicity, risk, predictability, proportionality and alignment to culture,
as set out in the Code.
Principle
Clarity: remuneration arrangements should be transparent and
promote effective engagement with shareholders and the workforce
Simplicity: remunerations structures should avoid complexity and
their rationale and operation should be easy to understand
Risk: remuneration arrangements should ensure reputational and
other risks from excessive rewards, and behavioural risks that can
arise from target-based incentive plans, are identified and mitigated
Predictability: the range of possible values of rewards to individual
directors and other limits or discretions should be identified and
explained at the time of approving the policy
Proportionality: the link between individual awards, the delivery of
strategy and the long term performance of the Company should be
clear. Outcomes should not reward poor performance
Alignment to Culture: incentive schemes should drive behaviours
consistent with Company purpose, values and strategy
Our remuneration arrangements are transparent and aligned with our
Purpose, Values and strategy and our disclosures are clear to both our
shareholders and our employees. Performance targets are set in line with
Group budgets and plans and reviewed and tested by the Committee.
We believe that our remuneration structures are as simple as they
possibly can be. We follow a standard UK market approach to
remuneration with established variable incentive schemes that operate
on a clear and consistent basis.
• Both the annual bonus and LTIP are subject to malus and clawback
provisions, and the Committee has discretion to override formulaic
outcomes, which may not accurately reflect the underlying
performance of the Group.
• LTIP awards are subject to a two year post-vesting holding period,
and if a bonus opportunity in excess of 100% of salary is offered
deferral into shares will also apply. Each of these factors provides
longer term alignment with shareholders’ interests.
• The post-employment shareholding requirement will mean that
alignment with shareholders’ interests continues after an Executive
Director has left Dechra.
The range of possible values of rewards and other limits or discretions
can be found on page 125, and the Risk section above refers to limits
and Committee discretion.
The variable elements of awards are linked to base salary. The
performance targets 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
of the Company, so that poor performance cannot be rewarded. In
determining the Policy, the Committee was clear that this should drive
the right behaviours, reflect our Values and support the Company
Purpose and strategy. The Committee will review the remuneration
framework regularly so that it continues to support our strategy.
Our approach to the implementation of the Policy in the 2021 financial year, including our approach to performance measures for the LTIP awards
are described further in this letter.
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Remuneration Committee Decisions in 2020
Executive Director Remuneration Decisions
The table below summarises the implementation of the Policy for Executive Directors in respect of the 2020 financial year.
Element
Salary
Retirement Benefit
Annual Bonus
Implementation
Ian Page’s salary was increased by 4.0% (his first salary increase since September 2016) and Tony Griffin’s salary was
increased by 3.0%, which was broadly in line with the average range of increases awarded to employees throughout the
Group. Paul Sandland’s salary was set at £300,000 on his appointment as Chief Financial Officer.
Pension contribution of 14% of salary for Ian Page and Tony Griffin, and 4% of salary for Paul Sandland.
Maximum opportunity of 100% of base salary.
We have delivered underlying profit before tax during the year of £120.1million, an improvement of 1.6% at constant
exchange rates (2.3% 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 130, bonuses
for the year equal to 28% of salary have been earned by Ian Page, Paul Sandland and Tony Griffin.
The Committee considers the level of payout is reflective of the overall performance of the Group in the year and is
appropriate.
Long Term Incentive
Plan
The annual bonus is subject to malus and clawback provisions.
Awards of 200% for Ian Page, and 100% for Tony Griffin and Paul Sandland were granted during the year. Ian Page’s and
Tony Griffin’s awards are subject to a two year holding period. Paul Sandland’s award was granted before his appointment
to the Board and by reference to his pre-appointment salary and, consistent with other below Board LTIP awards, is not
subject to a post-vesting holding period.
LTIP awards granted to Ian Page and Tony Griffin on 2 March 2018 are scheduled to vest on 7 September 2020:
• as to 100% of the TSR element (one third of the total award) reflecting upper quartile performance; and
• as to 60.6% of the underlying diluted EPS element (two thirds of the total award) reflecting that the compound annual
growth in the underlying diluted EPS at 12.7% was below the maximum threshold of 18%.
In aggregate, taking into account the ROCE underpin (reflecting that the ROCE at 15.4% had not fallen below 10.0%), the
LTIP awards vested as to 73.7%. The Committee considers the level of payout is reflective of the overall performance of
the Group over the three year performance period ended 30 June 2020 and is appropriate.
See page 131 for further details.
Awards made under the LTIP are subject to malus and clawback provisions.
Directorate Changes
Paul Sandland was appointed as Chief Financial Officer on 30 October 2019 and his remuneration arrangements were a base salary of £300,000, a
bonus entitlement of up to 100% of salary, a maximum LTIP award of up to 150% of salary (although the award in respect of financial year 2020 was
at the level of 100% of salary reflecting that it was granted before his appointed as Chief Financial Officer) and employer pension contribution of 4%
of salary. This last element is in alignment with the wider UK workforce and represented a decrease of 8% from the level of contribution to which Paul
was previously entitled as a service related benefit for the higher band senior and professional employees within the UK Group.
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Directors’ Remuneration
Report continued
Performance Conditions for LTIP Awards
As detailed in the Directors’ Remuneration Report last year, 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 reduced the maximum target from 18% to 16% but maintained
the minimum target at 8% recognising that significant growth is still forecast. We noted that the Committee would be considering the impact of the
Akston 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 course of this year and that we would disclose any adjustments to the targets for those awards and the Committee rationale in this report.
In addition to considering the impact of the Akston agreement, we have also considered how to take account of the Mirataz and Osurnia acquisitions
and the associated share placing. Our approach is summarised below.
Akston
For the 2018 Grant (three year performance period to 30 June 2020), no adjustment to the EPS target was made on the basis that the impact of the
Akston deal is not deemed to be significant.
However, for the 2019 Grant (three year performance period to 30 June 2021) and 2020 Grant (three year performance period to 30 June 2022)
the impact of the Akston licensing agreement is more relevant (and is expected to be greater than originally anticipated as the Akston agreement
now covers a treatment for diabetes in cats in addition to dogs). In order to measure performance on a fair and consistent basis, the Committee
is proposing to adjust the final year EPS to reflect the actual R&D costs incurred at the vesting date. This adjustment recognises that these R&D
costs were not included in the base year of the performance period and maintains the overall level of stretch in the targets so the targets are not less
difficult to satisfy. The Committee believes that this is the right approach as the payments for the development of Akston are lumpy and uncertain as
to timing between financial years.
For the 2021 Grant and future years, the Committee is mindful that the base year will have some R&D actual costs from the Akston deal. Therefore
the actual R&D costs will be adjusted for both the base year and the year of vesting to enable performance to be measured on a like for
like basis.
Acquisitions and Share Placing
We have also considered whether, and if so how, to adjust the targets to take account of the Mirataz and Osurnia acquisitions and the associated
Share Placing. Our intended approach is set out below:
Grant
2019
Performance Period
2018/2019–2020/2021
Original EPS
range
8% to 18%
Revised EPS
range
8% to 19%
2020
2019/2020–2021/2022
8% to 16%
8% to 17%
Rationale
The impact of the transactions and Share Placing have been considered
in the round to balance the principle of rewarding the management
team for making value enhancing acquisitions with the need to measure
performance on a fair and consistent basis.
Remuneration Principles for Wider Workforce
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 approves the pay increases awarded to the Senior Executive Team (SET) and approves the Long
Term Incentive awards to this group as well as the share options granted to the senior employees below the SET.
During the year, the Committee reviewed and approved the Remuneration Principles for Wider Workforce; this assisted the Committee in its setting
of the Directors’ Remuneration Policy. Lisa Bright, as the Employee Designated Non-Executive Director, is available to discuss with employees their
views on remuneration as part of her engagement process.
We recruit and promote people on the basis of their personal ability, contribution and potential. We are committed to promoting, supporting and
maintaining a culture of fairness, respect and equal opportunity for all. We are also committed to fair employment practices and comply with national
legal requirements regarding wages and working hours.
Our pay principles, detailed below, support us in attracting, motivating and retaining the key talent required to support the sustainable improvement
of global animal health and welfare.
Fair Pay
Market Competitiveness
Living Wage
Stake in the Company
Reward for Contribution
Equal pay for work of equal value
We aim to remain competitive on compensation in our different marketplaces, whilst maintaining internal integrity
We have set a target to become a real Living Wage Employer* in the UK during the 2021/2022 financial year.
Living wages vary by country, but our aim does not. As we continue to grow in countries across the globe,
a living wage target is being explored
We want to increase the number of employees who are able to hold a stake in the Company through employee
share ownership
In addition to base pay, we have a number of different local incentive schemes across the Group
* Defined in the UK by The Living Wage Foundation.
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Governance
Workforce Remuneration
Base Salary
Executive Directors
Pay rises in line with wider workforce
Pension
Ian Page and Tony Griffin: 14% of base salary
Paul Sandland: 4% of base salary
Bonus
Max. 150% of base salary, currently 100% of base salary
Senior Executive Team
Increases approved by the
Committee
Between 8% and 12% of base
salary dependent on length of
service
Max. 50% of base salary
Targets: personal (10%), ESG (5%) and financial (85%)
Targets: financial and personal
Long Term
Incentive Plan
Max. 200% of base salary
Max. 100% of base salary
Currently 200% for Ian Page, 150% for Paul Sandland
and 100% for Tony Griffin.
Three year performance period, two year holding period
Three year performance period
Target: TSR, EPS and
ROCE underpin
Target: TSR (one third), EPS (two thirds) and ROCE
underpin
Sharesave†
* Data provided for UK only
† UK and USA
£500 per month
Three year savings period or two years for ESPP (US)
Wider Workforce
Increases are reviewed by the
Committee
Between 4% and 12% of base
salary dependent on length of
service and/or grade*
All senior managers and
professionals
Max. 40% of base salary
Targets: financial and personal
All senior managers and
professionals.
Discretionary awards
Market value options, three year
performance period
Target: EPS growth 12% above
inflation
Gender Pay
We are pleased to report that as a result of our proactive management with regards to our gender pay gap in relation to Dechra Limited (who employ
67% of our UK employees), the gap has reduced from 17.7% in 2017 to 9.2% in 2018 and further again to 7.4% in 2019, it is something that we are
looking to build upon as we continue to make Dechra an increasingly attractive place to work.
COVID-19
We have not furloughed any employees, nor have we taken financial support from any government body, as we believe that the Company will
remain financially sound in the immediate future. As an ethical, values led business, Dechra aims to play its part in stemming the spread and impact
of COVID-19, and we will continue to explore additional opportunities to support employees, customers and partners across the globe during this
challenging time.
Our front line workers, in areas such as production, logistics and our laboratory teams, continued to work on site to make sure that the business
remained functional, whilst employees that could work from home did so. In recognition of this, we awarded our front line workers a special payment
‘the COVID award’ which was paid in June 2020.
Global SAYE
The Committee recognises the benefits of employee share ownership and, following shareholder approval at the Annual General Meeting in October
2018, an initial offer to our USA employees was made in October 2019. We are pleased to report that the take up rate was 52%. We had proposed
to launch in the other territories in September 2020, however, in light of COVID-19, we have decided to postpone this until September 2021.
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Governance
Directors’ Remuneration
Report continued
Remuneration Philosophy
The Link between our Directors’ Remuneration Policy and our Strategy
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.
85% of the opportunity (for financial year 2021, previously 90%) is based on a stretching profit
target which requires performance above budget and market expectations to trigger the payment
of a maximum bonus.
10% of the opportunity 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.
For financial year 2021, 5% of the opportunity is based on ESG measures.
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 2020 and 2021 financial year awards, the weightings are two thirds
EPS and one third total shareholder return.
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.
The performance conditions for LTIP awards made in respect of the year ending 30 June 2020
and future years include discretion to override formulaic outcomes.
Strategic
Growth Driver
and Enabler
a
b
c
Link to our Key
Performance Indicators
Sales Growth
Strong sales performance is
required to maximise profit
a
b
c
Underlying Diluted EPS Growth
Return on Capital Employed
New Product Sales
This measure encourages
innovation, growth and
sustainability
Forward Looking
Subject to shareholder approval of the Policy at the 2020 Annual General Meeting, we will apply it in the 2021 financial year. More information is given on
page 137, and we have summarised key aspects below.
• Salary: Executive Directors’ salaries are usually reviewed in September. However, we have decided to postpone the next review until later in the 2021
financial year, which will allow the Committee time to review any impact to the business in the forthcoming year due to COVID-19. It is planned that any
increases to Executive Directors’ salaries will be in line with the range of any increases proposed for the wider workforce.
• Bonus: The maximum bonus opportunity for 2021 will remain at 100% of salary, consistent with the existing Policy. The bonus will be based on a mix
of stretching underlying profit before tax targets (reduced from 90% to 85% of the opportunity), personal objectives (10% of the opportunity) and a new
ESG measure (5% of the opportunity). For Tony Griffin, half of the opportunity based on profit (i.e. up to 42.5% of salary) will be assessed by reference
to the profit of Dechra Veterinary Products EU, reflecting his responsibility for that part of our business, and the other half of the profit based opportunity
by reference to Group profit in line with the other Executive Directors, and so that a significant part of the profit based opportunity is aligned with the
shareholder experience in respect of overall Group performance.
• LTIP: Awards for the 2021 financial year will be granted at the level of 200% of salary for Ian Page, 150% of salary for Paul Sandland and 100% of
salary for Tony Griffin. The awards will be subject to a two year holding period. The performance measures remain as per the grant of LTIP awards
made on 6 September 2019, details of which can be found on page 133. The upper target for the EPS performance condition will be 16%.
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Executive Director Total Remuneration
Ian Page
2020
2019
Tony Griffin
2020
2019
Paul Sandland
2020
Fixed
Salary
Benefits
Pension
Performance-linked
Bonus
LTIP
Fixed
Salary
Benefits
Pension
Performance-linked
Bonus
LTIP
Fixed
Salary
Benefits
Pension
Performance-linked
Bonus
LTIP
Governance
2019
2020
16.5%
2.0%
2.3%
11.8%
67.4%
32.3%
3.7%
4.5%
9.1%
50.4%
2019
2020
26.7%
0.9%
2.9%
19.3%
50.2%
46.5%
1.3%
4.9%
12.9%
34.4%
2020
72.0%
5.0%
2.9%
20.1%
N/A
Shareholder Views
Both the existing and the new Policies are 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 and deferred bonus (after sales to cover tax) until such time as their holding has a
value equal to 200% of their base salary.
We consulted with shareholders in relation to the new Policy and reflected on the comments received when 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
7 September 2020
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Governance
Directors’ Remuneration
Report continued
Directors’ Remuneration Policy
This part of the Directors’ Remuneration Report sets out Dechra’s Directors’ Remuneration Policy which, subject to shareholder approval at the 2020
Annual General Meeting, shall take binding effect from the close of that meeting. The Policy has been determined independently by the Committee.
Policy Table for Executive Directors:
Element: Base Salary
Purpose and link to strategy
Core element of fixed remuneration reflecting the individual’s role and experience.
Operation
The Committee ordinarily reviews base salaries annually taking into
account a number of factors including (but not limited to) the value
of the individual, their skills and experience and performance.
Performance measure
Whilst no formal performance conditions apply, an individual’s
performance in role is taken into account in determining any
salary increase.
The Committee also takes into consideration:
• pay increases within the Group more generally; and
• Group organisation, profitability and prevailing market conditions.
Maximum opportunity
Whilst there is no maximum salary, increases will normally be within the range of salary increases awarded (in percentage of salary terms) to other
employees in the Group. However, higher increases may be awarded in appropriate circumstances, such as:
• on promotion or in the event of an increase in scope of the role or the individual’s responsibilities;
• where an individual has been appointed to the Board at a salary set at a level that is lower than the Committee’s view of a market salary to
allow for growth in the role, in which case larger increases may be awarded to move salary positioning to a market level as the individual gains
experience;
• change in size and/or complexity of the Group; and/or
•
significant market movement.
Such increases may be implemented over such time period as the Committee deems appropriate.
Element: Retirement Benefits
Purpose and link to strategy
Provide a competitive means of saving to deliver appropriate income in retirement.
Operation
Executive Directors are eligible to participate in defined contribution
pension arrangements. In appropriate circumstances, an Executive
Director may receive a salary supplement in lieu of contributions to a
pension scheme.
Performance measure
Not applicable.
Executive Directors outside the UK may also participate in non-UK
pension arrangements (including the defined benefit pension scheme in
the Netherlands, benefits under which are based on career average pay).
Maximum opportunity
For Executive Directors appointed on or after 1 July 2019, a Company contribution not exceeding the contribution available to the majority of the
Group’s workforce (currently 4% of salary).
For Executive Directors appointed before 1 July 2019, 14% of salary. However, the Company contribution will be aligned with the rate available
to the wider workforce by the end of 2022 (this will include enhancing the wider UK workforce rate alongside a reduction in the rate for Executive
Directors).
A salary supplement may be paid in lieu of some or all of the pension contributions otherwise payable.
Benefits under any non-UK pension arrangement may be provided in accordance with the terms of the applicable scheme.
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Governance
Element: Benefits
Purpose and link to strategy
Provided on a market competitive basis.
Operation
The Company provides benefits in line with market practice and
includes the use of a fully expensed car (or car allowance), medical
cover and life assurance scheme.
Performance measure
Not applicable.
Other benefits may be provided based on individual circumstances,
which may include relocation costs and expatriate allowances.
Maximum opportunity
Whilst the Committee has not set an absolute maximum on the level of benefits Executive Directors may receive, the value is set at a level which
the Committee considers to be appropriately positioned taking into account relevant market levels based on the nature and location of the role and
individual circumstances.
Element: Annual Bonus
Purpose and link to strategy
The executive bonus scheme rewards Executive Directors for achieving financial and strategic targets in the relevant year by reference to operational
targets and individual objectives.
Operation
Targets are reviewed annually and any pay-out is determined by the
Committee after the year end based on targets set for the financial
period.
Performance measure
Operational targets (which may be based on financial or strategic
measures) and individual objectives are determined to reflect the Group’s
strategy.
The Committee has discretion to amend the pay-out should any
formulaic output not reflect the Committee’s assessment of overall
business performance or if the Committee considers the formulaic
outturn is not appropriate in the context of other factors considered
by the Committee to be relevant.
If a bonus opportunity in excess of 100% of salary is awarded, up
to 33% of any bonus earned will be deferred into shares for a period
of two years.
Deferred bonus awards may take the form of nil cost options,
conditional awards of shares or such other form as has a similar
economic effect.
The personal objectives for the Chief Executive Officer are set by the
Chairman. The personal objectives for other Executive Directors are set
by the Chief Executive Officer. The personal objectives are reviewed and
endorsed by the Committee.
At least 50% of the bonus opportunity is based on financial measures
(which may include profit before tax).
Subject to the Committee’s discretion to override formulaic outturns, for
financial measures, up to 15% of the maximum for the financial element
is earned for threshold performance, rising to up to 50% of the maximum
for the financial element for on target performance and 100% of the
maximum for the financial element for maximum performance.
Additional shares may be delivered in respect of shares subject to
deferred bonus awards to reflect the value of dividends paid during
the period beginning with the date of grant and ending with the date
of release (this payment may assume that dividends had been
reinvested in Dechra shares on a cumulative basis).
Subject to the Committee’s discretion to override formulaic outturns,
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.
Recovery provisions apply, as referred to below.
Maximum opportunity
The maximum bonus opportunity for Executive Directors is 150% of base salary.
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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.
Performance measure
Operation
The Committee may grant awards as conditional shares, as nil (or
Performance measures under the LTIP will be based on financial
nominal) cost options, as forfeitable shares or as market value share
measures (which may include, but are not limited to, earnings per share
options with a per share exercise price equal to the market value of a
growth, relative total shareholder return, return on capital employed and
share at the date of grant. Other than in the case of ‘Qualifying LTIP
free cash flow).
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, which will usually
be assessed over three years, but will not be released (so that the
participant is entitled to acquire shares) until the end of a holding period
of two years beginning on the vesting date. Alternatively, awards may
be granted on the basis that the participant is entitled to acquire shares
following the assessment of the applicable performance conditions but
that (other than as regards sales to cover tax liabilities and any applicable
exercise price) the award is not released (so that the participant is able to
dispose of those shares) until the end of the holding period.
Subject to the Committee’s discretion to override formulaic outturns,
awards will vest as to 25% for threshold performance, increasing to
100% for maximum performance.
The Committee has discretion to vary the formulaic vesting outturn if it
considers that the outturn does not reflect the Committee’s assessment
of performance or is not appropriate in the context of other factors
considered by the Committee to be relevant.
Additional shares may be delivered in respect of shares which vest under
the LTIP to reflect the value of dividends which would have been paid
on those shares during the period beginning with the date of grant and
ending with the release date (this payment may assume that dividends
had been reinvested in Dechra shares on a cumulative basis).
Market value options may be granted under the LTIP as tax-advantaged
Company Share Option Plan (CSOP) options, offering tax savings to the
Group and the participant.
The Committee may at its discretion structure awards as Qualifying
LTIP Awards, consisting of a CSOP option and an ordinary nil-cost LTIP
award, with the ordinary award scaled back at exercise to take account
of any gain made on exercise of the CSOP option.
Recovery provisions apply, as referred to below.
Maximum opportunity
The maximum award level under the LTIP in respect of any financial year is 200% of salary.
If a Qualifying LTIP award is granted, the value of shares subject to the CSOP option will not count towards the limits referred to above, reflecting
the provisions for the scale back of the ordinary LTIP award.
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Governance
Element: All Employee Share Plans
Purpose and link to strategy
Provision of the Save As You Earn Scheme (SAYE), including the Employee Stock Purchase Plan (ESPP) in the United States of America, to
Executive Directors creates staff alignment with the Group and provides a sense of ownership. Executive Directors may participate in such other
all employee share plan as may be introduced from time.
Operation
SAYE and ESPP: Tax qualifying monthly savings scheme facilitating
the purchase of shares at a discount.
Performance measure
Not subject to performance conditions in line with typical market practice.
Any other all employee share plan would be operated for Executive
Directors in accordance with its rules and on the same basis as for
other qualifying employees.
Maximum opportunity
The limit on participation and the permitted discount under the SAYE scheme and ESPP 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.
Recovery Provisions (Malus and Clawback)
The annual bonus and LTIP are subject to recovery provisions as set out below.
Malus provisions apply which enable the Committee to determine before the payment of an annual bonus or the vesting of an LTIP award, that the
bonus opportunity or LTIP award may be cancelled or reduced.
Clawback provisions apply which enable the Committee to determine for up to two years following the payment of a cash bonus or the vesting of an
LTIP award, that the amount of the bonus paid may be recovered (and any deferred bonus award may be reduced or cancelled, or recovery may be
applied to it if it has been exercised) and the LTIP award may be cancelled or reduced (if it has not been exercised) or recovery may be applied to it (if
it has been exercised).
The malus and clawback provisions may be applied in the event of material misstatement of Dechra’s financial statements, serious reputational
damage to Dechra, material corporate failure, gross misconduct on the part of the Executive Director, or if an annual bonus award has paid out at a
higher level than would have been the case but for a material misstatement or serious reputational damage.
Malus and clawback may be applied to any CSOP option granted under the LTIP to the extent permitted by the applicable tax legislation.
Operation of Share Plans
The Committee may amend the terms of awards and options under its share plans in accordance with the plan rules in the event of a variation of
Dechra’s share capital or a demerger, special dividend or other similar event or otherwise in accordance with the rules of those plans. Awards may
be settled, in whole or in part, in cash, although the Committee would only settle an Executive Directors’ award in cash in exceptional circumstances,
such as where there is a regulatory restriction on the delivery of shares.
Explanation of Performance Metrics
Performance measures for the LTIP and annual bonus are selected to reflect the Group’s strategy. Stretching performance targets are set each year
by the Committee taking into account a number of different factors.
Annual Bonus
The Committee considers that the underlying profit before tax is closely aligned to the Group’s key performance metrics; together with annual
personal objectives linked to the achievement of strategic milestones, we consider that this encourages sustainable growth year by year.
LTIP
The application of EPS and TSR targets to the LTIP aligns management’s objectives with those of shareholders for the longer term. LTIP awards are
subject to an underpin based on Return on Capital Employed; this ROCE underpin focuses executives on using capital efficiently and appropriately
to allow the business to capitalise on growth opportunities whilst maintaining returns.
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Governance
Directors’ Remuneration
Report continued
Variation or Substitution of Performance Measures
The Committee may vary or substitute any performance measure applying to the annual bonus or LTIP if an event occurs which causes it to
determine that it would be appropriate to do so (which may include an acquisition), provided that any such variation or substitution is fair and
reasonable and (in the opinion of the Committee) the change would not make the measure materially less demanding. If the Committee were to
make such a variation, an explanation would be given in the next Directors’ Remuneration Report.
Shareholding Guidelines
To align the interests of Executive Directors with those of shareholders, the Committee has adopted formal shareholding guidelines.
Shareholding Guidelines During Employment
During employment, Executive Directors are required to retain half of any shares acquired under the LTIP, any deferred bonus award 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.
Shares subject to LTIP awards which have vested but not been released (that is which are in a holding period), deferred bonus awards, or LTIP
awards which are exercisable but have not been exercised count towards the guidelines on a net of assumed tax basis.
Shareholding Requirement After Employment
The Committee has adopted a post-employment shareholding requirement. Shares are subject to this requirement only if they are acquired from
share plan awards (LTIPs, deferred bonus awards and, if relevant, any recruitment award) granted after 1 July 2020. Following employment, an
Executive Director must retain:
•
•
for the first year after employment, such of their shares which are subject to the post-employment requirement as have a value for these
purposes equal to the shareholding guideline that applies during employment (currently 200% of salary); and
for the second year after employment, such of those shares as have a value for these purposes equal to 50% of the shareholding guideline that
applies during employment,
or in either case and if fewer, all of those shares.
Policy Table for Non-Executive Directors
Element
Fees and benefits
Purpose and link to strategy
To provide fees within a market
competitive range reflecting the
experience of the individual,
responsibilities of the role and the
expected time commitment.
Operation
The fees of the Chairman are
determined by the Committee, and
the fees of the Non-Executive
Directors are determined by the
Board following a recommendation
from both the Chief Executive
Officer and the Chairman.
Non-Executive Directors are not
eligible to participate in any of the
Company’s share schemes, incentive
schemes or pension schemes.
Non-Executive Directors may be
eligible to receive benefits such as
travel and other reasonable expenses.
Opportunity
Fees are set taking into account
the responsibilities of the role and
expected time commitment.
Non-Executive Directors are paid a
basic fee with additional fees paid
for the chairing of Committees. An
additional fee is also paid for the role
of Senior Independent Director and
may be paid for other responsibilities
or time commitments.
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.
Policy for the Remuneration of Employees More Generally
The Group aims to provide a remuneration package that is competitive in an employee’s country of employment and which is appropriate to
promote the long term success of the Group. The Company intends to apply this policy fairly and consistently and does not intend to pay more than
is necessary to attract and motivate staff. In respect of the Executive Directors, a greater proportion of the remuneration package is ‘at risk’ and
determined by reference to performance conditions. The Company’s SAYE scheme and ESPP encourage share ownership by qualifying employees
and enable them to share in value created for shareholders.
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Governance
Illustrations of Application of Remuneration Policy
The following charts provide an illustration, for each of the Executive Directors, of the application of the Policy for the 2021 financial year. The charts
show the split of remuneration between fixed pay (that is base salary, benefits and employer pension contributions/salary supplement), annual bonus
and long term incentive pay on the basis of minimum remuneration, remuneration receivable for performance in line with Dechra’s expectations,
maximum remuneration, and maximum remuneration also assuming a 50% increase in the Company’s share price for the purposes of the LTIP
element.
Ian Page
Paul Sandland
Tony Griffin
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
3,000
2,500
2,000
1,500
1,000
500
0
£2,731k
£2,211k
£1,171k
£651k
22%
22%
47%
57%
24%
19%
100%
56%
29%
24%
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
1,400
1,200
1,000
800
600
400
200
0
£1,308k
£1,083k
£596k
19%
25%
42%
52%
28%
23%
£333k
100%
56%
30%
25%
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
1,400
1,200
1,000
800
600
400
200
0
£1,216k
£1,050k
£636k
32%
41%
£387k
13%
26%
32%
27%
100%
61%
36%
32%
m
u
m
n
M
i
i
e
c
n
a
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r
o
f
r
e
p
e
c
n
a
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r
o
f
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e
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h
t
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(
● Base salary, benefits and pension
● Annual bonus
● LTIP
In illustrating the potential reward, the following assumptions have been made.
Minimum performance
Performance in line with
expectations
Annual bonus
No bonus.
Bonus equal to 50% of salary is
earned.
Maximum performance
Bonus equal to 100% of salary is
earned.
Maximum performance plus
share price increase
Bonus equal to 100% of salary is
earned.
LTIP
No LTIP vesting.
LTIP vests as to 25% of the
maximum award (50% of salary for
Ian Page, 37.5% of salary for Paul
Sandland and 25% of salary for
Tony Griffin).
LTIP vests in full (200% of salary for
Ian Page, 150% of salary for Paul
Sandland and 100% of salary for
Tony Griffin).
LTIP vests in full as above, plus an
assumed 50% increase in the share
price.
Fixed pay
Base salary (being the latest known
salary as at 1 July 2020), employer
pension contributions at an assumed
rate of 14% (in the case of Ian Page
and Tony Griffin) or 4% of salary (in
the case of Paul Sandland) on the
latest known salary, and benefits as
disclosed in the single figure table
on page 129 for the 2020 financial
year (adjusted, in the case of Paul
Sandland, to give an equivalent
annual figure).
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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, holding period and deferral 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 350% 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 below.
Name
Tony Rice
Ian Page
Paul Sandland
Tony Griffin
Lisa Bright
Julian Heslop
Lawson Macartney
Ishbel Macpherson
Alison Platt
Commencement date
5 May 2016
1 September 2008
30 October 2019
1 November 2012
1 February 2019
1 January 2013
1 December 2016
1 February 2013
1 March 2020
Notice Period
Director
3 months
6 months
6 months
6 months
3 months
3 months
3 months
3 months
3 months
Company
3 months
12 months
12 months
12 months
3 months
3 months
3 months
3 months
3 months
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 over the initial 12 months of
employment.
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Governance
Policy on Payment for Loss of Office
Eligibility for the various elements of compensation is set out below:
Provision
Payments in Lieu of Notice
Annual Bonus
Deferred Bonus Awards
LTIP
Other Payments
Change of Control
Treatment upon loss of office
The Company has discretion to make a payment in lieu of notice at any time after notice has been given
by either the Company or the Director. Such a payment would consist of basic salary for the unexpired
period of notice and may also include benefits (including pension contributions or applicable salary
supplement) for that period.
This will be reviewed on an individual basis and the decision whether or not to award a bonus in full or in
part will be dependent upon a number of factors including the circumstances of their departure and their
contribution to the business during the bonus period in question. Any bonus payment would typically be
pro-rated for time in service to termination and paid at the usual time (although the Committee retains
discretion to pay the bonus earlier in appropriate circumstances).
Awards lapse on the date of termination in the event of dismissal for gross misconduct.
In other circumstances, awards will ordinarily continue and be released on the ordinary release date,
although the Committee retains discretion to release any such award on the date of termination in
appropriate circumstances (such as in the event of cessation due to death or ill-health). In either case,
the award will vest in full.
If an Executive Director ceases employment with the Group before an award under the LTIP vests as a
result of ill-health, injury, death, transfer of his employing entity out of the Group or any other reason, at the
discretion of the Committee, the award will usually be released on the normal release date, although the
Committee has discretion to permit the award to be released on cessation or at some other time (such as
following the end of the performance period). In either case, the award will vest to the extent determined
by reference to the relevant performance conditions and as reduced to reflect the period of time from the
start of the performance period to the date of cessation as a proportion of the performance period.
If an Executive Director ceases employment for any reason after the vesting date of an award under the
LTIP but before it is released (that is if he ceases employment during the holding period), that award will
continue to subsist in accordance with the rules of the LTIP (unless the cessation is due to summary
dismissal, in which case the award will lapse) and will ordinarily be released at the normal release date,
although the Remuneration Committee has discretion to release the award at the date of cessation. The
award will be released to the extent it vested by reference to the performance conditions.
If an Executive Director ceases employment for any reason after the release date of an award under the
LTIP, that award will continue to subsist in accordance with the rules of the LTIP (unless the cessation is
due to summary dismissal, in which case the award will lapse).
In appropriate circumstances, payments may also be made in respect of accrued holiday pay, and
outplacement and legal fees.
Options under the Company’s SAYE scheme, ESPP and any other all employee share plans will vest on
cessation in accordance with the plan rules, which do not allow for discretionary treatment.
In the event of a change of control:
• unvested awards under the LTIP will be released to the extent determined by the Committee taking
into account the relevant performance conditions and, unless the Committee determines otherwise,
the extent of vesting so determined shall be reduced to reflect the proportion of the relevant
performance period that has elapsed;
• awards under the LTIP which are in a holding period will be released to the extent vested by reference
to the performance conditions;
• deferred bonus awards will be released in full; and
• options under the SAYE scheme, ESPP and any other all employee share plan will vest on a change of
control.
In appropriate circumstances, share plan participants may be invited (or required) to exchange their
awards over Dechra shares for equivalent awards over shares in the acquiring company.
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Governance
Directors’ Remuneration
Report continued
Where appropriate, the Committee would have regard to the departing Executive Director’s duty to mitigate loss, except in the event of dismissal
following a change of control of the Company. Other than as described above, there are no express provisions within the Directors’ service contracts
for the payment of compensation or liquidated damages on termination of employment.
Where a ‘buyout’ or other award is made, the leaver provisions would be determined at the time of the award.
The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal
obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the
termination of a Director’s office or employment.
The Non-Executive Directors are entitled to compensation on termination of their appointment confined to three months’ remuneration.
Consideration of Employment Conditions Elsewhere in the Group
The Committee does not formally consult with employees as part of its process when determining Executive Director pay. However, as noted in the
Policy table on page 120, the level of salary increases of employees within the wider Group is considered when setting base salary for Executive
Directors. The Committee is also kept informed of general decisions made in relation to employee pay and related issues.
Consideration of Shareholders’ Views
The Committee believes that ongoing dialogue with major shareholders is of key importance. During the 2020 financial year, the Committee
consulted with shareholders in relation to the new Policy, and our proposals have been finalised having regard to feedback received.
Legacy Remuneration Arrangements
The Committee reserves the right to make remuneration payments and payments for loss of office notwithstanding that they are not in line with the
Policy set out above where the terms of payments were agreed:
• before the Policy came into effect (provided that, in the case of any payments agreed on or after 24 October 2014 they are in line with
any applicable shareholder approved directors’ remuneration policy in force at the time they were agreed or were otherwise approved by
shareholders); or
• at a time when the relevant individual was not a Director of the Company (or other person to whom the Policy set out above applies) and, in the
opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company (or other such person).
For these purposes, ‘payments’ includes the satisfaction of variable remuneration and, in relation to an award over shares, the terms of the payment
are ‘agreed’ no later than the time the award is granted.
Ishbel Macpherson
Remuneration Committee Chairman
7 September 2020
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Governance
2020 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 to be proposed
to the shareholders at the 2020 Annual General Meeting will be applied in the 2021 financial year. The sections of the 2020 Annual Report on
Remuneration that are audited by PricewaterhouseCoopers LLP (PwC) are indicated on pages 129 to 135.
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 2020.
The table shows the remuneration for each such person in respect of the year ended 30 June 2020 and, if they were an Executive Director
in the year ended 30 June 2019, their remuneration in that year:
Executive Director
Ian Page
Paul Sandland
Tony Griffin
Total 2020
Total 2019
Year
2020
2019
2020
2019
2020
2019
2020
2019
Salaries
£000
517
500
200
N/A
330
309
1,047
809
Benefits
£000
59
60
14
N/A
9
10
82
70
Annual
Bonus
£000
145
360
56
N/A
92
223
293
583
Long Term
Incentive
£000
806
2,045
N/A
N/A
244
582
1,050
2,627
Pension
£000
72
70
8
N/A
35
34
115
104
Total
£000
1,599
3,035
278
N/A
710
1,158
2,587
4,193
Total
Fixed
£000
648
630
222
N/A
374
353
1,244
983
Total
Variable
£000
951
2,405
56
N/A
336
805
1,343
3,210
Please note the following methodologies have been used in respect of the above table:
1. Salaries – this is the cash paid or received in respect of the relevant period.
2. Benefits – this represents the taxable value of all benefits paid or received in respect of the relevant period. The benefits provided include the use of a fully expensed
car, medical cover and life assurance. SAYE options granted in the year have also been included in the benefits column in respect of any year in which there was a
grant. These have been valued using the fair value as per note 27 to the Group’s financial statements.
3. Annual Bonus – this is the amount of cash bonus paid in respect of the financial year.
4. Long Term Incentives – this is the value of any long term incentives vesting where the performance period ended in the relevant period.
5. Pension – this is the cash value of the employer contribution to the Group stakeholder personal pension scheme or, in the case of Tony Griffin, defined contribution
pension plan, plus the value of any salary supplement paid.
6. The 2019 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 £27.085 (being the average market value of a share over the last quarter of the Company’s financial period ended on 30 June 2019).
This has been restated to show the actual value determined by reference to a price of £27.92 (being the market value of a share on 19 September 2019, the date of
vesting).
7. Tony Griffin’s remuneration is paid in Euros but reported in Sterling for the purpose of this table. The exchange rate used for this purpose was 1.1345 for 2019 and
1.096 for 2020. His salary was €361,632 for 2020 (reflecting two months at a salary of €352,813 and ten months at a salary of €363,396) and €351,100 for 2019
(reflecting two months at a salary of €342,537 and ten months at a salary of €352,813).
8. Paul Sandland was appointed as an Executive Director on 30 October 2019 and the remuneration reported in the single figure table is from this date.
Additional Disclosures in Respect of the Single Figure Table
Salaries and Fees
As disclosed in the Directors’ Remuneration Report in the 2019 Annual Report, the Executive Directors’ base salaries were reviewed in September
2019, in alignment with the Group’s performance development review calendar to provide a clearer link between performance and reward.
Executive Director
Ian Page
Tony Griffin
2020 Salary
£520,000
€363,396
2019 Salary
£500,000
€352,813
% increase
4%
3%
Effective from
1 September 2019
1 September 2019
Both Ian Page’s and Tony Griffin’s salary increases were broadly in line with the average range of increases awarded to employees in the wider
Group. Ian Page had previously notified the Committee that he did not wish to receive a pay increase in 2018 and 2017.
The Committee’s approach to Executive Directors’ salaries for the year ending 30 June 2021 is summarised on page 137.
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.
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Governance
Directors’ Remuneration
Report continued
Annual Bonus
The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the Committee in respect
of the 2020 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 2020 against targets for the 2020 financial year is set out below. The Committee considers that the level of payout is
reflective of the overall performance of the Group in the year and is appropriate.
Underlying profit
before tax (up to
90% of salary)
Threshold
(10% of salary)
£112.7 million
Target
(50% of salary)
£118.7 million
Maximum
(90% of salary)
£130.5 million
Actual
(at budgeted
rates) £113.9
million
Personal Objectives
(up to 10% of salary)
Each Executive Director could earn a bonus of up to 10% of salary
by reference to the achievement of personal objectives based on key
aspects of delivering the Group’s strategy (see table below)
Bonus earned (percentage of salary)
Ian Page Paul Sandland
18%
Tony Griffin
18%
18%
10%
10%
10%
The personal objectives of each Executive Director for the year ended 30 June 2020 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
Acquisition
Objective
Build the pipeline of acquisition opportunities
Manufacturing
Geographical
Expansion
People
People
Finance
IT
IT
Manufacturing
Shareholder
Paul Sandland
Tony Griffin
Acquisition
People
Drive improved continuity of supply
and oversee management controls
Support and maintain close focus on
the growth of the International business
Shape and enhance the Senior Executive’s
capability to support and deliver future growth
Onboard new Chief Financial Officer
Sponsor and embed the stakeholder
engagement agenda into the organisation
Lead re-financing and Bond Placing
Take leadership of Group IT Function
Drive efficiencies through implementation
of technology solutions
Support development of fit for purpose S&OP
process
Effective engagement with shareholders in
results presentations and in support of financing
Realise the planned synergies for AST Farma
and Le Vet acquisitions
Develop new European Marketing and Sales
structures
Customers
Progress the Corporatisation Plan
Performance
Completed the acquisition of Ampharmco and the
product acquisition of Mirataz and post year end the
Osurnia product acquisition
Significant investment in organisation design, capital
investments approved and in progress
Key milestones achieved in the ongoing integration
of acquired international businesses
New Chief Financial Officer appointed and
restructured Senior Executive Team
Key milestones achieved, however some disruption
to the plan due to COVID-19
Private Placement completed
Restructure complete and redeveloping the strategy
Hyperion milestones achieved, approved Global Payroll
system, roll out commencing 2020
Improvement of on-time delivery and out of stock
situation
Significant engagement due to Private Placement
and Share Placing
Incremental growth of sales and margin as products
return to Dechra Sales team from Le Vet distributors
Research carried out in terms of customer needs
and implemented the pilot of Dechra 'Coach' sales
team in France
Conducted research with customers and rolling out
new position of key account managers across Europe
Manufacturing
Support Manufacturing and Supply Chain to
ensure improved processes and more robust
Sales and Operations planning
Restructured Supply and Demand teams preparing
to implement Integrated Business Planning
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Governance
Long Term Incentive Plan
The LTIP awards granted on 2 March 2018 are due to vest in September 2020. The performance targets for these awards are as follows: one third
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
Two thirds 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 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 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 Company’s TSR performance was over 59.97% compared with a 25.38% 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 12.7%. Accordingly, 60.6% of the EPS element will vest. Overall, taking into account that
ROCE performance for 2020 was 15.4%, the LTIP awards will vest as to 73.7% of the maximum opportunity.
The Committee considered that the level of vesting reflected the underlying performance of the Group over the period.
In the single figure table on page 129, 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 £27.404 (being the average market value of a share over the last quarter of the Company’s financial period ended on
30 June 2020). As part of his award, Ian Page was granted a tax qualifying option over 1,197 shares at an exercise price of £25.06 per share. The
option was subject to the same performance conditions as applied to the LTIP award. If the tax qualifying option is exercised at a gain, the number
of shares that may be acquired under the LTIP award is reduced by the same value so that the total pre-tax value of the LTIP award is not increased
by the grant of the tax qualifying option; accordingly, the tax qualifying option is ignored when calculating the single figure table value.
The March 2018 awards were granted when the value of a share was £25.06 (being the three day average middle market quotation preceding the
grant). The following table shows the amount of the award attributable to share price appreciation from that value to £27.404 (being the average
market value of a share over the last quarter of the Company’s financial period ended on 30 June 2020).
Executive Director
Ian Page
Tony Griffin
Number of shares in
respect of which the
Award is expected to
vest
29,409
8,916
Amount of award
attributable to share
price at grant
£000
737
223
Amount attributable to
share price appreciation
£000
69
21
Total award
£000
806
244
Each award is subject to a two year holding period. Other than shares sold to satisfy tax liabilities arising in connection with the acquisition of shares
or to fund the exercise price of the tax qualifying option, no shares acquired may be sold before the second anniversary of vesting. The Company
has measures in place to prevent the shares from being sold or transferred during the holding period. During the holding period, the Executive
Directors, as beneficial owners of the shares, will be entitled to any dividend payments and will be able to vote at any general meeting of the
Company.
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Governance
Directors’ Remuneration
Report continued
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 2020 was £2,625,303 (2019: £2,897,470).
Pension
Ian Page and Paul Sandland were members of the Dechra Pharmaceuticals PLC Group Stakeholder personal pension scheme throughout the year.
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
transfer value as at this date was €283,000. This was transferred to a defined contribution scheme. From 1 January 2019, Tony Griffin has received
contributions to two defined contribution pension schemes (the existing defined contribution pension scheme and the defined contribution pension
scheme which replaced the Basisipension) in the Netherlands in respect of earnings up to €100,000 and a salary supplement in respect of earnings
above this amount.
Contributions made by Dechra Pharmaceuticals PLC on behalf of the Executive Directors during the year equated to no more than 14% of pensionable/
base salary for both Ian Page and Tony Griffin. The contributions for Ian Page and Tony Griffin reflect long standing contractual entitlements, and not
considered excessive in the context of their base salaries. These pension contributions will be aligned with the rate available to the UK wider workforce
by the end of 2022 (this will include enhancing the UK wider workforce rate alongside a reduction in the rate for Executive Directors).
Prior to Paul Sandland’s appointment as an Executive Director, as a member of the higher band of senior and professional employees within the UK
Group with over five years’ service, the employer contribution was 12% of his base salary. Following his appointment as an Executive Director, this
pension contribution was reduced to 4% which is in line with the majority of our UK workforce.
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 2020. 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 2020 and the year ended 30 June 2019:
Additional
responsibilities
Chairman and Nomination
Committee Chair
Senior Independent
Director and Remuneration
Committee Chair
Audit Committee Chair
Employee Engagement
Designated Non-Executive
Director
Tony Rice
Ishbel
Macpherson
Julian Heslop
Lawson
Macartney
Lisa Bright*
Alison Platt†
Total
* Lisa Bright was appointed on 1 February 2019.
† Alison Platt was appointed on 1 March 2020.
Base fee
£000
2020
129
Additional fee
£000
2019
126
2020
5
2019
5
Total
£000
2020
134
52
52
52
52
17
354
50
50
50
21
–
297
15
10
–
5
–
35
13
10
–
2
–
30
67
62
52
57
17
389
2019
131
63
60
50
23
–
327
The Non-Executives are not eligible to participate in any of the Company’s share schemes, incentive schemes or pension schemes.
The Senior Independent Director, Employee Engagement Designated Non-Executive Director and the chairmen of the Audit Committee, Nomination
Committee and Remuneration Committee receive an additional fee for those roles. As disclosed in the Directors’ Remuneration Report in the 2019
Annual Report, it had been agreed that there would be no changes to the additional fees, with the exception of the Remuneration Committee Chair
which increased from £8,000 to £10,000. With regards to the base fees it was agreed to increase this as disclosed in the table below.
Office
Chairman
Non-Executive Director
2020
Fee
£000
130
52
2019
Fee
£000
126
50
The Committee’s approach to the Chairman’s and Non-Executive Directors’ fees for the year ending 30 June 2021 is summarised on page 137.
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Governance
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 6 September 2019, as set out in the table below.
Type of award
Nil cost option under the LTIP
Ian Page
Paul Sandland Nil cost option under the LTIP
Tony Griffin
Maximum
opportunity
200% of salary
100% of salary
Conditional award under the LTIP 100% of salary
Number of
shares
35,087
6,106
10,984
Face value
at grant*
£1,039,979
£180,982†
£325,566
% of award
vesting at
threshold
Performance Period
25% 1 July 2019 – 30 June 2022
25% 1 July 2019 – 30 June 2022
25% 1 July 2019 – 30 June 2022
* Based on a share price of £29.64 being the three day average middle market quotation preceding the grant
† Paul Sandland’s award was granted before his appointment to the Board and was based on his pre-appointment salary
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 discussed in the letter from the Remuneration Committee Chairman, the EPS targets have been considered in the light of transactions
which have taken place in the year. As noted in the letter from the Remuneration Committee Chairman, the EPS for the final year of the performance
period (the financial year to 30 June 2022) will be adjusted to reflect actual R&D costs associated with the Akston deal, recognising these were not
included in the base year. The targets set out below are those which were originally set; as noted in the letter from the Remuneration Committee
Chairman, it is our intention to increase the upper end of the EPS target by 1% to take into account the Mirataz and Osurnia acquisitions and the
associated Share Placing.
EPS compound annual growth rate (CAGR)
<8% CAGR
8% CAGR
CAGR between 8% and 16%
>16% CAGR
Vesting Percentage
0%
25% of the EPS portion will vest
Pro rata vesting between 25% and 100%
100% of the EPS portion will vest
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. Ian Page’s and Tony Griffin’s awards
are 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. Paul Sandland’s award was granted before his appointment to the Board and,
consistent with other below Board LTIP awards, is not subject to a post-vesting holding period.
SAYE (Audited)
There were no SAYE options granted to Executive Directors during the year ended 30 June 2020.
Payments to Past Directors (Audited)
There were no payments to Past Directors during the period.
Payments for Loss of Office (Audited)
There were no payments for loss of office made to Directors during the period.
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 2020 is as follows:
Executive Share Plans
Limit: 5%
Usage: 2.3%
All Share Plans
Limit: 10%
Usage: 3.0%
Stock Code: DPH
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Governance
Directors’ Remuneration
Report continued
Shareholdings (Audited)
Executive Directors
In respect of the financial year ended 30 June 2020, 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. 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 2020 and their families as at 30 June 2020 are as follows:
Name
Ian Page
Paul Sandland
Tony Griffin
Appointment date
13 June 1997
30 October 2019
1 November 2012
Ordinary
shares
Number
625,723
5,069
70,606
Ordinary
shares
£000* % of salary
3,423
17,798
48
144
609
2,009
* Calculated using the share price as at 30 June 2020.
Executive Directors’ Total Interest under Shares Schemes (Audited)
Awards held under the Long Term Incentive Plan (and, in the case of Paul Sandland, market value options) for each person who was a Director
during the year ended 30 June 2020 are as follows:
Ian
Page
Tony
Griffin
Paul
Sandland
Award
date
19-Sep-16 LTIP
Type of
award
02-Mar-18 LTIP1
26-Oct-18 LTIP
06-Sep-19 LTIP
19-Sep-16 LTIP
02-Mar-18 LTIP
26-Oct-18 LTIP
06-Sep-19 LTIP
15-Sep-153 Approved
19-Sep-163 Approved
19-Sep-163 Unapproved
02-Mar-183 Approved
02-Mar-183 Unapproved
26-Oct-183 Unapproved
06-Sep-19 LTIP
Option
price for
market
value
options
(£)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
£9.75
£13.69
£13.69
£25.06
£25.06
£21.66
N/A
Number
of shares
as at
1 July
2019 Granted Lapsed Exercised
73,260
73,260
–
–
39,904
46,168
–
20,858
12,099
14,444
–
923
526
2,474
550
2,450
3,000
–
–
–
35,087
–
–
–
10,984
–
–
–
–
–
–
6,106
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,858
–
–
–
–
–
–
–
–
–
–
Number
as at
30 June
2020
–
39,904
46,168
35,087
–
12,099
14,444
10,984
923
526
2,474
550
2,450
3,000
6,106
Status
Vested and
exercised in the year
Unvested2
Unvested
Unvested
Vested and
exercised in the year
Unvested2
Unvested
Unvested
Vested
Vested
Vested
Unvested
Unvested
Unvested
Unvested
Performance
Period
2016–2019
2017–2020
2018–2021
2019–2022
2016–2019
2017–2020
2018–2021
2019–2022
2015–2018
2016–2019
2016–2019
2017–2020
2017–2020
2018–2021
2019–2022
1.
Ian Page was granted a tax qualifying option over 1,197 shares at an exercise price of £25.06 as part of his LTIP award. This tax qualifying option is linked to the nil
cost option such that, at the time of exercise, to the extent there is a gain in the tax qualifying option, the nil cost option will be forfeited to the value of that gain.
2. Will vest on 7 September 2020 as to 73.7%
3. Paul Sandland holds market value options. These options and awards were granted to Paul Sandland prior to his appointment as an Executive Director. These options
are subject to a performance condition based on the percentage growth in the adjusted diluted EPS, which must exceed the sum of the percentage growth in RPI and
12%.
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Governance
Non-Executive Directors (Audited)
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 2020 are as follows:
Name
Tony Rice
Ishbel Macpherson
Julian Heslop
Lawson Macartney
Lisa Bright
Alison Platt
Appointment date
5 May 2016
1 February 2013
1 January 2013
1 December 2016
1 February 2019
1 March 2020
* Calculated using the share price as at 30 June 2020.
Ordinary
shares
number
20,000
5,848
10,000
5,880
–
760
Ordinary
shares
£000*
569
166
285
167
–
22
% of base
fee
438
320
547
323
–
42
There have been no changes in the holdings of the Company’s Directors between 30 June and 7 September 2020.
Performance and Chief Executive Remuneration
TSR
This graph 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 2020 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
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Dechra
FTSE 250
Chief Executive Officer Remuneration for Ten Previous Years
Year ended
30 June 2020
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
Total single
figure
remuneration
£000
1,599
3,035
3,058
3,420
2,480
1,934
1,589
1,201
682
984
Annual
bonus
payout (%
of maximum
opportunity)
28
72
76
92
72
80
80
36
60
60
LTIP vesting
(% of
maximum
number of
shares)
73.7
100.0
100.0
100.0
96.25
93.1
100.0
100.0
0
71.1
Stock Code: DPH
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Governance
Directors’ Remuneration
Report continued
Annual Percentage Change in Remuneration of Directors and Employees
The table below shows the percentage change in each Director’s salary/fees, benefits and bonus between the year ended 30 June 2019 and the
year ended 30 June 2020, and the average percentage change in the same remuneration over the same period in respect of the employees of the
Company on a full time equivalent basis.
The average employee change has been calculated by reference to the mean of employee pay. Paul Sandland and Alison Platt were appointed to
the Board during the year ended 30 June 2020 and, accordingly, they have been excluded from the table below.
Salary/fees
Taxable benefits
Annual bonus
Average
employee
(11.8%)
16.3%
(47.4%)
Ian
Page
4%
(1.7%)
(59.7%)
Tony
Griffin
6.8%
(10.0%)
(58.7%)
Tony
Rice
2.3%
N/A
N/A
Ishbel
Macpherson
3.2%
N/A
N/A
Julian
Heslop
3.3%
N/A
N/A
Lawson
Macartney
4.0%
N/A
N/A
Lisa
Bright
3.6%
N/A
N/A
1.
Excludes SAYE options granted during the year.
2. Tony Griffin's increase in salary was 3%, however due to exchange rates the increase is artificially inflated.
3. Lisa Bright was appointed to the Board on 1 February 2019. To enable comparison and to provide meaningful reflection of the annual percentage change, her fees
for the year ended 30 June 2019 have been annualised.
4. The reduction in the average employee’s salary between the 2019 financial year and the 2020 financial year reflects that with effect from 1 July 2019 a number of
employees were transferred within the Group to become employees of the Company, such that they are included in the calculation of the average employee’s salary
for the 2020 financial year but were not included in the average employee’s salary for the 2019 financial year.
Chief Executive Officer’s Pay Ratio
The table below shows the ratio of the Chief Executive Officer’s remuneration for 2020, 2019 and 2018 using the Single Total Figure as disclosed
on page 129 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.
Year
2020
2019
2018
25th
percentile
pay ratio
68:1
139:1
137:1
Median pay
ratio
53:1
107:1
109:1
75th
percentile
pay ratio
28:1
56:1
58:1
Method
Option A1
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. In each year, the employees at the 25th, median and 75th percentile were identified by reference to remuneration at 30 June that year.
Chief Executive Officer
25th percentile employee
Median employee
75th percentile employee
2020
Total pay
and benefits
(salary)
£000
1,599
(517)
24
(21)
30
(29)
57
(39)
20191
Total pay
and benefits
(salary)
£000
3,035
(500)
22
(18)
28
(27)
54
(45)
1. The 2020 figure includes share options and awards, which have been valued by reference to £27.404 (being the average market value of a share over the last quarter
of the Company’s financial period ended 30 June 2020). SAYE options granted in 2019 and 2020 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 27 to the Group’s financial statements.
In 2020, there were a total of 441 UK employees (2019: 380 UK employees), 164 of which have been excluded for the above stated reasons (2019:
87), leaving 277 employees within the 'full pay relevant' data set (2019: 293) for comparison against the Chief Executive Officer. We believe that the
final figures detailed above are representative of the majority of the data set.
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Governance
The above decrease to the Chief Executive Pay Ratio can be explained by the reduction in the amount of LTIP which will vest this year compared to
last year (from 100% to 73.7%). Only five employees (including the Chief Executive Officer) have LTIP's which will vest this year and they are all within
the 75th percentile group of employees. In addition, the Chief Executive Officer's bonus opportunity is greater and in previous years has resulted in
100% of his salary being awarded whereas this year the bonus will represent 28% of his salary.
Of the employees within the 'full pay relevant' data set, 167 worked in our Manufacturing business which is predominately shop floor workers
(2019: 178). During the 2020 financial year, we addressed the pay levels of these employees moving them from minimum wage to national living
wage and we also awarded all of our frontline workers with a COVID award. These actions have contributed to the reduction in the ratio this year.
Relative Importance of Spend on Pay
The following table sets out the percentage change in distributions to shareholders (by way of dividend and share buyback) and total remuneration
paid to or receivable by all Group employees comparing the year ended 30 June 2019 and the year ended 30 June 2020.
Distributions to shareholders by way of dividend and share buyback
Overall expenditure on pay
Year ended
30 June 2020
£000
33,300
104,000
Year ended
30 June 2019
£000
28,400
92,700
% change
17.2%
12.2%
Implementation of the Directors’ Remuneration Policy in the Year Ending 30 June 2021
Subject to approval at the 2020 Annual General Meeting, the Directors’ Remuneration Policy outlined on pages 120 to 128 will be implemented in
the year ending 30 June 2021, as set out below.
Salary and Fees
We have decided to postpone the next review of Executive Directors’ salaries from September 2020 to later in the year, which will allow the
Committee time to review any impact COVID-19 may have on the business in the forthcoming year. It is planned that any increase for the Executive
Directors’ salaries will be in line with the range of any increases proposed for the wider workforce. Consequently it has also been agreed to defer
a review of the Non-Executive Directors’ base and additional fees until later in the year.
Annual Bonus
As noted in the letter from the Remuneration Committee Chairman, notwithstanding the additional flexibility in the new Policy, bonuses for financial
year 2021 will continue at the current level of 100% of salary, with two changes to the structure of the bonus compared to previous years:
•
•
for all Executive Directors, the proportion of the bonus based on underlying profit will be reduced to 85%, with ESG measures accounting for 5%
(and personal objectives continuing to make up 10% of the total opportunity); and
for Tony Griffin, half of his profit element will be based on the underlying profit of Dechra Veterinary Products EU and half will be based on Group
underlying profit.
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 130 in respect
of bonuses for the Group’s 2020 financial year.
LTIP
The Committee proposes that LTIP awards for the year ending 30 June 2021 (the 2021 Grant) will be made at the level of 200% of salary for Ian
Page, 150% of salary for Paul Sandland and 100% of salary for Tony Griffin. The performance measures for the 2021 Grant will be based on TSR
(one third) and EPS (two thirds), with an underpin based on ROCE. The TSR targets will be the same as for the awards made in the 2020 financial
year, details of which can be found on page 133.
The EPS targets for the 2021 Grant are:
EPS compound annual growth rate (CAGR)
<8% CAGR
8% CAGR
CAGR between 8% and 16%
>16% CAGR
Vesting Percentage
0%
25% of the EPS portion will vest
Pro rata vesting between 25% and 100%
100% of the EPS portion will vest
As with the 2020 Grant, the Committee will retain discretion 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.
Stock Code: DPH
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Governance
Directors’ Remuneration
Report continued
Consideration by the Directors of Matters relating to Directors’ Remuneration
Purpose
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, Meetings and Attendance
Details of each member’s attendance at the Committee’s meetings is detailed on page 112. 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.
Effectiveness of Committee
The Committee’s performance was evaluated as part of the 2020 Board and Committee Internal Evaluation (further details of which can be found
on page 104 of the Corporate Governance Report). The Committee considered the results of the evaluation and it was agreed that the Committee
remained effective. Following feedback from the evaluation, the performance measures for the bonus have been reassessed with the view of
confirming that they remained stretching and have included an ESG factor to increase the Directors' focus on this area.
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 2020 financial year this review took place at the June 2020 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 94.
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, which were charged on a time and materials basis, were £30,500 for the year ended 30 June 2020. The
Committee considers the advice to be objective and independent, and assesses from time to time whether this appointment remains appropriate or
should be put out to tender; in doing so, it takes into account the Remuneration Consultants Group Code of Conduct. Deloitte was appointed by the
Committee following a competitive process and has provided share scheme advice and general remuneration advice to the Company. During the year
Deloitte also performed tax advisory work for Dechra.
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 Director currently holds external appointments.
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 18 October 2019, 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
Ishbel Macpherson
Remuneration Committee Chairman
7 September 2020
Votes
for
72,519,866
72,932,631
% of vote
99.27
98.88
Votes
against
533,633
823,955
% of vote
0.73
1.12
Votes
withheld
672,695
8,619
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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 2020. Certain disclosure requirements, which form part of
the Directors’ Report, are included elsewhere in this Annual Report as
permitted by section 414C of the Companies Act 2006. Therefore, this
report should be read in conjunction with the Strategic Report (which
includes the Corporate Social Responsibility report) on pages 10 to
77 along with the other sections of the Governance Report. They are
incorporated by reference into this Directors’ Report and include:
• Details in respect of the Board of Directors;
• 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, viability statements and risk management;
• Employee involvement and approach to employees with disabilities;
and
• Details in respect of Greenhouse Gas Emissions and Streamlined
Energy & Carbon Reporting.
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 37 respectively to the Financial
Statements.
Section 172 Statement
The disclosures regarding how the Directors have:
• engaged with employees;
• have regard to employee interests and the effect of that regards,
including on the principal decision taken by the Company during
the financial year; and
•
regard to the need to foster business relationships with suppliers,
customers and others, and the effect of that regards, including on the
principal decisions taken by the Company during the financial year;
can be found on pages 46 and 47.
Amendment of the Articles of Association
The Company’s Articles of Association may be amended by a special
resolution of its shareholders.
Significant Agreements/Change of Control
As detailed in the Going Concern Statement on page 33, 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
replaced by Credit Industriel et Commercial SA (CIC Bank) in July 2019),
Raiffeisen Bank International AG and Santander UK plc (the Banks).
These bank facilities include a change of control provision whereby a
change of control of the Company could result in the withdrawal of
these bank facilities.
In January 2020 the Group undertook a Private Placement raising
€50.0 million and USD $100.0 million (under seven and ten year new
senior secured notes respectively), which includes a change of control
provision whereby a change of control of the Company may result in the
Private Placement Notes having to be repaid in full.
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.
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.
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 2020
(2019: 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
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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 2020 was £28.4 million
(2019: £25.1 million) and a further £1.8 million (2019: £1.2 million) was
capitalised as development costs.
Results and Dividends
The results for the year and financial position at 30 June 2020 are
shown in the Consolidated Income Statement on page 153 and
Consolidated Statement of Financial Position on page 155 The Directors
are recommending the payment of a final dividend of 24.00 pence per
share which, if approved by shareholders, will be paid on 27 November
2020 to shareholders registered at 6 November 2020. The shares will
become ex-dividend on 5 November 2020. An interim dividend of 10.29
pence per share was paid on 8 April 2020, making a total dividend for
the year of 34.29 pence per share (2019: 31.60 pence per share). The
total dividend payment is £37.0 million (2019: £32.5 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 108,010,960 fully paid ordinary shares were in issue, which
included 226,858 ordinary shares issued during the year in connection
with the exercise of options under the Company’s share option
schemes.
5,132,500 new ordinary shares were offered by way of a placing at an
issue price of 2600 pence per share, raising gross proceeds of
£133.4 million. The placing price of 2600 pence per share was a 5.3%
discount to the closing middle market share price on 3 June 2020, being
the date of the placing announcement. These new ordinary shares were
issued on 8 June 2020 fully paid and rank pari passu in all respects with
the existing ordinary shares.
The holders of shares are entitled to receive dividends when declared,
to receive the Company’s Report and Accounts, to attend and speak at
general meetings of the Company, to appoint proxies and to exercise
voting rights. There are no restrictions on transfer or limitations on the
holding of shares in the Company, nor are there any requirements to
obtain prior approval in respect of any transfer of shares. The Directors
are not aware of any agreements which limit the transfer of shares or
curtail voting rights attached to those shares.
At the Annual General Meeting of the Company held on 18 October
2019, the Company was authorised to purchase up to 10,265,100
of its ordinary shares, representing 10% of the issued share capital of
the Company as at 5 September 2019. 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 in the Company and to disapply shareholders’ statutory
pre-emption rights. Such authorities were granted at the 2019 Annual
General Meeting and resolutions to renew these authorities will be
proposed at the 2020 Annual General Meeting.
Substantial Interests in Voting Rights
In accordance with the requirements in the Listing Rules and the
Disclosure Guidance 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.
30 June 2020
20 August 2020
Aggregate
voting
rights Percentage
Aggregate
voting
rights Percentage
9,412,758
8.71
9,324,081
9,034,421
5,394,799
8.36
4.99
9,121,920
5,519,202
4,025,635
3.73
3,985,858
8.63
8.45
5.11
3.69
3,955,824
3.66
3,950,824
3.66
Fidelity
Management &
Research
Standard Life
Aberdeen
BlackRock Inc
The Vanguard
Group, Inc
Royal London
Mutual Assurance
Society
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
7 September 2020
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Governance
Each of the Directors, whose names and functions are set out on pages
82 and 85, confirm that to the best of their knowledge:
1.
2.
3.
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;
the Group Financial Statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and profit
of the Group; and
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.
Signed by order of the Board.
Ian Page
Chief Executive Officer
Paul Sandland
Chief Financial Officer
7 September 2020
Statement of
Directors’ Responsibilities
Statement of Directors’ Responsibilities in Respect
of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare Financial Statements
for each financial year. Under that law the Directors have prepared the
Group Financial Statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and
Company Financial Statements in accordance with United Kingdom
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 accounting 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.
Directors’ Confirmations
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
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Job Number 7 September 2020 2:39 pm Proof NumberDelivering Market- Leading Products for Treating Animals’ Welfare NeedsDelivering Our PurposeThe Group has a wide range of licensed products supporting the equine veterinarian. During the 2020 financial year, we have added three products to our Equine product range with a fourth launched in July 2020.Tranquinervin, a new equine sedation and premedication. At low doses, acepromazine reduces anxiety, which is beneficial for use in horses prior to shoeing or transportation. At higher dose rates, it is an effective sedative for use in situations like dentistry or handling.Nerfasin vet, which contains the short acting alpha-2 agonist xylazine, is licensed for both sedation and premedication prior to general anaesthesia.On 9 July 2020, we announced the first and only equine benzodiazepine licensed for the intravenous co-induction of anaesthesia in horses, Dormazolam. This product works in synergy with other induction agents to provide an extended duration of anaesthesia without adversely affecting the quality of recovery. It has been introduced as part of Dechra’s extensive equine anaesthesia solutions range.Additionally, following the acquisition of Le Vet, Dechra has taken over the distribution of Dilaterol. Dilaterol is an oral syrup indicated to treat respiratory disease in horses. It causes intense bronchodilation, inhibits histamine release and increases ciliary mucous clearance, and can be used as a front line or adjuvant therapy.Dechra-AR2020-Financials.indd 14207-Sep-20 4:44:49 PM Job Number 7 September 2020 2:39 pm Proof NumberFinancial StatementsContentsIndependent Auditors’ Report144Consolidated Income Statement153Consolidated Statement of Comprehensive Income154Consolidated Statement of Financial Position155Consolidated Statement of Changes in Shareholders’ Equity156Consolidated Statement of Cash Flows157Notes to the Consolidated Financial Statements158Company Statement of Financial Position204Company Statement of Changes in Shareholders’ Equity205Notes to the Company Financial Statements206Financial History215Dechra-AR2020-Financials.indd 14307-Sep-20 4:44:51 PM 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 Consolidated 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 2020 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 2020; the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Cash Flows, and the Consolidated and Company Statement 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 2019 to 30 June 2020.
Our audit approach
Overview
• Overall Group materiality: £3.8 million (2019: £3.8 million), based on 3% of underlying operating profit.
• Overall Company materiality: £3.1 million (2019: £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
Materiality
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 Group treasury operations, corporate taxation, and goodwill and intangible asset impairment
assessments.
Audit scope
• The components on which audits of the complete financial information and centralised work was performed
Key audit
matters
accounted for 90% of Group revenue, 82% of Group underlying operating profit and 84% of Group profit before
tax.
• As part of the supervision process, the Group engagement team have interacted with all component teams.
These interactions have included formal written instructions, regular meetings and review of selected working
papers. In addition the Group engagement team are also directly responsible for the performance of the audits
of all in scope UK components.
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:
• Acquisition accounting (Group);
•
Impairment of intangible assets (Group);
• Licensing agreements and associated contingent considerations (Group);
• Taxation (Group); and
• Consideration of the impact of Covid-19 (Group).
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Financial Statements
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 (including Medicines & Healthcare products Regulatory Agency and U.S. Food & Drug Administration), 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;
• Consideration of any changes to the control environment as a result of Covid-19;
• Review of internal audit reports;
• Reading key correspondence with regulatory authorities;
• 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
acquisition accounting, carrying value and impairment of intangible assets, licensing agreements and associated contingent considerations 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.
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.
Stock Code: DPH
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Financial Statements
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
Key audit matter
Acquisition accounting - assessment of the acquisition
accounting in respect of the acquisition of Ampharmco LLC,
the trade and assets associated with the Mirataz® product
portfolio and measurement period adjustments in respect of the
acquisition of Dechra Brasil Produtos Veterinarios Ltda (formerly
Laboratorios VencoFarma do Brasil Ltda)
(relevant to the Consolidated Financial Statements)
Refer to the Audit Committee Report on page 108, the critical
accounting estimates and judgements in note 1 (b) to the accounts on
page 158, and note 31 (Acquisitions).
Acquisition of Ampharmco LLC
The Group completed the acquisition of Ampharmco LLC and its
associated companies Dragon Fire Holdings LLC and Black Griffin
Holdings LLC (collectively Ampharmco), together with its manufacturing
site based in Fort Worth, Texas on 28 August 2019.
We focused on this area because the accounting for business
combinations including the valuation of the opening balance sheet is
inherently judgemental.
IFRS 3 (revised) requires that consideration is given to the existence
and measurement of separable identifiable intangible assets that have
been acquired as part of each respective acquisition agreement. For
the acquisition, significant value has been attributed to the developed
technology, in process research and development, and contract
manufacturing relationships, 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.
Acquisition of Mirataz®
The Group acquired the trade, assets and worldwide rights to the
Mirataz® product portfolio on 16 March 2020.
We focused on this transaction because of the consideration required
as to whether or not the trade and assets acquired as part of this
transaction actually represented a business in accordance with IFRS 3
(revised). With the Group acquiring the worldwide rights to the product
portfolio along with inventory, this was an important consideration.
In respect of this transaction, management has elected to early adopt
the 2018 IASB amendments to IFRS 3 that revises the definition of
a business. In accordance with this revised standard, management
has applied the optional concentration test which has concluded that
as substantially all of the fair value of the gross assets acquired is
concentrated in a single asset, the worldwide rights to the Mirataz®
product portfolio, the acquired assets do not represent a business and
therefore the transaction can be accounted for as a trade and asset
acquisition.
Measurement period adjustments in respect of Dechra
Brasil Produtos Veterinarios Ltda
Following the acquisition of Dechra Brasil Produtos Veterinarios Ltda
(formerly Laboratorios VencoFarma do Brasil Ltda) on 17 December
2018, the fair value of assets and liabilities acquired was assessed on
a provisional basis in the 2019 Annual Report and Accounts.
During the measurement period management have enacted elections
available and contemplated at the acquisition date which enable a
tax base to be established in Brazil for certain assets identified on
acquisition. This resulted in the derecognition of £7.0m of deferred
tax liabilities with a corresponding adjustment to goodwill.
How our audit addressed the key audit matter
Ampharmco LLC
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 management. Additionally we
agreed the consideration paid back to the terms of the sale and purchase
agreement and transfer of cash.
We reviewed and challenged management’s assessment of the acquired
assets and liabilities to ensure that the identification process was
complete and accurate.
We obtained the purchase price allocation performed by management’s
valuation experts and corroborated that the cash flow forecasts
supporting the valuation of those intangible assets identified 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 to verify the existence, accuracy and
completeness of material assets and liabilities including taxation.
Additionally, we audited the disclosure note associated with the
acquisition to ensure this met the disclosure requirements of IFRS 3 and
captured all of the key elements within the purchase agreements.
Overall we have found the accounting for this business combination
and related disclosures to be appropriate and consistent with the audit
evidence obtained.
Acquisition of Mirataz®
We read the asset purchase agreement in order to understand the
nature of the transaction and ensure that relevant clauses that impact the
accounting had been considered by management. Additionally we agreed
the consideration paid back to the terms of the asset purchase agreement
and transfer of cash.
We obtained a copy of management’s concentration test performed in
accordance with IFRS 3 and challenged whether or not substantially all
of the fair value of the gross assets acquired was concentrated in a single
asset with reference to the asset purchase agreement and valuation
assigned to each asset.
Additionally, we audited the disclosure note associated with the trade and asset
acquisition to ensure this met the requirements of each applicable standard.
Overall we found the accounting for this trade and asset acquisition
and related disclosures to be appropriate and consistent with the audit
evidence obtained.
Measurement period adjustments in respect of Dechra
Brasil Produtos Veterinarios Ltda
We read the documents submitted to the Brazilian tax authorities and
confirmed that these were sufficient to establish a tax base in Brazil for
certain assets identified on acquisition.
We have also corroborated that this has been approved by the Brazilian
tax authorities.
We have challenged management whether this election was contemplated
and available at the acquisition date, or was considered subsequently.
We have corroborated that this was available and contemplated in
advance of the acquisition and thus was appropriate to be recognised as
a measurement period adjustment.
We have audited the disclosure note associated with this measurement
period adjustment to ensure this met the requirements of IFRS 3.
Overall we found the accounting for this business combination and related
disclosures to be appropriate and consistent with the audit evidence obtained.
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Financial Statements
Key audit matter
Impairment of intangible assets – assessment of the carrying
value of acquired intangible assets and other relevant assets.
(relevant to the Consolidated Financial Statements)
Refer to the Audit Committee Report on page 108, the critical accounting
estimates and judgements in note 1 (b) to the accounts on page 158,
note 12 (Intangible assets) and note 14 (Impairment reviews).
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, management have determined appropriate
cash generating units and prepared discounted cash flows which
include 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.
Licensing agreements and associated contingent considerations
– recognition and subsequent remeasurement of acquired
intangible assets in respect of licensing agreements.
(relevant to the Consolidated Financial Statements)
Refer to the Audit Committee Report on page 108, the critical
accounting estimates and judgements in note 1 (b) to the accounts
on page 158, and note 32 (Contingent consideration liabilities).
Mirataz®
The Group acquired the trade, assets and worldwide rights to the
Mirataz® product portfolio on 16 March 2020. This was for an initial
consideration of $43.0 million alongside a future royalty payable for a
finite period.
Management have concluded that the future royalty payment for a
finite period forms part of the consideration for Mirataz® and therefore
in accordance with IAS 38, and the Group’s accounting policies, has
recognised this as contingent consideration with a corresponding
increase to the related intangible asset.
The accounting for contingent consideration is inherently judgemental
and involves estimation around the timing and quantum of future cash
flows alongside the discount rate used.
Remeasurement of existing agreements
During the year, related liabilities in respect of Tri-Solfen®, Injectable
solution 1 and Phycox® were reassessed for the timing and quantum
of future cash flows along with a reassessment of the discount rate
applied. The variability of the timing and quantum of future cash flows,
along with the discount rate represent areas of judgement.
How our audit addressed the key audit matter
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 considered management’s determination of the cash generating units
for assessing impairment of goodwill and indefinite life intangibles.
We audited 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.
The forecasts used for years 1 and 2 were agreed to approved budgets
and growth assumptions were verified to both forecast organic growth
and new product introductions.
Valuation specialists were utilised to benchmark, within a reasonable
range, the discount rate assumptions to the cost of capital for other
comparable companies. We corroborated certain growth rates to
economic and industry averages with references to third party data.
We assessed the sufficiency of headroom through the performance of
sensitivity analysis on key assumptions, confirming that an impairment is
not reasonably possible.
Managements historical forecasting accuracy was also considered across
multiple previous years’ assessments.
Additionally, we audited the disclosure note associated with the
impairment review and confirmed that this was appropriate.
Overall we found the assessment of the carrying value of acquired
intangible assets and other relevant assets and associated disclosures to
be appropriate and consistent with the evidence obtained.
Mirataz®
We read the asset purchase agreement to corroborate the terms of the
agreement and consideration.
We obtained management’s model and reperformed the calculations
forming the basis of the valuation.
We obtained external evidence to corroborate the key assumptions
underpinning management’s cash flow forecasts.
We corroborated that the cash flows used are consistent with those
reviewed by the Board as part of the acquisition process. We also
performed sensitivity analysis on these cash flow forecasts and the
discount rate applied to corroborate that a material misstatement is not
possible based on a reasonable change in key assumptions.
Our valuation specialists also confirmed that the discount rates applied
were 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 and challenged the changes made to the assumptions
underpinning the licensing agreements for Tri-Solfen®, Injectable solution
1 and Phycox®. In doing so we corroborated the revised cash flow
assumptions to updated forecasts and performed sensitivity analysis to
take into consideration reasonably possible alternatives both in terms of
quantum and timing.
Our valuation specialists also confirmed that the discount rates applied
were consistent to those applied by other companies of comparable size,
geographical spread and within the relevant industry.
Additionally, for both new agreements and the remeasurement of existing
agreements, we audited the disclosure note associated with licensing
agreements and associated contingent considerations.
Overall we found the accounting for this licensing agreements, contingent
considerations and the related disclosures to be appropriate and
consistent with the audit evidence obtained.
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Financial Statements
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
Key audit matter
Taxation – assessment of uncertain tax positions
(relevant to the Consolidated Financial Statements)
Refer to the Audit Committee Report on page 108, the critical
accounting estimates and judgements in note 1 (b) to the accounts on
page 158, and note 9 (Income taxes).
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.
Consideration of the impact of Covid-19
(relevant to the Consolidated and Company Financial Statements)
Refer to the Viability statement on page 77 of the Strategic Report and
note 1 (b) (Basis of preparation).
The emergence of Coronavirus (‘Covid-19’) during 2020 has impacted
all businesses, both financially and operationally. Whilst the Group has
noted an impact of the pandemic, this has been limited compared to
other sectors.
Management have performed a detailed assessment of the potential
impact of Covid-19, specifically in respect of the preparation of the
financial statements on a going concern basis.
In performing their assessment, management have modelled potential
downside scenarios, including a severe downside scenario, and have
also considered possible mitigating actions which could be taken
to provide additional headroom from both a liquidity and covenant
compliance perspective.
The outcome of management’s assessment is that, in their view, it
remains appropriate to prepare the Group and Company financial
statements on a going concern basis.
How our audit addressed the key audit matter
In conjunction with our UK, US, Dutch 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. These were then considered in the context of the valuation
of the uncertain tax position with reference to the appropriateness of
valuation technique used in accordance with IFRIC 23, and where based
on expected value, the amounts assigned to each probability.
Additionally, we reviewed the disclosure note associated with uncertain
tax provisions and confirmed that this was appropriate.
Overall we found the assessment of uncertain tax positions and
associated disclosures to be appropriate and consistent with the evidence
obtained.
We have evaluated management’s base cash flows, including challenging
key assumptions being the profile of forecast revenue and anticipated
margins.
We checked the integrity of management’s models, as well as agreeing
underlying data to source documents.
We assessed whether management’s mitigating actions are reasonably
achievable based on our understanding of the business, including the
nature of its cost base.
Finally, we obtained evidence to support disclosures within the financial
statements and checked that the disclosures within the Annual Report are
consistent with the financial statements and knowledge gained on
the audit.
Our conclusion in respect of going concern is included within the
“Conclusions relating to going concern” section below.
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Financial Statements
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 57 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 57 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 90% of Group revenue, 82% of underlying operating profit and 84% of profit before tax. Of these reporting units, 3 were
considered to be significant components due to their financial significance, being those units located in the USA and Germany.
The Group consolidation, financial statements disclosures and a number of centralised functions were audited by the Group engagement team at
the head office. These included, but were not limited to, central procedures on treasury operations, UK and corporate taxation and goodwill and
intangible asset impairment assessments. We also performed Group level analytical procedures on all of the remaining out of scope active reporting
units to identify any unusual transactions. The Company was also subject to a full scope audit.
Where work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting
units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Consolidated
Financial Statements. We issued formal written instructions to all component auditors setting out the audit work to be performed by each of
them and maintained regular communication with the component auditors throughout the audit cycle. These interactions included attending
certain component clearance meetings and holding regular conference calls, as well as reviewing and assessing any matters reported. The Group
engagement team also reviewed selected audit working papers for certain component teams.
Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those
locations to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the group financial
statements as a whole. We issued formal, written instructions to component auditors setting out the work to be performed by each of them and
maintained regular communication throughout the audit cycle. These interactions included attending component clearance video conference calls
and holding regular conference calls, as well as reviewing and assessing matters reported.
Due to the current restrictions on travel and social distancing measures, enacted as a response to the global pandemic, the group engagement
leader and senior members of the group engagement team used video conferencing to oversee the component auditor work and had video
discussions with management of the 22 component locations (in 6 countries) in scope for an audit of their complete financial information. Senior
team members also attended, via video conference, the clearance meetings for all components. During the clearance meetings, the findings
reported by all component teams were discussed. The Group engagement team also evaluated the sufficiency of the audit evidence obtained
through discussions with, and remote review of the audit working papers of, component teams.
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Financial Statements
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
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
3% of underlying operating profit.
Overall materiality £3.8 million (2019: £3.8 million).
How we
determined it
Rationale for
benchmark
applied
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.
Company financial statements
£3.1 million (2019: £2.4 million).
0.5% of net assets.
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 £2.85 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)
(2019: £0.2 million) and £0.2 million (Company audit) (2019: £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.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The
Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic Report and Directors’ Report Other Disclosures (‘Strategic Report and Directors’ Report’), 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).
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Financial Statements
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 2020 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)
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 109 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 77 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 109, 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 108 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision
of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006. (CA06)
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Financial Statements
Independent Auditors’ Report to the Members of
Dechra Pharmaceuticals PLC
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, 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 5 years, covering the years ended
30 June 2016 to 30 June 2020.
Andrew Hammond (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
7 September 2020
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Consolidated Income Statement
For the year ended 30 June 2020
Financial Statements
Note
2
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Operating profit
Finance income
Finance expense
Share of profit/(loss) of investments
accounted for using the equity method
Profit before taxation
Income taxes
Profit for the year
Earnings per share
Basic
Diluted
Dividend per share (interim paid
and final proposed for the year)
2
3
4
6
7
9
11
11
10
2020
Non-
underlying*
(notes
4 & 5)
£m
–
–
–
(70.4)
(5.7)
(76.1)
–
(2.5)
(0.6)
(79.2)
17.7
(61.5)
Underlying
£m
515.1
(223.5)
291.6
(134.9)
(28.4)
128.3
3.0
(11.5)
0.3
120.1
(24.7)
95.4
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)
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
Total
£m
515.1
(223.5)
291.6
(205.3)
(34.1)
52.2
3.0
(14.0)
(0.3)
40.9
(7.0)
33.9
32.87p
32.76p
34.29p
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
30.15p
30.07p
31.60p
* 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
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Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
Profit for the year
Other comprehensive (expense)/ income:
Items that may be reclassified subsequently to profit or loss:
Foreign currency cash flow hedges
- fair value movements
Foreign currency translation differences for foreign operations
Income tax relating to components of other comprehensive income
Total comprehensive income for the period
2020
£m
33.9
0.1
(7.1)
1.8
(5.2)
28.7
2019
£m
30.9
–
3.8
–
3.8
34.7
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Consolidated Statement of Financial Position
At 30 June 2020
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 and lease liabilities
Trade and other payables
Contingent consideration
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings and lease liabilities
Deferred income
Contingent consideration
Employee benefit obligations
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued share capital
Share premium account
Own shares
Hedging reserve
Foreign currency translation reserve
Merger reserve
Retained earnings
Total equity attributable to equity holders of the parent
* Restated as detailed in note 31 Acquisitions.
Note
12
13
6
15
16
20
17
18
21
19
32
20
21
32
23
22
15
25
26
Financial Statements
2020
£m
692.2
76.4
17.4
2.7
788.7
120.8
6.8
93.9
227.4
448.9
1,237.6
(4.6)
(98.2)
(8.9)
(25.6)
(137.3)
(350.4)
–
(47.3)
–
(2.5)
(62.6)
(462.8)
(600.1)
637.5
1.1
409.3
–
–
16.3
84.4
126.4
637.5
Restated*
2019
£m
680.6
58.4
10.1
0.9
750.0
103.5
7.9
99.8
80.3
291.5
1,041.5
(1.2)
(95.5)
(5.1)
(16.3)
(118.1)
(306.9)
–
(30.9)
–
(2.0)
(74.5)
(414.3)
(532.4)
509.1
1.0
277.9
–
–
21.6
84.4
124.2
509.1
The financial statements were approved by the Board of Directors on 7 September 2020 and are signed on its behalf by:
Ian Page
Chief Executive Officer
7 September 2020
Paul Sandland
Chief Financial Officer
7 September 2020
Company number: 3369634
Stock Code: DPH
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Financial Statements
Consolidated Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2020
Year ended 30 June 2019
At 1 July 2018
Change in accounting policy
At 1 July 2018
Profit for the period
Foreign currency translation differences for foreign
operations
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
Year ended 30 June 2020
At 1 July 2019
Profit for the period
Foreign currency cash flow hedge
- fair value movements
Foreign currency translation differences for foreign
operations
Income tax relating to components of other
comprehensive income
Total comprehensive income/ (expense)
Reclassified to cost of acquired intangibles
Transactions with owners:
Dividends paid
Share-based payments
Shares issued
Total contributions by and distributions to owners
At 30 June 2020
Issued
share
capital
£m
Share
premium
account
£m
Own
shares
£m
Hedging
reserve
£m
Foreign
currency
translation
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
Total
equity
£m
1.0
–
1.0
–
–
–
–
–
–
–
–
1.0
1.0
–
–
–
–
–
–
–
–
0.1
0.1
1.1
276.7
–
276.7
–
–
–
–
–
1.2
–
1.2
277.9
277.9
–
–
–
–
–
–
–
–
131.4
131.4
409.3
(0.4)
–
(0.4)
–
–
–
–
–
–
0.4
0.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.8
–
17.8
–
3.8
3.8
–
–
–
–
–
21.6
21.6
–
0.1
–
–
(7.1)
–
0.1
(0.1)
–
–
–
–
–
1.8
(5.3)
–
–
–
–
–
16.3
84.4
–
84.4
–
–
–
–
–
–
–
–
84.4
84.4
–
–
–
–
–
–
–
–
–
–
84.4
125.5
(4.9)
120.6
30.9
–
30.9
(28.4)
1.5
–
(0.4)
(27.3)
124.2
124.2
33.9
–
–
–
33.9
–
(33.3)
1.6
–
(31.7)
126.4
505.0
(4.9)
500.1
30.9
3.8
34.7
(28.4)
1.5
1.2
–
(25.7)
509.1
509.1
33.9
0.1
(7.1)
1.8
28.7
(0.1)
(33.3)
1.6
131.5
99.8
637.5
Hedging Reserve
The hedging reserve represents the cumulative fair value gains or losses on derivative financial instruments for which cash flow hedge accounting
has been applied, net of tax.
Foreign Currency Translation Reserve
The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other than Sterling
and exchange gains or losses on the translation of liabilities that hedge the Company’s net investment in foreign subsidiaries.
Merger Reserve
The merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the acquisition of subsidiaries where
statutory merger relief has been applied in the financial statements of the Parent Company.
156
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Consolidated Statement of Cash Flows
For the year ended 30 June 2020
Financial Statements
Cash flows from operating activities
Operating profit
Non-underlying items
Underlying operating profit
Adjustments for:
Depreciation
Amortisation
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
Decrease/(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
Interest on lease liabilities
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from disposal of tangible assets
Interest received
Acquisition of subsidiaries (net of cash acquired)
Acquisition of investment in associates
Purchase of property, plant and equipment
Capitalised development expenditure
Purchase of other intangible non-current assets
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
New borrowings
Expenses of raising borrowing facilities
Repayment of borrowings
Principal elements of lease payments
Dividends paid
Net cash inflow/ (outflow) from financing activities
Net increase/ (decrease) in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of period
Reconciliation of net cash flow to movement in net borrowings
Net increase/ (decrease) in cash and cash equivalents
New borrowings and lease liabilities
Repayment of borrowings and lease liabilities
Expenses of raising borrowing facilities
Acquisition of subsidiary borrowings and lease liabilities
Changes in accounting policy for leases
Exchange differences on cash and cash equivalents
Retranslation of foreign borrowings
Other non-cash changes
Movement in net borrowings in the period
Net borrowings at start of period
Net borrowings at end of period
Note
13
2
7
23
27
13
12
12
10
18
18
28
2020
£m
52.2
76.1
128.3
9.9
4.3
(0.5)
–
–
1.5
143.5
(15.7)
6.9
0.1
134.8
(7.3)
127.5
(7.8)
(0.4)
(12.9)
106.4
0.2
0.3
(25.2)
(7.6)
(7.8)
(1.3)
(40.1)
(81.5)
131.5
297.3
(1.7)
(271.7)
(3.2)
(33.3)
118.9
143.8
80.3
3.3
227.4
143.8
(302.8)
275.3
1.7
(0.1)
(12.7)
3.3
(6.3)
(2.0)
100.2
(227.8)
(127.6)
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)
Cash conversion is defined as cash generated from operating activities before interest and taxation as a percentage of underlying operating profit.
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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 204 to 214.
(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 10 to 77. 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 Financial Review on page 33 for details, including our
consideration of the impact of COVID-19 on this assessment. The consolidated financial statements are presented in Sterling, rounded
to the nearest 0.1 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
In preparation of the financial statements, comparative amounts have been restated to reflect the hindsight adjustments made on the
provisional Dechra Brasil Produtos Veterinarios LTDA (formerly Laboratorios Vencofarma do Brasil Ltda) (Dechra Brazil) acquisition
accounting adjustments. Hindsight adjustments have been made to intangible assets, tangible assets, inventory, trade receivables and
deferred tax liabilities (note 31).
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 where the
actual outcome may differ from that calculated. The key judgements and key sources of estimation uncertainty at the balance sheet date,
that have a significant risk of causing material adjustment to the carrying values of the assets and liabilities within the next financial year,
are summarised below.
Area
Key judgements
Impairment of goodwill and
indefinite life intangible assets
Determination of cash-generating
units for assessing impairment
Key sources of
estimation uncertainty
Note
reference
14
Valuation of assets and liabilities
acquired through business
combinations
Identification of acquired assets
and liabilities such as product
rights, commercial relationships,
pharmacological processes and
brand intangibles
Valuation of licensing agreements
and associated contingent
consideration
Uncertain tax position
Assessment for uncertain tax
positions satisfying the criteria for
the recognition and measurement
of provisions under IFRC 23.
Determination of an appropriate discount
rate
31
Timing, likelihood and quantum of future
royalty cash flows and the determination
of an appropriate discount rate
Assessment of expected amounts to
settle the obligation
32
9
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Financial Statements
1. Accounting Policies continued
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 2019. Please refer
to note 35 for more detail on the impact of adoption on the financial statements.
•
•
•
IFRS 16 ‘Leases’ 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.
IFRIC 23 ‘Uncertainty over Income Tax Treatment’ provides clarity on how to apply the recognition and measurement requirements in
IAS 12 ‘Income Taxes’ when there is uncertainty over income tax treatments. Adoption of this interpretation did not have a material
impact on the Group’s financial statements.
IFRS 3 ‘Business Combinations’ - The Group has early adopted the amendments to apply an optional concentration test to assess
whether substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or group of similar identifiable
assets. The optional concentration test was applied in the acquisition of the Mirataz product rights (refer to note 31).
New Standards and Amendments to Standards or Interpretations
A number of amendments to IFRSs became effective for the financial year beginning on 1 July 2019. The other standards did not have
any impact on the Group’s accounting policies and did not require retrospective adjustments.
(c) Basis of Consolidation
Subsidiary Undertakings
Subsidiary undertakings are fully consolidated from the date on which control is transferred to the Group. They cease to be consolidated
from the date that the Group no longer has control. All subsidiary undertakings have been consolidated. Inter-company transactions,
balances and unrealised gains and losses on transactions between Group companies are eliminated on consolidation. The financial
statements of all subsidiary undertakings are prepared to the same reporting date as the Company, with the exception of Genera
Pharma d.o.o., Dechra Brazil 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).
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 only recognised to the
extent realised. Any unrealised gains or losses are eliminated, to the extent of the Group’s interest in the associate. Accounting policies of
associates have been aligned where necessary to ensure consistency with the policies adopted by the Group.
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Financial Statements
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(d) Foreign Currency Translation
(i)
Functional and Presentational Currency
The consolidated financial statements are presented in Sterling, which is the Group’s presentational currency, and are rounded to
the nearest 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 three
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); and
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.
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.
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Financial Statements
1. Accounting Policies continued
(e) Accounting for Financial Assets and Liabilities, Derivative Financial Instruments and Hedging Activities continued
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.
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 and associates. 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 ‘IFRS 3 Business Combinations’. 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.
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Financial Statements
Notes to the Consolidated Financial Statements
continued
(g)
1. Accounting Policies continued.
Intangible Assets
Goodwill continued
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. The Group has early adopted the amendments to IFRS3 ‘Business Combinations’ and applied the
optional concentration test in relation to the acquisition of Mirataz (refer to note 31).
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.
Intangible Assets Subsequent Expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied
in the specific asset to which it relates or extends the asset life. All other expenditure is expensed as incurred.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such
lives are indefinite or is otherwise stated below. Goodwill and intangible assets with an indefinite useful life are systematically tested for
impairment at each consolidated statement of financial position date. Intangible assets are amortised from the date that they are available
for use. Assets in the course of construction are not amortised until the date the assets become available for use.
The estimated useful lives are as follows:
• software
• capitalised development costs
• patent rights
• marketing authorisations
• product rights
• commercial relationships
• brand
• acquired capitalised development costs
• pharmacological process
5 to 7 years
5 to 10 years or period of patent
period of patent
indefinite life or period of marketing authorisation
10 to 15 years
7 years
3 to 10 years
5 to 15 years
10 years
The pharmacological process from the acquisition of Putney Inc. and capitalised developed technology from the acquisition of AST
Farma B.V. and Le Vet Beheer B.V. 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.
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Financial Statements
1. Accounting Policies continued
(g)
Intangible Assets continued
Goodwill continued
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.
(h)
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and selling expenses.
The cost of inventories is determined on the first-in, first-out principle and includes expenditure incurred in acquiring the inventories and
bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an
appropriate share of overheads based on normal operating capacity.
(i) Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the
statement of cash flows.
(j)
Impairment
The carrying amounts of the Group’s assets are reviewed at each consolidated statement of financial position date to determine whether
there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using 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.
(k) 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.
(l) Employee Benefits
Pensions
The Group operates a stakeholder personal pension scheme for certain employees. Obligations for contributions are recognised as an
expense in the income statement as incurred.
Dechra Veterinary Products SAS and Dechra Veterinary Products BV participate in state-run pension arrangements. These are not
considered to be material to the Group financial statements and are accounted for as defined contribution schemes, with contributions
being recognised as an expense in the income statement as incurred.
The Group 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.
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Financial Statements
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(l) Employee Benefits
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.
(m) 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.
164
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Financial Statements
1. Accounting Policies continued
(m) Revenue Recognition continued
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.
(n) Leases
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of
the following lease payments:
•
•
•
•
•
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the
commencement date;
amounts expected to be payable by the Group under residual value guarantees;
the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental
borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of
similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The lease liability is not
materially sensitive to a reasonable change in discount rate and therefore will not represent a critical accounting estimate presented within
the Annual Report.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
•
•
•
•
the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement date less any lease incentives received;
any initial direct costs; and
restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Payments associated with short term leases of equipment and vehicles and all leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short term leases are leases with a lease terms of 12 months or less. Low-value assets
comprise IT equipment and small items of office furniture.
(o) 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.
(p) 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.
Stock Code: DPH
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Financial Statements
Notes to the Consolidated Financial Statements
continued
1. Accounting Policies continued
(q) Provisions
Provisions for legal claims, dilapidations, 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.
(r) Basis of Charge for Taxation
Income tax expense comprises current and deferred tax. Current and deferred taxes are recognised in the income statement except to the
extent that it relates to a business combination or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the
consolidated statement of financial position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the consolidated statement of financial position liability method and represents the tax payable or
recoverable on most temporary differences which arise between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes (the tax base). Temporary differences are not provided on: goodwill that is not
deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and do not arise
from a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, and is based upon tax rates enacted or substantively enacted at the consolidated statement of financial
position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced to the extent that it is not probable that the related tax benefit will be realised against future
taxable profits. The carrying amounts of deferred tax assets are reviewed at each consolidated statement of financial position date.
In respect of uncertain tax positions, where an outflow of funds is believed to be probable and a reliable estimate of the outcome of the
dispute can be made, management provides for its best estimate of the liability. Such provisions are measured using either the best
estimate, or the expected value model depending on management’s judgement of which method better predicts the resolution of the
uncertainty.
The estimated annual benefit of global intellectual property and innovation incentives is accounted for within current and deferred tax.
Current and deferred tax credits received in respect of share-based payments are recognised in the income statement to the extent that
they do not exceed the standard rate of taxation on the income statement charge for share-based payments. Credits in excess of the
standard rate of taxation are recognised directly in equity.
(s) Earnings per Share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the period.
Diluted EPS is determined by adjusting the profit attributable to ordinary shareholders and the weighted average number of ordinary
shares in issue for the effects of all potential dilutive ordinary shares, which comprise share options granted to employees.
The Group has also chosen to present an alternative EPS measure, with profit adjusted for non-underlying items. A reconciliation of this
alternative measure to the statutory measure required by IFRS is given in the Financial Review on page 27. 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 environments.
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 revenues from non-core activities.
166
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Financial Statements
2. Operating Segments continued
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 and was further expanded during the period with the acquisition of Ampharmco LLC.
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.
Reconciliation of reportable segment revenues, profit or loss and liabilities and other material items:
Revenue by segment
European Pharmaceuticals
NA Pharmaceuticals
Operating profit/(loss) by segment
European Pharmaceuticals
NA Pharmaceuticals
Pharmaceuticals Research and Development
Segment operating profit
Corporate and other unallocated costs
Underlying operating profit
Amortisation of acquired intangibles
Remeasurement of contingent consideration
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 as detailed in note 31 Acquisitions.
Stock Code: DPH
2020
£m
323.5
191.6
515.1
100.0
63.7
(28.4)
135.3
(7.0)
128.3
(69.6)
–
–
–
(2.2)
(4.3)
52.2
3.0
(14.0)
(0.3)
40.9
(110.3)
(53.1)
(5.1)
(168.5)
(340.0)
(3.4)
(88.2)
(600.1)
361.6
36.4
74.8
28.6
13.7
515.1
22.3
47.5
0.4
1.5
71.7
Restated*
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)
(90.8)
(532.4)
340.2
34.4
57.3
29.1
20.8
481.8
42.2
–
0.3
0.5
43.0
167
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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 and amortisation charge is made up of the following:
Non-underlying
Amortisation – selling, general and administrative expenses
Amortisation – research and development expenditure
Underlying
Amortisation
Depreciation
2020
£m
2019
£m
12.1
4.3
0.7
0.2
17.3
64.1
18.5
0.5
0.7
83.8
63.9
5.7
69.6
4.3
9.9
14.2
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
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
* Restated as detailed in note 31 Acquisitions.
3. Finance Income
Finance income arising from:
– Cash and cash equivalents
– Foreign exchange gains
2020
Non-
current
assets
£m
30.4
2.8
419.8
213.2
122.5
788.7
2020
Revenue
£m
45.0
53.9
173.8
181.9
60.5
515.1
Restated*
2019
Non-
current
assets
£m
20.1
3.7
443.8
175.8
106.6
750.0
2019
£m
–
0.7
0.7
2019
Revenue
£m
56.4
48.2
163.5
169.1
44.6
481.8
2020
£m
0.1
2.9
3.0
168
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4. Finance Expense
Underlying
Finance expense arising from:
– Financial liabilities at amortised cost
– Lease liability interest
Underlying finance expense
Non-underlying
Loss on extinguishment of debt
Fair value and other movements on contingent consideration
Non-underlying finance expense
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 loss items
Amortisation in relation to Medical Ethics Pty Ltd (net of tax)
Loss on extinguishment of debt
Fair value and other movements on contingent consideration
Non-underlying loss before tax items
Tax on non-underlying loss before tax items
Revaluation of deferred tax balances following the change in Dutch tax rates/US tax rates
Non-underlying loss after tax items
Financial Statements
2020
£m
11.1
0.4
11.5
2020
£m
1.0
1.5
2.5
14.0
2020
£m
63.9
5.7
–
–
–
4.3
2.2
76.1
0.6
1.0
1.5
79.2
(18.0)
0.3
61.5
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
Amortisation of acquired intangibles reflects the amortisation of the fair values of future cash flows recognised on acquisition in relation to the
identifiable intangible assets acquired.
The remeasurement of the contingent consideration balance relates to the net credit to the income statement on the reassessment of future
milestone and royalty payments on a licensing agreement.
The fair value uplift of inventory acquired through business combinations is recognised in accordance with IFRS 3 ‘Business Combinations’
to record the inventory acquired at fair value and its subsequent release into the income statement.
Expenses relating to Brexit represents one-off regulatory and technology transfer costs that were incurred in advance of Brexit.
Expenses relating to acquisitions and subsequent integration activities represents costs incurred during the acquisition and integration of
Ampharmco (£1.2 million), AST Farma and Le Vet (£0.7 million), Dechra Brazil (£0.4 million) and other prospective projects (£0.7 million).
Pre-acquisition costs in relation to Osurnia (£1.3 million) which completed in July 2020 are also included.
Rationalisation of manufacturing organisation relates to the income statement cost associated with this strategic programme. Costs since the
inception of the programme have been £7.1 million. The total planned spend on this project is now £8.4 million, and will conclude in the year
ended 30 June 2021.
The loss on extinguishment of debt relates to the acceleration of the amortisation of arrangement fees relating to the Term Loan on termination.
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Financial Statements
Notes to the Consolidated Financial Statements
continued
6.
Interests in Associate
(a) Losses in Associate
Set out below is the summarised financial information of Medical Ethics Pty Ltd for the year ended 30 June, 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
Additions
Share of underlying profit/(loss) after tax
Share of amortisation of intangible asset identified on acquisition (net of tax)
30 June
2020
£m
0.7
(3.1)
(1.3)
2020
£m
1.9
1.2
3.1
–
(1.6)
(1.6)
1.5
2020
£m
10.1
7.6
0.3
(0.6)
17.4
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
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 (£7.6 million). Following the acquisition the Group holds 48.0% of the issued share capital of 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 harmonising the accounting policies and of
amortising the fair value adjustments (net of tax), which are treated as non-underlying.
(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 profit/(loss) from continuing operations
Amortisation of notional intangible asset recognised on acquisition (net of tax)
Interest in associate
Goodwill
Carrying value of investment in associate
2020
£m
1.5
4.6
0.3
(0.6)
5.8
11.6
17.4
2019
£m
1.9
–
(0.2)
(0.2)
1.5
8.6
10.1
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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
– right of use assets
Amortisation of intangible assets
Profit on disposal of property, plant and equipment
(Release)/recognition of impairment of receivables
Operating lease rentals payable
Research and development expenditure as incurred
Net pension credit 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*
Total fees paid to Auditors
Financial Statements
2020
£m
171.1
1.4
6.6
3.3
73.9
–
(0.4)
–
28.4
–
1.2
0.6
0.5
0.1
1.2
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
* This includes £0.06 million (2019: £0.04 million) in relation to the review of the Half-Yearly Report.
During the year a fire occurred at one of the Group’s third party logistics provider locations in the Netherlands that resulted in inventory to the value of £6.4 million
being destroyed and written off. The inventory write off has been included in the impairment of inventories value above and is offset by amounts recovered through
insurance proceeds of £5.3 million and a receivable from the insurers of £1.1 million with no impact on the Income Statement.
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 27)
Total
Related party transactions – the remuneration of key management was as follows:
Short term employee benefits
Post-employment benefits
Share-based payments charge
2020
Number
615
141
1,052
1,808
2020
£m
86.7
11.1
4.7
–
1.5
104.0
2020
£m
5.5
0.2
0.7
6.4
2019
Number
591
151
989
1,731
2019
£m
78.8
10.5
4.5
(3.5)
2.4
92.7
2019
£m
5.7
0.3
1.4
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 129 to 138.
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Financial Statements
Notes to the Consolidated Financial Statements
continued
8. Employees continued
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 £4.7 million (2019: £4.5 million). Contributions to defined benefit pension
schemes included in the above figures total £nil (2019: £0.3 million).
9.
Income Taxes
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 charge/(credit) in the Consolidated Income Statement
2020
£m
3.5
18.2
(0.8)
20.9
(14.5)
1.4
(0.8)
(13.9)
7.0
2019
£m
1.0
16.5
1.6
19.1
(14.0)
(8.0)
(0.2)
(22.2)
(3.1)
The tax on the Group’s profit before taxation differs from the standard rate of UK corporation tax of 19.0% (2019: 19.0%). The differences to
this rate are explained below:
Profit before taxation
Tax at 19.0% (2019: 19.0%)
Effect of:
– expenses not deductible
– acquisition expenses
– research and development related tax credits
– patent box tax credits
– other incentives
– 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 charge/(credit) in the Consolidated Income Statement
2020
£m
40.9
7.8
1.4
0.6
(0.4)
(2.7)
(0.2)
–
(0.1)
(0.3)
1.1
(1.6)
1.4
7.0
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 share of results in associates. The effective tax rate is 17.1% (excluding non-underlying items the effective tax rate is 20.6%).
Tax Credit/ (Charge) Recognised Directly in Equity
Deferred tax on employee benefit obligations
Deferred tax on other equity movements
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
2020
£m
–
1.8
1.8
0.4
(0.3)
0.1
2019
£m
–
–
–
0.4
(1.2)
(0.8)
The UK current tax rate used for the period is 19.0% which is the enacted rate from 1 April 2017. An announcement was made in the Budget
on 11 March 2020 (which was substantively enacted on 17 March 2020) for the main rate applicable from 1 April 2020 to remain at 19.0%,
removing the previously enacted reduction to 17.0%. The Dutch current tax rate used for the period is 25.0%, however, this rate is reducing
to 21.7% effective from 1 January 2021 as per the Dutch Tax Plan 2020 enacted in December 2019. 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.
172
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Financial Statements
9.
Income Taxes continued
At 30 June 2020, the Group held a current provision of £5.6 million (2019: £3.8 million) in respect of uncertain tax positions. The resolution of these
tax matters may take many years. The range of reasonably possible outcomes within the next financial year is £0.9 million to £7.0 million.
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 had 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. We continue to monitor developments.
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:
22.10 pence per share (2019: 18.17 pence per share)
Interim dividend paid: 10.29 pence per share (2019: 9.50 pence per share)
Total dividend 32.39 pence per share (2019: 27.67 pence per share) recognised as distributions
to equity holders in the period
Proposed final dividend for the year ended 30 June 2020: 24.00 pence per share
(2019: 22.10 pence per share)
Total dividend paid and proposed for the year ended 30 June 2020: 34.29 pence per share
(2019: 31.60 pence per share)
2020
£m
22.7
10.6
33.3
25.9
37.0
2019
£m
18.6
9.8
28.4
22.7
32.5
In accordance with IAS 10 ‘Events After the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2020 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 2021. There are no
income tax consequences. The final dividend for the year ended 30 June 2019 is shown as a deduction from equity in the year ended 30 June 2020.
11. Earnings per Share
Earnings per ordinary share have been calculated by dividing the profit attributable to equity holders of the parent after taxation for each
financial period by the weighted average number of ordinary shares in issue during the period.
Basic earnings per share
– Underlying*
– 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.
2020
Pence
92.50
32.87
92.19
32.76
2020
£m
95.4
33.9
2019
Pence
90.24
30.15
90.01
30.07
2019
£m
92.5
30.9
Number
103,133,142
348,393
103,481,535
Number
102,504,510
257,838
102,762,348
At 30 June 2020, there are 373,439 options (2019: 421,486) 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
173
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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 2018
Additions
Acquisitions through business
combinations (Restated*)
Remeasurement (note 32)
Disposals
Foreign exchange adjustments
At 30 June 2019 and 1 July 2019
(Restated*)
Additions
Acquisitions through business
combinations
Remeasurement (note 32)
Foreign exchange adjustments
At 30 June 2020
Accumulated Amortisation
At 1 July 2018
Charge for the year
Foreign exchange adjustments
At 30 June 2019 and 1 July 2019
Charge for the year
Foreign exchange adjustments
At 30 June 2020
Net book value
At 30 June 2020
At 30 June 2019 (Restated*)
229.3
–
12.4
–
–
4.0
245.7
–
6.6
–
1.5
253.8
–
–
–
–
–
–
–
253.8
245.7
16.7
2.8
0.1
–
–
0.1
19.7
1.8
0.1
–
0.1
21.7
3.7
2.5
(0.1)
6.1
2.9
–
9.0
12.7
13.6
13.2
1.2
–
–
(0.3)
(0.1)
14.0
1.8
–
–
0.1
15.9
7.1
1.3
0.1
8.5
1.2
0.1
9.8
6.1
5.5
3.9
–
0.4
–
–
–
4.3
0.3
–
–
(0.1)
4.5
3.0
0.3
–
3.3
0.2
–
3.5
1.0
1.0
0.9
–
–
–
–
–
0.9
–
–
–
–
0.9
–
–
–
–
–
–
–
0.9
0.9
674.0
7.9
18.2
(1.5)
–
11.2
709.8
46.2
14.9
10.9
9.6
791.4
214.4
76.8
4.7
295.9
69.6
8.2
373.7
417.7
413.9
Total
£m
938.0
11.9
31.1
(1.5)
(0.3)
15.2
994.4
50.1
21.6
10.9
11.2
1,088.2
228.2
80.9
4.7
313.8
73.9
8.3
396.0
692.2
680.6
* Restated as detailed in note 31 Acquisitions.
The assets within patent rights include the rights to Equidone® which was launched in the USA during 2011, and has a carrying value of
£0.1 million with a remaining amortisation period of 1 year, and the in-licensed products within Canada (acquired in 2016 with a carrying
value of £0.2 million and has a remaining amortisation period of 6.5 years). During the year, £0.3 million was added to patent rights within EU
Pharmaceuticals Segment.
£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.
The software intangible asset includes £10.5 million relating to the ERP system in the EU Pharmaceuticals Segment, this has a remaining
amortisation period of 5 years.
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.
174
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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 2018
Additions
Reclassification*
Acquisitions through business combinations
Remeasurement
Foreign exchange adjustments
At 30 June 2019 and 1 July 2019
Additions
Acquisitions through business combinations
Remeasurement
Foreign exchange adjustments
At 30 June 2020
Accumulated Amortisation
At 1 July 2018
Charge for the year
Reclassification*
Foreign exchange adjustments
At 30 June 2019 and 1 July 2019
Charge for the year
Foreign exchange adjustments
At 30 June 2020
Net book value
At 30 June 2020
At 30 June 2019
6.7
–
–
–
–
0.1
6.8
–
1.9
–
–
8.7
1.3
2.3
–
0.1
3.7
2.0
0.2
5.9
2.8
3.1
49.6
–
–
–
–
1.8
51.4
–
–
–
1.8
53.2
20.2
6.8
–
0.9
27.9
5.7
1.1
34.7
18.5
23.5
15.4
–
–
0.6
–
0.3
16.3
–
–
–
0.3
16.6
4.4
1.6
–
0.1
6.1
1.6
0.2
7.9
8.7
10.2
367.3
–
2.9
17.6
–
5.8
393.6
–
13.0
–
3.4
410.0
47.4
55.0
0.2
1.7
104.3
48.2
3.4
155.9
254.1
289.3
235.0
7.9
(2.9)
–
(1.5)
3.2
241.7
46.2
–
10.9
4.1
302.9
141.1
11.1
(0.2)
1.9
153.9
12.1
3.3
169.3
133.6
87.8
Total
£m
674.0
7.9
–
18.2
(1.5)
11.2
709.8
46.2
14.9
10.9
9.6
791.4
214.4
76.8
–
4.7
295.9
69.6
8.2
373.7
417.7
413.9
* Apex IPR&D acquired October 2016 has been reclassified from Product rights to Capitalised development costs.
The table below provides further detail on the acquired intangibles and their remaining amortisation period.
Description of acquired intangibles
Product, marketing and distribution rights
Goodwill
carrying
value
£m
0.4
Acquired
intangibles
carrying
value
£m
17.7
Sub-Total
carrying
value
£m
18.1
Remaining
amortisation
period on
acquired
intangibles
5 ½ years
Product, marketing and distribution rights
1.8
0.2
2.0
½ year
Technology, product, marketing and
distribution rights
Product, marketing and distribution rights
Marketing and distribution rights
Marketing and distribution rights
40.1
17.1
57.2
2 years
0.1
–
–
3.0
17.4
3.4
0.3
0.8
–
–
3.5
0.3
0.8
3.0
17.4
4 years
2 years
1 ½ years
N/A
N/A
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
Goodwill arising from the acquisition
of Brovel
Goodwill arising from the acquisition
of Vetxx
Stock Code: DPH
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Financial Statements
Notes to the Consolidated Financial Statements
continued
12. Intangible Assets continued
Significant assets
Goodwill arising from the acquisition
of Dales
Intangible assets arising from the
acquisition of Genera
Description
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 Marketing and distribution rights
Marketing and distribution rights
Intangible asset related to a US and
Brazilian dental licensing agreement
Intangible asset related to Bioveta
Intangible asset related to an injectable
solution licensing agreement
Intangible assets arising from the
acquisition of AST Farma and Le Vet
Marketing and distribution rights
Marketing and distribution rights
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 Dechra Brazil
Product
Marketing and distribution rights
Product, brand, technology, marketing
and distribution rights
Product, brand, technology, marketing
and distribution rights
Intangible assets related to the
licensing and distribution of
Pimobendan Oral Solution
Intangible assets arising from the
acquisition of Ampharmco
Product, and marketing
and distribution rights
Product and technology rights
Intangible assets arising from the
acquisition of Mirataz
Product and technology rights
Goodwill
carrying
value
£m
2.2
Acquired
Intangibles
carrying
value
£m
–
Sub-Total
carrying
value
£m
2.2
5.6
53.4
8.9
–
–
–
–
13.2
121.2
23.6
37.2
0.5
2.1
6.3
0.6
0.3
6.7
6.0
18.9
42.9
12.6
2.0
0.1
37.2
0.5
2.1
6.3
60.4
85.5
15.0
0.5
1.3
104.9
242.267.6
–
–
0.9
8.5
–
6.6
–
0.1
8.0
4.3
17.1
0.2
0.1
8.0
3.4
7.7
0.4
0.4
0.1
0.2
1.4
6.0
0.6
6.0
45.0
20.6
45.0
253.8
417.7
671.5
Remaining
amortisation
period on
acquired
intangibles
N/A
2 ½ year
5 ½ years
10 ½ years
Genera – total
6 years
6 years
8 years
Putney – total
13 years
10 years
1 year
Apex – total
10 years
7 years
10 years
10 years
7 ½ years
6 ½ years
8 years
½ year
2 ½ years
AST Farma and
Le Vet – total
1 year
15 years
3 ½ years
8 ½ years
3 ½ years
6 ½ years
½ year
Brazil – total
10 years
2 ½ years
17 ½ years
14 ½ years
13 years
Ampharmco – total
9 ½ years
176
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Financial Statements
13. Property, Plant and Equipment
Freehold
land and
buildings*
£m
Short
leasehold
buildings
£m
Motor
vehicles
£m
Plant and
fixtures*
£m
Cost
At 1 July 2018
Additions
Acquired through business combinations (Restated*)
Disposals
Foreign exchange adjustments
At 30 June 2019 and 1 July 2019 (Restated*)
Additions
Acquired through business combinations
Changes in accounting policy
Disposals
Foreign exchange adjustments
At 30 June 2020
Accumulated Depreciation
At 1 July 2018
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2019 and 1 July 2019
Charge for the year
Disposals
Foreign exchange adjustments
At 30 June 2020
Net book value
At 30 June 2020
At 30 June 2019 (Restated*)
Net book value of right-of-use-assets
At 30 June 2020
At 30 June 2019
Contracted capital commitments
Assets in the course of construction included above
* Restated as detailed in note 31 Acquisitions.
14. Impairment Reviews
39.4
2.5
4.6
–
0.4
46.9
0.1
1.9
–
–
(0.8)
48.1
13.2
1.2
–
0.1
14.5
1.6
–
0.1
16.2
31.9
32.4
–
–
4.2
–
–
–
–
4.2
3.4
0.1
9.2
–
0.1
17.0
2.7
0.3
–
–
3.0
1.9
–
0.1
5.0
12.0
1.2
11.2
–
0.5
–
0.2
(0.1)
(0.2)
0.4
2.0
–
3.1
(0.2)
(0.1)
5.2
0.3
0.1
(0.1)
(0.1)
0.2
1.7
(0.1)
–
1.8
3.4
0.2
3.4
–
40.0
9.0
1.9
(2.1)
0.5
49.3
8.4
1.4
0.4
(1.4)
(0.6)
57.5
22.6
4.1
(2.1)
0.1
24.7
4.7
(1.3)
0.3
28.4
29.1
24.6
0.3
–
2020
£m
1.1
5.8
Total
£m
84.1
11.5
6.7
(2.2)
0.7
100.8
13.9
3.4
12.7
(1.6)
(1.4)
127.8
38.8
5.7
(2.2)
0.1
42.4
9.9
(1.4)
0.5
51.4
76.4
58.4
14.9
–
2019
£m
0.8
4.7
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 establish 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.
Stock Code: DPH
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Financial Statements
Notes to the Consolidated Financial Statements
continued
14. Impairment Reviews continued
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 3.0% (2019: 3.0 %) for Dechra Veterinary
Products EU and Dechra Veterinary Products NA and 9.5% (2019: 11.0%) 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% (2019: 0%) for
Dechra Veterinary Products EU and Dechra Veterinary Products NA and 1.2% (2019: 1.5%) 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 2020 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
* Restated as detailed in note 31 Acquisitions.
Goodwill
carrying
value
£m
172.2
63.4
18.2
253.8
2020
Indefinite
life assets
carrying
value
£m
0.9
–
–
0.9
Restated*
2019
Goodwill
carrying
value
£m
163.0
Indefinite
life assets
carrying value
£m
0.9
54.9
27.8
245.7
–
–
0.9
Total
value
£m
173.1
63.4
18.2
254.7
Total
value
£m
163.9
54.9
27.8
246.6
Pre-tax
discount
rate
%
9.8
10.7
13.8
Pre-tax
discount
rate
%
12.4
12.5
17.1
Key Assumptions
The key assumptions implicit in the impairment review are those regarding the Board approved business plan, medium and long term growth
rates and the discount rate.
The Board approved business plan incorporates a number of key input assumptions, most notably regarding market growth expectations, the
competitive and legislative environments, lifecycle management, selling prices, product margins and direct costs. The assumptions applied in
the business plan are based on past experience and the Group’s expectation of future market changes and, where applicable, are consistent
with external sources of information.
The medium and long term growth rates used (as set out above) reflect an 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.
178
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Financial Statements
15. Deferred Taxes
(a) Recognised Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
Intangible assets
Property, plant and equipment
Inventories
Receivables/payables
Share-based payments
Losses
R&D tax credits
Employee benefit obligations
Assets
Liabilities
Net
2020
£m
–
–
1.4
3.2
0.7
0.5
0.3
0.4
6.5
Restated*
2019
£m
–
–
1.8
1.4
1.0
1.6
–
0.3
6.1
2020
£m
(62.4)
(4.0)
–
–
–
–
–
–
(66.4)
Restated*
2019
£m
(75.9)
(3.8)
–
–
–
–
–
–
(79.7)
2020
£m
(62.4)
(4.0)
1.4
3.2
0.7
0.5
0.3
0.4
(59.9)
Restated*
2019
£m
(75.9)
(3.8)
1.8
1.4
1.0
1.6
–
0.3
(73.6)
(b) Unrecognised Deferred Tax
The aggregate amount of gross temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not
been recognised is £1.2 million (2019: £1.0 million). The estimated unprovided deferred tax liability in relation to these temporary differences
is £0.1 million (2019: £0.1 million).
Deferred tax assets in relation to losses amounting to £1.1 million (2019: £0.7 million) have not been recognised due to uncertainty over their
recoverability. Included within unrecognised losses are £1.1 million of losses which expire prior to 2030. Other losses may be carried forward
indefinitely.
(c) Movements During the Year
Restated*
Acquired
through
business
combinations
£m
(0.3)
–
–
–
–
–
–
–
(0.3)
Acquired
through
business
combinations
£m
–
–
–
–
–
–
–
–
–
Recognised
in income
£m
25.6
(0.3)
1.0
(1.6)
(0.2)
(0.5)
(1.1)
(0.7)
22.2
Recognised
in income
£m
14.9
(0.1)
(0.3)
–
–
(1.0)
0.3
0.1
13.9
Recognised
in equity/OCI
£m
–
–
–
–
(1.2)
–
–
–
(1.2)
Recognised
in equity/OCI
£m
–
–
–
1.8
(0.3)
–
–
–
1.5
Restated*
Foreign
exchange
adjustments
£m
(2.8)
(0.1)
(0.1)
0.2
–
–
(0.1)
–
(2.9)
Foreign
exchange
adjustments
£m
(1.4)
(0.1)
(0.1)
–
–
(0.1)
–
–
(1.7)
Balance at
30 June
2018
£m
(98.4)
(3.4)
0.9
2.8
2.4
2.1
1.2
1.0
(91.4)
Restated*
Balance at
30 June
2019
£m
(75.9)
(3.8)
1.8
1.4
1.0
1.6
–
0.3
(73.6)
Restated*
Balance at
30 June
2019
£m
(75.9)
(3.8)
1.8
1.4
1.0
1.6
–
0.3
(73.6)
Balance at
30 June
2020
£m
(62.4)
(4.0)
1.4
3.2
0.7
0.5
0.3
0.4
(59.9)
179
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
* Restated as detailed in note 31 Acquisitions.
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Financial Statements
Notes to the Consolidated Financial Statements
continued
15. Deferred Taxes continued
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
* Restated as detailed in note 31 Acquisitions.
16. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
* Restated as detailed in note 31 Acquisitions.
2020
£m
2.7
(62.6)
(59.9)
2020
£m
28.9
10.9
81.0
120.8
Restated*
2019
£m
0.9
(74.5)
(73.6)
Restated*
2019
£m
25.2
8.3
70.0
103.5
Included in finished goods and goods for resale £nil (2019: £nil) of inventory held at net realisable value having been acquired through business
combinations.
17. Trade and Other Receivables
Trade receivables
Other receivables
Prepayments and accrued income
* Restated as detailed in note 31 Acquisitions.
18. Cash and Cash Equivalents
Cash at bank and in hand
19. Trade and Other Payables
Trade payables
Other payables
Other taxation and social security
Accruals
20. Current Tax Assets & Liabilities
Corporation tax receivable
Corporation tax payable
2020
£m
79.4
11.1
3.4
93.9
2020
£m
227.4
2020
£m
34.6
3.1
7.4
53.1
98.2
2020
£m
6.8
(25.6)
(18.8)
Restated*
2019
£m
91.1
4.8
3.9
99.8
2019
£m
80.3
2019
£m
31.9
1.9
5.1
56.6
95.5
2019
£m
7.9
(16.3)
(8.4)
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21. Borrowings and lease liabilities
Current liabilities:
Lease liabilities
Bank loans
Non-current liabilities:
Lease liabilities
Senior loan notes
Bank loans
Arrangement fees netted off
Total borrowings
Financial Statements
2020
£m
3.2
1.4
4.6
11.8
127.1
214.2
(2.7)
350.4
355.0
2019
£m
–
1.2
1.2
–
–
309.6
(2.7)
306.9
308.1
On 1 October 2019 the Accordion facility on the Revolving Credit Facility of £235.0 million was invoked, removing the Accordion facility and
increasing the committed facilities on the Revolving Credit Facility to £340.0 million. During the year the drawings on the Revolving Credit
Facility have been restructured such that £179.0 million has been drawn on the facility and £143.7 million repaid. At 30 June 2020, £214.2
million was drawn against the £340.0 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 2020, interest being charged on this facility is 1.70% above LIBOR. All covenants were met during the year ended 30 June 2020.
In January 2020 the Group undertook a Private Placement raising £118.3 million in the form of EUR50.0 million and USD100.0 million (under
seven and ten year new senior secured notes respectively). At 30 June 2020, £127.1 million was drawn under the Private Placement. The
Private Placement amounts are not secured on any specific assets of the Group, but are supported by a joint and several cross guarantee
structure. Interest is charged on the EUR50.0 million amount at a fixed rate of 1.19% until maturity (January 2027). Interest is charged on the
USD100.0 million amount at a fixed rate of 3.34% until maturity (January 2030).
The drawings on the Private Placement, together with a restructuring of the drawings on the Revolving Credit Facility, enabled £126.7 million
drawn on the £350.0 million Term Loan Facility, due to mature in December 2020, to be fully repaid and cancelled in January 2020.
Arrangement fees of £1.7 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 (2019: £nil).
Genera also has borrowing facilities of £4.6 million, of which £1.4 million (2019: £2.7 million) was drawn down at 30 June 2020. 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
Over five years
The maturity of the lease liabilities is as follows:
Payable:
Within one year
Between one and two years
Between two and five years
Over five years
Further information on the interest profile of borrowings is shown in note 24.
Stock Code: DPH
2020
£m
1.4
–
214.2
127.1
342.7
2020
£m
3.2
2.5
4.0
5.3
15.0
2019
£m
1.2
180.5
129.1
–
310.8
2019
£m
–
–
–
–
–
181
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Financial Statements
Notes to the Consolidated Financial Statements
continued
22. Provisions
At start of period
Acquired through business combinations
Provision recognised
Provision utilised
Foreign exchange differences
At end of period
Deferred
Rent
£m
(0.5)
–
–
0.1
–
(0.4)
Provision for
PPE grant
£m
(1.2)
–
(0.7)
0.5
–
(1.4)
Environmental,
Health &
Safety Grant
£m
(0.3)
–
–
–
–
(0.3)
Dilapidations
£m
–
(0.4)
–
–
–
(0.4)
Total
£m
(2.0)
(0.4)
(0.7)
0.6
–
(2.5)
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.
On the acquisition of Ampharmco, the Group established a fair value provision for dilapidations of a warehouse property.
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 (2019: £0.1 million) for
employees in the Netherlands are recognised within other payables in the Consolidated Statement of Financial Position as at 30 June 2020.
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 as part of the valuation of the scheme in the prior year 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%
2020
–
–
–
–
–
–
In valuing the liabilities of the pension scheme at 31 December 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 applied at 31 December 2018
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.
182
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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
– 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
– 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 to the Income Statement
Service 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
2020
£m
–
–
–
–
–
–
–
–
–
–
–
2020
£m
–
–
–
–
–
–
–
–
–
–
2020
£m
–
–
–
–
2020
£m
–
–
–
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
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 scheme had no assets at 30 June 2020 (2019: £nil).
Stock Code: DPH
183
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Financial Statements
Notes to the Consolidated Financial Statements
continued
23. Employee Benefit Obligations continued
Scheme Assets continued
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
24. Financial Instruments and Related Disclosures
2020
£m
–
–
–
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)
The Group’s financial instruments comprise bank loans and overdrafts, lease liabilities, 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.
The Group has implemented physical cash pooling in the prior year. This has resulted in increased cash being held in Dechra Pharmaceuticals
PLC as the Master Account Holder.
Capital Management
The capital structure of the Group consists of net borrowings and shareholders’ equity. At 30 June 2020, net borrowing was £127.6 million
(2019: net borrowing was £227.8 million), whilst shareholders’ equity was £637.5 million (2019: £509.1 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 (the ratio of underlying EBITDA to interest
costs), and leverage (the ratio of total net debt to underlying EBITDA). The Group complied with these covenants in 2020 and 2019.
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.
184
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Financial Statements
24. Financial Instruments and Related Disclosures continued
Financial Risk Management
The Group has exposure to the following risks from its use of financial instruments:
•
•
•
liquidity risk
market risk
credit risk
This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and processes for
measuring and managing risk.
Liquidity Risk
Liquidity risk is the risk that the Group will not have sufficient funds to meet liabilities as they fall due. Cash flows and covenants of the Group
are monitored half-yearly. These are reviewed to ensure that sufficient financial headroom exists for at least a 12 month period.
The Group manages its funding requirements through the following lines of credit:
•
•
•
•
£340.0 million multi-currency revolving credit facility;
Private Placements in the amounts of USD100.0 million and EUR50.0 million;
£15.0 million lease liabilities; and
£4.6 million bank loans;
The Group’s revised borrowing facilities at 30 June 2020 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 Group’s borrowings bear interest at both floating rates linked to base rate or LIBOR and fixed rates, thereby reducing the exposure 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 practicable. 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 borrowing
of $97.0 million as a net investment hedge of US Dollar net assets. Cash flows in relation to the acquisition of Mirataz were hedged using a
cash flow hedge during the year.
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 £90.5 million (2019: £95.9 million), which is the total carrying value of the Group’s financial
assets excluding cash and cash equivalents.
The Group offers trade credit to customers in the normal course of business. Trade and bank references are obtained prior to extending credit.
Our principal customers are pharmaceutical wholesalers and distributors. The failure of a large wholesaler could have a material adverse
impact on the Group’s financial results.
The largest customer of the Group sits within the NA Pharmaceuticals segment and accounted for approximately 21.4% of gross trade
receivables at 30 June 2020 (2019: 22.0%). This customer accounted for 20.0% (2019: 20.4%) of total Group revenues. One other customer
accounted for more than 10% of total Group revenues (2019: 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.
Stock Code: DPH
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Financial Statements
Notes to the Consolidated Financial Statements
continued
24. Financial Instruments and Related Disclosures continued
Fair Value of Financial Assets and Liabilities
The following table presents the carrying amounts and the fair values of the Group’s financial assets and liabilities at 30 June 2020 and 30 June
2019. 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.
Borrowings, bank loans and overdrafts – based upon discounted cash flows using discount rates based upon facility rates.
Analysis of Financial Instruments
The financial instruments of the Group measured at amortised cost are analysed as follows:
Financial assets
Financial assets measured at amortised cost
– cash and cash equivalents
– trade receivables
– other receivables
Total financial assets
Financial liabilities
Bank loans and overdrafts
Senior loan notes
Lease liabilities
Trade payables
Other payables
Accruals
Contingent consideration
Total financial liabilities
Net financial liabilities
* Restated as detailed in note 31 Acquisitions.
2020
Carrying
value
£m
227.4
79.4
11.1
317.9
(215.6)
(127.1)
(15.0)
(34.6)
(3.1)
(53.1)
(56.2)
(504.7)
(186.8)
Restated*
2019
Fair
value
£m
227.4
79.4
11.1
317.9
(215.6)
(126.8)
(15.0)
(34.6)
(3.1)
(53.1)
(56.2)
(504.4)
(186.5)
Carrying
value
£m
80.3
91.1
4.8
176.2
(310.8)
–
–
(31.9)
(1.9)
(56.6)
(36.0)
(437.2)
(261.0)
Fair
value
£m
80.3
91.1
4.8
176.2
(310.8)
–
–
(31.9)
(1.9)
(56.6)
(36.0)
(437.2)
(261.0)
Senior loan notes are carried at amortised cost. Amounts denominated in foreign currencies are valued at the exchange rate prevailing at the
balance sheet date. The fair value of borrowings is estimated by discounting contractual future cash flows (Level 2 as defined by IFRS 13).
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 2020
Financial instruments held at fair value through the profit and loss
Derivative financial liabilities
Contingent consideration
Total
30 June 2019
Financial instruments held at fair value through the profit and loss
Derivative financial liabilities
Contingent consideration
Total
Level 1
£m
–
–
–
–
Level 1
£m
–
–
–
–
Level 2
£m
–
–
–
–
Level 2
£m
–
–
–
–
Level 3
£m
–
–
(56.2)
(56.2)
Level 3
£m
–
–
(36.0)
(36.0)
Total
£m
–
–
(56.2)
(56.2)
Total
£m
–
–
(36.0)
(36.0)
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Financial Statements
24. Financial Instruments and Related Disclosures continued
Fair Value Hierarchy continued
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 2020. Refer to note 4
for amounts recognised in the Consolidated Income Statement in the year. Quantified information about significant unobservable inputs in
disclosed within note 32.
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 2020 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 2020 and 30 June 2019 is determined as follows:
30 June 2020
Expected loss rate
Gross carrying amount – trade receivables
Loss allowance
Specific loss allowance
Total loss allowance
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
0.02%
3.0
–
0.1
0.1
Past due
(one to three
months)
£m
0.02%
0.5
–
–
–
Not due
£m
0.02%
76.0
–
–
–
Not due
£m
0.03%
85.8
–
0.2
0.2
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%
0.6
0.1
0.5
0.6
Past due
(over three
months)
£m
75.0%
0.9
0.2
0.7
0.9
The movement in the loss allowances for trade debtors at 30 June 2020 reconcile to the opening loss allowances as follows:
At start of period
Impairment provision (released)/ recognised
Impairment provision utilised
At end of period
2020
£m
1.1
(0.4)
–
0.7
Total
£m
80.1
0.1
0.6
0.7
Total
£m
92.2
0.2
0.9
1.1
2019
£m
0.6
0.6
(0.1)
1.1
Stock Code: DPH
187
Dechra-AR2020-Financials.indd 187
Job Number
7 September 2020 2:39 pm
Proof Number
07-Sep-20 4:44:59 PM
Financial Statements
Notes to the Consolidated Financial Statements
continued
24. Financial Instruments and Related Disclosures continued
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 2020 and 30 June 2019. Where
interest is at floating rates, the future interest payments have been estimated using current interest rates:
At 30 June 2020
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 2019
Carrying value
Arrangement fee
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
Bank loans
and
senior loan
notes
£m
Contingent
consideration
£m
Lease
liabilities
£m
Trade, other
payables and
accruals
£m
(56.2)
–
(27.6)
(83.8)
(4.5)
(5.0)
(4.1)
(9.6)
(6.2)
(5.3)
(49.1)
(83.8)
(340.0)
(2.7)
(2.1)
(344.8)
(2.7)
(0.8)
–
–
–
(214.2)
(127.1)
(344.8)
(15.0)
–
(2.3)
(17.3)
(2.1)
(1.6)
(2.9)
(1.9)
(1.4)
(1.1)
(6.3)
(17.3)
(90.8)
–
–
(90.8)
(85.3)
(5.4)
(0.1)
–
–
–
–
(90.8)
Contingent
consideration
£m
(36.0)
–
(26.4)
(62.4)
Bank loans
and
overdrafts
£m
(308.1)
(2.7)
(1.9)
(312.7)
Lease
liabilities
£m
–
–
–
–
Trade, other
payables and
accruals
£m
(90.4)
–
–
(90.4)
(2.9)
(2.7)
(10.7)
(9.3)
(3.2)
(3.8)
(29.8)
(62.4)
(2.6)
(0.6)
(180.7)
–
–
–
(128.8)
(312.7)
–
–
–
–
–
–
–
–
(90.4)
–
–
–
–
–
–
(90.4)
Total
£m
(502.0)
(2.7)
(32.0)
(536.7)
(94.6)
(12.8)
(7.1)
(11.5)
(7.6)
(220.6)
(182.5)
(536.7)
Total
£m
(434.5)
(2.7)
(28.3)
(465.5)
(95.9)
(3.3)
(191.4)
(9.3)
(3.2)
(3.8)
(158.6)
(465.5)
188
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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 2020 and 30 June 2019 were:
At 30 June 2020
Financial assets
Trade receivables
Other receivables
Cash balances
Financial liabilities
Bank loans and overdrafts
Lease liabilities
Trade payables
Other payables
Accruals
Deferred consideration
Net balance sheet exposure
At 30 June 2019
Financial assets
Trade receivables
Other receivables
Cash balances
Financial liabilities
Bank loans and overdrafts
Trade payables
Lease liabilities
Other payables
Accruals
Deferred consideration
Net balance sheet exposure
Australian
Dollar
£m
Danish
Krone
£m
–
–
4.2
4.2
–
–
–
–
(0.1)
(33.0)
(33.1)
(28.9)
–
–
1.0
1.0
–
–
–
–
–
–
–
1.0
Australian
Dollar
£m
Danish
Krone
£m
–
–
0.6
0.6
–
–
–
–
–
(21.9)
(21.9)
(21.3)
–
–
–
–
(2.2)
–
–
–
–
–
(2.2)
(2.2)
Euro
£m
8.3
0.6
33.7
42.6
(47.0)
(0.3)
(7.3)
(0.1)
(2.7)
(5.9)
(63.3)
(20.7)
Euro
£m
7.8
0.1
31.7
39.6
(2.7)
(2.7)
–
(0.7)
–
(6.7)
(12.8)
26.8
US
Dollar
£m
1.2
0.5
19.3
21.0
(97.8)
–
(1.0)
–
–
(16.4)
(115.2)
(94.2)
US
Dollar
£m
0.5
–
15.2
15.7
(92.2)
(0.4)
–
(0.3)
–
(6.6)
(99.5)
(83.8)
Other
£m
1.5
–
14.7
16.2
–
–
–
–
(1.0)
–
(1.0)
15.2
Other
£m
1.6
–
15.7
17.3
–
–
–
–
–
–
–
17.3
Stock Code: DPH
189
Dechra-AR2020-Financials.indd 189
Job Number
7 September 2020 2:39 pm
Proof Number
07-Sep-20 4:45:00 PM
Financial Statements
Notes to the Consolidated Financial Statements
continued
24. Financial Instruments and Related Disclosures continued
Sensitivity Analysis
Interest Rate Risk
A 2.0% increase in annual interest rates compared to those ruling at 30 June 2020 would reduce Group profit before taxation and equity by
£6.3 million (2019: £6.0 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 2020, the Group have been exposed to transactional and translational currency risk. In addition to the transactional gain of £2.9 million being
recognised in the Consolidated Income Statement, £7.1 million foreign exchange loss translational impact was recognised in the Consolidated
Statement of Comprehensive Income in the year.
As part of our acquisition strategy, the Group 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.
Australian Dollar
Danish Krone
Euro
US Dollar
Profit after
taxation
£m
(2.6)
0.1
(1.9)
(1.3)
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.
190
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
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Job Number
7 September 2020 2:39 pm
Proof Number
07-Sep-20 4:45:00 PM
Financial Statements
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
2020
Number
102,651,602
5,359,358
108,010,960
£m
1.0
0.1
1.1
2019
Number
102,329,635
321,967
102,651,602
£m
1.0
–
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, 226,858 new ordinary shares of 1 pence each (2019: 321,967 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 £981,083 (2019: £1,239,011). The holders of ordinary shares are entitled to receive dividends as declared
or approved at General Meetings from time to time and are entitled to one vote per share at such meetings of the Company.
The Company issued 5,132,500 shares of 1 pence each by way of a placing at an issue price of 2600 pence per share on 8 June 2020. The
placing generated gross proceeds of £133.4 million. The placing price of 2600 pence per share was a 5.3% discount to the closing middle
market share price on 3 June 2020, being the date of the placing announcement.
26. Own Shares
At start of the period
Recycled to retained earnings
Purchase of own shares
At end of period
2020
£m
–
–
–
–
2019
£m
0.4
(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 27 for details). There were no ordinary shares
held by the Employee Benefit Trust at 30 June 2020 (2019: none).
Stock Code: DPH
191
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Job Number
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Proof Number
07-Sep-20 4:45:00 PM
Financial Statements
Notes to the Consolidated Financial Statements
continued
27. Share-based Payments
During the year, the Company operated the Unapproved Share Option Scheme, the Approved Share Option Scheme, the Long Term Incentive
Plan 2008, the Save As You Earn (SAYE) Share Option Scheme, the Long Term Incentive Plan 2017 and the Global SAYE Plan 2018 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.
Global SAYE Plan 2018
The Global SAYE Plan 2018 is an international share option plan, with two schedules, one of which is a UK SAYE Scheme and the other
operates as a qualifying Employee Stock Purchase Plan for the benefit of employees in the USA. This scheme is currently open to all UK and
USA employees. Participants save a fixed amount of up to £500 (or the USD equivalent) per month for either three years (UK scheme) or two
years (USA Scheme). The employees are then able to use these savings to buy shares in the Company at a price fixed at a 10% discount to
the market value at the start of the savings period. The SAYE options must ordinarily be exercised within six months of the completion of the
relevant savings period. For USA employees, there is a 12 month holding period that applies. The exercise of these options is not subject to
any performance criteria.
192
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
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Dechra-AR2020-Financials.indd 192
Job Number
7 September 2020 2:39 pm
Proof Number
07-Sep-20 4:45:00 PM
Financial Statements
Exercised
Number
Granted
Number
Lapsed
Number
At
1 July
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
—
—
(2,000)
(1,526)
(475)
(26,489)
–
–
–
(30,490)
(500)
(2,000)
(32)
(6,227)
–
–
–
(8,759)
(138,687)
–
–
–
(138,687)
–
–
–
–
–
–
–
(13,419)
–
(34,413)
(759)
(331)
(48,922)
–
–
–
(226,858)
432.32p
At
30 June
2020
Number
–
3,000
5,000
17,457
–
42,863
93,139
114,036
133,929
409,424
–
–
923
2,921
7,993
2,906
8,071
22,814
–
26,958
98,679
84,662
210,299
5,136
49,217
–
–
629
2,519
57,501
–
15,373
3,831
56,202
27,710
103,116
–
–
–
–
–
–
–
–
133,929
133,929
–
–
–
–
–
–
8,071
8,071
–
–
–
88,232
88,232
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,177)
–
–
–
–
(3,000)
(5,500)
(6,000)
–
(16,677)
–
–
–
–
–
–
–
–
(5,282)
(1,282)
–
(3,570)
(10,134)
–
–
(1,350)
(3,115)
(606)
(2,421)
(7,492)
–
–
(948)
(4,615)
(5,348)
(10,911)
30,073
20,632
50,705
280,937
1498.16p
(2,900)
(1,458)
(4,358)
(49,572)
1117.27p
27,173
19,174
46,347
849,501
1338.99p
27. Share-based Payments continued
Year ended 30 June 2020
Unapproved Share Option Scheme
1 March 2010†*
16 September 2013†
11 September 2014†
15 September 2015†
18 March 2016†
19 September 2016†
2 March 2018
26 October 2018
6 September 2019
Approved Share Option Scheme
16 September 2013†
11 September 2014†
15 September 2015†
19 September 2016†
2 March 2018
26 October 2018
6 September 2019
Long Term Incentive Plan
19 September 2016†
2 March 2018
26 October 2018
6 September 2019
Exercise
Period
2013–2020
2016–2023
2017–2024
2018–2025
2019–2026
2019–2026
2020–2028
2021-2028
2022-2029
2016–2023
2017–2024
2018–2025
2019–2026
2021–2028
2021–2028
2022–2029
2019–2020
2020-2021
2021-2022
2022-2023
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
Exercise
price
per share
Pence
418.81
721.00
763.00
975.00
1118.00
1369.00
2506.00
2166.00
2964.00
721.00
763.00
975.00
1369.00
2506.00
2166.00
2964.00
–
–
–
–
2506.00
–
2166.00
–
2429.00
–
614.00
792.00
1095.00
1646.00
1974.00
SAYE Option Scheme
13 October 2014
12 October 2015
13 October 2016
12 October 2017
29 November 2018
Global SAYE Plan 2018
4 October 2019
16 October 2019
Total
Weighted average exercise price*
2017–2020
2018–2021
2019–2022
2020–2023
2021-2024
2022–2023
2021–2022
2573.00
2571.00
* 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 2020 are 72,164.
Stock Code: DPH
193
Dechra-AR2020-Financials.indd 193
Job Number
7 September 2020 2:39 pm
Proof Number
07-Sep-20 4:45:01 PM
Financial Statements
Notes to the Consolidated Financial Statements
continued
Exercised
Number
Granted
Number
Lapsed
Number
27. 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.
194
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Job Number
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Proof Number
07-Sep-20 4:45:02 PM
Financial Statements
27. Share-based Payments continued
The weighted average exercise price of options eligible to be exercised at 30 June 2020 was 1199.72p (2019: 862.72p). For options exercised
during the year, the weighted average market price at the date of exercise was 2777.57p (2019: 2365.36p). The weighted average remaining
contractual lives of options outstanding at the Consolidated Statement of Financial Position date was 4.9 years (2019: 4.3 years).
Outstanding options on all Long Term Incentive Plan, Approved and Unapproved plans prior to 30 June 2019 were exercisable at 30 June
2020. No options issued under SAYE plans were exercisable at 30 June 2020 (2019: 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:
10/10/16
5,319
1389p
Nil
3 years
0.12%
22%
1.54%
1108p
18/03/16
6,000
1185p
1188p
6.5 years
1.02%
26%
1.62%
273p
19/09/16
149,463
1379p
Nil
3 years
0.12%
22%
1.54%
1108p
15/09/15
74,000
990p
975p
6.5 years
1.47%
27%
0.54%
284p
06/09/19
06/09/19
30/09/22
30/09/22
Long Term Incentive Plan
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share
Unapproved and Approved Share Option Schemes
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
Risk-free rate
Volatility
Dividend yield
Fair value per share
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
06/09/19
8,071
3036p
2964p
6.5 years
0.31%
28%
1.00%
928p
26/10/18
& 01/03/19
6,876
2188p
2166p
6.5 years
1.05%
28%
0.90%
596p
02/03/18
17,917
2548p
2506p
6.5 years
1.20%
23%
1.91%
521p
19/09/16
106,000
1379p
1369p
6.5 years
0.47%
26%
1.54%
305p
Standalone
Nil-cost options
2 years
Conditional
share awards
2 years
11,696
3036p
Nil
3.07 years
0.34%
28.2%
n/a
1872p
23,391
3036p
Nil
3.07 years
0.34%
28.2%
1.0%
2647p
3,661
3036p
Nil
3.07 years
0.34%
28.2%
n/a
1872p
7,323
3036p
Nil
3.07 years
0.34%
28.2%
1.0%
2647p
Nil-cost options
(CSOP linked and
standalone options)
N/A
14,053
3036p
Nil
3.07 years
0.34%
28.2%
n/a
2080p
28,108
3036p
Nil
3.07 years
0.34%
28.2%
1.0%
2941p
Market value
options
N/A
133,929
3036p
2964p
6.50 years
0.34%
28.2%
1.0%
928p
Stock Code: DPH
195
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Job Number
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Proof Number
07-Sep-20 4:45:02 PM
Financial Statements
Notes to the Consolidated Financial Statements
continued
27. Share-based Payments continued
Long Term Incentive Plan 2017
Valuation date
Award date
Vesting date
Expected exercise
26/10/18 & 01/03/19
26/10/18 & 01/03/19
30/09/21
30/09/21
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
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
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
Nil-cost options
(CSOP linked)
2 years
Conditional
share awards
2 years
Nil-cost options
(CSOP linked and
standalone options)
N/A
20,459
2506p
Nil
2.58 years
0.82%
23.21%
1.91%
1979p
40,918
2506p
Nil
2.58 years
0.82%
23.21%
1.91%
22.50p
4,033
2506p
Nil
2.58 years
0.82%
23.21%
1.91%
19.79p
8,066
2506p
Nil
2.58 years
0.82%
23.21%
1.91%
22.50p
9,682
2506p
Nil
2.58 years
0.82%
23.21%
1.91%
21.33p
19,363
2506p
Nil
2.58 years
0.82%
23.21%
1.91%
24.25p
Market value
options
N/A
130,209
2188p
2166p
6.5 years
1.05%
27.95%
0.90%
596p
02/03/18
02/03/18
30/09/20
30/09/20
Market value
options
N/A
114,113
2506p
Nil
6.5 years
1.20%
23.21%
1.91%
522p
196
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Job Number
7 September 2020 2:39 pm
Proof Number
07-Sep-20 4:45:02 PM
Financial Statements
29/11/18
34,527
2136p
1974p
–
3.4 years
5.4 years
–
0.77%
0.91%
–
27.94%
25.09%
0.95%
–
485p
530p
12/10/17
73,108
2175p
1646p
13/10/16
52,877
1370p
1095p
12/10/15
101,513
930p
792p
–
3.25 years
5.25 years
–
3.25 years
5.25 years
–
3.25 years
5.25 years
–
0.54%
0.79%
–
21.6%
22.2%
1.91%
–
551p
587p
–
0.22%
0.44%
–
22%
24%
1.51%
–
302p
346p
–
0.83%
1.17%
–
22%
26%
0.53%
–
215p
283p
27. Share-based Payments continued
–
3.0 years
–
04/10/2019
30,073
2736p
2573p
2.0 years
–
–
16/10/2019
20,632
2626p
2517p
Save As You Earn Option Scheme and Global SAYE Scheme
Date of grant
Number of shares awarded
Share price at date of grant
Exercise price
Expected life
– two year scheme
– three year scheme
– five year scheme
Risk-free rate
– two year scheme
– three year scheme
– five year scheme
Volatility
– two year scheme
– three year scheme
– five year scheme
Dividend yield
Fair value per share
– two year scheme
– three year scheme
– five year scheme
32.10%
–
–
1.20%
0.52%
–
–
486p
–
–
–
28.60%
–
1.20%
–
0.25%
–
–
504p
–
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 2020 of £0.6 million (2019: £1.0 million), of which £0.1 million (2019: £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
28. Changes in Net Debt
Cash and cash equivalents
Lease liabilities within one year
Bank loans within one year
Lease liabilities after one year
Bank loans and senior loan notes after
one year
Net debt
At
1 July 2019
£m
80.3
–
(1.2)
–
(306.9)
(227.8)
Cash
flows
£m
143.8
3.6
1.3
–
(25.1)
123.6
2020
£m
1.5
–
1.5
Changes in
accounting
policy
£m
–
(2.7)
–
(10.0)
Foreign
exchange
movements
£m
3.3
–
–
–
Other
non-cash
movements
£m
–
(4.1)
(1.5)
(1.7)
Acquisitions
£m
–
–
–
(0.1)
2019
£m
2.3
0.1
2.4
At
30 June
2020
£m
227.4
(3.2)
(1.4)
(11.8)
–
(0.1)
–
(12.7)
(6.3)
(3.0)
(0.3)
(7.6)
(338.6)
(127.6)
Stock Code: DPH
197
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Job Number
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Proof Number
07-Sep-20 4:45:03 PM
Financial Statements
Notes to the Consolidated Financial Statements
continued
29. 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
Other assets
Total
2020
£m
–
–
–
–
2019
£m
1.8
4.5
5.7
12.0
2020
£m
–
–
–
–
2019
£m
1.9
2.5
–
4.4
2020
£m
–
–
–
–
2019
£m
3.7
7.0
5.7
16.4
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.
30. Foreign Exchange Rates
The following primary exchange rates have been used in the translation of the results of foreign operations:
Australian Dollar
Brazilian Real
Danish Krone
Euro
US Dollar
31. Acquisitions
Average rate
for 2019
1.8097
4.9686
8.4651
1.1345
1.2945
Closing rate
at 30 June
2019
1.8118
4.8532
8.3248
1.1154
1.2693
Average rate
for 2020
1.8784
5.6245
8.5080
1.1396
1.2601
Closing rate
at 30 June
2020
1.7913
6.6986
8.1681
1.0960
1.2273
Acquisition of Ampharmco
On 28 August 2019, Dechra acquired 100% of the share capital of Ampharmco LLC and its associated companies Dragon Fire Holdings LLC
and Black Griffin Holdings LLC (collectively Ampharmco), together with its manufacturing site based in Fort Worth, Texas. The Group paid
£24.3 million (USD29.6 million) consideration in cash.
Recognised amounts of identifiable assets acquired
Property, plant and equipment
Inventory
Trade and other receivables
Trade and other payables
Cash
Lease liabilities
Provisions
Intangible assets
Current tax liabilities
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Total consideration transferred and net cash outflow arising on acquisition
Fair value
£m
3.4
1.2
0.4
(0.3)
–
(0.1)
(0.4)
15.0
(1.5)
17.7
6.6
24.3
24.3
24.3
The 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 intangible assets in accordance with IFRS 3. The impact of increasing the discount rates used to
calculate the acquired intangibles by 1.0% is to reduce the value of the acquired intangible by £1.0 million, with a corresponding increase in
goodwill.
198
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Proof Number
07-Sep-20 4:45:03 PM
Financial Statements
31. Acquisitions continued
Acquisition of Ampharmco continued
The goodwill of £6.6 million arising from the acquisition predominantly relates to the future benefits of an FDA registered facility to manufacture
solid doses, liquids, creams and ointments, which will significantly strengthen the manufacturing capability for the North American market. No
deferred tax arises on acquisition because the tax elections available in the US enable a tax base to be recognised for certain assets identified
at that point in time.
Acquisition related costs (included in non-underlying operating expenses) amounted to £1.2 million. Ampharmco’s results are reported within
the NA Pharmaceuticals Segment.
Ampharmco contributed £2.6 million revenue and £0.6 million loss 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 £3.4 million and the contribution to the Group’s underlying operating profit would have been £0.7 million
loss. The reported operating loss after taking into account non-underlying items for the amortisation of intangible assets would have been
£1.7 million.
Acquisition of Mirataz
On 16 March 2020, Dechra acquired the worldwide rights to the Mirataz product portfolio from Kindred Biosciences Incorporated for cash
consideration of £34.9 million (USD43.0 million) and a royalty on future sales. The acquisition completed on 16 April 2020. The Net Present Value
of the future sales royalties has been valued at £10.9 million, and is included within the contingent consideration liability at year end (refer to
note 32). The Group has early adopted the amendments to IFRS3 ‘Business Combinations’ and applied the optional concentration test for this
transaction. Accordingly, it has been concluded that substantially all the value arising from the transaction relates to the product rights which are
recognised as an intangible asset. The total intangible asset recognised in relation to this acquisition is £45.8 million (refer to note 12). A payment
of £0.6 million was also made for inventory.
Prior Year Acquisitions
Following the acquisition of Dechra Brazil in December 2018, the fair value of the assets and liabilities acquired have been reconsidered
since the Annual Report as at 30 June 2019 as part of the measurement period. In relation to the 30 June 2019 balance sheet, hindsight
adjustments have been made as detailed in the table below;
Intangible assets
Inventory
Trade and other receivables
Deferred tax due after more than one year
Reported
June 2019
£m
687.0
104.0
99.9
(81.5)
Opening Balance
sheet adjustments
£m
(6.4)
(0.5)
(0.1)
7.0
Restated
June 2019
£m
680.6
103.5
99.8
(74.5)
A hindsight adjustment has been made within tangible fixed assets to reclassify £0.1 million from Plant & Fixtures to Freehold Land & Buildings.
During the measurement period the deferred tax position in respect of the acquisition has been concluded, taking into account elections
available and contemplated at the acquisition date which enable a tax base to be established in Brazil for certain assets identified on
acquisition. While enacted during the measurement period, this is based on information and facts that existed at the acquisition date. The
disclosure of the final fair values of the assets and liabilities acquired have been included in the financial statements for the year ended 30 June
2020.
Following the acquisition of the trade and assets of Caledonian Holdings Ltd in October 2018, the disclosure of final fair values of the assets
and liabilities acquired has been included in the financial statements for the year ended 30 June 2019.
Stock Code: DPH
199
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Job Number
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Proof Number
07-Sep-20 4:45:03 PM
Financial Statements
Notes to the Consolidated Financial Statements
continued
32. Contingent Consideration Liabilities
Contingent consideration – less than one year
Contingent consideration – more than one year
2020
£m
8.9
47.3
56.2
2019
£m
5.1
30.9
36.0
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 2018
Additions
Remeasurement through intangibles
Remeasurement through income
statement
Cash payments: investing activities
Finance expense
Foreign exchange adjustments
At 30 June 2019
Additions
Remeasurement through intangibles
Cash payments: investing activities
Finance expense
Foreign exchange adjustments
At 30 June 2020
Tri-Solfen®
£m
22.8
–
(1.0)
–
–
0.6
(0.4)
22.0
–
9.9
–
0.4
0.7
33.0
StrixNB® &
DispersinB®
£m
1.1
–
(0.3)
Injectable
Solution 1
£m
6.6
–
(0.3)
Injectable
Solution 2
£m
–
7.9
–
(0.1)
(0.1)
0.1
–
0.7
0.2
–
(0.1)
–
–
0.8
–
(2.1)
0.2
–
4.4
–
0.2
(1.5)
0.1
0.1
3.3
–
(3.0)
–
0.3
5.2
–
–
(0.9)
0.1
–
4.4
Mirataz
Phycox®
Other
Total
£m
–
–
–
–
–
–
–
–
10.9
–
–
–
–
10.9
£m
2.8
–
–
–
(0.7)
0.1
–
2.2
–
0.8
(0.8)
–
0.1
2.3
£m
1.7
–
0.1
–
(0.4)
–
0.1
1.5
0.2
–
(0.2)
–
–
1.5
£m
35.0
7.9
(1.5)
(0.1)
(6.3)
1.0
–
36.0
11.3
10.9
(3.5)
0.6
0.9
56.2
The table below shows on an indicative basis the sensitivity to reasonably possible changes in key inputs to the valuations of the contingent
consideration liabilities. There will be a corresponding opposite impact on the intangible asset.
Increase/(decrease) in financial liability
10% increase in royalty forecasts £m
10% decrease in royalty forecasts £m
1% increase in discount rates £m
1% decrease in discount rates £m
5% appreciation in currency £m
5% depreciation in currency £m
Discount rate range in 2020
financial year
Discount rate range in 2019
financial year
Tri-Solfen®
StrixNB® &
DispersinB®
Injectable
Solution 1
Injectable
Solution 2
Mirataz
Phycox®
Other
2.6
(2.6)
(2.0)
2.0
(1.6)
1.6
0.1
(0.1)
–
–
–
–
N/A
N/A
(0.1)
0.1
(0.2)
0.2
N/A
N/A
(0.1)
0.1
(0.2)
0.2
1.1
(1.1)
(0.6)
0.6
(0.5)
0.5
0.3
(0.3)
(0.1)
0.1
(0.1)
0.1
N/A
N/A
–
–
(0.1)
0.1
2.5%-16.6% 10.1%-13.1%
9.2%
9.2% 6.8%-10.2%
10.1%
9.4%
12.5%
9.5%
9.0%
9.0%
–
9.5%
10%
Aggregate cash outflow in relation to royalties (remaining term of royalty agreement)
2020 £m (years)
2019 £m (years)
50.6 (10)
38.0 (10)
1.1 (7)
1.1 (8)
N/A
N/A
N/A
N/A
17.6 (10)
N/A
2.8 (3.5)
2.8 (4.5)
N/A
N/A
200
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
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Job Number
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Proof Number
07-Sep-20 4:45:03 PM
Financial Statements
32. Contingent Consideration Liabilities continued
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 are now expected to happen later than initially
anticipated. The sales performance royalties have been remeasured during the year reflecting an increase in management’s best estimate of
forecasted sales performance.
The consideration payable for Mirataz relates to sales performance and is expected to be payable over a number of years.
The consideration payable for StrixNB® and DispersinB® is expected to be payable over a number of years, and relates to sales performance.
During the year the contingent consideration has been remeasured based on management’s best estimate of forecasted sales performance.
An Addendum to the contract was agreed during the year for a development milestone and sales performance in the Brazilian market.
The consideration for two separate licensing agreements for injectable solutions both relate to development milestones. Phycox relates
to sales performance and arose as part of the acquisition of the trade and assets of PSPC Inc. in 2014.
Where a liability is expected to be payable over a number of years the total estimated liability is discounted to its present value. With the
exception of Phycox, all contingent consideration liabilities relate to licensing agreements.
33. 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 212 to 214.
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 129 to 138. The remuneration of key management is disclosed in note 8.
Associates
The Group holds a 48% stake in Medical Ethics Pty Ltd, which is the holding company of Animal Ethics Pty Ltd. There have been no transactions
with the Medical Ethics Group during the year. In the prior year, a milestone payment of £1.4 million (AUD 2.5 million) relating to the licensing
agreement with Animal Ethics Pty Ltd was made. Refer to note 6 for further information on the results of the associate in the period.
34. Off Balance Sheet Arrangements
The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.
35. Changes in Accounting Policies
IFRS 16 ‘Leases’
The Group has adopted IFRS 16 retrospectively from 1 July 2019, but has not restated comparatives for the 2019 reporting period, as
permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on 1 July 2019.
(a) Adjustments Recognised on Adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’
under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of 1 July 2019. The weighted average lessee’s incremental borrowing rate applied to the lease
liabilities on 1 July 2019 was 2.9%.
Operating lease commitments disclosed as at 30 June 2019
Impact of discounting using the incremental borrowing rate (IBR) on transition
(Less): short term leases recognised on a straight-line basis as expense
(Less): contracts reassessed as service agreements
Lease liability recognised as at 1 July 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
Stock Code: DPH
2019
£m
16.4
(2.0)
(0.8)
(0.9)
12.7
2.7
10.0
12.7
201
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Financial Statements
Notes to the Consolidated Financial Statements
continued
35. Changes in Accounting Policies continued
The recognised right of use assets relate to the following types of assets:
Properties
Equipment
Motor vehicles
Total right of use assets
30 June 2020
£m
1 July 2019
£m
11.2
0.3
3.4
14.9
9.2
0.4
3.1
12.7
The change in accounting policy affected the following items in the balance sheet on 1 July 2019:
•
•
right of use assets (reflected in property, plant and equipment) – increase £12.7 million
lease liability (reflected in borrowings) – increase £12.7 million
The net impact on retained earnings on 1 July 2019 was £nil. The adoption of IFRS 16 has resulted in EBITDA being £3.7 million higher and
EBIT being £0.2 million higher in the current period compared to IAS 17.
Practical Expedients Applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
•
•
•
•
the use of a single discount rate for a portfolio of leases with reasonably similar characteristics;
the accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short term leases;
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts
entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 14 ‘Determining whether an
arrangement contains a lease’.
(b) The Group’s Leasing Activities and how these are accounted for
The Group leases various offices, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of three to five
years, but may have extension options as described below.
Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-
lease components based on their relative stand-alone prices.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not
impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as
security for borrowing purposes.
Until the 2020 financial year, leases of property, plant and equipment were classified as operating leases. From 1 July 2019, leases are
recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise
operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held
are exercisable by both the Group and the respective lessor.
IFRIC 23 ‘Uncertainty over Income Tax Treatments’
From 1 July 2019, the Group has adopted IFRIC 23 which clarifies the application of recognition and measurement requirements in IAS 12
Income Taxes when there is uncertainty over income tax treatments. Upon adoption of IFRIC 23, there have been no material adjustments to
the uncertain tax positions held on the balance sheet as at 30 June 2019. The Group have also reviewed the most appropriate methodology
for the uncertain tax positions held at the balance sheet date. Based on the current facts and circumstances in each case, the Group has used
both the most likely outcome method and the expected value method in calculating the value of the provision required. This methodology will
be reviewed in each case upon the receipt of any new information.
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Financial Statements
36. 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 had 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 2020, contingent liabilities arising in the normal course of business amounted to £11.4 million (2019: £15.0 million) relating to
licence 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 a contingent consideration liability
have not been recognised.
37. Subsequent Events
On 27 July 2020 the Group completed the acquisition of the worldwide rights of the Osurnia product portfolio from Elanco Animal Health
Incorporated for a total consideration of USD135.0 million (£104.7 million). Inventory of USD6.6 million (£5.1 million) was also acquired as part of
the transaction.
38. 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
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 (net of tax)
Fair value and other movements on contingent consideration
Loss on extinguishment of debt
Underlying profit before taxation
2020
£m
52.2
76.1
128.3
9.9
4.3
142.5
40.9
76.1
0.6
1.5
1.0
120.1
2019
£m
39.0
88.4
127.4
5.7
4.1
137.2
27.8
88.4
0.2
1.0
–
117.4
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Financial Statements
Company Statement of Financial Position
At 30 June 2020
Non-current assets
Investments
Intangible assets
Tangible assets
Current assets
Trade and other receivables (includes amounts falling due after more than one year of £47.6 million
(2019: £1.2 million))
Cash at bank and in hand
Borrowings
Trade and other payables
Net current assets/ (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
Note
iv
v
vi
vii
viii
x
ix
x
xii
2020
£m
743.6
9.3
1.2
754.1
110.7
200.1
310.8
(0.2)
(267.3)
43.3
797.4
(166.6)
630.8
1.1
409.3
0.6
82.6
136.6
32.3
(31.7)
137.2
630.8
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
The financial statements were approved by the Board of Directors on 7 September 2020 and are signed on its behalf by:
Ian Page
Chief Executive Officer
7 September 2020
Paul Sandland
Chief Financial Officer
7 September 2020
Company number: 3369634
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Company Statement of Changes in
Shareholders’ Equity
For the year ended 30 June 2020
Financial Statements
Year ended 30 June 2019
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
Year ended 30 June 2020
At 1 July 2019
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 2020
Called up
share
capital
£m
Share
premium
account
£m
Foreign
currency
translation
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
Total
shareholders’
funds
£m
1.0
–
–
–
–
–
–
1.0
1.0
–
–
–
–
0.1
0.1
1.1
276.7
–
–
–
–
1.2
1.2
277.9
277.9
–
–
–
–
131.4
131.4
409.3
0.6
–
–
–
–
–
–
0.6
0.6
–
–
–
–
–
–
0.6
82.6
–
–
–
–
–
–
82.6
82.6
–
–
–
–
–
–
82.6
120.4
43.1
43.1
(28.4)
1.5
–
(26.9)
136.6
136.6
32.3
32.3
(33.3)
1.6
–
(31.7)
137.2
481.3
43.1
43.1
(28.4)
1.5
1.2
(25.7)
498.7
498.7
32.3
32.3
(33.3)
1.6
131.5
99.8
630.8
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205
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Financial Statements
Notes to the Company 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 2020 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 £32.3 million (2019: £43.1 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 standards, amendments to standards or interpretations have been adopted for the first time from 1 July 2019. Please refer
to note (xiv) for more detail on the impact of adoption on the financial statements.
•
•
IFRS 16 ‘Leases’ 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.
IFRIC 23 ‘Uncertainty over Income Tax Treatment’ provides clarity on how to apply the recognition and measurement requirements in
IAS 12 ‘Income Taxes’ when there is uncertainty over income tax treatments. Adoption of this interpretation did not have a material
impact on the Company’s financial statements.
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
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Financial Statements
(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 income tax expense or credit for the period is the tax payable on the current period’s taxable income, based on the applicable income
tax rate for the UK, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially
enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability
is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity.
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.
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Financial Statements
Notes to the Company Financial Statements
continued
(ii) Directors and Employees
Total emoluments of Directors (including pension contributions) amounted to £3.0 million (2019: £4.7 million). Information relating to Directors’
emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 129 to 138. 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 1.1396 (2019: 1.1345).
Administration
Total
The costs incurred in respect of these employees were:
Wages and salaries
Social security costs
Other pension costs
Share-based payments charge (see note 27)
Total
2020
Number
53
53
2019
Number
37
37
2020
£m
5.0
0.7
0.2
1.5
7.4
2019
£m
4.5
0.6
0.2
2.4
7.7
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 (2019: £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
– leased assets
Amortisation of intangible assets
Operating lease rentals payable
Auditor’s remuneration – audit of these financial statements
(iv) Investments
Cost
At 1 July 2019
Additions
At 30 June 2020
Impairment
At 1 July 2019
Charge for the period
At 30 June 2020
Net book value
At 30 June 2020
At 30 June 2019
A list of subsidiary undertakings is given in note (xv).
2020
£m
0.1
0.2
2.2
–
0.1
2019
£m
0.1
–
1.9
0.3
0.1
Shares in
subsidiary
undertakings
£m
755.8
–
755.8
12.2
–
12.2
743.6
743.6
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(v)
Intangible Assets
Cost
At 1 July 2019
Additions
At 30 June 2020
Accumulated Amortisation
At 1 July 2019
Charge for the year
Impairment
At 30 June 2020
Net book value
At 30 June 2020
At 30 June 2019
(vi) Tangible Assets
Cost
At 1 July 2019
Additions
Changes in accounting policy
At 30 June 2020
Accumulated Depreciation
At 1 July 2019
Charge for the year
At 30 June 2020
Net book value
At 30 June 2020
At 30 June 2019
Net book value of right-of-use- assets
At 30 June 2020
At 30 June 2019
(vii) Trade and Other Receivables
Amounts owed by subsidiary undertakings
Group relief receivable
Deferred taxation (see note (xi))
Other receivables
Prepayments and accrued income
Financial Statements
Acquired
Intangibles
£m
Software
£m
Total Intangible
assets
£m
5.1
–
5.1
3.8
0.5
–
4.3
0.8
1.3
10.8
1.4
12.2
2.0
1.7
–
3.7
8.5
8.8
2020
£m
104.7
3.8
0.4
1.0
0.8
110.7
15.9
1.4
17.3
5.8
2.2
–
8.0
9.3
10.1
Tangible
assets
£m
0.7
0.2
1.1
2.0
0.5
0.3
0.8
1.2
0.2
1.0
–
2019
£m
25.8
1.4
0.6
0.4
0.6
28.8
Included in debtors are amounts of £0.4 million (2019: £0.6 million) due after more than one year relating to deferred tax assets.
Of the amounts owed by subsidiary undertakings, £47.2 million is due after more than one year (2019: £0.6 million). 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. £100.6 million attracts interest of 1.7% and between
0.71% and 1.56% above LIBOR, the balance is interest free. £1.8 million of the £100.6 million is repayable in 2023. £45.4 million of the
£100.6 million is repayable in 2027.
Stock Code: DPH
209
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Financial Statements
Notes to the Company Financial Statements
continued
(viii) Cash at bank and in hand
Cash at bank and in hand
2020
£m
200.1
200.1
2019
£m
50.9
50.9
During 2019 the Company implemented physical cash pooling. This resulted in increased cash being held in the Company as the Master
Account Holder.
(ix) Trade and Other Payables
Trade payables
Other payables
Amounts due to subsidiary undertakings
Other taxation and social security
Accruals and deferred income
2020
£m
1.2
–
261.2
0.2
4.7
267.3
2019
£m
1.0
0.8
214.8
0.2
3.6
220.4
Amounts due to subsidiary undertakings are primarily unsecured and repayable on demand. £232.7 million attracts interest between 0.25%
below LIBOR and 1.5% above LIBOR, the balance is interest free. £96.4 million of the £232.7 million has been repaid post year end.
In accordance with IAS 10 ‘Events after the Balance Sheet Date’, the proposed final dividend for the year ended 30 June 2020 of 24.00 pence
per share (2019: 22.10 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 £25.9 million (2019: £22.7 million).
(x) Borrowings
Borrowings due within one year
Lease Liabilities
Borrowings due after more than one year
Aggregate bank loan and lease liabilities instalments repayable:
– between one and two years
– between two and five years
– over five years
Arrangement fees netted off
Total borrowings
2020
£m
0.2
0.2
41.5
127.6
(2.7)
166.6
166.8
2019
£m
–
–
117.2
–
(2.7)
114.5
114.5
On 1 October 2019 the Accordion facility on the Revolving Credit Facility of £235.0 million was invoked, removing the Accordion facility and
increasing the committed facilities on the Revolving Credit Facility to £340.0 million. At 30 June 2020, £41.3 million was drawn against the
£340.0 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 2020, interest being charged on this facility is 1.70% above LIBOR.
In January 2020 the Company undertook a Private Placement raising EUR50.0 million and USD100.0 million (under seven and ten year new
senior secured notes respectively). At 30 June 2020, £127.1 million was drawn under the Private Placement in the Company. The Private
Placement amounts are not secured on any specific assets of the Group, but are supported by a joint and several guarantee structure. Interest
is charged on the EUR50.0 million amount at a fixed rate of 1.19% until maturity (January 2027). Interest is charged on the USD100.0 million
amount at a fixed rate of 3.34% until maturity (January 2030).
The drawings on the Private Placement, together with a restructuring of the drawings on the Revolving Credit Facility, enabled the
£350.0 million Term Loan Facility, due to mature in December 2020, to be fully repaid and cancelled in January 2020.
Arrangement fees of £1.7 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 (2019: £nil).
The Company guarantees certain borrowings of other Group companies under the above facilities, which at 30 June 2020 amounted to
£174.3 million (2019: £193.6 million).
210
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Financial Statements
(xi) Deferred Tax
At 1 July 2019 (included in trade and other receivables)
Additions to the income statement
Additions to statement of changes in equity
At 30 June 2020 (included in trade and other receivables)
Deferred tax has been calculated using the rate of 17.0% or 19.0% based on the timing of when each individual deferred tax balance is
expected to reverse in the future as follows (2019: 19.0% or 17.0%):
Short term timing differences
Accelerated capital allowances
2020
£m
0.7
(0.3)
0.4
£m
0.6
0.1
(0.3)
0.4
2019
£m
1.0
(0.4)
0.6
Deferred tax assets in relation to losses amounting to £nil (2019: £nil) have not been recognised due to uncertainty over their recoverability.
(xii) Called up Share Capital
Issued share capital
Allotted, called up and fully paid at 1 July 2019
New shares issued
Allotted, called up and fully paid at 30 June 2020
Ordinary shares
of 1p each
£m
1.0
0.1
1.1
Number
102,651,602
5,359,358
108,010,960
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 27 to the Consolidated Financial Statements.
Share Options
Details of outstanding share options over ordinary shares of 1 pence at 30 June 2020 under the various Group share option schemes are
shown in note 27 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
2020
£m
–
–
–
–
2019
£m
0.1
0.4
0.6
1.1
Other assets
Total
2020
£m
–
–
–
–
2019
£m
0.1
0.1
–
0.2
2020
£m
–
–
–
–
2019
£m
0.2
0.5
0.6
1.3
(xiv) Adoption of New and Revised Standards
The Company has adopted IFRS 16 retrospectively from 1 July 2019, but has not restated comparatives for the 2019 reporting period, as
permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules
are therefore recognised in the opening balance sheet on 1 July 2019. The new accounting policies are disclosed within Note 35 of the Group
accounts.
(a) Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Company recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’
under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of 1 July 2019. The weighted average lessee’s incremental borrowing rate applied to the lease
liabilities on 1 July 2019 was 2.9%.
Stock Code: DPH
211
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Financial Statements
Notes to the Company Financial Statements
continued
(xiv) Adoption of New and Revised Standards continued
Operating lease commitments disclosed as at 30 June 2019
Impact of discounting using incremental borrowing rate (IBR) on transition
Lease liability recognised as at 30 June 2019
Of which:
Current lease liabilities
Non-current lease liabilities
The recognised right of use assets relate to the following types of assets:
Properties
Motor vehicles
Total right of use assets
The change in accounting policy affected the following items in the balance sheet on 1 July 2019:
•
•
right of use assets – increase £1.1 million.
lease liability – increase £1.1 million.
The net impact on retained earnings on 1 July 2019 was £nil.
2019
£m
1.3
(0.2)
1.1
0.2
0.9
1.1
2019
£m
0.9
0.2
1.1
2020
£m
0.8
0.2
1.0
The adoption of IFRS 16 has resulted in EBITDA being £0.2 million higher in the current period compared to IAS 17. There has been £nil
impact on EBIT.
(xv) Subsidiary Undertakings
Operating subsidiaries
Name
Ampharmco, LLC
Country of
Incorporation
USA
Principal Activity
Manufacturer of veterinary
pharmaceuticals
AST Farma B.V.
The Netherlands Marketer of veterinary pharmaceuticals
and distributor of veterinary
pharmaceuticals and equipment
Registered Address
1401 Joel East Road, Fort Worth, TX76140-
6003, United States
Wilgenweg 7, 3421TV Oudewater, The
Netherlands
Shareholder
Dechra Holdings US Inc
Dechra Finance B.V.
Brazil
Developer, regulatory, manufacturer and
marketer of veterinary pharmaceuticals
Travessa Dalva de Oliveira, 237, Industrias
Leves, Londrina, Parana 86030-370, Brazil
Dechra Holdings Brasil Ltda
Dechra Brasil Produtos
Veterinarios LTDA
(Formerly Laboratorios
Vencofarma do Brasil
Ltda)
Dechra Development
LLC
USA
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
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 Holdings US Inc
Dechra Investments Limited
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
Dechra Limited
Dechra Finance B.V.
The Netherlands
Financial services and holding company Pettelaarpark 38, 5216PD
Financial services
‘s-Hertogenbosch, The Netherlands
6th Floor, 2 Grand Canal Square, Dublin 2,
Ireland
Dechra Pharmaceuticals
PLC
Dechra Limited
Dechra Finance Ireland
Designated Activity
Company
Dechra Finance Limited
Republic of
Ireland
England and
Wales
Financial services and holding company
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
Dechra Pharmaceuticals
PLC
Dechra Pharmaceuticals
PLC
Dechra Finance Sterling
Limited
England and
Wales
Financial services
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Financial Statements
Shareholder
AST Farma B.V.
Dechra Pharmaceuticals
PLC
Dechra Holding Australia
Pty Limited
(xv) Subsidiary Undertakings continued
Name
Dechra Holdings Brasil
Ltda
Country of
Incorporation
Brazil
Principal Activity
Holding Company
Dechra Regulatory B.V.
The Netherlands
Regulatory
Registered Address
Travessa Dalva de Oilveira No. 237, office
ADM I, Industrias Leves, Londrina, Parana
86030-370, Brazil
Handelsweg 25, 5531AE Bladel, The
Netherlands
Developer, regulatory, manufacturer and
marketer of veterinary pharmaceuticals
2 Cal Close, Somersby NSW 2250,
Australia
Dechra Veterinary
Products (Australia) Pty
Limited
Dechra Veterinary
Products GmbH
Dechra Veterinary
Products N.V.
Dechra Veterinary
Products, Inc
Dechra Veterinary
Products A/S
Dechra Veterinary
Products Limited
Dechra Veterinary
Products Oy
Dechra Veterinary
Products SAS
Dechra Veterinary
Products Deutschland
GmbH
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
Australia
Austria
Belgium
Canada
Denmark
Norway
Poland
Spain
Sweden
Marketer of veterinary pharmaceuticals
and pet diets
Hintere Achmhlerstrasse 1a, 6850 Dornbirn,
Austria
Dechra Limited
Marketer of veterinary pharmaceuticals
and pet diets
Marketer of veterinary pharmaceuticals
and pet diets
Marketer of veterinary pharmaceuticals
and pet diets
Achterstenhoek 48 2275 Lille, Belgium
Eurovet Animal Health B.V.
100 King Street West, Suite 6100, 1 First
Canadian Place, Toronto ON M5X 1B8,
Canada
Mekuvej 9, DK-7171 Uldum, Denmark
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
Dechra Limited
Dechra Pharmaceuticals
PLC
Dechra Veterinary Products
A/S
England and
Wales
Marketer of veterinary pharmaceuticals
and pet diets
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
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
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.
Genera Pharma d.o.o.
Serbia
Marketer of veterinary pharmaceuticals
Gostivarska 70, Vozdovac, Beograd, Serbia Genera d.d.
Genera Sl d.o.o
Slovenia
Marketer of veterinary pharmaceuticals
Parmova Ulica, Ljubljana, Slovenia
Genera d.d.
Stock Code: DPH
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Financial Statements
Notes to the Company Financial Statements
continued
(xv) Subsidiary Undertakings continued
Name
Le Vet. Beheer B.V.
Country of
Incorporation
The Netherlands
Principal Activity
Holding company
Registered Address
Wilgenweg 7, 3421TV Oudewater, The
Netherlands
Shareholder
Dechra Finance B.V.
Le Vet. B.V.
The Netherlands Marketer of veterinary pharmaceuticals Wilgenweg 7, 3421TV Oudewater, The
Le Vet Beheer B.V.
Putney, Inc
USA
Developer, regulatory and marketer of
veterinary pharmaceuticals
Netherlands
Principal Place of Business: 7015 College
Blvd, Suite 525, Overland Park KS 66211,
United States
Dechra Holdings US Inc
Other subsidiaries
Name
Apex Laboratories N.Z.
Limited (deregistered as
of 18 December 2019)
Country of
Incorporation
New Zealand
Principal Activity
Deregistered during the period 1 July
2019 to 30 June 2020
Registered Address
Level 11, 41 Shortland Street, Auckland,
1010, New Zealand
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
Shareholder
Dechra Veterinary
Products (Australia) Pty
Limited
Veneto Limited
Veneto Limited
Veneto Limited
Dechra Limited
Dechra Limited
Dechra Pharmaceuticals
PLC
Dechra Veterinary
Products LLC
Eurovet Animal Health
B.V.
Dechra Holdings US Inc
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
Principal Place of Business: 7015 College
Blvd, Suite 525, Overland Park KS 66211,
United States
USA
Merged during the period 1 July 2019
to 30 June 2020
Putney, Inc (merged
with and into Dechra
Veterinary Products,
LLC as of 1 April 2020)
Veneto Limited
England and
Wales
Holding company
24 Cheshire Avenue, Cheshire Business
Park, Lostock Gralam, Northwich, CW9
7UA, United Kingdom
Dechra Pharmaceuticals
PLC
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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 inflow/(outflow) from financing activities
* Restated as detailed in note 31 Acquisitions.
Financial Statements
2020
£m
515.1
128.3
95.4
92.50
92.19
34.29
52.2
33.9
32.87
32.76
Restated*
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
788.7
448.9
(137.3)
(462.8)
637.5
750.0
291.5
(118.1)
(414.3)
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
106.4
(81.5)
118.9
81.8
(61.9)
(20.1)
64.0
(241.7)
193.8
77.4
(57.2)
1.6
43.6
(174.0)
125.3
Stock Code: DPH
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Job Number 7 September 2020 2:39 pm Proof NumberEnsuring a Clear Portfolio Focus with Strong Market Positions in Key Therapeutic AreasDelivering Our PurposeDechra’s product range is focused on a number of therapeutic categories, predominantly for companion animals. The majority of key products are novel or have clear marketing advantages over competitor products. Several products have market leading positions in a number of major territories. Three of our main categories are:EndocrinologyDechra has a number of unique licensed products treating a range of chronic diseases. The four leading brands are Felimazole, Forthyron, Vetoryl and Zycortal.Endocrine disease stems from imbalance in hormone levels, affecting cats or dogs in many ways, often requiring lifetime medical attention. Many endocrine disorders are fatal if not diagnosed and treated. Veterinarians place a high importance on quality of life and often see endocrinology as a challenging and interesting discipline.Anaesthesia and AnalgesiaDechra has a wide range of products that support emergency medicine, pain relief and sedation. The leading brands are Atipam, Comfortan, Sedator, Tralieve and Vetivex.Perioperative sedation and pain management are challenging but critical for all patients and form a fundamental part of animal welfare. Offering a comprehensive range of analgesic and anaesthetic products allows the veterinarians to adapt their protocols to the individual pet based on their level of discomfort, whilst providing flexible anaesthetic procedures.Dermatology and CareTopical antimicrobial products are important to treat skin and ear infections. We have a wide range of products that can be used alone or as an adjuvant therapy. The leading brands are Canaural, the DermaPet range, Isaderm and Malaseb. The post year end addition of Osurnia to the Dechra dermatology portfolio will significantly enhance its presence in this key therapeutic area. Dermatology represents approximately 20% of veterinarians’ clinical time and is currently a major focus area for the industry. Best practice and management techniques look to adopt more topical products as opposed to oral treatments, with the aim of utilising antibiotics less frequently. Dechra’s product portfolio, with its range of licensed and non-licensed topical products, is well positioned for this approach.Dechra-AR2020-Financials.indd 21607-Sep-20 4:45:12 PM Job Number 7 September 2020 2:39 pm Proof NumberShareholderInformationContentsGlossary218Shareholder Information220AdvisersIBCDechra-AR2020-Financials.indd 21707-Sep-20 4:45:16 PM Additional Information
Glossary
The following is a glossary of a number of the terms and acronyms
which can be found within this document:
DSC
Dechra Service Center
ABC
Anti-Bribery and Anti-Corruption
AER
Actual Exchange Rate
ANZ
Australia and New Zealand
APM
Alternative Performance Measures
BEPS
Base Erosion Profit Shifting
Bioequivalence
The demonstration that the proposed formulation has the same
biological effects as the pioneer product to which it is being compared.
This is usually demonstrated by comparing blood concentrations of the
active over time, but can be compared using a clinical endpoint (e.g.
lowering of a worm count) for drugs that are not absorbed or for which
blood levels cannot be determined
bps
Basis Points
CAGR
Compound Annual Growth Rate
CAP
Companion Animal Products
Capex
Capital Expenditure
CDGP
Canine Diabetes Genetics Partnership
CER
Constant Exchange Rate
CMO
Contract Manufacturing Organisation
Code
UK Corporate Governance Code 2018
CRM
Client Relationship Management
CSOP
Company Share Option Plan
CSR
Corporate Social Responsibility
CVMP
Committee for Veterinary Medicinal Products
DVP
Dechra Veterinary Products
DVP EU
Dechra Veterinary Products EU or Dechra Veterinary Products Europe
DVP International
Dechra Veterinary Products International
DVP NA
Dechra Veterinary Products North America
DVP US
Dechra Veterinary Products US
EBIT
Earnings before interest and tax. This is the same as operating profit
EBITDA
Earnings before interest, tax, depreciation and amortisation
EMA
European Medicines Agency
EPS
Earnings Per Share
ERP
Enterprise Resource Planning
ESG
Environmental, Social and Governance
ESPP
Employee Stock Purchase Plan
ETR
Effective Tax Rate
EU Pharmaceuticals
European Pharmaceuticals Segment comprising DVP EU, DVP
International and DPM&S
Executive Directors
The Executive Directors of the Company, currently Ian Page, Paul
Sandland and Tony Griffin
FAP
Food producing Animal Products
FDA
US Food and Drug Administration
FRC
Financial Reporting Council
FRS
Financial Reporting Standards
Dechra Values or Values
Dedication, Enjoyment, Courage, Honesty, Relationships and Ambition
FTSE
Companies listed on the London Stock Exchange
DPM&S
Dechra Pharmaceuticals Manufacturing and Supply
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
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Shareholder Information
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
PPE
Personal Protective Equipment
POMs
Prescription Only Medicines
Qualifying LTIP Award
Qualifying LTIP Awards comprises a CSOP option and an ordinary
nil-cost LTIP award, with the ordinary award scaled back at exercise to
take account of any gain made on exercise of the CSOP option
R&D
Research and Development
RCF
Revolving Credit Facility
RIDDOR
Reporting of Injuries, Diseases and Dangerous Occurrences Regulations
Rights Issue
The three for ten rights issue of 20,040,653 shares, details of which are
set out in the prospectus of the Company dated 25 April 2012
ROCE
Return On Capital Employed
RPI
Retail Price Index
SASB
Sustainability Accounting Standards Board
SAYE
Save As You Earn Share Scheme
SDG
United Nations Sustainable Development Goals
SET
Senior Executive Team
SG&A
Selling, General and Administrative Expenses
S&OP
Sales & Operations Planning
SPC
Summary of Product Characteristics
TCFD
Taskforce for Climate-related Financial Disclosures
TGA
Therapeutic Goods Administration
GAAP
Generally Accepted Accounting Practices
GDPR
General Data Protection Regulation
GHG
Greenhouse Gas
GMP
Good Manufacturing Practices
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
MAT
Moving Annual Total
MRL
Maximum Residue Limit
Non-Executive Directors
The Non-Executive Directors of the Company, currently Tony Rice, Lisa
Bright, Julian Heslop, Lawson Macartney, Ishbel Macpherson and Alison
Platt
NA Pharmaceuticals
North American Pharmaceuticals Segment comprising DVP US, Canada
and Dechra-Brovel
OECD
The Organisation for Economic Cooperation and Development
TSR
Total Shareholder Return
Stock Code: DPH
219
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Additional Information
Shareholder Information
Financial Calendar
2020 Annual General Meeting
Final Dividend Ex-Dividend Date
Final Dividend Record Date
Final Dividend Payment Date
Announcement of Half Yearly Results
27 October 2020
5 November 2020
6 November 2020
27 November 2020
22 February 2021*
Dates marked with an asterix are provisional and subject to change
Annual General Meeting
The 2020 Annual General Meeting of the Company will be held at
9.30 am on 27 October 2020 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.
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. The
Registrars’ Shareholder Helpline for Dechra is 0371 384 2030 or
+44(0) 121 415 7047, if calling from outside of the UK.
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.
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.
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.
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.
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.
On 8 June 2020, 5,132,500 ordinary shares were offered by way of a
placing at an issue price of £26.00 per share.
Company Website
The Dechra website (www.dechra.com) is the best source of useful
and up-to-date information about Dechra and its activities, including
the latest news, financial and product information to help improve
understanding of our business. Additionally, the terms of reference of
all our Committees, Articles of Association, our Values and a number
of our internal policies are published on the website.
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.
Telephone
share
dealing
Internet
share
dealing
Postal
share
dealing
Fee (on value of transaction)
up to £50,000
Balance over £50,000
Minimum charge
Stamp duty charge
(purchases only)
1.5%
0.25%
£60.00
1.5%
0.25%
£45.00
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.
220
Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020
www.dechra.com
Dechra-AR2020-Financials.indd 220
Job Number
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Proof Number
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Advisers
Auditor
PricewaterhouseCoopers LLP
One Chamberlain Square
Birmingham
B3 3AX
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
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Financial PR
TooleyStreet Communications
Regency Court
68 Caroline Street
Birmingham
B3 1UG
Shareholder Information
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
Credit Industriel et Commercial
London Branch
Finsbury Circus House
15 Finsbury Circus
London
EC2M 7EB
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati
Ohio 45263
USA
HSBC Bank plc
Midlands Corporate Banking Centre
120 Edmund Street
Birmingham
B3 2QZ
Raiffeisen Bank International AG
Am Stadtpark 9
1030 Vienna
Austria
Santander UK PLC
2nd Floor
100 Ludgate Hill
London
EC4M 7RE
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.
Stock Code: DPH
Dechra-AR2020-Financials.indd 221
Job Number
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Proof Number
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Job Number 7 September 2020 4:17 pm Proof NumberDechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2020Dechra Pharmaceuticals PLC 24 Cheshire Avenue Cheshire Business Park Lostock Gralam Northwich CW9 7UAT: +44 (0) 1606 814730 F: +44 (0) 1606 814731 E: corporate.enquiries@dechra.comwww.dechra.com Dechra-AR2020-Strategic.indd 307-Sep-20 4:43:27 PM