® Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016 Company Number: 3369634 Annual Report and Accounts Acquisition for the year ended 30 June 2016 Geographical Expansion Portfolio Focus Pipeline Delivery Stock Code: DPH Accelerating our global growth strategy Dechra AR2016 Front.indd 3 slugline 05/09/2016 17:24:20 Welcome to Dechra Pharmaceuticals PLC Dechra is an international specialist veterinary pharmaceuticals and related products business. Our expertise is in the development, manufacture, and sales and marketing of high quality products exclusively for veterinarians worldwide. Investor Website We maintain a corporate website at www.dechra.com containing a wide range of information of interest to both institutional and private investors including: • Latest news and press releases • Annual reports and investor presentations Getting Around the Report Below is a selection of icons you will see used within this report: Online Report For more information see Visit our online annual report at: further pages within the report dechra.annualreport2016.com More information online at: www.dechra.com Icons are used within this report to assist the reader to identify links to other relevant sections of interest Glossary Terms used within this section Forward-Looking Statements: This document contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company during preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future and thereby involve a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company. Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2016 www.dechra.com Dechra AR2016 Front.indd 4 slugline 05/09/2016 17:24:30 Overview Financial Highlights Total Revenue Underlying Operating Profit Underlying Diluted Earnings per Share £247.6m £52.9m 42.65p 2015: £203.5m 2015: £44.4m 2015: 39.90p CER*: Up 21.7% £: Up 21.7% CER*: Up 20.9% £: Up 19.1% CER*: Up 8.9% £: Up 6.9% 193.6 203.5 247.6 42.2 44.4 52.9 36.32 39.90 42.65 2014 2015 2016 2014 2015 2016 2014 2015 2016 Dividend per Share Reported Operating Profit Diluted Reported Earnings per Share 18.46p £19.5m 13.90p 2015: 16.94p 2015: £26.0m 2015: 21.99p CER*: Up 9.0% £: Up 9.0% CER*: Down (17.3%) £: Down (25.0%) CER*: Down (28.9%) £: Down (36.8%) 15.40 16.94 18.46 25.0 26.0 19.5 22.14 21.99 13.90 2014 2015 2016 2014 2015 2016 2014 2015 2016 * CER is defined as Constant Exchange Rate against prior year, whilst £ is at reported, Actual Exchange Rate (AER). A reconciliation of underlying to reported measures can be found on page 38. † Non-underlying items comprise amortisation and impairment of acquired intangibles, acquisition expenses, fair value of uplift of inventory acquired through business combinations, rationalisation costs, loss on extinguishment of debt and reversal of fair value and other movements on deferred and contingent consideration. Operational Highlights Strong financial performance: Strategic progress made: • Revenue growth in our existing EU Pharmaceuticals Segment • Three value added acquisitions completed. was 5.7% (at CER) driven by solid performance in Companion • Product development pipeline continues to deliver results: Animal Products (CAP) and return to growth of Food producing recently launched products Osphos® and Zycortal® gaining good Animal Products (FAP). market penetration. • Continued excellent performance in our existing • Geographical expansion enhancing revenue growth with good NA Pharmaceuticals Segment, with revenue increased by 37.9% performance in Poland and Canada and new-start up in Austria. (at CER); all core therapeutic sectors performing well. • Consolidated revenue increased by 21.7% (at CER). • Cash generation of 106.8% allowed us to absorb the costs associated with the acquisitions whilst maintaining a prudent cash position. Stock Code: DPH 01 Dechra AR2016 Front.indd 1 05/09/2016 17:24:32 Navigating this Report Our Values Our Strategy Outcomes To continue to develop our position • Create long term value by D edication as an international, high margin, • innovating and generating cash generative, specialist veterinary sustainable profit growth pharmaceuticals and related through pipeline delivery E njoyment products business with a clear focus on key therapeutic areas: • maintaining market dermatology, ophthalmology, equine leadership in defined C ourage medicine, anaesthesia and analgesia, therapeutic areas and endocrinology, cardiovascular disease, improving returns through H onesty food producing animal antimicrobials, portfolio focus poultry vaccines, pet diets and • seizing growth opportunities complementary generics through: in new markets through R elationships geographical expansion Pipeline Delivery • delivering incremental sales A mbition a b c Portfolio Focus and earnings growth through value enhancing strategic acquisitions Geographical Expansion for shareholders Maximising returns • Maintain strong cash generation Acquisition Read our Corporate Social Read See our Responsibility Report Delivering Our Strategy Financial History on pages 46 to 53. on pages 13 to 15. on page 161. 02 Dechra AR2016 Front.indd 2 05/09/2016 17:24:36 Overview IFC Welcome to Dechra Pharmaceuticals PLC How Our Business Operates 01 Financial and Operational Highlights 02 Navigating this Report Strategic Report 06 Group at a Glance 08 Chairman’s and Chief Executive Officer’s Statement 13 Delivering Our Strategy Group at a Our Business 16 Strategy in Action Glance Model 23 Q&A with Ian Page 24 Our Business Model 25 Our Business Model Explained 06 24 27 Creating Value 27 Our Geographical Footprint 28 Our Marketplace 30 Our Key Products 34 International Footprint 36 Product Development Viability 38 Financial Review 44 Key Performance Indicators Statement 46 Corporate Social Responsibility 54 How the Business Manages Risk Delivering 70 56 Understanding Our Key Risks Our Strategy Our Governance 62 Board of Directors 13 64 Corporate Governance 72 Audit Committee Report 77 Nomination Committee Report 79 Directors’ Remuneration Report 92 Directors’ Report – Other Disclosures 97 Statement of Directors’ Responsibilities Our Financials 100 Independent Auditor’s Report 107 Consolidated Income Statement Financial 108 Consolidated Statement of Comprehensive Income Review 109 Consolidated Statement of Financial Position 110 Consolidated Statement of Changes in Shareholders’ Equity 111 Consolidated Statement of Cash Flows Product 38 112 Notes to the Consolidated Financial Statements Pipeline 150 Company Statement of Financial Position 151 Statement of Changes in Shareholders’ Equity 152 Notes to the Company Financial Statements 37 161 Financial History Company Information 164 Glossary 166 Shareholder Information Corporate Managing 168 Advisers Social Risk Responsibility 54 46 Stock Code: DPH 03 Dechra AR2016 Front.indd 3 05/09/2016 17:24:37 04 Dechra AR2016 Front.indd 4 slugline 05/09/2016 17:24:38 Strategic Report 06 Group at a Glance 08 Chairman’s and Chief Executive Officer’s Statement 13 Delivering Our Strategy 16 Strategy in Action 23 Q&A with Ian Page 24 Our Business Model 25 Our Business Model Explained 27 Creating Value 27 Our Geographical Footprint 28 Our Marketplace 30 Our Key Products 34 International Footprint 36 Product Development 38 Financial Review 44 Key Performance Indicators 46 Corporate Social Responsibility 54 How the Business Manages Risk 56 Understanding our Key Risks 05 Dechra AR2016 Front.indd 5 slugline 05/09/2016 17:24:39 Group at a Glance EU Pharmaceuticals Revenue for the EU Profit Evolution for EU Pharmaceuticals Segment Pharmaceuticals Segment 49.0 48.0 51.7 60.0 50.0 40.0 £188.9m 30.0 Profit £m Profit 20.0 10.0 0 2014 2015 2016 All figures are at AER. CAP 46.1% Diets 12.9% EquineCAP 7.9%46.1% Other 13.7% FAPEquine 19.4% 7.9% FAP 19.4% Dechra Veterinary Products EU (DVP EU) DVP EUDiets markets 12.9% and sells Dechra’s products The key products in the DVP EU portfolio are throughoutOther Europe 13.7% and exports to over 40 predominantly Companion Animal Products countries. The business has an operating (CAP), Equine medicines and Food producing board of eight senior managers, and is Animal Products (FAP). DVP EU also markets 506 managed from Den Bosch, the Netherlands, a range of specialist, therapeutic and Employees Sansaw, UK, and Uldum, Denmark. In total, maintenance pet diets, branded Specific™. DVP EU employs 386 people. Inventory is Genera managed through a central distribution In October 2015, Dechra acquired centre in Uldum. Genera d.d., which has sales operations DVP EU has sales operations in 15 in four markets, namely Croatia, Bosnia- 19 countries: Austria, Belgium, Denmark, Herzegovina, Serbia and Slovenia. Genera Countries Finland, France, Germany, Ireland, Italy, markets a range of FAP, agrochemicals and the Netherlands, Norway, Poland, Portugal, feed additives. It also develops and sells a Spain, Sweden and the UK, each run by a range of poultry vaccines. Genera employs Country Manager. DVP EU also exports to 120 people (excluding Manufacturing and other European countries as well as other Product Development and Regulatory Affairs territories including Australia, Brazil, the (PDRA)). Middle East and the Far East. Dechra Pharmaceuticals Manufacturing (DPM) DPM produces the majority of Dechra’s Bladel, the Netherlands pharmaceuticals and manufactures for third The site at Bladel employs 126 people and parties on a contract basis. The objectives are manufactures products for food producing 507 to produce Dechra’s product range efficiently animals in large-scale batches. It also has Employees* to the highest quality standards, to maintain an aseptic manufacturing facility to produce a reliable supply chain and to contribute sterile injections, an important competence in profit to the business through third party DPM’s manufacturing portfolio. As in Skipton, manufacturing. the site includes QC and Development Laboratories. Skipton, UK 5 The site at Skipton employs 232 people.