Source - RNS
RNS Number : 0697J
Dechra Pharmaceuticals PLC
06 September 2016




6 September 2016


Dechra® Pharmaceuticals PLC

(Dechra or the Company) 



Availability of 2016 Annual Report and Accounts



The 2016 Annual Report and Accounts is now available to view at

The following documents are scheduled to be mailed to registered shareholders of the Company on 19 September 2016:

·      2016 Annual Report and Accounts

·      Notice of the 2016 Annual General Meeting; and

·      Proxy Form for the 2016 Annual General Meeting.

In accordance with Listing Rule 9.6.1 a copy of each of these documents will be submitted to the National Storage Mechanism and will be available for viewing shortly after posting.

The information below, which is extracted from the 2016 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5. This information should be read in conjunction with the Company's 5 September 2016 announcement of its 2016 Preliminary Results (available at This material is not a substitute for reading the full 2016 Annual Report and Accounts. All page numbers and cross-references in the extracted information below refer to page numbers and notes to the financial statements, in the 2016 Annual Report and Accounts.

Key Performance Indicators

The Group utilises the following KPIs to assess our progress against our strategic, financial and operational objectives. Their relevance to our strategy and their definitions are explained below.

Some KPIs are also used as a measure in the long term incentive arrangements for the remuneration of the Executives.

These are identified with an asterisk.



Relevance to Strategy




Sales Growth



Year-on-year sales growth including new products but excluding revenue from acquired businesses

in the year of acquisition.

2016 £225.9m

2015 £203.5m

2014 £193.6m

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



Sales increased by 11.2% at CER (11.0% at AER).  This positive trend was driven by continued organic growth, our geographical expansion and new product launches.

Pipeline Delivery

Portfolio Focus

Geographical Expansion



Underlying Diluted EPS Growth*



Underlying profit after tax divided by the diluted average number of shares, calculated on the same basis as note 10 to the Accounts.

2016 42.65p

2015 39.90p

2014 36.32p

Underlying EPS is a key indicator of our performance and the return we generate for our shareholders. It is one of the performance conditions of the Long Term Incentive Plan (LTIP).

EPS increased by 8.9% at CER (6.9% at AER). Organic and acquisition growth were offset by lower finance income and higher finance expense reflecting increased acquisition debt and movement in exchange gains and losses together with a higher tax rate.

Pipeline Delivery

Portfolio Focus

Geographical Expansion



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).


2016 16.1%

2015 20.0%

2014 16.4%

As we look to grow the business, it is important that we use our capital efficiently to generate returns superior to our cost of capital in the medium to long term. It underpins the performance conditions of the LTIPs.

ROCE has reduced to 16.1% from 20.0%. The reduction is due to the increased assets acquired during the year. This still exceeds our target of 15.0% during the year, without the corresponding increase in the underlying operating profit in the period.

Pipeline Delivery

Portfolio Focus

Geographical Expansion



Underlying Cash Conversion



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


2016 106.8%

2015 105.9%

2014 55.5%


Our stated aim is to be a cash generative business.

Underlying cash conversion of 106.8% in 2016 reflected strong growth in profits offset by the investment in acquisitions resulting in a lower profit base.

Pipeline Delivery

Portfolio Focus

Geographical Expansion


New Product Sales



Revenue from new products as a percentage of total Group revenue. A new product is defined as any molecule launched in the last five financial years.

2016 14.4%

2015 13.8%

2014 8.6%

This measure shows the delivery of sales in each year from new products launched in the prior five years, on a rolling basis. It shows the performance of our R&D and sales and marketing organisations when launching newly developed or in-licensed products.

Sales for new products continue to grow, with 14.4% revenue coming from new products which are either novel, generic or  in-licensed.

Pipeline Delivery

Portfolio Focus



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.

2016 0.35±

2015 0.07

2014 0.08

± including acquisitions

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

The LTAFR, including the acquisitions, increased from 0.07 to 0.35 and excluding the acquisitions it increased to 0.19. None of these incidents resulted in a work-related fatality or disability. 

Manufacturing and Supply Chain


Employee Turnover


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

2016 13.1%±

2015 12.2%

2014 16.8%

± excluding acquisitions

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

There has been a slight increase in employee turnover during the period; predominantly this has been within the manufacturing business. The impact of the acquisitions, and subsequent restructuring, has been excluded from the figures. 




How the Business Manages Risk

Effective risk management and control is key to the delivery of our business strategy and objectives. Our risk management and control processes are designed to identify, assess, mitigate and monitor significant risks, and can only provide reasonable and not absolute assurance that the Group will be successful in delivering its objectives.

The Board is responsible for overseeing how the Group's strategic, operational, financial and compliance risks are managed, and for assessing the effectiveness of the risk management and internal control framework.

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

The SET is also responsible for embedding sound risk management in strategy, planning, budgeting, performance management, and operational processes within their respective Operating Segments and business units.

The Board and the SET together set the tone and decide the level of risk and control to be taken in achieving the Group's objectives.

Risk Management Process

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

The SET is responsible for evaluating and managing risk from both a bottom up and top down level and acts as a link between the Board and the business units to ensure management of operational risks is embedded in the business.

Each SET member owns one or more Group risks and is responsible for identifying how the risks are currently controlled, what additional mitigating actions are required, what monitoring and assurance mechanisms are in place, assessing the effectiveness of key control processes, and addressing any weaknesses identified.

The Board conducts a review of the risk management and internal control framework and SET members present their risks, controls and mitigation plans to the Board for review on a rolling programme throughout the year. The Audit Committee reviews the effectiveness of internal financial controls annually.

Internal Control Framework

Our internal control framework is designed to ensure:

·      proper financial records are maintained;

·      the Company'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 as business units. Each business unit is led by a SET member and has its own management team.

·      Strategy and Business Planning

We have a five year strategic plan which is updated and reviewed by the Board annually. Business objectives and performance measures are defined annually together with budgets and forecasts. Monthly business performance reviews are conducted at both Group and business unit levels.

The product pipeline is reviewed regularly to:

·           assess whether products in development are progressing according to schedule;

·           identify new product ideas and assess fit with our product portfolio; and

·           assess the expected commercial return on new products.


·     Policies and Procedures

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


·      Code of Business Conduct;

·      Delegation of Authorities;

·      Anti-Bribery and Anti-Corruption;

·      Whistleblowing;

·      Sanctions; and

·      Charitable Donations.

·     Operational Controls

Our key operational control processes are as follows:

·      Quality Assurance: All our manufacturing sites have an established Quality Management System. These systems are designed to ensure that our products are manufactured to a high standard and in compliance with the relevant regulatory requirements.

·      Pharmacovigilance: Our regulatory team operates a robust system with a view to ensuring that any adverse reactions related to the use of our products are reported and dealt with promptly.

·      Information Technology: Our business units currently use a number of different local financial, manufacturing and warehouse management systems to support their operations. We are in the process of implementing Oracle across the Group.

·      Financial Controls: Our financial controls are designed to prevent and detect financial misstatement or fraud and operate at three levels:

Entity Level Controls performed by senior managers at Group and business unit level;

Month-end and Year-end procedures performed as part of our regular financial reporting and management processes; and

Transactional Level Controls operated on a day-to-day basis.

Improvements in 2016

In September 2014, the Financial Reporting Council issued a revised UK Corporate Governance Code (the Code)which introduced additional disclosure requirements on risk management and internal controls.

The Group's existing risk management and internal control processes met many of the requirements of this revised Code. The following changes have been implemented to meet the requirements fully.

The key changes that have been implemented are the:

·        identification of material internal controls and key monitoring processes in more detail;

·        assessment of the effectiveness of these internal control processes;

·        introduction of a rolling programme of risk control reviews by the Board with each SET member; and

·        stress testing of the Group's cashflow forecasts to assess the impact of a number of downside risk scenarios in order to support the viability statement, which can be found on page 70 of 2016 Annual Report.

In addition, an internal audit programme has been established to provide independent assurance on material financial, operational and compliance controls over a three year cycle.


Plans for 2017

We plan to continue to refine and strengthen our internal control framework where required within our core business and in recently acquired businesses.

The implementation of Oracle is expected to deliver improvements in our control framework through standardisation of business processes and greater automation of transactional level and period end control processes.

Understanding Our Key Risks

Dechra is the only veterinary pharmaceuticals company in the FTSE 350. We therefore believe it is important to summarise the key distinctions between the animal and human pharmaceutical industries in order to provide a better understanding of our risk profile.

The business of developing and marketing animal pharmaceuticals shares a number of characteristics with human pharmaceutical businesses. These similarities include the need to conduct clinical trials to prove product safety and efficacy, obtain regulatory approval for new products, complex and highly regulated product manufacturing, and to market products based on approved clinical claims. However, there are also significant differences between animal and human pharmaceutical businesses, including: 

·     Product development is generally faster, cheaper and more predictable and sustainable: Development of animal medicines typically requires fewer clinical studies with fewer subjects and is conducted directly in the target species.  Decisions on product safety, efficacy and likelihood of success can therefore be made more quickly.

·     Diversified product portfolios: Animal pharmaceuticals businesses are generally less reliant on a small number of 'blockbuster' products. Animal health products are sold across different regions which may have distinct product requirements. As a result, animal health products often have a smaller market size and the performance of any single product typically has less impact on overall business performance.

·     Stronger customer relationships and brand loyalty: The animal health industry uses a combination of sales representatives to promote their products and technical veterinary specialists to provide support and advice on animal health. These relationships result in better access to customers and sales visits are typically longer and more meaningful. Companion Animal Products are often directly prescribed and dispensed by veterinarians which contributes to brand loyalty, which often continues after the loss of patent protection or regulatory exclusivity.

·     Lower pricing pressure: Livestock producers and pet owners generally pay for animal healthcare themselves. Pricing decisions are not influenced by government payors that are involved in product and pricing decisions for human medicines. 

·     Less price erosion by generic competition: Generic competition in animal healthcare, whilst playing an important role, has a lower impact on prices compared to human pharmaceuticals because of the smaller average market size of each product opportunity, stronger customer relationships and brand loyalty.

The SET has identified and agreed key risks with the Board. Of these, a number are deemed to be generic risks facing every business including failure to comply with financial reporting regulation, foreign exchange, IT systems failure and non-compliance with legislation. The table below therefore details the ten principal risks that are specific to our business and provides information on:

·     how they link to Group strategy;

·     their potential impact on the business; and

·     what controls are in place to mitigate them.

Key of trend compared to prior year:

No Change                

Increased Risk           

Reduced Risk


Link to Strategic Pillar and Enabler


Potential Impact

Controls and Mitigating Actions


Pipeline Delivery

Portfolio Focus

Geographical Expansion


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.

Revenues and margins may be adversely affected should competitors launch a novel or generic product that competes with one of our unique products upon the expiry or early loss of patents.

Costs may increase due to defensive marketing activity.

We focus on lifecycle management strategies for our key products to ensure they fulfil evolving customer requirements.

Product patents are monitored and defensive strategies are developed towards the end of the patent life or the data exclusivity period.

We monitor market activity prior to competitor products being launched, and develop a marketing response strategy to mitigate competitor impact.

Portfolio Focus


Market Risk: 

The emergence of veterinary buying groups, corporate customers and internet pharmacies.

We sell and promote primarily to veterinary practices and distribute our products through wholesaler and distributor networks in most markets.

In a number of mature markets, veterinarians are establishing buying groups to consolidate their purchasing, and corporate and internet customers are also emerging.


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

Our reputation and relationships with veterinary practices could also be adversely affected.

We manage and monitor our national and European pricing policies to ensure equitable pricing for each customer group.

Our relationships with larger customers are managed by key account managers.

Our marketing strategy is designed to support veterinarians in retaining customers by promoting the benefits of our product portfolio in our major therapeutic areas.

Growth in buying groups, corporate customers and internet pharmacies.


Acquisition Risk: 

Identification of acquisition candidates and their potential integration.

Identification of suitable candidates and securing a successful approach involves a high degree of uncertainty.

Acquired products or businesses may fail to deliver expected returns due to over-valuation or integration challenges.

Failure to identify or secure suitable targets could slow the pace at which we can expand into new markets or grow our portfolio.

Acquisitions could deliver lower profits than expected or result in intangible assets impairment.

We have defined criteria for screening acquisition targets and we conduct commercial, clinical, financial and legal due diligence.

The Board reviews acquisition plans and progress regularly and approves all potential transactions.

The SET manages post-acquisition integration and monitors the delivery of benefits and returns.

Integration of three acquisitions made this year.

Pipeline Delivery



Product Development Risk:

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

The development of pharmaceutical products is a complex, risky and lengthy process involving significant financial, R&D and other resources. 

Products that initially appear promising may be delayed or fail to meet expected clinical or commercial expectations or face delays in regulatory approval.

It can also be difficult to predict whether newly launched products will meet commercial expectations.

A succession of clinical trial failures could adversely affect our ability to deliver shareholder expectations and could also damage our reputation and relationship with veterinarians.

Our market position in key therapeutic areas could be affected, resulting in reduced revenues and profits.

Where we are unable to recoup the costs incurred in developing and launching a product this would result in impairment of intangible assets.

Potential new development candidates are assessed from a commercial, financial and scientific perspective by a multi-functional team to allow senior management to make decisions on which ones to progress.

The pipeline is discussed regularly by senior management, including the Chief Executive Officer and Chief Financial Officer. Regular updates are also provided to the Board.

Each development project is managed by co-project leaders who chair project team meetings.

Before costly pivotal studies are initiated, smaller proof of concept pilot studies are conducted to assess the effects of the drug on target species and for the target indication.

In respect of all new product launches a detailed marketing plan is established and progress against that plan is regularly monitored.

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

Pipeline Delivery

Portfolio Focus

Geographical Expansion


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.

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.

The Group strives to exceed regulatory requirements and ensures that its employees have detailed experience and knowledge of the regulations.

Manufacturing and Regulatory have established quality systems and standard operating procedures in place.

Regular contact is maintained with all relevant regulatory bodies in order to build and strengthen relationships and ensure good communication lines.

The regulatory and legal teams keep updated in respect of changes with a view to ensuring that the business is equipped to deal with, and adhere to, such changes.

Where changes are identified which could affect our ability to market and sell any of our products, a response team is created in order to mitigate the risk.

External consultants are used to audit our manufacturing quality systems.

Ensuring new acquisition meet relevant quality and regulatory standards.

Portfolio Focus

Geographical Expansion


Regulatory Risk: 

Continuing pressure on reducing antibiotic use.

The issue of the potential transfer of increased 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.

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 ensure that we have a comprehensive understanding of regulatory changes.

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


Pipeline Delivery

Portfolio Focus

Manufacturing and Supply Chain

Reliance on Third Parties Risk: 

A supply failure on a key product may affect our ability to develop, make, or sell our products.

We rely on third parties for the supply of all raw materials for products that we manufacture in-house. We also purchase many of our finished products from third party manufacturers.

Raw material supply failures may cause:

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

·        product shortages due to manufacturing delays;

·        delays in clinical trials due to shortage of trial products.

Shortages in manufactured products and third party supply failures on finished products may result in lost sales.

We monitor the performance of our key suppliers and act promptly to source from alternative suppliers where potential issues are identified.

The top ten Group products are regularly reviewed in order to identify the key suppliers of materials or finished products.

We maintain buffer stocks and dual sourcing arrangements for key products.

All contracts with suppliers are reviewed from both a commercial and legal perspective to try to ensure that assignment of the contract is allowed should there be a change of control of either of the contracting parties.

Portfolio Focus

Manufacturing and Supply Chain

Reliance on Third Parties Risk: 

Loss of key third party manufacturing customers from DPM.

Other dales, relating to third party manufacturing and other non-core activities, represents approximately 14% of Group revenues. 

Loss of a key customer can impact manufacturing revenues and lead to an increase in the cost of goods of the remaining portfolio.

The DPM Sales Manager maintains relationships with key customers and we have an experienced sales team which focuses on bringing in new customers.

Robust supply agreements are in place with each of our key customers and are regularly reviewed.

Monthly customer service level monitoring and reporting is in place.

Portfolio Focus

Pipeline Delivery


People Risk: 

Failure to retain high calibre, talented senior managers and other key roles in the business.

Our growth plans and future success are dependent on retaining knowledgeable and experienced senior managers and key staff.

Loss of key skills and experience could erode our competitive advantage and could have an adverse impact on results.

Inability to attract and retain key personnel may weaken succession planning.

The Nomination Committee oversees succession planning for the Board and the SET. 

Succession plans are in place for the SET together with development plans for key senior managers. Key person insurance is in place where appropriate.

Remuneration packages are reviewed on an annual basis in order to help ensure that the Group can continue to retain, incentivise and motivate its employees.

Geographical Expansion



People Risk: 

Failure to resource the business to achieve our strategic ambitions, particularly on geographical expansion and acquisition.

As Dechra expands into new markets and acquires new businesses or science we recognise that we may need new people with different skills, experience and cultural knowledge to execute our strategy successfully in those markets and business areas. 

Failure to recruit or develop good quality people could result in:

·        capability gaps in new markets;

·        challenges in integrating new acquisitions; or

·        overstretched resources

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

The Group HR Director reviews the organisational structure with the SET twice a year to aim to ensure that the organisation is fit for purpose and to assess the resourcing implications of planned changes or strategic imperatives.

A development programme is in place to identify opportunities to recruit new talent and develop existing potential.


Directors' Responsibility Statement Required under the Disclosure and Transparency Rules

The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 30 June 2016.  Certain parts of that Report are not included with this announcement.

We confirm to the best of our knowledge:

a)    the Group financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Parent Company and the undertakings included in the consolidation taken as a whole;

b)    the Strategic Report includes a fair review of the development and performance of the business and the position of the Parent Company and the undertakings included in the consolidation taken as a whole, together with a  description of the principal risks and uncertainties that they face; and

c)    the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Approved by the Board and signed on its behalf by:


Michael Redmond

Ian Page


Chief Executive Officer

5 September 2016

5 September 2016




For further information, please contact:

Suzana Cross, Company Secretary                

Telephone number: 01606 814730


About Dechra

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. Dechra's business is unique as the majority of its products are used to treat medical conditions for which there is no other effective solution or have a clinical or dosing advantage over competitor products.  For more information please visit:



Trademarks appear throughout this document in italics. Dechra and the Dechra "D" logo are registered trademarks of Dechra Pharmaceuticals PLC.


Forward Looking Statement

This document contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company during the 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 thereby involve a degree of uncertainty.  Therefore, nothing in this document should be construed as a profit forecast by the Company.


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