TIDMDPH

RNS Number : 7570K

Dechra Pharmaceuticals PLC

06 September 2021

Monday, 6 September 2021

Dechra Pharmaceuticals PLC

(Dechra, Company or the Group)

Preliminary Results Announcement

Global veterinary pharmaceutical business, Dechra, issues audited preliminary results for the year ended 30 June 2021

 
   "Dechra has continued to outperform a robust market throughout the COVID-19 
  pandemic affected financial year. As we start the new financial year trading 
    remains strong with the momentum and market penetration seen in the second 
                                 half of the prior financial year continuing." 
                                             Ian Page, Chief Executive Officer 
 
 
Highlights 
            Strategic progress made: 
              *    All product categories delivering growth, CAP and 
                   Equine performance exceptional. 
 
 
              *    Strong organic growth in all key markets. 
 
 
              *    Good progress continues to be made on product 
                   pipeline. 
 
 
              *    Acquisitions Mirataz(R) and Osurnia(R) both 
                   performing well. 
            Strong financial performance: 
              *    Revenue growth of 21.0% to GBP608.0 million. 
 
 
              *    Underlying operating profit increased by 29.2% to 
                   GBP162.2 million. 
 
 
              *    Underlying EBIT margin increased by 170 bps to 26.7%. 
 
 
              *    Underlying diluted EPS increased by 19.4% to 108.14 
                   pence. 
 
 
              *    Reported operating profit growth of 63.0%. 
 
 
              *    Full year dividend increased by 18.1% to 40.50 pence. 
 

All of the above measures are at constant exchange rate (CER).

Financial Summary

 
                                 2021    2020 
                                  GBPm    GBPm  Growth at AER  Growth at CER 
-------------------------------  ------  -----  -------------  ------------- 
 Revenue                         608.0   515.1  18.0%          21.0% 
-------------------------------  ------  -----  -------------  ------------- 
 Underlying 
 Underlying Operating 
  profit                         162.2   128.3  26.4%          29.2% 
 Underlying EBIT %               26.7%   24.9%  180bps         170 bps 
 Underlying EBITDA               177.7   142.5  24.7%          27.4% 
 Underlying diluted EPS 
  (p)                            108.14  92.19  17.3%          19.4% 
-------------------------------  ------  -----  -------------  ------------- 
Reported 
 Operating profit                84.0    52.2   60.9%          63.0% 
 Diluted EPS (p)                 51.03   32.76  55.8%          56.1% 
Cash generated from operations 
 before interest/taxation        141.2   127.5  10.7% 
 Dividend per Share              40.50   34.29  18.1% 
-------------------------------  ------  -----  -------------  ------------- 
 

Underlying results exclude items associated with amortisation of acquired intangibles and notional intangibles in respect of Medical Ethics, acquisition and integration costs including release of acquisition tax provisions, rationalisation of manufacturing, loss on extinguishment of debt, foreign exchange and discount unwind relating to contingent consideration, the tax impact of these items and the deferred tax impact of changes in tax rates. Further details are provided in notes 5 and 20.

AER is defined as Actual Exchange Rate.

 
 Results Briefing today: 
 
  A presentation of the Annual Results will be held today at 9.00 am (UK 
  time) via https://webcasting.brrmedia.co.uk/broadcast/60ec05bd7245c37cc124444c 
  This will also be available on the Dechra website later today. 
  Dial in ref: Dechra Pharmaceuticals PLC - 2021 Annual Results 
  United Kingdom: 
  Participant Local: +44 (0)330 336 9434 
  Confirmation Code: 2677534 
  For assistance please contact Fiona Tooley on +44 (0) 7785 703 523. 
 
 
 Enquiries: 
 Dechra Pharmaceuticals PLC 
 Ian Page, Chief Executive                Office: +44 (0) 1606 814 730 
  Officer 
 Paul Sandland, Chief Financial           Office: +44 (0) 1606 814 730 
  Officer 
 e-mail: corporate.enquiries@dechra.com 
 
 TooleyStreet Communications 
  Ltd 
 Fiona Tooley, Director                   Office: +44 (0) 121 309 0099 
  e-mail: fiona@tooleystreet.com           Mobile: +44 (0) 7785 703 523 
 
 
    Notes: 
     Foreign Exchange Rates: 
     FY2021 Average: EUR 1.1287: GBP 1.0; USD 1.3466: GBP 1.0 
     FY2021 Closing: EUR 1.1654: GBP 1.0; USD 1.385: GBP 1.0 
     FY2020 Average: EUR 1.1396: GBP 1.0; USD 1.2601: GBP 1.0 
     FY2020 Closing: EUR 1.0960: GBP 1.0; USD 1.2273: GBP 1.0 
 
 
 About Dechra 
  Dechra is a global specialist veterinary pharmaceuticals and related products 
  business. Its expertise is in the development, manufacture, marketing 
  and sales 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: www.dechra.com 
  Stock Code: Full Listing (Pharmaceuticals): DPH 
  LEI: 213800J4UVB5OWG8VX82 
  Trademarks 
  Trademarks appear throughout this document in italics. Dechra and the 
  Dechra 'D' logo are registered trademarks of Dechra Pharmaceuticals PLC. 
  StrixNB(R) and DispersinB(R) are trademarks licensed from Kane Biotech 
  Inc. 
  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. 
  Market Abuse Regulation (MAR) 
  The information contained within this announcement may contain inside 
  information stipulated under the Market Abuse (Amendment) (EU Exit) Regulations 
  2018. Upon the publication of this announcement via the Regulatory Information 
  Service, this inside information is now considered to be in the public 
  domain. 
 

Dechra Pharmaceuticals PLC

Preliminary Results for the year ended 30 June 2021

Chief Executive Officer's Statement

Introduction

I am pleased to report that Dechra has continued to outperform a robust market throughout the COVID-19 pandemic affected financial year. All product groups; Companion Animal Products (CAP), Food producing Animal Products (FAP), Equine and Nutrition have delivered solid growth and the recent acquisitions of Osurnia(R) and Mirataz(R) have delivered good additional growth.

COVID-19

We have benefited from above average market growth in the majority of our key CAP markets. The reasons for this market growth are not yet fully defined. In the UK there have been reports of an increased number of dogs; however, recent information from the United States indicates that veterinary practice visits by pet owners have marginally declined. What is clear is that people have been spending more time with their pets and have therefore been more cognitive of their welfare, and with disposable income being higher than normal due to lockdown, expenditure per pet has increased.

Dechra has operated exceptionally well throughout the pandemic; all manufacturing sites and laboratories have remained operational and communication with customers through digital media by our highly motivated commercial teams has been excellent.

Operational Review

EU Pharmaceuticals Segment

In the year our European (EU) Pharmaceuticals Segment reported net revenues increased by 20.2% at CER (20.1% at AER). This 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 16.7% at CER (16.6% at AER).

This growth is due to improved supply combined with very successful digital sales and marketing interaction with our customers, supported by professional key account management. We have delivered high double digit revenue growth in nearly all areas of the business, and almost all countries in Europe delivered high single or double digit growth.

International Pharmaceuticals

Our International team continues to perform strongly, especially in the territories where we have our Dechra branded sales and marketing organisations: Australia, New Zealand and Brazil. Our geographical expansion in other territories through distribution partners has also delivered growth which has been enhanced with Osurnia which is now sold into 15 international markets with exceptionally high sales in Japan. Most of our key brands are now registered in Australia where we are now also able to market our leading endocrine products in Dechra livery as the previous distribution agreement with a third party has come to term. In Brazil the growth from our core vaccines has been enhanced with the successful registration of a number of our leading CAP products.

NA Pharmaceuticals Segment

Our North America (NA) Pharmaceuticals Segment net revenues increased by 22.2% at CER (14.6% at AER), driven primarily by strong organic growth on existing products (16.7% at CER, 9.4% at AER) and incremental sales performance on recently acquired products, Mirataz and Osurnia. Strong growth from Canada and Mexico also contributed to North America's success.

Organic growth can be attributed to an improved supply chain, increased volumes from market growth as a result of higher pet spend during the pandemic, and market share gains as we continue to execute strategic marketing initiatives.

Due to the strong growth in the US, we have continued to expand our commercial organisation. The CAP team has expanded to 88 field sales representatives and 18 tele-sales representatives divided amongst nine US regions.

Product Category Performance

CAP

Companion Animal Products (CAP), which represent 72.8% of Group turnover, grew by 25.9% at CER (19.2% organically) in the Period. Organic growth was driven by increased market shares in our key therapy areas of Endocrinology, Anaesthesia/Analgesia, and Internal Medicine in the EU and across all categories in the USA. Additionally, we successfully launched our two key new products, Mirataz and Osurnia, in several markets during the period. Marboquin, launched in the USA, exceeded sales expectations.

FAP

The strong performance in Food Producing Animal Products (FAP) during recent years, which represents 12.7% of Group turnover, has slowed to 4.7% at CER (4.7% organically) this year due to a number of factors. In certain key FAP markets we have seen a reduction in meat consumption as restaurants closed as a result of COVID-19. Additionally meat production in several markets has been negatively impacted by outbreaks of African Swine Fever and Avian Influenza.

Equine

Equine, which represents 7.3% of Group turnover, grew by 25.5% at CER (25.5% organically). This growth was driven partly by the life cycle improvement to a key product, Equipalazone(R) , where we added an additional flavouring, and by the launch of a number of Le Vet pipeline products, which have strengthened our overall Equine portfolio.

Nutrition

Nutrition represents 5.2% of Group turnover and grew by 9.4% at CER (9.4% organically). After several years of decline, it is very pleasing to report that our Nutrition business has delivered strong growth in the year. This can be attributed to the recently formed Business Unit which has worked closely with key markets and key customers, to rebuild confidence in the range and to attract new customers to the Specific brand.

Product Development and Regulatory Affairs (PDRA)

Overview

Our Regulatory and Development teams have continued to be effective throughout the COVID-19 pandemic as our clinical trials group was able to work remotely with veterinarians and laboratories that were participating in clinical and non-clinical studies.

In preparation for full implementation of new regulations for the authorisation and supervision of veterinary medicinal products (EU Reg 2019/6), which comes into effect in January 2022, an internal working group has been formed to ensure Dechra remains in compliance.

The pharmaceutical development laboratories in the UK, Croatia and Netherlands remained operational during the pandemic by adopting staggered schedules. The laboratories increased formulation capacity with additional people and new equipment, including a new chromatography modelling system.

The vaccine development laboratory in Zagreb received Good Laboratory Practice (GLP) certification and has expanded their

capacity for studies.

Pipeline Progress

Good progress continues to be made on the pipeline; the final sections of a dossier for a new canine sedative for the USA have been submitted. It is also pleasing to report that we are still delivering favourable results on the dog and cat proof of concept studies for the diabetes drugs being developed in partnership with Akston Biosciences. Following our right to evaluate the cat product, we subsequently signed a licensing and supply agreement on 4 February 2021.

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 are:

-- in Europe and the UK they included Apovomin Injection, Clindacutin Ointment, Lodipred Tablets, Metomotyl Flavoured Tablets, and Rexxolide(R) Injection. Apovomin is a gastrointestinal product for dogs; Clindacutin is a topical dermatological product; Lodipred is a treatment for hypertension in cats; Methomotyl is a gastrointestinal product for dogs; Rexxolide is an antimicrobial for cattle, pigs and sheep;

-- the first approval in Europe for a product included in our agreement with Medical Ethics was Equi-Solfen(R) , a topical anaesthetic for horses. This is an equine version of Tri-Solfen(R) which was approved in Portugal;

   --      Carprofen Flavoured Tablets, an anti-inflammatory for dogs, were approved in the USA; 
   --      Mirataz Transdermal Gel was registered in Canada; 

-- three new products and one line extension were registered in Australia and New Zealand, two new approvals in Mexico and

four new approvals in Brazil;

-- a 5 mg strength for Vetoryl(R) Capsules was registered in Europe, and a number of established products already registered in the EU, have now received approval in new territories, including Avishield (R) IB GI-13, Avishield IBD Plus, Comfortan (R) , Myodine and Phenoleptil; and

-- Internationally we have received 38 approvals across our key brands in countries including Albania, Bolivia, Costa Rica, Israel, Jordan, Kenya, Puerto Rico, South Africa, Tanzania, Ukraine, United Arab Emirates and Venezuela.

Acquisitions

The recent product acquisitions of Mirataz and Osurnia are both performing strongly. Osurnia is performing above our expectations

in the EU, despite the launch of a competitor product, and has also exceeded our expectations in Japan and Australia. In the USA we are gaining market share having reduced the price to compete better with the market leading product. We continue to pursue registrations in new territories.

Mirataz continues to perform exceptionally well within the USA market following a successful marketing campaign for this clinically necessary unique product. It has now also been launched in all our major European territories and initial sales are strong. We expect to receive approval to market the product in other countries imminently.

We were pleased to announce on 8 February 2021 the acquisition of the Australian and New Zealand marketing rights for Tri-Solfen(R) from Animal Ethics Pty Ltd, a related party. Tri-Solfen(R) has already been successfully introduced to the Australian market for pain relief in lambs since 2008 and was approved and launched for use in cattle in 2019, achieving cumulative annualised sales of AUD9.1 million (GBP5.1 million). This acquisition allows us to create a meaningful FAP presence in the Australian and New Zealand markets as we build a new sales infrastructure. Additionally, we have acquired a further 1.5% of the issued share capital, taking our holding in Animal Ethics Pty Ltd's parent company, Medical Ethics Pty Ltd, to 49.5%. We are in the process of recruiting a FAP sales team and have commenced marketing the product in Dechra livery post the end of the 2021 financial year.

Manufacturing and Supply

We have made huge progress with improvements to the supply chain. Backorders have been materially reduced and quality systems and processes enhanced. The upcoming implementation of a recently approved new quality management system will further enhance our manufacturing capabilities. We continue to make good progress on the technical transfer of Dechra products, predominantly into our Zagreb facility, where we have just been awarded Croatian Employer of the Year for people with disabilities. Our Bladel, Netherlands, facility continues to prepare for an FDA audit so that we can bring in-house sterile injectable manufacturing for some of our US products. In Skipton, UK, we have now ceased all the third party human products manufacturing so it now purely produces Dechra's own brands. Work has been completed in Australia to prepare ourselves for TGA quality approval; we are now awaiting inspection. If successful, we will be able to export products from this site to outside of Australia. We have completed a capital investment programme in a new water for injection system, a key component in all production, in our Londrina vaccine facility in Brazil as we continue to progress our site development and quality improvement strategy. We have now closed our Mexican manufacturing facility and have transferred the legacy products we wished to retain from the original acquisition to local third party manufacturers.

Technology

I am pleased to report that an external research survey in the UK has voted Dechra's online Academy for veterinarians and veterinary nurses as the best in class in the industry. This is an amazing achievement given the scale of Dechra compared to the market leading companies in animal health.

Digital communication with our customers has been enhanced with upgraded video conferencing systems, improved security of key servers and additional support for home workers' queries.

We have relaunched both the Dechra Pharmaceuticals PLC and Dechra Veterinary Products web sites on new, improved platforms and have also developed and launched a new internal, advanced intranet site branded OneDechra.

In the year we successfully launched a global payroll system, partnering with ADP Celergo, which is live in 16 countries with the roll out across the entire Group expected to be completed within the 2022 financial year.

Our sales and marketing database on the Salesforce software platform, which we have used successfully for a number of years in the US, has now gone live across Europe. This will improve our knowledge of, and relationship with, our customers and will allow us to better measure sales team performance and activity.

We have recently approved the implementation of a new quality and document management system which will operate across Manufacturing, Product Development and Regulatory Affairs. Implementation has commenced in this new financial year.

People

The main factor behind Dechra's success is its people. I would like to thank all our employees for their hard work, dedication and innovation throughout the year.

In a world affected by COVID-19 it is a great achievement for the Group to be paying the minimum of a living wage in every country in which we operate and we have now formally had accreditation for this status in the UK. We conducted the Great Place to Work survey in the year to which over 90% of all our global employees responded. We achieved an excellent engagement and trust rating of 77%, far higher than the vast majority of companies of our scale and ten points higher than the previous time we ran the survey three years ago. We have launched a Dechra Leadership Development Programme, incorporating diversity and inclusion modules and we have also updated the global talent review process. We have invested in our first in-house recruitment team who are proving a great success in bringing talent to the Group, delivering us considerable savings on recruitment costs.

After five years of successfully chairing the Group, Tony Rice has indicated that he has decided to step down to devote more time to his family and his other business and charitable activities. We will commence the search for his replacement; at this time no specific date has been set for his departure. He will continue as Chairman of the Group until a successor has been appointed.

The Board was strengthened with the appointment of Denise Goode as a Non-Executive Director in April 2021. It is the intention that Denise will be appointed as Chairman of the Audit Committee upon Julian Heslop's retirement from the role following the 2021 Annual General Meeting.

Following the appointment of Milton McCann as Group Manufacturing and Supply Director, we have increased the strength and depth of his management team, most notably in the Quality function with a Group Quality Director, an Internal Manufacturing Quality Director and a Third Party Quality Director to monitor and manage the processes of our outsourced products.

Environmental, Social and Governance (ESG)

Last year we refined our ESG strategy which is based on four pillars; Our People, Our Environment, Our Business and Our Communities. The world is facing significant global challenges such as climate change and inequality and we strongly believe that a sustainable and purposeful business in line with these pillars will drive superior long term performance.

During the year, we appointed Carina Kjellberg as our first Group Sustainability Director. Subsequently we have executed a 'Making a Difference' plan which involves setting targets and the launch of some major projects. In particular, we have delivered, ahead of plan, on our ambition to be a living wage employer and have committed to setting verifiable targets across the entire value chain through the Science Based Target initiative (SBTi). We have set out how we plan to use our available resources to benefit the local communities in which we operate. This includes the provision of 100,000 community hours by 30 June 2030, roughly equivalent to one full day per year per employee. We have also established Regional Giving Committees, which will allow our employees to decide what matters most in their local communities and which organisations will receive our annual charity donations.

Dividend

The Board is proposing a final dividend of 29.39 pence per share (2020: 24.00 pence per share). Added to the interim dividend of 11.11 pence per share (2020: 10.29 pence per share), this brings the total dividend for the financial year ended 30 June 2021 to 40.50 pence per share (2020: 34.29 pence per share), representing 18.1% growth over the previous year.

Subject to shareholder approval at the Annual General Meeting to be held on 21 October 2021, the final dividend will be paid on

19 November 2021 to shareholders on the Register at 29 October 2021. The shares will become ex-dividend on 28 October 2021.

Outlook

As we start the new financial year trading remains strong with the momentum and market penetration seen in the second half of the prior financial year continuing. We have made significant operational improvements by strengthening our infrastructure and by investment in our greatest resource, our people. Although COVID-19 related travel restrictions have limited acquisition activity, we have still been able to identify and progress numerous strategic opportunities to strengthen our product portfolio and development pipeline. We therefore remain confident in our ability to successfully execute our strategy and in our future prospects.

Ian Page

Chief Executive Officer

6 September 2021

Financial Review

Overview of Reported Financial Results

To assist with understanding our reported financial performance, the consolidated results below are split between existing and acquired businesses; acquisition includes the incremental effect of those businesses acquired in the current and prior year, reported on a 'like-for-like' basis. Additionally, the following table 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 GBP12.3 million and non-underlying charges of GBP14.9 million. These non-underlying charges comprise amortisation of acquired intangibles of GBP13.6 million and acquisition costs of GBP1.3 million.

Including non-underlying items, the Group's consolidated operating profit increased by 63.0% at CER (60.9% at AER) whilst consolidated profit before tax increased by 81.4% at CER (80.9% at AER), benefiting from a reduction in net finance costs. Diluted EPS growth was restricted to 56.1% at CER (55.8% at AER) primarily reflecting the impact of the increase in the Netherlands and UK tax rates on deferred tax balances.

 
                                                                                 Growth        Growth 
                                                                                 at AER        at CER 
-------------------------  ---------  ------------  -------------  ----- 
                                2021          2021           2021 
                            Existing   Acquisition   Consolidated   2020   Consolidated  Consolidated 
As Reported                     GBPm          GBPm           GBPm   GBPm              %             % 
-------------------------  ---------  ------------  -------------  -----  -------------  ------------ 
Revenue                        584.0          24.0          608.0  515.1          18.0%         21.0% 
Gross profit                   331.6          14.3          345.9  291.6          18.6%         21.3% 
Gross profit %                 56.8%         59.6%          56.9%  56.6%          30bps         20bps 
Operating profit/(loss)         86.6         (2.6)           84.0   52.2          60.9%         63.0% 
EBIT %                         14.8%       (10.8%)          13.8%  10.1%         370bps        360bps 
Profit/(loss) before tax        77.1         (3.1)           74.0   40.9          80.9%         81.4% 
Diluted EPS (p)                                             51.03  32.76          55.8%         56.1% 
-------------------------  ---------  ------------  -------------  -----  -------------  ------------ 
 

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 2021 is provided in the table below. In the commentary which follows, all references will be to CER movement unless otherwise stated.

 
                                                                Non-underlying Items 
------------------------------------ 
                                                   Amortisation 
                                                    and related        Acquisition,      Tax rate 
                                             2021      costs of         impairments       changes 
                                       Underlying      acquired   and restructuring   and finance  2021 Reported 
                                          Results   intangibles               costs      expenses        Results 
                                             GBPm          GBPm                GBPm          GBPm           GBPm 
------------------------------------  -----------  ------------  ------------------  ------------  ------------- 
Revenue                                     608.0             -                   -             -          608.0 
Gross profit                                345.9             -                   -             -          345.9 
Selling, general and administrative 
 expenses                                 (151.3)        (70.8)               (3.0)             -        (225.1) 
R&D expenses                               (32.4)         (4.4)                   -             -         (36.8) 
Operating profit                            162.2        (75.2)               (3.0)             -           84.0 
Net finance costs                          (11.7)             -                   -           2.8          (8.9) 
Share of associate profit                   (0.4)         (0.7)                   -             -          (1.1) 
Profit before tax                           150.1        (75.9)               (3.0)           2.8           74.0 
Taxation                                   (32.5)          16.5                 2.7         (5.2)         (18.5) 
Profit after tax                            117.6        (59.4)               (0.3)         (2.4)           55.5 
Diluted EPS (p)                            108.14                                                          51.03 
------------------------------------  -----------  ------------  ------------------  ------------  ------------- 
 

In the year, Dechra delivered consolidated revenue of GBP608.0 million, representing an increase of 21.0% on the prior year. This included GBP584.0 million from its existing business, an increase of 16.2%, and a GBP24.0 million contribution from acquired businesses.

Consolidated underlying operating profit of GBP162.2 million represents a 29.2% increase on the prior year. This included GBP149.9 million from Dechra's existing business, an increase of 19.5% on a like-for-like basis, and a GBP12.3 million contribution from acquired businesses.

Underlying EBIT margin increased by 170 bps to 26.7%, principally due to leverage from the acquisitions and also a reduction in Selling, General and Administrative expenses (SG&A) spend as a percentage of revenue.

Underlying diluted EPS grew by 19.4% to 108.14 pence reflecting the profit growth from the existing and acquired businesses offset by higher net finance costs, tax charges and the full year impact of the equity placing in June 2020.

A more detailed explanation of our non-underlying items is detailed further in this Financial Review.

 
                                                                                 Growth at CER 
----------------------------  ---------  ------------  -------------  -----  ---------------------- 
                                   2021          2021           2021 
                               Existing   Acquisition   Consolidated   2020  Existing  Consolidated 
Underlying                         GBPm          GBPm           GBPm   GBPm         %             % 
----------------------------  ---------  ------------  -------------  -----  --------  ------------ 
Revenue                           584.0          24.0          608.0  515.1     16.2%         21.0% 
Gross profit                      331.6          14.3          345.9  291.6     16.3%         21.3% 
Gross profit %                    56.8%         59.6%          56.9%  56.6%     10bps         20bps 
Underlying Operating profit       149.9          12.3          162.2  128.3     19.5%         29.2% 
Underlying EBIT %                 25.7%         51.3%          26.7%  24.9%     70bps        170bps 
Underlying EBITDA                 165.3          12.4          177.7  142.5     18.6%         27.4% 
 
Underlying Diluted EPS 
 (p)                                                          108.14  92.19                   19.4% 
Dividend per share (p)                                         40.50  34.29                   18.1% 
----------------------------  ---------  ------------  -------------  -----  --------  ------------ 
 

Reported Segmental Performance

Reported segmental performance is presented in note 2. 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.

 
                                                                            Growth at AER           Growth at CER 
------------------  -------------  ------------  -------------  ------  ----------------------  ---------------------- 
                                           2021           2021 
                    2021 Existing   Acquisition   Consolidated    2020  Existing  Consolidated  Existing  Consolidated 
Reported                     GBPm          GBPm           GBPm    GBPm         %             %         %             % 
------------------  -------------  ------------  -------------  ------  --------  ------------  --------  ------------ 
Revenue by segment 
EU Pharmaceuticals          374.4          14.1          388.5   323.5     15.7%         20.1%     15.9%         20.2% 
NA Pharmaceuticals          209.6           9.9          219.5   191.6      9.4%         14.6%     16.7%         22.2% 
Total                       584.0          24.0          608.0   515.1     13.4%         18.0%     16.2%         21.0% 
Operating 
profit/(loss) 
by segment 
EU Pharmaceuticals          120.2           7.6          127.8   100.0     20.2%         27.8%     19.4%         26.9% 
NA Pharmaceuticals           71.2           4.7           75.9    63.7     11.8%         19.2%     19.6%         27.5% 
 Pharmaceuticals 
   Research and 
    Development            (32.4)             -         (32.4)  (28.4)   (14.1%)       (14.1%)   (17.3%)       (17.3%) 
Segment operating 
 profit                     159.0          12.3          171.3   135.3     17.5%         26.6%     20.0%         29.2% 
Corporate and 
 unallocated costs          (9.1)             -          (9.1)   (7.0)   (30.0%)       (30.0%)   (28.6%)       (28.6%) 
Underlying 
 operating 
 profit                     149.9          12.3          162.2   128.3     16.8%         26.4%     19.5%         29.2% 
Non-underlying 
 operating items           (63.3)        (14.9)         (78.2)  (76.1) 
Reported operating 
 profit                      86.6         (2.6)           84.0    52.2     65.9%         60.9%     67.6%         63.0% 
------------------  -------------  ------------  -------------  ------  --------  ------------  --------  ------------ 
 

Underlying Segmental Performance

European Pharmaceuticals

Revenue in European (EU) Pharmaceuticals grew by 20.2%. The existing business grew by 15.9%; excluding third party contract manufacturing, which is being reduced in line with our strategy and replaced with own product manufacturing, revenues increased by 16.7%. This growth was driven by a strong performance across all established European markets and also in the key International businesses in ANZ and Brazil. The acquisitions of Mirataz and Osurnia contributed a combined GBP14.1 million to revenue for the Period where there is no comparative.

Operating Profit from existing business increased by 19.4%, with operating margin increasing to 32.1% and consolidated operating margin increasing to 32.9%. This improvement was due to strong in market delivery as the demand for CAP products increased, whilst the rate of SG&A spend was lower as a result of COVID-19.

 
                                                                        Growth at CER 
-------------------  ---------  ------------  -------------  -----  ---------------------- 
                          2021          2021           2021 
                      Existing   Acquisition   Consolidated   2020  Existing  Consolidated 
Underlying                GBPm          GBPm           GBPm   GBPm         %             % 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
Revenue                  374.4          14.1          388.5  323.5     15.9%         20.2% 
Operating Profit         120.2           7.6          127.8  100.0     19.4%         26.9% 
Operating Profit %       32.1%         53.9%          32.9%  30.9%     90bps        170bps 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
 

North American Pharmaceuticals

Revenue from North American (NA) Pharmaceuticals grew by 22.2% to GBP219.5 million. The existing business grew by 16.7% reflecting strong demand for our CAP products in the US, Canada and Mexico. The acquisitions of Osurnia and Mirataz added GBP9.9 million to revenue for the period.

Operating Profit from existing business grew 19.6% with operating margin increasing to 34.0% and consolidated operating margin increasing to 34.6%.

 
                                                                        Growth at CER 
-------------------  ---------  ------------  -------------  -----  ---------------------- 
                          2021          2021           2021 
                      Existing   Acquisition   Consolidated   2020  Existing  Consolidated 
Underlying                GBPm          GBPm           GBPm   GBPm         %             % 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
Revenue                  209.6           9.9          219.5  191.6     16.7%         22.2% 
Operating Profit          71.2           4.7           75.9   63.7     19.6%         27.5% 
Operating Profit %       34.0%         47.5%          34.6%  33.2%     90bps        150bps 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
 

Pharmaceuticals Research and Development

Pharmaceuticals Research and Development (R&D) expenses increased by 17.3% from GBP28.4 million to GBP32.4 million representing 5.5% of existing revenue with some project spend being delayed due to COVID-19. This spend included GBP3.9 million in relation to Akston which remains on track for launch in 2026.

 
                                                                           Growth at CER 
-------------  ---------  ----------------  -----------------  ------  ---------------------- 
                    2021 
                Existing  2021 Acquisition  2021 Consolidated    2020  Existing  Consolidated 
                    GBPm              GBPm               GBPm    GBPm         %             % 
-------------  ---------  ----------------  -----------------  ------  --------  ------------ 
R&D expenses      (32.4)                 -             (32.4)  (28.4)   (17.3%)       (17.3%) 
% of Revenue        5.5%                 -               5.3%    5.5% 
-------------  ---------  ----------------  -----------------  ------  --------  ------------ 
 

Revenue by Product Category

CAP revenue continues to be the largest proportion of Dechra's business at 72.8%, up from 70.1% in the prior year. CAP grew 25.9% in the year from market penetration, product launches and the additions of Osurnia and Mirataz. Equine revenue grew by 25.5% in the year with all key portfolio products performing well. FAP revenue growth slowed to 4.7% with demand in some of our markets impacted by COVID-19 restrictions, African Swine Fever and Avian Influenza. Nutrition revenue improved by 9.4% on the prior year reflecting the execution of our strategy with key customers in our key markets.

Other revenue reduced by 8.1% to GBP11.9 million, now representing only 2.0% 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.

 
                           2021   2020  % Change  % Change 
                           GBPm   GBPm    at AER    at CER 
------------------------  -----  -----  --------  -------- 
CAP                       442.6  361.6     22.4%     25.9% 
Equine                     44.8   36.4     23.1%     25.5% 
FAP                        77.0   74.8      2.9%      4.7% 
------------------------  -----  -----  --------  -------- 
Subtotal Pharmaceutical   564.4  472.8     19.4%     22.5% 
Nutrition                  31.7   28.6     10.8%      9.4% 
Other                      11.9   13.7   (13.1%)    (8.1%) 
------------------------  -----  -----  --------  -------- 
Total                     608.0  515.1     18.0%     21.0% 
------------------------  -----  -----  --------  -------- 
 

Gross Profit

Gross Profit for the existing business increased by 10 bps to 56.8% and the consolidated Gross Profit increased by 20 bps to 56.9%, reflecting the greater proportion of CAP sales.

Underlying Selling, General and Administrative Expenses (SG&A)

SG&A costs grew from GBP134.9 million in the prior year to GBP151.3 million in the current year, an increase of 12.2% (at AER). This growth principally represents investment in our people costs following the review of compensation across the Group, higher delivery of bonus targets and increased related bonus payments and additional cost incurred as a result of improved vesting conditions across the Group's employee share schemes. Despite these increases, the Group did benefit from lower than expected SG&A costs as a result of COVID-19, particularly in relation to sales and marketing activities and travel and entertainment.

Non-underlying Items

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

-- Amortisation of acquired intangibles of GBP75.2 million: the amortisation of the acquired intangibles has increased from GBP69.6 million in 2020 principally due to new charges relating to the Osurnia and Mirataz acquisitions and a reducing charge from the AST Farma and Le Vet acquisition;

-- Expenses relating to acquisition and subsequent integration activities of GBP1.4 million (2020: GBP4.3 million): this includes the transaction and integration costs associated with the acquisitions made in recent years and principally relates to Osurnia acquisition costs;

-- Rationalisation of manufacturing organisation of GBP1.6 million (2020: GBP2.2 million): this comprises the final costs associated with this strategic programme which has now been concluded;

-- Finance credit of GBP2.8 million (2020: charge of GBP2.5 million): this represents the net credit arising on the unwind of the discount relating to the contingent consideration liability and associated foreign exchange gain; and

-- Taxation credit of GBP14.0 million (2020: GBP17.7 million): this represents the tax impact of the above items (GBP16.6 million), as well as the revaluation of deferred tax balance sheet items (GBP4.8 million charge) following changes in corporate tax rates, including a further revision to the Netherlands rate (which will now remain at 25%) and the UK rate which will increase to 25% in 2023, offset by the release of certain fair value provisions relating to previous acquisitions (GBP2.2 million).

Taxation

The reported effective tax rate (ETR) for the year is 25.0% (2020: 17.1%) and includes the one-off impact of the substantively enacted increase in corporate tax rates in the Netherlands (from 21.7% to 25%) and the UK (from 19% to 25% effective 1 April 2023) on deferred tax balances. On an underlying basis the ETR is 21.7% (2020: 20.6%); the main differences to the UK corporation tax rate applicable of 19.0% (2020: 19.0%) relate to differences in overseas tax rates and non-deductible expenses offset by patent box allowances.

The underlying ETR is expected to increase to within a range of 22.5% to 23% in the current year, due to a reduction in the patent box allowance following the expiry of certain patents.

We continue to monitor relevant tax legislation internationally as it may affect our future ETR.

Reported Profit

Reported profit before tax increased by 80.9% at AER reflecting the reported operating profit growth of 60.9% at AER and the reduction in net finance costs which include a foreign exchange gain on the remeasurement of the contingent consideration liability.

Earnings per Share and Dividend

Underlying diluted EPS for the year was 108.14 pence, a 19.4% growth on the prior year reflecting the underlying EBIT growth of 29.2% offset by higher net finance costs and the full year impact of the equity placing in June 2020. The weighted average number of shares for the year was 108.8 million (2020: 103.5 million).

The reported diluted EPS for the year was 51.03 pence (2020: 32.76 pence). This represents an increase of 55.8% (at AER) in reported EPS which is lower than the reported EBIT growth of 60.9% (at AER) and reflects an increase in the reported tax charge due to the impact of the revaluation of deferred tax balances for the Netherlands and the UK, as noted above.

The Board is proposing a final dividend of 29.39 pence per share (2020: 24.00 pence), added to the interim dividend of 11.11 pence, the total dividend per share for the year ended 30 June 2021 is 40.50 pence. This represents 18.1% growth over the prior year. Dividend cover based on underlying diluted EPS is 2.7 times (2020: 2.7 times). The Board continues to operate a progressive dividend policy, recognising investment opportunities as they arise.

Currency Exposure

The average rate for GBP/EUR decreased by 1.0%, and the GBP/$ rate increased by 6.9% during the financial year. The effect in the Consolidated Income Statement and Statement of Financial Position is analysed in the above paragraphs of this review between performance at AER and CER. CER analysis compares the performance of the business on a like-for-like basis applying constant exchange rates.

 
           Average rates 
-------- 
             2021    2020  % Change 
--------  -------  ------  -------- 
GBP/EUR    1.1287  1.1396    (1.0%) 
GBP/$      1.3466  1.2601      6.9% 
--------  -------  ------  -------- 
 

Currency Sensitivity

Euro EUR: a 1% variation in the GBP/EUR exchange rate affects underlying diluted EPS by approximately +/- 0.4%.

US Dollar $: a 1% variation in the GBP/$ exchange rate affects underlying diluted EPS by approximately +/- 0.4%.

Current exchange rates are GBP/EUR 1.1646 and GBP/$ 1.3763 as at 1 September 2021. If these rates had applied throughout the year, the underlying diluted EPS would have been approximately 2.5% lower.

Statement of Financial Position

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

-- Non-current assets (excluding deferred tax) increased from GBP786.0 million to GBP819.9 million and includes the intangible assets recognised on the acquisitions of Osurnia and the marketing rights for Tri-Solfen(R) in ANZ, partly offset by amortisation of acquired intangibles.

-- Working capital has increased from GBP116.5 million to GBP142.7 million (GBP26.2 million at AER, GBP36.0 million cash flow impact) mainly due to an increase in inventory due to the growth of the Group, including stockholdings for Osurnia and Mirataz, and also to maintain service levels during a period of uncertainty.

-- Net debt has increased in the year by GBP72.6 million from GBP127.6 million to GBP200.2 million; this includes cash generation from operations at GBP141.2 million, an outflow of GBP106.5 million relating to the acquisition of Osurnia, net capital expenditure of GBP19.8 million, interest/tax outflows of GBP51.6 million and GBP37.9 million in dividends. Exchange rate variations positively impacted the net debt position by GBP15.5 million.

-- Current and deferred tax has reduced from GBP78.7 million to GBP45.8 million principally due to the realisation of deferred tax

liabilities relating to the amortisation of acquired intangibles.

 
                          2021     2020 
                          GBPm     GBPm 
---------------------  -------  ------- 
Non-current assets       819.9    786.0 
Working capital          142.7    116.5 
Net debt               (200.2)  (127.6) 
Current and deferred 
 tax                    (45.8)   (78.7) 
Other liabilities       (83.7)   (58.7) 
---------------------  -------  ------- 
Total net assets         632.9    637.5 
---------------------  -------  ------- 
 

Cash Flow, Financing and Liquidity

The Group enjoyed good cash generation during the year, with a strong Underlying EBITDA margin of 29.2% (2020: 27.7%). However, as mentioned above, working capital has increased by GBP36.0 million, mainly due to increases in inventory as a result of additional stock cover due to growth of the Group's trading activities, including the acquisitions of Mirataz and Osurnia. This resulted in net cash generated from operations of GBP141.2 million, representing cash conversion of 87.1% of underlying operating profit.

 
                                  2021   2020 
                                  GBPm   GBPm 
------------------------------  ------  ----- 
Underlying operating 
 profit                          162.2  128.3 
Depreciation and amortisation     15.5   14.2 
 
Underlying EBITDA                177.7  142.5 
Underlying EBITDA 
 %                               29.2%  27.7% 
Working capital movement        (36.0)  (8.7) 
Other                              2.5    1.0 
Cash generated from 
 operations before 
 interest, taxation 
 and non-underlying 
 items                           144.2  134.8 
Non-underlying items             (3.0)  (7.3) 
Cash generated from 
 operations before 
 interest and taxation           141.2  127.5 
Cash conversion (%)              87.1%  99.4% 
------------------------------  ------  ----- 
 

Net Debt Bridge

Notable cash items are listed below in the net debt reconciliation table:

-- Net capital expenditure on tangible assets increased to GBP19.8 million (2020: GBP14.2 million), representing 1.8 times depreciation.

-- Acquisitions of subsidiaries, intangible assets and investment in associates of GBP116.3 million includes the acquisition of Osurnia (GBP106.5 million), the additional investment in Medical Ethics (GBP0.8 million) and capitalised development expenditure including milestones on licensing arrangements.

-- The net debt/underlying EBITDA leverage ratio per the borrowing facilities' leverage covenant, which includes the proforma adjustment to full year EBITDA for the acquisitions, was 1.1 times (2020: 0.8 times) versus a covenant of 3 times.

 
                               GBPm 
--------------------------  ------- 
Net Debt 30 June 2020       (127.6) 
Net cash generated from 
 operations before 
 non-underlying items         144.2 
Non-underlying items          (3.0) 
Net capital expenditure      (19.8) 
Acquisition of intangible 
 assets                     (114.6) 
Investment in associates      (0.8) 
Acquisition of subsidiary     (0.9) 
New lease liabilities         (5.8) 
Interest and tax             (51.6) 
Dividend paid                (37.9) 
Other movements                 2.3 
Other non-cash movements      (0.2) 
Foreign exchange on net 
 debt                          15.5 
--------------------------  ------- 
Net Debt 30 June 2021       (200.2) 
--------------------------  ------- 
 

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 has a revolving credit facility (the RCF) of GBP340.0 million, which is committed until July 2024.

In January 2020 the Group undertook a Private Placement raising EUR50.0 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. 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 GBP133.4 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 2021: 1.1:1); and

-- Interest Cover: underlying EBITDA to Net Finance Charges not less than 4:1 (30 June 2021: 22.8:1).

The above ratios are calculated excluding the impact of IFRS16 and having adjusted for the pro-forma impact of acquisitions in accordance with the terms of the RCF and Private Placement arrangements.

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 increased to 18.8% in the year (2020: 15.4%) reflecting the increased contribution from the Group's existing businesses.

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 2020 and 2021 financial years is separately summarised compared to the existing business in the sections above.

In July 2020, the Group completed the acquisition of the worldwide product rights to Osurnia from Elanco for consideration of

GBP106.5 million. The addition of Osurnia significantly enhances the Dechra portfolio and complements the existing product offering to veterinarians. The acquisition was financed from the equity placing in June 2020.

In February 2021 the Group acquired the Australian and New Zealand marketing rights for Tri-Solfen(R) from Animal Ethics Pty Ltd, a related party, for a total consideration of GBP17.2 million with an upfront payment of GBP2.8 million made on signing and the balance paid on the first commercial sale by Dechra in July 2021. This acquisition allows us to create a meaningful FAP presence in these markets. The acquisition was financed from the Group's existing working capital resources.

In February 2021, the Group also acquired an additional 1.5% of the shares of Medical Ethics Pty Ltd for a consideration of GBP0.8 million. This takes the Dechra Group shareholding to 49.5%. The acquisition was financed from the Group's existing working capital resources.

Accounting Standards

The accounting policies adopted are outlined in note 1 to the Accounts. There are no accounting policy changes which have materially impacted the 2021 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 2021, the Group had net debt of GBP200.2 million (2020: net debt of GBP127.6 million), and had available cash balances and unutilised committed borrowing facilities of GBP281.9 million.

Summary

Our business has benefited from strong market fundamentals which accelerated growth in our existing business. This excellent revenue performance has been facilitated by a much improved supply chain and supplemented by healthy incremental contributions from our global product acquisitions of Mirataz and Osurnia.

We have again increased our R&D expenditure and invested heavily in our people, although certain SG&A costs were lower in the year as a result of COVID-19.

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

6 September 2021

Key Performance Indicators

 
1.  Existing Revenue Growth 
     Year-on-year CER sales growth including new products and excluding revenue 
     from acquired businesses. 
                         Commentary 
 
                         Dechra's existing business grew by 16.7% in EU Pharmaceuticals 
                          (excluding third party contract manufacturing which 
                          declined), and by 16.7% in NA Pharmaceuticals. 
 
Up 16.2%                 Relevance to Strategy 
 2021: GBP584.0m          A key driver of our strategy is to deliver sustainable 
 2020: GBP515.1m          sales growth through delivering our pipeline, maximising 
 2019: GBP481.8m          our existing portfolio and expanding geographically. 
 2018: GBP407.1m 
 2017: GBP359.3m 
-----------------------  -------------------------------------------------------------- 
 
 
 
2.  Underlying Diluted EPS Growth 
     Underlying profit after tax divided by the diluted average number of 
     shares, calculated on the same basis as note 9 to the Accounts. 
                         Commentary 
 
                         This includes a 29.2% increase in underlying operating 
                          profit, offset by higher net finance costs, tax charges 
                          and the full year impact of the equity placing in 
                          June 2020. 
 
Up 19.4%                 Relevance to Strategy 
 2021: 108.14p            Underlying diluted EPS is a key indicator of our 
 2020: 92.19p             performance and the return we generate for our stakeholders. 
 2019: 90.01p             It is one of the performance conditions of the LTIP. 
 2018: 76.45p 
 2017: 64.33p 
-----------------------  ------------------------------------------------------------- 
 
 
 
3.  Underlying 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). 
                         Commentary 
 
                         There was an increase in ROCE during the year reflecting 
                          the increased contribution from the Group's existing 
                          business. The Group's target is 15%. 
 
Up 340bps                Relevance to Strategy 
 2021: 18.8%              As we look to grow the business, it is important 
 2020: 15.4%              that we use our capital efficiently to generate returns 
 2019: 15.6%              superior to our cost of capital in the medium to 
 2018: 15.4%              long term. It underpins the performance conditions 
 2017: 17.7%              of the LTIP. 
-----------------------  -------------------------------------------------------- 
 
 
 
4.  Cash Conversion 
     Cash generated from operations before tax and interest payments as a 
     percentage of underlying operating profit. 
                         Commentary 
 
                         Cash conversion decreased during the year as a result 
                          of increased working capital. This was primarily 
                          due to increases in inventory as a result of additional 
                          stock cover due to the growth of the Group's trading 
                          activities including the acquisition of Mirataz and 
                          Osurnia. 
 
Down 1230bps             Relevance to Strategy 
 2021: 87.1%              Our stated aim is to be a cash generative business. 
 2020: 99.4%              Cash generation supports investment in the pipeline, 
 2019: 85.0%              acquisitions and people. 
 2018: 81.9% 
 2017: 115.9% 
-----------------------  -------------------------------------------------------- 
 
 
 
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. 
                         Commentary 
 
                         New product revenues reflect the strong market penetration 
                          of products launched in the year to 30 June 2021 
                          and the previous four years, including the acquisitions 
                          of Osurnia and Mirataz. 
 
                         Relevance to Strategy 
Up 370bps                 This measure shows the delivery of revenue in each 
 2021: 20.4%              year from new products launched in the prior five 
 2020: 16.7%              years, on a rolling basis. It shows the performance 
 2019: 16.7%              of our R&D and sales and marketing organisations 
 2018: 11.9%              when launching newly developed or in-licensed or 
 2017: 7.9%               acquired products. 
-----------------------  ---------------------------------------------------------- 
 
 
 
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. 
                         Commentary 
 
                         The LTAFR decreased from 0.17 to 0.09. None of these 
                          incidents resulted in a work-related fatality or 
                          disability. 
 
Down 47.1%               Relevance to Strategy 
 2021: 0.09               The safety of our employees is core to everything 
 2020: 0.17               we do. We are committed to a strong culture of safety 
 2019: 0.21               in all our workplaces. 
 2018: 0 
 2017: 0.26 
-----------------------  ------------------------------------------------------ 
 
 
 
7.  Employee Turnover 
     Number of leavers during the period as a percentage of the average total 
     number of employees in the period. 
                         Commentary 
 
                         We saw an increase in employee turnover in the period 
                          due to the planned closure of the Mexican manufacturing 
                          facility in October 2020. 
 
Up 110bps                Relevance to Strategy 
 2021: 13.5%              Attracting and retaining the best employees is critical 
 2020: 12.4%              to the successful execution of our strategy. 
 2019: 13.6% 
 2018: 15.9% 
 2017: 15.7% 
-----------------------  -------------------------------------------------------- 
 
 

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.

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 our strategy setting process, whilst 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, whilst the Board undertake a full review of the risk management process biannually. 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 coordinate the ongoing risk reporting process and provide independent assurance on the internal control framework.

Emerging Risks

Emerging risks are new risks that are unlikely to impact the business in the next year but have the potential to evolve rapidly over a longer term and could have a significant impact on our ability to achieve our objectives. They may develop into key risks or may not arise at all.

As part of our risk management process, both the Board and SET are tasked with identifying and assessing our emerging risks. These are then monitored on an ongoing basis and reviewed alongside existing risks.

COVID-19

We have continued to operate our risk management and control processes effectively 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 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 an impact on how we conduct our operational activities, we have continued to operate successfully throughout the pandemic in all of our worldwide locations. We have not needed to use any government support or job retention schemes, and have maintained and in some cases increased our headcount during the year.

Sales have continued to grow throughout the financial year against the backdrop globally of COVID-19 limiting the impact on business performance, whilst recognising that risks around our people and travel restrictions still exist. Given the developing global responses to COVID-19 we remain cautious and 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 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; 
   --      Health and Safety; 
   --      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 the fit to 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.

-- Quality Assurance: Each of our manufacturing sites has 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 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:

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

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

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

The key controls in place to manage our principal risks are described in the Understanding Our Key Risks. 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 2021

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 and supply network.

-- Recruitment of a new Group Quality Director to review and coordinate the Group approach to quality.

   --      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.

-- Refreshed and relaunched our Code of Business Conduct, with a commitment to host our How to Report a Concern Procedure externally.

-- Expansion of our financial control framework ahead of the proposed government BEIS report on audit and corporate governance, with a working group established to shape our preparation; and

-- Our Environmental, Social and Governance (ESG) strategy has been enhanced with the appointment of a Group Sustainability Director, with an assessment underway to assess our climate risks further.

Plans for 2022

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 2022.

We also plan to make further improvements and enhancements to our financial control framework and our Group policies.

Understanding Our Key Risks

 
Link to 
 Strategic 
 Growth Driver                                                              Control and Mitigating 
 and Enabler    Risk                          Potential Impact               Actions                     Trends 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Portfolio       1. Market Risk:               The growth of corporate       We manage and monitor        No change 
 Focus           The growth of veterinary      customers and buying         our national and European 
                 buying groups and             groups represents            pricing policies to deliver 
                 corporate customers           an opportunity               equitable pricing for 
                 impacts the distribution      to increase sales            each customer group. 
                 landscape.                    volumes and revenue          Our relationships with 
                 We sell and promote           but may result               larger customers are 
                 primarily to veterinary       in reduced margins.          managed by key account 
                 practices and distribute                                   managers. 
                 our products through                                       Our marketing strategy 
                 wholesaler and distributor                                 is designed to support 
                 networks in most                                           veterinarians in retaining 
                 markets.                                                   customers by promoting 
                 In a number of mature                                      the benefits of our product 
                 markets, veterinarians                                     portfolio in our major 
                 have established                                           therapeutic areas. 
                 buying groups to 
                 consolidate their 
                 purchasing, and 
                 corporate customers 
                 are continuing to 
                 expand. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Pipeline        2. Competitor Risk:           Revenues and margins          We focus on lifecycle         No change 
 Delivery        Competitor products           may be adversely             management strategies 
 Portfolio       launched against              affected should              for our key products 
 Focus           one of our leading            competitors launch           such that they can fulfil 
 Geographical    brands (e.g. generics         a novel or generic           evolving customer 
 Expansion       or a superior product         product that competes        requirements. 
                 profile).                     with one of our              Product patents are 
                 We depend on data             unique products              monitored, 
                 exclusivity periods           upon the expiry              and defensive strategies 
                 or patents to have            or early loss of             are developed towards 
                 exclusive marketing           patents.                     the end of the patent 
                 rights                        Costs may increase           life or the data 
                 for some of our               due to defensive             exclusivity 
                 products.                     marketing activity.          period. 
                 Although we maintain                                       We monitor market activity 
                 a broad portfolio                                          prior to competitor 
                 of products, our                                           products 
                 unique products                                            being launched and develop 
                 like Vetoryl and                                           a marketing response 
                 Felimazole have                                            strategy to mitigate 
                 built a market which                                       competitor impact. 
                 continue to be attractive 
                 to competitors. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Pipeline        3. Product Development        A succession of               Potential new development    No change 
 Delivery        and Launch Risk:              clinical trial               opportunities are assessed 
                 Failure to deliver            failures could               from a commercial, 
                 major products either         adversely affect             financial 
                 due to pipeline               our ability to               and scientific perspective 
                 delays or newly               deliver shareholder          by a multi-functional 
                 launched products             expectations                 team to allow senior 
                 not meeting revenue           and could also               management to make 
                 expectations.                 damage our reputation        decisions 
                 The development               and relationship             on which ones to progress. 
                 of pharmaceutical             with veterinarians.          The pipeline is discussed 
                 products is a complex,        Our market position          regularly by senior 
                 risky and lengthy             in key therapeutic           management, 
                 process involving             areas could be               including the Chief 
                 significant financial,        affected, resulting          Executive 
                 R&D and other resources.      in reduced revenues          Officer and Chief Financial 
                 Products that initially       and profits.                 Officer. Regular updates 
                 appear promising              Where we are unable          are also provided to 
                 may be delayed or             to recoup the costs          the Board. 
                 fail to meet expected         incurred in developing       Each development project 
                 clinical                      and launching a              is managed by project 
                 or commercial expectations    product this would           leaders who chair project 
                 or face delays in             result in impairment         team meetings. 
                 regulatory approval.          of any intangible            Before costly pivotal 
                 It can also be difficult      assets recognised.           studies are initiated, 
                 to predict whether                                         smaller proof of concept 
                 newly launched products                                    pilot studies are conducted 
                 will meet commercial                                       to assess the effects 
                 expectations.                                              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 by a new product 
                                                                            launch team. 
                                                                            The Group has detailed 
                                                                            market knowledge and 
                                                                            retains close contact 
                                                                            with customers through 
                                                                            its management and sales 
                                                                            teams which are trained 
                                                                            to a high standard. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Pipeline        4. Supply Chain                     Raw material supply     We monitor the performance   Decreased 
 Delivery        Risk:                              failures may cause:     of our key suppliers          risk 
 Portfolio       Inability to maintain              -- increased product    and act promptly to source 
 Focus           supply of key products             costs due to            from alternative suppliers 
 Manufacturing   due to manufacturing,              difficulties            where potential issues 
 and Supply      quality or product                 in obtaining scarce     are identified. 
 Chain           supply problems                    materials on            The top ten Group products 
                 in our own facilities              commercially            are regularly reviewed 
                 or from third party                acceptable              in order to identify 
                 suppliers.                         terms; -- product       the key suppliers of 
                 We rely on third                   shortages due to        materials or finished 
                 parties for the                    manufacturing delays;   products. 
                 supply of all raw                  or -- delays in         A dedicated external 
                 materials for products             clinical trials         network team exist who 
                 that we manufacture                due to shortage         manage and support our 
                 in-house. We also                  of trial products.      CMOs to deliver quality 
                 purchase many of                   Shortages in            products to our regulatory 
                 our finished products              manufactured            specifications. 
                 from third party                   products and third      Demand forecasting and 
                 manufacturers.                     party supply failures   supply planning processes, 
                                                    on finished products    with monthly reviews 
                                                    may result in lost      of demand and production 
                                                    sales.                  forecasts, inventory 
                                                    We have now addressed   levels, and remediation 
                                                    the majority of         plans for products that 
                                                    our in-house quality    are out of supply. 
                                                    and supply challenges   We plan to increase our 
                                                    which contributed       working capital and carry 
                                                    to an increased         higher levels of safety 
                                                    supply chain risk       stock on critical raw 
                                                    last year, and          materials, and finished 
                                                    our enhanced            products. 
                                                    Governance              Processes are in place 
                                                    and controls in         to monitor and improve 
                                                    this area have          product robustness, 
                                                    seen                    including 
                                                    a reduction in          Quality and Technical 
                                                    the risk here.          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. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Pipeline        5. Regulatory Risk:           Delays in regulatory          The Group strives to         No change 
 Delivery        Failure to meet               reviews and approvals        exceed regulatory 
 Portfolio       regulatory requirements.      could impact the             requirements 
 Focus           We conduct our business       timing of a product          and ensure that its 
 Geographical    in a highly regulated         launch and have              employees 
 Expansion       environment, which            a material effect            have detailed experience 
                 is designed to ensure         on sales and margins.        and knowledge of the 
                 the safety, efficacy,         Any changes made             regulations. 
                 quality, and ethical          to the manufacturing,        Manufacturing and 
                 promotion of pharmaceutical   distribution, marketing      Regulatory 
                 products.                     and safety surveillance      teams have established 
                 Failure to adhere             processes of our             quality systems and 
                 to regulatory standards       products may require         standard 
                 or to implement               additional regulatory        operating procedures 
                 changes in those              approvals, resulting         in place. 
                 standards could               in additional costs          A dedicated External 
                 affect our ability            and/or delays.               Network Quality Director 
                 to register, manufacture      Non-compliance               supports our CMOs in 
                 or promote our products.      with regulatory              complying with our 
                                               requirements may             regulatory 
                                               result in delays             specifications. 
                                               to production                Regular contact is 
                                               or lost sales.               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. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Acquisition     6. Acquisition Risk:          Failure to identify           We have defined criteria     Decreased 
                 Identification of             or secure suitable           for screening acquisition     risk 
                 acquisition opportunities     targets could slow           targets, and we conduct 
                 and their potential           the pace at which            commercial, clinical, 
                 integration.                  we can expand into           financial, environmental 
                 Identification of             new markets or               and legal due diligence. 
                 suitable opportunities        grow our portfolio.          The Board reviews 
                 and securing a successful     Acquisitions could           acquisition 
                 approach involves             deliver lower profits        plans and progress 
                 a high degree of              than expected or             regularly 
                 uncertainty.                  result in intangible         and approves all potential 
                 Acquired products             assets impairment.           transactions. 
                 or businesses may                                          The SET manages post 
                 fail to deliver                                            acquisition integration 
                 expected returns                                           and monitors the delivery 
                 due to over-valuation                                      of benefits and returns 
                 or integration challenges.                                 through 
                                                                            a defined process. Whilst 
                                                                            acquisition activity 
                                                                            has reduced across the 
                                                                            year, our defined processes 
                                                                            and acquisition team 
                                                                            strength have seen a 
                                                                            reduced risk against 
                                                                            a backdrop of no global 
                                                                            travel. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Geographical    7. People Risk:                     Failure to recruit      The Group HR Director          No change 
 Expansion       Failure to resource                 or develop quality     reviews the organisational 
 Acquisition     the business to                     people could result    structure with the SET 
 People          achieve our strategic               in:                    and the Board twice a 
                 ambitions, particularly             -- capability gaps     year to confirm that 
                 on geographical                     in new markets.        the organisation is fit 
                 expansion and acquisition.          -- challenges in       for purpose and to assess 
                 As Dechra expands                   integrating new        the resourcing implications 
                 into new markets                    acquisitions; or       of planned changes or 
                 and acquires new                    -- overstretched       strategic imperatives. 
                 businesses or science,              resources.             A development programme 
                 we recognise that                   This could delay       is in place to identify 
                 we may need new                     implementation         opportunities to recruit 
                 people with different               of our strategy        new talent and develop 
                 skills, experience                  and we may not         existing potential. A 
                 and cultural knowledge              meet shareholders'     new talent acquisition 
                 to execute our strategy             expectations.          team and applicant tracking 
                 successfully in                                            software have been embedded 
                 those markets and                                          in the year. 
                 business areas. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Portfolio       8. Antimicrobials             Reduction in sales            Regular contact is               Increased 
 Focus           Regulatory                    of our antimicrobial         maintained                        risk 
 Geographical    Risk:                         product range.               with relevant veterinary 
 Expansion       Continuing pressure           Our reputation               authorities to enable 
                 on reducing antimicrobial     could be adversely           us to have a comprehensive 
                 use.                          impacted if we               understanding of regulatory 
                 The issue of the              do not respond               changes. 
                 potential transfer            appropriately to             We strive to develop 
                 of antibacterial              government regulations       new products and minimise 
                 resistance from               and recommendations.         antimicrobial resistance 
                 animals to humans                                          concerns. 
                 is subject to regulatory                                   We communicate appropriate 
                 discussions globally.                                      antimicrobial use in 
                 In the EU new veterinary                                   line with best practice. 
                 regulations are 
                 likely to come into 
                 force in January 
                 2022 to reduce the 
                 use of antimicrobials 
                 in animals. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Pipeline        9. Retention of               Loss of key skills            The Nomination Committee       No change 
 Delivery        People Risk:                  and experience               oversees succession 
 Portfolio       Failure to retain             could erode our              planning 
 Focus           high calibre, talented        competitive advantage        for the Board and the 
 People          senior managers               and could have               SET. 
                 and other key roles           an adverse impact            Succession plans are 
                 in the business.              on results.                  in place for the SET 
                 Our growth plans              Inability to attract         together with development 
                 and future success            and retain                   plans for key senior 
                 are dependent on              key personnel                managers. 
                 retaining knowledgeable       may weaken succession        Remuneration packages 
                 and experienced               planning.                    are reviewed on an annual 
                 senior managers                                            basis in order to help 
                 and key staff.                                             ensure that the Group 
                                                                            can continue to retain, 
                                                                            incentivise and motivate 
                                                                            its employees. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
Pipeline        10. Climate:                  Damage to our facilities      The Sustainability Director  New 
 Delivery        Severe weather patterns       as a result of               and Risk team are engaged 
 Portfolio       caused by climate             climate change               identifying the current 
 Focus           change or natural             could impact our             risk threats and 
 People          disaster causes               abilities to both            opportunities 
                 damage to manufacturing       supply and manufacture       across the Group sites. 
                 or distribution               product, which               Whilst there has been 
                 facilities impacting          may weaken customer          previous work in this 
                 our ability to meet           confidence and               area, the Group has a 
                 customer demand.              impact performance,          renewed focus and 
                                               both over a shorter          commitment 
                                               and longer term.             towards its ESG 
                                               Natural disaster             responsibilities. 
                                               could impact on 
                                               local employability 
                                               and the communities 
                                               in which our sites 
                                               are based. 
--------------  ----------------------------  ----------------------------  ---------------------------  ------------- 
 

Consolidated Income Statement

For the year ended 30 June 2021

 
                                                      2021                               2020 
--------------------------------  ---- 
                                                            Non-                               Non- 
                                                     underlying*                        underlying* 
                                                          (notes                             (notes 
                                                          3, 4 &                             3, 4 & 
                                        Underlying            5)    Total  Underlying            5)    Total 
                                  Note        GBPm          GBPm     GBPm        GBPm          GBPm     GBPm 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Revenue                              2       608.0             -    608.0       515.1             -    515.1 
Cost of sales                              (262.1)             -  (262.1)     (223.5)             -  (223.5) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Gross profit                                 345.9             -    345.9       291.6             -    291.6 
Selling, general and administrative 
 expenses                                  (151.3)        (73.8)  (225.1)     (134.9)        (70.4)  (205.3) 
Research and development 
 expenses                                   (32.4)         (4.4)   (36.8)      (28.4)         (5.7)   (34.1) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Operating profit                     2       162.2        (78.2)     84.0       128.3        (76.1)     52.2 
Finance income                       3           -           3.8      3.8         3.0             -      3.0 
Finance expense                      4      (11.7)         (1.0)   (12.7)      (11.5)         (2.5)   (14.0) 
Share of (loss)/profit 
 of investments accounted 
 for using the equity 
 method                              6       (0.4)         (0.7)    (1.1)         0.3         (0.6)    (0.3) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Profit before taxation                       150.1        (76.1)     74.0       120.1        (79.2)     40.9 
Income taxes                         7      (32.5)          14.0   (18.5)      (24.7)          17.7    (7.0) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Profit for the year                          117.6        (62.1)     55.5        95.4        (61.5)     33.9 
--------------------------------------  ----------  ------------  -------  ----------  ------------  ------- 
Earnings per share 
Basic                                9                             51.33p                             32.87p 
Diluted                              9                             51.03p                             32.76p 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Dividend per share 
 (interim paid and 
 final proposed for 
 the year)                           8                             40.50p                             34.29p 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
 

* 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.

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2021

 
                                                                   2021   2020 
                                                           Note    GBPm   GBPm 
---------------------------------------------------------  ----  ------  ----- 
Profit for the year                                                55.5   33.9 
 
Other comprehensive (expense)/income: 
 
Items that may be reclassified subsequently to 
 profit or loss: 
Foreign currency cash flow hedges 
- fair value movements                                            (1.7)    0.1 
Foreign currency translation differences for 
 foreign operations                                              (28.0)  (7.1) 
Income tax relating to components of other comprehensive 
 (expense)/income                                             7   (0.2)    1.8 
---------------------------------------------------------  ----  ------  ----- 
                                                                 (29.9)  (5.2) 
---------------------------------------------------------  ----  ------  ----- 
Total comprehensive income for the period                          25.6   28.7 
---------------------------------------------------------  ----  ------  ----- 
 

Consolidated Statement of Financial Position

At 30 June 2021

 
                                                2021     2020 
                                       Note     GBPm     GBPm 
-------------------------------------  ----  -------  ------- 
ASSETS 
Non-current assets 
Intangible assets                        10    715.8    692.2 
Property, plant and equipment                   87.0     76.4 
Investments                               6     17.1     17.4 
Deferred tax assets                      11      2.0      2.7 
-------------------------------------  ----  -------  ------- 
Total non-current assets                       821.9    788.7 
-------------------------------------  ----  -------  ------- 
Current assets 
Inventories                                    149.5    120.8 
Current tax receivables                         17.6      6.8 
Trade and other receivables                    106.7     93.9 
Cash and cash equivalents                      118.4    227.4 
-------------------------------------  ----  -------  ------- 
Total current assets                           392.2    448.9 
-------------------------------------  ----  -------  ------- 
Total assets                                 1,214.1  1,237.6 
-------------------------------------  ----  -------  ------- 
LIABILITIES 
Current liabilities 
Borrowings and lease liabilities         12    (3.1)    (4.6) 
Trade and other payables                     (113.5)   (98.2) 
Contingent consideration                 15   (22.6)    (8.9) 
Current tax liabilities                       (16.6)   (25.6) 
-------------------------------------  ----  -------  ------- 
Total current liabilities                    (155.8)  (137.3) 
-------------------------------------  ----  -------  ------- 
Non-current liabilities 
Borrowings and lease liabilities         12  (315.5)  (350.4) 
Contingent consideration                 15   (57.6)   (47.3) 
Provisions                               13    (3.5)    (2.5) 
Deferred tax liabilities                 11   (48.8)   (62.6) 
-------------------------------------  ----  -------  ------- 
Total non-current liabilities                (425.4)  (462.8) 
-------------------------------------  ----  -------  ------- 
Total liabilities                            (581.2)  (600.1) 
-------------------------------------  ----  -------  ------- 
Net assets                                     632.9    637.5 
-------------------------------------  ----  -------  ------- 
EQUITY 
Issued share capital                             1.1      1.1 
Share premium account                          411.6    409.3 
Hedging reserve                                    -        - 
Foreign currency translation reserve          (11.9)     16.3 
Merger reserve                                  84.4     84.4 
Retained earnings                              147.7    126.4 
-------------------------------------  ----  -------  ------- 
Total equity                                   632.9    637.5 
-------------------------------------  ----  -------  ------- 
 

The financial statements were approved by the Board of Directors on 6 September 2021 and are signed on its behalf by:

 
Ian Page 
 Chief Executive Officer 
 6 September 2021 
 
Paul Sandland 
 Chief Financial Officer 
 6 September 2021 
 

Company number: 3369634

Consolidated Statement of Changes in Shareholders' Equity

For the year ended 30 June 2021

 
                                                                               Foreign 
                                              Issued     Share                currency 
                                               share   premium   Hedging   translation    Merger   Retained    Total 
                                             capital   account   reserve       reserve   reserve   earnings   equity 
                                                GBPm      GBPm      GBPm          GBPm      GBPm       GBPm     GBPm 
-----------------------------------------   --------  --------  --------  ------------  --------  ---------  ------- 
Year ended 30 June 2020 
At 1 July 2019                                   1.0     277.9         -          21.6      84.4      124.2    509.1 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Profit for the period                              -         -         -             -         -       33.9     33.9 
Foreign currency cash flow 
 hedge 
- fair value movements                             -         -       0.1             -         -          -      0.1 
Foreign currency translation 
 differences for foreign operations                -         -         -         (7.1)         -          -    (7.1) 
Income tax relating to components 
 of other comprehensive income/(expense)           -         -         -           1.8         -          -      1.8 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Total comprehensive income/(expense)               -         -       0.1         (5.3)         -       33.9     28.7 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Reclassified to cost of acquired 
 intangibles                                       -         -     (0.1)             -         -          -    (0.1) 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Transactions with owners: 
Dividends paid                                     -         -         -             -         -     (33.3)   (33.3) 
Share-based payments                               -         -         -             -         -        1.6      1.6 
Shares issued                                    0.1     131.4         -             -         -          -    131.5 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Total contributions by and 
 distributions to owners                         0.1     131.4         -             -         -     (31.7)     99.8 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
At 30 June 2020                                  1.1     409.3         -          16.3      84.4      126.4    637.5 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Year ended 30 June 2021 
At 1 July 2020                                   1.1     409.3         -          16.3      84.4      126.4    637.5 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Profit for the period                              -         -         -             -         -       55.5     55.5 
Foreign currency cash flow 
 hedge 
- fair value movements                             -         -     (1.7)             -         -          -    (1.7) 
Foreign currency translation 
 differences for foreign operations                -         -         -        (28.0)         -          -   (28.0) 
Income tax relating to components 
 of other comprehensive expense                    -         -         -         (0.2)         -          -    (0.2) 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Total comprehensive (expense)/income               -         -     (1.7)        (28.2)         -       55.5     25.6 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Reclassified to cost of acquired 
 intangibles                                       -         -       1.7             -         -          -      1.7 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Transactions with owners: 
Dividends paid                                     -         -         -             -         -     (37.9)   (37.9) 
Share-based payments                               -         -         -             -         -        3.7      3.7 
Shares issued                                      -       2.3         -             -         -          -      2.3 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Total contributions by and 
 distributions to owners                           -       2.3         -             -         -     (34.2)   (31.9) 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
At 30 June 2021                                  1.1     411.6         -        (11.9)      84.4      147.7    632.9 
------------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
 

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.

Consolidated Statement of Cash Flows

For the year ended 30 June 2021

 
                                                                 2021     2020 
                                                        Note     GBPm     GBPm 
------------------------------------------------------  ----  -------  ------- 
Cash flows from operating activities 
Operating profit                                                 84.0     52.2 
Non-underlying items                                       5     78.2     76.1 
------------------------------------------------------  ----  -------  ------- 
Underlying operating profit                                     162.2    128.3 
Adjustments for: 
Depreciation                                               2     11.0      9.9 
Amortisation and impairment                                2      4.5      4.3 
Release of government grant                                     (0.6)    (0.5) 
Loss on disposal of intangible assets                             0.3        - 
Equity settled share-based payment expense                        2.8      1.5 
------------------------------------------------------  ----  -------  ------- 
Underlying operating cash flow before changes 
 in working capital                                             180.2    143.5 
Increase in inventories                                        (36.6)   (15.7) 
(Increase)/decrease in trade and other receivables             (19.7)      6.9 
Increase in trade and other payables                             20.3      0.1 
------------------------------------------------------  ----  -------  ------- 
Cash generated from operating activities before interest, 
 taxation and non-underlying items                              144.2    134.8 
Cash outflows in respect of non-underlying items                (3.0)    (7.3) 
------------------------------------------------------  ----  -------  ------- 
Cash generated from operating activities before 
 interest and taxation                                          141.2    127.5 
Interest paid                                                   (7.7)    (7.8) 
Interest on lease liabilities                                   (0.5)    (0.4) 
Income taxes paid                                              (43.9)   (12.9) 
------------------------------------------------------  ----  -------  ------- 
Net cash inflow from operating activities                        89.1    106.4 
------------------------------------------------------  ----  -------  ------- 
Cash flows from investing activities 
Proceeds from disposal of tangible assets                         0.2      0.2 
Proceeds from disposal of intangible assets                       0.2        - 
Interest received                                                   -      0.3 
Acquisition of subsidiaries (net of cash acquired)              (0.9)   (25.2) 
Acquisition of investment in associates                    6    (0.8)    (7.6) 
Purchase of property, plant and equipment                      (18.9)    (7.8) 
Capitalised development expenditure                             (1.3)    (1.3) 
Purchase of other intangible non-current assets               (114.6)   (40.1) 
------------------------------------------------------  ----  -------  ------- 
Net cash outflow from investing activities                    (136.1)   (81.5) 
------------------------------------------------------  ----  -------  ------- 
Cash flows from financing activities 
Proceeds from the issue of share capital                          2.3    131.5 
New borrowings                                                      -    297.3 
Expenses of raising borrowing facilities                            -    (1.7) 
Repayment of borrowings                                        (15.9)  (271.7) 
Principal elements of lease payments                            (3.6)    (3.2) 
Dividends paid                                             8   (37.9)   (33.3) 
------------------------------------------------------  ----  -------  ------- 
Net cash (outflow)/inflow from financing activities            (55.1)    118.9 
------------------------------------------------------  ----  -------  ------- 
Net (decrease)/increase in cash and cash equivalents          (102.1)    143.8 
Cash and cash equivalents at start of period                    227.4     80.3 
Exchange differences on cash and cash equivalents               (6.9)      3.3 
------------------------------------------------------  ----  -------  ------- 
Cash and cash equivalents at end of period                      118.4    227.4 
------------------------------------------------------  ----  -------  ------- 
Reconciliation of net cash flow to movement in 
 net borrowings 
Net (decrease)/increase in cash and cash equivalents          (102.1)    143.8 
New borrowings and lease liabilities                            (5.8)  (302.8) 
Repayment of borrowings and lease liabilities                    20.0    275.3 
Expenses of raising borrowing facilities                            -      1.7 
Acquisition of subsidiary borrowings and lease 
 liabilities                                                        -    (0.1) 
Changes in accounting policy for leases                             -   (12.7) 
Exchange differences on cash and cash equivalents               (6.9)      3.3 
Retranslation of foreign borrowings                              22.4    (6.3) 
Other non-cash changes                                          (0.2)    (2.0) 
------------------------------------------------------  ----  -------  ------- 
Movement in net borrowings in the period                       (72.6)    100.2 
Net borrowings at start of period                             (127.6)  (227.8) 
------------------------------------------------------  ----  -------  ------- 
Net borrowings at end of period                               (200.2)  (127.6) 
------------------------------------------------------  ----  -------  ------- 
 

Cash conversion is defined as cash generated from operating activities before interest and taxation as a percentage of underlying operating profit.

Notes to the Consolidated Financial Statements

1. Status of Accounts

These summary financial statements have been prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applied in the European Union.

The Board of Directors approved the preliminary announcement on 6 September 2021.

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.

The North American Pharmaceuticals Segment consists of Dechra Veterinary Products US, Dechra Veterinary Products Canada, and Dechra Produtas Veterinarios (Mexico), which sells Companion Animal, Equine and Food producing Animal Products in those territories. The Segment also includes our manufacturing units based in Melbourne, Florida and Fort Worth, Texas. This Segment also includes third party manufacturing and other revenues from non-core activities.

The Pharmaceuticals Research and Development Segment includes all of the Group's pharmaceutical research and development activities. This Segment has no revenue. Reconciliation of reportable segment revenues, profit or loss and liabilities and other material items:

 
                                                                  2021     2020 
                                                                  GBPm     GBPm 
-------------------------------------------------------------  -------  ------- 
Revenue by segment 
European Pharmaceuticals                                         388.5    323.5 
NA Pharmaceuticals                                               219.5    191.6 
-------------------------------------------------------------  -------  ------- 
                                                                 608.0    515.1 
-------------------------------------------------------------  -------  ------- 
Underlying operating profit/(loss) by segment 
European Pharmaceuticals                                         127.8    100.0 
NA Pharmaceuticals                                                75.9     63.7 
Pharmaceuticals Research and Development                        (32.4)   (28.4) 
-------------------------------------------------------------  -------  ------- 
Underlying segment operating profit                              171.3    135.3 
Corporate and other unallocated costs                            (9.1)    (7.0) 
-------------------------------------------------------------  -------  ------- 
Underlying operating profit                                      162.2    128.3 
Amortisation of acquired intangibles                            (75.2)   (69.6) 
Rationalisation of manufacturing organisation                    (1.6)    (2.2) 
Expenses relating to acquisitions and subsequent integration 
 activities                                                      (1.4)    (4.3) 
-------------------------------------------------------------  -------  ------- 
Total operating profit                                            84.0     52.2 
Finance income                                                     3.8      3.0 
Finance expense                                                 (12.7)   (14.0) 
Share of losses in investment accounted for using 
 the equity method                                               (1.1)    (0.3) 
-------------------------------------------------------------  -------  ------- 
Profit before taxation                                            74.0     40.9 
-------------------------------------------------------------  -------  ------- 
Total liabilities by segment 
European Pharmaceuticals                                       (137.5)  (110.3) 
NA Pharmaceuticals                                              (60.5)   (53.1) 
Pharmaceuticals Research and Development                         (5.9)    (5.1) 
-------------------------------------------------------------  -------  ------- 
Segment liabilities                                            (203.9)  (168.5) 
Corporate loans and revolving credit facility                  (302.7)  (340.0) 
Corporate accruals and other payables                            (9.2)    (3.4) 
Current and deferred tax liabilities                            (65.4)   (88.2) 
-------------------------------------------------------------  -------  ------- 
                                                               (581.2)  (600.1) 
-------------------------------------------------------------  -------  ------- 
 
 
                                                         2021   2020 
                                                         GBPm   GBPm 
------------------------------------------------------  -----  ----- 
Revenue by product category 
CAP                                                     442.6  361.6 
Equine                                                   44.8   36.4 
FAP                                                      77.0   74.8 
Nutrition                                                31.7   28.6 
Other                                                    11.9   13.7 
------------------------------------------------------  -----  ----- 
                                                        608.0  515.1 
------------------------------------------------------  -----  ----- 
Additions to intangible non-current assets by segment 
 (including through business combinations) 
European Pharmaceuticals                                 97.1   22.3 
NA Pharmaceuticals                                       40.2   47.5 
Pharmaceuticals Research and Development                  0.1    0.4 
Corporate and central costs                               1.4    1.5 
------------------------------------------------------  -----  ----- 
                                                        138.8   71.7 
------------------------------------------------------  -----  ----- 
 
 
Additions to Property, Plant and Equipment by segment 
 (including through business combinations) 
European Pharmaceuticals                                19.8  12.1 
NA Pharmaceuticals                                       5.9   4.3 
Pharmaceuticals Research and Development                 0.4   0.7 
Corporate and central costs                              0.3   0.2 
------------------------------------------------------  ----  ---- 
                                                        26.4  17.3 
------------------------------------------------------  ----  ---- 
Depreciation and amortisation by segment 
European Pharmaceuticals                                67.1  64.1 
NA Pharmaceuticals                                      22.4  18.5 
Pharmaceuticals Research and Development                 0.5   0.5 
Corporate and central costs                              0.7   0.7 
------------------------------------------------------  ----  ---- 
                                                        90.7  83.8 
------------------------------------------------------  ----  ---- 
The total depreciation and amortisation charge is 
 made up of the following: 
Non-underlying 
Amortisation - selling, general and administrative 
 expenses                                               70.8  63.9 
Amortisation - research and development expenditure      4.4   5.7 
------------------------------------------------------  ----  ---- 
                                                        75.2  69.6 
------------------------------------------------------  ----  ---- 
Underlying 
Amortisation and impairment                              4.5   4.3 
Depreciation                                            11.0   9.9 
------------------------------------------------------  ----  ---- 
                                                        15.5  14.2 
------------------------------------------------------  ----  ---- 
 

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:

 
                               2021                2020 
                               Non-                Non- 
                     2021   current      2020   current 
                  Revenue    assets   Revenue    assets 
                     GBPm      GBPm      GBPm      GBPm 
---------------  --------  --------  --------  -------- 
UK                   56.9      30.8      45.0      30.4 
Germany              64.8       3.1      53.9       2.8 
Rest of Europe      204.8     406.3     173.8     419.8 
USA                 206.5     215.2     181.9     213.2 
Rest of World        75.0     166.5      60.5     122.5 
---------------  --------  --------  --------  -------- 
                    608.0     821.9     515.1     788.7 
---------------  --------  --------  --------  -------- 
 

3. Finance Income

 
                                2021   2020 
Underlying                      GBPm   GBPm 
-----------------------------  -----  ----- 
Finance income arising from: 
- Cash and cash equivalents        -    0.1 
- Foreign exchange gains           -    2.9 
-----------------------------  -----  ----- 
Underlying finance income          -    3.0 
-----------------------------  -----  ----- 
 
 
                                                        2021   2020 
Non-underlying                                          GBPm   GBPm 
-----------------------------------------------------  -----  ----- 
Finance income arising from: 
- Foreign exchange gains on contingent consideration     3.8      - 
-----------------------------------------------------  -----  ----- 
Non-underlying finance income                            3.8      - 
-----------------------------------------------------  -----  ----- 
Total finance income                                     3.8    3.0 
-----------------------------------------------------  -----  ----- 
 

4. Finance Expense

 
                                             2021   2020 
Underlying                                   GBPm   GBPm 
------------------------------------------  -----  ----- 
Finance expense arising from: 
- Financial liabilities at amortised cost     8.3   11.1 
- Lease liability interest                    0.5    0.4 
- Foreign exchange losses                     2.9      - 
------------------------------------------  -----  ----- 
Underlying finance expense                   11.7   11.5 
------------------------------------------  -----  ----- 
 
 
                                                                 2021   2020 
Non-underlying                                                   GBPm   GBPm 
--------------------------------------------------------------  -----  ----- 
Finance expense arising from: 
- Loss on extinguishment of debt                                    -    1.0 
- Foreign exchange losses on contingent consideration               -    0.9 
- Unwind of discount associated with contingent consideration     1.0    0.6 
--------------------------------------------------------------  -----  ----- 
Non-underlying finance expense                                    1.0    2.5 
--------------------------------------------------------------  -----  ----- 
Total finance expense                                            12.7   14.0 
--------------------------------------------------------------  -----  ----- 
 

5. Non-underlying Items

Non-underlying items charged/(credited) comprise:

 
                                                                 2021    2020 
                                                                 GBPm    GBPm 
-------------------------------------------------------------  ------  ------ 
Amortisation of acquired intangibles 
- classified within selling, general and administrative 
 expenses                                                        70.8    63.9 
- classified within research and development expenses             4.4     5.7 
Expenses relating to acquisitions and subsequent integration 
 activities                                                       1.4     4.3 
Rationalisation of manufacturing organisation                     1.6     2.2 
-------------------------------------------------------------  ------  ------ 
Non-underlying operating loss items                              78.2    76.1 
-------------------------------------------------------------  ------  ------ 
Amortisation in relation to Medical Ethics Pty Ltd 
 (net of tax)                                                     0.7     0.6 
Loss on extinguishment of debt                                      -     1.0 
Foreign exchange (gains)/losses on contingent consideration     (3.8)     0.9 
Unwind of discount associated with contingent consideration       1.0     0.6 
-------------------------------------------------------------  ------  ------ 
Non-underlying loss before tax items                             76.1    79.2 
Tax on non-underlying loss before tax items                    (16.6)  (18.0) 
Revaluation of deferred tax balances following the 
 change in the Dutch and UK tax rates                             4.8     0.3 
Release of fair value provision on acquisition                  (2.2)       - 
-------------------------------------------------------------  ------  ------ 
Non-underlying loss after tax items                              62.1    61.5 
-------------------------------------------------------------  ------  ------ 
 

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.

Expenses relating to acquisitions and subsequent integration activities represents costs incurred during the acquisition and integration of Osurnia (GBP1.3 million) and other product licensing agreements (GBP0.1 million).

Rationalisation of manufacturing organisation relates to the income statement cost associated with this strategic programme. Costs since the inception of the programme have been GBP8.7 million and the programme has now been completed in the current financial year.

The loss on extinguishment of debt in the prior year related to the acceleration of the amortisation of arrangement fees relating to the

Term Loan on termination.

The revaluation of the deferred tax balances arises as a result of an increase in the Dutch and UK corporation tax rates from that previously enacted in the prior year. The GBP4.8 million charge in the current year predominantly arises from the change in the Dutch corporation tax rate which has been substantively enacted to remain at 25.0% (previously this was to reduce to 21.7% over the period to 2022).

During the year fair value corporation tax provisions on the acquisitions of Ampharmco LLC, Genera d.d. and AST Farma B.V./ Le Vet B.V. have been released.

6. Interests in Associate

Interest in Associate

 
                                                        2021   2020 
                                                        GBPm   GBPm 
-----------------------------------------------------  -----  ----- 
1 July                                                  17.4   10.1 
Additions                                                0.8    7.6 
Share of underlying (loss)/profit after tax            (0.4)    0.3 
Share of amortisation of intangible asset identified 
 on acquisition (net of tax)                           (0.7)  (0.6) 
-----------------------------------------------------  -----  ----- 
30 June                                                 17.1   17.4 
-----------------------------------------------------  -----  ----- 
 

On 5 February 2021 the Group acquired a further 1.5% of the issued share capital of Medical Ethics Pty Ltd for a total consideration of AUD1.5 million (GBP0.8 million). Following the acquisition the Group holds 49.5% of the issued share capital of Medical Ethics Pty Ltd, which is the holding company of Animal Ethics Pty Ltd. The increased shareholding to 49.5% of the issued share capital has not resulted in a change of control or accounting treatment of the entity. 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.

7. Income Taxes

 
                                                                   2021    2020 
                                                                   GBPm    GBPm 
---------------------------------------------------------------  ------  ------ 
Current tax - UK corporation tax                                    2.8     3.5 
                      - overseas tax at prevailing local rates     26.8    18.2 
                      - adjustment in respect of prior years      (2.6)   (0.8) 
---------------------------------------------------------------  ------  ------ 
Total current tax expense                                          27.0    20.9 
---------------------------------------------------------------  ------  ------ 
Deferred tax - origination and reversal of temporary 
 differences                                                     (14.5)  (14.5) 
                      - adjustment in respect of tax rates          4.8     1.4 
                      - adjustment in respect of prior years        1.2   (0.8) 
---------------------------------------------------------------  ------  ------ 
Total deferred tax credit                                         (8.5)  (13.9) 
---------------------------------------------------------------  ------  ------ 
Total income tax charge in the Consolidated Income 
 Statement                                                         18.5     7.0 
---------------------------------------------------------------  ------  ------ 
 

The tax on the Group's profit before taxation differs from the standard rate of UK corporation tax of 19.0% (2020: 19.0%). The differences to this rate are explained below:

 
                                                                2021   2020 
                                                                GBPm   GBPm 
-------------------------------------------------------------  -----  ----- 
Profit before taxation                                          74.0   40.9 
-------------------------------------------------------------  -----  ----- 
Tax at 19.0% (2020: 19.0%)                                      14.1    7.8 
Effect of: 
- expenses not deductible                                        1.8    1.4 
- acquisition expenses                                             -    0.6 
- research and development related tax credits                 (0.3)  (0.4) 
- patent box tax credits                                       (3.1)  (2.7) 
- other incentives                                             (0.3)  (0.2) 
- share of results in associates                                   -  (0.1) 
- effects of overseas tax rates                                  2.9  (0.3) 
- movement in unrecognised deferred tax                            -    1.1 
- adjustment in respect of prior years                         (1.4)  (1.6) 
- change in tax rates                                            4.8    1.4 
-------------------------------------------------------------  -----  ----- 
Total income tax charge in the Consolidated Income Statement    18.5    7.0 
-------------------------------------------------------------  -----  ----- 
 

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 25.0% (excluding non-underlying items the effective tax rate is 21.7%).

Tax Credit/(Charge) Recognised Directly in Equity

 
                                                             2021   2020 
                                                             GBPm   GBPm 
----------------------------------------------------------  -----  ----- 
Deferred tax on employee benefit obligations                    -      - 
Deferred tax on other equity movements                      (0.2)    1.8 
----------------------------------------------------------  -----  ----- 
Tax recognised in Consolidated Statement of Comprehensive 
 Income                                                     (0.2)    1.8 
----------------------------------------------------------  -----  ----- 
 
Corporation tax on equity settled transactions                0.2    0.4 
Deferred tax on equity settled transactions                   0.7  (0.3) 
----------------------------------------------------------  -----  ----- 
Total tax recognised in Equity                                0.9    0.1 
----------------------------------------------------------  -----  ----- 
 

On 15 September 2020, the Dutch Government submitted the 2021 tax plan, which included the reversal of the previously enacted rate reduction from 25% to 21.7%, which was due to be effective from 1 January 2021. As a result, the Dutch corporate income tax headline rate has remained at 25%, and Dutch deferred tax assets and liabilities as at 30 June 2021 have been recalculated accordingly.

UK Finance Bill 2021 was substantively enacted on 24 May 2021, which included the increase in main rate of UK corporation tax from 19% to 25%, effective 1 April 2023. UK deferred tax assets and liabilities as at 30 June 2021 have been recalculated accordingly, based on the Group's best estimate of the timing of the unwind of existing temporary differences.

At 30 June 2021, the Group held a current provision of GBP5.7 million (2020: GBP5.6 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 GBP2.1 million to GBP7.4 million.

EU CFC Challenge

The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concluded that the legislation up until December 2018 does partially represent State Aid. The Group considers that the potential amount of additional tax payable remains between GBPnil and GBP4.0 million depending on the basis of calculation and the outcome of HMRC's appeal to the EU Commission. Based on current advice, the Group does not consider any provision is required in relation to this investigation. This judgement is based on current interpretation of legislation and professional advice.

During the period, the Group received charging notices from HMRC under The Taxation (Post Transition Period) Bill for part of the exposure (GBP2.75 million) and has paid this to HMRC. As the Group considers that the appeal will be successful, the charging notices have been settled in full and a current tax receivable has been recorded in respect of the payment on the basis that the amount will be repaid in due course.

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.

8. Dividends

 
                                                        2021   2020 
                                                        GBPm   GBPm 
-----------------------------------------------------  -----  ----- 
Final dividend paid in respect of prior year but not 
 recognised as a liability in that year: 
 24.00 pence per share (2020: 22.10 pence per share)    25.9   22.7 
Interim dividend paid: 11.11 pence per share (2020: 
 10.29 pence per share)                                 12.0   10.6 
-----------------------------------------------------  -----  ----- 
Total dividend 35.11 pence per share (2020: 32.39 
 pence per share) recognised as distributions 
 to equity holders in the period                        37.9   33.3 
-----------------------------------------------------  -----  ----- 
Proposed final dividend for the year ended 30 June 
 2021: 29.39 pence per share 
 (2020: 24.00 pence per share)                          31.8   25.9 
Total dividend paid and proposed for the year ended 
 30 June 2021: 40.50 pence per share 
 (2020: 34.29 pence per share)                          43.8   36.5 
-----------------------------------------------------  -----  ----- 
 

In accordance with IAS 10 'Events After the Balance Sheet Date', the proposed final dividend for the year ended 30 June 2021 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 2022. There are no income tax consequences. The final dividend for the year ended 30 June 2020 is shown as a deduction from equity in the year ended 30 June 2021.

9. 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.

 
                               2021    2020 
                              Pence   Pence 
---------------------------  ------  ------ 
Basic earnings per share 
- Underlying*                108.77   92.50 
- Basic                       51.33   32.87 
---------------------------  ------  ------ 
Diluted earnings per share 
- Underlying*                108.14   92.19 
- Diluted                     51.03   32.76 
---------------------------  ------  ------ 
 

The calculations of basic and diluted earnings per share are based upon:

 
                                                        2021   2020 
                                                        GBPm   GBPm 
-----------------------------------------------------  -----  ----- 
Earnings for underlying basic and underlying diluted 
 earnings per share                                    117.6   95.4 
-----------------------------------------------------  -----  ----- 
Earnings for basic and diluted earnings per share       55.5   33.9 
-----------------------------------------------------  -----  ----- 
 
 
                                                              Number       Number 
-------------------------------------------------------  -----------  ----------- 
Weighted average number of ordinary shares for basic 
 earnings per share                                      108,119,864  103,133,142 
-------------------------------------------------------  -----------  ----------- 
Impact of share options                                      630,725      348,393 
-------------------------------------------------------  -----------  ----------- 
Weighted average number of ordinary shares for diluted 
 earnings per share                                      108,750,589  103,481,535 
-------------------------------------------------------  -----------  ----------- 
 

* Underlying measures exclude non-underlying items as defined in note 5.

At 30 June 2021, there are 401,672 options (2020: 373,439) that are excluded from the EPS calculations as they are not dilutive for the period presented but may become dilutive in the future.

10. Intangible Assets

 
                                               Development   Patent        Marketing      Acquired 
                           Goodwill  Software        costs   rights   authorisations   intangibles    Total 
                               GBPm      GBPm         GBPm     GBPm             GBPm          GBPm     GBPm 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
Cost 
At 1 July 2019                245.7      19.7         14.0      4.3              0.9         709.8    994.4 
Additions                         -       1.8          1.8      0.3                -          46.2     50.1 
Acquisitions through 
 business combinations          6.6       0.1            -        -                -          14.9     21.6 
Remeasurement (note 
 15)                              -         -            -        -                -          10.9     10.9 
Foreign exchange 
 adjustments                    1.5       0.1          0.1    (0.1)                -           9.6     11.2 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
At 30 June 2020 
 and 1 July 2020              253.8      21.7         15.9      4.5              0.9         791.4  1,088.2 
Additions                         -       2.8          1.5        -                -         134.5    138.8 
Disposals                         -     (0.9)        (0.6)        -                -             -    (1.5) 
Transfers between 
 categories                       -         -        (1.2)        -              1.2             -        - 
Remeasurement (note 
 15)                              -         -            -        -                -           4.9      4.9 
Foreign exchange 
 adjustments                 (17.7)     (0.5)        (0.5)    (0.1)                -        (49.5)   (68.3) 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
At 30 June 2021               236.1      23.1         15.1      4.4              2.1         881.3  1,162.1 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
Accumulated Amortisation 
At 1 July 2019                    -       6.1          8.5      3.3                -         295.9    313.8 
Charge for the 
 year                             -       2.9          1.2      0.2                -          69.6     73.9 
Foreign exchange 
 adjustments                      -         -          0.1        -                -           8.2      8.3 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
At 30 June 2020 
 and 1 July 2020                  -       9.0          9.8      3.5                -         373.7    396.0 
Charge for the 
 year                             -       3.2          0.6      0.2              0.3          75.2     79.5 
Impairments                       -         -          0.2        -                -             -      0.2 
Disposals                         -     (0.8)        (0.2)        -                -             -    (1.0) 
Transfers between 
 categories                       -         -        (0.8)        -              0.8             -        - 
Foreign exchange 
 adjustments                      -     (0.2)        (0.1)    (0.1)            (0.1)        (27.9)   (28.4) 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
At 30 June 2021                   -      11.2          9.5      3.6              1.0         421.0    446.3 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
Net book value 
At 30 June 2021               236.1      11.9          5.6      0.8              1.1         460.3    715.8 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
At 30 June 2020               253.8      12.7          6.1      1.0              0.9         417.7    692.2 
-------------------------  --------  --------  -----------  -------  ---------------  ------------  ------- 
 

GBP0.8 million of the marketing authorisations relate to the Vetivex(R) 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 GBP9.3 million relating to the ERP system in the EU Pharmaceuticals Segment; this has a remaining amortisation period of 4 years.

Goodwill is allocated across cash generating units that are expected to benefit from that business combination.

In accordance with the disclosure requirements of IAS 38 'Intangible Assets', the components of acquired intangibles are summarised below:

 
                                                                        Capitalised 
                                   Commercial  Pharmacological          development  Product 
                                relationships          process  Brand         costs   rights   Total 
                                         GBPm             GBPm   GBPm          GBPm     GBPm    GBPm 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
Cost 
At 1 July 2019                            6.8             51.4   16.3         393.6    241.7   709.8 
Additions                                   -                -      -             -     46.2    46.2 
Acquisitions through 
 business combinations                    1.9                -      -          13.0        -    14.9 
Remeasurement                               -                -      -             -     10.9    10.9 
Foreign exchange adjustments                -              1.8    0.3           3.4      4.1     9.6 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2020 and 
 1 July 2020                              8.7             53.2   16.6         410.0    302.9   791.4 
Additions                                   -                -      -             -    134.5   134.5 
Remeasurement                               -                -      -             -      4.9     4.9 
Foreign exchange adjustments            (0.6)            (6.1)  (1.7)        (27.6)   (13.5)  (49.5) 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2021                           8.1             47.1   14.9         382.4    428.8   881.3 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
Accumulated Amortisation 
At 1 July 2019                            3.7             27.9    6.1         104.3    153.9   295.9 
Charge for the year                       2.0              5.7    1.6          48.2     12.1    69.6 
Foreign exchange adjustments              0.2              1.1    0.2           3.4      3.3     8.2 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2020 and 
 1 July 2020                              5.9             34.7    7.9         155.9    169.3   373.7 
Charge for the year                       1.8              4.4    1.4          42.3     25.3    75.2 
Foreign exchange adjustments            (0.4)            (4.1)  (0.9)        (11.5)   (11.0)  (27.9) 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2021                           7.3             35.0    8.4         186.7    183.6   421.0 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
Net book value 
At 30 June 2021                           0.8             12.1    6.5         195.7    245.2   460.3 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2020                           2.8             18.5    8.7         254.1    133.6   417.7 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
 

The table below provides further detail on the acquired intangibles and their remaining amortisation period.

 
                                                                              Acquired                 Remaining 
                                                                Goodwill   intangibles  Sub-Total   amortisation 
                                                                carrying      carrying   carrying      period on 
                                Description of acquired            value         value      value       acquired 
Significant assets               intangibles                        GBPm          GBPm       GBPm    intangibles 
------------------------------  -----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising 
 from the acquisition           Product, marketing and 
 of Dermapet                     distribution rights                 0.4          12.8       13.2    4 1/2 years 
------------------------------  -----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising       Technology, product, 
 from the acquisition            marketing and distribution 
 of Eurovet                      rights                             37.7           7.9       45.6         1 year 
------------------------------  -----------------------------  ---------  ------------  ---------  ------------- 
Goodwill arising from 
 the acquisition of 
 Vetxx                                                              16.4             -       16.4            N/A 
-------------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising       Product, brand, technology,                        0.3               1 1/2 years 
 from the acquisition            marketing 
 of Genera                       and distribution rights 
------------------------------  ----------------------------- 
                                                                                   0.2               4 1/2 years 
------------------------------   ---------------------------- 
                                                                                   5.8               9 1/2 years 
                                                                                                        Genera - 
                                                                     5.3                     11.6          total 
  -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising       Product, brand, technology,                        4.4                   5 years 
 from the acquisition            pharmacological process, 
 of Putney                       marketing 
                                 and distribution rights 
------------------------------  ----------------------------- 
                                                                                  12.5                   5 years 
------------------------------   ---------------------------- 
                                                                                  33.1                   7 years 
                                                                                                        Putney - 
                                                                    47.3                     97.3          total 
  -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible asset arising         Product and technology                           11.3                  12 years 
 from the acquisition 
 of Apex 
-------------------------------  ---------------------------- 
                                                                                   1.7                   9 years 
------------------------------   ---------------------------- 
                                                                     8.7                     21.7   Apex - total 
  -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets related 
 to the licensing and 
 distribution of Tri-Solfen(R)   Marketing and distribution 
 (excluding ANZ territories)      rights                               -          39.7       39.7       10 years 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible asset related 
 to an injectable solution       Marketing and distribution 
 licensing agreement              rights                               -           5.8        5.8       10 years 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising        Product, brand, technology,                      46.2               6 1/2 years 
 from the acquisition             marketing and distribution 
 of AST Farma and Le              rights 
 Vet 
-------------------------------  ---------------------------- 
                                                                                  61.4               5 1/2 years 
------------------------------   ---------------------------- 
                                                                                  13.3                   7 years 
                                                                                   0.8               1 1/2 years 
                                                                                                       AST Farma 
                                                                                                             and 
                                                                                                        Le Vet - 
                                                                    98.7                    220.4          total 
  -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets related 
 to an injectable solution       Marketing and distribution 
 licensing agreement              rights                               -           5.6        5.6       15 years 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising        Product, brand, technology, 
 from the acquisition             marketing 
 of Caledonian                    and distribution rights            0.8           2.9        3.7    7 1/2 years 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising 
 from the acquisition 
 of Dechra Brasil Produtas       Product, brand, technology, 
 Veterinarios LTDA                marketing                                        6.6               7 1/2 years 
                                   and distribution rights                         0.3               2 1/2 years 
                                                                                   0.3               5 1/2 years 
                                                                                                        Brazil - 
                                                                     8.3                     15.5          total 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising 
 from the acquisition            Product and technology 
 of Ampharmco                     rights                                           0.6               1 1/2 years 
                                                                                   5.0              16 1/2 years 
                                                                                   0.5              13 1/2 years 
                                                                                   5.3                  13 years 
                                                                                                       Ampharmco 
                                                                     5.8                     17.2        - total 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising        Product and technology                           37.9               8 1/2 years 
 from the acquisition             rights 
 of Mirataz 
                                                                                   7.2               9 1/2 years 
                                                                                   0.9               9 1/2 years 
                                                                       -                     46.0      Mirataz - 
                                                                                                           total 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets arising 
 from the acquisition            Product, marketing and 
 of Osurnia                       distribution rights                  -          96.5       96.5        9 years 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets related 
 to the licensing and 
 distribution of Tri-Solfen(R)   Product, marketing and 
 (ANZ territories)                distribution rights                  -          24.5       24.5       10 years 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Other individually immaterial 
 goodwill and acquired 
 intangibles                                                         6.7           9.0       15.7 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
                                                                   236.1         460.3      696.4 
-------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
 
 

11. Deferred Taxes

Recognised Deferred Tax Assets and Liabilities

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:

 
                             2021    2020 
                             GBPm    GBPm 
-------------------------  ------  ------ 
Deferred tax assets           2.0     2.7 
Deferred tax liabilities   (48.8)  (62.6) 
-------------------------  ------  ------ 
                           (46.8)  (59.9) 
-------------------------  ------  ------ 
 

Deferred tax assets and liabilities are attributable to the following, prior to any allowable offset:

 
                                  Assets      Liabilities         Net 
----------------------------- 
                                2021   2020    2021    2020    2021    2020 
                                GBPm   GBPm    GBPm    GBPm    GBPm    GBPm 
-----------------------------  -----  -----  ------  ------  ------  ------ 
Intangible assets                  -      -  (51.1)  (62.4)  (51.1)  (62.4) 
Property, plant and 
 equipment                         -      -   (3.7)   (4.0)   (3.7)   (4.0) 
Inventories                      0.9    1.4       -       -     0.9     1.4 
Receivables/payables             4.1    3.2       -       -     4.1     3.2 
Share-based payments             1.7    0.7       -       -     1.7     0.7 
Losses                           0.7    0.5       -       -     0.7     0.5 
R&D tax credits                  0.5    0.3       -       -     0.5     0.3 
Employee benefit obligations     0.1    0.4       -       -     0.1     0.4 
-----------------------------  -----  -----  ------  ------  ------  ------ 
                                 8.0    6.5  (54.8)  (66.4)  (46.8)  (59.9) 
-----------------------------  -----  -----  ------  ------  ------  ------ 
 

12. Borrowings and lease liabilities

 
                               2021   2020 
                               GBPm   GBPm 
----------------------------  -----  ----- 
Current liabilities: 
Lease liabilities               3.1    3.2 
Bank loans                        -    1.4 
----------------------------  -----  ----- 
                                3.1    4.6 
----------------------------  -----  ----- 
Non-current liabilities: 
Lease liabilities              12.8   11.8 
Senior loan notes             115.1  127.1 
Bank loans                    189.7  214.2 
Arrangement fees netted off   (2.1)  (2.7) 
----------------------------  -----  ----- 
                              315.5  350.4 
----------------------------  -----  ----- 
Total borrowings              318.6  355.0 
----------------------------  -----  ----- 
 

At 30 June 2021, GBP189.7 million was drawn against the GBP340.0 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 2021, interest being charged on this facility is 1.50% above LIBOR. All covenants were met during the year ended 30 June 2021.

In January 2020, the Group undertook a Private Placement raising EUR50.0 million and USD100.0 million (under seven and ten year new senior secured notes respectively) which remains fully drawn at 30 June 2021. 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).

No interest has been capitalised during the year (2020: GBPnil).

The borrowing facility of Genera of GBP4.6 million, of which GBP1.4 million was drawn at 30 June 2020, was fully repaid in March 2021 and the facility was closed.

The maturity of the bank loans and senior loan notes is as follows:

 
                              2021   2020 
                              GBPm   GBPm 
---------------------------  -----  ----- 
Payable: 
Within one year                  -    1.4 
Between one and two years        -      - 
Between two and five years   189.7  214.2 
Over five years              115.1  127.1 
---------------------------  -----  ----- 
                             304.8  342.7 
---------------------------  -----  ----- 
 

The maturity of the lease liabilities is as follows:

 
                              2021   2020 
                              GBPm   GBPm 
---------------------------  -----  ----- 
Payable: 
Within one year                3.1    3.2 
Between one and two years      2.5    2.5 
Between two and five years     3.7    4.0 
Over five years                6.6    5.3 
---------------------------  -----  ----- 
                              15.9   15.0 
---------------------------  -----  ----- 
 

13. Provisions

 
                                                    Environmental, 
                                         Provision          Health 
                               Deferred    for PPE        & Safety 
                                   Rent      grant           Grant  Dilapidations  Total 
                                   GBPm       GBPm            GBPm           GBPm   GBPm 
-----------------------------  --------  ---------  --------------  -------------  ----- 
At start of period                (0.4)      (1.4)           (0.3)          (0.4)  (2.5) 
Provision recognised                  -          -               -          (1.9)  (1.9) 
Provision utilised                  0.1        0.5             0.2              -    0.8 
Foreign exchange differences          -          -             0.1              -    0.1 
-----------------------------  --------  ---------  --------------  -------------  ----- 
At end of period                  (0.3)      (0.9)               -          (2.3)  (3.5) 
-----------------------------  --------  ---------  --------------  -------------  ----- 
 

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 expiring in January 2025.

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 until 2025.

On the acquisition of Ampharmco, the Group established a fair value provision for dilapidations of a warehouse property. The provision will be utilised over the period to the expiry of the lease on 31 December 2022.

The Group established a fair value provision of GBP1.9 million for dilapidations of two warehouse properties in Skipton. In line with IFRS 16, the element of the provision that relates to reinstatement work as a result of alterations (GBP1.6 million) has been capitalised and will be depreciated over the lease term. The remaining amount (GBP0.3 million) has been expensed to the income statement. The respective provisions for the two buildings will be utilised over the period to the expiry of the lease in March 2025 and March 2030.

14. Foreign Exchange Rates

The following primary exchange rates have been used in the translation of the results of foreign operations:

 
                                   Closing                 Closing 
                      Average         rate    Average         rate 
                         rate   at 30 June       rate   at 30 June 
                     for 2020         2020   for 2021         2021 
------------------  ---------  -----------  ---------  ----------- 
Australian Dollar      1.8784       1.7913     1.8035       1.8476 
Brazilian Real         5.6245       6.6986     7.2518       6.8819 
Danish Krone           8.5080       8.1681     8.3981       8.6664 
Euro                   1.1396       1.0960     1.1287       1.1654 
US Dollar              1.2601       1.2273     1.3466       1.3850 
------------------  ---------  -----------  ---------  ----------- 
 

15. Contingent Consideration Liabilities

 
                                                 2021   2020 
                                                 GBPm   GBPm 
----------------------------------------------  -----  ----- 
Contingent consideration - less than one year    22.6    8.9 
Contingent consideration - more than one year    57.6   47.3 
----------------------------------------------  -----  ----- 
                                                 80.2   56.2 
----------------------------------------------  -----  ----- 
 

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:

 
                                                StrixNB(R)  Injectable  Injectable 
                           Tri-Solfen(R)   & DispersinB(R)    Solution    Solution  Mirataz  Phycox(R)  Other  Total 
                                    GBPm              GBPm      1 GBPm      2 GBPm     GBPm       GBPm   GBPm   GBPm 
-------------------------  -------------  ----------------  ----------  ----------  -------  ---------  -----  ----- 
As at 1 July 2019                   22.0               0.7         4.4         5.2        -        2.2    1.5   36.0 
Additions                              -               0.2           -           -     10.9          -    0.2   11.3 
Remeasurement through 
 intangibles                         9.9                 -         0.2           -        -        0.8      -   10.9 
Cash payments: investing 
 activities                            -             (0.1)       (1.5)       (0.9)        -      (0.8)  (0.2)  (3.5) 
Finance expense                      0.4                 -         0.1         0.1        -          -      -    0.6 
Foreign exchange 
 adjustments                         0.7                 -         0.1           -        -        0.1      -    0.9 
-------------------------  -------------  ----------------  ----------  ----------  -------  ---------  -----  ----- 
At 30 June 2020                     33.0               0.8         3.3         4.4     10.9        2.3    1.5   56.2 
-------------------------  -------------  ----------------  ----------  ----------  -------  ---------  -----  ----- 
Additions                           24.7                 -           -           -        -          -    3.2   27.9 
Remeasurement through 
 intangibles                         2.3               0.1       (0.6)       (2.3)      5.4      (0.1)    0.1    4.9 
Cash payments: investing 
 activities                        (2.8)             (0.3)       (0.8)       (0.2)    (0.6)      (0.9)  (0.4)  (6.0) 
Finance expense                      0.6                 -           -           -      0.1        0.1    0.2    1.0 
Foreign exchange 
 adjustments                       (1.6)                 -       (0.3)       (0.1)    (1.4)      (0.2)  (0.2)  (3.8) 
-------------------------  -------------  ----------------  ----------  ----------  -------  ---------  -----  ----- 
At 30 June 2021                     56.2               0.6         1.6         1.8     14.4        1.2    4.4   80.2 
-------------------------  -------------  ----------------  ----------  ----------  -------  ---------  -----  ----- 
 

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 .

 
                                                           Injectable  Injectable 
                                               StrixNB(R)    Solution    Solution 
                          Tri-Solfen(R)   & DispersinB(R)           1           2      Mirataz  Phycox(R)       Other 
------------------------  -------------  ----------------  ----------  ----------  -----------  ---------  ---------- 
Increase/(decrease) in financial liability 
--------------------------------------------------------------------------------------------------------------------- 
10% increase in royalty 
 forecasts GBPm                     3.5               0.1         N/A         N/A          1.4        0.1         0.2 
10% decrease in royalty 
 forecasts GBPm                   (3.5)             (0.1)         N/A         N/A        (1.4)      (0.1)       (0.2) 
1% increase in discount 
 rates GBPm                       (3.7)                 -           -           -        (0.7)          -       (0.1) 
1% decrease in discount 
 rates GBPm                         3.7                 -           -           -          0.7          -         0.1 
5% appreciation in 
 currency GBPm                    (2.7)                 -       (0.1)       (0.1)        (0.7)      (0.1)       (0.2) 
5% depreciation in 
 currency GBPm                      2.7                 -         0.1         0.1          0.7        0.1         0.2 
------------------------  -------------  ----------------  ----------  ----------  -----------  ---------  ---------- 
Discount rate range 
 in 2021 
 financial year              0.0%-19.7%       10.4%-11.7%        9.2%        9.2%    7.5%-9.9%      10.4%  8.6%-10.4% 
Discount rate range 
 in 2020 
 financial year              2.5%-16.6%       10.1%-13.1%        9.2%        9.2%   6.8%-10.2%      10.1%        9.4% 
------------------------  -------------  ----------------  ----------  ----------  -----------  ---------  ---------- 
Aggregate cash outflow in relation to royalties (remaining term of royalty 
 agreement) 
--------------------------------------------------------------------------------------------------------------------- 
2021 GBPm (years)           58.5 (10.0)         0.8 (6.0)         N/A         N/A   22.5 (9.5)  1.3 (2.5)  3.4 (10.0) 
2020 GBPm (years)           50.6 (10.0)         1.1 (7.0)         N/A         N/A  17.6 (10.0)  2.8 (3.5)         N/A 
------------------------  -------------  ----------------  ----------  ----------  -----------  ---------  ---------- 
 

The consideration payable for Tri-Solfen(R) is expected to be payable over a number of years, and relates to development milestones and sales performance. During the year, the development milestones and sales performance royalties have been remeasured. On 5 February 2021, the Group entered into a licensing agreement with Animal Ethics Pty Ltd for the marketing authorisations of Tri-Solfen(R) in Australia and New Zealand for a total consideration of AUD31.0 million (GBP17.2 million) and sales performance royalties. At 30 June 2021, AUD26.0 million (GBP14.1 million) of the total consideration was not discounted given that settlement took place in July 2021. The remaining liability was discounted between 1.2% and 19.7%. The broad range of discount rates in respect of this licensing agreement reflects the commercial makeup of the arrangement, with discount rates for milestone payments related to regulatory approvals being lower and based on a cost of debt approach and those with more variability in timing and quantum of future cash flows being higher and based on a CAPM-based approach, also taking into account systematic risk associated with elements of the future cash flows.

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(R) and DispersinB(R) 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.

16. Related Party Transactions

Subsidiaries

The Group's ultimate Parent Company is Dechra Pharmaceuticals PLC. A listing of subsidiaries will be shown within the financial statements of the Company's 2021 Annual Report.

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 in the 2021 Annual Report.

Associates

On 5 February 2021, the Group entered into a licensing agreement with Animal Ethics Pty Ltd for the marketing authorisations of Tri-Solfen(R) in Australia and New Zealand for a total consideration of AUD31.0 million (GBP17.2 million). An upfront payment of AUD5.0 million (GBP2.8 million) was payable on signing, with the balance of the payment made in July 2021 on the first commercial sale by Dechra into the Australian market. A royalty will also be paid on net sales. The Group also acquired a further 1.5% of the issued share capital of Medical Ethics Pty Ltd, the parent company of Animal Ethics, for a total consideration of AUD1.5 million (GBP0.8 million) from the current shareholders. Following this acquisition the Group holds 49.5% of the issued share capital of Medical Ethics Pty Ltd, and this has not resulted in a change of control or accounting treatment of the entity. Refer to note 6 for further information on the results of the associate in the period.

In 2017 the Group entered into a licensing agreement with Animal Ethics Pty Ltd for Tri-Solfen(R) for which the fair value of associated contingent consideration is disclosed in note 15.

17. Off Balance Sheet Arrangements

The Group has no off balance sheet arrangements to disclose as required by S410A of the Companies Act 2006.

18. Contingent Liabilities

The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concluded that the legislation up until December 2018 does partially represent State Aid. The Group considers that the potential amount of additional tax payable remains between GBPnil and GBP4.0 million depending on the basis of calculation and the outcome of HMRC's appeal to the EU Commission. Based on current advice, the Group does not consider any provision is required in relation to this investigation. This judgement is based on current interpretation of legislation and professional advice.

During the period, the Group received charging notices from HMRC under The Taxation (Post Transition Period) Bill for part of the exposure (GBP2.75 million) and has paid this to HMRC. As the Group considers that the appeal will be successful, the charging notices have been settled in full and a current asset has been recorded in respect of the payment on the basis that the amount will be repaid in due course.

At 30 June 2021, contingent liabilities arising in the normal course of business amounted to GBP13.0 million (2020: GBP11.4 million) relating to licence and distribution agreements. 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.

19. Subsequent Events

On 2 July 2021 the Group acquired the marketing rights to two anaesthesia products for an initial payment of USD1.25 million. A final payment of USD10.75 million will be made on 30 December 2021.

20. Underlying Operating Profit, EBITDA and Profit Before Taxation reconciliation

 
                                                               2021   2020 
                                                               GBPm   GBPm 
------------------------------------------------------------  -----  ----- 
Operating profit 
Underlying operating profit/EBIT is calculated as follows: 
Operating profit                                               84.0   52.2 
Non-underlying operating expenses (note 5)                     78.2   76.1 
------------------------------------------------------------  -----  ----- 
Underlying operating profit/EBIT                              162.2  128.3 
Depreciation                                                   11.0    9.9 
Amortisation and impairment                                     4.5    4.3 
------------------------------------------------------------  -----  ----- 
Underlying earnings before interest, tax, depreciation 
 and amortisation (EBITDA)                                    177.7  142.5 
------------------------------------------------------------  -----  ----- 
Profit before taxation 
Underlying profit before taxation is calculated as follows: 
Profit before taxation                                         74.0   40.9 
Non-underlying operating expenses                              78.2   76.1 
Amortisation of fair value adjustments relating to Medical 
 Ethics (net of tax)                                            0.7    0.6 
Fair value and other movements on contingent consideration    (2.8)    1.5 
Loss on extinguishment of debt                                    -    1.0 
------------------------------------------------------------  -----  ----- 
Underlying profit before taxation                             150.1  120.1 
------------------------------------------------------------  -----  ----- 
 

21. Other information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2021 or 2020 but is derived from the 2021 and 2020 accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies and those for 2021 will be delivered in due course. The external auditor has reported on those accounts; the report was (i) unqualified, (ii) did not include references to any matters to which the external auditor drew attention by way of emphasis without qualifying the reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.

22. Preliminary Statement

This Preliminary statement is not being posted to Shareholders. The Annual Report and Accounts for the year ended 30 June 2021 will be sent to shareholders shortly. Further copies will be available from the Company's Registered Office: 24 Cheshire Avenue, Cheshire Business Park, Lostock Gralam, Northwich CW9 7UA. Email: corporate.enquiries@dechra.com. Copies will also be available on the Company website www.dechra.com.

23. 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 and Accounts for the year ended 30 June 2021. Certain parts of that Report are not included within this announcement.

We confirm to the best of our knowledge:

 
a)  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; 
b)  the Group Financial Statements, prepared in accordance with International 
     accounting standards in conformity with the requirements of the Companies 
     Act 2006 and International Financial Reporting Standards adopted pursuant 
     to Regulation (EC) No 1606/2002 as it applied in the European Union, 
     give a true and fair view of the assets, liabilities, financial position 
     and profit or loss of Group; and 
c)  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 they 
     face. 
 

Signed by the order of the Board:

 
Ian Page 
 Chief Executive Officer 
 6 September 2021 
 
Paul Sandland 
 Chief Financial Officer 
 6 September 2021 
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

FR BLGDCUBGDGBU

(END) Dow Jones Newswires

September 06, 2021 02:00 ET (06:00 GMT)

Grafico Azioni Dechra Pharmaceuticals (LSE:DPH)
Storico
Da Feb 2024 a Mar 2024 Clicca qui per i Grafici di Dechra Pharmaceuticals
Grafico Azioni Dechra Pharmaceuticals (LSE:DPH)
Storico
Da Mar 2023 a Mar 2024 Clicca qui per i Grafici di Dechra Pharmaceuticals