Preliminary results - year ended 30 June 2023

Dechra Pharmaceuticals PLC

12 October 2023

Dechra Logo

12 October 2023

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 2023

"We delivered a resilient performance over the last financial year despite unprecedented changes within the supply chain during the second half. We enter the next chapter of our history well positioned to continue executing our strategy in an animal healthcare market set to benefit from numerous structural growth drivers for many years to come."

Ian Page, Chief Executive Officer

Highlights

Strategic progress:

· Resilient performance against a normalising global animal health market and one-off industry wide challenges

· Existing revenue growth across all pharmaceutical product categories

· Significantly increased investment in product development pipeline to 7.6% of revenues, with a clear focus on innovation

· Piedmont and Med-Pharmex acquisitions remain well positioned to deliver significant value over the longer term

· Acquisition of the Company by Freya Bidco Limited expected to complete in late 2023 or early 2024 following shareholder approval on 20 July 2023

Financial performance:

· Group revenue growth of 5.5% to £761.5 million, within which existing revenue growth of 4.3% in EU Pharmaceuticals was the key driver due to US wholesaler de-stocking having a one-off adverse impact on NA Pharmaceuticals revenue

· Underlying operating profit decreased by (10.8)% to £165.1 million, where growth in EU Pharmaceuticals and corporate cost savings were offset by a decline in both NA Pharmaceuticals and International Pharmaceuticals

· Research & Development spend increased £25.1 million as planned, having a dilutive impact on operating profit and margin

· Reported operating profit including non-underlying charges decreased by (89.8)% to £6.3 million

· Cash generated from operations of £109.3 million, representing underlying cash conversion of 66.2%

· Underlying diluted EPS decreased (26.8)% to 94.57 pence due to lower operating profit, higher financing costs and the dilutive impact of July 2022 equity raise

· No final dividend recommended due to the pending completion of the acquisition¹

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

Financial Summary

	2023 £m	2022 £m	Growth at AER²	Growth at CER
Revenue	761.5	681.8	11.7%	5.5%
Underlying3
Operating profit	165.1	174.3	(5.3)%	(10.8)%
Operating profit %	21.7%	25.6%	(390) bps	(400) bps
EBITDA	183.7	190.6	(3.6)%	(9.1)%
Diluted EPS (p)	94.57	120.84	(21.7)%	(26.8)%
Reported
Operating profit	6.3	95.5	(93.4)%	(89.8)%
Diluted EPS (p)	(24.59)p	53.40p	(146.0)%	(140.7)%

Cash generated from operations before interest & taxation	109.3	163.3	(32.9)%
Dividend per Share¹	12.50p	44.89p	(72.2)%

1.	An interim dividend of 12.50 pence per share was paid on 13 April 2023. The pending acquisition of the Company by Freya Bidco Limited continues to be conditional upon respective antitrust approvals or the expiry of the applicable waiting periods in the relevant jurisdictions. If prior to the acquisition becoming effective, any dividend is announced, declared, made or paid or becomes payable in respect of the ordinary share capital of the Company (Dechra Shares), Freya Bidco reserves the right to reduce the consideration payable under the terms of the acquisition for the Dechra Shares by an amount up to the aggregate amount of such dividend. Therefore the Directors are not recommending the payment of a final dividend.
2.	AER is defined as Actual Exchange Rate.
3.	Underlying results exclude items associated with amortisation and impairment of acquired intangibles and notional intangibles in respect of Medical Ethics, acquisition and integration costs including release of acquisition tax provisions, transformational cloud computing arrangements, 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 21.

Enquiries:
Dechra Pharmaceuticals PLC	Office: +44 (0) 1606 814 730
Ian Page, Chief Executive Officer
Paul Sandland, Chief Financial Officer
Jonny Armstrong, Head of Investor Relations
e-mail: corporate.enquiries@dechra.com
TooleyStreet Communications Ltd
Fiona Tooley, Director e-mail: fiona@tooleystreet.com	Mobile: +44 (0) 7785 703 523

Notes:

Foreign Exchange Rates:

FY23 Average: EUR 1.1504: GBP 1.0; USD 1.2038: GBP 1.0

FY22 Average: EUR 1.1807: GBP 1.0; USD 1.3316: GBP 1.0

FY23 Closing: EUR 1.1651: GBP 1.0; USD 1.2660: GBP 1.0

FY22 Closing: EUR 1.1652: GBP 1.0; USD 1.2103: 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 for veterinarians worldwide. 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® and DispersinB® 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

audited preliminary results for the year ended 30 June 2023

Chief Executive Officer's Statement

Introduction

The 2023 financial year was amongst the most eventful in our history. We delivered a robust performance in the first half against tough comparators from the prior year as the global companion animal market returned to more normalised levels of growth following the COVID-19 pandemic, before a second half that proved challenging.

Unprecedented changes within the US wholesaler channel at the turn of the calendar year, which subsequently extended to the UK market, led to significant industry wide disruption as the levels of inventory carried by intermediaries were materially reduced. Rising inflation, unpredictable country specific dynamics within some of our key European markets, and ongoing integration of the two US acquisitions made in July and August 2022 all required navigating. We also dedicated considerable time and effort in facilitating the approach by Freya Bidco Limited, a newly formed company to be indirectly owned by (i) EQT X EUR SCSp and EQT X USD SCSp, each represented by its manager (gérant) EQT Fund Management S.à r.l. (collectively referred to as EQT) and (ii) Luxinva S.A to acquire the Company, which I will reflect on further at the end of this statement.

Despite the above, we retained a clear focus on delivering our strategy. We have, as planned, significantly increased investment in our product development pipeline, with an increasing emphasis on innovation in Companion Animal Products (CAP); we made strategic changes within our International business, the results of which are disclosed separately for the first time this year; and we have further strengthened our sales force within the key US market.

I am proud of the way in which all Dechra employees have responded to the events of the past year, proving once again that they really are our greatest asset. The way in which we work remains an important differentiator relative to our competitors and, ultimately, is a key factor in delivering our strategic goals.

Operational Review

European Pharmaceuticals Segment

Revenue in our European (EU) Pharmaceuticals segment increased by 4.3% at CER (6.3% at AER), all of which was existing revenue growth as there were no acquisitions in Europe over the past twelve months. Revenue from non-core third party contract manufacturing, reported within this segment, saw a planned decline. Excluding the impact of this revenue, EU Pharmaceuticals revenue growth was 5.5% at CER (7.5% at AER).

Growth was delivered across all major European countries with the exception of the Netherlands, where the impact of portfolio rationalisation and local competition impacted year-on-year performance. The main driver of growth was CAP; however, it is pleasing that FAP remained in growth despite a challenging market and that Equine and Nutrition both delivered double digit growth.

Although macroeconomic uncertainties created a mixed picture in some European markets, the nature of the Dechra portfolio with its emphasis on prescription only, non-discretionary medicines helped us to outperform the market overall. This was particularly evident towards the end of the financial year when territories such as the UK, France and Germany showed positive signs of increased demand, contributing to a record sales month for the EU Pharmaceuticals segment in June 2023.

Education continues to be the main tool we use to engage our veterinary customers. Our commitment to providing technical support and Continuing Professional Development (CPD) training to veterinarians remains crucial to our success, particularly in relation to our novel portfolio.

North American Pharmaceuticals Segment

Total North American (NA) revenue increased by 8.9% at CER (20.3% at AER). Existing revenue, which excludes the impact of acquisitions made over the last twelve months, decreased by (2.0)% at CER but increased 8.3% at AER. Although it was disappointing to see like-for-like revenues decline in constant currency terms, this nonetheless represented a solid outcome given the out-performance over the previous two years (when existing revenue growth at CER was 16.7% and 21.3% in financial years 2021 and 2022 respectively) and the severe disruption seen within the US wholesaler channel during the second half.

Despite the wholesaler de-stocking being deeper and longer than we had initially anticipated, we saw consistently strong end customer demand for Dechra products throughout the year. Independent data for sales from wholesalers out to veterinary clinics showed sales growth of over 10% for the year as a whole and over 12% for the second half of the year despite the wholesaler disruption, offering reassurance that the de-stocking impact on our performance should be one-off in nature rather than a structural headwind.

We continue to leverage our relationship with Vetcove, an online purchasing platform used by over 19,000 US veterinary hospitals, to extend the reach of our Dechra Rewards Scheme, deepen brand loyalty and help us compete with the increasing challenge posed by distributor private label alternatives. We have also increased the scale of our sales team and now have approximately 140 sales representatives in North America.

International Pharmaceuticals Segment

Having previously reported our International business, representing 11.4% of Group revenue, within the European Pharmaceuticals segment, we are now disclosing it separately in order to provide greater transparency between the global markets in which we operate.

International Pharmaceuticals revenue for the year as a whole decreased by (0.8)% at CER but increased 4.3% at AER. Within this full year outturn, there was a significantly improved performance during the second half of the year when sales grew 10.0% at CER, following a decline of (9.0)% in the first half. The revenue decline during the first half was due to two strategic changes. In South Korea, we established our own sales and marketing business unit to replace the previous distribution partner. Due to this transition, there was a period of approximately seven months during which no revenue was recognised in South Korea. We re-commenced sales through our own subsidiary in February 2023 and revenue contribution during the final five months of the financial year was £1.0 million. We also experienced disruption to our sales of nutrition products in Japan due to a change of distribution partner; however, we expect to commence trading through a new distributor shortly.

The International segment covers a large number of countries, many of which are smaller, emerging markets that we serve via numerous distribution partners. In the more established markets of Brazil, Australia and New Zealand, where we have our own sales and marketing presence, we delivered good revenue growth of 10.3% at CER. These territories collectively represent approximately 65% of total International Pharmaceuticals revenue.

Product Category Performance

Companion Animal Products (CAP) continue to represent the majority of our business at 73.8% of Group revenues and grew by 3.9% at CER, with performance in EU being the main driver. Therapeutic sectors such as dermatology, anaesthesia and analgesia and cardiovascular performed the strongest.

Food producing Animal Products (FAP), representing 11.7% of Group revenue, grew by 8.5% at CER. This reflected the net impact of challenges in the key European FAP market of the Netherlands offset by a positive contribution from the small FAP portfolio acquired through Med-Pharmex for sale in the US market.

Equine, representing 8.6% of Group revenue, grew by 25.1% at CER. Performance was particularly strong in NA, with growth of 35.1% at CER supported by the product acquisitions made in the prior year and the contribution from the new Med-Pharmex portfolio.

Nutrition represents 5.1% of Group revenue and increased by 8.6% at CER. The majority of our Specific® branded diet sales are made in Europe where we delivered strong growth with around 300 new clinics starting to use Specific for the first time, and this performance offset the decline in international sales due to the operational changes in South Korea and Japan as noted above.

Strategic Growth Drivers

Acquisitions

We completed two material company acquisitions at the start of the financial year; Piedmont Animal Health, Inc in July 2022 and Med-Pharmex Holdings, Inc in August 2022, for a combined consideration of approximately $474.1 million. The strategic rationale for both acquisitions remains unchanged, with both businesses having the potential to deliver considerable value over the coming years.

Piedmont is a product development company with eight novel products in various stages of development, all in the CAP market and all within Dechra's key therapeutic areas of competence. We invested £7.7 million of research and development spend in the Piedmont pipeline during the year. In light of a negative opinion received from the FDA relating to one of the near term candidates which could result in a delay or cancellation of the project, we have also recognised a non-underlying impairment of £69.6 million. Further details can be found in the Financial Review later in this report.

Conversely, Med-Pharmex is an established manufacturing business with a number of products already approved and established in the US market. The ten month revenue contribution from Med-Pharmex was £28.9 million. This was lower than we had expected at the time of making the acquisition due to quality improvement works that were brought forward and supply chain challenges on certain products, both of which adversely impacted performance. The process of re-branding and migrating a selection of the acquired portfolio to our own in-house sales and marketing teams is underway. Notwithstanding the short term operational challenges noted above, the acquisition should provide a material margin benefit and operational leverage opportunity and also offers longer term optionality with regard to our US manufacturing footprint.

Product Developments and Regulatory Affairs

Pipeline Progress

It has been a year of strong progress on our product development pipeline having invested a record £57.5 million into R&D, representing 7.6% of Group revenue, and with an increasing emphasis on innovation. This investment has been made across a combination of our existing pipeline together with the eight candidates from the Piedmont acquisition as noted above.

Our partnership with Akston Biosciences to develop a breakthrough long acting insulin for dogs and cats remains on track for a calendar year 2026 approval of the dog product. Scaling up production of the active pharmaceutical ingredient by Akston Biosciences and our final drug product development work are both progressing as planned. The next stage of development is to perform our pivotal efficacy studies, which are expected to start in late 2024.

In collaboration with our partner Animal Ethics Pty Ltd and a contract manufacturer, we are developing a cost-effective method to manufacture sterile Tri-Solfen® for use in piglet castration, as mandated by the European regulator. If the planned pivotal manufacturing batches are successful, we will have a more direct path towards EU-wide approval.

New opportunities are constantly being identified and our pipeline remains stronger than ever and well positioned to deliver material products to support future growth, particularly in the US.

Product Approvals

A number of marketing authorisations have been achieved throughout the year. These represent both the extended reach of existing products into new territories and also the approval of new products delivered out of our pipeline and partnerships. The main product milestones of note were:

• Approval of Zycosan® (pentosan polysulfate sodium injection), a novel treatment for the control of clinical signs associated with osteoarthritis in horses, for use in the US market;

• Following approval in the US and EU, we also received Canadian approval for Zenalpha®, a novel canine sedative injection;

• A number of developments with regard to Tri-Solfen®, a food producing animal product with multiple possible applications where we hold the global distribution rights:

॰ Approval for use in its non-sterile form in Brazil, Canada and Portugal;

॰ Grant of a four day withdrawal period relating to the New Zealand licence, opening up the significant tail docking market in sheep; and

॰ Approval for sale under a special licence to a major dairy integrator in Saudi Arabia;

• Registration of CosACTHen® in Brazil to support the sales and clinical use of our endocrinology portfolio of solutions;

• Registration of Forthyron® in a third international distribution market that will be unique to that territory; and

• Approval of Prevomax® for use in the Australian market.

Portfolio Focus

We regard our broad portfolio of products as a competitive strength and are focused on becoming the partner of choice for veterinarians worldwide in our chosen therapeutic areas. To support this approach, we were pleased to launch a new Dechra brand positioning in February 2023 called 'The Veterinary Perspective'. By seeing things from the Veterinary Perspective, we strive to support veterinarians through science and education, especially around uncommon diseases and difficult to treat cases.

The category mix differs considerably between the various territories in which we operate. This is a consequence of both the maturity of our operations in each individual country and also underlying market dynamics, such as the pace at which the companion animal market is developing. This creates a number of possible growth opportunities to pursue across the Group.

The main new product launches over the past year were Zenalpha in the US and a number of European markets, and Zycosan in the US in June 2023, following approval during the first half of the year as noted above.

Geographical Expansion

As of the year end, we operated in a total of 88 countries, with our own sales and marketing teams in 26 and a presence in the remaining 62 countries via a number of distribution partners. During the year, we transitioned South Korea to an in-house team as already explained, and we will shortly commence sales out of a newly established entity in Switzerland.

Strategic Enablers

Manufacturing and Supply Chain

Migrating the manufacture of key products in-house rather than using third party Contract Manufacturing Organisations (CMOs) has a number of strategic benefits such as improved reliability of our supply chain, greater control over quality standards and more efficient inventory level management. We transferred a number of products into our Zagreb and Skipton facilities during the first half of the year, taking the proportion of products manufactured across our eight sites to approximately 50%. This process will continue over the coming years, albeit at a considered, steady pace so as to avoid unnecessary execution risk. In the meantime, we have rationalised the number of CMOs we work with and are increasingly focused on partnering with fewer external manufacturers to help facilitate stronger, closer relationships and better overall performance.

At our Skipton, UK site we have now completed a significant phase of the capital investment programme to create additional space and improve work flows. These changes have been very well received by employees working on site and we are already benefitting from increased efficiencies. In our manufacturing facility in Somersby, Australia, a new secondary packaging line has delivered better throughput, increasing production efficiency and providing scope for further expansion.

We continue to have a focus on quality standards across the Group, and in that regard it was pleasing that Somersby received zero issues raised from their APVMA audit and that both Bladel and Zagreb sites had successful European GMP audits in the year.

Technology

Information technology continues to be a key strategic focus and we have made good progress in establishing a clear IT strategy that is aligned to our business priorities and future growth opportunities. The first phase of our new quality and document management system, Veeva, has now been rolled out across five manufacturing sites and there are further modules planned for release over the coming years. Our key manufacturing ERP systems are also being upgraded to one consolidated cloud-based Oracle platform to help deliver consistency of systems, processes and KPIs between sites, and this multi-year project remains on track. The estimated combined investment remaining for these two projects over the next four years is £23.9 million.

In addition, we have begun to develop our thinking around the potential strategic advantages that can be delivered through digital activities and the better use of data. In DVP EU, we also launched the Dechra endocrine and anaesthesia apps aimed at helping veterinarians with the correct dosing of products.

People

As one of our ESG targets, we remain committed to paying the Living Wage (or its equivalent) to all our employees on a global basis. Cognisant of the challenges many employees are facing as a result of the cost of living crisis, we carefully considered individual job roles and country specific considerations such as local rates of inflation as part our annual salary review this year. We implemented a weighted average salary increase of 6.6% from 1 January 2023 and also introduced a number of other improved benefits.

We have been making carefully chosen strategic investments in people across different parts of the Group. We have grown our sales team in North America; we have strengthened our PDRA and quality teams and recruited new site directors for all three US manufacturing sites and the facility in Bladel, the Netherlands.

We were pleased to appoint Geeta Gopalan as a Non-Executive Director with effect from 1 January 2023. Geeta subsequently became Chair of the Remuneration Committee on 1 March 2023 as successor to Ishbel Macpherson, who retired as a Non-Executive Director on 22 June 2023 following ten years of outstanding service for which I am extremely grateful.

Sustainability

This year, we have made a subtle but important change to reflect the extent to which sustainability is firmly embedded in our strategy. Rather than ESG sitting as a standalone Strategic Enabler, it is now re-positioned as a fundamental underpin to delivering our strategy and, ultimately, our Purpose.

For further information on how we have integrated sustainability across the Group, and highlights of our progress during the financial year, please see the second edition of our Sustainability Report available on our website.

In particular, we have submitted our ambitious carbon reduction targets for Scope 1, 2 and 3 emissions to the Science Based Targets initiative and also made a philanthropic investment in AgCo Tech, a business that has developed a unique product that improves cattle welfare and productivity whilst at the same time reducing methane intensity and generating strong social benefits in the communities where it is used.

Dividend

An interim dividend of 12.50 pence per share was paid on 13 April 2023. The ongoing acquisition of the Company by Freya Bidco Limited remains conditional upon the receipt of antitrust approval in the European Union and foreign direct investment approval in Australia, in each case to the extent required, as well as the sanction of the Scheme by the Court at the Sanction Hearing (each as defined in the scheme document dated 26 June 2023) and is expected to occur in late 2023 or early 2024. If prior to the acquisition becoming effective, any dividend is announced, declared, made or paid or becomes payable in respect of the ordinary share capital of the Company (Dechra Shares), Freya Bidco Limited reserves the right to reduce the consideration payable under the terms of the acquisition for the Dechra Shares by an amount up to the aggregate amount of such dividend. Therefore the Directors are not recommending the payment of a final dividend.

Outlook

It is with mixed feelings that I complete this, the last of my reports as the Chief Executive Officer of a listed company. Since the Initial Public Offering in 2000 and my appointment as Chief Executive Officer in 2001, being a listed company has served Dechra well due to the help and support demonstrated by our shareholders throughout this period. I am very grateful for the personal support and guidance provided to me by many stakeholders, not least shareholders, and would like to thank everyone who has contributed to Dechra's success over this time.

Despite a challenging period, we ended the last financial year strongly and have started the new one on a secure footing. I look forward to the challenges ahead as a private company and remain confident in our people, strategy and future prospects.

Ian Page

Chief Executive Officer

12 October 2023

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 and product rights 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.

Including non-underlying items, the Group's consolidated operating profit decreased by (89.8)% at CER ((93.4)% at AER). Consolidated profit before tax decreased by (141.4)% at CER ((146.5)% at AER), a greater decline than operating profit due to an increase in net finance costs including a higher impact from the unwind of the discount associated with contingent consideration liabilities.

Existing operating profit of £96.0 million includes underlying operating profit of £168.8 million and non-underlying charges of £(72.8) million principally relating to amortisation of intangibles and cloud computing costs (further detail is provided below). The acquisition operating loss of £(89.7) million includes an underlying operating loss of £(3.7) million and non-underlying charges of £(86.0) million reflecting to the impairment of an acquired intangible relating to one of the near term candidates in the Piedmont product pipeline, the amortisation of acquired intangibles, the unwind of the fair value uplift on inventory, expenses relating to acquisitions and subsequent integration activities, and costs associated with the acquisition of the Company by Freya Bidco Limited.

Diluted EPS was (140.7)% lower than the prior year at CER ((146.0)% at AER) reflecting the combined effect of a lower profit before tax and higher share capital following the equity raise in July 2022.

Reported segmental performance is presented in note 2.

Reported	2023 Existing £m	2023 Acquisition £m	2023 Consolidated £m	2022 £m	Growth at AER Consolidated	Growth at CER Consolidated
Revenue	728.6	32.9	761.5	681.8	11.7%	5.5%
Gross profit	418.4	7.9	426.3	384.8	10.8%	4.9%
Gross profit %	57.4%	24.0%	56.0%	56.4%	(40) bps	(30) bps
Operating profit/(loss) (EBIT)	96.0	(89.7)	6.3	95.5	(93.4)%	(89.8)%
Operating profit (EBIT) %	13.2%	(272.6)%	0.8%	14.0%	(1,320) bps	(1,270) bps
Profit/(loss) before tax	64.5	(100.6)	(36.1)	77.6	(146.5)%	(141.4)%
Diluted EPS (p)			(24.59)	53.40	(146.0)%	(140.7)%

Overview of Underlying Financial Results

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 certain non-underlying items as set out in notes 3, 4, 5, 6 and 21. As underlying results include the benefits of acquisitions but exclude significant costs such as amortisation of acquired intangibles and expenses related to acquisitions and subsequent integration activities, they should not be regarded as a complete picture of the Group's financial performance, which is presented in its total Reported results. The exclusion of non-underlying items may result in underlying earnings being materially higher or lower than total Reported earnings. In particular, when significant amortisation of acquired intangibles, impairments and costs associated with acquisitions and subsequent integration activities are excluded, underlying earnings will be higher than total Reported earnings.

A reconciliation of underlying results to total Reported results in the year to 30 June 2023 is provided in the table below. In the commentary which follows, all references will be to CER movement unless otherwise stated.

		Non-underlying Items
	2023 Underlying Results £m	Amortisation and related credits of acquired intangibles and associates £m	Acquisition, impairments and cloud computing costs £m	Tax rate changes and finance expenses £m	2023 Reported Results £m
Revenue	761.5	-	-	-	761.5
Gross profit	429.6	-	(3.3)	-	426.3
Selling, general and administrative (SG&A) expenses	(207.0)	(67.4)	(84.8)	-	(359.2)
Research & Development (R&D) expenses	(57.5)	(3.3)	-	-	(60.8)
Operating profit (EBIT)	165.1	(70.7)	(88.1)	-	6.3
Net finance costs	(23.8)	-	-	(17.7)	(41.5)
Share of associate (loss)	(1.0)	0.1	-	-	(0.9)
Profit/(loss) before tax	140.3	(70.6)	(88.1)	(17.7)	(36.1)
Taxation	(32.4)	16.8	20.1	3.7	8.2
Profit/(loss) after tax	107.9	(53.8)	(68.0)	(14.0)	(27.9)
Diluted EPS (p)	94.57				(24.59)

Consolidated revenue increased 5.5% on the prior year to £761.5 million. This included £728.6 million from the existing business, an increase of 1.2% on a like-for-like basis and £32.9 million from acquired businesses and product rights.

Consolidated underlying EBIT decreased (10.8)% to £165.1 million. This included £168.8 million from Dechra's existing business, a decrease of (8.8)%, where underlying EBIT growth in European (EU) Pharmaceuticals and Corporate cost savings were offset by a decline in both North American and International Pharmaceuticals plus an increase in Research & Development (R&D) costs due to ongoing investment in our existing pipeline. There was a £(3.7) million loss relating to acquired businesses and product rights in the year, mostly reflecting the net impact of R&D costs relating to the acquisition of Piedmont Animal Health, Inc and the profit contribution from Med-Pharmex Holdings, Inc. Although underlying EBIT declined overall, excluding the £25.1 million increase in R&D expenses it actually increased 1.4% to £222.6 million, largely driven by performance in the EU Pharmaceuticals segment.

Underlying EBIT margin decreased by (400) bps to 21.7%. The main driver of this was the planned increase in R&D as noted above, whilst there were also strategic investments made within operating costs to underpin the Group's future growth. Underlying diluted EPS declined by (26.8)% to 94.57 pence due to the combined effect of a lower underlying operating profit, higher finance costs and the dilutive impact of the equity raise.

A detailed explanation of our non-underlying items is included later in this Financial Review.

					Growth at CER
Underlying	2023 Existing £m	2023 Acquisition £m	2023 Consolidated £m	2022 £m	Existing	Consolidated
Revenue	728.6	32.9	761.5	681.8	1.2%	5.5%
Gross profit	418.4	11.2	429.6	385.3	2.9%	5.6%
Gross profit %	57.4%	34.0%	56.4%	56.5%	100 bps	0 bps
Operating profit/(loss) (EBIT)	168.8	(3.7)	165.1	174.3	(8.8)%	(10.8)%
Operating profit (EBIT) %	23.2%	(11.2)%	21.7%	25.6%	(260) bps	(400) bps
EBITDA	186.0	(2.3)	183.7	190.6	(7.9)%	(9.1)%
Diluted EPS (p)			94.57	120.84		(26.8)%
Dividend per share (p)			12.50	44.89		(72.2)%

Underlying Segmental Performance

The effect of acquisitions in the year was material; the underlying 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 that first year of ownership, 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
Underlying	2023 Existing £m	2023 Acquisition £m	2023 Consolidated £m	2022 £m	Existing	Consolidated	Existing	Consolidated
Total revenue	728.6	32.9	761.5	681.8	6.9%	11.7%	1.2%	5.5%
EU Pharmaceuticals	343.5	-	343.5	323.2	6.3%	6.3%	4.3%	4.3%
NA Pharmaceuticals	298.0	32.9	330.9	275.1	8.3%	20.3%	(2.0)%	8.9%
International Pharmaceuticals	87.1	-	87.1	83.5	4.3%	4.3%	(0.8)%	(0.8)%
Gross profit	418.4	11.2	429.6	385.3	8.6%	11.5%	2.9%	5.6%
Gross profit %	57.4%	34.0%	56.4%	56.5%	90 bps	(10) bps	100 bps	0 bps
SG&A expenses	(199.8)	(7.2)	(207.0)	(178.6)	(11.9)%	(15.9)%	(6.6)%	(10.3)%
R&D expenses	(49.8)	(7.7)	(57.5)	(32.4)	(53.7)%	(77.5)%	(45.4)%	(67.0)%
Underlying operating profit	168.8	(3.7)	165.1	174.3	(3.2)%	(5.3)%	(8.8)%	(10.8)%
EU Pharmaceuticals	107.7	-	107.7	103.4	4.2%	4.2%	2.3%	2.3%
NA Pharmaceuticals	92.2	4.0	96.2	87.7	5.1%	9.7%	(5.6)%	(1.6)%
International Pharmaceuticals	25.5	-	25.5	28.1	(9.3)%	(9.3)%	(13.9)%	(13.9)%
Pharmaceuticals R&D	(49.8)	(7.7)	(57.5)	(32.4)	(53.7)%	(77.5)%	(45.4)%	(67.0)%
Corporate & unallocated costs	(6.8)	-	(6.8)	(12.5)	45.6%	45.6%	45.6%	45.6%
Net finance costs	(12.9)	(10.9)	(23.8)	(3.1)	(316.1)%	(667.7)%	(335.5)%	(651.6)%
Share of associate (loss)	(1.0)	-	(1.0)	(1.2)	(16.7)%	(16.7)%	(16.7)%	(16.7)%
Profit before tax	154.9	(14.6)	140.3	170.0	(8.9)%	(17.5)%	(15.1)%	(22.9)%

European Pharmaceuticals

Revenue in European (EU) Pharmaceuticals increased by 4.3% to £343.5 million, with all of this growth coming from the existing business. The EU segment now excludes the International Pharmaceuticals division, which is disclosed separately below, but does include revenue of £6.2 million related to third party contract manufacturing (2022: 9.5 million), which is a non-core part of the Group and decreased again this year. Excluding this third party revenue, growth of the core European Pharmaceutical business was 5.5%, reflecting a robust performance given country specific dynamics such as wholesaler de-stocking in the UK, local generic competition in the Netherlands and unpredictable demand in other European markets.

Operating profit increased by 2.3% with operating margin decreasing by (60) bps to 31.4%, which was largely driven by higher distribution and operating costs although we have remained pro-active in looking to offset inflationary headwinds through sales price action taken during the year.

					Growth at CER
Underlying	2023 Existing £m	2023 Acquisition £m	2023 Consolidated £m	2022 £m	Existing	Consolidated
Revenue	343.5	-	343.5	323.2	4.3%	4.3%
Operating profit	107.7	-	107.7	103.4	2.3%	2.3%
Operating profit %	31.4%	-	31.4%	32.0%	(60) bps	(60) bps

North American Pharmaceuticals

Total revenue from North American (NA) Pharmaceuticals increased 8.9% year-on-year to £330.9 million, reflecting existing revenue of £298.0 million and acquisition revenue of £32.9 million. Like-for-like revenues decreased (2.0)% as the NA business was impacted by significant wholesaler de-stocking across the industry during the second half of the financial year. The vast majority of our NA revenue is derived from sales made to wholesalers rather than direct to veterinary practices; therefore although sales out from wholesalers to practices remained consistently strong, we experienced a one-off adverse impact whilst wholesalers reduced their inventory levels.

Acquisition revenue consists of £28.9 million related to Med-Pharmex (acquired on 26 August 2022) and a further £4.0 million from various product rights acquired during the prior year for which there is no comparative.

Operating profit from the existing business decreased (5.6)% with operating margin decreasing (120) bps due to investment in sales and marketing teams to support future growth of the business as we expect the NA business to become the largest part of the Group next financial year. Consolidated operating margin decreased (310) bps due to the dilutive impact from Med-Pharmex this year, where the revenue and profit contribution were lower than originally expected due to one-off factors related to planned quality improvement works and supply chain challenges on some of the higher margin products.

					Growth at CER
Underlying	2023 Existing £m	2023 Acquisition £m	2023 Consolidated £m	2022 £m	Existing	Consolidated
Revenue	298.0	32.9	330.9	275.1	(2.0)%	8.9%
Operating profit	92.2	4.0	96.2	87.7	(5.6)%	(1.6)%
Operating profit %	30.9%	12.2%	29.1%	31.9%	(120) bps	(310) bps

International Pharmaceuticals

Revenue from our International Pharmaceuticals segment, disclosed for the first time in this report, was £87.1 million. This represented a decline of (0.8)% for the year overall, but a strong recovery in the second half of the year when sales grew 10.0% following a decline of (9.0)% in the first half. The marked difference in performance during the year reflects the impact of establishing our own sales and marketing organisation in South Korea, whereby no revenue was generated during the first seven months, and disruption caused by a change of nutrition distribution partner in Japan.

Operating profit decreased (13.9)% compared to the prior year, largely due to a full year of costs relating to the newly established South Korean subsidiary but without a full year profit contribution.

					Growth at CER
Underlying	2023 Existing £m	2023 Acquisition £m	2023 Consolidated £m	2022 £m	Existing	Consolidated
Revenue	87.1	-	87.1	83.5	(0.8)%	(0.8)%
Operating profit	25.5	-	25.5	28.1	(13.9)%	(13.9)%
Operating profit %	29.3%	-	29.3%	33.7%	(450) bps	(450) bps

Pharmaceuticals Research and Development

Pharmaceuticals Research and Development (R&D) expenses grew significantly in the year to £57.5 million or 7.6% of revenue (2022: £32.4 million and 4.8% of revenue). This represented a 280 bps increase in R&D expenditure and therefore was a key driver of the overall EBIT margin decline of (400) bps.

The increase in spend was as planned and in line with our original guidance of between 7% and 8% of revenue, driven by both ongoing investment in our existing pipeline together with development of the eight candidates acquired from Piedmont. In particular, spend included £14.2 million in relation to Akston (2022: £3.3 million), which remains on track for approval of the dog insulin product in 2026.

Revenue by Product Category
The pharmaceutical product categories of CAP, FAP and Equine all delivered growth in the year. CAP continues to be the largest proportion of the business at 73.8% of total revenue and we delivered another year of growth despite the high comparatives and disruption in the wholesaler channel as explained above. FAP performed well, reflecting a benefit from the Med-Pharmex portfolio applied to a relatively small base, whilst Equine was the strongest category this year.

Nutrition sales were impacted by operational changes in South Korea and Japan as noted above, but nonetheless grew in total. Other revenue decreased year-on-year and remains a small, non-core part of the business. The majority of this revenue is generated from one remaining third party contract manufacturing arrangement relating to a feed supplement at our Zagreb facility.

Revenue	2023 £m	2022 £m	Change at AER	Change at CER
CAP	562.6	508.4	10.7%	3.9%
FAP	89.0	78.8	12.9%	8.5%
Equine	65.2	49.5	31.7%	25.1%
Subtotal Pharmaceuticals	716.8	636.7	12.6%	6.1%
Nutrition	38.5	35.0	10.0%	8.6%
Other	6.2	10.1	(38.7)%	(40.7)%
Total	761.5	681.8	11.7%	5.5%

* 'Other' includes third party contract manufacturing revenue and other non-veterinary business

Underlying Gross Profit

Underlying gross profit margin increased by 100 bps to 57.4% on an existing basis, reflecting a strong margin performance of our novel CAP portfolio in particular and effective pass-through of cost inflation through carefully implemented pricing action. On a consolidated basis, underlying gross margin was largely flat year-on-year at 56.4% due to the dilutive impact from Med-Pharmex where there was an adverse sales mix towards lower margin products.

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

Group SG&A costs grew from £178.6 million in the prior year to £207.0 million in the current year, an increase of 10.3% principally driven by people costs. Such costs include the annualised impact of salary increases across the Group, investment in additional heads, particularly in Manufacturing and the NA sales team, and consolidation of the Med-Pharmex cost base for the first time. Total SG&A costs now represent 27.2% of revenue (2022: 26.2%) reflecting good management of inflation in the like-for-like operating cost base from last year and the additional operating costs associated with Med-Pharmex and South Korea.

Corporate and Unallocated Costs

Corporate costs decreased to £6.8 million (2022: £12.5 million), driven by a lower year-on-year charge relating to incentive arrangements. Central functions remain well invested to support the continued expansion of the Group.

Finance Expense

Net underlying finance expense increased to £23.8 million (2022: £3.1 million), largely due to the additional level of borrowing as a result of the Med-Pharmex acquisition, a higher variable interest rate compared to the prior year and foreign exchange movements.

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 £71.1 million has decreased from £72.8 million in 2022 principally due to new charges relating to the Med-Pharmex acquisition being more than offset by the reducing charge from the AST Farma and Le Vet acquisition and the Eurovet acquisition intangible becoming fully amortised in the prior year;

• Unwind of a non-cash inventory adjustment of £3.3 million arising through a fair value increase in the valuation of acquisition inventory of Med-Pharmex in line with IFRS 3 'Business Combinations';

• Impairment of assets of £69.6 million relates to an acquired intangible of one of the candidates in the Piedmont product pipeline;

• Cloud computing arrangement costs of £8.5 million relating to the costs of the programme to implement the Manufacturing and Supply function's new ERP and Electronic Quality Management systems;

• Expenses relating to acquisition and subsequent integration activities of £7.5 million predominantly relating to the acquisition of Med-Pharmex (£2.8 million) and to the pending acquisition of the Company by Freya Bidco Limited (£5.0 million);

• Finance charge of £17.7 million (2022: £13.6 million) represents the charge arising on the unwind of the discount relating to the contingent consideration liability of £20.8 million, the loss on extinguishment of debt of £0.6 million and associated foreign exchange gain of £3.7 million; and

• Taxation credit of £40.6 million (2022: £18.9 million) represents the tax impact of the above items.

In addition to costs relating to the acquisition of the Company by Freya Bidco Limited that have been incurred in the year, there are anticipated future costs of £26.0 million, of which £25.0 million are contingent on completion.

Taxation

The reported effective tax rate (ETR) for the year, including the tax impact of non-underlying items, was 22.8% (2022: 25.0%). On an underlying basis the ETR increased to 23.1% (2022: 22.5%), largely reflecting the regional mix of operating profits. The main differences to the UK corporation tax rate applicable of 20.5% (2022: 19.0%) relate to differences in overseas tax rates and non-deductible expenses offset by patent box allowances and other incentives.

The underlying ETR is expected to remain at a similar level in the year to 30 June 2024. We continue to monitor relevant tax legislation internationally as it may affect our future ETR.

Earnings per Share and Dividend

Underlying diluted EPS declined by (26.8)% to 94.57 pence (2022: 120.84 pence) due to the combined effect of a lower underlying operating profit, higher finance costs driven by higher borrowing costs and additional debt taken following the acquisition of Med-Pharmex and the dilutive impact of the equity raise. The weighted average number of shares for diluted earnings per share for the year was 114.1 million (2022: 109.0 million).

The reported diluted EPS for the year was (24.59) pence (2022: 53.40 pence). The year-on-year decline in reported diluted EPS is greater than the decline in underlying diluted EPS due to the significant increase in non-underlying costs as noted above.

Currency Exposure

The average rate for £/€ decreased by (2.6)%, and the £/$ rate decreased by (9.6)% 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
	2023	2022	% Change
£/€	1.1504	1.1807	(2.6)%
£/$	1.2038	1.3316	(9.6)%

Currency Sensitivity

Euro €: a 1% variation in the £/€ exchange rate affects underlying diluted EPS by approximately +/- 0.5%.

US Dollar $: a 1% variation in the £/$ exchange rate affects underlying diluted EPS by approximately +/- 0.6%.

Current exchange rates are £/€ 1.1559 and £/$ 1.2210 as at 6 October 2023. If these rates had applied throughout the year, the underlying diluted EPS would have been approximately 1.0% lower.

Statement of Financial Position

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

• Non-current assets (excluding deferred tax) increased from £846.6 million to £1,096.6 million and include the intangible assets recognised on the acquisitions of Med-Pharmex and Piedmont, partly offset by amortisation of acquired intangibles.

• Working capital increased from £175.7 million to £234.7 million, largely driven by a higher inventory and trade receivables balance at year end.

• Net debt increased in the year by £221.9 million from £208.2 million to £430.1 million; this includes cash generated from operations before interest, tax and non-underlying items of £122.7 million, an outflow of £396.9 million principally relating to acquisitions made during the year, net capital expenditure of £22.6 million, net interest/tax outflows of £44.4 million and £51.7 million in dividends. Exchange rate variations positively impacted the net debt position by £17.8 million.

• Current and deferred tax net liabilities increased from £34.7 million to £68.6 million principally due to the recognition of deferred tax liabilities on the acquired intangible recognised on the acquisition of Piedmont and Med-Pharmex.

	2023 £m	2022 £m
Non-current assets	1,096.6	846.6
Working capital	234.7	175.7
Net debt	(430.1)	(208.2)
Current and deferred tax	(68.6)	(34.7)
Other liabilities	(77.4)	(112.6)
Total net assets	755.2	666.8

Cash Flow, Financing and Liquidity

The Group delivered an underlying EBITDA margin of 24.1% this year (2022: 28.0%). Working capital increased by £60.2 million mainly due to the increase in the proportion of products now manufactured in-house and the deliberate decision to invest in stock levels to maintain a robust supply chain. In addition, the impact of the significant wholesaler de-stocking seen during the second half of the year had not fully unwound by the year end, further contributing to higher inventory levels. There was also an increase in cash flows from non-underlying items relating to cloud computing arrangement costs and acquisition and integration expenses. This resulted in cash generated from operations after non-underlying items of £109.3 million, representing underlying cash conversion of 66.2% of underlying operating profit.

	2023 £m	2022 £m
Underlying operating profit	165.1	174.3
Depreciation and amortisation	18.6	16.3
Underlying EBITDA	183.7	190.6
Underlying EBITDA margin %	24.1%	28.0%
Working capital movement	(60.2)	(27.8)
Other	(0.8)	3.3
Cash generated from operations before interest, taxation and non-underlying items	122.7	166.1
Non-underlying items	(13.4)	(2.8)
Cash generated from operations before interest and taxation	109.3	163.3
Underlying cash conversion (%)	66.2%	93.7%

Net Debt Bridge

Net debt at the year end was £430.1 million, an increase of £221.9 million from £208.2 million at 30 June 2022. The Adjusted Net Debt to Adjusted underlying EBITDA (adjusted for the impact of acquisitions) banking covenant leverage (on a pre IFRS 16 basis) was 2.3 times (2022: 1.0 times) versus a covenant of 3.0 times. This reflects both a higher net debt balance due to the increase in RCF borrowings following the acquisition of Med-Pharmex and elevated levels of working capital, and the lower underlying EBITDA compared to the prior year due to the increased investment in R&D.

	£m
Net Debt 30 June 2022	(208.2)
Net cash generated from operations before non-underlying items	122.7
Non-underlying items	(13.4)
Net capital expenditure	(22.6)
Acquisition of intangible assets	(7.5)
Acquisition of subsidiaries	(396.9)
New lease liabilities	(5.7)
Interest and tax	(44.4)
Dividend paid	(51.7)
Equity raised	181.9
Other non-cash movements	(2.1)
Foreign exchange on net debt	17.8
Net Debt 30 June 2023	(430.1)

Borrowing Facilities

On 31 March 2023, the Group entered into a new multi-currency Revolving Credit Facility Agreement in the maximum amount of £340.0 million and maturing 31 March 2028. This RCF is provided by a syndicate of banks comprising BNP Paribas, CaixaBank SA UK branch, Crédit Industriel et Commercial, London Branch, Handelsbanken Capital Markets, Handelsbanken plc, HSBC UK Bank plc, PNC Capital Markets LLC, Santander UK plc and The Governor and Company of the Bank of Ireland. The covenant requirements in the RCF remain unchanged from the prior RCF Agreement (being Interest Cover in respect of any Relevant Period shall not be less than 4:1 and Leverage in respect of any Relevant Period shall not exceed 3:1).

The RCF uses Risk Free Reference (RFR) rates, with the relevant RFR rates for the principal Borrowings of the Group being SONIA (for Borrowings in GBP), SOFR (for Borrowings in USD) and EURIBOR (for Borrowings in EUR). The interest rate charged on any new Borrowings drawn under the RCF will be the relevant RFR rate plus the Margin. The Margin on the RCF is a minimum of 1.40% and a maximum of 2.30%, dependent upon the Leverage (the ratio of Adjusted Net Debt to Adjusted underlying EBITDA) of the Group. At 30 June 2023, £241.4 million was drawn against the £340.0 million RCF. The facility is not secured on any specific assets of the Group but is supported by a joint and several cross guarantee structure. All covenants were met during the year ended 30 June 2023.

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 2023. 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). On 14 July 2022 the Group undertook a further Private Placement raising EUR50.0 million and EUR100.0 million (under seven and ten year new senior secured notes respectively), the proceeds of which were used to repay existing debt. Both facilities remain fully drawn at 30 June 2023. Interest is charged on the EUR50.0 million senior secured notes at a fixed rate of 3.64% until maturity (July 2029), and on the EUR100.0 million senior secured notes at a fixed rate of 3.93% until maturity (July 2032).

The weighted average coupon of the Private Placements fixed rate notes equates to 3.2%.

Capital Management

On 21 July 2022, the Group successfully completed a share placing of 5,364,683 new ordinary shares, representing 4.95% of the existing issued share capital of the Company, at a price of 3,430 pence per placing share, raising gross proceeds of £184.0 million which were largely deployed to fund the Piedmont acquisition upon its completion on 25 July 2022.

Covenants

There are two covenants governing the RCF and the Private Placements:

• Leverage: Adjusted Net Debt to Adjusted underlying EBITDA not greater than 3.0:1 for the RCF and 3.5:1 for the Private Placements (30 June 2023: 2.3:1); and

• Interest Cover: Adjusted underlying EBITDA to Net Finance Charges not less than 4.0:1 (30 June 2023: 8.0:1).

The above ratios are calculated excluding the impact of IFRS 16 and having adjusted for the pro-forma impact of acquisitions in accordance with the terms of the RCF and Private Placements arrangements.

Underlying Return on Capital Employed (ROCE)

Underlying ROCE decreased to 15.3% in the year (2022: 19.5%) reflecting the lower level of profitability during the year and the investments made in Piedmont and Med-Pharmex, the return on which we expect to realise in future years (see note 21).

Acquisitions

During the 2023 financial year the Group acquired Piedmont Animal Health, Inc and Med-Pharmex Holdings, Inc. See note 15 for further details.

The Group has made several acquisitions in recent years. The incremental performance during the first year of ownership of the acquisitions made during the 2022 and 2023 financial years is separately summarised compared to the existing business in the sections above.

Accounting Standards

The accounting policies adopted are outlined in note 1 to the financial statements in the 2023 Annual Report.

Going Concern

The Directors have a reasonable expectation that the Group and Company has adequate resources to continue in operational existence for the foreseeable future and will continue to be able to meet its liabilities as they fall due, within 12 months of the date of approval of these financial statements. 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 future growth and operating performance including the principal risks and uncertainties and an assessment of a number of severe but plausible stress tests on these areas

• The current and projected future financial position of the Group, its cash flows, available cash resources and committed debt facilities and compliance with the financial covenants associated with the Group's borrowings, which are described in the financial statements; and

• Subsequent events (see note 20 and below).

On 2 June 2023, the boards of directors of Dechra and Freya Bidco Limited (Bidco) announced that they had reached agreement on the terms and conditions of a recommended cash acquisition by Bidco of the entire issued, and to be issued, ordinary share capital of Dechra (the Acquisition). The Acquisition is being implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 (the Scheme) and is subject to the terms and conditions set out in the circular in relation to the Scheme sent to Dechra Shareholders dated 26 June 2023 (the Scheme Document). As announced by Dechra on 20 July 2023, the Scheme and its implementation were approved by the requisite majority of Scheme Shareholders and Dechra Shareholders (as applicable) on 20 July 2023 and the Acquisition is expected to complete after the date of approval of the Annual Report and Accounts.

The going concern assessment of the Group and Company is therefore subject to uncertainties relating to the potential change in ownership of the Group and Company and the actual funding requirements and financing arrangements post completion. For this reason, the Directors cannot reasonably predict the financial position of the Group and Company post-completion, including the details of any financing arrangements related to the transaction that could affect the Group and Company. This indicates the existence of a material uncertainty which may cast significant doubt on the Group and Company's ability to continue as going concern. As noted above, the financial statements do however not include the adjustments that would result if the Group and Company were unable to continue as a going concern.

Notwithstanding this uncertainty, based on the circumstances described above, the Directors have a reasonable expectation that the Group and Company has adequate resources to continue in operational existence for the foreseeable future and the accounts are prepared on the assumption that the Group and Company is a going concern.

Subsequent Events

On 20 July 2023, shareholders voted in favour of the proposed cash offer for the Company by Freya Bidco Limited.

Summary

The Group delivered a satisfactory financial performance during the year considering the factors that were outside of our control. The strength of the business and attractiveness of the market in which we operate are evident by the takeover and we are well positioned to deliver future growth.

Paul Sandland

Chief Financial Officer

12 October 2023

Key Performance Indicators

KPI and Definition

Performance

Commentary

Relevance to Strategy

Existing Revenue Growth

Existing revenue includes the impact of previous acquisitions where there is a comparator period, and therefore growth rates are stated on a
like-for-like basis using constant exchange rates.

2023: £728.6m

2022: £681.8m

2021: £608.0m

2020: £515.1m

2019: £481.8m

2018: £407.1m

1.2%

Dechra's existing business grew by 5.5% in EU Pharmaceuticals (excluding third party manufacturing) which was offset by the one-off adverse impact of the US wholesaler destocking in NA Pharmaceuticals.

1 2 3

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

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 using constant exchange rates.

(Long Term Incentive Plan (LTIP) performance condition)

2023: 94.57p

2022: 120.84p

2021: 108.14p

2020: 92.19p

2019: 90.01p

2018: 76.45p

Down

(26.8)%

This reflects a lower operating profit, higher financing costs and the dilutive impact of the July 2022 equity raise.

1 2 3 4

Underlying EPS is a key indicator of our performance and the return we generate for our stakeholders. It is one of the performance conditions of the LTIP.

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).

(Long Term Incentive Plan (LTIP) performance condition)

2023: 15.3%

2022: 19.5%

2021: 18.8%

2020: 15.4%

2019: 15.6%

2018: 15.4%

Down

(420)bps

A decline in the underlying return on capital employed reflects the lower level of profitability during the year and the investments made in Piedmont and
Med-Pharmex.

1 2 3 4 6

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

Underlying Cash Conversion

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

2023: 66.2%

2022: 93.7%

2021: 87.1%

2020: 99.4%

2019: 85.0%

2018: 81.9%

Down

(2,740)bps

Lower cash conversion is driven by an investment in stock levels to maintain a robust supply chain, and higher non-underlying cash outflows driven by acquisition costs and cloud computing arrangement costs.

1 2 3 4

Our stated aim is to be a cash generative business. Cash generation supports investment in the pipeline, acquisition and people.

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 years.

2023: 15.6%

2022: 10.8%

2021: 20.4%

2020: 16.7%

2019: 16.7%

2018:11.9%

480bps

Increase in new product revenue is driven by the acquisition of Med-Pharmex during the year.

1 2 3 4

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

Lost Time Accident Frequency Rate (LTAFR)

All accidents resulting in the absence or inability of employees to conduct a full range of their normal working activities for a period of more than three workings days after the day when the incident occurred, normalised per 100,000 hours worked.

2023: 0.21

2022: 0.20

2021: 0.09

2020: 0.17

2019: 0.21

5.0%

The lost time accidents increased to 0.21. The majority of the incidents occurred at our Manufacturing sites with one incident at our central logistics centre in Denmark. None of these incidents resulted in a work related fatality or disability.

5 7

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

Employee Turnover

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

2023: 12.6%

2022: 16.0%

2021: 13.5%

2020: 12.4%

2019: 13.6%

2018: 15.9%

Down

(340)bps

We are pleased to see that moving annual turnover has reduced back to 12.6%. We felt the post Covid impact of the changing nature of the workforce and increased competition for talent, particularly in more specialist roles. We have introduced a range of measures to manage turnover.

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

Strategic Driver/Enabler Key:

1. Pipeline Delivery

2. Portfolio Focus

3. Geographical Expansion

4. Acquisition

5. Manufacturing & Supply Chain

6. Technology

7. People

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 Audit Committee undertakes 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 coordinates 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 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. No material emerging risks were identified in the 2023 financial year.

Dechra Culture

The Dechra Values are the foundation of our entire business culture including our approach to risk management and control. The Board expects these Values to 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-Fraud;

• 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 with our product portfolio, prioritise development projects, review whether products in development are progressing according to schedule, and assess the expected commercial return on new products.

• Lifecycle Management: We manage and monitor lifecycle management activities for our key products to meet evolving customer needs.

• Pricing Policies: We manage and monitor our national and European pricing policies to deliver equitable pricing for each customer group.

• Product Supply: We continue to develop our demand forecasting and supply planning processes, with monthly reviews of demand and production forecasts, inventory controls, and remediation plans for products that are out of supply.

• 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 further detail in the 2023 Annual Report. 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 2023

We have continued to strengthen and improve our governance and control processes and the following changes have been implemented:

• Recruitment of a Compliance Manager to support Dechra's compliance with key legislation including Data Protection, Anti-Competitive Practices, Anti-Money Laundering, Fraud and Fraud Awareness, Modern Slavery, Anti-Bribery and Anti-Corruption, and Sanctions.

• We have continued to make improvements to our manufacturing, quality and supply processes, with additional investments in people and production facilities.

• We completed the roll out of an enhanced Financial Control Framework in response to the BEIS white paper on Restoring Trust in Audit and Corporate Governance. This will put the business in a strong position to comply with the requirements of the BEIS proposals.

• Our Environmental, Social and Governance (ESG) strategy has been further enhanced with the appointment of a Sustainability Project Manager. We continue to execute our 'Making a Difference' plan as well as working towards our commitment of setting verifiable targets across the entire value chain through the Science Based Targets initiative.

• We commenced the roll out of a Global Travel and Expense management and reporting system. This will help to ensure that travel and expenses costs deliver value for the company, and improve the efficiency and accuracy of reporting.

• We continued with our project to upgrade the Manufacturing ERP system to one consolidated cloud-based Oracle platform.

Plans for 2024

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 2024.

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

Understanding Our Key Risks

Risk

Potential Impact

Control and Mitigating Actions

Link to Strategic Growth Driver and Enabler

Trends

Market Risk:

The growth of veterinary buying groups and corporate customers impacts the distribution landscape.

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

In a number of mature markets, veterinarians have established buying groups to consolidate their purchasing, and corporate customers are continuing to expand.

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

We manage and monitor our pricing policies to deliver equitable pricing for each customer group.

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

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

Competitor Risk:

Competitor products launched against one of our leading brands (e.g. generics or a superior product profile).

We depend on data exclusivity periods or patents to have exclusive marketing rights for some of our products.

Although we maintain a broad portfolio of products, our unique products like Vetoryl and Zycortal have built a market which continues to be attractive to competitors.

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

Costs may increase due to defensive marketing activity.

We focus on lifecycle management strategies for our key products such that they can fulfil evolving customer requirements.

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

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

1 2 3

Product Development
and Launch Risk:

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

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

Products that initially appear promising may be delayed or fail to meet expected clinical or commercial expectations or face delays in regulatory approval. It can also be difficult to predict whether newly launched products will meet commercial expectations.

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

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

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

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

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

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

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

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

Supply Chain Risk:

Inability to maintain supply of key products due to manufacturing, quality or product supply problems in our own facilities or those of third party suppliers.

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

Raw material supply failures may cause:

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

• product shortages due to manufacturing delays; or

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

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

Our robust response to recent global supply chain challenges, such as the impact of the Russian invasion of Ukraine, has seen the supply chain risk remain stable.

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

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

A dedicated external network team exists to manage and support our CMOs to deliver quality products to our regulatory specifications.

Demand forecasting and supply planning processes are in place, with monthly reviews of demand and production forecasts, inventory levels, and remediation plans for products that are out of supply.

Processes are in place to monitor and improve product robustness, including quality and technical analyses of key products and engagement with internal and external regulatory stakeholders.

Business continuity plans are in place at our key manufacturing sites.

A new procurement structure and performance measures have been put in place to improve supplier performance management and implement a second source strategy.

1 2 5

Regulatory Risk:

Failure to meet regulatory requirements.

We conduct our business in a highly regulated environment, which is designed to ensure the safety, efficacy, quality, and ethical promotion of pharmaceutical products.

Failure to adhere to regulatory standards or to implement changes in those standards could affect our ability to register, manufacture or promote our products.

Delays in regulatory reviews and approvals could impact the timing of a product launch and have a material effect on sales and margins.

Any changes made to the manufacturing, distribution, marketing and safety surveillance processes of our products may require additional regulatory approvals, resulting in additional costs and/or delays.

Non-compliance with regulatory requirements may result in delays to production or lost sales.

Regulatory risk is high due to the increasing regulatory burden, including compliance with the European Medicines Agency's (EMA) Union Product Database (UPD). However, we have increased resource in our Regulatory Affairs team. Additionally, the proportion of our products manufactured by CMOs, which present higher regulatory compliance risks, has declined.

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

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

A dedicated External Network Quality Director supports our CMOs in complying with our regulatory specifications.

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

The Regulatory and Quality teams update their knowledge of regulatory developments and implement changes in business procedures to comply with new requirements.

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

External consultants are used to audit our manufacturing quality systems.

Our Regulatory team operates a robust Pharmacovigilance (PV) process to report any adverse reactions and product complaints related to the use of our products.

1 2 3

Acquisition Risk:

Identification of acquisition opportunities and their potential integration.

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

Acquired products or businesses may fail to deliver expected returns due to overvaluation or integration challenges. The risk has increased due to the complexity of integrating Piedmont Animal Health, Inc and Med-Pharmex Holdings, Inc.

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

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

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

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

The SET manages post acquisition integration and monitors the delivery of benefits and returns through a defined process.

People Risk:

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

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

Our growth plans and future success are also dependent on retaining knowledgeable and experienced senior managers and key staff. Increased competition in the market, particularly in specialist roles, challenges the recruitment and retention of key talent and skills.

Failure to recruit, develop and retain quality people could result in:

• overstretched resources;

• weakened succession planning;

• capability gaps in new markets; or

• challenges in integrating new acquisitions.

This could lead to erosion of our competitive advantage, and delay implementation of our strategy.

Rising cost of living challenges and ongoing wage inflation have the potential to impact workforce stability.

The Chief People Officer reviews the organisational structure with the SET and the Board twice a year to confirm that the organisation is fit for purpose and to assess the resourcing implications of planned changes or strategic imperatives.

A development programme is in place to identify opportunities to recruit new talent and develop existing potential. A talent acquisition team and applicant tracking software are in place.

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

Succession plans are in place for the SET together with development plans for key senior managers.

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

3 4 7

Antimicrobials

Regulatory Risk:

Continuing pressure on reducing antimicrobial use.

The issue of the potential transfer of antibacterial resistance from animals to humans is subject to regulatory discussions globally.

Whilst EU regulations (Regulation (EU) 2019/6) restricting antimicrobial use in animals became effective in 2022, the impact on our FAP antimicrobial portfolio is limited as our products are used for treatment rather than prevention. However, there remains continuing pressure on reducing antimicrobial risk. This is driven by market and cultural trends.

Reduction in sales of our antimicrobial product range.

Our reputation could be adversely impacted if we do not respond appropriately to government regulations and recommendations.

Regular contact is maintained with relevant veterinary authorities to enable us to have a comprehensive understanding of regulatory changes.

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

We communicate appropriate antimicrobial use in line with best practice.

2 3

Climate:

Severe weather patterns caused by climate change or natural disaster cause damage to manufacturing or distribution facilities impacting our ability to meet customer demand. In addition, the business will face transition risk, such as carbon pricing, change in raw material pricing and movement to renewable energy sources.

Damage to our facilities as a result of climate change could impact our ability both to supply and manufacture product, which may weaken customer confidence and impact performance, both over a shorter and longer term. Natural disaster could impact on local employability and the communities in which our sites are based.

Dechra has committed to setting verifiable targets across the entire value chain through the Science Based Target initiative (SBTi), with a Letter of Intention already submitted. Dechra has also joined the United Nations Framework Convention on Climate Change Race to Zero.

Scenario planning has been conducted for both physical and transition risks to enable us to mitigate climate related risks.

The share of key products manufactured by Dechra, as opposed to CMOs, is being increased in order to manage physical risks better. Dechra has implemented an internal shadow carbon price to bring clarity and to identify climate related opportunities and the best areas to reduce emissions.

Renewable electricity is generated from an existing solar plant at our Zagreb site. We are investigating other renewable energy sources across the Group.

Site based ESG committees will be established to manage sustainability, including energy efficiency, renewables and effluent.

1 2 7

10.

Cybersecurity and IT Failure Risk

Information security breach or significant disruption to our IT systems, resulting from a cyber-attack or failure of key IT software or infrastructure.

Failure to prevent or adequately respond to a data breach or cyber-attack could result in business disruption, fines, loss of personal data or loss of intellectual property/commercially sensitive information.

Software or infrastructure failure could result in significant disruption to operations and management decision making.

Key systems, including email and ERP, are being migrated to cloud based hosting. Remaining on-premise systems are replicated across dual servers and backed-up.

Disaster and data recovery plans are in place and tested regularly.

Data encryption and multi-factor authentication are employed on mobile devices.

Endpoint protection and intrusion prevention/detection are in place.

Regular information security and data protection training for employees.

Business interruption and cyber insurance are in place.

Strategic Driver/Enabler Key:

1. Pipeline Delivery

2. Portfolio Focus

3. Geographical Expansion

4. Acquisition

5. Manufacturing & Supply Chain

6. Technology

7. People

Risk Trend

IR	Increased Risk
DR		Decreased Risk
NC		No Change

Consolidated Income Statement

For the year ended 30 June 2023

	Note	2023			2022
	Note	Underlying £m	Non- underlying* (notes 3, 4 & 5) £m	Total £m	Underlying £m	Non- underlying* (notes 3, 4 & 5) £m	Total £m
Revenue	2	761.5	-	761.5	681.8	-	681.8
Cost of sales		(331.9)	(3.3)	(335.2)	(296.5)	(0.5)	(297.0)
Gross profit		429.6	(3.3)	426.3	385.3	(0.5)	384.8
Selling, general and administrative expenses		(207.0)	(152.2)	(359.2)	(178.6)	(74.6)	(253.2)
Research and development expenses		(57.5)	(3.3)	(60.8)	(32.4)	(3.7)	(36.1)
Operating profit/(loss)	2	165.1	(158.8)	6.3	174.3	(78.8)	95.5
Finance income	3	0.8	3.7	4.5	5.7	-	5.7
Finance expense	4	(24.6)	(21.4)	(46.0)	(8.8)	(13.5)	(22.3)
Share of (loss)/profit of investments accounted for using the equity method	6	(1.0)	0.1	(0.9)	(1.2)	(0.1)	(1.3)
Profit/(loss) before taxation		140.3	(176.4)	(36.1)	170.0	(92.4)	77.6
Income taxes	7	(32.4)	40.6	8.2	(38.3)	18.9	(19.4)
Profit/(loss) for the year		107.9	(135.8)	(27.9)	131.7	(73.5)	58.2
Earnings per share
Basic	9			(24.59)p			53.72p
Diluted	9			(24.59)p			53.40p
Dividend per share	8			12.50p			44.89p

* 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 2023

	Note	2023 £m	2022 £m
(Loss)/profit for the year		(27.9)	58.2

Other comprehensive (expense)/income:

Items that may be reclassified subsequently to profit or loss:
Foreign currency cash flow hedges
- fair value movements		(2.0)	-
Foreign currency translation differences for foreign operations		(15.0)	15.7
Income tax relating to components of other comprehensive expense	7	(1.1)	(0.4)
		(18.1)	15.3
Total comprehensive (expense)/income for the year		(46.0)	73.5

Consolidated Statement of Financial Position

As 30 June 2023

	Note	2023 £m	2022 £m
Assets
Non-current assets
Intangible assets	10	922.4	730.5
Property, plant and equipment		159.3	100.3
Investments	6	14.9	15.8
Deferred tax assets	11	4.9	2.3
Total non-current assets		1,101.5	848.9
Current assets
Inventories		217.3	175.7
Corporation tax receivable		14.3	11.0
Trade and other receivables		161.9	136.8
Cash and cash equivalents		74.4	120.9
Total current assets		467.9	444.4
Total assets		1,569.4	1,293.3
Liabilities
Current liabilities
Borrowings and lease liabilities	12	(3.9)	(3.3)
Trade and other payables		(144.5)	(136.8)
Contingent consideration	16	(4.1)	(6.4)
Corporation tax payable		(11.5)	(12.2)
Total current liabilities		(164.0)	(158.7)
Non-current liabilities
Borrowings and lease liabilities	12	(500.6)	(325.8)
Contingent consideration	16	(71.6)	(104.0)
Provisions	13	(1.7)	(2.2)
Deferred tax liabilities	11	(76.3)	(35.8)
Total non-current liabilities		(650.2)	(467.8)
Total liabilities		(814.2)	(626.5)
Net assets		755.2	666.8
Equity
Issued share capital		1.1	1.1
Share premium account		596.0	413.9
Own shares		(0.2)	-
Hedging reserve		-	-
Foreign currency translation reserve		(12.7)	3.4
Merger reserve		84.4	84.4
Retained earnings		86.6	164.0
Total equity		755.2	666.8

The financial statements were approved by the Board of Directors on 12 October 2023 and were signed on its behalf by:

Ian Page

Chief Executive Officer

12 October 2023

Paul Sandland

Chief Financial Officer

12 October 2023

Company number: 3369634

Consolidated Statement of Changes in Shareholders' Equity

For the year ended 30 June 2023

	Issued share capital £m	Share premium account £m	Own Shares £m	Hedging Reserve £m	Foreign currency translation reserve £m	Merger reserve £m	Retained earnings £m	Total equity £m
Year ended 30 June 2022
At 1 July 2021	1.1	411.6	-	-	(11.9)	84.4	147.7	632.9
Profit for the year	-	-	-	-	-	-	58.2	58.2
Foreign currency translation differences for foreign operations	-	-	-	-	15.7	-	-	15.7
Income tax expense relating to components of other comprehensive income	-	-	-	-	(0.4)	-	-	(0.4)
Total comprehensive income	-	-	-	-	15.3	-	58.2	73.5
Transactions with owners:
Dividends paid	-	-	-	-	-	-	(44.8)	(44.8)
Share-based payments	-	-	-	-	-	-	2.9	2.9
Shares issued	-	2.3	-	-	-	-	-	2.3
Total contributions by and distributions to owners	-	2.3	-	-	-	-	(41.9)	(39.6)
At 30 June 2022	1.1	413.9	-	-	3.4	84.4	164.0	666.8
Year ended 30 June 2023
At 1 July 2022	1.1	413.9	-	-	3.4	84.4	164.0	666.8
Loss for the year	-	-	-	-	-	-	(27.9)	(27.9)
Foreign currency cash flow hedge
- fair value movements	-	-	-	(2.0)	-	-	-	(2.0)
Foreign currency translation differences for foreign operations	-	-	-	-	(15.0)	-	-	(15.0)
Income tax expense relating to components of other comprehensive income	-	-	-	-	(1.1)	-	-	(1.1)
Total comprehensive expense	-	-	-	(2.0)	(16.1)	-	(27.9)	(46.0)
Reclassified to cost of acquired intangibles	-	-	-	2.0	-	-	-	2.0
Transactions with owners:
Dividends paid	-	-	-	-	-	-	(51.7)	(51.7)
Share-based payments	-	-	-	-	-	-	2.2	2.2
Shares issued	-	182.1	-	-	-	-	-	182.1
Own share purchases	-	-	(0.2)	-	-	-	-	(0.2)
Total contributions by and distributions to owners	-	182.1	(0.2)	-	-	-	(49.5)	132.4
At 30 June 2023	1.1	596.0	(0.2)	-	(12.7)	84.4	86.6	755.2

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 2023

	Note	2023 £m	2022 £m
Cash flows from operating activities
Operating profit		6.3	95.5
Non-underlying items	5	158.8	78.8
Underlying operating profit		165.1	174.3
Adjustments for:
Depreciation		13.7	11.1
Amortisation and impairment	2	4.9	5.2
Release of government grant		(0.1)	(0.7)
Loss on disposal of leased assets		0.1	0.7
Equity settled share-based payment (income)/expense		(0.8)	3.3
Underlying operating cash flow before changes in working capital		182.9	193.9
Increase in inventories		(31.1)	(19.3)
Increase in trade and other receivables		(21.5)	(23.4)
(Decrease)/increase in trade and other payables		(7.6)	14.9
Cash generated from operating activities before interest, taxation & non-underlying items		122.7	166.1
Cash outflows in respect of non-underlying items	5	(13.4)	(2.8)
Cash generated from operating activities before interest and taxation		109.3	163.3
Interest paid		(17.8)	(7.0)
Interest on lease liabilities		(0.5)	(0.5)
Income taxes paid		(27.4)	(32.9)
Net cash generated from operating activities		63.6	122.9
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment		0.2	-
Interest received		0.8	0.1
Acquisition of subsidiaries (net of cash acquired)		(396.9)	(0.8)
Purchase of property, plant and equipment		(22.8)	(20.3)
Capitalised development expenditure		(2.0)	(1.2)
Purchase of acquired intangible non-current assets		(3.9)	(54.4)
Purchase of other intangible non-current assets		(1.6)	(1.7)
Net cash used in investing activities		(426.2)	(78.3)
Cash flows from financing activities
Proceeds from the issue of share capital		181.9	2.3
New borrowings		357.4	-
Repayment of borrowings		(166.8)	-
Principal elements of lease payments		(4.3)	(3.6)
Dividends paid	8	(51.7)	(44.8)
Net cash generated from/(used in) financing activities		316.5	(46.1)
Net decrease in cash and cash equivalents		(46.1)	(1.5)
Cash and cash equivalents at start of the year		120.9	118.4
Exchange differences on cash and cash equivalents		(0.4)	4.0
Cash and cash equivalents at end of the year		74.4	120.9
Reconciliation of net cash flow to movement in net borrowings
Net decrease in cash and cash equivalents		(46.1)	(1.5)
New borrowings and lease liabilities		(367.2)	(3.8)
Expenses of raising new borrowings		4.1	-
Repayment of borrowings and lease liabilities		171.6	4.1
Exchange differences on cash and cash equivalents		(0.4)	4.0
Retranslation of foreign borrowings		18.2	(11.2)
Other non-cash changes		(2.1)	0.4
Movement in net borrowings in the year		(221.9)	(8.0)
Net borrowings at start of the year		(208.2)	(200.2)
Net borrowings at end of the year		(430.1)	(208.2)

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

1. Status of Accounts

These summary financial statements have been prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 as it applies to companies reporting under those standards. The Board of Directors approved the preliminary announcement on 12 October 2023.

2. Operating Segments

As discussed below, the Group has four reportable segments which are based on information provided to the Board of Directors, deemed to be the Group's chief operating decision maker. In previous periods the International Pharmaceuticals operating segment had been aggregated into the European Pharmaceuticals segment on the basis of similar products, production processes, customers and overall regulatory environments. Given the significance of this operating segment to the Group, International Pharmaceuticals is disclosed as a separate reporting segment, and the prior year figures have been restated to align with this disclosure.

The European Pharmaceuticals Segment comprises Dechra Veterinary Products EU and includes our manufacturing units based in Bladel (The Netherlands), Skipton (UK) and Zagreb (Croatia). This Segment operates in Europe and manufactures and markets Companion Animal Products (CAP), Equine, Food producing Animal Products (FAP) 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 (DVP) US, DVP Canada, and DVP Mexico, which sells CAP, Equine and FAP in those territories. The Segment also includes our manufacturing units based in Pomona (California), Melbourne (Florida) and Fort Worth (Texas), and includes third party manufacturing and other revenues from non-core activities.

The International Pharmaceuticals Segment consists of Dechra Veterinary Products (DVP) ANZ, DVP Brazil, DVP Korea, and DVP Export. This Segment operates internationally and manufactures and markets CAP, Equine, FAP and Nutrition.

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:

	2023 £m	2022 £m
Revenue by segment
European Pharmaceuticals	343.5	323.2
NA Pharmaceuticals	330.9	275.1
International Pharmaceuticals	87.1	83.5
	761.5	681.8
Underlying operating profit/(loss) by segment
European Pharmaceuticals	107.7	103.4
NA Pharmaceuticals	96.2	87.7
International Pharmaceuticals	25.5	28.1
Pharmaceuticals Research and Development	(57.5)	(32.4)
Underlying segment operating profit	171.9	186.8
Corporate and other unallocated costs	(6.8)	(12.5)
Underlying operating profit	165.1	174.3
Amortisation of acquired intangibles	(71.1)	(72.8)
Cloud computing arrangement costs	(8.5)	(2.8)
Impairment of assets	(69.6)	(2.9)
Unwind of fair value uplift of acquisition inventory	(3.3)	-
Remeasurement of contingent consideration	1.2	-
Expenses relating to acquisitions and subsequent integration activities	(7.5)	(0.3)
Total operating profit	6.3	95.5
Finance income	4.5	5.7
Finance expense	(46.0)	(22.3)
Share of loss of investments accounted for using the equity method	(0.9)	(1.3)
(Loss)/profit before taxation	(36.1)	77.6
Total liabilities by segment
European Pharmaceuticals	(122.3)	(132.9)
NA Pharmaceuticals	(82.0)	(110.6)
International Pharmaceuticals	(12.0)	(8.4)
Pharmaceuticals Research and Development	(7.4)	(4.7)
Segment liabilities	(223.7)	(256.6)
Corporate loans and revolving credit facility	(487.6)	(313.7)
Corporate accruals and other payables	(15.1)	(8.2)
Current and deferred tax liabilities	(87.8)	(48.0)
	(814.2)	(626.5)

	2023 £m	2022 £m
Revenue by product category
CAP	562.6	508.4
Equine	65.2	49.5
FAP	89.0	78.8
Nutrition	38.5	35.0
Other	6.2	10.1
	761.5	681.8
Additions to intangible non-current assets by segment (including through business combinations)
European Pharmaceuticals	2.3	16.1
NA Pharmaceuticals	411.0	75.1
International Pharmaceuticals	0.9	7.4
Pharmaceuticals Research and Development	0.2	0.3
Corporate and central costs	0.4	-
	414.8	98.9
Additions to Property, Plant and Equipment by segment (including through business combinations)
European Pharmaceuticals	17.4	18.0
NA Pharmaceuticals	52.6	2.4
International Pharmaceuticals	3.9	2.5
Pharmaceuticals Research and Development	2.3	0.5
Corporate and central costs	0.7	0.8
	76.9	24.2
Depreciation, impairment and amortisation by segment
European Pharmaceuticals	42.2	54.6
NA Pharmaceuticals	106.0	26.1
International Pharmaceuticals	9.3	8.8
Pharmaceuticals Research and Development	0.6	0.5
Corporate and central costs	0.7	0.8
	158.8	90.8
The total depreciation, impairment and amortisation charge is made up of the following:
Non-underlying
Amortisation and impairment - selling, general and administrative expenses	136.9	70.8
Amortisation - research and development expenditure	3.3	3.7
	140.2	74.5
Underlying
Amortisation and impairment	4.9	5.2
Depreciation	13.7	11.1
	18.6	16.3

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:

	2023 Revenue £m	2023 Non- current assets £m	2022 Revenue £m	2022 Non- current assets £m
UK	60.7	38.4	58.2	31.8
Germany	68.7	2.7	62.3	2.9
Rest of Europe	224.3	348.0	212.9	378.8
USA	310.1	583.5	258.3	278.3
Rest of World	97.7	128.9	90.1	157.1
	761.5	1,101.5	681.8	848.9

3. Finance Income

Underlying	2023 £m	2022 £m
Finance income arising from:
- Cash and cash equivalents	0.8	0.1
- Foreign exchange gains	-	5.6
Underlying finance income	0.8	5.7

Non-underlying	2023 £m	2022 £m
Finance income arising from:
- Foreign exchange gains on contingent consideration	3.7	-
Non-underlying finance income	3.7	-
Total finance income	4.5	5.7

4. Finance Expense

Underlying	2023 £m	2022 £m
Finance expense arising from:
- Financial liabilities at amortised cost	22.6	8.3
- Lease liability interest	0.5	0.5
- Foreign exchange losses	1.5	-
Underlying finance expense	24.6	8.8

Non-underlying	2023 £m	2022 £m
Finance expense arising from:
- Foreign exchange losses on contingent consideration	-	10.1
- Unwind of discount associated with contingent consideration	20.8	3.4
- Loss on extinguishment of debt	0.6	-
Non-underlying finance expense	21.4	13.5
Total finance expense	46.0	22.3

5. Non-underlying Items

Non-underlying items charged/(credited) comprise:

	2023 £m	2022 £m
Amortisation of acquired intangibles
- classified within selling, general and administrative expenses	67.8	69.1
- classified within research and development expenses	3.3	3.7
Cloud computing arrangement costs	8.5	2.8
Impairment of assets	69.6	2.9
Expenses relating to acquisitions and subsequent integration activities	7.5	0.3
Unwind of fair value uplift of inventory on acquisitions	3.3	-
Remeasurement of contingent consideration	(1.2)	-
Non-underlying operating loss	158.8	78.8
Amortisation of notional acquired intangibles from equity accounting for associates	0.8	0.7
Share of realised non-underlying profit of investments accounted for using the equity method	(0.9)	(0.6)
Loss on extinguishment of debt	0.6	-
Foreign exchange (gains)/losses on contingent consideration	(3.7)	10.1
Unwind of discount associated with contingent consideration	20.8	3.4
Non-underlying loss before tax	176.4	92.4
Tax on non-underlying loss before tax item	(40.6)	(21.1)
Revaluation of deferred tax balances following the change in the US, Dutch and UK tax rates	-	2.2
Non-underlying loss after tax	135.8	73.5

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.

Cloud computing arrangement costs of £8.5 million relate to the costs of the programme to implement the Manufacturing and Supply function's new ERP and Electronic Quality Management systems, the total future cost of which is expected to be £23.9 million over the next four years. Included within underlying administrative expenses is £0.7 million of other cloud computing arrangement costs which predominantly relate to the integration of the Group HR systems with the Group's global payroll platform. The £8.5 million of non-underlying expenses have been settled in the year.

Impairment of assets of £69.6 million relate to an acquired intangible asset (£69.1 million) for one of the near term products in the Piedmont product pipeline, and the associated inventory write off of £0.5 million. The prior year charge predominantly related to the impairment of certain assets prior to the sale of the Agricultural Chemicals business in January 2022 (£1.0 million) and the impairment of a small number of In-Process Research and Development assets recognised on the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (£1.7 million).

Expenses relating to acquisitions and subsequent integration activities represent costs incurred during the acquisition of Piedmont Animal Health, Inc. (£0.2 million) and the Med-Pharmex Holdings, Inc. group of companies (£2.8 million). No further significant expenditure is expected in relation to these acquisitions. On the acquisition of Ampharmco, LLC, the Group established a fair value provision of £0.5 million for dilapidations of a warehouse property. This has been fully released in the year. Acquisition expenses also include costs associated with the pending acquisition of the Company by Freya Bidco Limited (£5.0 million), which includes £3.5 million relating to accelerated charges on equity and cash settled share based transactions. Further expenses of £26.0 million are expected in the 2024 financial year, of which £25.0 million are contingent on the completion of the acquisition. Acquisition and integration expenses of £4.4 million have been settled in the year.

The fair value uplift of inventory acquired through business combinations is recognised in accordance with IFRS 3 'Business Combinations' to record the inventory acquired at fair value and its subsequent release into the income statement.

The remeasurement of the contingent consideration balance relates to the net credit of £1.2 million to the income statement on the reassessment of future milestone and royalty payments on a licensing agreement.

6. Interest in Associate

	2023 £m	2022 £m
1 July 2022 and 2021	15.8	17.1
Share of underlying loss after tax	(1.0)	(1.2)
Non-underlying realised profit from continuing operations	0.9	0.6
Share of amortisation of notional intangible asset identified on acquisition (net of tax)	(0.8)	(0.7)
30 June 2023 and 2022	14.9	15.8

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 Group has considered other factors when assessing control, and concluded that it has significant influence but not control of the associate. There is no change in the accounting treatment of the entity from the prior year. 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 Pty Ltd includes the effect of harmonising the accounting policies and of amortising the fair value adjustments (net of tax), which are treated as non-underlying. The milestone of AUD1.5 million that was paid to Animal Ethics Pty Ltd in the year relating to the licensing agreement for the global marketing authorisations of Tri-Solfen (excluding Australia and New Zealand) is eliminated in the Group's income statement. The Group's share of this will be realised over the life of the agreement.

7. Income Taxes

	2023 £m	2022 £m
Current tax - UK corporation tax	0.2	2.2
- overseas tax	23.4	29.7
- adjustment in respect of prior years	0.9	2.8
Total current tax expense	24.5	34.7
Deferred tax - origination and reversal of temporary differences	(30.4)	(15.7)
- adjustment in respect of tax rates	(0.6)	2.2
- adjustment in respect of prior years	(1.7)	(1.8)
Total deferred tax credit	(32.7)	(15.3)
Total income tax (credit)/charge in the Consolidated Income Statement	(8.2)	19.4

The tax on the Group's profit before taxation differs from the standard rate of UK corporation tax of 20.5% (2022: 19.0%). The differences are explained below:

	2023 £m	2022 £m
(Loss)/profit before taxation	(36.1)	77.6
Tax at 20.5% (2022: 19.0%)	(7.4)	14.7
Effect of:
- expenses not deductible	3.1	0.8
- research and development related tax credits	(1.2)	(0.2)
- patent box tax credits	(0.7)	(1.5)
- other incentives	(1.3)	(1.6)
- share of results in associates	0.2	0.2
- effects of overseas tax rates	0.5	3.8
- adjustment in respect of prior years	(0.8)	1.0
- change in tax rates	(0.6)	2.2
Total income tax (credit)/charge in the Consolidated Income Statement	(8.2)	19.4

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 22.8% (excluding non-underlying items the effective tax rate is 23.1%).

Tax (Charge)/Credit Recognised Directly in Equity

	2023 £m	2022 £m
Deferred tax on other equity movements	(1.1)	(0.4)
Tax charge recognised in Consolidated Statement of Comprehensive Income	(1.1)	(0.4)

Corporation tax on equity settled transactions	-	0.3
Deferred tax on equity settled transactions	(0.2)	(0.7)
Total tax charge recognised in Equity	(0.2)	(0.4)

UK Finance Bill 2021 was substantively enacted on 24 May 2021, including an increase in the main rate of UK corporation tax from 19% to 25%, effective 1 April 2023. The impact of the the UK rate change is reflected in the deferred tax balances as at 1 July 2022, based on the Group's best estimate of the timing of unwind of temporary contracts. At 30 June 2023, the Group held a current provision of £5.7 million (2022: £5.9 million) in respect of uncertain tax provisions, comprising a current liability provision of £14.3 million and a current asset of £8.6m. The resolution of these tax matters may take many years. The range of reasonably possible outcomes within the next twelve months is an outflow of £nil to £3.5 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. This decision was upheld by the EU General Court on 8 June 2022, when it dismissed the UK Government's annulment application. The UK Government has since lodged an appeal to the EU Court of Justice in August 2022.

At 30 June 2023, the Group considers that the potential amount of additional tax payable is between £nil and £2.75 million (2022: £nil and £4.0 million) depending on the basis of calculation and the outcome of HMRC's appeal to the EU Court of Justice. 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.

The Group received charging notices from HMRC in January and February 2021 under The Taxation (Post Transition Period) Act for the full exposure (£2.75 million) and has paid this to HMRC. As the Group considers that HMRC's appeal will be successful, the charging notices which were settled in full during 2021 (£2.75 million) are recorded as current tax receivables 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.

OECD Pillar 2

On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK, introducing a global minimum effective tax rate of 15%. The legislation implements a domestic top-up tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023. The Group has applied the exception under IAS 12 to recognising and disclosing information about deferred tax assets and liabilities related to top-up income taxes. The Group is continuing to assess the potential impact of Pillar 2 on the Group.

8. Dividends

	2023 £m	2022 £m
Final dividend paid in respect of prior year but not recognised as a liability in that year: 32.89 pence per share (2022: 29.39 pence per share)	37.4	31.8
Interim dividend paid: 12.50 pence per share (2022: 12.00 pence per share)	14.3	13.0
Total dividend 45.39 pence per share (2022: 41.39 pence per share) recognised as distributions to equity holders in the year	51.7	44.8
Proposed final dividend for the year ended 30 June 2023: nil per share (2022: 32.89 pence per share)	-	35.6
Total dividend paid and proposed for the year ended 30 June 2023: 12.50 pence per share (2022: 44.89 pence per share)	14.3	48.6

The ongoing acquisition of the Company by Freya Bidco Limited remains conditional upon the receipt of antitrust approval in the European Union and foreign direct investment approval in Australia, in each case to the extent required, as well as the sanction of the Scheme by the Court at the Sanction Hearing (each as defined in the scheme document dated 26 June 2023) and is expected to occur in late 2023 or early 2024. If prior to the acquisition becoming effective, any dividend is announced, declared, made or paid or becomes payable in respect of the ordinary share capital of the Company (Dechra Shares), Freya Bidco Limited reserves the right to reduce the consideration payable under the terms of the acquisition for the Dechra Shares by an amount up to the aggregate amount of such dividend. Therefore the Directors are not recommending the payment of a final dividend. The final dividend for the year ended 30 June 2022 is shown as a deduction from equity in the year ended 30 June 2023.

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 year by the weighted average number of ordinary shares in issue during the year.

	2023 Pence	2022 Pence
Basic earnings per share
- Underlying*	95.09	121.57
- Basic	(24.59)	53.72
Diluted earnings per share
- Underlying*	94.57	120.84
- Diluted	(24.59)	53.40

* Underlying measures exclude non-underlying items as defined in note 1 of the financial statements of the 2023 Annual Report.

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

2023

£m

2022

£m

Earnings for underlying basic and underlying diluted earnings per share

107.9

131.7

Earnings for basic and diluted earnings per share

(27.9)

58.2

	Number	Number
Weighted average number of ordinary shares for basic earnings per share	113,476,509	108,332,583
Impact of share options	618,369	654,836
Weighted average number of ordinary shares for diluted earnings per share	114,094,878	108,987,419

At 30 June 2023, there are 557,781 options (2022: 305,468) 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

	Goodwill £m	Software £m	Development costs £m	Patent rights & marketing authorisations £m	Other intangibles £m	Acquired intangibles £m	Total £m
Cost
At 1 July 2021	236.1	23.1	15.1	6.5	-	881.3	1,162.1
Additions	-	1.0	1.8	-	-	96.1	98.9
Disposals	-	-	-	(3.3)	-	(0.7)	(4.0)
Transfers between categories	-	0.2	(1.7)	0.4	1.1	-	-
Remeasurement	-	-	-	-	-	(24.2)	(24.2)
Foreign exchange adjustments	9.3	0.1	0.2	0.1	0.1	27.4	37.2
At 30 June 2022 and 1 July 2022	245.4	24.4	15.4	3.7	1.2	979.9	1,270.0
Additions	-	0.6	1.6	-	1.3	1.6	5.1
Acquired through Business Combinations	98.7	-	-	-	-	311.0	409.7
Disposals	-	(0.2)	(0.2)	(0.1)	-	-	(0.5)
Transfers between categories	-	0.2	(1.1)	0.9	-	-	-
Remeasurement	-	-	-	-	-	(49.6)	(49.6)
Foreign exchange adjustments	(9.6)	-	-	-	(0.1)	(29.4)	(39.1)
At 30 June 2023	334.5	25.0	15.7	4.5	2.4	1,213.5	1,595.6
Accumulated Amortisation
At 1 July 2021	-	11.2	9.5	4.6	-	421.0	446.3
Charge for the year	-	3.5	0.6	0.4	-	72.8	77.3
Impairments	-	-	-	-	0.7	1.7	2.4
Disposals	-	-	-	(3.4)	-	(0.6)	(4.0)
Foreign exchange adjustments	-	0.1	-	0.1	0.1	17.2	17.5
At 30 June 2022 and 1 July 2022	-	14.8	10.1	1.7	0.8	512.1	539.5
Charge for the year	-	3.6	0.7	0.5	0.1	71.1	76.0
Impairments	-	-	-	-	-	69.1	69.1
Disposals	-	(0.2)	(0.2)	-	-	-	(0.4)
Foreign exchange adjustments	-	-	-	-	-	(11.0)	(11.0)
At 30 June 2023	-	18.2	10.6	2.2	0.9	641.3	673.2
Net book value
At 30 June 2023	334.5	6.8	5.1	2.3	1.5	572.2	922.4
At 30 June 2022	245.4	9.6	5.3	2.0	0.4	467.8	730.5

£0.8 million of the marketing authorisations relate to the Vetivex^® range of products. Ownership of the marketing authorisations rests with the Group in perpetuity. There are not believed to be any legal, regulatory or contractual provisions that limit their useful lives. Vetivex is an established range of products which are relatively simple in nature and there are a limited number of players in the market. Accordingly, the Directors believe that it is appropriate that the marketing authorisations are treated as having indefinite lives for accounting purposes.

Goodwill is allocated across cash generating units that are expected to benefit from the relevant business combination. Key assumptions made in this respect are given in note 14 of the financial statements of the 2023 Annual Report.

Included in the cost at 30 June 2023 are £46.9 million (2022: £41.8 million) of fully amortised assets which predominately relate to product rights where sales are still being made by the Group.

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

	Commercial relationships £m	Pharmacological process £m	Brand £m	Capitalised development costs £m	Product rights £m	Total £m
Cost	8.1	47.1	14.9	382.4	428.8	881.3
At 1 July 2021	-	-	-	-	96.1	96.1
Additions	-	-	-	-	(24.2)	(24.2)
Remeasurement	-	-	-	-	(0.7)	(0.7)
Foreign exchange adjustments	0.2	6.8	1.8	12.0	6.6	27.4
At 30 June 2022 and 1 July 2022	8.3	53.9	16.7	394.4	506.6	979.9
Additions	-	-	-	0.1	1.5	1.6
Acquisitions through business combinations	-	-	-	-	311.0	311.0
Remeasurement	-	-	-	-	(49.6)	(49.6)
Foreign exchange adjustments	-	(2.4)	(0.6)	(5.0)	(21.4)	(29.4)
At 30 June 2023	8.3	51.5	16.1	389.5	748.1	1,213.5
Accumulated Amortisation
At 1 July 2021	7.3	35.0	8.4	186.7	183.6	421.0
Charge for the year	1.3	3.6	1.2	37.0	29.7	72.8
Impairments
Disposals	-	-	-	-	(0.6)	(0.6)
Foreign exchange adjustments	(0.8)	5.3	2.0	5.5	5.2	17.2
At 30 June 2022 and 1 July 2022	7.8	43.9	11.6	230.9	217.9	512.1
Charge for the year	0.5	3.3	1.3	32.4	33.6	71.1
Impairments	-	-	-	-	69.1	69.1
Foreign exchange adjustments	(0.1)	(2.0)	(0.5)	(2.8)	(5.6)	(11.0)
At 30 June 2023	8.2	45.2	12.4	260.5	315.0	641.3
Net book value
At 30 June 2023	0.1	6.3	3.7	129.0	433.1	572.2
At 30 June 2022	0.5	10.0	5.1	163.5	288.7	467.8

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

Significant assets	Description of acquired intangibles	Goodwill carrying value £m	Acquired intangibles carrying value £m	Sub-total carrying value £m	Remaining amortisation period on acquired intangibles
Intangible assets arising from the acquisition of Dermapet	Product, marketing and distribution rights	0.4	7.5	7.9	2 ½ years
Intangible assets arising from the acquisition of Eurovet	Technology, product, marketing and distribution rights	37.7	-	37.7	N/A
Goodwill arising from the acquisition of Vetxx		16.4	-	16.4	N/A
Intangible assets arising from the acquisition of Genera	Product, brand, technology, marketing and distribution rights		0.1		2 ½ years
			4.5		7 ½ years
		5.3		9.9	Genera - total
Intangible assets arising from the acquisition of Putney	Product, brand, technology, pharmacological process, marketing and distribution rights		2.8		3 years
			6.7		3 years
			25.7		5 years
		51.7		86.9	Putney - total
Intangible assets arising from the acquisition of Apex	Product and technology		9.1		10 years
			1.3		7 years
		8.3		18.7	Apex - total
Intangible assets related to the licensing and distribution of Tri-Solfen^® (excluding ANZ territories)	Marketing and distribution rights	-	14.7	14.7	10 years
Intangible asset related to an injectable solution licensing agreement	Marketing and distribution rights	-	5.6	5.6	9 years
Intangible assets arising from the acquisition of AST Farma B.V. and Le Vet Beheer B.V.	Product, brand, technology, marketing and distribution rights		29.0		4 ½ years
			32.9		3 ½ years
			8.8		5 years
		98.7		169.4	AST Farma B.V. and Le Vet Beheer B.V - total
Intangible assets related to an injectable solution licensing agreement	Marketing and distribution rights	-	5.2	5.2	15 years
Intangible assets arising from the acquisition of Caledonian	Product, brand, technology, marketing and distribution rights	0.8	2.0	2.8	5 ½ years

Significant assets	Description	Goodwill carrying value £m	Acquired Intangibles carrying value £m	Sub-total carrying value £m	Remaining amortisation period on acquired intangibles
Intangible assets arising from the acquisition of Dechra Brasil Produtos Veterinarios LTDA	Product, brand, technology, marketing and distribution rights		5.4		5 ½ years
			0.1		½ years
			0.2		3 ½ years
		9.3		15.0	Brazil - total
Intangible assets arising from the acquisition of Ampharmco	Product and technology rights		4.8		14 ½ years
			0.5		11 ½ years
			5.2		11 ½ years
		6.4		16.9	Ampharmco - total
Intangible assets arising from the acquisition of Mirataz	Product and technology rights		28.0		6 ½ years
			1.4		7 ½ years
			0.1		7 ½ years
		-		29.5	Mirataz - total
Intangible assets arising from the acquisition of Osurnia	Product, marketing and distribution rights	-	75.2	75.2	7 years
Intangible assets related to the licensing and distribution of Tri-Solfen^® (ANZ territories)	Product, marketing and distribution rights	-	20.5	20.5	13 years
Intangible assets arising from the acquisition of Laverdia	Product, marketing and distribution rights	-	30.6	30.6	10 years
Intangible assets arising from the acquisition of Isoflurane and Sevoflurane	Product, marketing and distribution rights	-	7.6	7.6	8 ½ years
Intangible assets arising from the acquisition of Sucromate	Product, marketing and distribution rights	-	5.4	5.4	8 ½ years
Intangible assets arising from the acquisition of Piedmont Animal Heath Inc.	Product rights	40.1	93.6	133.7	21 years
Intangible assets arising from the acquisition of Med-Pharmex Inc.	Product and distribution rights	52.3	123.6	175.9	24 years
Other individually immaterial goodwill and acquired intangibles		7.1	14.1	21.2
		334.5	572.2	906.7

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:

	2023 £m	2022 £m
Deferred tax assets	4.9	2.3
Deferred tax liabilities	(76.3)	(35.8)
	(71.4)	(33.5)

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

	Assets		Liabilities		Net
	2023 £m	2022 £m	2023 £m	2022 £m	2023 £m	2022 £m
Intangible assets	-	-	(88.5)	(42.9)	(88.5)	(42.9)
Property, plant and equipment	-	-	(10.7)	(4.8)	(10.7)	(4.8)
Inventories	2.8	1.5	-	-	2.8	1.5
Receivables/payables	6.6	7.2	-	-	6.6	7.2
Share-based payments	1.0	0.9	-	-	1.0	0.9
Losses	8.1	0.6	-	-	8.1	0.6
R&D tax credits	8.5	3.0	-	-	8.5	3.0
Employee benefit obligations	0.1	1.0	-	-	0.1	1.0
Interest	0.7	-	-	-	0.7	-
	27.8	14.2	(99.2)	(47.7)	(71.4)	(33.5)

12. Borrowings and Lease Liabilities

	2023 £m	2022 £m
Current liabilities:
Lease liabilities	3.9	3.3
	3.9	3.3
Non-current liabilities:
Lease liabilities	13.0	12.1
Senior loan notes	250.7	125.5
Bank loans	241.3	189.7
Arrangement fees netted off	(4.4)	(1.5)
	500.6	325.8
Total borrowings	504.5	329.1

On 31 March 2023, the Group entered into a new multi-currency Revolving Credit Facility Agreement ("RCF") with a maximum amount of £340.0 million and maturing 31 March 2028. This RCF is provided by a syndicate of banks comprising BNP Paribas, CaixaBank SA UK branch, Crédit Industriel et Commercial, London Branch, Handelsbanken Capital Markets, Handelsbanken plc, HSBC UK Bank plc, PNC Capital Markets LLC, Santander UK plc and The Governor and Company of the Bank of Ireland. The covenant requirements in the RCF remain unchanged from the prior Revolving Credit Facility Agreement (being Interest Cover in respect of any Relevant Period shall not be less than 4:1 and Leverage in respect of any Relevant Period shall not exceed 3:1).

The RCF uses Risk Free Reference (RFR) rates, with the relevant RFR rates for the principal Borrowings of the Group being SONIA (for Borrowings in GBP), SOFR (for Borrowings in USD) and EURIBOR (for Borrowings in EUR). The interest rate charged on any new Borrowings drawn under the RCF will be the relevant RFR rate plus the Margin. The Margin on the RCF is a minimum of 1.40% and a maximum of 2.30%, dependent upon the Leverage (the ratio of Adjusted Net Debt to Adjusted underlying EBITDA) of the Group. At 30 June 2023, £241.3 million was drawn against the £340.0 million RCF. The facility is not secured on any specific assets of the Group but is supported by a joint and several cross guarantee structure. All covenants were met during the year ended 30 June 2023.

On 14 July 2022 the Group undertook a further Private Placement raising EUR50.0 million and EUR100.0 million (under seven and ten year new senior secured notes respectively), the proceeds of which were used to repay existing debt. Both facilities remain fully drawn at 30 June 2023. Interest is charged on the EUR50.0 million senior secured notes at a fixed rate of 3.64% until maturity (July 2029), and on the EUR100.0 million senior secured notes at a fixed rate of 3.93% until maturity (July 2032).

No interest has been capitalised during the year (2022: £nil).

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

	2023 £m	2022 £m
Between two and five years	284.3	232.6
Over five years	207.7	82.6
	492.0	315.2

The maturity of the lease liabilities is as follows:

	2023 £m	2022 £m
Within one year	3.9	3.3
Between one and two years	3.2	2.5
Between two and five years	4.4	3.5
Over five years	5.4	6.1
	16.9	15.4

13. Provisions

	Deferred Rent £m	Provision for PPE grant £m	Dilapidations £m	Total £m
At 1 July 2022	(0.3)	(0.6)	(1.3)	(2.2)
Provision released	-	-	0.5	0.5
Provision utilised	0.1	-	-	0.1
Foreign exchange differences	-	(0.1)	-	(0.1)
At 30 June 2023	(0.2)	(0.7)	(0.8)	(1.7)

	Deferred Rent £m	Provision for PPE grant £m	Dilapidations £m	Total £m
At 1 July 2021	(0.3)	(0.9)	(2.3)	(3.5)
Provision released	-	-	1.0	1.0
Provision utilised	0.1	0.1	-	0.2
Foreign exchange differences	(0.1)	0.2	-	0.1
At 30 June 2022	(0.3)	(0.6)	(1.3)	(2.2)

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, the manufacturing site in Croatia, 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 of £0.5 million for dilapidations of a warehouse property. This has been fully released in the year through non-underlying expenses.

In the financial year 2021, the Group established a fair value provision of £0.8 million for dilapidations of a warehouse property in Skipton in line with IFRS 16. The provision for the remaining warehouse will be utilised over the period to the expiry of the lease in March 2025.

14. Foreign Exchange Rates

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

	Average rate for 2022	Closing rate at 30 June 2022	Average rate for 2023	Closing rate at 30 June 2023
Australian Dollar	1.8347	1.7594	1.7832	1.9106
Brazilian Real	6.9892	6.3189	6.2134	6.1504
Danish Krone	8.7826	8.6684	8.5616	8.6771
Euro	1.1807	1.1652	1.1504	1.1651
US Dollar	1.3316	1.2103	1.2038	1.2660

15. Acquisitions

Acquisition of Piedmont Animal Health Inc

On 25 July 2022, Dechra acquired 100% of the share capital of Piedmont Animal Health Inc, for a total consideration of £175.7 million (USD209.5 million). The fair value of the assets and liabilities acquired are now final.

	Fair value £m
Recognised amounts of identifiable assets and liabilities acquired
Property, plant and equipment	0.3
Other receivables	0.3
Trade and other payables	(1.3)
Contingent consideration liabilities	(4.6)
Cash	0.5
Intangible assets	173.4
Deferred tax liabilities	(35.7)
Net identifiable assets	132.9
Goodwill	42.8
Total consideration	175.7
Purchase consideration:
Cash	175.7
Total purchase consideration	175.7

Net cash outflow arising on acquisition:
Cash consideration	175.7
Less: Cash and cash equivalents	(0.5)
Net cash outflow arising on acquisition	175.2

The intangible assets, which relate to the intellectual property acquired, were valued based on a combination of both the excess earnings method and the replacement cost method. The approach adopted was dependent on the stage of the development of the intellectual property which relates to In-Process Research and Development assets. The table below shows on an indicative basis the sensitivity to reasonably possible changes in significant assumptions used in the valuation of the intangible assets. There would be a corresponding impact to the deferred tax liability (at the substantively enacted tax rate) and goodwill. The goodwill is not tax deductible.

	Intangible assets
1% increase in discount rates (£m)	(19.1)
1% decrease in discount rates (£m)	22.4
10% increase in cash flows (£m)	17.8
10% decrease in cash flows (£m)	(17.9)
10% increase in volume attrition upon patent expiry (£m)	(5.7)
10% decrease in volume attrition upon patent expiry (£m)	5.7
5% increase in ongoing volume attrition (£m)	(10.3)
5% decrease in ongoing volume attrition (£m)	20.2

The goodwill of £42.8m million arising from the acquisition has predominantly arisen due to the deferred tax on the intangible assets which was not considered when pricing the acquisition, given there is no intention to sell the vast majority of intangible assets. In addition goodwill also represents Piedmont's proven ability to develop new products, and therefore the ability to generate new opportunities. This is aligned with the market participation view of the acquisition.

Acquisition related costs (included in operating expenses) amounted to £0.2 million. Piedmont Animal Health Inc's results are reported within the Pharmaceuticals Research and Development Segment.

Piedmont Animal Health Inc contributed £nil revenue and £5.8 million loss to the Group's underlying operating profit for the period between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first Day of the financial year, the contribution to the Group revenues for the Year would have been £nil and to the Group's underlying operating profit have would have been a loss of £7.1 million. The reported operating loss after taking into account non-underlying items for acquisition and integration costs would be £7.3 million.

Acquisition of Med-Pharmex Holdings, Inc

On 26 August 2022, Dechra acquired 100% of the share capital of Med-Pharmex Holdings Inc., and its subsidiaries Med-Pharmex Property LLC, Med-Pharmex Inc and Cephazone Pharma LLC (collectively 'Med-Pharmex'). The Group paid £223.7 million ($264.6 million) consideration. The fair value of the assets and liabilities acquired is now final.

	Fair value £m
Recognised amounts of identifiable assets and liabilities acquired
Property, plant and equipment	47.9
Inventory	14.8
Trade and other receivables	6.9
Trade and other payables	(5.3)
Cash	2.6
Intangible assets	137.6
Current tax assets	1.3
Deferred tax liabilities	(38.0)
Net identifiable assets	167.8
Goodwill	55.9
Total consideration	223.7
Purchase consideration:
Cash	223.7
Total purchase consideration	223.7

	£m
Net cash outflow arising on acquisition:
Cash consideration	223.7
Less: Cash and cash equivalents	(2.6)
Net cash outflow arising on acquisition	221.1

The intangible assets, which relate to the intellectual property acquired principally relating to Developed Technology and In-Process Research and Development assets, were valued based on the excess earnings method. The table below shows on an indicative basis the sensitivity to reasonably possible changes in significant assumptions used in the valuation of the intangible asset. There would be a corresponding impact to the deferred tax liability (at the substantively enacted tax rate) and goodwill.

	Intangible assets
1% increase in discount rates (£m)	(14.7)
1% decrease in discount rates (£m)	17.7
10% increase in cash flows (£m)	13.9
10% decrease in cash flows (£m)	(13.9)

The goodwill of £55.9 million arising from the acquisition has predominantly arisen due to the deferred tax on the intangible assets which was not considered when pricing the acquisition, given there is no intention to sell the vast majority of intangible assets. Goodwill also represents value stemming from future products developed, the acquired workforce, and strategic benefits from being able to transfer existing Dechra products into Med-Pharmex's under-utilised facilities, reducing external manufacturing costs and reliance on Contract Manufacturing Organisations. This is aligned with the market participation view of the acquisition. The goodwill is not tax deductible.

Inventory includes a fair value uplift of £3.3 million (USD4.0 million). A non-underlying charge of £3.3 million (USD4.0 million) relating to the fair value uplift on inventory that has been sold in the year has been taken to cost of sales in the income statement.

The gross contractual receivables amount to £6.2 million, which are expected to be fully recoverable.

Acquisition and related costs (included in operating expenses) amounted to £2.8 million. Med-Pharmex's results are reported within the NA Pharmaceuticals Segment.

Med-Pharmex contributed £28.9 million revenue and £0.5 million to the Group's underlying operating profit for the period between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first Day of the financial year, the contribution to the Group revenues for the Year would have been £34.5 million and to the Group's underlying operating profit would have been £0.6 million. The reported operating loss after taking into account non-underlying items for the amortisation of intangible assets, fair value inventory adjustment and acquisition and integration costs would have be £10.6 million.

16. Contingent Consideration

	2023 £m	2022 £m
Contingent consideration - less than one year	4.1	6.4
Contingent consideration - more than one year	71.6	104.0
	75.7	110.4

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:

	Tri-Solfen^® £m	Injectable Solution 1 £m	Mirataz £m	Laverdia^® £m	Piedmont £m	Other £m	Total £m
As at 1 July 2021	56.2	1.6	14.4	-	-	8.0	80.2
Additions	-	-	-	57.9	-	2.7	60.6
Remeasurement through intangibles	(12.0)	-	(2.9)	(7.9)	-	(1.4)	(24.2)
Cash payments: investing activities	(14.6)	(0.8)	(0.7)	-	-	(3.6)	(19.7)
Finance expense	1.5	0.1	0.4	1.2	-	0.2	3.4
Foreign exchange adjustments	1.5	0.2	1.8	6.3	-	0.3	10.1
At 30 June 2022	32.6	1.1	13.0	57.5	-	6.2	110.4
Additions	-	-	-	-	-	0.8	0.8
Group acquisitions	-	-	-	-	4.6	-	4.6
Remeasurement through intangibles	(13.6)	-	(4.9)	(28.2)	(0.7)	(2.2)	(49.6)
Remeasurement through income statement	(0.9)	-	-	-	-	(0.3)	(1.2)
Cash payments: investing activities	(2.2)	(0.6)	(1.7)	(0.1)	-	(1.5)	(6.1)
Finance expense	8.7	0.1	2.6	7.3	0.6	1.5	20.8
Foreign exchange adjustments	(1.9)	-	(0.4)	(1.2)	(0.4)	(0.1)	(4.0)
At 30 June 2023	22.7	0.6	8.6	35.3	4.1	4.4	75.7

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 would be a corresponding opposite impact on the intangible asset.

	Tri-Solfen^®	Injectable Solution 1	Mirataz	Laverdia^®	Piedmont	Other
Increase/(decrease) in financial liability
10% increase in royalty forecasts £m	1.8	N/A	0.8	1.2	0.3	0.2
10% decrease in royalty forecasts £m	(1.8)	N/A	(0.9)	(1.2)	(0.3)	(0.2)
1% increase in discount rates £m	(1.3)	-	(0.3)	(1.6)	(0.4)	(0.1)
1% decrease in discount rates £m	1.4	-	0.3	1.7	0.1	0.1
5% appreciation in Sterling £m	(1.1)	-	(0.4)	(1.7)	(0.2)	(0.2)
5% depreciation in Sterling £m	1.2	-	0.5	1.9	0.2	0.2
Discount rate range in 2023 financial year	6.5%-21.0%	12.7%	10.1%-10.8%	6.5%-18.8%	6.7%-10.0%	11.0%-23.5%
Discount rate range in 2022 financial year	5.2%-25.0%	11.6%	7.3%-9.4%	5.1%-14.6%	N/A	10.2%-27.1%
Aggregate undiscounted cash outflow in relation to royalties (remaining term of royalty agreement)
2023 £m (years)	39.5 (13.0)	N/A	13.6 (7.5)	23.3 (9.0)	7.2 (15.0)	0.9 (4.0)
2022 £m (years)	50.4 (14.0)	N/A	19.8 (8.5)	51.3 (10.0)	N/A	4.6 (5.0)

The consideration payable for Tri-Solfen® is expected to be payable over a number of years, and relates to development milestones and sales performance royalties. During the year, the development milestones and sales performance royalties have been remeasured. At 30 June 2023, the liability was discounted between 6.5% and 21.0%. 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 Capital Asset Pricing Model based approach, also taking into account systematic risk associated with elements of the future cash flows. The gross value of the development milestones is AUD11.0 million.

The consideration payable for Laverdia® is expected to be payable over a number of years, and relates to approval milestones and sales performance royalties. During the Period, approval milestones and sales performance royalties have been remeasured. At 30 June 2023, the liability was discounted between 6.5% and 18.8% reflecting the commercial makeup of the arrangement similar to Tri-Solfen®. The gross value of the approval and sales performance (non-royalty) milestones is USD40.5 million.

The consideration for products acquired under Piedmont Animal Health Inc is expected to be payable over fifteen years, and relates to approval milestones and sales performance royalties under pre-existing licensing arrangements.

The consideration for Mirataz® relates to sales performance and is expected to be payable over a number of years. The consideration remaining for a licensing agreement for an injectable solution relates to development milestones.

17. Related Party Transactions

Subsidiaries

The Group's ultimate Parent Company is Dechra Pharmaceuticals PLC. A list of subsidiaries is shown within the financial statements of the Company in the 2023 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 2023 Annual Report.

Associates

The Group holds a 49.5% stake in Medical Ethics Pty Ltd, which is the holding company of Animal Ethics Pty Ltd. In 2017 the Group entered into a licensing agreement with Animal Ethics Pty Ltd for Tri-Solfen® for which the fair value of associated contingent consideration is disclosed in note 16. During the year AUD2.0 million (£1.1 million) of approval milestones has been paid.

In 2021, the Group entered into a licensing agreement with Animal Ethics Pty Ltd for the marketing authorisations of Tri-Solfen® in Australia and New Zealand. An associated royalty payment of AUD2.0 million (£1.1 million) has also been paid in the Year.

18. Off Balance Sheet Arrangements

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

19. Contingent Liabilities

At 30 June 2023, contingent liabilities arising in the normal course of business amounted to £7.1 million
(2022: £12.4 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.

20. Subsequent Events

On 20 July 2023, the shareholders voted in favour of the proposed cash offer for the Company by Freya Bidco Limited. The pending acquisition of the Company is conditional upon respective antitrust approvals or the expiry of the applicable waiting periods in the relevant jurisdictions.

21. Underlying Operating Profit, EBITDA, ROCE and Profit Before Taxation Reconciliation

	2023 £m	2022 £m
Operating profit
Underlying operating profit/EBIT is calculated as follows:
Operating profit	6.3	95.5
Non-underlying operating expenses (note 5)	158.8	78.8
Underlying operating profit/EBIT	165.1	174.3
Depreciation	13.7	11.1
Amortisation and impairment	4.9	5.2
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA)	183.7	190.6
Profit before taxation
Underlying profit before taxation is calculated as follows:
(Loss)/profit before taxation	(36.1)	77.6
Non-underlying operating expenses	158.8	78.8
Amortisation of notional acquired intangibles from equity accounting for associates	0.8	0.7
Share of realised non-underlying profit of investments accounted for using the equity method	(0.9)	(0.6)
Loss on extinguishment of debt	0.6	-
Foreign exchange (gains)/ losses on contingent consideration	(3.7)	10.1
Unwind of discount associated with contingent consideration	20.8	3.4
Underlying profit before taxation	140.3	170.0

Return on capital employed

	2023 £m	2022 £m
Net assets	755.2	666.8
Adjusted for:
Net debt	430.1	208.2
Net corporate tax liability/(asset)	(2.8)	1.2
Net deferred tax liability (note 11)	71.4	33.5
Closing operating assets	1,253.9	909.7
Opening operating assets	909.7	878.9
Average operating assets	1,081.8	894.3

	2023 £m	2022 £m
Underlying operating profit	165.1	174.3
Average operating assets	1,081.8	894.3
Return on capital employed	15.3%	19.5%

22. Other information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2023 or 2022 but is derived from the 2023 and 2022 accounts. Statutory accounts for 2022 have been delivered to the Registrar of Companies and those for 2023 will be delivered in due course. The external auditor has reported on the 2022 and 2023 accounts; the reports were (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, other than in respect of the statutory accounts for 2023 where reference was made to the existence of a material uncertainty relating to going concern (as discussed in the going concern section above), and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.

23. Preliminary Statement

This Preliminary statement is not being posted to Shareholders. The Annual Report and Accounts for the year ended 30 June 2023 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.

24. 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 2023. Certain parts of that Report are not included within this announcement. We confirm to the best of our knowledge:

the Group Financial Statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

the Company Financial Statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities and financial position of the Company; and

the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

Signed by the order of the Board:

Ian Page

Chief Executive Officer

12 October 2023

Paul Sandland

Chief Financial Officer

12 October 2023

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