Audited preliminary results -year end 30 June 2021

RNS Number : 7570K

Dechra Pharmaceuticals PLC

06 September 2021

 

Monday, 6 September 2021

Dechra Pharmaceuticals PLC

(Dechra, Company or the Group)

Preliminary Results Announcement

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

"Dechra has continued to outperform a robust market throughout the COVID-19 pandemic affected financial year. As we start the new financial year trading remains strong with the momentum and market penetration seen in the second half of the prior financial year continuing." Ian Page, Chief Executive Officer

Highlights

Strategic progress made: · All product categories delivering growth, CAP and Equine performance exceptional. · Strong organic growth in all key markets. · Good progress continues to be made on product pipeline. · Acquisitions Mirataz® and Osurnia® both performing well.

Strong financial performance: · Revenue growth of 21.0% to £608.0 million. · Underlying operating profit increased by 29.2% to £162.2 million. · Underlying EBIT margin increased by 170 bps to 26.7%. · Underlying diluted EPS increased by 19.4% to 108.14 pence. · Reported operating profit growth of 63.0%. · Full year dividend increased by 18.1% to 40.50 pence.

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

Financial Summary

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

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

AER is defined as Actual Exchange Rate.

Results Briefing today: A presentation of the Annual Results will be held today at 9.00 am (UK time) via https://webcasting.brrmedia.co.uk/broadcast/60ec05bd7245c37cc124444c This will also be available on the Dechra website later today. Dial in ref: Dechra Pharmaceuticals PLC -  2021 Annual Results United Kingdom: Participant Local: [phone] Confirmation Code: 2677534 For assistance please contact Fiona Tooley on [phone].

Enquiries:
Dechra Pharmaceuticals PLC
Ian Page, Chief Executive Officer	Office:  [phone]
Paul Sandland, Chief Financial Officer	Office:  [phone]
e-mail: [e-mail]
TooleyStreet Communications Ltd
Fiona Tooley, Director e-mail: [e-mail]	Office:  [phone] Mobile: [phone]

Notes: Foreign Exchange Rates: FY2021 Average: EUR 1.1287: GBP 1.0; USD 1.3466: GBP 1.0 FY2021 Closing:  EUR 1.1654: GBP 1.0; USD 1.385: GBP 1.0 FY2020 Average: EUR 1.1396: GBP 1.0; USD 1.2601: GBP 1.0   FY2020 Closing:  EUR 1.0960: GBP 1.0; USD 1.2273: GBP 1.0

About Dechra Dechra is a global specialist veterinary pharmaceuticals and related products business. Its expertise is in the development, manufacture, marketing and sales of high quality products exclusively for veterinarians worldwide. Dechra's business is unique as the majority of its products are used to treat medical conditions for which there is no other effective solution or have a clinical or dosing advantage over competitor products.  For more information, please visit: www.dechra.com Stock Code: Full Listing (Pharmaceuticals): DPH LEI: 213800J4UVB5OWG8VX82 Trademarks Trademarks appear throughout this document in italics. Dechra and the Dechra 'D' logo are registered trademarks of Dechra Pharmaceuticals PLC. StrixNB® 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

Preliminary Results for the year ended 30 June 2021

Chief Executive Officer's Statement

Introduction

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

COVID-19

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

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

Operational Review

EU Pharmaceuticals Segment

In the year our European (EU) Pharmaceuticals Segment reported net revenues increased by 20.2% at CER (20.1% at AER). This Segment includes our International business, which is detailed below. It also includes non-core business, such as third party contract manufacturing, which we continue to exit as strategically planned. Existing revenues, excluding third party contract manufacturing and including the like-for-like impact of recent acquisitions, increased by 16.7% at CER (16.6% at AER).

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

International Pharmaceuticals

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

NA Pharmaceuticals Segment

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

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

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

Product Category Performance

CAP

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

FAP

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

Equine

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

Nutrition

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

Product Development and Regulatory Affairs (PDRA)

Overview

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

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

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

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

Pipeline Progress

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

Product Approvals

Numerous marketing authorisations have been achieved throughout the year. Although none is material in its own right, they all strengthen the existing portfolio in Dechra territories and enhance our International portfolio, an increasing area of strategic importance. Major approvals in Dechra territories are:

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

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

· Carprofen Flavoured Tablets, an anti-inflammatory for dogs, were approved in the USA;

· Mirataz Transdermal Gel was registered in Canada;

· three new products and one line extension were registered in Australia and New Zealand, two new approvals in Mexico and
four new approvals in Brazil;

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

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

Acquisitions

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

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

We were pleased to announce on 8 February 2021 the acquisition of the Australian and New Zealand marketing rights for Tri-Solfen^® from Animal Ethics Pty Ltd, a related party. Tri-Solfen^® has already been successfully introduced to the Australian market for pain relief in lambs since 2008 and was approved and launched for use in cattle in 2019, achieving cumulative annualised sales of AUD9.1 million (£5.1 million). This acquisition allows us to create a meaningful FAP presence in the Australian and New Zealand markets as we build a new sales infrastructure. Additionally, we have acquired a further 1.5% of the issued share capital, taking our holding in Animal Ethics Pty Ltd's parent company, Medical Ethics Pty Ltd, to 49.5%. We are in the process of recruiting a FAP sales team and have commenced marketing the product in Dechra livery post the end of the 2021 financial year.

Manufacturing and Supply

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

Technology

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

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

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

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

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

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

People

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

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

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

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

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

Environmental, Social and Governance (ESG)

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

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

Dividend

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

Subject to shareholder approval at the Annual General Meeting to be held on 21 October 2021, the final dividend will be paid on
19 November 2021 to shareholders on the Register at 29 October 2021. The shares will become ex-dividend on 28 October 2021.

Outlook

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

Ian Page

Chief Executive Officer

6 September 2021

Financial Review

Overview of Reported Financial Results

To assist with understanding our reported financial performance, the consolidated results below are split between existing and acquired businesses; acquisition includes the incremental effect of those businesses acquired in the current and prior year, reported on a 'like-for-like' basis. Additionally, the following table shows the growth at both reported actual exchange rates (AER), and constant exchange rates (CER) to identify the impact of foreign exchange movements. The acquisition operating loss includes underlying operating profit of £12.3 million and non-underlying charges of £14.9 million. These non-underlying charges comprise amortisation of acquired intangibles of £13.6 million and acquisition costs of £1.3 million.

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

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

Overview of Underlying Financial Results

When presenting our financial results, we use a number of adjusted measures which are considered by the Board and management in reporting, planning and decision making. Underlying results reflect the Group's trading performance excluding non-underlying items. A reconciliation of underlying results to reported results in the year to 30 June 2021 is provided in the table below. In the commentary which follows, all references will be to CER movement unless otherwise stated.

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

In the year, Dechra delivered consolidated revenue of £608.0 million, representing an increase of 21.0% on the prior year. This included £584.0 million from its existing business, an increase of 16.2%, and a £24.0 million contribution from acquired businesses.

Consolidated underlying operating profit of £162.2 million represents a 29.2% increase on the prior year. This included £149.9 million from Dechra's existing business, an increase of 19.5% on a like-for-like basis, and a £12.3 million contribution from acquired businesses.

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

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

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

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

Reported Segmental Performance

Reported segmental performance is presented in note 2. The effect of acquisitions in the year was material; the reported segmental performance is analysed between existing and acquired businesses, and at AER and CER in the table below. The acquisition elements capture the additional base business coming into the Group up to the first anniversary of their acquisition, including the growth Dechra generated in them during the year, and the synergies that have already been realised by the Group since acquisition. This analysis becomes less definitive the further in time from the completion of the acquisition, as the acquired business is progressively integrated with the existing business.

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

Underlying Segmental Performance

European Pharmaceuticals

Revenue in European (EU) Pharmaceuticals grew by 20.2%. The existing business grew by 15.9%; excluding third party contract manufacturing, which is being reduced in line with our strategy and replaced with own product manufacturing, revenues increased by 16.7%. This growth was driven by a strong performance across all established European markets and also in the key International businesses in ANZ and Brazil. The acquisitions of Mirataz and Osurnia contributed a combined £14.1 million to revenue for the Period where there is no comparative.

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

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

North American Pharmaceuticals

Revenue from North American (NA) Pharmaceuticals grew by 22.2% to £219.5 million. The existing business grew by 16.7% reflecting strong demand for our CAP products in the US, Canada and Mexico. The acquisitions of Osurnia and Mirataz added £9.9 million to revenue for the period.

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

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

Pharmaceuticals Research and Development

Pharmaceuticals Research and Development (R&D) expenses increased by 17.3% from £28.4 million to £32.4 million representing 5.5% of existing revenue with some project spend being delayed due to COVID-19. This spend included £3.9 million in relation to Akston which remains on track for launch in 2026.

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

Revenue by Product Category

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

Other revenue reduced by 8.1% to £11.9 million, now representing only 2.0% of the business as we continue our planned exit from third party contract manufacturing in line with our manufacturing strategy, to improve the production efficiency of Dechra's own products.

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

Gross Profit

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

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

SG&A costs grew from £134.9 million in the prior year to £151.3 million in the current year, an increase of 12.2% (at AER). This growth principally represents investment in our people costs following the review of compensation across the Group, higher delivery of bonus targets and increased related bonus payments and additional cost incurred as a result of improved vesting conditions across the Group's employee share schemes. Despite these increases, the Group did benefit from lower than expected SG&A costs as a result of COVID-19, particularly in relation to sales and marketing activities and travel and entertainment.

Non-underlying Items

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

· Amortisation of acquired intangibles of £75.2 million: the amortisation of the acquired intangibles has increased from £69.6 million in 2020 principally due to new charges relating to the Osurnia and Mirataz acquisitions and a reducing charge from the AST Farma and Le Vet acquisition;

· Expenses relating to acquisition and subsequent integration activities of £1.4 million (2020: £4.3 million): this includes the transaction and integration costs associated with the acquisitions made in recent years and principally relates to Osurnia acquisition costs;

· Rationalisation of manufacturing organisation of £1.6 million (2020: £2.2 million): this comprises the final costs associated with this strategic programme which has now been concluded;

· Finance credit of £2.8 million (2020: charge of £2.5 million): this represents the net credit arising on the unwind of the discount relating to the contingent consideration liability and associated foreign exchange gain; and

· Taxation credit of £14.0 million (2020: £17.7 million): this represents the tax impact of the above items (£16.6 million), as well as the revaluation of deferred tax balance sheet items (£4.8 million charge) following changes in corporate tax rates, including a further revision to the Netherlands rate (which will now remain at 25%) and the UK rate which will increase to 25% in 2023, offset by the release of certain fair value provisions relating to previous acquisitions (£2.2 million).

Taxation

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

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

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

Reported Profit

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

Earnings per Share and Dividend

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

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

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

Currency Exposure

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

	Average rates
	2021	2020	% Change
£/€	1.1287	1.1396	(1.0%)
£/$	1.3466	1.2601	6.9%

Currency Sensitivity

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

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

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

Statement of Financial Position

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

· Non-current assets (excluding deferred tax) increased from £786.0 million to £819.9 million and includes the intangible assets recognised on the acquisitions of Osurnia and the marketing rights for Tri-Solfen^® in ANZ, partly offset by amortisation of acquired intangibles.

· Working capital has increased from £116.5 million to £142.7 million (£26.2 million at AER, £36.0 million cash flow impact) mainly due to an increase in inventory due to the growth of the Group, including stockholdings for Osurnia and Mirataz, and also to maintain service levels during a period of uncertainty.

· Net debt has increased in the year by £72.6 million from £127.6 million to £200.2 million; this includes cash generation from operations at £141.2 million, an outflow of £106.5 million relating to the acquisition of Osurnia, net capital expenditure of £19.8 million, interest/tax outflows of £51.6 million and £37.9 million in dividends. Exchange rate variations positively impacted the net debt position by £15.5 million.

· Current and deferred tax has reduced from £78.7 million to £45.8 million principally due to the realisation of deferred tax
liabilities relating to the amortisation of acquired intangibles.

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

Cash Flow, Financing and Liquidity

The Group enjoyed good cash generation during the year, with a strong Underlying EBITDA margin of 29.2% (2020: 27.7%). However, as mentioned above, working capital has increased by £36.0 million, mainly due to increases in inventory as a result of additional stock cover due to growth of the Group's trading activities, including the acquisitions of Mirataz and Osurnia. This resulted in net cash generated from operations of £141.2 million, representing cash conversion of 87.1% of underlying operating profit.

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

Net Debt Bridge

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

· Net capital expenditure on tangible assets increased to £19.8 million (2020: £14.2 million), representing 1.8 times depreciation.

· Acquisitions of subsidiaries, intangible assets and investment in associates of £116.3 million includes the acquisition of Osurnia (£106.5 million), the additional investment in Medical Ethics (£0.8 million) and capitalised development expenditure including milestones on licensing arrangements.

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

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

Borrowing Facilities

As reported in preceding Annual Reports, the Group completed a refinancing and entered into a multi-currency facilities agreement in July 2017 (the Facility Agreement), with a group of banks comprising Bank of Ireland (UK) plc, BNP Paribas, Fifth Third Bank, HSBC Bank plc, Lloyds Bank plc (replaced by Credit Industriel et Commercial, London branch (CIC) in August 2019), Raiffeisen Bank International AG and Santander UK plc (the Banks). The Facility agreement has a revolving credit facility (the RCF) of £340.0 million, which is committed until July 2024.

In January 2020 the Group undertook a Private Placement raising €50.0 million and USD 100.0 million (under seven and ten year new senior secured notes respectively), the proceeds of which were used to repay existing debt. The placement achieved the Group's aims of diversifying the sources of debt financing and extending the debt maturity profile.

On 4 June 2020 the Group successfully completed a share placing of 5,132,500 new ordinary shares, representing approximately 5% of the existing issued share capital of the Company, at a price of 2600 pence per placing share, raising gross proceeds of £133.4 million which were largely deployed to fund the Osurnia acquisition upon its completion on 27 July 2020.

Covenants

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

· Leverage: Net Debt to underlying EBITDA not greater than 3:1 for the RCF and 3.5:1 for the Private Placement (30 June 2021: 1.1:1); and

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

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

The current RCF is committed and has a non-utilisation fee of 35.0% of the applicable margin. The margin over LIBOR (or equivalent) ranges from 1.3% for leverage below 1.0 times, up to 2.2% for leverage above 2.5 times.

The weighted average coupon of the Private Placement fixed rate notes will equate to 2.8%.

Return on Capital Employed (ROCE)

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

Acquisitions

The Group has made several acquisitions in recent years. The incremental performance during the first year of ownership of the acquisitions made during the 2020 and 2021 financial years is separately summarised compared to the existing business in the sections above.

In July 2020, the Group completed the acquisition of the worldwide product rights to Osurnia from Elanco for consideration of
£106.5 million. The addition of Osurnia significantly enhances the Dechra portfolio and complements the existing product offering to veterinarians. The acquisition was financed from the equity placing in June 2020.

In February 2021 the Group acquired the Australian and New Zealand marketing rights for Tri-Solfen^® from Animal Ethics Pty Ltd, a related party, for a total consideration of £17.2 million with an upfront payment of £2.8 million made on signing and the balance paid on the first commercial sale by Dechra in July 2021. This acquisition allows us to create a meaningful FAP presence in these markets. The acquisition was financed from the Group's existing working capital resources.

In February 2021, the Group also acquired an additional 1.5% of the shares of Medical Ethics Pty Ltd for a consideration of £0.8 million. This takes the Dechra Group shareholding to 49.5%. The acquisition was financed from the Group's existing working capital resources.

Accounting Standards
The accounting policies adopted are outlined in note 1 to the Accounts. There are no accounting policy changes which have materially impacted the 2021 financial year.

Going Concern

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing these annual financial statements.

In reaching this conclusion, the Directors have given due regard to the following:

· The Group's business activities together with factors likely to impact the future growth and operating performance;

· The financial position of the Group, its cash flows, available debt facilities and compliance with the financial covenants associated with the Group's borrowings, which are described in the financial statements; and

· The cash generated from operations, available cash resources and committed bank facilities and their maturities, which taken together, provide confidence that the Group will be able to meet its obligations as they fall due.

As at 30 June 2021, the Group had net debt of £200.2 million (2020: net debt of £127.6 million), and had available cash balances and unutilised committed borrowing facilities of £281.9 million.

Summary

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

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

The Group's balance sheet is strong, enabling us to continue to consider further relevant acquisition and investment opportunities as they arise.

Paul Sandland

Chief Financial Officer

6 September 2021

Key Performance Indicators

1.	Existing Revenue Growth Year-on-year CER sales growth including new products and excluding revenue from acquired businesses.
Up 16.2% 2021: £584.0m 2020: £515.1m 2019: £481.8m 2018: £407.1m 2017: £359.3m		Commentary
		Dechra's existing business grew by 16.7% in EU Pharmaceuticals (excluding third party contract manufacturing which declined), and by 16.7% in NA Pharmaceuticals.
		Relevance to Strategy A key driver of our strategy is to deliver sustainable sales growth through delivering our pipeline, maximising our existing portfolio and expanding geographically.

2.	Underlying Diluted EPS Growth Underlying profit after tax divided by the diluted average number of shares, calculated on the same basis as note 9 to the Accounts.
Up 19.4% 2021: 108.14p 2020: 92.19p 2019: 90.01p 2018: 76.45p 2017: 64.33p		Commentary
		This includes a 29.2% increase in underlying operating profit, offset by higher net finance costs, tax charges and the full year impact of the equity placing in June 2020.
		Relevance to Strategy  Underlying diluted EPS is a key indicator of our performance and the return we generate for our stakeholders. It is one of the performance conditions of the LTIP.

3.	Underlying Return on Capital Employed Underlying operating profit expressed as a percentage of the average of the opening and closing operating assets (excluding cash/debt and net tax liabilities).
Up 340bps 2021: 18.8% 2020: 15.4% 2019: 15.6% 2018: 15.4% 2017: 17.7%		Commentary
		There was an increase in ROCE during the year reflecting the increased contribution from the Group's existing business. The Group's target is 15%.
		Relevance to Strategy  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.

4.	Cash Conversion Cash generated from operations before tax and interest payments as a percentage of underlying operating profit.
Down 1230bps 2021: 87.1% 2020: 99.4% 2019: 85.0% 2018: 81.9% 2017: 115.9%		Commentary
		Cash conversion decreased during the year as a result of increased working capital. This was primarily due to increases in inventory as a result of additional stock cover due to the growth of the Group's trading activities including the acquisition of Mirataz and Osurnia.
		Relevance to Strategy Our stated aim is to be a cash generative business. Cash generation supports investment in the pipeline, acquisitions and people.

5.	New Product Revenue Revenue from new products as a percentage of total Group revenue. A new product is defined as any molecule launched in the last five financial years.
Up 370bps 2021: 20.4% 2020: 16.7% 2019: 16.7% 2018: 11.9% 2017: 7.9%		Commentary
		New product revenues reflect the strong market penetration of products launched in the year to 30 June 2021 and the previous four years, including the acquisitions of Osurnia and Mirataz.
		Relevance to Strategy 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 or acquired products.

6.	Lost Time Accident Frequency Rate (LTAFR) All accidents resulting in the absence or inability of employees to conduct the full range of their normal working activities for a period of more than three working days after the day when the incident occurred, normalised per 100,000 hours worked.
Down 47.1% 2021: 0.09 2020: 0.17 2019: 0.21 2018: 0 2017: 0.26		Commentary
		The LTAFR decreased from 0.17 to 0.09. None of these incidents resulted in a work-related fatality or disability.
		Relevance to Strategy The safety of our employees is core to everything we do. We are committed to a strong culture of safety in all our workplaces.

7.	Employee Turnover Number of leavers during the period as a percentage of the average total number of employees in the period.
Up 110bps 2021: 13.5% 2020: 12.4% 2019: 13.6% 2018: 15.9% 2017: 15.7%		Commentary
		We saw an increase in employee turnover in the period due to the planned closure of the Mexican manufacturing facility in October 2020.
		Relevance to Strategy Attracting and retaining the best employees is critical to the successful execution of our strategy.

How the Business Manages Risk

Effective risk management and control is key to the delivery of our business strategy and objectives.

Our risk management and control processes are designed to identify, assess, mitigate and monitor significant risks, and provide
reasonable but not absolute assurance that the Group will be successful in delivering its objectives.

Risk Management Process

Our strategy informs the setting of objectives across the business and is widely communicated. Strategic risks and opportunities are identified as an integral part of our strategy setting process, whilst operational, financial, compliance and emerging risks are identified as an integral part of our functional planning and budget setting processes. 

The Board oversees the risk management and internal control framework and the Audit Committee reviews the effectiveness of the risk management process and the internal control framework.

Our Senior Executive Team (SET) owns the risk management process and is responsible for managing specific Group risks. The SET members are also responsible for embedding sound risk management in strategy, planning, budgeting, performance management, and operational processes within their respective Operating Segments and business units.

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

SET members present their risks, controls and mitigation plans to the Board for review on a rolling programme throughout the year, whilst the Board undertake a full review of the risk management process biannually. The SET is responsible for conducting self-assessments of their risks and the effectiveness of their control processes. Where control weaknesses are identified, remedial action plans are developed, and these are included in the risk reports presented to the Board.

Internal Audit coordinate the ongoing risk reporting process and provide independent assurance on the internal control framework.

Emerging Risks

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

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

COVID-19

We have continued to operate our risk management and control processes effectively throughout the COVID-19 pandemic, including a formal assessment of emerging risks, climate risk and the potential longer-term impact of COVID-19 on the business.

The operational impact of COVID-19 on the business during the last financial year and the actions we have taken in response are described in various parts of the Strategic and Governance Reports. Whilst the virus has had an impact on how we conduct our operational activities, we have continued to operate successfully throughout the pandemic in all of our worldwide locations. We have not needed to use any government support or job retention schemes, and have maintained and in some cases increased our headcount during the year. 

Sales have continued to grow throughout the financial year against the backdrop globally of COVID-19 limiting the impact on business performance, whilst recognising that risks around our people and travel restrictions still exist. Given the developing global responses to COVID-19 we remain cautious and will continue to monitor and respond to further changes where needed.

Dechra Culture

The Dechra Values are the foundation of our entire business culture including our approach to risk management and control. The Board expects that these Values should drive the behaviours and actions of all employees. We encourage an open communication style where it is normal practice to escalate issues promptly so that appropriate action can be taken quickly to minimise any impact on the business.

Internal Control Framework

Our internal control framework is designed to ensure:

· proper financial records are maintained;

· the Group's assets are safeguarded;

· compliance with laws and regulations; and

· effective and efficient operation of business processes.

The key elements of the control framework are described below:

Management Structure

Our management structure has clearly defined reporting lines, accountabilities and authority levels. The Group is organised into business units. Each business unit is led by a SET member and has its own management team.

Policies and Procedures

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

· Code of Business Conduct and How to Raise a Concern;

· Delegation of Authorities;

· Dechra Finance Manual, including Tax and Treasury policies;

· Anti-Bribery and Anti-Corruption;

· Data Protection;

· Health and Safety;

· Sanctions; and

· Charitable Donations.

Strategy and Business Planning

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

Operational Controls

Our key operational control processes are as follows:

· Product Pipeline Reviews: We review our pipeline regularly to identify new product ideas and assess the fit to our product portfolio, prioritise development projects, review whether products in development are progressing according to schedule, and assess the expected commercial return on new products.

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

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

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

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

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

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

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

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

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

The key controls in place to manage our principal risks are described in the Understanding Our Key Risks. Internal Audit provides independent and objective assurance and advice on the design and operation of the Group's internal control framework. The internal audit plan seeks to provide balanced coverage of the Group's material financial, operational and compliance control processes.

Improvements in 2021

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

· New governance and oversight processes to provide transparency of performance, decisions and actions across the manufacturing and supply network.

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

· Recruitment of a new Internal Network Director to strengthen the management of our internal manufacturing sites.

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

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

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

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

Plans for 2022

We will continue to refine and strengthen our internal control framework where required in response to changes in our risk profile and improvement opportunities identified by business management, quality assurance and internal audit. Our Manufacturing and Supply processes continue to be the primary focus area for 2022.

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

Understanding Our Key Risks

Link to Strategic Growth Driver and Enabler	Risk	Potential Impact	Control and Mitigating Actions	Trends
Portfolio Focus	1. 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 national and European pricing policies to deliver equitable pricing for each customer group. Our relationships with larger customers are managed by key account managers. Our marketing strategy is designed to support veterinarians in retaining customers by promoting the benefits of our product portfolio in our major therapeutic areas.	No change
Pipeline Delivery Portfolio Focus Geographical Expansion	2. Competitor Risk:  Competitor products launched against one of our leading brands (e.g. generics or a superior product profile). We depend on data exclusivity periods or patents to have exclusive marketing rights for some of our products. Although we maintain a broad portfolio of products, our unique products like Vetoryl and Felimazole have built a market which continue 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.	No change
Pipeline Delivery	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 on which ones to progress. The pipeline is discussed regularly by senior management, including the Chief Executive Officer and Chief Financial Officer. Regular updates are also provided to the Board. Each development project is managed by project leaders who chair project team meetings. Before costly pivotal studies are initiated, smaller proof of concept pilot studies are conducted to assess the effects of the drug on target species and for the target indication. In respect of all new product launches a detailed marketing plan is established and progress against that plan is regularly monitored 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.	No change
Pipeline Delivery Portfolio Focus Manufacturing and Supply Chain	4. Supply Chain Risk:  Inability to maintain supply of key products due to manufacturing, quality or product supply problems in our own facilities or from third party suppliers. We rely on third parties for the supply of all raw materials for products that we manufacture in-house. We also purchase many of our finished products from third party manufacturers.	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. We have now addressed the majority of our in-house quality and supply challenges which contributed to an increased supply chain risk last year, and our enhanced Governance and controls in this area have seen a reduction in the risk here.	We monitor the performance of our key suppliers and act promptly to source from alternative suppliers where potential issues are identified. The top ten Group products are regularly reviewed in order to identify the key suppliers of materials or finished products. A dedicated external network team exist who manage and support our CMOs to deliver quality products to our regulatory specifications. Demand forecasting and supply planning processes, with monthly reviews of demand and production forecasts, inventory levels, and remediation plans for products that are out of supply. We plan to increase our working capital and carry higher levels of safety stock on critical raw materials, and finished products. Processes are in place to monitor and improve product robustness, including Quality and Technical analyses of key products and engagement with internal and external Regulatory stakeholders. A business continuity plan is in place at Skipton, Zagreb and Uldum, and similar plans are being developed for other sites. A project is in progress to review and improve our supply planning processes.	Decreased risk
Pipeline Delivery Portfolio Focus Geographical Expansion	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.	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.	No change
Acquisition	6. Acquisition Risk:  Identification of acquisition opportunities and their potential integration. Identification of suitable opportunities and securing a successful approach involves a high degree of uncertainty. Acquired products or businesses may fail to deliver expected returns due to over-valuation or integration challenges.	Failure to identify or secure suitable targets could slow the pace at which we can expand into new markets or grow our portfolio. Acquisitions could deliver lower profits than expected or result in intangible assets impairment.	We have defined criteria for screening acquisition targets, and we conduct commercial, clinical, financial, environmental and legal due diligence. The Board reviews acquisition plans and progress regularly and approves all potential transactions. The SET manages post acquisition integration and monitors the delivery of benefits and returns through a defined process. Whilst acquisition activity has reduced across the year, our defined processes and acquisition team strength have seen a reduced risk against a backdrop of no global travel.	Decreased risk
Geographical Expansion Acquisition People	7. People Risk:  Failure to resource the business to achieve our strategic ambitions, particularly on geographical expansion and acquisition. As Dechra expands into new markets and acquires new businesses or science, we recognise that we may need new people with different skills, experience and cultural knowledge to execute our strategy successfully in those markets and business areas.	Failure to recruit or develop quality people could result in: · capability gaps in new markets. · challenges in integrating new acquisitions; or · overstretched resources. This could delay implementation of our strategy and we may not meet shareholders' expectations.	The Group HR Director reviews the organisational structure with the SET and the Board twice a year to confirm that the organisation is fit for purpose and to assess the resourcing implications of planned changes or strategic imperatives. A development programme is in place to identify opportunities to recruit new talent and develop existing potential. A new talent acquisition team and applicant tracking software have been embedded in the year.	No change
Portfolio Focus Geographical Expansion	8. 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. In the EU new veterinary regulations are likely to come into force in January 2022 to reduce the use of antimicrobials in animals.	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.	Increased risk
Pipeline Delivery Portfolio Focus People	9. Retention of People Risk:  Failure to retain high calibre, talented senior managers and other key roles in the business. Our growth plans and future success are dependent on retaining knowledgeable and experienced senior managers and key staff.	Loss of key skills and experience could erode our competitive advantage and could have an adverse impact on results. Inability to attract and retain key personnel may weaken succession planning.	The Nomination Committee oversees succession planning for the Board and the SET. Succession plans are in place for the SET together with development plans for key senior managers. 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.	No change
Pipeline Delivery Portfolio Focus People	10. Climate:  Severe weather patterns caused by climate change or natural disaster causes damage to manufacturing or distribution facilities impacting our ability to meet customer demand.	Damage to our facilities as a result of climate change could impact our abilities to both 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.	The Sustainability Director and Risk team are engaged identifying the current risk threats and opportunities across the Group sites.  Whilst there has been previous work in this area, the Group has a renewed focus and commitment towards its ESG responsibilities.	New

Consolidated Income Statement

For the year ended 30 June 2021

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

* The Group presents a number of non-GAAP Alternative Performance Measures (APMs). This allows investors to understand better the underlying performance of the Group, by excluding non-underlying items as set out in note 5.

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2021

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

Consolidated Statement of Financial Position

At 30 June 2021

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

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

Ian Page Chief Executive Officer 6 September 2021

Paul Sandland Chief Financial Officer 6 September 2021

Company number: 3369634

Consolidated Statement of Changes in Shareholders' Equity

For the year ended 30 June 2021

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

Hedging Reserve

The hedging reserve represents the cumulative fair value gains or losses on derivative financial instruments for which cash flow hedge accounting has been applied, net of tax.

Foreign Currency Translation Reserve

The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other than Sterling and exchange gains or losses on the translation of liabilities that hedge the Company's net investment in foreign subsidiaries.

Merger Reserve

The merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the acquisition of subsidiaries where statutory merger relief has been applied in the financial statements of the Parent Company.

Consolidated Statement of Cash Flows

For the year ended 30 June 2021

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

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

Notes to the Consolidated Financial Statements

1. Status of Accounts

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

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

2. Operating Segments

The Group has three reportable segments, as discussed below, which are based on information provided to the Board of Directors, which is deemed to be the Group's chief operating decision maker. Several operating segments which have similar economic characteristics have been aggregated into the reporting segments. In undertaking this aggregation, the assessment determined that the aggregated segments have similar products, production processes, customers and overall regulatory environments.

The European Pharmaceuticals Segment comprises Dechra Veterinary Products EU, Dechra Veterinary Products International and Dechra Pharmaceuticals Manufacturing. This Segment operates internationally and manufactures and markets Companion Animal, Equine, Food producing Animal Products and Nutrition. This Segment also includes third party manufacturing and other revenues from non-core activities.

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

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

	2021 £m	2020 £m
Revenue by segment
European Pharmaceuticals	388.5	323.5
NA Pharmaceuticals	219.5	191.6
	608.0	515.1
Underlying operating profit/(loss) by segment
European Pharmaceuticals	127.8	100.0
NA Pharmaceuticals	75.9	63.7
Pharmaceuticals Research and Development	(32.4)	(28.4)
Underlying segment operating profit	171.3	135.3
Corporate and other unallocated costs	(9.1)	(7.0)
Underlying operating profit	162.2	128.3
Amortisation of acquired intangibles	(75.2)	(69.6)
Rationalisation of manufacturing organisation	(1.6)	(2.2)
Expenses relating to acquisitions and subsequent integration activities	(1.4)	(4.3)
Total operating profit	84.0	52.2
Finance income	3.8	3.0
Finance expense	(12.7)	(14.0)
Share of losses in investment accounted for using the equity method	(1.1)	(0.3)
Profit before taxation	74.0	40.9
Total liabilities by segment
European Pharmaceuticals	(137.5)	(110.3)
NA Pharmaceuticals	(60.5)	(53.1)
Pharmaceuticals Research and Development	(5.9)	(5.1)
Segment liabilities	(203.9)	(168.5)
Corporate loans and revolving credit facility	(302.7)	(340.0)
Corporate accruals and other payables	(9.2)	(3.4)
Current and deferred tax liabilities	(65.4)	(88.2)
	(581.2)	(600.1)

	2021 £m	2020 £m
Revenue by product category
CAP	442.6	361.6
Equine	44.8	36.4
FAP	77.0	74.8
Nutrition	31.7	28.6
Other	11.9	13.7
	608.0	515.1
Additions to intangible non-current assets by segment (including through business combinations)
European Pharmaceuticals	97.1	22.3
NA Pharmaceuticals	40.2	47.5
Pharmaceuticals Research and Development	0.1	0.4
Corporate and central costs	1.4	1.5
	138.8	71.7

Additions to Property, Plant and Equipment by segment (including through business combinations)
European Pharmaceuticals	19.8	12.1
NA Pharmaceuticals	5.9	4.3
Pharmaceuticals Research and Development	0.4	0.7
Corporate and central costs	0.3	0.2
	26.4	17.3
Depreciation and amortisation by segment
European Pharmaceuticals	67.1	64.1
NA Pharmaceuticals	22.4	18.5
Pharmaceuticals Research and Development	0.5	0.5
Corporate and central costs	0.7	0.7
	90.7	83.8
The total depreciation and amortisation charge is made up of the following:
Non-underlying
Amortisation - selling, general and administrative expenses	70.8	63.9
Amortisation - research and development expenditure	4.4	5.7
	75.2	69.6
Underlying
Amortisation and impairment	4.5	4.3
Depreciation	11.0	9.9
	15.5	14.2

Geographical Information

The following table shows revenue based on the geographical location of customers and non-current assets based on the country of domicile of the entity holding the asset:

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

3. Finance Income

Underlying	2021 £m	2020 £m
Finance income arising from:
- Cash and cash equivalents	-	0.1
- Foreign exchange gains	-	2.9
Underlying finance income	-	3.0

Non-underlying	2021 £m	2020 £m
Finance income arising from:
- Foreign exchange gains on contingent consideration	3.8	-
Non-underlying finance income	3.8	-
Total finance income	3.8	3.0

4. Finance Expense

Underlying	2021 £m	2020 £m
Finance expense arising from:
- Financial liabilities at amortised cost	8.3	11.1
- Lease liability interest	0.5	0.4
- Foreign exchange losses	2.9	-
Underlying finance expense	11.7	11.5

Non-underlying	2021 £m	2020 £m
Finance expense arising from:
- Loss on extinguishment of debt	-	1.0
- Foreign exchange losses on contingent consideration	-	0.9
- Unwind of discount associated with contingent consideration	1.0	0.6
Non-underlying finance expense	1.0	2.5
Total finance expense	12.7	14.0

5. Non-underlying Items

Non-underlying items charged/(credited) comprise:

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

Amortisation of acquired intangibles reflects the amortisation of the fair values of future cash flows recognised on acquisition in relation to the identifiable intangible assets acquired.

Expenses relating to acquisitions and subsequent integration activities represents costs incurred during the acquisition and integration of Osurnia (£1.3 million) and other product licensing agreements (£0.1 million).

Rationalisation of manufacturing organisation relates to the income statement cost associated with this strategic programme. Costs since the inception of the programme have been £8.7 million and the programme has now been completed in the current financial year.

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

The revaluation of the deferred tax balances arises as a result of an increase in the Dutch and UK corporation tax rates from that previously enacted in the prior year. The £4.8 million charge in the current year predominantly arises from the change in the Dutch corporation tax rate which has been substantively enacted to remain at 25.0% (previously this was to reduce to 21.7% over the period to 2022).

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

6. Interests in Associate

Interest in Associate

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

On 5 February 2021 the Group acquired a further 1.5% of the issued share capital of Medical Ethics Pty Ltd for a total consideration of  AUD1.5 million (£0.8 million). Following the acquisition the Group holds 49.5% of the issued share capital of Medical Ethics Pty Ltd, which is the holding company of Animal Ethics Pty Ltd. The increased shareholding to 49.5% of the issued share capital has not resulted in a change of control or accounting treatment of the entity. The company is incorporated in Australia, which is also the principal place of business. The registered address is c/o Level 3, 649 Bridge Road, Richmond, Victoria 3121, Australia. The company has share capital consisting solely of ordinary shares, which are directly owned by the Group. Medical Ethics Pty Ltd is a private company and there is no quoted market price available for its shares. There are no contingent liabilities relating to the Group's interest in the associate.

The Group's share of the loss arising from its investment in Medical Ethics includes the effect of harmonising the accounting policies and of amortising the fair value adjustments (net of tax), which are treated as non-underlying.

7. Income Taxes

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

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

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

Recurring items in the tax reconciliation include: research and development related tax credits and patent box incentives; expenses not deductible; and the share of results in associates. The effective tax rate is 25.0% (excluding non-underlying items the effective tax rate is 21.7%).

Tax Credit/(Charge) Recognised Directly in Equity

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

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

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

At 30 June 2021, the Group held a current provision of £5.7 million (2020: £5.6 million) in respect of uncertain tax positions. The resolution of these tax matters may take many years. The range of reasonably possible outcomes within the next financial year is £2.1 million to £7.4 million.

EU CFC Challenge

The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concluded that the legislation up until December 2018 does partially represent State Aid. The Group considers that the potential amount of additional tax payable remains between £nil and £4.0 million depending on the basis of calculation and the outcome of HMRC's appeal to the EU Commission. Based on current advice, the Group does not consider any provision is required in relation to this investigation. This judgement is based on current interpretation of legislation and professional advice.

During the period, the Group received charging notices from HMRC under The Taxation (Post Transition Period) Bill for part of the exposure (£2.75 million) and has paid this to HMRC. As the Group considers that the appeal will be successful, the charging notices have been settled in full and a current tax receivable has been recorded in respect of the payment on the basis that the amount will be repaid in due course.

Future Tax Charge

The Group's future tax charge, and its effective tax rate could be affected by several factors including the impact of the implementation of the OECD's Base Erosion and Profit Shifting ('BEPS') actions, and changes in applicable tax rates and legislation in the territories in which it operates.

8. Dividends

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

In accordance with IAS 10 'Events After the Balance Sheet Date', the proposed final dividend for the year ended 30 June 2021 has not been accrued for in these financial statements. It will be shown as a deduction from equity in the financial statements for the year ending 30 June 2022. There are no income tax consequences. The final dividend for the year ended 30 June 2020 is shown as a deduction from equity in the year ended 30 June 2021.

9. Earnings per Share

Earnings per ordinary share have been calculated by dividing the profit attributable to equity holders of the parent after taxation for each financial period by the weighted average number of ordinary shares in issue during the period.

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

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

	2021 £m	2020 £m
Earnings for underlying basic and underlying diluted earnings per share	117.6	95.4
Earnings for basic and diluted earnings per share	55.5	33.9

	Number	Number
Weighted average number of ordinary shares for basic earnings per share	108,119,864	103,133,142
Impact of share options	630,725	348,393
Weighted average number of ordinary shares for diluted earnings per share	108,750,589	103,481,535

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

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

10. Intangible Assets

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

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

The software intangible asset includes £9.3 million relating to the ERP system in the EU Pharmaceuticals Segment; this has a remaining amortisation period of 4 years.

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

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

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

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

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		12.8		13.2	4 ½ years
Intangible assets arising from the acquisition of Eurovet	Technology, product, marketing and distribution rights		37.7		7.9		45.6	1 year
Goodwill arising from the acquisition of Vetxx			16.4		-		16.4	N/A
Intangible assets arising from the acquisition of Genera	Product, brand, technology, marketing and distribution rights				0.3			1 ½ years
					0.2			4 ½ years
					5.8			9 ½ years
			5.3				11.6	Genera - total
Intangible assets arising from the acquisition of Putney	Product, brand, technology, pharmacological process, marketing and distribution rights				4.4			5 years
					12.5			5 years
					33.1			7 years
			47.3				97.3	Putney - total
Intangible asset arising from the acquisition of Apex		Product and technology				11.3		12 years
						1.7		9 years
				8.7			21.7	Apex - total
Intangible assets related to the licensing and distribution of Tri-Solfen® (excluding ANZ territories)		Marketing and distribution rights		-		39.7	39.7	10 years
Intangible asset related to an injectable solution licensing agreement		Marketing and distribution rights		-		5.8	5.8	10 years
Intangible assets arising from the acquisition of AST Farma and Le Vet		Product, brand, technology, marketing and distribution rights				46.2		6 ½ years
						61.4		5 ½ years
						13.3		7 years
						0.8		1 ½ years
				98.7			220.4	AST Farma and   Le Vet - total
Intangible assets related to an injectable solution licensing agreement		Marketing and distribution rights		-		5.6	5.6	15 years
Intangible assets arising from the acquisition of Caledonian		Product, brand, technology, marketing and distribution rights		0.8		2.9	3.7	7 ½ years
Intangible assets arising from the acquisition of Dechra Brasil Produtas Veterinarios LTDA		Product, brand, technology, marketing and distribution rights		8.3		6.6 0.3 0.3	15.5	7 ½ years 2 ½ years 5 ½ years Brazil - total
Intangible assets arising from the acquisition of Ampharmco		Product and technology rights		5.8		0.6 5.0 0.5 5.3	17.2	1 ½ years 16 ½ years 13 ½ years 13 years Ampharmco - total
Intangible assets arising from the acquisition of Mirataz		Product and technology rights		-		37.9 7.2 0.9	46.0	8 ½ years 9 ½ years 9 ½ years Mirataz - total
Intangible assets arising from the acquisition of Osurnia		Product, marketing and distribution rights		-		96.5	96.5	9 years
Intangible assets related to the licensing and distribution of Tri-Solfen® (ANZ territories)		Product, marketing and distribution rights		-		24.5	24.5	10 years
Other individually immaterial goodwill and acquired intangibles				6.7		9.0	15.7
				236.1		460.3	696.4

11. Deferred Taxes

Recognised Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are analysed in the statement of financial position after offset, to the extent there is a legally enforceable right, of balances within countries as follows:

	2021 £m	2020 £m
Deferred tax assets	2.0	2.7
Deferred tax liabilities	(48.8)	(62.6)
	(46.8)	(59.9)

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

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

12. Borrowings and lease liabilities

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

At 30 June 2021, £189.7 million was drawn against the £340.0 million Revolving Credit Facility maturing 25 July 2024. The facility is not secured on any specific assets of the Group but is supported by a joint and several cross guarantee structure. Interest is charged on this facility at a minimum of 1.30% over LIBOR and a maximum of 2.20% over LIBOR, dependent upon the Leverage (the ratio of Total Net Debt to Adjusted EBITDA) of the Group. As at 30 June 2021, interest being charged on this facility is 1.50% above LIBOR. All covenants were met during the year ended 30 June 2021.

In January 2020, the Group undertook a Private Placement raising EUR50.0 million and USD100.0 million (under seven and ten year new senior secured notes respectively) which remains fully drawn at 30 June 2021. The Private Placement amounts are not secured on any specific assets of the Group, but are supported by a joint and several cross guarantee structure. Interest is charged on the EUR50.0 million amount at a fixed rate of 1.19% until maturity (January 2027). Interest is charged on the USD100.0 million amount at a fixed rate of 3.34% until maturity (January 2030).

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

The borrowing facility of Genera of £4.6 million, of which £1.4 million was drawn at 30 June 2020, was fully repaid in March 2021 and the facility was closed.

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

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

The maturity of the lease liabilities is as follows:

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

13. Provisions

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

The Group has received advanced payment for rental income on its facilities in Portland. This has been recognised at amortised cost and is being utilised over the period of the rental contract expiring in January 2025.

Genera has received advanced funding (PPE grant) for the refurbishment of the manufacturing facility for a third party manufacturing contract. The funding has been recognised at amortised cost and is being utilised over the life of the property, plant and equipment until 2025.

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

The Group established a fair value provision of £1.9 million for dilapidations of two warehouse properties in Skipton. In line with IFRS 16, the element of the provision that relates to reinstatement work as a result of alterations (£1.6 million) has been capitalised and will be depreciated over the lease term. The remaining amount (£0.3 million) has been expensed to the income statement. The respective provisions for the two buildings will be utilised over the period to the expiry of the lease in March 2025 and March 2030.

14. Foreign Exchange Rates

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

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

15. Contingent Consideration Liabilities

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

The consideration for certain acquisitions and licensing agreements includes amounts contingent on future events such as development milestones or sales performance. The Group has provided for the fair value of this contingent consideration as follows:

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

The table below shows on an indicative basis the sensitivity to reasonably possible changes in key inputs to the valuations of the contingent consideration liabilities. There will be a corresponding opposite impact on the intangible asset .

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

The consideration payable for Tri-Solfen^® is expected to be payable over a number of years, and relates to development milestones and sales performance. During the year, the development milestones and sales performance royalties have been remeasured. On 5 February 2021, the Group entered into a licensing agreement with Animal Ethics Pty Ltd for the marketing authorisations of Tri-Solfen^® in Australia and New Zealand for a total consideration of AUD31.0 million (£17.2 million) and sales performance royalties.   At 30 June 2021, AUD26.0 million (£14.1 million) of the total consideration was not discounted given that settlement took place in July 2021. The remaining liability was discounted between 1.2% and 19.7%.  The broad range of discount rates in respect of this licensing agreement reflects the commercial makeup of the arrangement, with discount rates for milestone payments related to regulatory approvals being lower and based on a cost of debt approach and those with more variability in timing and quantum of future cash flows being higher and based on a CAPM-based approach, also taking into account systematic risk associated with elements of the future cash flows.

The consideration payable for Mirataz relates to sales performance and is expected to be payable over a number of years.

The consideration payable for StrixNB^® and DispersinB^® is expected to be payable over a number of years, and relates to sales performance. During the year the contingent consideration has been remeasured based on management's best estimate of forecasted sales performance. An Addendum to the contract was agreed during the year for a development milestone and sales performance in the Brazilian market.

The consideration for two separate licensing agreements for injectable solutions both relate to development milestones. Phycox relates
to sales performance and arose as part of the acquisition of the trade and assets of PSPC Inc. in 2014.

Where a liability is expected to be payable over a number of years the total estimated liability is discounted to its present value. With the exception of Phycox, all contingent consideration liabilities relate to licensing agreements.

16. Related Party Transactions

Subsidiaries

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

Transactions with Key Management Personnel

The details of the remuneration, Long Term Incentive Plans, shareholdings, share options and pension entitlements of individual Directors are included in the Directors' Remuneration Report in the 2021 Annual Report.

Associates

On 5 February 2021, the Group entered into a licensing agreement with Animal Ethics Pty Ltd for the marketing authorisations of Tri-Solfen^® in Australia and New Zealand for a total consideration of AUD31.0 million (£17.2 million). An upfront payment of AUD5.0 million (£2.8 million) was payable on signing, with the balance of the payment made in July 2021 on the first commercial sale by Dechra into the Australian market. A royalty will also be paid on net sales. The Group also acquired a further 1.5% of the issued share capital of Medical Ethics Pty Ltd, the parent company of Animal Ethics, for a total consideration of AUD1.5 million (£0.8 million) from the current shareholders. Following this acquisition the Group holds 49.5% of the issued share capital of Medical Ethics Pty Ltd, and this has not resulted in a change of control or accounting treatment of the entity. Refer to note 6 for further information on the results of the associate in the period.

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

17. Off Balance Sheet Arrangements

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

18. Contingent Liabilities

The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concluded that the legislation up until December 2018 does partially represent State Aid. The Group considers that the potential amount of additional tax payable remains between £nil and £4.0 million depending on the basis of calculation and the outcome of HMRC's appeal to the EU Commission. Based on current advice, the Group does not consider any provision is required in relation to this investigation. This judgement is based on current interpretation of legislation and professional advice.

During the period, the Group received charging notices from HMRC under The Taxation (Post Transition Period) Bill for part of the exposure (£2.75 million) and has paid this to HMRC. As the Group considers that the appeal will be successful, the charging notices have been settled in full and a current asset has been recorded in respect of the payment on the basis that the amount will be repaid in due course.

At 30 June 2021, contingent liabilities arising in the normal course of business amounted to £13.0 million (2020: £11.4 million) relating to licence and distribution agreements. The stage of development of the projects underpinning the agreements dictates that a commercially stable product is yet to be achieved, and accordingly an intangible asset and a contingent consideration liability have not been recognised.

19. Subsequent Events

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

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

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

21. Other information

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

22. Preliminary Statement

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

23. Directors' Responsibility Statement Required under the Disclosure and Transparency Rules

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 30 June 2021. Certain parts of that Report are not included within this announcement.

We confirm to the best of our knowledge:

a)	the Company Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
b)	the Group Financial Statements, prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applied in the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of Group; and
c)	the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that they face.

Signed by the order of the Board:

Ian Page Chief Executive Officer 6 September 2021

Paul Sandland Chief Financial Officer 6 September 2021

 

END

 

 

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