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Share Name Share Symbol Market Type Share ISIN Share Description
Dechra Pharmaceuticals Plc LSE:DPH London Ordinary Share GB0009633180 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  12.00 0.43% 2,790.00 2,780.00 2,782.00 2,814.00 2,726.00 2,788.00 234,613 16:35:03
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Pharmaceuticals & Biotechnology 608.0 74.0 51.3 54.4 3,174

Dechra Pharmaceuticals PLC FY2022 Preliminary Results Announcement

05/09/2022 7:00am

UK Regulatory (RNS & others)


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TIDMDPH

RNS Number : 1880Y

Dechra Pharmaceuticals PLC

05 September 2022

Monday, 5 September 2022

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 2022

 
  "We have continued to progress on all aspects of our strategy; 
     the product development pipeline was strengthened, material 
  acquisitions were completed post year-end and a new subsidiary 
  was established in South Korea as we continue our geographical 
                                                     expansion." 
                               Ian Page, Chief Executive Officer 
 
 
Highlights 
            Strategic progress: 
              *    Strong organic growth in all key markets and across 
                   all therapeutic segments 
 
 
              *    Pipeline strengthened through own innovation and 
                   acquisition 
 
 
              *    International portfolio strengthened through numerous 
                   product approvals 
 
 
              *    Successfully completed two material company 
                   acquisitions post year-end: Piedmont and Med-Pharmex 
 
 
              *    Executed numerous bolt-on product acquisitions to 
                   complement existing equine and CAP portfolios. 
            Financial performance: 
              *    Revenue growth of 13.8% to GBP681.8 million 
 
 
              *    Underlying operating profit increased by 9.4% to 
                   GBP174.3 million 
 
 
              *    Reported operating profit increased by 16.2% to 
                   GBP95.5 million 
 
 
              *    Strong cash generation of GBP163.3 million 
                   representing cash conversion of 93.7% 
 
 
              *    Underlying diluted EPS increase of 14.0% to 120.84 
                   pence 
 
 
              *    Full year dividend increased by 10.8% to 44.89 pence. 
 

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

Financial Summary

 
                                         2022    2021 
                                         GBPm    GBPm  Growth at AER  Growth at CER 
-------------------------------------  ------  ------  -------------  ------------- 
Revenue                                 681.8   608.0          12.1%          13.8% 
-------------------------------------  ------  ------  -------------  ------------- 
Underlying 
 Underlying operating 
  profit                                174.3   162.2           7.5%           9.4% 
 Underlying EBIT %                      25.6%   26.7%      (110 bps)      (110 bps) 
 Underlying EBITDA                      190.6   177.7           7.3%           9.2% 
 Underlying diluted 
  EPS (p)                              120.84  108.14          11.7%          14.0% 
-------------------------------------  ------  ------  -------------  ------------- 
Reported 
 Operating profit                        95.5    84.0          13.7%          16.2% 
 Diluted EPS (p)                       53.40p  51.03p           4.6%           7.5% 
 
Cash generated from 
 operations before interest/taxation    163.3   141.2          15.7% 
Dividend per Share                     44.89p  40.50p          10.8% 
-------------------------------------  ------  ------  -------------  ------------- 
 

Underlying results exclude items associated with amortisation and impairment of acquired intangibles and notional intangibles in respect of Medical Ethics, acquisition and integration costs including release of acquisition tax provisions, transformational cloud computing arrangements, loss on extinguishment of debt, foreign exchange and discount unwind relating to contingent consideration, the tax impact of these items and the deferred tax impact of changes in tax rates. Further details are provided in notes 5 and 21.

AER is defined as Actual Exchange Rate.

 
 Results Briefing today: 
 
  A presentation of the Annual Results will be held today at 10.00 
  am (UK time) via https://stream.brrmedia.co.uk/broadcast/62dac1dc878cf86b3409dea5 
 
  This will also be available on the Dechra website later today. 
  Dial in ref: Dechra - Preliminary Announcement of Results 
  United Kingdom: Participant Local: +44 (0)330 165 4017 
  Confirmation Code: 3730022 
  For assistance please contact Fiona Tooley on +44 (0) 7785 703 523. 
 
 
 Enquiries: 
 Dechra Pharmaceuticals                   Office: +44 (0) 1606 814 730 
  PLC 
 Ian Page, Chief Executive 
  Officer 
 Paul Sandland, Chief Financial 
  Officer 
 Jonny Armstrong, Head of 
  Investor Relations 
 e-mail: corporate.enquiries@dechra.com 
 
 TooleyStreet Communications 
  Ltd 
 Fiona Tooley, Director                   Office: +44 (0) 121 309 0099 
  e-mail: fiona@tooleystreet.com           Mobile: +44 (0) 7785 703 523 
 
 
    Notes: 
     Foreign Exchange Rates: 
 
     FY2022 Average: EUR 1.1807: GBP 1.0;        FY2021 Average: EUR 1.1287: GBP 1.0; 
     USD 1.3316: GBP 1.0                                          USD 1.3466: GBP 1.0 
     FY2022 Closing: EUR 1.1652: GBP 1.0;        FY2021 Closing: EUR 1.1654: GBP 1.0; 
     USD 1.2103: GBP 1.0                                          USD 1.3850: GBP 1.0 
 
 
 About Dechra 
  Dechra is a global specialist veterinary pharmaceuticals and related 
  products business. Its expertise is in the development, manufacture, marketing 
  and sales of high quality products for veterinarians worldwide. For more 
  information, please visit: www.dechra.com 
 
  Stock Code: Full Listing (Pharmaceuticals): DPH 
 
  LEI: 213800J4UVB5OWG8VX82 
 
  Trademarks 
  Trademarks appear throughout this document in italics. Dechra and the 
  Dechra 'D' logo are registered trademarks of Dechra Pharmaceuticals PLC. 
  StrixNB(R) and DispersinB(R) are trademarks licensed from Kane Biotech 
  Inc. 
 
  Forward Looking Statement 
  This document contains certain forward-looking statements. The forward-looking 
  statements reflect the knowledge and information available to the Company 
  during the preparation and up to the publication of this document. By 
  their very nature, these statements depend upon circumstances and relate 
  to events that may occur in the future thereby involve a degree of uncertainty. 
  Therefore, nothing in this document should be construed as a profit forecast 
  by the Company. 
 
  Market Abuse Regulation (MAR) 
  The information contained within this announcement may contain inside 
  information stipulated under the Market Abuse (Amendment) (EU Exit) Regulations 
  2018. Upon the publication of this announcement via the Regulatory Information 
  Service, this inside information is now considered to be in the public 
  domain. 
 

Dechra Pharmaceuticals PLC

Preliminary Results for the year ended 30 June 2022

Chief Executive Officer's Statement

Introduction

I am pleased to report that the Group has delivered strong growth throughout our financial year as we continue to outperform the major international markets in which we operate. After a very strong start to the year, revenue in the second half started to return to more normalised historical levels of growth as the benefit of increased spending on pets seen during the COVID-19 restrictions slowed down. This growth was delivered across all product categories, all major therapeutic areas and in all the international markets in which we trade. We have continued to progress on all aspects of our strategy; the product development pipeline was strengthened, material acquisitions were completed post year-end and a new subsidiary was established in South Korea as we continue our geographical expansion. Excellent progress has been made on systems and quality in our supply chain, which remained robust throughout the year. Information technology implementations strengthened the infrastructure of the Group and provided better management information. ESG is integrated into the way we work and our people remain highly engaged, motivated and dedicated in achieving our strategic goals.

Operational Review

EU Pharmaceuticals Segment

In the period our total European (EU) Pharmaceuticals Segment revenue increased by 8.2% at CER (4.7% at AER). This includes a 12 month contribution from the acquisition of Tri-Solfen(R) ANZ acquired in February 2021 and an additional month's contribution from Osurnia(R) acquired on 27 July 2020. Existing net revenues increased by 6.4% at CER (3.0% at AER). This Segment includes our International business, which is detailed below. It also includes non-core business, such as the Agricultural Chemical business, which was originally acquired as part of the Genera acquisition in 2015 and was divested in January 2022; annual sales from this business were approximately GBP6.0 million.

The EU growth was delivered across all product segments and all countries with Iberia, Poland, Italy and Austria all achieving double digit growth. The main driver of growth was CAP; however, it is pleasing that FAP remains in growth in a challenging market and that Equine and Nutrition continue to perform well.

Education continues to be the main tool to engage our veterinary customers. Throughout the year we provided technical support for 6,000 clinical cases in the UK alone and have provided over 85,000 hours of continuing professional development (CPD) training across Europe to veterinarians through our Lunch and Learn programmes and educational seminars. Digital communication has also been an area of focus with 13,500 veterinarians and veterinary nurses in Europe and 17,600 globally, utilising our online Dechra Academy, which now has 596 educational modules in our key therapeutic areas.

International Pharmaceuticals

It is five years since we established a team to focus purely on international expansion. During this time, we have established Dechra Australia as the second largest company in CAP pharmaceuticals, have significantly strengthened our New Zealand operation through two small acquisitions and have established a strong foothold in South America through our Brazilian subsidiary. Our ANZ and Brazilian businesses delivered good growth in the year.

We have extended our international footprint by establishing a new subsidiary in South Korea. We terminated the agreement with our previous distributor following their change of ownership. We have appointed a senior management team, whom we have known for many years, to manage this new entity which will commence trading in the second quarter of the new financial year. Having our own operation will give us greater transparency on the opportunities in this fast growing market and will also allow us to better assess our future options for expansion in this region.

NA Pharmaceuticals Segment

Our total North America (NA) Pharmaceuticals Segment revenues increased by 23.8% at CER (25.3% at AER). This revenue includes a contribution from various products we acquired in the year, the majority of which were launched in the second half, and one month of additional Osurnia sales on a like-for-like basis over the previous year. Existing net revenues increased strongly by 21.3% at CER (22.7% at AER). This exceptional performance was delivered despite increased competition to three of our branded generics. We did manage to retain market share, albeit at a lower price point, due to our strong relationship with our customers and through a Dechra Rewards Scheme, managed by Vetcove, that now has 9,000 veterinary practice members. We continue to review and assess our relationship with the veterinary distributors (wholesalers) who proactively promote their own generic products that compete with ours.

In the USA we increased the marketing team with four specialists in digital and product management to support the launch of the newly developed and acquired products. We continue to increase the scale of our sales team with the appointment of 18 new representatives in the year, a number of which joined us as part of the Laverdia(R) acquisition.

The majority of growth is delivered from the US; however, we also delivered strong performances in Mexico and Canada. In Mexico, we transitioned completely out of our old manufacturing site and relocated to new sales offices. In Canada, we initiated a FAP business unit with the launch of two products and added three internal sales representatives to our sales team.

As with DVP EU, education and technical support are important tools in our relationship with our customers. In the year, our veterinary technical services team dealt with 8,500 technical queries, which involved over 15,000 telephone calls; we also held 413 certified educational presentations to 15,794 attending veterinarians. Furthermore, we continued to invest in our University engagement programme to educate veterinary graduates on our key therapeutic areas.

Product Category Performance

CAP

Companion Animal Products (CAP), which represent 74.6% of Group turnover, grew by 16.0% at CER in the year. Our key therapeutic sectors, endocrinology, dermatology, anaesthesia and analgesia were the main drivers of this growth. At the end of the year, we launched Zenalpha(R) in the USA, a new novel canine sedative, approved by the FDA, which contributed revenue of $1.3 million.

FAP

The strong performance in Food producing Animal Products (FAP) during recent years, which represents 11.6% of Group turnover, slowed to 6.0% at CER. This remains a solid performance as the European market, a key area for our FAP sales, has been challenging due to avian influenza, African swine fever and inflationary costs.

Equine

Equine, which represents 7.2% of Group turnover, grew by 12.1%. This growth was driven by locomotion, a therapeutic sector, which includes Osphos, Equipalazone(R) and HY-50(R) and by internal medicine, including Equibactin(R) and Prednidale Horse. In the second half of the year we also launched three acquired products in the USA, which are detailed later in this report.

Nutrition

Nutrition, which represents 5.1% of Group turnover, continues to perform well and grew by 15.1%. The majority of our Specific branded diet sales are in the EU where we have continued to increase market penetration, especially with our newly launched products, such as the organic range.

Product Development and Regulatory Affairs (PDRA)

Pipeline Progress

We have delivered another year of consistent progress on the pipeline. We have generated positive dose range finding data in both the dog and cat for the diabetes drugs being developed in partnership with Akston Biosciences. Using its recently commissioned GMP biologics production facility, Akston Biosciences is currently on track to deliver active ingredient for our planned pivotal efficacy studies. Lifecycle innovation of our key brands, such as Vetoryl(R) and Osurnia, are ongoing and showing good progress. New opportunities are constantly being identified and new candidates have been added to the pipeline. With the addition of the Piedmont projects (outlined later in this report), our pipeline is stronger than ever and positioned to deliver material products to support future growth.

Product Approvals

Numerous marketing authorisations have been achieved throughout the year. Although only Zenalpha(R) is material in its own right, they all add depth and breadth to the current product range and strengthen our international portfolio. Major approvals in Dechra territories are:

-- in Europe, Metomotyl 10mg chewable tablet for dogs (Metoclopramide hydrochloride), Bupredine(R) Multidose 0.3mg/ml solution for injection for dogs, cats and horses (Buprenorphine), Canergy 100mg coated tablets for dogs (Propentofylline), Cefabam 1000mg, 250mg and 50mg tablets for dogs (Cephalexin monohydrate), Clindacutin 10mg ointment for dogs (Clindamycin hydrochloride), Lodisure(R) 1mg tablets for cats (Amlodipine besilate), Octacillin(R) 800mg/g powder for use in water for pigs (Amoxicillin trihydrate), Sedadex 0.1mg/ml solution for injection for dogs and cats (Dexmedetomidine hydrochloride), Vomend(R) vet 10mg chewable tablets for dogs (Metoclopramide hydrochloride);

-- in Great Britain and Northern Ireland, Tri-Solfen(R) Solution for Pigs (Adrenaline tartrate, Lidocaine hydrochloride, Bupivacaine hydrochloride, Cetrimide) was approved. An exemption from the need for a maximum residue limit (MRL) for an equine product at an advanced stage of development was also approved;

-- a novel canine sedative injection Zenalpha (Medetomidine hydrochloride, Vatinoxan hydrochloride), a generic antibiotic Amoxicillin Trihydrate and Clavulanate Potassium Drops and generic Carprofen Caplets have been approved in the USA;

-- two sedative products, Dexmedesed 0.5mg/ml (Dexmedetomidine hydrochloride) and Dormazolam(R) (Midazolam) as well as the antimicrobial Rexxolide(R) (Tulathromycin) were registered in Canada;

   --     in Mexico, five new products were registered; 
   --     in Australia, four new products and in New Zealand three new products were registered; 
   --     in Brazil, three new products were registered including two vaccines; and 

-- additionally, in other international territories, we have received 52 approvals in countries including Egypt, Iran, Korea, Pakistan, Peru, Puerto Rico, Serbia, Sri Lanka, Switzerland, Thailand, West Africa (UEMOA), Ukraine, United Arab Emirates, Uruguay and Vietnam.

Acquisitions

We have successfully completed several product acquisitions and two material company acquisitions.

In July 2022, post the year end, we acquired Piedmont Animal Health, Inc for $210 million (GBP175 million), a product development company with a long, successful track record of developing major international products for multi-national animal health companies. Piedmont has eight novel products in various stages of development, all in the CAP market for cats and dogs and all within Dechra's key therapeutic areas of competence. The business significantly strengthens Dechra's pipeline of novel products with two near term opportunities, both expected to be top ten products for Dechra. The development team of 19 people who have joined Dechra, located in Greensboro, North Carolina, have added additional strength and expertise to the Company's existing product development capabilities.

Also, post the year end in August 2022 we completed the acquisition of Med-Pharmex Holdings, Inc for $260.0 million (GBP221.5 million). Med-Pharmex, with sales of $43.0 million and adjusted EBITDA of $15.3 million, is an established platform business located in Pomona, California with manufacturing, product development and regulatory capabilities. It has several products already approved and established in the US market. As they have no sales and marketing capabilities, these products are currently sold through third party partners. We are planning to sell many of these products under a Dechra brand through our existing sales and marketing channels, providing material margin synergies and operational leverage. In the longer term, synergies will also be realised from integration and improved utilisation of the manufacturing facilities. The facility has the capability to produce Cephalosporins, a type of antibiotic that is required to be manufactured in a dedicated suite. They currently have one product registered and one product in the development pipeline that fall into this category, which is expected to be first entrant generic in product markets of material scale in the USA.

We executed numerous bolt on product acquisitions, which complement our equine and CAP portfolios.

The equine products acquired are all for the US market and are:

-- Rompun(R) (xylazine injection) and Butorphanol Tartrate Injection from Elanco(TM) Animal Health, which complement our anaesthesia and analgesia portfolio;

-- Sucromate(TM) Equine (deslorelin acetate) sterile suspension from Thorn Bioscience LLC, which expands our US Equine portfolio into reproduction; and

-- ProVet APC(TM) (Autologous Platelet Concentrate) and ProVet BMC(TM) (Bone Marrow Concentrate) systems from Hassinger Biomedical. These two patented medical devices harness growth factors from the horse's whole blood, which when injected back into the horse positively enhance healing results in soft tissue injuries. The ProVet APC(TM) system is a revolutionary device and is arguably the fastest and most transportable platelet concentrator available to the veterinary industry.

The CAP products acquired are:

-- LAVERDIA(R) -CA1, a novel oral SINE (selective inhibitor of nuclear export) drug and the first oral tablet for canine lymphoma acquired from Anivive Lifesciences Inc. It is currently sold under a conditional approval by the FDA Center for Veterinary Medicine in the USA with full dossier submissions planned for the USA, UK, EU, Brazil, Australia, Japan and Canada;

-- Isoflurane(R) , USP and Sevoflurane(R) , USP from Halocarbon, both inhalant anaesthetics, which expand our US veterinary surgical suite;

-- Atopivet(R) range of products for cats and dogs in collaboration with Bioiberica, which offer unique alternatives to multi-modal dermatology therapy; and

-- Malaseb(R) , a leading dermatological medicated shampoo which we already market across Europe, was acquired from Dermcare for the US market, an excellent addition to our leading topical dermatology range.

Enablers

Manufacturing and Supply Chain

The investment made in Manufacturing and Supply Chain over the last two years has resulted in higher levels of stock availability with backorders at the end of the year being at a three year low. The huge improvements in our quality systems are clearly demonstrated by successful regulatory inspections at our sites in Zagreb, Croatia, Skipton, UK and Fort Worth, USA. Investment has continued across

our Manufacturing sites:

   --     two new automated lines were installed at Zagreb; 

-- a new autoclave system for sterilisation of finished goods has been installed in Bladel, Netherlands;

   --     a high speed tablet press was commissioned at our Fort Worth site in the USA; 
   --     a new water for injection facility has been commissioned in Brazil; and 

-- work has commenced on a new building in Skipton, which will expand the site and improve work flows.

We have extended our European logistics centre in Uldum, Denmark creating over 6,000 new pallet spaces with a subterranean store for temperature controlled drugs that materially reduces the electricity required to maintain low temperatures. We have also increased our warehousing capacity in Australia.

This ongoing investment in our Manufacturing and Supply Chain will allow us to continue our strategy to bring more production in-house; nine products were transferred into Zagreb, Melbourne (USA), Bladel and Fort Worth within the year.

Technology

Information technology remains a key area of focus for the business. We are working on numerous projects which strengthen the infrastructure, improve internal information, provide educational support and improve employee and customer engagement. We are making excellent progress on two major projects outlined in the Half Year Report, these being the new quality document management system to support Manufacturing, Product Development, Regulatory Affairs and Technical Services, and in addition we have also established a project team to upgrade the Manufacturing ERP system to one consolidated cloud-based Oracle platform. Salesforce, a customer relationship management system, is now being utilised across the majority of countries in which we operate and we have also fully rolled out a new global payroll system across the Group. We have restructured and recruited new hires to increase our digital communication capabilities as we continue to expand our on-line training capabilities to our employees and to our customers through the Dechra Academy, a platform which we are constantly upgrading in both its technical capabilities and increased content.

People

On 1 January 2022, Alison Platt was appointed Chair of the Board following the retirement of Tony Rice. On 1 June 2022, John Shipsey was appointed as Non-Executive Director with the view to being the successor to Julian Heslop as Audit Committee Chair. The Board and I would like to express our thanks and gratitude for the huge contribution both Tony and Julian have made to the Board over their tenure as Non-Executive Directors.

We have commenced the recruitment process to find a successor to Ishbel Macpherson as Remuneration Chair as Ishbel is in her tenth year as a Non-Executive Director on the Dechra Board.

Following the retirement of Dr Susan Longhofer as Chief Scientific Officer, we are pleased to announce the appointment of Patrick Meeus as her replacement. Patrick, who has joined the Senior Executive Team, is a veterinary surgeon and brings a wealth of experience gained in multi-national pharmaceutical companies in animal health.

Isabelle Gaillet has been appointed as EU Commercial Director. Isabelle, who previously worked for the Company from 2015 to 2019 as French Country Manager will join the European Senior Management Team. She will support the EU Country Managers and lead our commercial strategy for the EU alongside Tony Griffin, European Pharmaceuticals Managing Director.

We have launched a Future Facing Leaders programme with 24 employees from across our global subsidiaries joining the scheme, which is designed to develop our management talent and will support the future growth of Dechra. Furthermore, we have launched leadership development programmes for our International, North America and Manufacturing management teams.

We have rolled out a Group wide applicant tracking system and also an automated talent review process that allows us to monitor our talent pipeline, succession plans, employee mobility and individuals' progress.

ESG

To enable our business to adapt to climate change, we have focused on mitigating our impact through the decarbonisation of the business. We remain committed to the Science Based Target initiatives, working towards a Net-Zero ambition by 2050. We have also released our inaugural separate Sustainability Report and provided enhanced Task Force on Climate-related Financial Disclosures, which are included in the 2022 Annual Report.

Dividend

The Board is proposing a final dividend of 32.89 pence per share (2021: 29.39 pence per share). Added to the interim dividend of 12.00 pence per share (2021: 11.11 pence per share), this brings the total dividend for the financial year ended 30 June 2022 to 44.89 per share (2021: 40.50 pence per share), representing 10.8% growth over the previous year.

Subject to shareholder approval at the Annual General Meeting to be held on 20 October 2022, the final dividend will be paid on 18 November 2022 to shareholders on the Register at 28 October 2022. The shares will become ex-dividend on 27 October 2022.

Outlook

As the market returns to normal levels of trading post the impact of COVID-19 and as current macroeconomic uncertainties are expected to continue, the veterinary pharmaceutical market, particularly in the CAP sector, is resilient and in growth.

The acquisition, post year end, of Med-Pharmex strategically strengthens our position in the US market. The acquisition of Piedmont adds several novel exciting products to our development pipeline and we continue to identify new opportunities as we successfully execute our strategy.

We remain confident in our ability to outperform the markets in which we operate and in the prospects for the current financial year.

Ian Page

Chief Executive Officer

5 September 2022

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 profit of GBP1.8 million includes underlying operating profit of GBP6.7 million and non-underlying charges of GBP4.9 million relating to amortisation of acquired intangibles.

Including non-underlying items, the Group's consolidated operating profit increased by 16.2% at CER (13.7% at AER) whilst consolidated profit before tax increased by 7.8% at CER (4.9% at AER), impacted by an increase in net finance costs. Diluted EPS growth was 7.5% at CER (4.6% at AER) reflecting the marginal reduction in the effective tax rate.

 
                                                                          Growth        Growth 
                                                                          at AER        at CER 
------------------  ---------  ------------  -------------  ----- 
                         2022          2022           2022 
                     Existing   Acquisition   Consolidated   2021   Consolidated  Consolidated 
As Reported              GBPm          GBPm           GBPm   GBPm              %             % 
------------------  ---------  ------------  -------------  -----  -------------  ------------ 
Revenue                 669.4          12.4          681.8  608.0          12.1%         13.8% 
Gross profit            377.0           7.8          384.8  345.9          11.2%         12.9% 
Gross profit %          56.3%         62.9%          56.4%  56.9%        (50bps)       (40bps) 
Operating profit         93.7           1.8           95.5   84.0          13.7%         16.2% 
EBIT %                  14.0%         14.5%          14.0%  13.8%          20bps         30bps 
Profit before tax        75.8           1.8           77.6   74.0           4.9%          7.8% 
Diluted EPS (p)                                      53.40  51.03           4.6%          7.5% 
------------------  ---------  ------------  -------------  -----  -------------  ------------ 
 

Overview of Underlying Financial Results

The Group presents a number of non-GAAP Alternative Performance Measures (APMs). This allows investors to understand better the underlying performance of the Group by excluding certain non-underlying items as set out in notes 3, 4, 5, 6 and 21. As underlying results include the benefits of acquisitions but exclude significant costs such as amortisation of acquired intangibles, they should not be regarded as a complete picture of the Group's financial performance, which is presented in its total Reported results. The exclusion of non-underlying items may result in underlying earnings being materially higher or lower than total Reported earnings. In particular, when significant amortisation of acquired intangibles is excluded, underlying earnings will be higher than total Reported earnings. A reconciliation of underlying results to Reported results in the year to 30 June 2022 is provided in the table below. In the commentary which follows, all references will be to CER movement unless otherwise stated.

 
                                                             Non-underlying Items 
------------------------------------ 
                                                   Amortisation  Acquisition, 
                                                    and related   impairments      Tax rate 
                                             2022      costs of     and cloud       changes 
                                       Underlying      acquired     computing   and finance  2022 Reported 
                                          Results   intangibles         costs      expenses        Results 
                                             GBPm          GBPm          GBPm          GBPm           GBPm 
------------------------------------  -----------  ------------  ------------  ------------  ------------- 
Revenue                                     681.8             -             -             -          681.8 
Gross profit                                385.3             -         (0.5)             -          384.8 
Selling, general and administrative 
 expenses                                 (178.6)        (69.1)         (5.5)             -        (253.2) 
R&D expenses                               (32.4)         (3.7)             -             -         (36.1) 
Operating profit                            174.3        (72.8)         (6.0)             -           95.5 
Net finance costs                           (3.1)             -             -        (13.5)         (16.6) 
Share of associate profit                   (1.2)         (0.1)             -             -          (1.3) 
Profit before tax                           170.0        (72.9)         (6.0)        (13.5)           77.6 
Taxation                                   (38.3)          17.3           1.2           0.4         (19.4) 
Profit after tax                            131.7        (55.6)         (4.8)        (13.1)           58.2 
Diluted EPS (p)                            120.84                                                    53.40 
------------------------------------  -----------  ------------  ------------  ------------  ------------- 
 

In the year, Dechra delivered consolidated revenue of GBP681.8 million, representing an increase of 13.8% on the prior year. This included GBP669.4 million from its existing business, an increase of 11.8%, and a GBP12.4 million contribution from acquired product rights.

Consolidated underlying operating profit of GBP174.3 million represents a 9.4% increase on the prior year. This included GBP167.6 million from Dechra's existing business, an increase of 5.2% on a like-for-like basis, and a GBP6.7 million contribution from acquired product rights.

Underlying EBIT margin decreased by 110 bps to 25.6%, principally due to the increase in Selling, General and Administrative expenses (SG&A) spend as a percentage of revenue with our cost base normalising following lower levels of spend during the COVID-19 pandemic.

Underlying diluted EPS grew by 14.0% to 120.84 pence reflecting the profit growth from the existing and acquired businesses and benefiting from lower net finance costs driven by realised foreign exchange gains.

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

 
                                                                              Growth at CER 
------------------------  ---------  ------------  -------------  ------ 
                               2022          2022           2022 
                           Existing   Acquisition   Consolidated    2021  Existing  Consolidated 
Underlying                     GBPm          GBPm           GBPm    GBPm         %             % 
------------------------  ---------  ------------  -------------  ------  --------  ------------ 
Revenue                       669.4          12.4          681.8   608.0     11.8%         13.8% 
Underlying gross profit       377.5           7.8          385.3   345.9     10.8%         13.1% 
Underlying gross profit 
 %                            56.4%         62.9%          56.5%   56.9%   (50bps)       (40bps) 
Underlying operating 
 profit                       167.6           6.7          174.3   162.2      5.2%          9.4% 
Underlying EBIT %             25.0%         54.0%          25.6%   26.7%  (170bps)      (110bps) 
Underlying EBITDA             183.9           6.7          190.6   177.7      5.3%          9.2% 
 
Underlying diluted EPS 
 (p)                                                      120.84  108.14                   14.0% 
Dividend per share (p)                                     44.89   40.50                   10.8% 
------------------------  ---------  ------------  -------------  ------  --------  ------------ 
 

Reported Segmental Performance

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

 
                                                                            Growth at AER           Growth at CER 
------------------  -------------  ------------  -------------  ------ 
                                           2022           2022 
                    2022 Existing   Acquisition   Consolidated    2021  Existing  Consolidated  Existing  Consolidated 
Reported                     GBPm          GBPm           GBPm    GBPm         %             %         %             % 
------------------  -------------  ------------  -------------  ------  --------  ------------  --------  ------------ 
Revenue by segment 
EU Pharmaceuticals          400.0           6.7          406.7   388.5      3.0%          4.7%      6.4%          8.2% 
NA Pharmaceuticals          269.4           5.7          275.1   219.5     22.7%         25.3%     21.3%         23.8% 
Total                       669.4          12.4          681.8   608.0     10.1%         12.1%     11.8%         13.8% 
Underlying 
operating 
profit/(loss) 
by segment 
EU Pharmaceuticals          127.7           3.8          131.5   127.8    (0.1%)          2.9%      3.8%          6.9% 
NA Pharmaceuticals           84.8           2.9           87.7    75.9     11.7%         15.5%      9.7%         13.6% 
Pharmaceuticals 
 Research and 
 Development               (32.4)             -         (32.4)  (32.4)      0.0%          0.0%    (1.5%)        (1.5%) 
Underlying segment 
 operating profit           180.1           6.7          186.8   171.3      5.1%          9.0%      6.9%         10.9% 
Corporate and 
 unallocated costs         (12.5)             -         (12.5)   (9.1)   (37.4%)       (37.4%)   (37.4%)       (37.4%) 
Underlying 
 operating 
 profit                     167.6           6.7          174.3   162.2      3.3%          7.5%      5.2%          9.4% 
Non-underlying 
 operating items           (73.9)         (4.9)         (78.8)  (78.2) 
Reported operating 
 profit                      93.7           1.8           95.5    84.0     11.5%         13.7%     13.9%         16.2% 
------------------  -------------  ------------  -------------  ------  --------  ------------  --------  ------------ 
 

Underlying Segmental Performance

European Pharmaceuticals

Revenue in European (EU) Pharmaceuticals grew by 8.2% to GBP406.7 million. The existing business grew by 6.4% with this growth driven by a robust performance across all established European markets and also in the key International businesses in ANZ and Brazil. The acquisitions of Tri-Solfen(R) (for the ANZ market) and Osurnia (July sales) contributed a combined GBP6.7 million to revenue for the period where there is no comparative.

Operating profit from existing business increased by 3.8%, with operating margin decreasing to 31.9% and consolidated operating margin decreasing to 32.3% as our cost base normalised following COVID-19.

 
                                                                        Growth at CER 
-------------------  ---------  ------------  -------------  ----- 
                          2022          2022           2022 
                      Existing   Acquisition   Consolidated   2021  Existing  Consolidated 
Underlying                GBPm          GBPm           GBPm   GBPm         %             % 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
Revenue                  400.0           6.7          406.7  388.5      6.4%          8.2% 
Operating profit         127.7           3.8          131.5  127.8      3.8%          6.9% 
Operating profit %       31.9%         56.7%          32.3%  32.9%  (100bps)       (60bps) 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
 

North American Pharmaceuticals

Revenue from North American (NA) Pharmaceuticals grew by 23.8% to GBP275.1 million. The existing business grew by 21.3% reflecting strong demand for our CAP products in the US, Canada and Mexico. Osurnia (July sales), along with the product acquisitions made in the latter part of 2021 and early in 2022, contributed a combined GBP5.7 million to revenue for the period where there is no comparative.

Operating profit from existing business grew 9.7% with operating margin decreasing to 31.5% and consolidated operating margin decreasing to 31.9% as our cost base normalised following COVID-19.

 
                                                                        Growth at CER 
-------------------  ---------  ------------  -------------  ----- 
                          2022          2022           2022 
                      Existing   Acquisition   Consolidated   2021  Existing  Consolidated 
Underlying                GBPm          GBPm           GBPm   GBPm         %             % 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
Revenue                  269.4           5.7          275.1  219.5     21.3%         23.8% 
Operating profit          84.8           2.9           87.7   75.9      9.7%         13.6% 
Operating profit %       31.5%         50.9%          31.9%  34.6%  (310bps)      (270bps) 
-------------------  ---------  ------------  -------------  -----  --------  ------------ 
 

Pharmaceuticals Research and Development

Pharmaceuticals Research and Development (R&D) expenses of GBP32.4 million represented 4.8% of existing revenue with some project spend being delayed due to the impact of COVID-19 and specifically our ability to recruit and perform clinical study work. This spend included GBP3.3 million in relation to Akston.

 
                                                                           Growth at CER 
-------------  ---------  ----------------  -----------------  ------ 
                    2022 
                Existing  2022 Acquisition  2022 Consolidated    2021  Existing  Consolidated 
                    GBPm              GBPm               GBPm    GBPm         %             % 
-------------  ---------  ----------------  -----------------  ------  --------  ------------ 
R&D expenses      (32.4)                 -             (32.4)  (32.4)    (1.5%)        (1.5%) 
% of revenue        4.8%                 -               4.8%    5.3% 
-------------  ---------  ----------------  -----------------  ------  --------  ------------ 
 

Revenue by Product Category

CAP revenue continues to be the largest proportion of Dechra's business at 74.6%, up from 72.8% in the prior year. CAP grew 16.0% in the year with further market penetration across all therapeutic areas. Equine revenue grew by 12.1% in the year driven by the US product rights acquisitions. FAP revenue growth was 6.0% benefiting from the launch of Tri-Solfen(R) in ANZ following the acquisition of rights in July 2021, but offset by the divestment of the non-core Agricultural Chemicals business in January 2022 (revenue growth on an existing basis was 5.6%). Nutrition revenue increased by 15.1% on the prior year reflecting the continuing success of our strategy with key customers in our key markets.

Other revenue reduced by 12.6% to GBP10.1 million, now representing only 1.5% 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.

 
                                              %        % 
                           2022   2021   Change   Change 
                           GBPm   GBPm   at AER   at CER 
------------------------  -----  -----  -------  ------- 
CAP                       508.4  442.6    14.9%    16.0% 
Equine                     49.5   44.8    10.5%    12.1% 
FAP                        78.8   77.0     2.3%     6.0% 
------------------------  -----  -----  -------  ------- 
Subtotal Pharmaceutical   636.7  564.4    12.8%    14.3% 
Nutrition                  35.0   31.7    10.4%    15.1% 
Other                      10.1   11.9  (15.1%)  (12.6%) 
------------------------  -----  -----  -------  ------- 
Total                     681.8  608.0    12.1%    13.8% 
------------------------  -----  -----  -------  ------- 
 

Underlying Gross Profit

Underlying gross profit margin for the existing business decreased by 50 bps to 56.4% on an Existing basis and decreased by 40 bps to 56.5% on a consolidated basis reflecting the strong CAP performance offset by the increased generic competition, particularly in our NA Business.

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

SG&A costs grew from GBP151.3 million in the prior year to GBP178.6 million in the current year, an increase of 19.8%. This growth principally represents the full year impact of the investment in our people costs following the review of compensation across the Group in January 2021 and the normalisation of our cost base (including sales & marketing and travel & entertainment costs) following COVID-19 lockdowns in the prior year.

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 GBP72.8 million has decreased from GBP75.2 million in 2021 principally due to new charges relating to the product acquisitions more than offset by the reducing charge from the AST Farma and Le Vet acquisition;

-- Cloud computing arrangement costs of GBP2.8 million relating to the initial costs of the programme to implement the Manufacturing and Supply function's new ERP and Electronic Quality Management systems;

-- Impairment costs of GBP2.9 million predominately relating to the sale of the Agricultural Chemicals business (GBP1.0 million) and an impairment of a small number of In-Process R&D assets recognised on the acquisition of AST Farma and Le Vet (GBP1.7 million);

-- Finance charge of GBP13.5 million (2021: credit of GBP2.8 million) represents the charge arising on the unwind of the discount relating to the contingent consideration liability of GBP3.4 million and associated foreign exchange loss of GBP10.1 million driven by the depreciation of Sterling against the US and Australian Dollars;

-- Taxation credit of GBP18.9 million (2021: GBP14.0 million) represents the tax impact of the above items (GBP21.1 million), offset by the revaluation of deferred tax balance sheet items (GBP2.2 million charge) following changes in corporate tax rates, including a further revision to the Netherlands rate (which is increasing to 25.8%);

-- Expenses relating to acquisition and subsequent integration activities were GBP0.3 million (2021: GBP1.4 million) with costs relating

to the product rights acquisitions in the current year being immaterial so treated as underlying; and

-- Costs relating to rationalisation of the manufacturing organisation were nil (2021: GBP1.6 million), as this programme was completed in the prior year.

Taxation

The reported effective tax rate (ETR) for the year is 25.0% (2021: 25.0%) and includes the one-off impact of the substantively enacted increase in corporate tax rates in the Netherlands (from 25.0% to 25.8%) on deferred tax balances. On an underlying basis the ETR is 22.5% (2021: 21.7%); the main differences to the UK corporation tax rate applicable of 19.0% (2021: 19.0%) relate to differences in overseas tax rates and non-deductible expenses offset by patent box allowances and other incentives.

The underlying ETR is expected to remain at a similar level in the year to 30 June 2023. We continue to monitor relevant tax legislation internationally as it may affect our future ETR.

Reported Profit

Reported profit before tax increased by 4.9% at AER reflecting the reported operating profit growth of 13.7% at AER and the increase in net finance costs which include a foreign exchange loss of GBP10.1 million on the remeasurement of the contingent consideration liabilities driven by the depreciation of Sterling against the US and Australian Dollars.

Earnings per Share and Dividend

Underlying diluted EPS for the year was 120.84 pence, a 14.0% growth on the prior year reflecting the underlying EBIT growth of 9.4% and the benefit from a lower net finance expense principally due to foreign exchange gains realised. The weighted average number of shares for diluted earnings per share for the year was 109.0 million (2021: 108.8 million).

The reported diluted EPS for the year was 53.40 pence (2021: 51.03 pence). This represents an increase of 4.6% (at AER) in reported EPS which is lower than the reported EBIT growth of 13.7% (at AER) reflecting the increase in net finance expense due to the foreign exchange losses recognised on contingent liabilities.

The Board is proposing a final dividend of 32.89 pence per share (2021: 29.39 pence); added to the interim dividend of 12.00 pence, the total dividend per share for the year ended 30 June 2022 is 44.89 pence. This represents 10.8% growth over the prior year. Dividend cover based on underlying diluted EPS is 2.7 times (2021: 2.7 times). The Board continues to operate a progressive dividend policy, recognising investment opportunities as they arise.

Currency Exposure

The average rate for GBP/EUR increased by 4.6%, and the GBP/$ rate decreased by 1.1% 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 
-------- 
             2022    2021  % Change 
--------  -------  ------  -------- 
GBP/EUR    1.1807  1.1287      4.6% 
GBP/$      1.3316  1.3466    (1.1%) 
--------  -------  ------  -------- 
 

Currency Sensitivity

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

US Dollar $: a 1% variation in the GBP/$ exchange rate affects underlying diluted EPS by approximately +/- 0.5%.

Current exchange rates are GBP/EUR 1.1623 and GBP/$ 1.1623 as at 1 September 2022. If these rates had applied throughout the year, the underlying diluted EPS would have been approximately 8.3% higher.

Statement of Financial Position

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

-- Non-current assets (excluding deferred tax) increased from GBP819.9 million to GBP846.6 million and include the intangible assets recognised on the product acquisitions, partly offset by amortisation of acquired intangibles.

-- Working capital increased from GBP142.7 million to GBP175.7 million (GBP33.0 million at AER, GBP27.8 million cash flow impact) mainly due to the growth of the Group with an investment in inventory made to maintain service levels during this continuing period of heightened growth and uncertainty.

-- Net debt increased in the year by GBP8.0 million from GBP200.2 million to GBP208.2 million; this includes cash generation from operations at GBP166.1 million, an outflow of GBP54.4 million relating to product acquisitions made during the year, net capital expenditure of

GBP20.3 million, net interest/tax outflows of GBP39.8 million and GBP44.8 million in dividends. Exchange rate variations negatively impacted the net debt position by GBP7.2 million.

-- Current and deferred tax assets and liabilities reduced from GBP45.8 million to GBP34.7 million principally due to the realisation of deferred tax liabilities relating to the amortisation of acquired intangibles.

 
                          2022     2021 
                          GBPm     GBPm 
---------------------  -------  ------- 
Non-current assets       846.6    819.9 
Working capital          175.7    142.7 
Net debt               (208.2)  (200.2) 
Current and deferred 
 tax                    (34.7)   (45.8) 
Other liabilities      (112.6)   (83.7) 
---------------------  -------  ------- 
Total net assets         666.8    632.9 
---------------------  -------  ------- 
 

Cash Flow, Financing and Liquidity

The Group enjoyed good cash generation during the year, with a strong Underlying EBITDA margin of 28.0% (2021: 29.2%). However, as mentioned above, working capital has increased by GBP27.8 million, mainly due to the growth of the Group with an investment in inventory made to maintain service levels during this continuing period of heightened growth and uncertainty. This resulted in net cash generated from operations after non-underlying items of GBP163.3 million, representing cash conversion of 93.7% of underlying operating profit.

 
                             2022    2021 
                             GBPm    GBPm 
-------------------------  ------  ------ 
Underlying operating 
 profit                     174.3   162.2 
Depreciation and 
 amortisation                16.3    15.5 
Underlying EBITDA           190.6   177.7 
Underlying EBITDA 
 %                          28.0%   29.2% 
Working capital movement   (27.8)  (36.0) 
Other                         3.3     2.5 
Cash generated from 
 operations before 
 interest, taxation 
 and non-underlying 
 items                      166.1   144.2 
Non-underlying items        (2.8)   (3.0) 
Cash generated from 
 operations before 
 interest and taxation      163.3   141.2 
Cash conversion 
 (%)                        93.7%   87.1% 
-------------------------  ------  ------ 
 

Net Debt Bridge

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

-- Net capital expenditure on tangible assets increased to GBP20.3 million (2021: GBP19.8 million), representing 1.8 times depreciation.

-- Acquisitions of intangible assets of GBP57.3 million includes the product acquisitions (see below) and capitalised development expenditure (GBP1.2 million).

-- 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 1.0 times (2021: 1.1 times) versus a covenant of 3 times.

 
                                       GBPm 
----------------------------------  ------- 
Net Debt 30 June 2021               (200.2) 
Net cash generated from 
 operations before non-underlying 
 items                                166.1 
Non-underlying items                  (2.8) 
Net capital expenditure              (20.3) 
Acquisition of intangible 
 assets                              (57.3) 
Acquisition of subsidiary             (0.8) 
New lease liabilities                 (3.8) 
Interest and tax                     (39.8) 
Dividend paid                        (44.8) 
Other movements                         2.3 
Other non-cash movements                0.4 
Foreign exchange on net 
 debt                                 (7.2) 
----------------------------------  ------- 
Net Debt 30 June 2022               (208.2) 
----------------------------------  ------- 
 

Borrowing Facilities

As reported in preceding Annual Reports, the Group completed a refinancing and entered into a multi-currency facilities agreement in July 2017 (the Facility Agreement), with a group of banks comprising Bank of Ireland (UK) plc, BNP Paribas, Fifth Third Bank, HSBC Bank plc, Lloyds Bank plc (replaced by Credit Industriel et Commercial, London branch (CIC) in August 2019), Raiffeisen Bank International AG and Santander UK plc (the Banks). The Facility Agreement has a revolving credit facility (the RCF) of GBP340.0 million, which is committed until July 2024.

In January 2020 the Group undertook a Private Placement raising EUR50.0 million and USD100.0 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 14 July 2022, the Group undertook a further Private Placement raising EUR50.0 million and EUR100.0 million (under seven and ten year new senior secured notes respectively), the proceeds of which were used to repay existing debt.

Capital Management

On 21 July 2022, the Group successfully completed a share placing of 5,364,683 new ordinary shares, representing 4.95% of the existing issued share capital of the Company, at a price of 3430 pence per placing share, raising gross proceeds of GBP184.0 million which were largely deployed to fund the Piedmont Animal Health, Inc acquisition upon its completion on 20 July 2022.

Covenants

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

-- Leverage: Net Debt to underlying EBITDA not greater than 3.0:1 for the RCF and 3.5:1 for the Private Placements (30 June 2022: 1.0:1); and

-- Interest Cover: underlying EBITDA to Net Finance Charges not less than 4.0:1 (30 June 2022: 24.6:1).

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

On 22 December 2021, the Group entered into an Amendment and Restatement Agreement in relation to the GBP340.0 million Revolving Credit Facility (RCF) maturing 25 July 2024. With effect from 1 January 2022, any new Borrowings drawn on the RCF will now use Risk Free Reference (RFR) rates instead of LIBOR rates. The relevant RFR rates for the principal Borrowings of the Group will be SONIA (for Borrowings in GBP), SOFR (for Borrowings in USD) and EURIBOR (for Borrowings in EUR). The interest rate charged on any new Borrowings drawn under the RCF will be the relevant RFR rate plus the Margin plus a Credit Adjustment Spread (CAS). The CAS charged on the RCF will be a minimum of 0.0326% and a maximum of 0.42826%, dependent upon the term and currency of the new Borrowings. The CAS will not be charged on any new Borrowings that are drawn in EUR currency. The margin over LIBOR (or equivalent) remains in the range 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 Placements fixed rate notes equates to 3.2%.

Underlying Return on Capital Employed (ROCE)

Underlying ROCE increased to 19.5% in the year (2021: 18.8%) 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 2021 and 2022 financial years is separately summarised compared to the existing business in the sections above.

During the year the Group completed the following product rights acquisitions:

-- In July 2021, the rights to Isoflurane(R) and Sevoflurane(R) were acquired from Halocarbon Life Sciences LLC for USD12.0 million (GBP8.7 million).

-- In September 2021, the rights to ProVet APC(TM) and ProVet BMC systems were acquired from Hassinger Biomedical and DSM Medical for USD4.0 million (GBP3.0 million). A payment of GBP0.1 million was also made for inventory.

-- In October 2021, the rights to Rompun(R) (xylazine injection) and Butorphanol Tartrate injection were acquired from Elanco(TM) Animal Health for USD4.0 million (GBP3.0 million). A payment of GBP0.2 million was also made for inventory.

-- In October 2021, the rights to Sucromate(TM) Equine sterile suspension were acquired from Thorn Bioscience LLC for USD9.0 million (GBP6.5 million). A minor payment was also made for inventory.

-- In January 2022, the global product rights to Verdinexor, a novel treatment for all forms and stages of canine lymphoma in dogs, including a first right of refusal for other species along with the trademark (Laverdia) were acquired from Anivive Lifesciences Inc. Following the initial payment of USD19.0 million (GBP14.0 million) there are subsequent milestone payments totalling USD45.5 million (GBP33.5 million) due on the achievement of various approval and sales milestones for the product in the USA, UK, EU, Brazil, Australia, Japan and Canada. Royalties are also payable as part of this transaction and have been accrued as part of the contingent consideration liabilities.

Accounting Standards

The accounting policies adopted are outlined in note 1 to the financial statements in the 2022 Annual Report.

In April 2021, the IFRS Interpretations Committee published its final agenda decision on Configuration and Customisation costs in a Cloud Computing Arrangement. The agenda decision considers how a customer accounts for configuration or customisation costs in

a cloud computing arrangement. The agenda decision does not have a material impact on the Group in respect of the current period or prior periods (note 5). There are no other accounting policy changes which have materially impacted the 2022 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;

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

   --     Post balance sheet events (see note 20). 

As at 30 June 2022, the Group had net debt of GBP208.2 million (2021: GBP200.2 million), and had available cash balances and unutilised committed borrowing facilities of GBP271.2 million. Further information on available resources and committed bank facilities is provided in notes 18 and 21 to the financial statements of the 2022 Annual Report.

Subsequent Events

On 20 July 2022, the Group acquired 100% of the share capital of Piedmont Animal Health, Inc. (Piedmont) for US$210.0 million (GBP175.0 million) in cash. Piedmont is an established product development business with a strong track record of developing products for multi-national animal health companies.

On 26 August 2022, the Group acquired 100% of the share capital of the Med-Pharmex Holdings, Inc. group of companies (Med-Pharmex) for US$260.0 million (GBP221.5 million) in cash. Med-Pharmex is an established platform business with manufacturing, product development and regulatory capabilities, and has several products already approved and being sold in the US market.

Summary

Our business continued to benefit from strong market conditions which remained heightened from pre COVID-19 levels accelerating growth in our existing business. This excellent revenue performance, particularly in North America, has been facilitated by a robust global supply chain and supplemented by healthy incremental contributions from our product acquisitions in the year.

R&D expenditure was lower than expected during the period, but we continued to invest heavily in our people and have seen the rest of our cost base return to more normalised levels following COVID-19.

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

Paul Sandland

Chief Financial Officer

5 September 2022

Key Performance Indicators

 
Existing Revenue Growth 
Existing revenue includes the impact         Performance 11.8% Increase 
 of previous acquisitions where there         2022 GBP669.4m 
 is a comparator period, and therefore        2021 GBP608.0m 
 growth rates are stated on a like-for-like   2020 GBP515.2m 
 basis.                                       2019 GBP481.8m 
                                              2018 GBP407.1m 
                                             -------------------------- 
Commentary 
 Dechra's existing business grew by 
 6.4% in EU Pharmaceuticals (excluding 
 third party manufacturing), and by 
 21.3% 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. 
 1 2 3 
-------------------------------------------  -------------------------- 
 
 
Underlying Diluted Earnings Per Share 
 Growth 
Underlying profit after tax divided           Performance 14.0% Increase 
 by the diluted average number of shares,      2022 120.84p 
 calculated on the same basis as note          2021 108.14p 
 11 to the Accounts.                           2020 92.19p 
                                               2019 90.01p 
                                               2018 76.45p 
                                              -------------------------- 
Commentary 
 This reflects profit growth from the 
 existing and acquired products and 
 benefiting from lower net finance 
 costs driven by foreign exchange gains 
 realised. 
                                              -------------------------- 
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. 
 1 2 3 4 
 Long Term Incentive Plan (LTIP) performance 
 condition 
--------------------------------------------  -------------------------- 
 
 
Underlying Return on Capital Employed 
Underlying operating profit expressed         Performance 70bps Increase 
 as a percentage of the average of             2022 19.5% 
 the opening and closing operating             2021 18.8% 
 assets (excluding cash/debt and net           2020 15.4% 
 tax liabilities).                             2019 15.6% 
                                               2018 15.4% 
                                              -------------------------- 
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 costs of capital in the medium 
 to long term. It underpins the performance 
 conditions of the LTIP. 
 1 2 3 4 5 
 Long Term Incentive Plan (LTIP) performance 
 condition 
--------------------------------------------  -------------------------- 
 
 
Cash Conversion 
Cash generated from operations before       Performance 660bps Increase 
 tax and interest payments as a percentage   2022 93.7% 
 of underlying operating profit.             2021 87.1% 
                                             2020 99.4% 
                                             2019 85.0% 
                                             2018 81.9% 
                                            --------------------------- 
Commentary 
 Cash conversion increased during the 
 year as a result of the increase in 
 working capital representing a smaller 
 proportion of the underlying operating 
 profit compared to the prior year. 
                                            --------------------------- 
Relevance to Strategy 
 Our stated aim is to be a cash generative 
 business. Cash generation supports 
 investment in the pipeline, acquisitions 
 and people. 
 1 2 3 4 
------------------------------------------  --------------------------- 
 
 
New Product Revenue 
Revenue from new products as a percentage      Performance 960bps decrease 
 of total Group revenue. A new product          2022 10.8% 
 is defined as any molecule launched            2021 20.4% 
 in the last five years.                        2020 16.7% 
                                                2019 16.7% 
                                                2018 11.9% 
                                               --------------------------- 
Commentary 
 New product revenue reflects market 
 penetration of product launches in 
 the year and new product right acquisitions 
 made in the second half offset by 
 products no longer defined as new. 
 The new product right acquisitions 
 will deliver a greater uplift next 
 year. 
                                               --------------------------- 
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. 
 1 2 3 
---------------------------------------------  --------------------------- 
 
 
Lost Time Accident Frequency Rate 
 (LTAFR) 
All accidents resulting in the absence       Performance 88.9% Increase 
 or inability of employees to conduct         2022 0.17 
 a full range of their normal working         2021 0.09 
 activities for a period of more than         2020 0.17 
 three workings days after the day            2019 0.21 
 when the incident occurred, normalised       2018 0.00 
 per 100,000 hours worked. 
                                             -------------------------- 
Commentary 
 The lost time accident frequency increased 
 this year to 0.17. All of the incidents 
 occurred in our manufacturing sites. 
 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. 
 6 7 8 
-------------------------------------------  -------------------------- 
 
 
Employee Turnover 
Number of leavers during the period         Performance 250 bps Increase 
 as a percentage of the average total        2022 16.0% 
 number of employees in the period.          2021 13.5% 
                                             2020 12.4% 
                                             2019 13.6% 
                                             2018 15.9% 
                                            -------------------------------------- 
Commentary 
 We saw an increase in employee turnover 
 in the period due to a reorganisation 
 at Londrina, Brazil and resignations 
 across the business. 
                                            ---------  --------------------------- 
Relevance to Strategy 
 Attracting and retaining the best 
 employees is critical to the successful 
 execution of our strategy. 
 6 8 
------------------------------------------  ---------  --------------------------- 
 
           Key to Strategic Growth Drivers            Key to Strategic Enablers: 
                                         :                          5 Technology 
                       1 Pipeline Delivery                              6 People 
                         2 Portfolio Focus      7 Manufacturing and Supply Chain 
                  3 Geographical Expansion                                 8 ESG 
                             4 Acquisition 
 
 

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 undertakes a full review of the risk management process biannually. The SET is responsible for conducting self-assessments of their risks and the effectiveness of their control processes. Where control weaknesses are identified, remedial action plans are developed, and these are included in the risk reports presented to the Board.

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

Emerging Risks

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

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

Ukraine

Russia's invasion of Ukraine has had some impact on our business, with increased energy costs and additional supply chain uncertainty. Our sales to Russia, which were not material, have also ceased. We will continue to monitor the situation in Ukraine and the associated impacts this may have on our principal risks, with regard to our markets, supply chain and people.

Dechra Culture

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

Internal Control Framework

Our internal control framework is designed to ensure:

   --     proper financial records are maintained; 
   --     the Group's assets are safeguarded; 
   --     compliance with laws and regulations; and 
   --     effective and efficient operation of business processes. 

The key elements of the control framework are described below:

Management Structure

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

Policies and Procedures

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

   --     Code of Business Conduct and How to Raise a Concern; 
   --     Delegation of Authorities; 
   --     Dechra Finance Manual, including Tax and Treasury policies; 
   --     Anti-Bribery and Anti-Corruption; 
   --     Data Protection; 
   --     Health and Safety; 
   --     Sanctions; and 
   --     Charitable Donations. 

Strategy and Business Planning

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

Operational Controls

Our key operational control processes are as follows:

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

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

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

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

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

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

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

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

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

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

The key controls in place to manage our principal risks are described in the table below. 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 2022

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.

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

-- Recruitment of a new Head of Good Distribution Practices and Head of Good Practices to further strengthen the Quality team.

-- Launched an independent hotline to enable employees to submit confidential reports using our How to Report a Concern Procedure.

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

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

Plans for 2023

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 2023.

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

Understanding Our Key Risks

 
Link 
 to Strategic 
 Growth 
 Driver                                                                 Control and Mitigating 
 and Enabler   Risk                            Potential Impact          Actions                          Trends 
-------------  ------------------------------  -----------------------  --------------------------------  --------- 
2              1 Market Risk:                  The growth of corporate  We manage and monitor our         No change 
                The growth of veterinary        customers and buying     national and European pricing 
                buying groups and corporate     groups represents        policies to deliver equitable 
                customers impacts the           an opportunity           pricing for each customer 
                distribution landscape.         to increase sales        group. 
                We sell and promote             volumes and revenue      Our relationships with 
                primarily to veterinary         but may                  larger customers are managed 
                practices and distribute        result in reduced        by key account managers. 
                our products through            margins.                 Our marketing strategy 
                wholesaler and distributor                               is designed to support 
                networks in most markets.                                veterinarians in retaining 
                In a number of mature                                    customers by promoting 
                markets, veterinarians                                   the benefits of our product 
                have established buying                                  portfolio in our major 
                groups to consolidate                                    therapeutic areas. 
                their purchasing, and 
                corporate customers 
                are continuing to expand. 
-------------  ------------------------------  -----------------------  --------------------------------  --------- 
 1             2 Competitor Risk:              Revenues and margins     We focus on lifecycle management  Increased 
                                                may be adversely         strategies for our key            risk 
                                                affected should          products such that they 
                                                competitors launch       can fulfil evolving customer 
                                                a novel or generic       requirements. 
                                                product that competes 
                                                with one of our 
                                                unique products 
                                                upon the expiry 
                                                or early loss of 
                                                patents. 
  2             Competitor products             Costs may increase       Product patents are monitored, 
                 launched against one            due to defensive         and defensive strategies 
                 of our leading brands           marketing activity.      are developed towards the 
                 (e.g. generics or a                                      end of the patent life 
                 superior product profile).                               or the data exclusivity 
                                                                          period. 
  3             We depend on data exclusivity                            We monitor market activity 
                 periods or patents                                       prior to competitor products 
                 to have exclusive marketing                              being launched and develop 
                 rights for some of                                       a marketing response strategy 
                 our products.                                            to mitigate competitor 
                                                                          impact. 
                Although we maintain 
                 a broad portfolio of 
                 products, our unique 
                 products like Vetoryl 
                 and Zycortal have built 
                 a market which continues 
                 to be attractive to 
                 competitors. 
-------------  ------------------------------  -----------------------  --------------------------------  --------- 
 
 
1    3 Product Development        A succession of                                               Potential new development          No change 
     and Launch Risk:              clinical trial                                                opportunities are assessed 
     Failure to deliver            failures could                                                from a commercial, financial 
     major products either         adversely affect                                              and scientific perspective 
     due to pipeline delays        our ability to                                                by a multi-functional team 
     or newly launched products    deliver shareholder                                           to allow senior management 
     not meeting revenue           expectations and                                              to make decisions as to 
     expectations.                 could also damage                                             which ones to progress. 
     The development of            our reputation                                                The pipeline is discussed 
     pharmaceutical products       and relationship                                              regularly by senior management, 
     is a complex, risky           with veterinarians.                                           including the Chief Executive 
     and lengthy process           Our market position                                           Officer and Chief Financial 
     involving significant         in key therapeutic                                            Officer. Regular updates 
     financial, R&D and            areas could be                                                are also provided to the 
     other resources.              affected, resulting                                           Board. 
     Products that initially       in reduced revenues                                           Each development project 
     appear promising may          and profits.                                                  is managed by project leaders 
     be delayed or fail            Where we are unable                                           who chair project team 
     to meet expected clinical     to recoup the costs                                           meetings. 
     or commercial expectations    incurred in developing                                        Before costly pivotal studies 
     or face delays in             and launching a                                               are initiated, smaller 
     regulatory                    product this would                                            proof of concept pilot 
     approval.                     result in impairment                                          studies are conducted to 
     It can also be difficult      of any intangible                                             assess the effects of the 
     to predict whether            assets recognised.                                            drug on target species 
     newly launched products                                                                     and for the target indication. 
     will meet commercial                                                                        In respect of all new product 
     expectations.                                                                               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. 
---  ---------------------------  ------------------------------------------------------------  ---------------------------------  --------- 
 1   4 Supply Chain Risk:         Raw material supply                                           We monitor the performance         No change 
                                   failures may cause:                                           of our key suppliers and 
                                                                                                 act promptly to source 
                                                                                                 from alternative suppliers 
                                                                                                 where potential issues 
                                                                                                 are identified. 
  2   Inability to maintain         *    increased product costs due to difficulties in          The Group's top products 
       supply of key products                                                                     are regularly reviewed 
       due to manufacturing,                                                                      in order to identify the 
       quality or product                                                                         key suppliers of materials 
       supply problems in                                                                         or finished products. 
       our own facilities 
       or those of third party 
       suppliers. 
  7   We rely on third parties           obtaining scarce materials on commercially acceptable   A dedicated external network 
      for the supply of all                                                                       team exists to manage and 
      raw materials for products                                                                  support our CMOs to deliver 
      that we manufacture                                                                         quality products to our 
      in-house. We also purchase                                                                  regulatory specifications. 
      many of our finished 
      products from third 
      party manufacturers. 
                                         terms;                                                  Demand forecasting and 
                                                                                                 supply planning processes 
                                                                                                 are in place, with monthly 
                                                                                                 reviews of demand and production 
                                                                                                 forecasts, inventory levels, 
                                                                                                 and remediation plans for 
                                                                                                 products that are out of 
                                                                                                 supply. 
                                                                                                 Processes are in place 
                                                                                                  to monitor and improve 
                                                                                                  product robustness, including 
                                                                                                  quality and technical analyses 
                                                                                                  of key products and engagement 
                                                                                                  with internal and external 
                                                                                                  regulatory stakeholders. 
                                                                                                 Business continuity plans 
                                                                                                  are in place at our key 
                                                                                                  manufacturing sites. 
                                    *    product shortages due to manufacturing delays; or       A new procurement structure 
                                                                                                  and performance measures 
                                                                                                  are being implemented to 
                                                                                                  improve supplier performance 
                                                                                                  management and implement 
                                                                                                  a second source strategy. 
 
 
                                    *    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. 
                                   Whilst the impact 
                                    of COVID-19 on 
                                    the supply chain 
                                    is receding, materials 
                                    price inflation 
                                    and the Russian 
                                    invasion of Ukraine 
                                    have created new 
                                    supply chain challenges. 
                                    However our robust 
                                    response to recent 
                                    developments has 
                                    seen the supply 
                                    chain risk remain 
                                    stable. 
---  ---------------------------  ------------------------------------------------------------  ---------------------------------  --------- 
 
 
 1   5 Regulatory Risk:              Delays in regulatory       The Group strives to exceed          Increased 
                                      reviews and approvals      regulatory requirements              risk 
                                      could impact the           and ensure that its employees 
                                      timing of a product        have detailed experience 
                                      launch and have            and knowledge of the regulations. 
                                      a material effect 
                                      on sales and margins. 
  2   Failure to meet regulatory      Any changes made           Manufacturing and Regulatory 
       requirements.                   to the manufacturing,      teams have established 
                                       distribution, marketing    quality systems and standard 
                                       and safety surveillance    operating procedures in 
                                       processes of our           place. 
                                       products may require 
                                       additional regulatory 
                                       approvals, resulting 
                                       in additional costs 
                                       and/or delays. 
 3    We conduct our business         Non-compliance             A dedicated External Network 
       in a highly regulated           with regulatory            Quality Director supports 
       environment, which              requirements may           our CMOs in complying with 
       is designed to ensure           result in delays           our regulatory specifications. 
       the safety, efficacy,           to production or 
       quality, and ethical            lost sales. 
       promotion of pharmaceutical 
       products. 
      Failure to adhere to            Regulatory risk            Regular contact is maintained 
       regulatory standards            is increasing due          with all relevant regulatory 
       or to implement changes         to a lack of clarity       bodies in order to build 
       in those standards              around Regulation          and strengthen relationships 
       could affect our ability        2019/6; with the           and facilitate good communication 
       to register, manufacture        new veterinary             lines. 
       or promote our products.        regulation that 
                                       legislates for 
                                       the authorisation, 
                                       use and monitoring 
                                       of veterinary medicinal 
                                       products in the 
                                       European Union. 
                                       The Regulation 
                                       was applied in 
                                       all EU Member States 
                                       from January 2022. 
                                                                 The Regulatory and Quality 
                                                                  teams update their knowledge 
                                                                  of regulatory developments 
                                                                  and implement changes in 
                                                                  business procedures to 
                                                                  comply with new requirements. 
                                                                 Where changes are identified 
                                                                  which could affect our 
                                                                  ability to market and sell 
                                                                  any of our products, a 
                                                                  response team is created 
                                                                  in order to mitigate the 
                                                                  risk. 
                                                                 External consultants are 
                                                                  used to audit our manufacturing 
                                                                  quality systems. 
                                                                 Our Regulatory team operates 
                                                                  a robust Pharmacovigilance 
                                                                  (PV) process to report 
                                                                  any adverse reactions and 
                                                                  product complaints related 
                                                                  to the use of our products. 
---  ------------------------------  -------------------------  -----------------------------------  --------- 
4    6 Acquisition Risk:             Failure to identify        We have defined criteria             No change 
      Identification of acquisition   or secure suitable         for screening acquisition 
      opportunities and their         targets could slow         targets, and we conduct 
      potential integration.          the pace at which          commercial, clinical, financial, 
      Identification of suitable      we can expand into         environmental and legal 
      opportunities and securing      new markets or             due diligence. 
      a successful approach           grow our portfolio.        The Board reviews acquisition 
      involves a high degree          Acquisitions could         plans and progress regularly 
      of uncertainty.                 deliver lower profits      and approves all potential 
      Acquired products or            than expected or           transactions. 
      businesses may fail             result in intangible       The SET manages post acquisition 
      to deliver expected             assets impairment.         integration and monitors 
      returns due to over-valuation                              the delivery of benefits 
      or integration challenges.                                 and returns through a defined 
                                                                 process. 
---  ------------------------------  -------------------------  -----------------------------------  --------- 
 
 
 3   7 People Risk:                  Failure to recruit,                                 The Group HR Director reviews         Increased 
                                      develop and retain                                  the organisational structure          risk 
                                      quality people                                      with the SET and the Board 
                                      could result in:                                    twice a year to confirm 
                                                                                          that the organisation is 
                                                                                          fit for purpose and to 
                                                                                          assess the resourcing implications 
                                                                                          of planned changes or strategic 
                                                                                          imperatives. 
  4   Failure to resource              *    overstretched resources;                      A development programme 
       the business to achieve                                                             is in place to identify 
       our strategic ambitions,                                                            opportunities to recruit 
       particularly on geographical                                                        new talent and develop 
       expansion and acquisition.                                                          existing potential. A talent 
                                                                                           acquisition team and applicant 
                                                                                           tracking software are in 
                                                                                           place. 
  6   As Dechra expands into                                                              The Nomination Committee 
       new markets and acquires                                                            oversees succession planning 
       new businesses or science,                                                          for the Board and the SET. 
       we recognise that we 
       may need additional 
       people with different 
       skills, experience 
       and cultural knowledge 
       to execute our strategy 
       successfully in those 
       markets and business 
       areas. 
      Our growth plans and                                                                Succession plans are in 
      future success are                                                                   place for the SET together 
      also dependent on retaining                                                          with development plans 
      knowledgeable and experienced                                                        for key senior managers. 
      senior managers and 
      key staff. 
      Post COVID-19, recruitment       *    weakened succession planning;                 Remuneration packages are 
       has been challenging                                                                reviewed on an annual basis 
       with increased competition                                                          in order to help ensure 
       for the best talent.                                                                that the Group can continue 
                                                                                           to retain, incentivise 
                                                                                           and motivate its employees. 
 
 
                                       *    capability gaps in new markets; or 
 
 
                                       *    challenges in integrating new acquisitions. 
 
 
                                      This could lead 
                                       to erosion of our 
                                       competitive advantage, 
                                       and delay implementation 
                                       of our strategy. 
                                      Recent wage inflation 
                                       has the potential 
                                       to impact workforce 
                                       stability. 
---  ------------------------------  --------------------------------------------------  ------------------------------------  --------- 
 2   8 Antimicrobials Regulatory     Reduction in sales                                  Regular contact is maintained         No change 
      Risk:                           of our antimicrobial                                with relevant veterinary 
                                      product range.                                      authorities to enable us 
                                                                                          to have a comprehensive 
                                                                                          understanding of regulatory 
                                                                                          changes. 
  3   Continuing pressure             Our reputation                                      We strive to develop new 
       on reducing antimicrobial       could be adversely                                 products and minimise antimicrobial 
       use.                            impacted if we                                     resistance concerns. 
                                       do not respond 
                                       appropriately to 
                                       government regulations 
                                       and recommendations. 
      The issue of the potential                                                          We communicate appropriate 
       transfer of antibacterial                                                           antimicrobial use in line 
       resistance from animals                                                             with best practice. 
       to humans is subject 
       to regulatory discussions 
       globally. 
      Whilst new EU regulations 
       restricting antimicrobial 
       use in animals were 
       not implemented in 
       2022, there remains 
       continuing pressure 
       on reducing antibiotic 
       risk. This is driven 
       by market & cultural 
       trends. 
---  ------------------------------  --------------------------------------------------  ------------------------------------  --------- 
 1   9 Climate:                      Damage to our facilities                            Dechra has committed to               No change 
                                      as a result of                                      setting verifiable targets 
                                      climate change                                      across the entire value 
                                      could impact our                                    chain through the Science 
                                      abilities both                                      Based Target initiative 
                                      to supply and manufacture                           (SBTi), with a Letter of 
                                      product, which                                      Intention already submitted. 
                                      may weaken customer                                 Dechra has also joined 
                                      confidence and                                      the UNFCCC Race to Zero. 
                                      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. 
  2   Severe weather patterns                                                             Scenario planning has been 
      caused by climate change                                                             conducted for both physical 
      or natural disaster                                                                  and transition risks to 
      cause damage to manufacturing                                                        enable us to mitigate climate 
      or distribution facilities                                                           related risks. 
      impacting our ability 
      to meet customer demand. 
      In addition, the business 
      will face transition 
      risk, such as carbon 
      pricing, change in 
      raw material pricing 
      and movement to renewable 
      energy sources. 
  6                                                                                       The share of key products 
                                                                                           manufactured by Dechra, 
                                                                                           as opposed to CMOs, will 
                                                                                           be increased in order to 
                                                                                           manage physical risks better. 
                                                                                          Dechra is preparing to 
                                                                                           implement an internal shadow 
                                                                                           carbon price to bring clarity 
                                                                                           and to identify climate-related 
                                                                                           opportunities and the best 
                                                                                           areas to reduce emissions. 
                                                                                          Renewable electricity is 
                                                                                           generated from an existing 
                                                                                           solar plant at our Zagreb 
                                                                                           site. We are investigating 
                                                                                           other renewable energy 
                                                                                           sources across the Group. 
---  ------------------------------  --------------------------------------------------  ------------------------------------  --------- 
 
 
5   10 Cybersecurity and               Failure to prevent       Regular information security         New 
     IT Failure Risk:                  or adequately respond     and data protection training 
     Information security              to a data breach          for employees. 
     breach or significant             or cyber-attack           Key systems are replicated 
     disruption to our IT              could result in           across dual servers and 
     systems, resulting                business disruption,      backed-up. Disaster and 
     from a cyber-attack               fines, loss of            data recovery plans are 
     or failure of key IT              personal data or          in place and tested regularly. 
     software or infrastructure.       loss of intellectual      Data encryption and multi-factor 
                                       property/commercially     authentication is employed 
                                       sensitive information.    on mobile devices. 
                                       Software or               Business interruption and 
                                       infrastructure            cyber insurance is in place. 
                                       failure could result 
                                       in significant 
                                       disruption to 
                                       operations 
                                       and management 
                                       decision making. 
    ---------------------------------  -----------------------  -----------------------------------  ----------- 
     Key to Strategic Growth Drivers:                                    Key to Strategic Enablers: 
                  1 Pipeline Delivery                                                  5 Technology 
                    2 Portfolio Focus                                                      6 People 
             3 Geographical Expansion                              7 Manufacturing and Supply Chain 
                        4 Acquisition                                                         8 ESG 
 
 

Consolidated Income Statement

For the year ended 30 June 2022

 
                                                      2022                               2021 
--------------------------------  ---- 
                                                            Non-                               Non- 
                                                     underlying*                        underlying* 
                                                          (notes                             (notes 
                                                          3, 4 &                             3, 4 & 
                                        Underlying            5)    Total  Underlying            5)    Total 
                                  Note        GBPm          GBPm     GBPm        GBPm          GBPm     GBPm 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Revenue                              2       681.8             -    681.8       608.0             -    608.0 
Cost of sales                              (296.5)         (0.5)  (297.0)     (262.1)             -  (262.1) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Gross profit                                 385.3         (0.5)    384.8       345.9             -    345.9 
Selling, general and administrative 
 expenses                                  (178.6)        (74.6)  (253.2)     (151.3)        (73.8)  (225.1) 
Research and development 
 expenses                                   (32.4)         (3.7)   (36.1)      (32.4)         (4.4)   (36.8) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Operating profit                     2       174.3        (78.8)     95.5       162.2        (78.2)     84.0 
Finance income                       3         5.7             -      5.7           -           3.8      3.8 
Finance expense                      4       (8.8)        (13.5)   (22.3)      (11.7)         (1.0)   (12.7) 
Share of loss of investments 
 accounted for using 
 the equity method                   6       (1.2)         (0.1)    (1.3)       (0.4)         (0.7)    (1.1) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Profit/(loss) before 
 taxation                                    170.0        (92.4)     77.6       150.1        (76.1)     74.0 
Income taxes                         7      (38.3)          18.9   (19.4)      (32.5)          14.0   (18.5) 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Profit/(loss) for the 
 year                                        131.7        (73.5)     58.2       117.6        (62.1)     55.5 
--------------------------------------  ----------  ------------  -------  ----------  ------------  ------- 
Earnings per share 
Basic                                9                             53.72p                             51.33p 
Diluted                              9                             53.40p                             51.03p 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
Dividend per share 
 (interim paid and 
 final proposed for 
 the year)                           8                             44.89p                             40.50p 
--------------------------------  ----  ----------  ------------  -------  ----------  ------------  ------- 
 
 
    *            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 2022

 
                                                                  2022    2021 
                                                           Note   GBPm    GBPm 
---------------------------------------------------------  ----  -----  ------ 
Profit for the year                                               58.2    55.5 
 
Other comprehensive income/(expense): 
 
Items that may be reclassified subsequently to 
 profit or loss: 
Foreign currency cash flow hedges 
- fair value movements                                               -   (1.7) 
Foreign currency translation differences for 
 foreign operations                                               15.7  (28.0) 
Income tax relating to components of other comprehensive 
 income/(expense)                                             7  (0.4)   (0.2) 
---------------------------------------------------------  ----  -----  ------ 
                                                                  15.3  (29.9) 
---------------------------------------------------------  ----  -----  ------ 
Total comprehensive income for the period                         73.5    25.6 
---------------------------------------------------------  ----  -----  ------ 
 

Consolidated Statement of Financial Position

At 30 June 2022

 
                                                2022     2021 
                                       Note     GBPm     GBPm 
-------------------------------------  ----  -------  ------- 
ASSETS 
Non-current assets 
Intangible assets                        10    730.5    715.8 
Property, plant and equipment                  100.3     87.0 
Investments                               6     15.8     17.1 
Deferred tax assets                      11      2.3      2.0 
-------------------------------------  ----  -------  ------- 
Total non-current assets                       848.9    821.9 
-------------------------------------  ----  -------  ------- 
Current assets 
Inventories                                    175.7    149.5 
Corporation tax receivable                      11.0     17.6 
Trade and other receivables                    136.8    106.7 
Cash and cash equivalents                      120.9    118.4 
-------------------------------------  ----  -------  ------- 
Total current assets                           444.4    392.2 
-------------------------------------  ----  -------  ------- 
Total assets                                 1,293.3  1,214.1 
-------------------------------------  ----  -------  ------- 
LIABILITIES 
Current liabilities 
Borrowings and lease liabilities         12    (3.3)    (3.1) 
Trade and other payables                     (136.8)  (113.5) 
Contingent consideration                 16    (6.4)   (22.6) 
Corporation tax payable                       (12.2)   (16.6) 
-------------------------------------  ----  -------  ------- 
Total current liabilities                    (158.7)  (155.8) 
-------------------------------------  ----  -------  ------- 
Non-current liabilities 
Borrowings and lease liabilities         12  (325.8)  (315.5) 
Contingent consideration                 16  (104.0)   (57.6) 
Provisions                               13    (2.2)    (3.5) 
Deferred tax liabilities                 11   (35.8)   (48.8) 
-------------------------------------  ----  -------  ------- 
Total non-current liabilities                (467.8)  (425.4) 
-------------------------------------  ----  -------  ------- 
Total liabilities                            (626.5)  (581.2) 
-------------------------------------  ----  -------  ------- 
Net assets                                     666.8    632.9 
-------------------------------------  ----  -------  ------- 
EQUITY 
Issued share capital                             1.1      1.1 
Share premium account                          413.9    411.6 
Hedging reserve                                    -        - 
Foreign currency translation reserve             3.4   (11.9) 
Merger reserve                                  84.4     84.4 
Retained earnings                              164.0    147.7 
-------------------------------------  ----  -------  ------- 
Total equity                                   666.8    632.9 
-------------------------------------  ----  -------  ------- 
 

The financial statements were approved by the Board of Directors on 5 September 2022 and were signed on its behalf by:

Ian Page

Chief Executive Officer

5 September 2022

Paul Sandland

Chief Financial Officer

5 September 2022

Company number: 3369634

Consolidated Statement of Changes in Shareholders' Equity

For the year ended 30 June 2022

 
                                                                          Foreign 
                                         Issued     Share                currency 
                                          share   premium   Hedging   translation    Merger   Retained    Total 
                                        capital   account   reserve       reserve   reserve   earnings   equity 
                                           GBPm      GBPm      GBPm          GBPm      GBPm       GBPm     GBPm 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Year ended 30 June 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 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Year ended 30 June 2022 
At 1 July 2021                              1.1     411.6         -        (11.9)      84.4      147.7    632.9 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Profit for the period                         -         -         -             -         -       58.2     58.2 
Foreign currency cash flow 
 hedge 
- fair value movements                        -         -         -             -         -          -        - 
Foreign currency translation 
 differences for foreign operations           -         -         -          15.7         -          -     15.7 
Income tax relating to components 
 of other comprehensive income                -         -         -         (0.4)         -          -    (0.4) 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Total comprehensive income                    -         -         -          15.3         -       58.2     73.5 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Transactions with owners: 
Dividends paid                                -         -         -             -         -     (44.8)   (44.8) 
Share-based payments                          -         -         -             -         -        2.9      2.9 
Shares issued                                 -       2.3         -             -         -          -      2.3 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
Total contributions by and 
 distributions to owners                      -       2.3         -             -         -     (41.9)   (39.6) 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
At 30 June 2022                             1.1     413.9         -           3.4      84.4      164.0    666.8 
-------------------------------------  --------  --------  --------  ------------  --------  ---------  ------- 
 

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. There have been no cash flow hedges in the current year.

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 2022

 
                                                                          2022     2021 
                                                                 Note     GBPm     GBPm 
---------------------------------------------------  ----------------  -------  ------- 
Cash flows from operating activities 
Operating profit                                                          95.5     84.0 
Non-underlying items                                                5     78.8     78.2 
---------------------------------------------------  ----------------  -------  ------- 
Underlying operating profit                                              174.3    162.2 
Adjustments for: 
Depreciation                                                              11.1     11.0 
Amortisation and impairment                                         2      5.2      4.5 
Release of government grant                                              (0.7)    (0.6) 
Loss on disposal of leased assets                                          0.7        - 
Loss on disposal of intangible assets                                        -      0.3 
Equity settled share-based payment expense                                 3.3      2.8 
---------------------------------------------------  ----------------  -------  ------- 
Underlying operating cash flow before changes 
 in working capital                                                      193.9    180.2 
Increase in inventories                                                 (19.3)   (36.6) 
Increase in trade and other receivables                                 (23.4)   (19.7) 
Increase in trade and other payables                                      14.9     20.3 
---------------------------------------------------  ----------------  -------  ------- 
Cash generated from operating activities before interest, 
 taxation and non-underlying items                                       166.1    144.2 
Cash outflows in respect of non-underlying items                    5    (2.8)    (3.0) 
---------------------------------------------------  ----------------  -------  ------- 
Cash generated from operating activities before 
 interest and taxation                                                   163.3    141.2 
Interest paid                                                            (7.0)    (7.7) 
Interest on lease liabilities                                            (0.5)    (0.5) 
Income taxes paid                                                       (32.9)   (43.9) 
---------------------------------------------------  ----------------  -------  ------- 
Net cash generated from operating activities                             122.9     89.1 
---------------------------------------------------  ----------------  -------  ------- 
Cash flows from investing activities 
Proceeds from disposal of property, plant and 
 equipment                                                                   -      0.2 
Proceeds from disposal of intangible assets                                  -      0.2 
Interest received                                                          0.1        - 
Acquisition of subsidiaries (net of cash acquired)                       (0.8)    (0.9) 
Acquisition of investment in associates                                      -    (0.8) 
Purchase of property, plant and equipment                               (20.3)   (18.9) 
Capitalised development expenditure                                      (1.2)    (1.3) 
Purchase of acquired intangible non-current assets                      (54.4)  (111.2) 
Purchase of other intangible non-current assets                          (1.7)    (3.4) 
---------------------------------------------------  ----------------  -------  ------- 
Net cash used in investing activities                                   (78.3)  (136.1) 
---------------------------------------------------  ----------------  -------  ------- 
Cash flows from financing activities 
Proceeds from the issue of share capital                                   2.3      2.3 
Repayment of borrowings                                                      -   (15.9) 
Principal elements of lease payments                                     (3.6)    (3.6) 
Dividends paid                                                      8   (44.8)   (37.9) 
---------------------------------------------------  ----------------  -------  ------- 
Net cash used in financing activities                                   (46.1)   (55.1) 
---------------------------------------------------  ----------------  -------  ------- 
Net decrease in cash and cash equivalents                                (1.5)  (102.1) 
Cash and cash equivalents at start of period                             118.4    227.4 
Exchange differences on cash and cash equivalents                          4.0    (6.9) 
---------------------------------------------------  ----------------  -------  ------- 
Cash and cash equivalents at end of period                               120.9    118.4 
---------------------------------------------------  ----------------  -------  ------- 
Reconciliation of net cash flow to movement 
 in net borrowings 
Net decrease in cash and cash equivalents                                (1.5)  (102.1) 
New borrowings and lease liabilities                                     (3.8)    (5.8) 
Repayment of borrowings and lease liabilities                              4.1     20.0 
Exchange differences on cash and cash equivalents                          4.0    (6.9) 
Retranslation of foreign borrowings                                     (11.2)     22.4 
Other non-cash changes                                                     0.4    (0.2) 
---------------------------------------------------  ----------------  -------  ------- 
Movement in net borrowings in the period                                 (8.0)   (72.6) 
Net borrowings at start of period                                      (200.2)  (127.6) 
---------------------------------------------------  ----------------  -------  ------- 
Net borrowings at end of period                                        (208.2)  (200.2) 
---------------------------------------------------  ----------------  -------  ------- 
 

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 UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 as it applies to companies reporting under those standards. The Board of Directors approved the preliminary announcement on 5 September 2022.

2. Operating Segments

As discussed below, the Group has three reportable segments which are based on information provided to the Board of Directors, 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 & Supply. This Segment operates internationally and manufactures and markets Companion Animal Products (CAP), Equine, Food producing Animal Products (FAP) and Nutrition. This Segment also includes third party manufacturing and other revenues from non-core activities.

The NA Pharmaceuticals Segment consists of Dechra Veterinary Products US, Dechra Veterinary Products Canada, and Dechra Productos Veterinarios (Mexico), which sell CAP, Equine and FAP 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:

 
                                                                  2022     2021 
                                                                  GBPm     GBPm 
-------------------------------------------------------------  -------  ------- 
Revenue by segment 
European Pharmaceuticals                                         406.7    388.5 
NA Pharmaceuticals                                               275.1    219.5 
-------------------------------------------------------------  -------  ------- 
                                                                 681.8    608.0 
-------------------------------------------------------------  -------  ------- 
Underlying operating profit/(loss) by segment 
European Pharmaceuticals                                         131.5    127.8 
NA Pharmaceuticals                                                87.7     75.9 
Pharmaceuticals Research and Development                        (32.4)   (32.4) 
-------------------------------------------------------------  -------  ------- 
Underlying segment operating profit                              186.8    171.3 
Corporate and other unallocated costs                           (12.5)    (9.1) 
-------------------------------------------------------------  -------  ------- 
Underlying operating profit                                      174.3    162.2 
Amortisation of acquired intangibles                            (72.8)   (75.2) 
Cloud computing arrangement costs                                (2.8)        - 
Impairment of assets                                             (2.9)        - 
Rationalisation of manufacturing organisation                        -    (1.6) 
Expenses relating to acquisitions and subsequent integration 
 activities                                                      (0.3)    (1.4) 
-------------------------------------------------------------  -------  ------- 
Total operating profit                                            95.5     84.0 
Finance income                                                     5.7      3.8 
Finance expense                                                 (22.3)   (12.7) 
Share of loss of investments accounted for using the 
 equity method                                                   (1.3)    (1.1) 
-------------------------------------------------------------  -------  ------- 
Profit before taxation                                            77.6     74.0 
-------------------------------------------------------------  -------  ------- 
Total liabilities by segment 
European Pharmaceuticals                                       (141.3)  (137.5) 
NA Pharmaceuticals                                             (110.6)   (60.5) 
Pharmaceuticals Research and Development                         (4.7)    (5.9) 
-------------------------------------------------------------  -------  ------- 
Segment liabilities                                            (256.6)  (203.9) 
Corporate loans and revolving credit facility                  (313.7)  (302.7) 
Corporate accruals and other payables                            (8.2)    (9.2) 
Current and deferred tax liabilities                            (48.0)   (65.4) 
-------------------------------------------------------------  -------  ------- 
                                                               (626.5)  (581.2) 
-------------------------------------------------------------  -------  ------- 
 
 
                                                                     2022   2021 
                                                                     GBPm   GBPm 
------------------------------------------------------------------  -----  ----- 
Revenue by product category 
CAP                                                                 508.4  442.6 
Equine                                                               49.5   44.8 
FAP                                                                  78.8   77.0 
Nutrition                                                            35.0   31.7 
Other                                                                10.1   11.9 
------------------------------------------------------------------  -----  ----- 
                                                                    681.8  608.0 
------------------------------------------------------------------  -----  ----- 
Additions to intangible non-current assets by segment 
 (including through business combinations) 
European Pharmaceuticals                                             23.5   97.1 
NA Pharmaceuticals                                                   75.1   40.2 
Pharmaceuticals Research and Development                              0.3    0.1 
Corporate and central costs                                             -    1.4 
------------------------------------------------------------------  -----  ----- 
                                                                     98.9  138.8 
------------------------------------------------------------------  -----  ----- 
Additions to Property, Plant and Equipment by segment 
 (including through business combinations) 
European Pharmaceuticals                                             20.5   19.8 
NA Pharmaceuticals                                                    2.4    5.9 
Pharmaceuticals Research and Development                              0.5    0.4 
Corporate and central costs                                           0.8    0.3 
------------------------------------------------------------------  -----  ----- 
                                                                     24.2   26.4 
------------------------------------------------------------------  -----  ----- 
Depreciation, impairment and amortisation by segment 
European Pharmaceuticals                                             63.4   67.1 
NA Pharmaceuticals                                                   26.1   22.4 
Pharmaceuticals Research and Development                              0.5    0.5 
Corporate and central costs                                           0.8    0.7 
------------------------------------------------------------------  -----  ----- 
                                                                     90.8   90.7 
------------------------------------------------------------------  -----  ----- 
The total depreciation, amortisation and impairment charge 
 is made up of the following: 
Non-underlying 
Amortisation and impairment - selling, general and administrative 
 expenses                                                            70.8   70.8 
Amortisation - research and development expenditure                   3.7    4.4 
------------------------------------------------------------------  -----  ----- 
                                                                     74.5   75.2 
------------------------------------------------------------------  -----  ----- 
Underlying 
Amortisation and impairment                                           5.2    4.5 
Depreciation                                                         11.1   11.0 
------------------------------------------------------------------  -----  ----- 
                                                                     16.3   15.5 
------------------------------------------------------------------  -----  ----- 
 

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:

 
                               2022                2021 
                               Non-                Non- 
                     2022   current      2021   current 
                  Revenue    assets   Revenue    assets 
                     GBPm      GBPm      GBPm      GBPm 
---------------  --------  --------  --------  -------- 
UK                   58.2      31.8      56.9      30.8 
Germany              62.3       2.9      64.8       3.1 
Rest of Europe      212.9     378.8     204.8     406.3 
USA                 258.3     278.3     206.5     215.2 
Rest of World        90.1     157.1      75.0     166.5 
---------------  --------  --------  --------  -------- 
                    681.8     848.9     608.0     821.9 
---------------  --------  --------  --------  -------- 
 

3. Finance Income

 
                                2022   2021 
Underlying                      GBPm   GBPm 
-----------------------------  -----  ----- 
Finance income arising from: 
- Cash and cash equivalents      0.1      - 
- Foreign exchange gains         5.6      - 
-----------------------------  -----  ----- 
Underlying finance income        5.7      - 
-----------------------------  -----  ----- 
 
 
                                                        2022   2021 
Non-underlying                                          GBPm   GBPm 
-----------------------------------------------------  -----  ----- 
Finance income arising from: 
- Foreign exchange gains on contingent consideration       -    3.8 
-----------------------------------------------------  -----  ----- 
Non-underlying finance income                              -    3.8 
-----------------------------------------------------  -----  ----- 
Total finance income                                     5.7    3.8 
-----------------------------------------------------  -----  ----- 
 

4. Finance Expense

 
                                             2022   2021 
Underlying                                   GBPm   GBPm 
------------------------------------------  -----  ----- 
Finance expense arising from: 
- Financial liabilities at amortised cost     8.3    8.3 
- Lease liability interest                    0.5    0.5 
- Foreign exchange losses                       -    2.9 
------------------------------------------  -----  ----- 
Underlying finance expense                    8.8   11.7 
------------------------------------------  -----  ----- 
 
 
                                                                 2022   2021 
Non-underlying                                                   GBPm   GBPm 
--------------------------------------------------------------  -----  ----- 
Finance expense arising from: 
- Foreign exchange losses on contingent consideration            10.1      - 
- Unwind of discount associated with contingent consideration     3.4    1.0 
--------------------------------------------------------------  -----  ----- 
Non-underlying finance expense                                   13.5    1.0 
--------------------------------------------------------------  -----  ----- 
Total finance expense                                            22.3   12.7 
--------------------------------------------------------------  -----  ----- 
 

5. Non-underlying Items

Non-underlying items charged/(credited) comprise:

 
                                                                 2022    2021 
                                                                 GBPm    GBPm 
-------------------------------------------------------------  ------  ------ 
Amortisation of acquired intangibles 
- classified within selling, general and administrative 
 expenses                                                        69.1    70.8 
- classified within research and development expenses             3.7     4.4 
Cloud computing arrangement costs                                 2.8       - 
Impairment of assets                                              2.9       - 
Expenses relating to acquisitions and subsequent integration 
 activities                                                       0.3     1.4 
Rationalisation of manufacturing organisation                       -     1.6 
-------------------------------------------------------------  ------  ------ 
Non-underlying operating loss                                    78.8    78.2 
-------------------------------------------------------------  ------  ------ 
Amortisation of notional acquired intangibles from 
 equity accounting for associates                                 0.7     0.7 
Share of realised non-underlying profit of investments 
 accounted for using the equity method                          (0.6)       - 
Foreign exchange losses/(gains) on contingent consideration      10.1   (3.8) 
Unwind of discount associated with contingent consideration       3.4     1.0 
-------------------------------------------------------------  ------  ------ 
Non-underlying loss before tax                                   92.4    76.1 
Tax on non-underlying loss before tax items                    (21.1)  (16.6) 
Revaluation of deferred tax balances following the 
 change in the US, Dutch and UK tax rates                         2.2     4.8 
Release of fair value provision on acquisition                      -   (2.2) 
-------------------------------------------------------------  ------  ------ 
Non-underlying loss after tax                                    73.5    62.1 
-------------------------------------------------------------  ------  ------ 
 

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

Cloud computing arrangement costs of GBP2.8 million relate to the initial costs of the programme to implement the Manufacturing and Supply function's new ERP and Electronic Quality Management systems, the total cost of which is expected to be GBP25.0 million over the next five years. Included within underlying administrative expenses is GBP1.5 million of other cloud computing arrangement costs which relate to the implementation of the Salesforce customer relationship management system in Europe, and the implementation of a global payroll platform. The GBP2.8 million of non-underlying expenses have been settled in the year.

Impairment of assets predominantly relates to the impairment of certain assets prior to the sale of the Agricultural Chemicals business in January 2022 (GBP1.0 million) and the impairment of a small number of In-Process Research and Development assets recognised on the acquisition of AST Farma and Le Vet (GBP1.7 million).

Expenses relating to acquisitions and subsequent integration activities represents costs incurred during the acquisition of Piedmont Animal Health, Inc. (GBP0.3 million). Additional acquisition expenses of c. GBP3.0 million are expected to be incurred in relation to the acquisition and integration of Piedmont Animal Health, Inc. and the Med-Pharmex Holdings, Inc. group of companies over the next two years. Costs of GBP0.2 million relating to the product rights acquisitions made during the year have been taken through underlying expenses.

Foreign exchange losses on contingent consideration is driven by the depreciation of Sterling against the US and Australian Dollars.

The revaluation of the deferred tax balances arises as a result of an increase in the US (GBP1.1 million), Dutch (GBP0.8 million) and UK (GBP0.3 million) corporation tax rates.

6. Interests in Associate

 
                                                             2022   2021 
                                                             GBPm   GBPm 
----------------------------------------------------------  -----  ----- 
1 July 2021 and 2020                                         17.1   17.4 
Additions                                                       -    0.8 
Share of underlying loss after tax                          (1.2)  (0.4) 
Non-underlying realised profit from continuing operations     0.6      - 
Share of amortisation of notional intangible asset 
 identified on acquisition (net of tax)                     (0.7)  (0.7) 
----------------------------------------------------------  -----  ----- 
30 June 2022 and 2021                                        15.8   17.1 
----------------------------------------------------------  -----  ----- 
 

The Group holds 49.5% of the issued share capital of Medical Ethics Pty Ltd, which is the holding company of Animal Ethics Pty Ltd. The Group has considered other factors when assessing control, and concluded that it has significant influence but not control of the associate. There is no change in the accounting treatment of the entity from the prior year. The company is incorporated in Australia, which is also the principal place of business. The registered address is c/o Level 3, 649 Bridge Road, Richmond, Victoria 3121, Australia. The company has share capital consisting solely of ordinary shares, which are directly owned by the Group. Medical Ethics Pty Ltd is a private company and there is no quoted market price available for its shares. There are no contingent liabilities relating to the Group's interest in the associate.

The Group's share of the loss arising from its investment in Medical Ethics includes the effect of harmonising the accounting policies and of amortising the fair value adjustments (net of tax), which are treated as non-underlying. The milestone of AUD26.0 million that was paid to Animal Ethics Pty Ltd in the year relating to the licensing agreement for the marketing authorisations of Tri-Solfen(R) in Australia and New Zealand is eliminated in the Group's income statement. The Group's share of this will be realised over the life of the agreement.

7. Income Taxes

 
                                                                 2022    2021 
                                                                 GBPm    GBPm 
-------------------------------------------------------------  ------  ------ 
Current tax - UK corporation tax                                  2.2     2.8 
                      - overseas tax                             29.7    26.8 
                      - adjustment in respect of prior years      2.8   (2.6) 
-------------------------------------------------------------  ------  ------ 
Total current tax expense                                        34.7    27.0 
-------------------------------------------------------------  ------  ------ 
Deferred tax - origination and reversal of temporary 
 differences                                                   (15.7)  (14.5) 
                      - adjustment in respect of tax rates        2.2     4.8 
                      - adjustment in respect of prior years    (1.8)     1.2 
-------------------------------------------------------------  ------  ------ 
Total deferred tax credit                                      (15.3)   (8.5) 
-------------------------------------------------------------  ------  ------ 
Total income tax charge in the Consolidated Income 
 Statement                                                       19.4    18.5 
-------------------------------------------------------------  ------  ------ 
 

The tax on the Group's profit before taxation differs from the standard rate of UK corporation tax of 19.0% (2021: 19.0%). The differences to this rate are explained below:

 
                                                      2022   2021 
                                                      GBPm   GBPm 
---------------------------------------------------  -----  ----- 
Profit before taxation                                77.6   74.0 
---------------------------------------------------  -----  ----- 
Tax at 19.0% (2021: 19.0%)                            14.7   14.1 
Effect of: 
- expenses not deductible                              0.8    1.8 
- research and development related tax credits       (0.2)  (0.3) 
- patent box tax credits                             (1.5)  (3.1) 
- other incentives                                   (1.6)  (0.3) 
- share of results in associates                       0.2      - 
- effects of overseas tax rates                        3.8    2.9 
- adjustment in respect of prior years                 1.0  (1.4) 
- change in tax rates                                  2.2    4.8 
---------------------------------------------------  -----  ----- 
Total income tax charge in the Consolidated Income 
 Statement                                            19.4   18.5 
---------------------------------------------------  -----  ----- 
 

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 22.5%).

Tax (Charge)/Credit Recognised Directly in Equity

 
                                                                    2022   2021 
                                                                    GBPm   GBPm 
-----------------------------------------------------------------  -----  ----- 
Deferred tax on other equity movements                             (0.4)  (0.2) 
-----------------------------------------------------------------  -----  ----- 
Tax charge recognised in Consolidated Statement of Comprehensive 
 Income                                                            (0.4)  (0.2) 
-----------------------------------------------------------------  -----  ----- 
 
Corporation tax on equity settled transactions                       0.3    0.2 
Deferred tax on equity settled transactions                        (0.7)    0.7 
-----------------------------------------------------------------  -----  ----- 
Total tax (charge)/credit recognised in Equity                     (0.4)    0.9 
-----------------------------------------------------------------  -----  ----- 
 

On 27 December 2021, the Dutch government enacted legislation to increase the top rate of corporate income tax from 25.0% to 25.8% with effect from 1 January 2022. Dutch deferred tax assets and liabilities have been recalculated accordingly.

The UK Finance Bill 2021 substantively enacted on 24 May 2021, included an increase in the main rate of UK corporation tax from 19% to 25%, effective 1 April 2023. UK deferred tax assets and liabilities as at 30 June 2022 have been recalculated accordingly, based on the Group's best estimate of the timing of the unwind of existing temporary differences.

At 30 June 2022, the Group held a current provision of GBP5.9 million (2021: GBP5.7 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 a release of the provision of between GBP0.3 million to GBP3.9 million.

EU CFC Challenge

The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concluded that the legislation up until December 2018 does partially represent State Aid. This decision was upheld by the EU General Court on 8 June 2022, when it dismissed the UK Government's annulment application. The UK Government has since confirmed its intention to lodge an appeal to the EU Court of Justice.

The Group considers that the potential amount of additional tax payable remains between GBPnil and GBP4.0 million depending on the basis of calculation and the outcome of HMRC's appeal to the EU Court of Justice. Based on current advice, the Group does not consider any provision is required in relation to this investigation. This judgement is based on current interpretation of legislation and professional advice.

The Group received charging notices from HMRC in January and February 2021 under The Taxation (Post Transition Period) Bill for part of the exposure (GBP2.75 million) and has paid this to HMRC. As the Group considers that HMRC's appeal will be successful, the charging notices which were settled in full during the previous period (GBP2.75 million) are recorded as current tax receivables on the basis that the amount will be repaid in due course.

Future Tax Charge

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

8. Dividends

 
                                                           2022   2021 
                                                           GBPm   GBPm 
--------------------------------------------------------  -----  ----- 
Final dividend paid in respect of prior year but not 
 recognised as a liability in that year: 29.39 pence 
 per share (2021: 24.00 pence per share)                   31.8   25.9 
Interim dividend paid: 12.00 pence per share (2021: 
 11.11 pence per share)                                    13.0   12.0 
--------------------------------------------------------  -----  ----- 
Total dividend 41.39 pence per share (2021: 35.11 
 pence per share) recognised as distributions to equity 
 holders in the period                                     44.8   37.9 
--------------------------------------------------------  -----  ----- 
Proposed final dividend for the year ended 30 June 
 2022: 32.89 pence per share (2021: 29.39 pence per 
 share)                                                    35.6   31.8 
Total dividend paid and proposed for the year ended 
 30 June 2022: 44.89 pence per share (2021: 40.50 pence 
 per share)                                                48.6   43.8 
--------------------------------------------------------  -----  ----- 
 

In accordance with IAS 10 'Events After the Balance Sheet Date', the proposed final dividend for the year ended 30 June 2022 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 2023. There are no income tax consequences. The final dividend for the year ended 30 June 2021 is shown as a deduction from equity in the year ended 30 June 2022.

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.

 
                               2022    2021 
                              Pence   Pence 
---------------------------  ------  ------ 
Basic earnings per share 
- Underlying*                121.57  108.77 
- Basic                       53.72   51.33 
---------------------------  ------  ------ 
Diluted earnings per share 
- Underlying*                120.84  108.14 
- Diluted                     53.40   51.03 
---------------------------  ------  ------ 
 

* Underlying measures exclude non-underlying items as defined in note 1.

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

 
                                                        2022   2021 
                                                        GBPm   GBPm 
-----------------------------------------------------  -----  ----- 
Earnings for underlying basic and underlying diluted 
 earnings per share                                    131.7  117.6 
-----------------------------------------------------  -----  ----- 
Earnings for basic and diluted earnings per share       58.2   55.5 
-----------------------------------------------------  -----  ----- 
 
 
                                                              Number       Number 
-------------------------------------------------------  -----------  ----------- 
Weighted average number of ordinary shares for basic 
 earnings per share                                      108,332,583  108,119,864 
-------------------------------------------------------  -----------  ----------- 
Impact of share options                                      654,836      630,725 
-------------------------------------------------------  -----------  ----------- 
Weighted average number of ordinary shares for diluted 
 earnings per share                                      108,987,419  108,750,589 
-------------------------------------------------------  -----------  ----------- 
 

At 30 June 2022, there are 305,468 options (2021: 401,672) 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

 
                                                                     Patent 
                                                                     rights 
                                               Development      & marketing                         Acquired 
                           Goodwill  Software        costs   authorisations  Other intangibles   intangibles    Total 
                               GBPm      GBPm         GBPm             GBPm               GBPm          GBPm     GBPm 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
Cost 
At 1 July 2020                253.8      21.7         15.9              5.4                  -         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 
 30)                              -         -            -                -                  -           4.9      4.9 
Foreign exchange 
 adjustments                 (17.7)     (0.5)        (0.5)            (0.1)                  -        (49.5)   (68.3) 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
At 30 June 2021 
 and 1 July 2021              236.1      23.1         15.1              6.5                  -         881.3  1,162.1 
Additions                         -       1.0          1.8                -                  -          96.1     98.9 
Disposals                         -         -            -            (3.3)                  -         (0.7)    (4.0) 
Transfers between 
 categories                       -       0.2        (1.7)              0.4                1.1             -        - 
Remeasurement (note 
 30)                              -         -            -                -                  -        (24.2)   (24.2) 
Foreign exchange 
 adjustments                    9.3       0.1          0.2              0.1                0.1          27.4     37.2 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
At 30 June 2022               245.4      24.4         15.4              3.7                1.2         979.9  1,270.0 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
Accumulated Amortisation 
At 1 July 2020                    -       9.0          9.8              3.5                  -         373.7    396.0 
Charge for the 
 year                             -       3.2          0.6              0.5                  -          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)            (0.2)                  -        (27.9)   (28.4) 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
At 30 June 2021 
 and 1 July 2021                  -      11.2          9.5              4.6                  -         421.0    446.3 
Charge for the 
 year                             -       3.5          0.6              0.4                  -          72.8     77.3 
Impairments                       -         -            -                -                0.7           1.7      2.4 
Disposals                         -         -            -            (3.4)                  -         (0.6)    (4.0) 
Foreign exchange 
 adjustments                      -       0.1            -              0.1                0.1          17.2     17.5 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
At 30 June 2022                   -      14.8         10.1              1.7                0.8         512.1    539.5 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
Net book value 
At 30 June 2022               245.4       9.6          5.3              2.0                0.4         467.8    730.5 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
At 30 June 2021               236.1      11.9          5.6              1.9                  -         460.3    715.8 
-------------------------  --------  --------  -----------  ---------------  -----------------  ------------  ------- 
 

GBP0.8 million of the marketing authorisations relate to the Vetivex(R) range of products. Ownership of the marketing authorisations rests with the Group in perpetuity. There are not believed to be any legal, regulatory or contractual provisions that limit their useful lives. Vetivex is an established range of products which are relatively simple in nature and there are a limited number of players in the market. Accordingly, the Directors believe that it is appropriate that the marketing authorisations are treated as having indefinite lives for accounting purposes.

The software intangible asset net book value includes GBP7.4 million relating to the ERP system in the EU Pharmaceuticals Segment; this has a remaining amortisation period of 3 years.

Goodwill is allocated across cash generating units that are expected to benefit from that business combination. Key assumptions made in this respect are given in note 14 of the financial statements of the 2022 Annual Report.

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

 
                                                                        Capitalised 
                                   Commercial  Pharmacological          development  Product 
                                relationships          process  Brand         costs   rights   Total 
                                         GBPm             GBPm   GBPm          GBPm     GBPm    GBPm 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
Cost 
At 1 July 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 and 
 1 July 2021                              8.1             47.1   14.9         382.4    428.8   881.3 
Additions                                   -                -      -             -     96.1    96.1 
Remeasurement                               -                -      -             -   (24.2)  (24.2) 
Disposals                                   -                -      -             -    (0.7)   (0.7) 
Foreign exchange adjustments              0.2              6.8    1.8          12.0      6.6    27.4 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2022                           8.3             53.9   16.7         394.4    506.6   979.9 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
Accumulated Amortisation 
At 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 and 
 1 July 2021                              7.3             35.0    8.4         186.7    183.6   421.0 
Charge for the year                       1.3              3.6    1.2          37.0     29.7    72.8 
Impairments                                 -                -      -           1.7        -     1.7 
Disposals                                   -                -      -             -    (0.6)   (0.6) 
Foreign exchange adjustments            (0.8)              5.3    2.0           5.5      5.2    17.2 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2022                           7.8             43.9   11.6         230.9    217.9   512.1 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
Net book value 
At 30 June 2022                           0.5             10.0    5.1         163.5    288.7   467.8 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
At 30 June 2021                           0.8             12.1    6.5         195.7    245.2   460.3 
-----------------------------  --------------  ---------------  -----  ------------  -------  ------ 
 

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

 
                                                                             Acquired                 Remaining 
                                                               Goodwill   intangibles  Sub-Total   amortisation 
                                                               carrying      carrying   carrying      period on 
                                Description of acquired           value         value      value       acquired 
Significant assets               intangibles                       GBPm          GBPm       GBPm    intangibles 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 arising from the acquisition   Product, marketing 
 of Dermapet                     and distribution rights            0.4          11.2       11.6    3 1/2 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets               Technology, product, 
 arising from the acquisition    marketing and distribution 
 of Eurovet                      rights                            37.7           0.2       37.9       1/2 year 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Goodwill arising from 
 the acquisition of 
 Vetxx                                                             16.4             -       16.4            N/A 
------------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets               Product, brand, technology,                       0.1                  1/2 year 
 arising from the acquisition    marketing 
 of Genera                       and distribution rights 
------------------------------  ---------------------------- 
                                                                                  0.2               3 1/2 years 
------------------------------  ---------------------------- 
                                                                                  5.1               8 1/2 years 
                                                                                                       Genera - 
                                                                    5.3                     10.7          total 
 -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets               Product, brand, technology,                       4.0                   4 years 
 arising from the acquisition    pharmacological process, 
 of Putney                       marketing 
                                 and distribution rights 
------------------------------  ---------------------------- 
                                                                                 10.3                   4 years 
------------------------------  ---------------------------- 
                                                                                 32.4                   6 years 
                                                                                                       Putney - 
                                                                   54.1                    100.8          total 
 -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
 
 
                                                                             Acquired                 Remaining 
                                                               Goodwill   Intangibles  Sub-Total   amortisation 
                                                               carrying      carrying   carrying      period on 
                                                                  value         value      value       acquired 
Significant assets              Description                        GBPm          GBPm       GBPm    intangibles 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible asset arising        Product and technology                           10.9                  11 years 
 from the acquisition 
 of Apex 
------------------------------  ---------------------------- 
                                                                                  1.6                   8 years 
------------------------------  ---------------------------- 
                                                                    9.0                     21.5   Apex - total 
 -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 related to the licensing 
 and distribution of 
 Tri-Solfen(R) (excluding       Marketing and distribution 
 ANZ territories)                rights                               -          28.4       28.4       10 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible asset related 
 to an injectable solution      Marketing and distribution 
 licensing agreement             rights                               -           5.8        5.8       10 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets               Product, brand, technology,                      37.1               5 1/2 years 
 arising from the acquisition    marketing and distribution 
 of AST Farma and Le             rights 
 Vet 
------------------------------  ---------------------------- 
                                                                                 45.8               4 1/2 years 
------------------------------  ---------------------------- 
                                                                                 10.1                   6 years 
                                                                                  0.3                  1/2 year 
                                                                                                      AST Farma 
                                                                                                            and 
                                                                                                       Le Vet - 
                                                                   98.7                    192.0          total 
 -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 related to an injectable 
 solution licensing             Marketing and distribution 
 agreement                       rights                               -           5.9        5.9       15 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets               Product, brand, technology, 
 arising from the acquisition    marketing 
 of Caledonian                   and distribution rights            0.9           2.6        3.5    6 1/2 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 arising from the acquisition 
 of Dechra Brasil Produtos      Product, brand, technology, 
 Veterinarios LTDA               marketing                                        6.3               6 1/2 years 
   and distribution rights                                                        0.2               1 1/2 years 
                                                                                  0.2               4 1/2 years 
                                                                                                       Brazil - 
                                                                    9.0                     15.7          total 
 -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 arising from the acquisition   Product and technology 
 of Ampharmco                    rights                                           0.1                  1/2 year 
                                                                                  5.4              15 1/2 years 
                                                                                  0.5              12 1/2 years 
                                                                                  5.9              12 1/2 years 
                                                                                                      Ampharmco 
                                                                    6.7                     18.6        - total 
 -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
Intangible assets               Product and technology                           34.5               7 1/2 years 
 arising from the acquisition    rights 
 of Mirataz 
                                                                                  3.9               8 1/2 years 
                                                                                  0.7               8 1/2 years 
                                                                      -                     39.1        Mirataz 
                                                                                                        - total 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 arising from the acquisition   Product, marketing 
 of Osurnia                      and distribution rights              -          85.9       85.9        8 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 related to the licensing 
 and distribution of 
 Tri-Solfen(R) (ANZ             Product, marketing 
 territories)                    and distribution rights              -          22.1       22.1       14 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 arising from the acquisition   Product, marketing 
 of Laverdia                     and distribution rights              -          62.7       62.7       10 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets 
 arising from Isoflurane        Product, marketing 
 and Sevoflurane                 and distribution rights              -           8.4        8.4    9 1/2 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Intangible assets               Product, marketing 
 arising from Sucromate          and distribution rights              -           6.1        6.1    9 1/2 years 
------------------------------  ----------------------------  ---------  ------------  ---------  ------------- 
Other individually 
 immaterial goodwill 
 and acquired intangibles                                           7.2          12.9       20.1 
------------------------------------------------------------  ---------  ------------  ---------  ------------- 
                                                                  245.4         467.8      713.2 
 -----------------------------------------------------------  ---------  ------------  ---------  ------------- 
 

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:

 
                             2022    2021 
                             GBPm    GBPm 
-------------------------  ------  ------ 
Deferred tax assets           2.3     2.0 
Deferred tax liabilities   (35.8)  (48.8) 
-------------------------  ------  ------ 
                           (33.5)  (46.8) 
-------------------------  ------  ------ 
 

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

 
                                  Assets      Liabilities         Net 
----------------------------- 
                                2022   2021    2022    2021    2022    2021 
                                GBPm   GBPm    GBPm    GBPm    GBPm    GBPm 
-----------------------------  -----  -----  ------  ------  ------  ------ 
Intangible assets                  -      -  (42.9)  (51.1)  (42.9)  (51.1) 
Property, plant and 
 equipment                         -      -   (4.8)   (3.7)   (4.8)   (3.7) 
Inventories                      1.5    0.9       -       -     1.5     0.9 
Receivables/payables             7.2    4.1       -       -     7.2     4.1 
Share-based payments             0.9    1.7       -       -     0.9     1.7 
Losses                           0.6    0.7       -       -     0.6     0.7 
R&D tax credits                  3.0    0.5       -       -     3.0     0.5 
Employee benefit obligations     1.0    0.1       -       -     1.0     0.1 
-----------------------------  -----  -----  ------  ------  ------  ------ 
                                14.2    8.0  (47.7)  (54.8)  (33.5)  (46.8) 
-----------------------------  -----  -----  ------  ------  ------  ------ 
 

12. Borrowings and Lease Liabilities

 
                               2022   2021 
                               GBPm   GBPm 
----------------------------  -----  ----- 
Current liabilities: 
Lease liabilities               3.3    3.1 
----------------------------  -----  ----- 
                                3.3    3.1 
----------------------------  -----  ----- 
Non-current liabilities: 
Lease liabilities              12.1   12.8 
Senior loan notes             125.5  115.1 
Bank loans                    189.7  189.7 
Arrangement fees netted off   (1.5)  (2.1) 
----------------------------  -----  ----- 
                              325.8  315.5 
----------------------------  -----  ----- 
Total borrowings              329.1  318.6 
----------------------------  -----  ----- 
 

On 22 December 2021, the Group entered into an Amendment and Restatement Agreement in relation to the GBP340.0 million Revolving Credit Facility (RCF) maturing 25 July 2024. With effect from 1 January 2022, any new Borrowings drawn on the RCF will now use Risk Free Reference (RFR) rates instead of LIBOR rates. The relevant RFR rates for the principal Borrowings of the Group will be SONIA (for Borrowings in GBP), SOFR (for Borrowings in USD) and EURIBOR (for Borrowings in EUR). The interest rate charged on any new Borrowings drawn under the RCF will be the relevant RFR rate plus the Margin plus a Credit Adjustment Spread (CAS). The Margin on this Facility is a minimum of 1.3% and a maximum of 2.2%, dependent upon the Leverage (the ratio of Total Net Debt to Adjusted EBITDA) of the Group. The CAS charged on the RCF will be a minimum of 0.0326% and a maximum of 0.42826%, dependent upon the term and currency of the new Borrowings. The CAS will not be charged on any new Borrowings in EUR currency. At 30 June 2022, GBP189.7 million was drawn against the GBP340.0 million RCF. The facility is not secured on any specific assets of the Group but is supported by a joint and several cross guarantee structure. All covenants were met during the year ended 30 June 2022.

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 2022. The Private Placement amounts are not secured on any specific assets of the Group, but are supported by a joint and several cross guarantee structure. Interest is charged on the EUR50.0 million amount at a fixed rate of 1.19% until maturity (January 2027). Interest is charged on the USD100.0 million amount at a fixed rate of 3.34% until maturity (January 2030).

On 14 July 2022, the Group undertook a further Private Placement raising EUR50.0 million and EUR100.0 million (under seven and ten year new senior secured notes respectively), refer to note 20.

No interest has been capitalised during the year (2021: GBPnil).

'Phase 2' of the amendments to IFRS 9, IAS 39 and IFRS 7 requires that, for financial instruments measured using amortised cost measurement, changes to the basis for determining the contractual cash flows required by interest rate benchmark reform are reflected by adjusting their effective interest rate. No immediate gain or loss is recognised. These expedients are only applicable to changes that are required by interest rate benchmark reform, which is the case if, the change is necessary as a direct consequence of interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis. For the year ended 30 June 2022, the Group has applied the practical expedients provided under 'Phase 2' to amendments to its RCF.

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

 
                              2022   2021 
                              GBPm   GBPm 
---------------------------  -----  ----- 
 
Between two and five years   232.6  189.7 
Over five years               82.6  115.1 
---------------------------  -----  ----- 
                             315.2  304.8 
---------------------------  -----  ----- 
 

The maturity of the lease liabilities is as follows:

 
                              2022   2021 
                              GBPm   GBPm 
---------------------------  -----  ----- 
 
Within one year                3.3    3.1 
Between one and two years      2.5    2.5 
Between two and five years     3.5    3.7 
Over five years                6.1    6.6 
---------------------------  -----  ----- 
                              15.4   15.9 
---------------------------  -----  ----- 
 

13. Provisions

 
                                         Provision 
                               Deferred    for PPE 
                                   Rent      grant  Dilapidations  Total 
                                   GBPm       GBPm           GBPm   GBPm 
-----------------------------  --------  ---------  -------------  ----- 
At start of period                (0.3)      (0.9)          (2.3)  (3.5) 
Provision released                    -          -            1.0    1.0 
Provision utilised                  0.1        0.1              -    0.2 
Foreign exchange differences      (0.1)        0.2              -    0.1 
-----------------------------  --------  ---------  -------------  ----- 
At end of period                  (0.3)      (0.6)          (1.3)  (2.2) 
-----------------------------  --------  ---------  -------------  ----- 
 

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

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

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

In the prior year, the Group established a fair value provision of GBP1.9 million for dilapidations of two warehouse properties in Skipton. During the year the Group acquired one of the warehouse properties in Skipton and consequently GBP1.0 million of the provision has been released, GBP0.2 million credited to the income statement and GBP0.8 million released against the fixed asset in line with IFRS 16. The provision for the remaining warehouse will be utilised over the period to the expiry of the lease in March 2025.

14. Foreign Exchange Rates

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

 
                                   Closing                 Closing 
                      Average         rate    Average         rate 
                         rate   at 30 June       rate   at 30 June 
                     for 2021         2021   for 2022         2022 
------------------  ---------  -----------  ---------  ----------- 
Australian Dollar      1.8035       1.8476     1.8347       1.7594 
Brazilian Real         7.2518       6.8819     6.9892       6.3189 
Danish Krone           8.3981       8.6664     8.7826       8.6684 
Euro                   1.1287       1.1654     1.1807       1.1652 
US Dollar              1.3466       1.3850     1.3316       1.2103 
------------------  ---------  -----------  ---------  ----------- 
 

15. Acquisitions and Disposals

The Group completed the following product rights acquisitions in the year:

-- the acquisition of Rompun(R) (xylazine injection) and Butorphanol Tartrate Injection from Elanco(TM) Animal Health for USD4.0 million (GBP3.0 million). A payment of GBP0.2 million was also made for inventory;

-- the acquisition of Sucromate(TM) Equine sterile suspension from Thorn Bioscience L.L.C. for USD9.0 million (GBP6.5 million). A payment of GBP8,000 was also made for inventory;

-- the acquisition of ProVet APC(TM) and ProVet BMC systems from Hassinger Biomedical and DSM Medical for USD4.0 million (GBP3.0 million). A payment of GBP0.1 million was also made for inventory;

-- the acquisition of Isoflurane(R) and Sevoflurane(R) from Halocarbon Life Sciences L.L.C. for USD12.0 million (GBP8.7 million); and

-- the acquisition of verdinexor (Laverdia(R) ) from Anivive Lifesciences, Inc for USD97.5 million (GBP71.9 million). Following the initial payment of USD19.0 million (GBP14.0 million) there are subsequent milestone payments totalling USD45.5 million (GBP33.5 million) due in future years on the achievement of various approval and sales milestones for the product in the USA, UK, EU, Brazil, Australia, Japan and Canada. Royalties payable as part of the transaction have been accrued as part of the contingent consideration liabilities recognised.

The Group has considered the amendments to IFRS 3 'Business Combinations' and applied the optional concentration test to the transactions noted above that include the acquisition of inventory. Accordingly, it has been concluded that substantially all the value arising from the transaction relates to the product rights which are recognised as an intangible asset.

On 26 January 2022, Genera dd (a 100% subsidiary of the Group) sold the trademarks and registrations, inventory and accounts receivable balances associated with the Agricultural Chemicals business for HRK 27.0 million (GBP3.0 million). The assets were fair valued to be HRK 27.0 million (GBP3.0 million) following a non-underlying impairment of GBP1.0 million (GBP0.5 million to cost of sales and GBP0.5 million to administrative expenses). In the period to 30 June 2022, the business contributed GBP0.4 million to net revenue (2021: GBP5.1 million), this reflecting the seasonality of revenue. The Group has concluded that this disposal does not represent a discontinued operation.

16. Contingent Consideration Liabilities

 
                                                 2022   2021 
                                                 GBPm   GBPm 
----------------------------------------------  -----  ----- 
Contingent consideration - less than one year     6.4   22.6 
Contingent consideration - more than one year   104.0   57.6 
----------------------------------------------  -----  ----- 
                                                110.4   80.2 
----------------------------------------------  -----  ----- 
 

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

 
                                       StrixNB(R)  Injectable  Injectable 
                  Tri-Solfen(R)   & DispersinB(R)    Solution    Solution  Mirataz  Phycox(R)  Laverdia  Other   Total 
                           GBPm              GBPm      1 GBPm      2 GBPm     GBPm       GBPm      GBPm   GBPm    GBPm 
----------------  -------------  ----------------  ----------  ----------  -------  ---------  --------  -----  ------ 
As at 1 July 
 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 
----------------  -------------  ----------------  ----------  ----------  -------  ---------  --------  -----  ------ 
Additions                     -                 -           -           -        -          -      57.9    2.7    60.6 
Remeasurement 
 through 
 intangibles             (12.0)               0.3           -         0.1    (2.9)        0.3     (7.9)  (2.1)  (24.2) 
Cash payments: 
 investing 
 activities              (14.6)             (0.4)       (0.8)       (1.9)    (0.7)      (0.8)         -  (0.5)  (19.7) 
Finance expense             1.5                 -         0.1           -      0.4          -       1.2    0.2     3.4 
Foreign exchange 
 adjustments                1.5               0.1         0.2           -      1.8        0.1       6.3    0.1    10.1 
----------------  -------------  ----------------  ----------  ----------  -------  ---------  --------  -----  ------ 
At 30 June 
 2022                      32.6               0.6         1.1           -     13.0        0.8      57.5    4.8   110.4 
----------------  -------------  ----------------  ----------  ----------  -------  ---------  --------  -----  ------ 
 

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.

 
                                     StrixNB(R)  Injectable  Injectable 
                                              &    Solution    Solution 
                  Tri-Solfen(R)   DispersinB(R)           1           2     Mirataz  Phycox(R)    Laverdia       Other 
----------------  -------------  --------------  ----------  ----------  ----------  ---------  ----------  ---------- 
Increase/(decrease) in financial liability 
---------------------------------------------------------------------------------------------------------------------- 
10% increase 
 in royalty 
 forecasts 
 GBPm                       2.6             0.1         N/A         N/A         1.2        0.1         2.9         0.2 
10% decrease 
 in royalty 
 forecasts 
 GBPm                     (2.6)           (0.1)         N/A         N/A       (1.4)      (0.1)       (2.9)       (0.2) 
1% increase 
 in discount 
 rates GBPm               (1.9)               -           -           -       (0.6)          -       (2.7)       (0.1) 
1% decrease 
 in discount 
 rates GBPm                 2.1               -           -           -         0.5          -         3.0         0.1 
5% appreciation 
 in Sterling 
 GBPm                     (1.6)               -       (0.1)           -       (0.6)          -       (2.7)       (0.2) 
5% depreciation 
 in Sterling 
 GBPm                       1.7               -         0.1           -         0.7          -         3.0         0.1 
----------------  -------------  --------------  ----------  ----------  ----------  ---------  ----------  ---------- 
Discount rate 
 range in 2022 
 financial                 5.2%           11.6%                                7.3%                   5.1%       10.2% 
 year                    -25.0%          -27.1%       11.6%       11.6%       -9.4%      11.6%      -14.6%      -11.6% 
 Discount rate 
    range in 
 2021 financial            0.0%                                                7.5%                               8.6% 
      year               -19.7%     10.4%-11.7%        9.2%        9.2%       -9.9%      10.4%         N/A      -10.4% 
----------------  -------------  --------------  ----------  ----------  ----------  ---------  ----------  ---------- 
Aggregate undiscounted cash outflow in relation to royalties (remaining 
 term of royalty agreement) 
---------------------------------------------------------------------------------------------------------------------- 
2022 GBPm 
 (years)            50.4 (14.0)       0.8 (5.0)         N/A         N/A  19.8 (8.5)  0.9 (1.0)  51.3(10.0)   2.9 (5.0) 
2021 GBPm 
 (years)            58.5 (15.0)       0.8 (6.0)         N/A         N/A  22.5 (9.5)  1.3 (2.5)         N/A  3.4 (10.0) 
----------------  -------------  --------------  ----------  ----------  ----------  ---------  ----------  ---------- 
 

The consideration payable for Tri-Solfen(R) is expected to be payable over a number of years, and relates to development milestones and sales performance. During the year, the development milestones and sales performance royalties have been remeasured. At 30 June 2022, the liability was discounted between 5.2% and 25.0%. The broad range of discount rates in respect of this licensing agreement reflects the commercial makeup of the arrangement, with discount rates for milestone payments related to regulatory approvals being lower and based on a cost of debt approach and those with more variability in timing and quantum of future cash flows being higher and based on a Capital Asset Pricing Model based approach, also taking into account systematic risk associated with elements of the future cash flows. The gross value of the development milestones is AUD13.0 million.

The consideration payable for Laverdia is expected to be payable over a number of years, and relates to approval milestones and sales performance. At 30 June 2022, the liability was discounted between 5.1% and 14.6% reflecting the commercial makeup of the arrangement similar to Tri-Solfen(R) . The gross value of the approval and sales performance (non-royalty) milestones is USD45.5 million.

The consideration payable for Mirataz, StrixNB(R) and DispersinB(R) relates to sales performance and is expected to be payable over a number of years.

The consideration remaining for a licensing agreement for an injectable solution relates to development milestones. 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.

17. Related Party Transactions

Subsidiaries

The Group's ultimate Parent Company is Dechra Pharmaceuticals PLC. A listing of subsidiaries is shown within the financial statements of the Company's 2022 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 2022 Annual Report.

Associates

On 5 February 2021, the Group entered into a licensing agreement with Animal Ethics Pty Ltd for the marketing authorisations of Tri-Solfen(R) in Australia and New Zealand for a total consideration of AUD31.0 million (GBP16.9 million). An upfront payment of AUD5.0 million (GBP2.8 million) was payable on signing, with the balance of AUD26.0 million (GBP14.1 million) paid in July 2021 on the first commercial sale by Dechra into the Australian market. Royalty payments of AUD0.9 million (GBP0.5 million) were paid on net sales in the year. The contingent consideration in relation to sales milestones is disclosed in note 16.

The Group holds 49.5% of the issued share capital of Medical Ethics Pty Ltd. Refer to note 6 for further information on the results of the associate in the period.

In 2017 the Group entered into a licensing agreement with Animal Ethics Pty Ltd for Tri-Solfen(R) for which the fair value of associated contingent consideration is disclosed in note 16.

18. Off Balance Sheet Arrangements

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

19. Contingent Liabilities

The Group continues to monitor developments in relation to EU State Aid investigations. On 25 April 2019, the EU Commission's final decision regarding its investigation into the UK's Controlled Foreign Company (CFC) regime was published. It concluded that the legislation up until December 2018 does partially represent State Aid. This decision was upheld by the EU General Court on 8 June 2022, when it dismissed the UK Government's annulment application. The UK Government has since confirmed its intention to lodge an appeal to the EU Court of Justice.

The Group considers that the potential amount of additional tax payable remains between GBPnil and GBP4.0 million depending on the basis of calculation and the outcome of HMRC's appeal to the EU Court of Justice. Based on current advice, the Group does not consider any provision is required in relation to this investigation. This judgement is based on current interpretation of legislation and professional advice.

The Group received charging notices from HMRC in January and February 2021 under The Taxation (Post Transition Period) Act for part of the exposure (GBP2.75 million) and has paid this to HMRC. As the Group considers that HMRC's appeal will be successful, the charging notices which were settled in full during the previous period (GBP2.75 million) are recorded as current tax receivables on the basis that the amount will be repaid in due course.

At 30 June 2022, contingent liabilities arising in the normal course of business amounted to GBP12.4 million (2021: GBP13.0 million) relating to licence and distribution agreements. The stage of development of the projects underpinning the agreements dictates that a commercially stable product is yet to be achieved, and accordingly an intangible asset and a contingent consideration liability have not been recognised.

20. Subsequent Events

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

On 20 July 2022, the Group acquired 100% of the share capital of Piedmont Animal Health Inc (Piedmont) for USD210.0 million in cash. Piedmont is an established product development business with a track record of developing products for multi-national animal health companies. The initial assessment of the assets and liabilities acquired is that they comprise Intangible Assets (principally In-Process Research and Development) and an immaterial amount of Working Capital and Other Assets/Liabilities. A fair value assessment is in the process of being performed and this, along with the other requirements of IFRS 3 'Business Combinations', will be reported in the Group's Half Year Report and Financial Statements for the year to 30 June 2023.

On 21 July 2022, the Group successfully completed a share placing of 5,364,683 new ordinary shares, representing approximately 5% of the existing issued share capital of the Company, at a price of 3430 pence per placing share, raising gross proceeds of GBP184.0 million which were largely deployed to fund the Piedmont acquisition.

On 26 August 2022, the Group acquired 100% of the share capital of the Med-Pharmex Holdings Inc group of companies (Med-Pharmex) for USD260.0 million in cash. Med-Pharmex is an established platform business with manufacturing, product development and regulatory capabilities and has several products already approved and being sold in the US market. The initial assessment of the assets and liabilities acquired is incomplete due to additional analysis needed on certain areas, which could be material, including the tax assets and liabilities arising on closing. Whilst a preliminary assessment of fair values has not been finalised, the net assets acquired include Intangible Assets, Property, Plant and Equipment and Working Capital. A fair value assessment is in the process of being performed and this, along with the other requirements of IFRS 3 'Business Combinations', will be reported in the Group's Half Year Report and Financial Statements for the year to 30 June 2023.

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

 
                                                               2022   2021 
                                                               GBPm   GBPm 
------------------------------------------------------------  -----  ----- 
Operating profit 
Underlying operating profit/EBIT is calculated as follows: 
Operating profit                                               95.5   84.0 
Non-underlying operating expenses (note 5)                     78.8   78.2 
------------------------------------------------------------  -----  ----- 
Underlying operating profit/EBIT                              174.3  162.2 
Depreciation                                                   11.1   11.0 
Amortisation and impairment                                     5.2    4.5 
------------------------------------------------------------  -----  ----- 
Underlying earnings before interest, tax, depreciation 
 and amortisation (EBITDA)                                    190.6  177.7 
------------------------------------------------------------  -----  ----- 
Profit before taxation 
Underlying profit before taxation is calculated as follows: 
Profit before taxation                                         77.6   74.0 
Non-underlying operating expenses                              78.8   78.2 
Amortisation of notional acquired intangibles from equity 
 accounting for associates                                      0.7    0.7 
Share of realised non-underlying profit of investments 
 accounted for using the equity method                        (0.6)      - 
Foreign exchange losses/(gains) on contingent consideration    10.1  (3.8) 
Unwind of discount associated with contingent consideration     3.4    1.0 
------------------------------------------------------------  -----  ----- 
Underlying profit before taxation                             170.0  150.1 
------------------------------------------------------------  -----  ----- 
 
 
Return on capital employed              2022   2021 
                                        GBPm   GBPm 
-------------------------------------  -----  ----- 
Net assets 
Adjusted for:                          666.8  632.9 
Net debt                               208.2  200.2 
Net corporate tax liability/ (asset)     1.2  (1.0) 
Net deferred tax liability (note 11)    33.5   46.8 
-------------------------------------  -----  ----- 
Closing operating assets               909.7  878.9 
-------------------------------------  -----  ----- 
Opening operating assets               878.9  843.8 
-------------------------------------  -----  ----- 
Average operating assets               894.3  861.4 
-------------------------------------  -----  ----- 
 
                                        2022   2021 
                                        GBPm   GBPm 
-------------------------------------  -----  ----- 
Underlying operating profit            174.3  162.2 
Average operating assets               894.3  861.4 
-------------------------------------  -----  ----- 
Return on capital employed             19.5%  18.8% 
-------------------------------------  -----  ----- 
 

22. Other information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2022 or 2021 but is derived from the 2022 and 2021 accounts. Statutory accounts for 2021 have been delivered to the Registrar of Companies and those for 2022 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.

23. Preliminary Statement

This Preliminary statement is not being posted to Shareholders. The Annual Report and Accounts for the year ended 30 June 2022 will be sent to shareholders shortly. Further copies will be available from the Company's Registered Office: 24 Cheshire Avenue, Cheshire Business Park, Lostock Gralam, Northwich CW9 7UA. Email: corporate.enquiries@dechra.com. Copies will also be available on the Company website www.dechra.com.

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

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 30 June 2022. Certain parts of that Report are not included within this announcement. We confirm to the best of our knowledge:

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

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

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 it faces.

 
          Signed by the order of the Board: 
          Ian Page, Chief Executive Officer 
     Paul Sandland, Chief Financial Officer 
 
                           5 September 2022 
 

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END

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