Dear Shareholder

Following Chris Richards' resignation on 8 April 2016, I agreed to accept the position of Chairman of the Remuneration Committee (the Committee), and I am pleased on behalf of the Board to present the Directors' Remuneration Report for the year ended 30 June 2016.

The Directors' Remuneration Report is divided into two sections: the Annual Report on Remuneration, followed by an abbreviated form of the Directors' Remuneration Policy. The Annual Report on Remuneration provides details of the amounts earned in respect of the year ended 30 June 2016 and how the Directors' Remuneration Policy (the Policy) will be implemented in the year commenced 1 July 2016. The Directors' Remuneration Report (excluding the Policy) will be subject to an advisory vote at the 2016 Annual General Meeting.

Our Directors' Remuneration Policy

The Policy was approved by shareholders at the Annual General Meeting held on 24 October 2014, with 98.32% of all votes cast in favour, and will remain in force until 2017. We review the application of the Policy regularly, to ensure it remains appropriate, linked to strategy and reflective of developing market practices. There have been no changes to the Policy since its approval.

The performance metrics for the bonus and LTIP Awards for 2016 are set out in the Directors' Remuneration Report. An annual review of Executive Directors' salaries is undertaken in September along with all employees. This allows us to optimise the link between performance and reward for all employees. Ian Page's salary has not been increased since January 2014, and as part of the annual review we will consider whether any increase should be made to reflect the exceptional change in size and complexity of the Group since that date. It is our expectation that any increase to Tony Griffin's salary will be in line with the range of increases for the wider workforce.

The Link between our Directors' Remuneration Policy and our Strategy

Dechra's Policy is designed to promote the long term success of the Group and to reward the creation of long term value for shareholders. The performance targets for all incentive elements are designed to reward high performance whilst not encouraging inappropriate business risks.

The table below describes how certain remuneration elements are linked to our strategy.

Remuneration Element	Strategic Pillar and Enabler	Link to our Key Performance Indicators
Annual Bonus Our annual bonus rewards key executives by reference to financial metrics (based on profit) measured over one financial year and personal objectives, which are designed to incentivise the delivery of the long term strategy through the short term objectives. The use of a profit measure in the annual bonus focuses executives on the delivery of strong financial performance to generate the profit growth which is a key strategic priority of our pipeline delivery and portfolio focus. The annual bonus has a stretching profit target which requires performance above budget and market expectations to trigger the payment of a maximum bonus. Part of the bonus is based on the achievement of personal objectives. These personal objectives are set at the beginning of each financial year and reflect the corporate, financial, strategic and other non-financial priorities of the business, achievement of which is necessary to deliver the longer term strategy. During the year, the Executive Directors were set a number of personal objectives which were linked to the delivery of the four strategic pillars together with the development of the supply chain and business and acquisition integration. Dechra further recognises the importance of being a responsible business leader, with the health and safety of our employees being central to everything we do. Therefore, the Committee has discretion to amend any bonus payout to take into account wider business considerations including the achievement of the highest standards in respect of our health and safety procedures.		Sales Growth Strong sales performance is required to maximise profit Cash Conversion Strong cash conversion reduces liquidity risk
Long Term Incentive Plan The LTIP is designed to reward the generation of long term value for shareholders and to aid the retention of key executives recognising the importance of attracting, retaining and developing a management team of the appropriate calibre. Performance measures are set that reflect our long term objectives including sustainable profit growth and the enhancement of shareholder value. LTIP Awards are based 50% on the delivery of stretching growth in EPS linking the incentive reward opportunity to the longer term profitability of the business, which should encourage innovation, launch of new products and commercial focus. The other 50% relates to the delivery of superior shareholder returns compared to companies of a similar size to Dechra, linking the reward opportunity for executives to the generation of long term value for shareholders. The application of an underpin to LTIP Awards based on return on capital employed (ROCE) ensures that our executives are focused on using capital efficiently and appropriately to allow the business to capitalise on growth opportunities in new territories and markets whilst maintaining returns.		Underlying Diluted EPS Growth Return on Capital Employed New Product Sales This measure encourages innovation, growth and sustainability
All Employee Share Plans All UK employees, including UK Executive Directors, may participate in the SAYE Scheme that encourages share ownership and rewards employees in a way which is linked to the increase in shareholder value. The SAYE Scheme also aids retention, recognising the need to retain and develop the right talent at all levels to facilitate the high performance culture and stability required to deliver the longer term strategy.		Employee Turnover Retention of skilled employees will help grow the business
Generation of Long Term Value for Shareholders/Alignment of Interests The Policy is designed to promote long term Group success and to reward the generation of shareholder value. In this regard, a significant proportion of the remuneration opportunity is linked to the achievement of stretching performance targets. The interests of shareholders and executives are aligned by formal shareholding guidelines. Executive Directors are required to have acquired and retained a holding of Dechra shares equivalent to the value of at least 100% of their base salary by the third anniversary of appointment. Moreover, the Chief Executive Officer and Chief Financial Officer are further expected to have acquired and retained a holding equivalent to at least 200% and 150% of their base salary respectively by the fifth anniversary of appointment.

Incentive Outturns in 2016

As a result of the progress in our strategy, we have delivered underlying profit before tax during the year of £49.7 million, an improvement of 10.2% at actual exchange rates on the prior year. Reflecting the performance of the Group in relation to profit targets and the performance of Executive Directors against personal objectives as described in the Directors' Remuneration Report, bonuses for the year equal to 72% of salary have been earned by the Executive Directors.

LTIP Awards were granted to Ian Page, Anne-Francoise Nesmes and Tony Griffin in November 2013 and vested by reference to performance over the three year period ended 30 June 2016. Each Award was subject to a total shareholder return (TSR) performance condition as regards 50% of the Award and an earnings per share (EPS) performance condition as regards 50% of the Award, with an underpin based on ROCE applying to each element. As disclosed in the Directors' Remuneration Report, the Awards granted in November 2013 are due to vest in November 2016:

• as to 92.5% of the TSR element (46.25% of the total Award) by reference to TSR performance (reflecting median to upper quartile performance); and
• as to 100% of the underlying diluted EPS element (50 % of the total Award) by reference to EPS performance (reflecting that the growth in the underlying diluted EPS at 13.6% was above the maximum threshold of 13%).

In aggregate, taking into account the ROCE underpin (reflecting that the ROCE at 16.1% had not fallen below 15.0%), the LTIP Awards vested as to 96.25%.

Executive Director Salaries in respect of 2016

During the annual pay review cycle Anne-Francoise Nesmes and Tony Griffin were each awarded a 4.5% salary increase in respect of the 2016 financial year, broadly in line with the average range of increases awarded to employees throughout the Group. Ian Page elected to waive a review of his salary for 2016.

In addition, during the 2016 financial year, we undertook a comprehensive review of Tony Griffin's remuneration in light of the increases to the scope of his role as a result of geographic expansion in Europe and in anticipation of the successful acquisition of Genera. As a result of that review, his salary was increased with effect from 1 January 2016 by 8.35%; more information is given in the Directors' Remuneration Report.

EPS Performance Targets for 2016 and 2017 LTIP Adjustments

Following the acquisitions of Genera and Putney in 2016, we have reviewed the performance targets for existing LTIP Awards and LTIP Awards to be granted in 2017 financial year. This is in line with our previous discussions with shareholders that the EPS targets for the LTIP would be set for organic growth and that they would be adjusted for the impact of any significant acquisitions and divestments. For the 2016 financial year Awards (granted in September 2015, with a performance period ending June 2018), we have decided to increase the EPS performance requirement for maximum vesting from 13% per annum to 16% per annum. This recognises the announcement at the time of acquiring Putney that the acquisition was expected to be earnings enhancing from 2018 and reflects the increase in 2018 financial year broker forecasts as a result of the acquisition.

For the 2017 financial year LTIP Awards (to be granted in September 2016, with a performance period ending June 2019), we have decided to increase the EPS performance requirement for maximum vesting from 13% per annum to 20% per annum to reflect the higher forecast earnings as a result of the acquisitions, as well as taking into account the potential headwinds and risks in delivering this stretching level of growth. The Committee is mindful that this level of growth is exceptional based on the integration of the acquired businesses and is not anticipated to be sustainable in the longer term. It is therefore expected that the EPS targets would need to be reduced for future Awards to reflect a lower level of sustainable growth.

No changes are proposed to the relative TSR targets (which represent 50% of the Awards) or the ROCE underpin. The EPS target for threshold vesting has not been adjusted. However, as a balance, no adjustment has been made to the ROCE underpin, although the Committee is aware that as a result of the transactions the ROCE underpin has become more challenging.

The Committee strongly believes that this approach to the EPS performance conditions recognises the additional earnings forecasted from the acquisition, without unduly penalising management for having made acquisitions that enhance shareholder value and which are aligned to our strategy.

Directorate Changes

As previously announced, Anne-Francoise Nesmes left the business on 31 July 2016. Anne-Francoise remained with the business for the whole of the 2016 financial year and, accordingly, has earned a bonus for the year as referred to in the Directors' Remuneration Report. In accordance with the rules of the Company's LTIP, Anne-Francoise will retain her LTIP Award granted in November 2013 as she remained with the business until the end of the performance period, but her other LTIP Awards lapsed on 31 July 2016.

Anne-Francoise's replacement, Richard Cotton, is expected to join the Company in January 2017, and the remuneration package has been determined in accordance with the shareholder approved Policy; further information is given in the Directors' Remuneration Report.

Forward Looking

This is the final year under the current remuneration framework as we will be seeking approval for a new Directors' Remuneration Policy at the 2017 Annual General Meeting. Therefore, the Committee will be reviewing the current remuneration framework with its advisers during the forthcoming year to ensure that the remuneration package continues to:

• promote the long term success of Dechra;
• provide appropriate alignment between Dechra's strategic goals, shareholder returns and executive reward; and
• have a competitive mix of base salary and short and long term incentives, with appropriate performance conditions attached to variable remuneration.

Our existing LTIP was approved by shareholders in 2008 and expires for the purposes of new grants in November 2018. As part of the renewal of the Directors' Remuneration Policy at the 2017 Annual General Meeting, we propose to seek shareholder approval for a new LTIP, reflecting that new policy.

Shareholder Views


We consult with shareholders on policy and on any significant events and take shareholders' views into account before any decisions are taken, and we have discussed with shareholders the adjustments made to the 2016 financial year LTIP Awards, EPS targets and the approach to the EPS targets for the 2017 financial year LTIP Awards. The Committee and I believe that ongoing dialogue with our major shareholders is of key importance. Should you have any queries in relation to this report, please do not hesitate to contact me or the Company Secretary.