Ian Page

Ian Page

Chief Executive Officer

Group underlying operating profit growth was 20.9% at CER for 2016. This pleasing growth has been delivered whilst continuing to invest in our existing business, integrating three strategic acquisitions, establishing new subsidiaries and continued product launches."

Overview of Reported Financial Results

During the 2016 financial year, Dechra made three acquisitions. To assist with the understanding of our financial results, we have shown in the table below the performance of the existing Dechra business separately from the performance of the acquired entities. In the current year, the acquisitions profit after tax has reflected the cost of acquisition related restructuring programmes and fair value inventory adjustments.

Including non-underlying items, the Group's reported profit after tax of £12.5 million decreased by 27.7% at CER (35.9% at AER), due primarily to the one-off acquisition costs. Dechra's existing business grew by 5.1% at CER (declined by 1.0% at AER), with reported profit after tax of £19.3 million (growth was adversely impacted by foreign exchange losses of £0.8 million in the year compared to foreign exchange gains of £2.2 million in 2015).

2016 Existing £m2016 Acquisition £m2016 Consolidated £m2015 £mGrowth % at AERGrowth % at CER
As ReportedExistingConsolidatedExistingConsolidated
Gross profit129.92.5132.4116.111.9%14.0%12.7%15.2%
Gross profit %57.5%11.5%53.4%57.1%
Operating profit/(loss)29.4(9.9)19.526.013.1%(25.0%)18.1%(17.3%)
EBIT %13.0%(45.6%)7.9%12.8%
Profit/(loss) after tax19.3(6.8)12.519.5(1.0%)(35.9%)5.1%(27.7%)
Diluted EPS (p)13.9021.99(36.8%)(28.9%)

Overview of Underlying Financial Results

When presenting our financial results, we use a number of adjusted measures which are considered by the Board and management in reporting, planning and decision-making. Underlying results reflect the Group's trading performance excluding the amortisation and write off of acquired intangibles, non-underlying charges and other non-underlying items as defined in note 1. A reconciliation of underlying results to reported results as at 30 June 2016 is shown in the table below:

2016 Underlying results £mNon-cash uplift on acquired inventory £mNon-underlying items2016 Total reported results £m
Amortisation and related costs of acquired intangibles £mAcquisition and restructuring costs £mFinance expenses £m
Gross profit138.5(6.1)132.4
Selling, General and Administrative Expenses(75.3)(21.8)(5.5)(102.6)
R&D expenses(10.3)(10.3)
Operating profit52.9(6.1)(21.8)(5.5)19.5
Net finance costs(3.2)(1.8)(5.0)
Profit before tax49.7(6.1)(21.8)(5.5)(1.8)14.5
Profit after tax38.4(4.4)(16.1)(4.1)(1.3)12.5
Diluted EPS (p)42.6513.90

We delivered underlying operating profit of £52.9 million, representing a growth of 20.9% compared to the previous year. This was achieved through a solid trading performance in our existing business, growing at 17.8%, together with a small benefit from the acquisitions made in the year.

2016 Existing £m2016 Acquisition £m2016 Consolidated £m2015 £mGrowth % at AERGrowth % at CER
UnderlyingExistingConsolidatedExistingConsoli- dated
Gross profit129.98.6138.5116.111.9%19.3%12.7%20.0%
Gross profit %57.5%39.6%55.9%57.1%
Underlying Operating profit51.61.352.944.416.2%19.1%17.8%20.9%
Underlying EBIT %22.8%6.0%21.4%21.8%
Underlying EBITDA55.
Underlying diluted EPS (p)42.6539.906.9%8.9%
Dividend per Share18.4616.949.0%9.0%


All growth rates for both underlying and reported financial results included in this review are at constant exchange rates (CER) unless otherwise stated. This shows the year-on-year growth as if exchange rates had remained the same as in the previous year.

Total revenue grew by 21.7% to £247.6 million. Growth in the sales force together with the launch of new products and sales from our new operations in Canada and Poland led to revenue growth in our existing business of 11.2%.

Revenue by Segment

European Pharmaceuticals Segment revenue grew by 13.9% to £188.9 million. This was due to strong performances in key markets such as the UK and France; the impact of new subsidiaries, Poland and Austria; and the additional revenue contributed by Genera during the year. This offsets lower revenue in Germany, which, whilst the decline due to the reduced use of antibiotics has slowed over the course of the year, continues to impact negatively on the FAP revenues. In addition, growing momentum in some key Rest of World territories has contributed to continued growth in the existing business and allows us to maintain focus on developing this key strategic area.

Revenue in our North American Pharmaceuticals Segment grew by 59.5% to £58.7 million. The sales force, which has seen significant investment, continues to drive revenue in key therapeutic areas and, combined with the full year impact of our Canadian subsidiary (which started trading in January 2015), and the acquisition of both Brovel and Putney during the year have resulted in the continued growth of this Segment.

Overall, the three acquisitions contributed £21.7 million to our revenue.

Revenue by Categories

All our revenue streams performed well, except for Diets which showed a small decline.

CAP sales grew by 19.4% fuelled by momentum in our key therapeutic areas of endocrinology, dermatology, cardiovascular disease, and analgesia and anaesthesia in the EU and US. Notably, Vetoryl grew by 25.4% globally and our dermatology range, DermaPet, in the US by 32.4%. Cardisure grew by 47.7%, and our analgesia and anaesthesia therapeutic area also performed well in Europe.

Equine revenue has grown by 19.4% following the launch of Osphos.

For the first time after several years of decline, FAP grew by 43.2%, due to the growth in our newly established Polish business; market share gain in countries where previously we had a smaller presence; the slowdown of the decline in Germany; and the Netherlands returning incrementally to growth. The integration of Genera also contributed to the FAP revenue growth. Excluding the sales from the new acquisitions, FAP revenue in the existing business grew by 13.6% compared to the previous year.

Unfortunately, our sales of Diets did not recover as expected with a sales decline of 1.2%. Whilst we are experiencing growth in a number of key markets, this was offset by the loss of a large corporate account in Scandinavia and palatability issues for some of the cats diet products.

Other sales, which include third party manufacturing and other non-core businesses in Genera, increased by 36.5% reflecting the increased capabilities and non-core activities acquired as part of Genera. This offset lower third party revenues in the existing business which arose due to an increased focus on own manufactured products during the period.

2016 £m2015 £mActual exchange rateConstant exchange rate
Subtotal Pharma196.3158.224.1%23.5%

Gross Profit

Revenue by Product Category (at AER)


CAP 55.6%

Equine 8.3%

FAP 15.4%

Diets 9.9%

Other 10.8%


Terms used within this section:


International Financial Reporting Standards as adopted by the EU


Constant Exchange Rates


Actual Exchange Rates


Companion Animal Products


Food producing Animal Products

Gross margins for the existing business increased to 57.5% from 57.1%. This growth in margin reflects the changing product mix and improved manufacturing efficiencies within the business.

It is also important to note that the recent acquisitions have a dilutive effect on gross margin moving from 57.5% for the existing business to 55.9% for the consolidated business, as expected at the time of the deal announcements.

Selling, General and Administrative Expenses (SG&A)

Underlying SG&A expenses grew by 19.3% to £75.3 million as we continued to invest in supporting the future growth of the Group and incorporate the costs of the acquired companies.

Whilst increases in prior year infrastructure functions have had a full year impact in 2016, during the year we further invested in the sales organisation in DVP US. Additionally, we made selected investments in DVP EU, such as setting up a FAP Business Unit to drive growth.

Research and Development Expenses (R&D)

Our R&D spend in the 2016 financial year was £10.3 million. This is commensurate with our pipeline progress. It also reflects the addition of Genera and Putney pipelines, which have resulted in much larger R&D and regulatory teams to support our expanded pipeline of new products.

Non-Underlying Items

Non-underlying items incurred during the year relate to the following:

  • Non-Cash Inventory Adjustment

    The non-cash inventory adjustment, which increases the value of stock by £6.1 million relates to the acquisition of Brovel, Putney and Genera. It is the result of the fair value exercise carried out in accordance with IFRS 3 'Business Combinations' on acquisition.

  • Amortisation and Related Costs of Acquired Intangibles

    This includes the amortisation of the acquired intangible assets and the write-off relating to existing intangibles and related deferred consideration following the acquisition of Putney, where it was decided to suspend development of a US generic pharmaceutical product (£1.1 million). We also impaired an acquired intangible due to a competitor registration in the US (£0.6 million).

  • Acquisition and Rationalisation Costs

    This includes the transaction costs associated with acquiring Genera, Brovel and Putney and other costs related to the integration and restructuring programmes.

  • Finance Expenses

    This includes the extinguishment expense related to the refinancing of the debt facility to fund the Putney acquisition as well as the unwind of discount on the deferred consideration balances relating to previous acquisitions.

Non-underlying items of £35.1 million before taxation are £15.8 million above the previous year due to acquisition costs and higher acquired intangible amortisation. Full details are shown in note 4 and note 5.

Segmental Profit

Operating leverage (EBIT %) has reduced as the Group has experienced the dilutive effect of the acquisitions made during the year with EU and NA at 27.4% and 29.8% respectively.

Operating Segment (Pharmaceuticals)

The full segmental analysis can be found in note 2.

During 2016, following the three acquisitions and reflecting the way we manage the Group and meeting the criteria defined under IFRS 8, the Board reviewed our reporting Segments and concluded that the North American Pharmaceuticals Segment should be expanded to include Putney and Brovel and that Genera should be included within the European Pharmaceuticals Segment.

2016 £m2015 £mActual exchange rateConstant exchange rate
— EU188.9168.712.0%13.9%
— North America58.734.868.7%59.5%
Operating Profit
— EU51.748.07.7%11.0%
— North America17.510.665.1%57.5%
— EU27.4%28.5%
— North America29.8%30.5%

Earnings per Share and Dividends

Underlying Diluted Earnings per Share


2015: 39.90p

Dividend per Share


2015: 16.94p

Underlying diluted EPS for the year was 42.65 pence, 8.9% growth versus last year.

The increase in interest payments following the additional borrowings, together with the share dilution impact of the equity placing for the Putney acquisition, impacted negatively on the reported EPS growth. We benefited last year from the positive impact of transactional exchange gains of £2.2 million, whereas in 2016 this is a loss of £0.8 million, which contributed a reduction of 0.90 pence to the EPS (2015: positive impact of 2.12 pence).

The reported diluted EPS for the year was 13.90 pence (2015: 21.99 pence).

The Board is proposing a final dividend of 12.91 pence per share (2015: 11.82 pence). Added to the interim dividend of 5.55 pence, it brings the total dividend per share for the year to 18.46 pence, representing 9.0% growth over the previous year. Dividend cover based on underlying diluted EPS is 2.3 times.

Net Debt Position

During the year we increased our Revolving Credit Facility to £150.0 million to fund the Putney acquisition, whilst retaining the accordion facility of £30.0 million. As a result, we ended the year in a net debt position of £116.6 million, representing a Net Debt/Underlying EBITDA ratio of 2.0 times.

Whilst the exchange rate volatility in the last week of June adversely impacted the translation of our Euro and US Dollar borrowings, we met the covenants on our loan facilities throughout the full year.

Integration and Financial Impact of the Acquisitions

During the period, we completed three acquisitions: Genera, Brovel and Putney. In all of the acquisitions, there were immediate portfolio benefits which can be seen in the revenue growth within the Group. In addition, as part of each acquisition, we undertook a review of the newly acquired operations to ensure that they were aligned with the Dechra strategic pillars and enablers.

This review resulted in rationalisation programmes in Genera and Putney which reduced headcount and reorganised the business to reflect the increased focus on activities which are core to Dechra's strategy. We have also put in place plans to exit some non-core activities. In Brovel, the focus on registering Dechra's own products remains the key long term driver of expected growth.

In the period since acquisition, the three entities generated revenue of £21.7 million and underlying operating profit of £1.3 million. A summary of the income statement is shown in the Consolidated Income Statement.

Following a detailed valuation review conducted by an independent third party, we capitalised £122.9 million in intangible assets and £56.4 million of goodwill.

The acquisitions were financed by cash for Brovel, a combination of available cash and debt for Genera, and debt and equity placing for Putney. As a result, our borrowings have increased by £123.2 million compared to last year. We also raised £47.0 million (net of expenses) from the issue of 4.4 million shares.

Balance Sheet

Net assets at 30 June 2016 were £276.6 million, a £82.1 million increase compared to 2015. During 2016 the shape of the balance sheet has changed to reflect the significant increases in non-current assets of £214.6 million and related deferred tax liabilities of £32.3 million which have originated from the new acquisitions and the associated increase in debt to fund some of these acquisitions. In addition to these non-recurring changes, the ongoing shift in exchange rates year on year has resulted in a net assets increase which is reflective of the significant amount of Group assets being held in Eurozone countries.

2016 £m2015 £m
Total non-current assets (excluding deferred tax assets)398.1183.5
Working capital63.131.7
Net (debt)/cash(116.6)13.4
Corporate and deferred tax(57.3)(25.0)
Other liabilities(10.7)(9.1)
Total net assets276.6194.5
Cash conversion142.4%107.1%

Total non-current assets (excluding deferred tax assets) include intangibles which amounted to £360.4 million (2015: £166.7 million) as at 30 June 2016.

Total working capital increased during the year from £31.7 million to £63.1 million. The increase in working capital within the existing business is driven by the expansion and growth plans during the year. As expected, the three acquisitions are also capital intensive, with a one-off increase in working capital at acquisition of £25.8 million. Combined, the new acquisitions accounted for £20.9 million of the working capital at the year end.



Net assets at 30 June 2016 were £276.6 million

ROCE for the Group was 16.1%


Terms used within this section:


Earnings per Share


Selling, General and Administrative Expenses


Research and Development


Return on Capital Employed


Earnings Before Interest and Tax

Return on Capital Employed (ROCE)

Following the increase in net assets from the acquisitions during the year, which without the full year impact of the additional profitability significant dilutes the ROCE performance, ROCE for the Group was 16.1% for 2016. Whilst this has decreased from 20.0% in 2015 it has still met our target key performance indicator of 15.0%. Refer to the Key Performance Indicators for details of the calculation.

Currency Risk

During 2016, we have been exposed to transactional and translational currency risk. In addition to the one-off transactional loss of £0.8 million being recognised in the Consolidated Income Statement, £32.1 million foreign exchange gain translational impact was recognised in the Consolidated Statement of Comprehensive Income in 2016.

As part of our acquisition strategy, we seek to balance the foreign exchange debt and related interest payable risk associated with non Sterling acquisitions with the underlying related income and assets in foreign currencies. As we move forward and our business continues to be more diversified, our exposure to currency volatility, in particular in terms of the Euro and the US Dollar, is expected to become more balanced.

Initial Views on Brexit

The decision by the UK to leave the European Union has created uncertainty and volatility in the market. While many decisions will be needed to establish how the new trading environment will operate, we do not anticipate changes to our business model in the near to medium term.

We have established a cross-functional project team to assess and monitor the situation, and determine if and when actions are needed. Our current view on the possible changes is:

  • in terms of manufacturing and product registration, Dechra is accustomed to trading with multiple countries and different rules and legislation;
  • despite the possible additional administrative burden, our distribution model can adapt to changes in tariffs and duties;
  • our business is naturally hedged and diversified, which helps in a period of exchange rate volatility;
  • material contracts can be renegotiated over time as needed;
  • we will monitor the impact on workforce and global mobility to ensure we maintain an effective system for planning people resources; and
  • our geographical expansion over the last few years should help support our growth should the European economy slow down substantially.


We have delivered another set of strong financial results in the 2016 financial year. Our existing business is showing good organic growth and momentum, with investments made in prior years driving growth and allowing us to continue to invest for the future through acquisitions and pipeline development.

The strategic acquisitions made during the year support our medium to long term ambitions. In the short term, as we build the businesses, we acknowledge that they are dilutive to our gross margin, ROCE and impact our operating leverage.

With the enlarged Group, we can leverage economies of scale as we integrate the various R&D teams and prioritise a broader combined product pipeline with projects from the existing business and the three acquired entities.

Finally we have achieved our results by maintaining sound financial discipline and balance sheet management, which will help in a more volatile macroeconomic environment.

We have delivered another set of strong financial results in the 2016 financial year."

Ian Page

Chief Executive Officer

5 September 2016