Dechra Pharmaceuticals : 17 October 2023 Annual Report 2023

Annual Report and Accounts

for the year ended 30 June 2023

Company Number: 3369634

Making a Difference

Worldwide

The Veterinary Perspective

Overview

Highlights	01
Chair's Statement	02
Chief Executive Officer's Statement	03
Our Purpose Framework	08
Dechra at a Glance	10
Strategic Report	24
Our Marketplace
Business Model	28
Delivering Our Strategy	32
Strategy in Action	36
Product Development	38
Global Product Offering	42
Financial Review	44
Key Performance Indicators	52
Non-Financial and Sustainability Information	54
Statement	56
Section 172 Statement and Stakeholder
Engagement	67
Sustainability
Task Force on Climate-related	69
Financial Disclosures	76
Our Environment
How the Business Manages Risk and	79
Viability Statement	83
Understanding Our Key Risks
Governance
Letter from the Chair on Governance	90
Governance at a Glance	92
Board of Directors and Senior Executive Team	94
Board Leadership and Company Purpose	98
Division of Responsibilities	108
Composition, Succession and Evaluation	113
Audit, Risk and Internal Control	123
Directors' Remuneration Report	132
Directors' Report - Other Disclosures	166
Statement of Directors' Responsibilities	169
Financial Statements
Independent Auditors' Report	172
Consolidated Income Statement	182
Consolidated Statement of	183
Comprehensive Income	184
Consolidated Statement of Financial Position
Consolidated Statement of Changes in	185
Shareholders' Equity	186
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial	187
Statements	235
Company Statement of Financial Position
Company Statement of Changes in	236
Shareholders' Equity	237
Notes to the Company Financial Statements
Financial History	247
Additional Information
Glossary	250
Shareholder Information	252
Advisers	IBC

Welcome to Our 2023 Annual Report

Dechra is a global specialist in veterinary pharmaceuticals and related products business.

Our expertise is in the development, manufacture and sales of high quality products exclusively for veterinarians worldwide.

Year in Review

Strategic

• Board recommended offer for the Group, which was subsequently approved by shareholders
• Acquisition of Piedmont Animal Health, Inc bolstered our new product pipeline, making it stronger than ever with 39 projects now in various stages of development
• Acquisition of Med-Pharmex Holdings, Inc increased the breadth and scale of our portfolio in the US

Read more on pages 02 to 07

Operational

• Navigated unprecedented changes within the veterinary wholesaler channel
• Resilient supply chain performance with 50% of manufacturing now performed in-house
• Changes made within International division to help deliver future growth

Read more on pages 03 to 07

Sustainability

• Significant progress made in a number of sustainability focus areas
• Making a Difference Sustainability strategy further embedded across the business
• ESG repositioned as its own underpin to delivery of the Group growth strategy

Read more on pages 67 to 78

Overview	Strategic	Governance	Financial	Additional
	Report		Statements	Information

Highlights

Financial Highlights

Revenue

Research & Development Investment

as a % of Revenue

£761.5m

7.6%

AER: +11.7% CER: +5.5%

£57.5m +280 bps

23

£761.5m

23

7.6%

22

£681.8m

22

4.8%

21

£608.0m

21

5.3%

20

£515.1m

20

5.5%

19

£481.8m

19

5.2%

Underlying Operating Profit

Underlying Diluted Earnings Per Share

£165.1m

94.57p

AER: (5.3)% CER: (10.8)%

AER: (21.7)% CER: (26.8)%

23

£165.1m

23

94.57p

22

£174.3m

22

120.84p

21

£162.2m

21

108.14p

20

£128.3m

20

92.19p

19

£127.4m

19

90.01p

Reported Operating Profit

Reported Diluted Earnings Per Share

£6.3m

(24.59)p

AER: (93.4)% CER: (89.8)%

AER: (146.0)% CER: (140.7)%

23

£6.3m

(24.59)p

23

53.40p

22

£95.5m

22

21

£84.0m

21

51.03p

20

£52.2m

20

32.76p

19

£39.0m

19

30.07p

For further KPIs see pages 52 and 53

Forward-Looking Statements

By their very nature, these statements depend upon

This document contains certain forward-looking

statements. The forward-looking statements reflect

circumstances and relate to events that may occur in

the knowledge and information available to the

the future and thereby involve a degree of uncertainty.

Company during preparation and up to the publication

Therefore, nothing in this document should be construed

of this document.

as a profit forecast by the Company.

Stock Code: DPH

01

Chair's Statement

"We have navigated a year of significant change and continue to have an exciting future ahead."

Alison Platt

Non-Executive Chair

Introduction

Welcome to our 2023 Annual Report, which will be the last before the Company transfers to private ownership following the approval by shareholders on 20 July 2023 to accept the offer of £38.75 per share from Freya Bidco Limited, a newly formed company to be indirectly owned by (i) EQT X EUR SCSp and EQT X USD SCSp, each represented by its manager (gérant) EQT Fund Management S.à r.l. (collectively referred to as EQT) and (ii) Luxinva S.A.

The 2023 financial year was incredibly eventful. A year that began with a refinancing of debt facilities and equity raise to help fund the acquisitions of Piedmont Animal Health, Inc and Med-Pharmex Holdings, Inc then saw unprecedented industry-wide changes within the US wholesaler channel at the turn of the calendar year, which later extended to the UK market. Although the animal health market remains highly resilient, it has not been completely immune to the macroeconomic challenges posed by the ongoing cost of living crisis, creating a more unpredictable environment in some of our major European markets in particular.

Focused on implementing Dechra's five year plan, the Board's agenda centred on integrating both US acquisitions, the planned uplift in investment in R&D and navigating

the significant market dynamics that were outside of our control. In the midst of this the Board was approached by EQT who signalled their desire to buy the business. After some weeks of negotiation, we indicated that we were minded to recommend the offer, and subsequently granted EQT access to undertake due diligence. This involved considerable additional work by Dechra's management team and I want to take this opportunity, on behalf of the Board, to express my thanks for their tireless efforts in guiding the transaction through to a successful conclusion.

Board Changes

Following ten years as a Non-Executive Director at Dechra, Ishbel Macpherson stepped down from the Board on

22 June 2023. Ishbel's contribution to the Board over that time has been outstanding and on behalf of the Board I would like to thank her for her tenure, including the additional time committed to enable us to appoint a replacement Non- Executive Director and Remuneration Committee Chair.

We were delighted that Geeta Gopalan joined as a Non- Executive Director on 1 January 2023, later succeeding Ishbel as Remuneration Committee Chair on 1 March 2023.

Diversity

Dechra is committed to building high performing diverse teams at all levels in the organisation. We have long been cognisant of the ongoing requirements regarding diversity targets for listed businesses, and highlighted last year our intention to address these as part of the succession plan for our Remuneration Chair. Following the appointment of Geeta as noted above, we now have one director from a minority ethnic background and have maintained 37.5% female representation on the Board.

Sustainability

Dechra places great importance on our ability to positively impact the animals, people and areas of our planet touched by our operations. As you will see throughout this Report we have further integrated our Sustainability strategy within our business and corporate reporting, illustrating the extent to which it is woven within the fabric of the Group. Tangible examples of this include our commitment to a Living Wage globally, particularly pertinent this year as employees navigate rising inflation and other cost of living pressures, and our ambitious carbon emission reduction plans which have been submitted to the Science Based Targets initiative.

Looking Ahead

Throughout all of the events noted above and many more besides, our Values and Culture have shone through. Dechra remains a special business with special people. Along with the rest of the Non-Executive Directors, I will step down from the Board once the business has transferred to private ownership believing that it is well positioned to continue its sustainable growth strategy and has an exciting future ahead.

Alison Platt

Non-Executive Chair

12 October 2023

02

Dechra Pharmaceuticals PLC Annual Report and Accounts for the year ended 30 June 2023

www.dechra.com

Overview	Strategic	Governance	Financial	Additional
	Report		Statements	Information

Chief Executive

Officer's Statement

"Our strategy remains very much unchanged and we are making a number of investments to deliver long term value."

Ian Page

Chief Executive Officer

Introduction

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

Unprecedented changes within the US wholesaler channel at the turn of the calendar year, which subsequently extended to the UK market, led to significant industry wide disruption as the levels of inventory carried by intermediaries were materially reduced. Rising inflation, unpredictable country specific dynamics within some of our key European markets, and ongoing integration of the two US acquisitions made

in July and August 2022 all required navigating. We also dedicated considerable time and effort in facilitating the approach by Freya Bidco Limited, a newly formed company to be indirectly owned by (i) EQT X EUR SCSp and EQT X USD SCSp, each represented by its manager (gérant) EQT Fund Management S.à r.l. (collectively referred to as EQT) and (ii) Luxinva S.A to acquire the Company, which I will reflect on further at the end of this statement.

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

I am proud of the way in which all Dechra employees have responded to the events of the past year, proving once again that they really are our greatest asset. The way in which

we work remains an important differentiator relative to our competitors and, ultimately, is a key factor in delivering our strategic goals.

Operational Review

European Pharmaceuticals Segment

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

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

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

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

See the Glossary on page 07 for definitions

Stock Code: DPH

03