Directors' Report: Other Disclosures

Principal Activities and Strategic Report and Operating Review

The Company acts as a holding company to all the Group's subsidiaries. Following the disposal of the Services Segment on 16 August 2013 to Patterson Companies, Inc. the Group now operates under three segments:

  • European Pharmaceuticals: markets and sells branded pharmaceuticals and specialist pet foods to the veterinary profession in Europe. It is a licensed manufacturer of both Dechra's own branded products and products for third party customers;
  • US Pharmaceuticals: markets and sells a range of endocrine, ophthalmic, dermatological and equine products into North America; and
  • Research and Development: develops and licenses Dechra's own branded veterinary product portfolio of novel and generic pharmaceuticals and specialist pet diets.

The Chairman's Statement and the Directors' Strategic Report and Operating Review includes:

  • a description of the principal risks and uncertainties faced by the Group;
  • an analysis of the development and performance of the Company's business during the financial year;
  • the position of the Company's business at the end of the financial year;
  • main trends and factors likely to affect the future development, performance and position of the Company's business; and
  • financial and non-financial key performance indicators used to measure the Group's performance.

Results and Dividends

The results for the year and financial position at 30 June 2013 are shown in the Consolidated Income Statement and Consolidated Statement of Financial Position. The Directors recommend the payment of a final dividend of 9.66 pence per share which, if approved by Shareholders, will be paid on 22 November 2013 to Shareholders registered at 8 November 2013. The shares will become ex-dividend on 6 November 2013. An interim dividend of 4.34 pence per share was paid on 9 April 2013, making a total dividend for the year of 14.00 pence (2012: 12.27 pence restated for the bonus element of the Rights Issue). The total dividend payment is £12,199,000 (2012: £10,125,000).

Research and Development

The Group has a structured development programme with the aim of identifying and bringing to market new pharmaceutical products. Investment in development is seen as key to strengthen further the Group's competitive position. Further information in relation to product development can be found in Product Development and Product Pipeline. The expense on this activity for the year ended 30 June 2013 was £7,961,000 (2012: £5,735,000) and a further £1,584,000 (2012: £447,000) was capitalised as development costs.

Payment to Suppliers

The Company does not follow any code of practice or standard regarding the payment of suppliers but seeks to agree the terms of payment with suppliers prior to the placing of business and it is the Company's policy to settle liabilities by the due date. At 30 June 2013, the Group had an average of 49 days (2012: 71 days) purchases outstanding in creditors (including assets held for sale). The Company has an average of nil days (2012: nil days) purchases outstanding in creditors.

Acquisitions

There have been no acquisitions during the year under review.

Disposals

The disposals of the Services Segment was completed on 16 August 2013. Refer to note 29 to the Accounts for further details.

Share Capital

The issued share capital of the Company for the year is set out in note 23 to the Accounts. As at the end of the financial year, 87,157,444 fully paid ordinary shares were in issue which included 287,268 ordinary shares issued during the year in connection with the exercise of options under the Company's share option schemes.

The holders of shares are entitled to receive dividends when declared, to receive the Company's Report and Accounts, to attend and speak at general meetings of the Company, to appoint proxies and to exercise voting rights. There are no restrictions on transfer or limitations on the holding of shares in the Company, nor are there any requirements to obtain prior approval in respect of any transfer of shares. The Directors are not aware of any agreements which limit the transfer of shares or curtail voting rights attached to those shares.

At the Annual General Meeting of the Company held on 19 October 2012, the Company was authorised to purchase up to 8,687,017 of its ordinary shares, representing 10% of the issued share capital of the Company as at 10 September 2012. No shares were purchased under this authority during the financial year. A resolution will be put to Shareholders at the forthcoming Annual General Meeting to renew this authority for a further period of one year. Under the proposed authority shares purchased may be either cancelled or held in treasury.

The Directors require authority from Shareholders to allot unissued share capital to the Company and to disapply Shareholders' statutory pre-emption rights. Such authorities were granted at the 2012 Annual General Meeting and resolutions to renew these authorities will be proposed at the 2013 Annual General Meeting.

Substantial Interests in Voting Rights

In accordance with the requirements in the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial Conduct Authority, the Company had been notified of the following interests exceeding the 3% notification threshold as at the end of the financial year and a date not more than one month before the date of the notice of the Annual General Meeting.

30 June 201320 August 2013
Aggregate
voting
rights
PercentageAggregate
voting
rights
Percentage
Schroder Investment Management10,393,20911.9310,218,13311.72
Fidelity Investments6,071,4816.976,718,5247.71
Legal & General Investment Management4,468,3765.134,321,2714.96
NBIM4,419,6005.074,321,5404.96
Invesco Perpetual3,807,4594.373,813,2064.38
Threadneedle Investments3,709,7464.263,849,9214.42
Aberdeen Asset Management3,635,4564.174,129,7494.74
BlackRock3,447,4013.963,434,6493.94
Rathbones3,083,7763.54N/ABelow 3%

Change of Control/Significant Agreements

As detailed in the Going Concern Statement in Accountability the Group has bank facilities with a syndicate of banks comprising Lloyds TSB Bank plc, Barclays Bank PLC, Svenska Handelsbanken AB (PUBL) and HSBC Bank Plc (the "Bank"). Under the terms of these facilities the Bank can give notice to the Company to repay all amounts outstanding under the facilities and cancel the commitments where there is a change of control of the Company. No other agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid are considered to be significant in terms of their potential impact on the business as a whole.

The Company does not have agreements with any director or employee that provides compensation for loss of office or employment resulting from a takeover, other than the Company share schemes. Under such schemes outstanding options and awards normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at that time. With the exception of Anne-Francoise Nesmes the Remuneration Committee has confirmed that it would exercise its own discretion to vest in full should a change of control of the Company occur before the LTIP awards vest.

The Directors consider that there are no contracted or other arrangements, such as those with major suppliers, which are likely to influence, directly or indirectly, the performance of the business and its values. Furthermore, there are no contracts of significance subsisting during the financial year between any group undertaking and a controlling Shareholder or in which a Director is or was materially interested.

Directors

The constitution of the Board and its Committees, together with biographical notes on the Directors, is shown in Board of Directors. Details of Directors' attendance at Board and Committee meetings and a statement on Board evaluation are set out in the Corporate Governance Report, Audit Committee Report and Remuneration Report.

During the financial year under review the following Board changes occurred:

  • Bryan Morton resigned from his position as Non-Executive Director;
  • Julian Heslop and Ishbel Macpherson were appointed to the Board as Non-Executive Directors on 1 January and 1 February 2013 respectively; and
  • Tony Griffin and Anne-Francoise Nesmes were appointed to the Board as Executive Directors on 1 November 2012 and 22 April 2013 respectively.

As at May 2013 Neil Warner has served 10 years as a Non-Executive Director and has expressed an intention to retire from the Board at the forthcoming Annual General Meeting.

Under the Company's Articles of Association Julian Heslop, Ishbel Macpherson, Tony Griffin and Anne-Francoise Nesmes will offer themselves for election as Directors at the forthcoming Annual General Meeting. Under the provisions of the UK Corporate Governance Code, all the remaining Directors will retire at the forthcoming Annual General Meeting and offer themselves for re-election.

The interests of the Directors in the share capital of the Company are shown in the Remuneration Report. During the year no Director had a disclosable material interest in any contract or arrangement with the Company or any of its subsidiaries. Information in relation to the Directors' remuneration is disclosed in the Remuneration Report.

The Articles of Association state that a Director may be appointed by an ordinary resolution of the Shareholders or by the Directors, either to fill a vacancy or as an addition to the existing Board but so that the total number of Directors does not exceed the maximum number of Directors allowed pursuant to the Articles of Association. The maximum number of Directors currently allowed pursuant to the Articles of Association is ten.

The Articles of Association also state that the Board of Directors is responsible for the management of the business of the Company and in doing so may exercise all the powers of the Company subject to the provision of relevant legislation and the Company's constitutional documentation. The powers of the Directors set out in the Articles of Association include those in relation to the issue and buy-back of shares.

Directors' and Officers' Liability

The Company maintains an appropriate level of Directors' and Officers' insurance whereby Directors are indemnified against liabilities to third parties to the extent permitted by the Companies Act 2006. The Directors also benefited from qualifying third party indemnity provision in place during the financial year and at the date of this report. A copy of the indemnity provision will be available for inspection at the Annual General Meeting.

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

View the statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements.

Charitable Contributions

Charitable donations made during the year in support of charitable causes in the local communities in which the Group operates and those of interest to its employees amounted to £7,250 (2012: £17,796). Further details of donations made by the Group are given in Corporate Responsibility, Social, Ethical and Environmental Responsibilities.

Political Donations and Expenditure

No political donations were made during the year ended 30 June 2013. The Group has a policy of not making any donations to political organisations or independent election candidates or incurring political expenditure anywhere in the world as defined in the Political Parties, Elections and Referendums Act 2000.

Events After the Reporting Period

On 10 July 2013 the Company entered into a conditional agreement for the sale of its Services Segment, namely, NVS, Dechra Laboratory Services and Dechra Specialist Laboratories to Patterson Companies, Inc for a total effective consideration of £87.5 million. The sale completed on 16 August 2013.

Auditor

In light of organisational changes within KPMG, the Directors have agreed that KPMG Audit Plc, a wholly owned subsidiary of KPMG LLP, step down as Auditor of the Company at the Annual General Meeting and that a resolution to appoint KPMG LLP as Auditor and to authorise the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting.

Audit Information

Each of the Directors who held office at the date of the approval of the Directors' Report confirms that, so far as he or she is aware, there is no relevant audit information of which the Auditor is unaware, and each Director has taken all steps that he or she ought to have undertaken as a Director to make himself or herself aware of any relevant audit information and to establish that the Auditor is aware of that information.

Annual General Meeting

The 2013 Annual General Meeting of the Company will be held at 4.00 pm on 17 October 2013 at its offices at 24 Cheshire Avenue, Cheshire Business Park, Lostock Gralam, Northwich CW9 7UA. The notice of meeting, which includes special business to be transacted at the Annual General Meeting, is included within the Circular accompanying this Annual Report, together with an explanation of the resolutions to be considered at the meeting.

By order of the Board

Zoe Goulding
Company Secretary
3 September 2013