Compliance with the 2012 Code
The Code establishes the principles of good governance for companies; the following report describes how the Company has applied these principles to its activities. The Board remains committed to maintaining high standards of corporate governance. In the opinion of the Directors, the Company has complied with the Code throughout the period.
The Financial Reporting Council updated the Code in 2014 (the 2014 Code) which applies to reporting periods beginning after 1 October 2014 and so does not apply to the Company's reporting period ended 30 June 2015. The 2014 Code made changes to the requirements on going concern, risk management, internal control, remuneration policies and shareholder engagement. The Board has initiated the planning process to assist our compliance with the 2014 Code in the next reporting period. The 2014 Code may be found at www.frc.org.uk.
The Role of the Board
The Board's primary responsibility is to promote the long term success of the Company by the creation and delivery of sustainable shareholder value. The Board's strategy has four pillars to promote growth:
- Pipeline Delivery;
- Portfolio Focus;
- Geographical Expansion; and
KPIs have been designed to measure progress and delivery of the strategic plan and our four growth pillars. Further details are provided on the Key Performance Indicators page.
Board Membership and Responsibilities
Details of the Directors together with their biographical details can be found on the Board of Directors page.
It is considered that each of the Non-Executive Directors is independent and is free of any business or other relationship which could materially interfere with, or compromise, their ability to exercise independent judgement. Each brings with them a breadth of experience which adds value to the decision making of the Board as well as the formulation and progression of the Dechra strategy. In line with the Code, at least half the Board, excluding the Chairman, are determined by the Company to be independent.
Senior Independent Director
Ishbel Macpherson has held the position of Senior Independent Director since October 2013. She provides a sounding board for the Chairman and is available to shareholders if they have concerns which contact through the normal channels has failed to resolve or for which such contact is inappropriate. Ishbel is leading the recruitment process for the Chairman's successor (further details are provided in the Nomination Committee Report).
- Lead the Board in the determination of its strategy and achievement of its objectives
- Ensure the effectiveness of the Board in all aspects of its role
- Facilitate the effective contribution of the Non-Executive Directors, ensuring that all decisions are subject to constructive debate and supported by sound decision making processes
- Ensure shareholder views are brought to the attention of the Board
|Chief Executive Officer|
- Day-to-day management of Group operations and leading the Senior Executive Team
- Performance and results of the Group
- Proposing strategy
- Executing strategy agreed by the Board
|Chief Financial Officer|
- Responsible for financial planning and reporting for the Group
- Management of financial risk
- Developing and executing the strategic plan
- Securing funding as required
|Managing Director DVP EU|
- Management of the majority of Group turnover
- Nominated Director for health, safety and environmental matters
- Development and execution of strategy in the EU
- Provide independent and constructive challenge
- Represent a broad range of experience and independent judgement
- Evaluate strategy and risks
The Board is responsible for the long term success of the Company. The main responsibilities and key actions carried out are set out below:
|Strategy and performance||Biannual strategy review. Strategic decisions are made after reports and recommendations are received from management on markets, potential growth areas, product development, risk analysis and execution risks|
|Risk management and internal controls||Annual review of key risks and receipt of Audit Committee reports on risk management process and internal financial controls|
|Oversight of the Group's operations||Approval of the annual budget and capital expenditure projects. Site visits to factories and offices in the UK and abroad. Review progress through business units reports and detailed financial results report|
|Governance||Receive governance reviews from external advisers, Company Secretary and internal audit. Review of Board skills, performance and composition and succession planning|
Matters Reserved for the Board
There is a formal schedule of matters reserved to the Board. The schedule of matters covers a number of areas, including the following:
|Strategy and Management||Approval and monitoring of long term objectives and strategy|
Approval of the Group's operating and capital expenditure budgets
Major organisational changes
Regular reviews of business performance
Approval of acquisitions and business development proposals
|Financial Reporting||Approval of the Annual and Half-Yearly Reports and dividend policy|
Review of portfolio prioritisation
Approval of budget
Approval of treasury policy, tax strategy and policy
|Internal Controls||Review and approval of internal controls and risk management policies and processes|
|Corporate Governance||Board and Committee composition|
Corporate Governance matters
Approval of policies such as Health and Safety, Sanctions and the Anti-Bribery and Anti-Corruption Policy
The Board is routinely scheduled to meet nine times per year. During the year one additional meeting was held in relation to the offer to acquire a 63.3% shareholding (equivalent to 69% of voting rights) in a Croatian based business, Genera d.d.
Attendance at the Board and Committee meetings during the year to 30 June 2015 is set out in the table below:
|Mike Redmond||Ian |
|Anne-Francoise Nesmes||Tony |
|Ishbel Macpherson||Dr Chris Richards||Julian|
|Appointment Date||19 April|
Met 10 times
Met 5 times
Met 3 times
Met 4 times
Where Directors cannot attend a meeting, the Board papers are still provided allowing the Director to raise any queries or discussion points through the Chairman. Should Directors have concerns of any nature which cannot be resolved within the Board meeting, they have the right to ensure their view is recorded in the minutes.
During the year, in addition to its routine business, presentations by senior management and strategic development, some of the other matters considered by the Board included:
- External auditor selection;
- Regulatory affairs reorganisation;
- IT strategy and budget;
- Manufacturing strategy review;
- Hedging arrangements review;
- Review of external Board evaluation;
- Integration of Florida manufacturing facility;
- Non-Executive Director fees;
- Delegated Authorities;
- Talent development;
- Research and development and Pipeline Delivery;
- FAP strategy and Vaccines strategy reviews; and
- SET terms of reference.
The Board has formally delegated specific responsibilities to Committees, namely the Audit, Remuneration and Nomination Committees. The full terms of reference for each of these Committees are available on the Company's website (www.dechra.com) or on request from the Company Secretary.
|Committee||Role and Terms of Reference||Link to Report|
The main responsibilities are:
- to monitor the integrity of the financial statements of the Group, and assist the Board in ensuring that the Annual Report, taken as a whole, is fair, balanced and understandable;
- to review the effectiveness of the Group's internal financial control systems as described in the Audit Committee Report;
- to oversee the relationship with the external auditor, monitor their independence and objectivity, and set the policy for non-audit work; and
- to review and approve the significant accounting policies.
|Audit Committee Report|
The main responsibilities are:
- to determine the remuneration, bonuses, long term incentive arrangements, contract terms and other benefits in respect of the Executive Directors and the Chairman;
- to oversee any major changes in employee benefit structures; and
- to approve the design of any employee share schemes.
|Directors' Remuneration Report|
The main responsibilities are:
- to oversee the plans for management succession;
- to recommend appointments to the Board;
- to evaluate the effectiveness of the Non-Executive Directors; and
- to consider the structure, size and composition of the Board.
|Nomination Committee Report|
The Board also appoints Committees on an ad hoc basis to approve specific projects as deemed necessary.
Director Insurance and Indemnities
The Company maintains an appropriate level of Directors' and Officers' insurance in respect of legal action against Directors as permitted under the Company's Articles of Association and the Companies Act 2006. The Company also indemnifies the Directors under an indemnity deed with each Director in respect of legal action to the extent allowed under the Company's Articles of Association and the Companies Act 2006. As at the date of this report, qualifying third party indemnity provisions are in force. A copy of the indemnity provisions will be available for inspection at the Annual General Meeting.
The Board and its Committees are annually assessed to help ensure their effectiveness is maintained and that they remain fit for purpose. The Chairman manages the Board and oversees the operation of its Committees with the aim of ensuring that they operate effectively by utilising the diverse range of skills and experience of the various Board members.
Board Balance and Independence
The Board understands the importance of balance and refreshment in terms of its composition and keeps these matters under review. There have been no changes at Board level over the past 12 months. As stated earlier in this report, the Chairman will stand down at the 2016 Annual General Meeting. The search for a successor has commenced.
The Nomination Committee Report provides further information on succession planning measures taken by the Company together with how we are developing the talent pool internally.
Length of Tenure of Chairman and Non-Executive Directors
Board Composition and Gender Diversity
The Board seeks to ensure that the Board and the Committees have an appropriate composition to manage their duties effectively and to manage succession issues. The Board supports diversity in its broadest sense and considers it an essential driver of Board effectiveness. The Board recognises the importance that its composition is sufficiently diverse and reflects a wide range of knowledge, skills and experience.
The Board does not have a formal diversity policy and is generally opposed to the idea of stated quotas for females. The Board believes that appointments should be made solely on merit, the key criterion being whether or not the appointee can add to or complement the existing range of skills and experience on the Board. The Board has 29% female representation. Female representation below Board level is 30% of the SET and 52% of the overall workforce.
Senior Executive Team
Conflicts of Interest and External Board Appointments
Pursuant to the Companies Act 2006 all Directors have a duty to avoid a situation in which they have, or could have, a direct or indirect conflict of interest with the Company. The Articles of Association of the Company enable the Directors to consider and if appropriate to authorise any actual or potential conflict of interest which could arise. There are safeguards which will apply when Directors decide whether to authorise a conflict or potential conflict. First, only independent Directors (i.e. those who have no interest in the matter being considered) will be able to take the relevant decision; secondly, in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company's success. The Directors will also be able to impose limits or conditions when giving authorisation if they deem this to be appropriate. During the financial year under review no actual or potential conflicts have arisen.
Ian Page is the Non-Executive Chairman of Sanford DeLand Asset Management Limited (Sanford). The Board fully considered at the time of his appointment whether this would materially impact on his current time commitment as Chief Executive Officer and whether it could give rise to any conflict. As he is not involved in any investment decision made by Sanford it was not considered that any conflict would arise nor would there be any material impact on his time commitment.
Induction and Training
In order to ensure that the Board maintains its knowledge and familiarity with the Group's operations at least one Board meeting per year is held at one of the Group's operational sites. This year, Board meetings were held at Dechra Pharmaceuticals Manufacturing (DPM) in Skipton and at Dechra Veterinary Products EU in Den Bosch, the Netherlands, which provided the Board with an informal opportunity to meet with senior management based at these sites. The Board also visited DPM in Bladel, the Netherlands.
Any newly appointed Directors are provided with comprehensive documentation in relation to the remit and obligations of the role, current areas under consideration for the Board and the latest broker reports. New Directors visit the various business units in order to allow them to meet with the executive teams and to be shown around the operations. Ongoing field visits with members of the UK sales team are organised for each of the Non-Executive Directors and the Chairman which gives them the opportunity to observe the sales team's activity in the field and their day-to-day interaction with practising veterinarians.
Regular briefings are provided to the Directors, which cover a number of legal and regulatory changes and developments relevant to the Director's areas of responsibility. In addition, the Company Secretary informs the Directors of any external training courses which may be of relevance.
Each Director is entitled, on request, to receive information to enable him or her to make informed judgements in order to discharge their duties adequately. In addition, all Directors have access to the advice and services of the Company Secretary and senior managers, and may take independent professional advice at the Company's expense in connection with their duties.
Board Evaluation and Effectiveness
The effectiveness of the Board is important to the success of the Group and the Board undertakes an annual evaluation of its performance and that of its Committees.
- The 2014 external Board evaluation
An external evaluation of the Board and its Committees was completed during 2014 by Independent Audit Limited (Independent Audit). The process undertaken by Independent Audit involved:
- a review of the Board and its Committees' minutes, agenda papers and ancillary documents; and
- one to one meetings with each member of the Board and the Company Secretary.
A comprehensive report was presented to the Board in September 2014. Overall, the review indicated that the Board operated effectively but noted some areas for improvement.
The actions which were taken are shown in the table below:
External Evaluation Recommendations and Actions
|Ensure risk is included in each strategic discussion||Each strategy report includes a discrete risk management section which informs decision making|
|Presentations from each part of the business||Presentations from all divisions are part of the rolling agenda. This broadens the Board's knowledge of the businesses and enhances the exposure of the SET to the Board|
|Greater focus on resource management, talent development and succession planning||We have prioritised this for the 2016 financial year. For further information refer to the Corporate Social Responsibility page|
|Board information better tailored to needs of Non-Executive Directors||Discussions with Non-Executive Directors have resulted in papers to the Board being more tailored to the Non-Executive Directors' requirements|
|Terms of reference for the SET to be established||New terms were approved in June 2015 which provide more focus to the SET|
- The 2015 Board evaluation
Following the external evaluation last year, it was agreed to undertake an internal evaluation for the 2015 financial year focusing on the following areas: (i) Board composition; (ii) strategy review and delivery process; (iii) the format of Board meetings and the decision process; (iv) training and development; (v) the performance of the Board and the individual Directors; (vi) Corporate Governance; (vii) leadership and culture; and (viii) risk assessment. One to one meetings were held by the Chairman with each of the Executive and Non-Executive Directors and Company Secretary. The evaluation of the Chairman was undertaken by the Senior Independent Director. The findings of the internal evaluation were discussed at the September 2015 Board meeting. The actions and progress made will be reported in next year's Annual Report.
The Board will perform a further external evaluation in two years' time. Internal evaluations will be completed during the intervening period.
Re-election of Directors
On appointment, Directors are required to seek election at their first Annual General Meeting following appointment. At the forthcoming Annual General Meeting, all of the Directors will retire and offer themselves for re-election. Each of the Directors has been subject to a formal evaluation by the Nomination Committee and it is considered that each Director continues to perform effectively and demonstrate commitment, not only in respect of their roles and responsibilities, but also in relation to the Group and its shareholders. The Board therefore recommends that shareholders vote in favour of their respective re-elections.
The Board seeks to present a fair, balanced and understandable assessment of the Group's position and prospects.
The responsibilities of the Directors and the external auditor in connection with the Financial Statements are explained in the Statement of Directors' Responsibilities and the Independent Auditor's Report.
Preservation of Value
The basis on which the Group generates and preserves value over the longer term and the strategy for delivering the objectives of the Group are to be found in the Strategic Report.
The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out within the Strategic Report. The principal risks that may affect the Group's future performance are set out on the Understanding Our Key Risks page.
As reported last year, the Group completed a refinancing and entered into a facilities agreement in September 2014 (the Facility Agreement) with a syndicate of banks comprising HSBC Bank plc, The Royal Bank of Scotland plc and Barclays Bank PLC under which a facility of £120.0 million was made available. The Facility Agreement includes a committed revolving credit facility of £90.0 million, together with an Accordion facility of £30.0 million. The facility is committed for five years until September 2019.
As at 30 June 2015 the Group had cash balances of £45.9 million and net cash of £13.4 million (2014: cash balances of £26.8 million and net borrowings of £5.0 million).
The Directors have a reasonable expectation that both the Company and Group have 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.
Internal Control and Risk Management
The Company's risk management process and internal control processes are described on the How the Business Manages Risk page.
Relations with Shareholders
Dialogue with Institutional Shareholders
Relationships with shareholders receive high priority and a rolling programme of meetings between institutional shareholders and Executive Directors is held throughout the year. The Chief Executive Officer and Chief Financial Officer give annual and half-yearly results presentations to institutional shareholders, analysts and the media in the UK. These meetings are in addition to the Annual General Meeting and seek to foster a mutual understanding of the Company's and shareholders' objectives. Such meetings are conducted in a format to protect price sensitive information that has not already been made generally available to all the Company's shareholders. Similar guidelines also apply to communications between the Company and other parties such as financial analysts, brokers and the media.
In January, the Company hosted an investor site visit day at the Skipton manufacturing facility for shareholders and will continue to offer site visits on a periodic basis. This year, the Chief Executive Officer and Chief Financial Officer also met US investors in April 2015. The Chairman and Senior Independent Director are available to meet shareholders upon request.
Feedback is collated by the Company's brokers after such presentations. The feedback is then circulated to the Board for review and consideration. In addition, the Board is provided with a monthly market summary report which reports on share price and share register movements. Where material changes in respect of remuneration or governance are proposed, the Board seeks to consult with its major shareholders before implementing such changes.
Constructive use of the Annual General Meeting
All members of the Board are scheduled to attend the Annual General Meeting (the Meeting) and the Chairmen of the Audit, Remuneration and Nomination Committees will be available to answer shareholders' questions at the Meeting. Notice of the Meeting is dispatched to shareholders at least 20 working days before the Meeting. The information sent to shareholders includes a summary of the business to be covered, with a separate resolution prepared for each substantive matter. When a vote is taken on a show of hands, the level of proxies received for and against the resolution and any abstentions are disclosed at the Meeting. Following which, the results of votes lodged for and against each resolution are announced to the London Stock Exchange and displayed on the Company's website. At the Meeting there will be an opportunity, following the formal business, for informal communications between shareholders and Directors.
7 September 2015