Chief Executive Officer
We are pleased to report that the Group has delivered a strong performance in the year, with good revenue growth in the majority of our EU markets and excellent growth within North America. This performance has been realised through new product launches, the resolution of a number of supply issues, improved penetration of our core products into our major markets and new territory launches. Overall it has been a successful year which clearly demonstrates that we are delivering our global growth strategy.
It has been a successful year which clearly demonstrates that we are delivering our global growth strategy."
Our EU business has delivered solid growth of 3.9% at CER ((2.2%) at AER)
We have seen an excellent performance in North America with sales growth at 59.9% at CER (64.6% at AER)
Our EU business has delivered solid growth of 3.9% at CER, driven by a strong performance across our Companion Animal Products (CAP) portfolio offsetting a decline in Food producing Animal Products (FAP). Most markets grew in the year but the most significant double digit sales increases were seen in the UK, France, Spain and Belgium. Our key therapeutic focus areas of endocrinology, dermatology and anaesthetics and analgesics all performed strongly. Additionally, we have strengthened two of our therapeutic areas:
- our dermatology portfolio was expanded with the successful launch of an in-licensed product, Sporimune® in seven European markets.
- the launch of Osphos in the UK improves our position in the equine market. Preparations are now being made for the launch of the product across the rest of Europe in the new financial year.
FAP continues to decline as we have a strong presence in the antibiotics market in Western Europe where there is continued focus on prudent prescribing due to concerns over antibiotic resistance. This remains an ongoing headwind against our overall performance, especially in Germany and also in Denmark, where there has been competitive pressure. However, it is pleasing to note that the rate of decline has slowed in the Netherlands, a market in which antibiotic use has reduced sharply over the last four years.
Our therapeutic and life stage pet diets, branded Specific, have now fully recovered from the stock-outs created by the complex transfer of the products to a new manufacturer. The supply issues were well managed given the logistical challenges involved in the transfer process. Overall sales declined slightly compared to the previous year. The range has now been repositioned and a new marketing campaign is being rolled out across Europe focusing on three key drivers:
- the high inclusion of fish protein and the associated benefits of Omega 3;
- the ethos of deriving the nutrients of the products from sustainable sources; and
- the Specific brand being dedicated to the veterinary market.
DVP North America
We have seen an excellent performance in North America with sales growth of 59.9% at CER. All our major therapeutic areas grew, in particular endocrinology and dermatology sales increased by 24.0%. The sales increase in endocrinology was driven by Vetoryl®, our lead product in this category, which continued to deliver double digit growth and by the new product launch of Levocrine Chewable Tablets, which has outperformed our expectations.
Our performance in North America benefited from the full year trading of Phycox, the re-launch of ophthalmics, the launch of Osphos and the opening of our Canadian subsidiary. Phycox, which came into the Group through the acquisition of the assets of PSPC Inc. in May 2014, has performed well throughout the year and we have increased the number of customers purchasing the product by over 50%. The ophthalmics products, which were re-launched following long term supply issues, achieved expected sales targets despite strong competition from human generic equivalents. We have successfully launched Osphos, our unique product for equine lameness and, whilst the uptake has been a little slower than expected, we have to date penetrated approximately one-third of the equine and mixed animal practices. Adjusting for these items, sales of our existing core products grew by 21.7% at CER.
Our agility enables us to respond rapidly to market changes or opportunities. Following a serious shortage of critical care intravenous fluids in the US market, we obtained FDA approval for the emergency importation of our European critical care intravenous fluid Vetivex® 11 (Hartmans solution) to supply the equine market. We are currently working with the FDA to achieve long term approval for a US labelled version of this product to add to our equine portfolio.
To support our growth in the US, we have continued our investment in the infrastructure with 16 new appointments, predominantly across sales and technical support.
Given the varied range of projects in development and the increasing demands of regulatory authorities, the Product Development and Regulatory Department has been restructured. Dr Joseph Rosentel has been appointed to lead the Product Development Project Teams and Dr Susan Longhofer will now head up Regulatory Affairs and will dedicate more time to business development, a critical function as we assess numerous in-licensing opportunities.
This restructuring has been implemented to provide the necessary expertise and focus with a view to ensuring we deliver the increasingly complex product portfolio in a timely and efficient manner.
TAF Spray® was approved for launch by all our European trading subsidiaries in the year
A new low dose 5mg Vetoryl® has been approved for the US
We established our Canadian subsidiary and successfully recruited a team of eight
Throughout the year we have continued to identify and screen potential businesses and products for acquisition that could increase Dechra's value and improve returns to shareholders."
Following the launch of Osphos in the UK and US in the first half of our financial year, we have subsequently received approval in 17 additional EU territories and have also received marketing approval in Canada. EU approvals were achieved following the completion of mandatory studies demonstrating food safety as the horse is classed as a food producing animal in the majority of EU territories.
TAF Spray was also approved in 14 European countries in the year. This is a differentiated generic antibiotic aerosol containing thiamphenicol which is used to treat superficial wound infections in several species.
A new low dose 5mg Vetoryl has been approved for the US. This enhances the range of dosing options available to veterinarians and provides a new marketing message as we continue to deliver growth from the Group's leading product.
To support our geographic expansion goals, minor approvals were received for Octacillin® and Soludox® in the Philippines and Sedaxylan® in South Africa.
Complete dossiers have been filed in both the EU and US for a canine endocrine product, to be branded Zycortal. Initial questions have been received and it is hoped that the first approval will be received during our new financial year.
We have three FAP project dossiers for poultry and swine under review in Europe and are preparing a further dossier for a decentralised application which will be submitted before the end of the 2015 calendar year.
Owing to the nature of the development process, some projects in the Feasibility phase have taken longer than projected before reaching the Development phase. However, we are mitigating the potential impact of delays by increasing the overall number of projects in development.
Refilling the Pipeline
We continue to identify new opportunities internally and externally to improve and expand our product portfolio. We have reached a preliminary agreement with Jaguar Animal Health Inc. to secure marketing and joint development rights for their leading companion animal product. We have also acquired a partially completed dossier for an additional canine endocrinology product; further development work will be required to gain full approval, which will be conducted at our manufacturing facility in Skipton, UK.
In the first half of our financial year we opened our Canadian subsidiary and successfully recruited a team of eight, the majority of whom focus on sales. We commenced trading in January 2015 and have begun to establish a strong presence in this territory. The Canadian subsidiary achieved sales targets for Vetoryl, Felimazole® and the dermatology range. However, other products sales were impacted by surplus stock in the market from our previous distributor which had washed through the system by the end of the financial year. The new team is highly focused to deliver results in our new financial year.
We have also established a trading subsidiary in Poland. This came about as the distributor of our range of predominantly FAP products was acquired, thereby allowing us to take advantage of a change of ownership clause in the contract. We have appointed ten people, including the Country Manager and an experienced sales team, the majority of whom previously worked for our distributor, together with three contracted sales representatives. Trading commenced ahead of our expectations in May 2015.
We are currently at an advanced stage of planning the start-up in an additional new territory, Austria, which we anticipate will be trading prior to the end of the new financial year.
We also continue to invest in our Regulatory function to gain new licences in other countries identified as target markets. Whilst there are few locations where we have the relevant critical mass for a new start-up at this time, the registration process is important as we look to expand beyond our core markets.
The principal benefits of trading through our own subsidiaries are that we can capture the full margin from our own products and we can provide the relevant sales and marketing focus which is more difficult to achieve through marketing partners.
Throughout the year we have continued to identify and screen potential businesses and products for acquisition that could increase Dechra's value and improve returns to shareholders.
We were pleased to announce, post the year end, that we have made a conditional offer to acquire a 63.3% shareholding (equivalent to 69% of voting rights) in a Croatian based business, Genera d.d., which triggered a mandatory takeover for the remaining shares which would value the business at the equivalent of €51.4 million on a debt free, cash free basis. The sale and purchase agreement to acquire this stake is conditional on total aggregate shareholder acceptances reaching 75% of the voting share capital.
The mandatory offer is expected to be completed by November 2015 and is subject to approval by the Croatian Financial Services Agency (HANFA). The principal reason for the acquisition of this shareholding in Genera is that it represents a unique opportunity for Dechra to enter the poultry vaccines market, thereby expanding our FAP portfolio. This broader product offering will support our FAP sales in Western Europe and will enhance our ability to increase our presence in emerging markets. Additionally, the acquisition will bring three new sales territories in Croatia, Slovenia and Bosnia and Herzegovina and will enhance our manufacturing capabilities through access to a lower cost manufacturing base.
Although the veterinary market has undergone considerable consolidation over the past decade, we are still able to identify potential acquisition candidates due to our market knowledge and increasing international presence.
The key objective of Dechra Pharmaceuticals Manufacturing (DPM) is to produce Dechra's own pharmaceutical range in the most efficient and effective manner. In addition to manufacturing the Group's products, we also utilise spare capacity to provide a third party manufacturing service. Within the year these external sales, reported under our EU segment, have increased by 11.7%.
A number of projects were implemented across our sites throughout the year to increase capacity, improve yields and drive efficiencies to reduce the cost of goods. These include investments in:
Within the year, third party manufacturing sales have increased by 11.7% at CER (9.4% at AER)
We have focused on talent management and development
To support the Group's growth, there has been significant recruitment throughout the year."
- the Premix Department in Bladel to increase batch sizes for FAP products;
- a new faster encapsulating machine in Skipton which increases yield and doubles capacity;
- a blister packing line to increase capacity and flexibility through automation; and
- a larger creams and ointments vessel to facilitate a major third party contract and production of in-house creams, liquids and ointments in Skipton.
There have been a number of other developments within Manufacturing, the most significant of which is the successful pre-approval inspection of the Skipton facility by the FDA in preparation for the approval of our new canine endocrine product, Zycortal, to be manufactured at the site.
Our US site in Melbourne, Florida, which was acquired from PSPC Inc. in May 2014, has been fully integrated into Group Manufacturing. This year, we have focused on increasing quality systems and production capacity following the launch of a new product, Levocrine, which is manufactured at this site. A new Manufacturing Manager has been appointed to drive quality systems improvements and the necessary increase in production to meet the demand we have created for both Levocrine and Phycox.
The roll out of the Oracle Programme remains one of the primary objectives for the Group. Detailed plans are in place for the implementation to be completed by the end of 2017. Progress has been made in the year with the appointment of a new dedicated Project Manager to coordinate this complex project and ensure adherence to plan. Additionally, the implementation of the Group Finance Consolidation solution went live in June 2015.
We have continued to refresh our IT infrastructure and update our digital technologies with the following initiatives:
- a Group high-speed network has been implemented across all major Dechra locations;
- a web-based portal for staff training has been designed;
- a new DVP website has been launched in multiple languages and a new PLC website is at an advanced stage of development; and
- new hybrid PC tablets are being introduced for all sales staff to improve mobile working and presentation capabilities.
As reported last year, our focus has been on talent management and development. We have introduced a Talent Mapping programme to identify staff with high potential and we are implementing a professional development programme to strengthen and support individuals as required. Succession planning is also in place for all key managerial and technical roles across the Group and a rolling review programme has been established. Additionally, a Dechra careers website has been developed to provide up-to-date information on opportunities for all employees and to attract new talent to the Group.
The Senior Executive Team (SET) has been strengthened within the year with the appointment to the team of Dr Joseph Rosentel, Director of Product Development, and Giles Coley, Marketing Director DVP EU. Work has commenced on a Leadership Development programme for the team.
There has been significant recruitment throughout the year to support the Group's growth. In total, we have added over 100 employees, in new territories, in sales and technical support teams within DVP US and in recruitment to fill vacancies in DVP EU and DPM.
As we grow, internal communication to drive Group-wide alignment is increasingly important. With this in mind, a Dechra-wide newsletter has been introduced to improve internal communication across all our locations and all our employees.
The Board is proposing a final dividend of 11.82 pence per share (2014: 10.65 pence per share). Added to the interim dividend of 5.12 pence per share, this brings the total dividend for the financial year ended 30 June 2015 to 16.94 pence per share, representing 10.0% growth over the previous year.
Subject to shareholder approval at the Annual General Meeting to be held on 23 October 2015, the final dividend will be paid on 20 November 2015 to shareholders on the Register at 30 October 2015. The shares will be become ex-dividend on 29 October 2015.
The Board believes that our focus on our key therapy areas, the continued rate of adoption of Osphos and sales in our new territories will drive progress in the short term. Current trading is in line with management expectations; however, the business continues to be exposed to exchange rate volatility.
In the long term the delivery of further new products and the integration of potential acquisitions give the Board confidence in the Group's future prospects.
The Strategic Report has been approved by the Board and signed on its behalf by:
7 September 2015
Chief Executive Officer
7 September 2015
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Terms used in this section
Companion Animal Products
Food producing Animal Products
Constant Exchange Rate
US Food and Drug Administration
Enterprise Resources Planning (ERP) software
Dechra Veterinary Products