Compliance with the Code
The UK Corporate Governance 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 Code can 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 drivers 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 drivers. Further details are provided in the Key Performance Indicators.
Details of the Directors together with their biographical details can be found below.
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, is 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 that have failed to be resolved through the normal channels. The Senior Independent Director also carries out the annual evaluation of the performance of the Chairman and chairs the Nomination Committee when it is considering the succession of that role.
- 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 the Group operations and leading the Senior Executive Team (SET).
- Performance and results of the Group.
- Propose strategy.
- Execute strategy agreed by the Board.
|Chief Financial Officer|
- Responsible for financial planning and reporting for the Group.
- Management of financial risk.
- Develop and execute the strategic plan in conjunction with the Chief Executive Officer.
- Secure funding as required.
|Managing Director Dechra Veterinary Products (DVP) EU|
- Management of the segment which contributes the majority of Group revenue.
- 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 commercial and industry experience and independent judgement.
- Evaluate strategy and risks.
Board of Directors
Ian Page: Chief Executive Officer
Committee Membership: Disclosure (Chairman).
Skills and Experience: Ian has gained detailed knowledge and experience through various positions he has held within the pharmaceutical and veterinary arena. He has a solid understanding of business development both in the UK and globally. In particular he has extensive experience in M&A and in the successful delivery of strategic plans.
Background: Ian joined NVS, Dechra's former services business, at its formation in 1989 and was an integral part of the management buyout in 1997, becoming its Managing Director in 1998. He joined the Board in 1997 and became Chief Executive Officer in 2001. Ian has played a key role in the development of the Group's growth strategy.
External Appointments: None.
Richard Cotton: Chief Financial Officer
Committee Membership: Disclosure.
Skills and Experience: Richard has a wealth of experience in senior financial roles in life sciences and other sectors, including broadcast and photographic, automotive, filtration and metals. His experience covers all finance management and value creation activities from R&D, to manufacturing and commerce in international organisations. He has significant experience in the development and successful execution of strategy, corporate finance and M&A, capital markets and governance.
Background: Richard was appointed Chief Financial Officer in January 2017. Prior to joining Dechra he was Chief Financial Officer of Consort Medical plc from 2012 to 2016. He has also been Finance Director of Vitec Group plc from 2008 to 2011, Group Finance Director at Wagon plc from 2005 to 2008, and Group Finance Director of McLeod Russel plc from 2001 to 2005. Prior to this he held senior finance roles in Alcoa Inc.
External Appointments: None.
Tony Griffin: Managing Director, Dechra Veterinary Products EU
Committee Membership: Not applicable.
Skills and Experience: Tony has over 30 years' experience in the animal health business and has substantial international experience as a result of living and working outside the UK since 1993. He gained broad experience of running an international animal health business with teams in different European countries as Chief Executive Officer of the AUV Group. Tony is the Board nominated Director responsible for health, safety and environmental matters.
Background: Tony was appointed Managing Director of DVP EU in May 2012 following the acquisition of Eurovet Animal Health BV from AUV Holding B.V. He joined the AUV Group in 1993 as Director of Exports, having previously worked at Norbrook Laboratories and Moy Park. Tony was promoted to Managing Director of Eurovet in 1996, becoming the Chief Executive Officer of the AUV Group in 2006.
External Appointments: None.
Tony Rice: Non-Executive Chairman
Committee Membership: Nomination (Chairman), Remuneration.
Skills and Experience: Tony has extensive board level experience across a range of sectors, including aerospace, healthcare, telecommunications and retail in both UK and international markets.
Background: Tony joined the Board in May 2016 and was appointed Chairman in October 2016. He served as Chief Executive Officer at Cable & Wireless and Tunstall Holdings, and prior to that held various roles at BAE Systems including Managing Director of Commercial Aircraft and Group Managing Director of Business Development. He has also served as a Non-Executive Director at Punch Taverns, Spirit Pub Company, Cable & Wireless, Telewest Communications and Saab Technologies, and Chairman of Alexander Mann Solutions.
External Appointments: Tony is currently the Senior Independent Non-Executive Director and Chairman of the Remuneration Committee at Halma plc.
Ishbel Macpherson: Senior Independent Non-Executive Director
Committee Membership: Audit, Nomination, Remuneration (Chairman).
Skills and Experience: Ishbel has a broad range of PLC Board experience in a variety of roles, including Chairman, Audit Committee and Remuneration Committee Chairman. She has knowledge and understanding of City matters gained over 20 years' experience as an investment banker, specialising in UK mid-market corporate finance.
Background: Ishbel joined the Group as a Non-Executive Director in February 2013. Prior to this she was Head of UK Emerging Companies Corporate Finance at Dresdner Kleinwort Benson from 1999 to 2005, having previously worked at Hoare Govett and Barclays de Zoete Wedd.
External Appointments: Ishbel is Senior Independent Director at Bonmarche Holdings plc (appointed October 2013) and Non-Executive Director of Lloyd's Register Group Limited (appointed August 2018).
Julian Heslop: Non-Executive Director
Committee Membership: Audit (Chairman), Nomination, Remuneration.
Skills and Experience: Julian has considerable financial experience as a result of the senior finance roles he has held in the pharmaceutical, food, property and brewing sectors over the last 30 years.
Background: Julian joined the Board in January 2013. He served as Chief Financial Officer of GlaxoSmithKline PLC between 2005 and 2011, having previously been appointed its Senior Vice President, Operations Controller between 2001 and 2005 and as Financial Controller of Glaxo Wellcome PLC between 1998 and 2000. Prior to this, Julian held senior finance roles at Grand Metropolitan PLC and Imperial Brewing and Leisure. He is a Fellow of the Institute of Chartered Accountants in England and Wales.
External Appointments: Julian is a Non-Executive Director at Itaconix PLC (appointed July 2012) and is their Audit Committee Chairman. He is also a Director of the Royal Academy of Arts (appointed October 2012).
Dr Lawson Macartney: Non-Executive Director
Committee Membership: Audit, Nomination and Remuneration.
Skills and Experience: Lawson is a veterinarian and, in addition to spending several years in veterinary practice, has held a range of senior roles in pharmaceutical R&D, sales and marketing over the past 30 years.
Background: Lawson joined the Board in December 2016. He served as Chief Executive Officer of Ambrx Inc. between 2013 and 2015, and prior to that led emerging business for Shire PLC. Before joining Shire in 2011, he was with GlaxoSmithKline PLC (GSK) from 1999 to 2011 in positions of increasing seniority. His final role at GSK was to lead the strategic marketing, outcomes and reimbursement, project management and portfolio teams. In addition to his veterinary degree, Lawson has a PhD in viral pathobiology and is a pathologist, holding Fellowship of the Royal College of Pathologists as well as Membership of the Royal College of Veterinary Surgeons.
External Appointments: Lawson has been the Chairman of Viking Therapeutics Inc. since 2015, as well as the Chairman of the Nomination and Corporate Governance and a member of the Audit Committee. He is also a strategic adviser to several investment and private equity groups in both Europe and USA.
Senior Executive Team
The Senior Executive Team comprises the Executive Directors and the following:
Dr Susan Longhofer: Business Development and Regulatory Affairs Group Director
Background: Susan joined the Group in June 2005. A veterinarian with over 26 years' experience in the industry, she leads a team of approximately 50 staff around the globe responsible for registering new products and maintaining the registrations of our existing products. She has recently assumed a Business Development role searching out new products to continue to fill our product development pipeline. Prior to joining Dechra, Susan worked for Virbac Corporation, Heska Corporation and Merck Research Laboratories. Susan holds an MS and a DVM in Veterinary Science and is a Diplomate, American College of Veterinary Internal Medicine. She is located in Kansas, USA.
Mike Eldred: President North America
Background: Mike joined Dechra in 2004 and is responsible for Dechra Veterinary Products' North American business. Mike has more than 20 years' experience in the animal health sector, having held senior positions in business development, sales and operations at Virbac Corporation, Fort Dodge Animal Health and Sanofi Animal Health. As our first employee in the US, he has built the US and Canadian team to 169 people and with a strong Dechra culture has grown sales revenue to £148.4 million. Mike has also been involved in several commercial agreements and acquisitions for the Group including Pharmaderm, DermaPet, Phycox Animal Health and Putney. Mike has a BA in Business, and an MBA. He is located in Kansas, USA.
Katy Clough: Group HR Director
Background: Katy joined in April 2014 from AppSense Ltd where she was the Vice President of HR Europe and Rest of the World. With over 15 years operating at Director level within Software, Health, Travel and Finance industries, Katy brings with her a wealth of HR expertise gained in both blue chip corporates and smaller entrepreneurial companies. She has strong international, leadership and M&A experience and has taken responsibility for driving the global people agenda for the Dechra Group. She is located at Head Office, Northwich, UK.
Andrea Dodds: Group Marketing Director
Background: Andrea joined Dechra in October 2017 from Colgate-Palmolive, where she was Marketing Director for Regions in Latin America and Eurasia. She led the implementation of central marketing teams providing strategic and operational support to the regions' commercial teams.
Andrea brings extensive international experience gained in senior marketing roles including Colgate's Global Marketing in New York and Hill's Pet Nutrition in Europe and the USA. She developed and executed global product launch, branding and business development programmes. Prior to joining Colgate, she worked for Unilever and Beiersdorf and holds a BSc in Marketing, Engineering and IT. She is located in Sansaw, UK.
Melanie Hall: Company Secretary
Committee Membership: Disclosure
Background: Melanie joined Dechra in January 2010 as the Assistant Company Secretary, and was promoted to Deputy Company Secretary in May 2015 and Company Secretary in July 2017. Prior to joining Dechra she has gained over 25 years' experience in various company secretarial roles including at GKN plc, TRW Automotive Inc and Pendragon PLC. Melanie is a Fellow of the Institute of Chartered Secretaries and Administrators. She is located at the Head Office, Northwich, UK.
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||Bi-annual strategy review. Strategic decisions are made after reports and recommendations are received from management on markets, potential growth areas including acquisitions, product development and risk analysis, including execution risks.|
|Risk management and internal controls||Ongoing review of key risks and material internal control processes. Review of stress tests on the Group's forecasts to support the viability statement. Receipt of Audit Committee reports on risk management process and internal 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 unit reports and detailed financial result reports.|
|Governance||Receive governance reviews from external advisers, the Company Secretary and internal audit. Review of Board skills, performance, composition and succession planning.|
Matters Reserved for the Board
There is a formal schedule of matters reserved for the Board. The schedule of matters covers a number of areas including strategy, approval of acquisitions and business development proposals, the dividend policy, budget, internal controls and risk management and Group policies. Other matters have been delegated to the Board Committees, the SET and other committees such as the Data Protection Committee.
The schedule of matters are reviewed periodically and were last reviewed in July 2017 along with the Delegation of Authority Policy. The Delegation of Authority Policy defines who is authorised to make decisions on behalf of the Group and their authority limits for both monetary and non-monetary decisions.
The Board is scheduled to meet eight times per year. During the year, four additional meetings were held in relation to the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (the Acquisition). Attendance at the Board and Committee meetings during the year to 30 June 2018 is set out in the table below:
|Appointment Date||5 May|
Met 12 times
Met 7 times ‡
Met 2 times
Met 4 times
Met 4 times
† Tony Griffin did not attend an ad hoc Board meeting due to a prior commitment.
‡The Audit Committee met seven times, three of these were additional meetings held in relation to the Acquisition.
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:
- Appointment of the Disclosure Committee;
- Nutrition Strategy;
- Acquisition of RxVet Limited;
- Acquisition of Ast Farma B.V. and Le Vet Beheer B.V., including the approval of the shareholder circular and the financial structure of the acquisition;
- Medium term loan of up to £350.0 million;
- Diversity Policy;
- FRC Consultation on the Code;
- Schedule of Matters and Delegated Authorities; and
- Code of Conduct.
The Board has formally delegated specific responsibilities to Committees, namely the Audit, Remuneration and Nomination Committees. In addition, during the year it approved the establishment of a Disclosure Committee, whose members are the Chief Executive Officer, the Chief Financial Officer and the Company Secretary. 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||Main Responsibilities||Committee Report|
- To review and oversee the Group's financial and narrative reporting processes and to monitor the integrity of the financial statements, 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 and the work of the internal audit function.
- To oversee the relationship with and review the effectiveness of the external auditor, monitor their independence and objectivity, and set the policy for non-audit work.
- To review and approve the significant accounting policies.
|Letter from the Audit Committee Chairman and Audit Committee Report|
- To develop and maintain adequate procedures, systems and controls to enable the Company to comply with its obligations regarding identification and disclosure of inside information.
- To verify all significant regulatory announcements, the Annual Report and other documents issued by the Company comply with applicable requirements.
- 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.
- To approve the design of any employee share schemes.
|Letter from the Remuneration Committee Chairman and Directors' Remuneration Report|
- To oversee the plans for management succession.
- To recommend appointments to the Board.
- To evaluate the effectiveness of the Non-Executive Directors.
- 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 or delegated Board matters 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 forthcoming Annual General Meeting.
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. The Nomination Committee has retained an independent recruitment consultant, Dzaleta Consulting, to assist in the appointment of a further Non-Executive Director and it is anticipated a suitable appointment will be made before the end of 2018 calendar year.
The Nomination Committee Report provides further information on the Non-Executive Director recruitment process, 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
Conflicts of Interest and External Board Appointments
Under the Companies Act 2006 (the Act), 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. As permitted under the Act, the Articles of Association of the Company enable the Directors to consider and, if appropriate, authorise any actual or potential conflict of interest which could arise.
The Board has established procedures for the disclosure by Directors of any such conflicts, and also for the consideration and authorisation of these conflicts. Directors are required to submit any actual or potential conflicts of interest they may have with the Company to the Board. The non-conflicted Directors are able to impose limits or conditions when giving or reviewing authorisation. The Board reviews the Conflicts of Interest register annually and on an ad hoc basis when necessary. Any potential conflicts of interest are considered by the Board prior to the appointments of new Directors. During the financial year under review no actual conflicts have arisen.
Ian Page was the Non-Executive Chairman of Sanford DeLand Asset Management Limited (Sanford) until October 2017, when he resigned. 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 was not involved in any investment decision made by Sanford it was not considered that any conflict would arise, nor that there would 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, a Board meeting was held at the AST Farma/Le Vet facilities in Oudewater, the Netherlands. This meeting provided the Board with an informal opportunity to meet with senior management based at this site, as well as senior managers from DVP EU corporate office and the Bladel Site Director.
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 equity research reports. New Directors visit the various business units in order to allow them to meet with the management teams and to be shown around the operations. Lawson Macartney has continued his induction and has visited the Company's facilities and had meetings with the management teams at Sydney, Australia and Skipton, UK. He has also attended a field visit with a member of the UK Equine sales team, which provided an opportunity to observe the sales team's activity in the field and their day-to-day interaction with practicing veterinarians. An introduction to Remuneration Committee responsibilities was provided to Lawson by our remuneration advisors, Deloitte LLP.
Regular briefings are provided to the Directors, which cover a number of legal and regulatory changes and developments relevant to each 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.
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. 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 to ensure that they remain fit for purpose. The evaluation of the Board and its Committees, focuses 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.
- The 2017 Internal Board Evaluation
The findings of the internal evaluation were discussed at the July 2017 Board meeting. 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:
|Executive Director Succession Planning||Succession planning for Executive Directors was reviewed at the February meeting of the Nomination Committee|
|Non-Executive Director Induction||The comments received have been fed into the Induction programme and any gaps in the last induction have been addressed|
|Concise Board Papers||Work is still to be undertaken with regards to ensuring all Board papers are executive summaries and focus the Board on key issues|
- The 2018 External Board Evaluation
The last external evaluation was undertaken in 2014, however due to changes in the Board it was agreed to defer this until 2018. Independent Audit Limited (Independent Audit) was engaged to carry out an external evaluation of the Board and its Committees. The process undertaken by Independent Audit involved:
- a review of the Board and Committee minutes, agenda papers and ancillary documents;
- one to one meetings with each member of the Board, the Group HR Director, Head of Internal Audit and Assurance, and the Company Secretary. Prior to the meetings a list of 'focus items' was forwarded to each interviewee which included the role of the Board and its Committees, focus on strategic versus operational matters, the Chairman's leadership, relationships between Executive and Non-Executive Board members along with areas for discussion such as risk, Board composition and succession planning; and
- observing a Board meeting.
Following the interviews a comprehensive report was compiled for initial discussion with the Chairman, after which there was a presentation to the Board in relation to the various findings and suggested actions.
The findings were presented to the Board in May 2018, and were discussed further at the June 2018 meeting. Overall, the review indicated that the Board operates effectively, is robust and challenging but noted the following focus areas:
- Increase the diversity of the Board;
- Continue to develop the organisational design to meet future growth requirements;
- Concise Operational and Functional Board reports; and
- Bi-annual update on product pipeline and product development.
A report on the actions taken will be included in next year's Annual Report.
Independent Audit has performed no other services for the Board. The Board will perform a further external evaluation in three years' time. Internal evaluations will be completed during the intervening period.
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 Directors have a reasonable expectation that the Group has 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.
In reaching this conclusion the Directors have given due regard to the following:
- the Group's business activities together with factors likely to impact the future growth and operating performance;
- the financial position of the Group, its cash flows, available debt facilities and compliance with the financial covenants associated with the Group's borrowings, which are described in the financial statements; and
- the cash generated from operations, available cash resources and committed bank facilities and their maturities, which taken together provide confidence that the Group will be able to meet its obligations as they fall due.
As at 30 June 2018 the Group had cash balances of £79.7 million and net borrowings of £211.4 million (2017: cash balances of £61.2 million and net borrowings of £120.0 million). Further information on available resources and committed bank facilities is provided in notes 18 and 21 to the financial statements.
As reported last year the Group completed a refinancing and entered into a facilities agreement in July 2017 (the Facility Agreement) with a group of banks comprising Bank of Ireland (UK) plc, BNP Paribas, Fifth Third Bank, HSBC Bank plc, Lloyds Bank plc, Raiffeisen Bank International AG and Santander UK plc (the Banks). The Facility Agreement includes a committed revolving credit facility of £235.0 million, together with an 'Accordion' facility of £125.0 million. The facility is committed for five years until July 2022 with two optional one year extensions, the first of which was exercised in June 2018. The facility is now committed until July 2023.
In January 2018, the Group entered into a £350.0 million multi-currency term loan facility (Term Loan) with BNP Paribas Fortis SA/NV, Fifth Third Bank, HSBC Bank plc, Santander UK plc and Lloyds Bank plc, with the loans made or to be made under the Term Loan to be applied towards the acquisition of AST Farma and Le Vet and any other permitted acquisitions. All parties, terms and conditions are the same as the existing £235.0 million Facility Agreement. The maturity date on the Term Loan is 31 December 2020. The Term Loan had an initial drawdown period expiring on 30 June 2018, this has been subsequently extended to 31 December 2018.
Assessment of Prospects
Dechra has consistently delivered on its strategic objectives resulting in a strong track record of growth. The Group's strategy remains unchanged and is set out in Delivering Our Strategy of the Strategic Report. The key factors supporting the Group's prospects are explained throughout the Annual Report and are summarised below:
- a clear strategic focus;
- a growing global animal health market;
- a clear portfolio focus with strong market positions in a number of key therapeutic areas;
- a strong development pipeline and a track record of pipeline delivery;
- manufacturing flexibility, with a wide range of dosage forms, small and large scale production batches;
- an entrepreneurial and experienced management team;
- a recognised brand with a strong reputation for providing high quality products with technical support;
- an expanding international focus;
- talented people and expertise; and
- a sound track record of successful acquisitions to expand our product portfolio and geographic reach.
The Board believes that the Group has adequate resilience due to its diversified product portfolio, its geographic footprint, a strong balance sheet, healthy cash generation and access to external financing, which includes committed facilities.
The Assessment Process and Key Assumptions
The Group's prospects are assessed primarily through its strategic and financial planning processes over a five year time period. The strategic plan is supported by a five year financial plan, which are updated annually by the SET and reviewed by the Board. The Board also reviews the Group's principal risks on a rolling basis throughout the year, based on updates from SET members.
The planning process considers risks to sales and cost forecasts for each part of the Group, the Group's consolidated income and cash flow forecasts, and includes key assumptions to support longer term projections. The financial plans are reviewed to ensure that adequate financing facilities are in place for the period of the plan.
Progress against financial budgets, forecasts and key business objectives are reviewed through monthly business performance reviews at both Group and business unit levels. Mitigating actions are taken to address under performance.
The latest updates to the plans were reviewed in June 2018 and considered the Group's current position, its future prospects and reaffirmed the Group's stated strategy.
Assessment of Viability and Time Period
The Board has determined that a three year period to 30 June 2021 is an appropriate period over which to provide its viability statement. This time period is supported by the Group's budget process, which includes detailed projections for the next two financial years, and broader projections from the third year of the five year strategic planning process. The Board believes this provides a sound framework for providing reasonable assurance on the Group's viability given the inherent uncertainty associated with longer term forecasts.
The Board's assessment has been made with due regard to the Group's current position, its future prospects, the strategic plan and the management of the Group's principal risks. The viability assessment takes account of all the committed expenditure of the Group.
Although the output of the Group's strategic and financial planning processes reflects the Board's best estimate of the future prospects of the business, the Group has also conducted stress testing to assess the liquidity impact of a range of alternative scenarios.
These scenarios have been developed by considering those principal risks that could have a material impact on viability. The potential impact of each principal risk is described in Understanding Our Key Risks and can be summarised into two broad categories, namely loss of profits on key products and product pipeline delays. A number of severe but plausible stress tests have been conducted on these areas including a significant pipeline delay; significant profit reduction on top five manufactured products; significant decline in forecast antibiotic sales; loss of key purchased products and loss of key in-licensed products. A combination of the individual scenarios and an overall reverse stress test on the Group's borrowing facilities and covenant commitments have also been considered.
The Board believes the results of the stress testing demonstrate that the Group should be able to withstand the impact in each case due to its strong cash generation, strong balance sheet, and existing financing arrangements.
Based on the results of this analysis and the assumptions used in the Group's planning process, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period from 30 June 2018.
Internal Control and Risk Management
The Board retains overall responsibility for determining the nature and extent of the risks it is willing to take in achieving its strategic objectives.
In accordance with the Code, the Board is responsible for reviewing the effectiveness of the Group's risk management and internal control systems, and confirms that:
- there is an ongoing process for identifying, assessing, managing and monitoring the Group's principal risks;
- the SET's assessment of the principal risks is considered to be robust and those risks that have the potential to impact liquidity have been considered in the assessment of the Group's viability;
- the principal risks and internal control processes have been monitored by the SET throughout the year and reviewed by the Board on a rolling programme throughout the year; and
- no significant failings or weaknesses in internal control processes have been identified.
Based on its review throughout the year, the Board is satisfied that the risk management and internal control systems in place remain effective and provide reasonable but not absolute assurance that the Group will be successful in delivering its objectives.
Further information on how the business manages risk can be found in the Strategic Report in How the Business Manages Risk.
Relations with Shareholders and Other Stakeholders
Dialogue with Institutional Shareholders
Relationships with shareholders receive high priority and a rolling programme of meetings between institutional shareholders and the Chief Executive Officer and Chief Financial Officer have been held throughout the year (a summary of the main events are shown below).
|Full Year: London and Edinburgh||September 2017|
|Half Year: London and Edinburgh||February/March 2018|
|US: New York||November 2017|
|France: Paris||November 2017|
|Germany: Dusseldorf and Frankfurt||December 2017|
|Switzerland: Zurich||December 2017|
|Investor Meetings and Calls|
|Acquisition and Placing||January 2018|
(Chief Financial Officer only)
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 other communications between the Company and other parties such as financial analysts, brokers and the media.
Feedback is collated by the Company's brokers after Investor Presentations. The feedback is circulated to the Board for review and consideration. In addition, the Board is provided with market summary reports which detail 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.
The Chairman and Senior Independent Director are available to meet shareholders upon request.
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. 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.
Engagement with Other Stakeholders
Code of Conduct
The Company's Values and culture help drive the Group's success, encapsulate its business ethics and set the standards under which the Group operates. During the year the Board approved a refreshed Code of Conduct, which now provides an overview of all of the standards under which the business operates into one document.
Health and Safety
The Board attaches great importance to the health and safety of its employees. Twice a year a comprehensive health and safety report is provided to the Board for its review.
The Board believes that the Group's employees are its greatest asset. The results of the Group's first employee engagement survey was presented by the Group HR Director at the June meeting. During the forthcoming year, the Board will be kept informed of the progress made in relation to any focus areas identified.
The Board has considered how best to address the new Code's requirement for Board engagement with employees and is currently recruiting a further Non-Executive Director to fulfil this requirement.
Further information in relation to the Group's Code of Conduct, Health and Safety, employee engagement and engagement with its other stakeholders can be found in the Corporate Social Responsibility report.
3 September 2018