Independent Auditor's Report - Dechra Pharmaceuticals PLC Annual Report 2018

Report on the Audit of the Financial Statements

Opinion

In our opinion:

Dechra Pharmaceuticals PLC's Group financial statements and Company financial statements (the Financial Statements) give a true and fair view of the state of the Group's and of the Company's affairs as at 30 June 2018 and of the Group's profit and cash flows for the year then ended;
the Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;
the Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law); and
the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.

We have audited the Financial Statements, included within the Annual Report and Accounts (the Annual Report), which comprise: the Consolidated and Company Statements of Financial Position as at 30 June 2018; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated Statement of Cash Flows; the Consolidated and Company Statements of Changes in Shareholders' Equity for the year then ended; and the Notes to the Financial Statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Company.

Other than those disclosed in note 7 to the Financial Statements, we have provided no non-audit services to the Group or the Company in the period from 1 July 2017 to 30 June 2018.

Our Audit Approach

Overview

	Overall Group materiality: £2.3 million (2017: £2.6 million). In determining overall Group materiality, we have considered a range of benchmarks that may be appropriate in the Group's circumstances and which are used to assess the performance of the Group. These include Group Revenue, Group Profit before tax and Group Profit before tax adjusted for non-recurring items. Applying our professional judgement, we determined Group overall materiality to be £2.3 million. Overall Company materiality: £2.4 million (2017: £1.2 million) based on 0.5% of net assets.
	Following our assessment of the risks of material misstatement of the Consolidated Financial Statements we performed audits of the complete financial information of 22 reporting units. In addition the Group engagement team audited the Company and certain centralised functions, including those covering the Group treasury operations, corporate taxation, and goodwill and intangible asset impairment assessments. The components on which audits of the complete financial information and centralised work was performed accounted for 91% of Group revenue and 73% of Group profit before tax. As part of our supervision process, the Group engagement team have visited significant components, in addition to performing the audits of the in scope UK reporting locations.
	Our assessment of the risk of material misstatement also informed our views on the areas of particular focus of our work which are listed below: Business combinations – assessment of the acquisition accounting in respect of Le Vet Beheer B.V. and AST Farma B.V. Impairment of intangible assets – assessment of the carrying value of acquired intangible assets and other relevant assets. Licensing agreements – recognition and subsequent remeasurement of acquired intangible assets in respect of licensing agreements. Taxation – assessment of uncertain tax provisions.

The Scope of Our Audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the Financial Statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at Group and significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the Group and Company financial statements, including, but not limited to, the Companies Act 2006, the Listing Rules, Pensions legislation and UK tax legislation. Our tests included, but were not limited to, review of the financial statement disclosures to underlying supporting documentation, review of correspondence with and reports to the regulators, review of correspondence with legal advisers, enquiries of management, review of significant component auditors' work and review of internal audit reports. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.

We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.

Key Audit Matters

Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the Financial Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Key audit matter	How our audit addressed the key audit matter
Business combinations – assessment of the acquisition accounting in respect of Le Vet Beheer B.V. and AST Farma B.V. Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 32 (Acquisitions). The Group completed the acquisition of Le Vet Beheer B.V. ("Le Vet") and AST Farma B.V. ("AST Farma") on 13 February 2018. We focused on this area because the accounting for business combinations including the opening balance sheet position is inherently judgemental. IFRS 3 (revised) requires that consideration is given to the existence and measurement of separable identifiable intangible assets that have been acquired as part of each respective acquisition agreement. For the acquisition of Le Vet and AST Farma, significant value has been attributed to the developed technology, brand, the non-compete agreement, right of first refusal to future products developed externally and in process research and development, the recognition of which is dependent on cash flow forecasts including future business growth, product development and the application of an appropriate discount rate, all of which are subjective. The calculation of deferred tax liabilities arising on the identifiable intangible assets is reliant on the correct application of local tax rates.	We reviewed management's assessment of the acquired assets and liabilities to ensure that the identification process was complete and accurate. We obtained the cash flow forecasts supporting the valuation of those intangible assets identified and agreed that these were consistent with those approved by the Board as part of the acquisition process. In addition, we performed look-back tests to assess the accuracy of the Group's forecasts and assumptions, and performed sensitivity analysis over the key assumptions to determine if they could have a significant impact over the value recorded. We assessed the validity of new products being made available for sale through independent research as to the accessibility and marketability of similar products. We engaged our valuation specialists who confirmed that the methodology used to value each intangible asset is in line with expectation. They benchmarked within a reasonable range that the growth assumptions were in line with industry expectation and the specific geographical locations in which the business operates. Our valuation specialists also agreed that the discount rates were consistent with those applied by companies of comparable size, geographical spread and within the relevant industry. For the remaining fair values of other assets and liabilities acquired, we performed substantive testing to verify the existence, accuracy and completeness of material assets and liabilities. Additionally, we reviewed the disclosure note associated with the acquisition and confirmed that this was appropriate. We recalculated the deferred tax liabilities arising on the acquired intangibles assets and agreed that relevant tax rates have been used.
Impairment of intangible assets - assessment of the carrying value of acquired intangible assets and other relevant assets. Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 12 (Intangible assets). The Directors' exercise judgement as to whether impairment triggers, which require a full impairment assessment to be performed, have been identified in relation to intangible assets. Where a full impairment assessment is required to support the carrying value of the assets held, the Directors' have prepared a discounted cash flow which includes a number of assumptions. The assumptions which is deemed to be the most significant in these forecasts is in respect of the future performance of products. The long term growth and discount rate are also considered to be subjective.	We reviewed the recent financial performance of individual products and held discussions with management in respect of future market conditions to identify any potential indicators of impairment. We reviewed management's impairment model and reperformed all calculations within the discounted cash flow. We agreed that the current and future revenue forecasts used as the basis of the model are consistent with previous performance. Valuation specialists were utilised to benchmark, within a reasonable range, the growth and discount rate assumptions to economic and industry averages and the cost of capital for other comparable companies respectively. We assessed the sufficiency of headroom through the performance of sensitivity analysis on key assumptions, confirming that an impairment is not reasonably possible.
Licensing agreements – recognition and subsequent remeasurement of acquired intangible assets in respect of licensing agreements. Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 12 (Intangible assets). New in-licensing agreements On 31 March 2018, an exclusive licence and distribution agreement to market and supply a number of equine vaccines within the Group's European territories was acquired. The in-licensing agreement has been recorded at cost and will be amortised on a straight line basis over 8 to 10 years, dependent upon the first product launch in accordance with the terms of the contract. On 1 June 2018, a licence distribution agreement for an injectable solution was acquired. The in-licensing agreement has been recorded at cost and will be amortised straight line over the period of the contract of 15 years from the date of FDA approval. The milestone and other payments of each contract are forecast to reflect the probability of successful product launch and subsequent performance under the contractual terms of each agreement. The future payments are contingent on these factors and therefore represent an area of judgement. Remeasurement of existing agreements During the year related liabilities in respect of the exclusive distribution agreement for StrixNB and DispersinB with Kane Biotech Inc. and the in-licensing agreement with Animal Ethics Pty Ltd for Tri-Solfen® were reassessed for the timing and quantum of future contingent cash flows. The variability of the timing and quantum of the future cashflows represents an area of judgement.	New in-licensing agreements - We obtained management's model and reperformed the calculations forming the basis of the valuation. We have performed sensitivities on the expected timing of contractual milestones and agreed that those adopted are consistent with those approved by the Board. Through the performance of sensitivity analysis, we have confirmed that a material misstatement is not reasonably possible. Our valuation specialists also agreed that the discount rate was consistent to those applied by other companies of comparable size, geographical spread and within the relevant industry. Remeasurement of existing agreements - We have assessed the changes made to the assumptions underpinning the in-licensing agreements with Kane Biotech Inc. and Animal Ethics Pty Ltd. In doing so we corroborated the revised cash flow assumptions to updated forecasts and performed sensitivity analysis to take into consideration reasonably possible alternatives.
Taxation - assessment of uncertain tax provisions. Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 9 (Income Tax Expenses). The Group operates in a complex multi-national tax environment and there are open tax matters and areas of judgement with various overseas tax authorities. In addition, from time to time the Group enters into commercial transactions with complicated accounting and tax consequences. Judgement is required in assessing the level of provisions required in respect of uncertain tax provisions.	In conjunction with our UK, US and international tax specialists, we evaluated and challenged management's judgements in respect of estimates of tax exposures and contingencies in order to assess the adequacy of the Group's tax provisions. This included obtaining and evaluating certain third party tax advice that the Group has obtained to assess the appropriateness of any assumptions used. In understanding and evaluating management's judgements, we considered the status of recent and current tax authority audits and enquiries, the outturn of previous claims, judgemental positions taken in tax returns and current year end estimates and developments in the tax environment. We noted that due to the varying assumptions and judgements that are required to formulate the provisions there are a number of possible outcomes. However, based on the evidence obtained, we consider the level of provisioning and related disclosure to be acceptable in the context of the Group Financial Statements taken as a whole.

Key audit matter

How our audit addressed the key audit matter

Business combinations – assessment of the acquisition accounting in respect of Le Vet Beheer B.V. and AST Farma B.V.

Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 32 (Acquisitions).

The Group completed the acquisition of Le Vet Beheer B.V. ("Le Vet") and AST Farma B.V. ("AST Farma") on 13 February 2018.

We focused on this area because the accounting for business combinations including the opening balance sheet position is inherently judgemental.

IFRS 3 (revised) requires that consideration is given to the existence and measurement of separable identifiable intangible assets that have been acquired as part of each respective acquisition agreement. For the acquisition of Le Vet and AST Farma, significant value has been attributed to the developed technology, brand, the non-compete agreement, right of first refusal to future products developed externally and in process research and development, the recognition of which is dependent on cash flow forecasts including future business growth, product development and the application of an appropriate discount rate, all of which are subjective.

The calculation of deferred tax liabilities arising on the identifiable intangible assets is reliant on the correct application of local tax rates.

We reviewed management's assessment of the acquired assets and liabilities to ensure that the identification process was complete and accurate.

We obtained the cash flow forecasts supporting the valuation of those intangible assets identified and agreed that these were consistent with those approved by the Board as part of the acquisition process. In addition, we performed look-back tests to assess the accuracy of the Group's forecasts and assumptions, and performed sensitivity analysis over the key assumptions to determine if they could have a significant impact over the value recorded. We assessed the validity of new products being made available for sale through independent research as to the accessibility and marketability of similar products.

We engaged our valuation specialists who confirmed that the methodology used to value each intangible asset is in line with expectation. They benchmarked within a reasonable range that the growth assumptions were in line with industry expectation and the specific geographical locations in which the business operates. Our valuation specialists also agreed that the discount rates were consistent with those applied by companies of comparable size, geographical spread and within the relevant industry.

For the remaining fair values of other assets and liabilities acquired, we performed substantive testing to verify the existence, accuracy and completeness of material assets and liabilities.

Additionally, we reviewed the disclosure note associated with the acquisition and confirmed that this was appropriate.

We recalculated the deferred tax liabilities arising on the acquired intangibles assets and agreed that relevant tax rates have been used.

Impairment of intangible assets - assessment of the carrying value of acquired intangible assets and other relevant assets.

Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 12 (Intangible assets).

The Directors' exercise judgement as to whether impairment triggers, which require a full impairment assessment to be performed, have been identified in relation to intangible assets.

Where a full impairment assessment is required to support the carrying value of the assets held, the Directors' have prepared a discounted cash flow which includes a number of assumptions. The assumptions which is deemed to be the most significant in these forecasts is in respect of the future performance of products. The long term growth and discount rate are also considered to be subjective.

We reviewed the recent financial performance of individual products and held discussions with management in respect of future market conditions to identify any potential indicators of impairment.

We reviewed management's impairment model and reperformed all calculations within the discounted cash flow. We agreed that the current and future revenue forecasts used as the basis of the model are consistent with previous performance. Valuation specialists were utilised to benchmark, within a reasonable range, the growth and discount rate assumptions to economic and industry averages and the cost of capital for other comparable companies respectively. We assessed the sufficiency of headroom through the performance of sensitivity analysis on key assumptions, confirming that an impairment is not reasonably possible.

Licensing agreements – recognition and subsequent remeasurement of acquired intangible assets in respect of licensing agreements.

Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 12 (Intangible assets).

New in-licensing agreements
On 31 March 2018, an exclusive licence and distribution agreement to market and supply a number of equine vaccines within the Group's European territories was acquired.

The in-licensing agreement has been recorded at cost and will be amortised on a straight line basis over 8 to 10 years, dependent upon the first product launch in accordance with the terms of the contract.

On 1 June 2018, a licence distribution agreement for an injectable solution was acquired.

The in-licensing agreement has been recorded at cost and will be amortised straight line over the period of the contract of 15 years from the date of FDA approval.

The milestone and other payments of each contract are forecast to reflect the probability of successful product launch and subsequent performance under the contractual terms of each agreement. The future payments are contingent on these factors and therefore represent an area of judgement.

Remeasurement of existing agreements
During the year related liabilities in respect of the exclusive distribution agreement for StrixNB and DispersinB with Kane Biotech Inc. and the in-licensing agreement with Animal Ethics Pty Ltd for Tri-Solfen® were reassessed for the timing and quantum of future contingent cash flows. The variability of the timing and quantum of the future cashflows represents an area of judgement.

New in-licensing agreements - We obtained management's model and reperformed the calculations forming the basis of the valuation.

We have performed sensitivities on the expected timing of contractual milestones and agreed that those adopted are consistent with those approved by the Board. Through the performance of sensitivity analysis, we have confirmed that a material misstatement is not reasonably possible.

Our valuation specialists also agreed that the discount rate was consistent to those applied by other companies of comparable size, geographical spread and within the relevant industry.

Remeasurement of existing agreements - We have assessed the changes made to the assumptions underpinning the in-licensing agreements with Kane Biotech Inc. and Animal Ethics Pty Ltd. In doing so we corroborated the revised cash flow assumptions to updated forecasts and performed sensitivity analysis to take into consideration reasonably possible alternatives.

Taxation - assessment of uncertain tax provisions.

Refer to the Audit Committee Report, the critical accounting estimates and judgements in note 1 (b) to the accounts, and note 9 (Income Tax Expenses).

The Group operates in a complex multi-national tax environment and there are open tax matters and areas of judgement with various overseas tax authorities. In addition, from time to time the Group enters into commercial transactions with complicated accounting and tax consequences.

Judgement is required in assessing the level of provisions required in respect of uncertain tax provisions.

In conjunction with our UK, US and international tax specialists, we evaluated and challenged management's judgements in respect of estimates of tax exposures and contingencies in order to assess the adequacy of the Group's tax provisions. This included obtaining and evaluating certain third party tax advice that the Group has obtained to assess the appropriateness of any assumptions used.

In understanding and evaluating management's judgements, we considered the status of recent and current tax authority audits and enquiries, the outturn of previous claims, judgemental positions taken in tax returns and current year end estimates and developments in the tax environment. We noted that due to the varying assumptions and judgements that are required to formulate the provisions there are a number of possible outcomes. However, based on the evidence obtained, we consider the level of provisioning and related disclosure to be acceptable in the context of the Group Financial Statements taken as a whole.

We determined that there were no key audit matters applicable to the Company to communicate in our report.

How we Tailored the Audit Scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial Statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.

The Group is structured along three segments being European Pharmaceuticals, North American Pharmaceuticals and Pharmaceuticals Research and Development, with each division set up to manage operations on both a regional and functional basis, consisting of a number of reporting units.

The Group Financial Statements are a consolidation of 54 active reporting units comprising the Group's operating businesses and centralised functions. These reporting units maintain their own accounting records and controls and report to the head office finance team in the UK.

Accordingly, of the Group's 54 active reporting units we identified 22 which, in our view, required a full audit of their complete financial information in order to ensure that sufficient audit evidence was obtained. The reporting units on which a full audit of their complete financial information was performed accounted for 91% of Group revenue and 73% of adjusted profit before tax. Of these reporting units, 20 were considered to be significant components due to their size or risk characteristics, being those units located in the UK, the USA, Denmark and the Netherlands.

The Group consolidation, Financial Statements disclosures and a number of centralised functions were audited by the Group engagement team at the head office. These included, but were not limited to, central procedures on treasury operations, UK and corporate taxation and goodwill and intangible asset impairment assessments. We also performed Group level analytical procedures on all of the remaining out of scope active reporting units to identify any unusual transactions. The Company was also subject to a full scope audit.

Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting component units. As a result, all overseas significant components in the USA, Denmark and the Netherlands were visited by senior members of the Group audit team, whilst the Group engagement team were responsible for the audit of all in scope UK reporting units. In addition, the Group audit team were in contact at each stage of the audit, in line with detailed instructions issued and through global planning calls and further regular written communication. Specifically, for all component teams, the Group team discussed in detail the planned audit approach at the component level, were in attendance at local audit close meetings and following independent review, discussed the detailed reported findings of the audit with each component team.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual Financial Statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the Financial Statements as a whole.

Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:

	Group Financial Statements	Company Financial Statements
Overall materiality	£2.3 million (2017: £2.6 million).	£2.4 million (2017: £1.2 million).
How we determined it	In determining overall Group materiality, we have considered a range of benchmarks that may be appropriate in the Group's circumstances and which are used to assess the performance of the Group. These include Group Revenue, Group Profit before tax and Group Profit before tax adjusted for non-recurring items. Applying our professional judgement, we determined overall Group materiality to be £2.3 million.	0.5% of net assets.
Rationale for benchmark applied	We believe that profit before tax adjusted for non-recurring items provides a consistent basis for determining materiality as it eliminates the impact of these items which fluctuate year on year and can have a disproportionate impact on the Consolidated Income Statement.	The Company is the ultimate holding Company of the Dechra Group of Companies and with no trading activity, net assets is considered to be the primary measure used by the shareholders in assessing the performance of the entity, and is a generally accepted auditing benchmark.

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £0.015 million and £1.9 million. Certain balances within the Company were within the scope for the Group audit and audited to a lower component materiality, whilst the Company's financial statements as a whole were audited to a materiality of £2.4 million.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2 million (Group audit) (2017: £0.1 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Going Concern

In accordance with ISAs (UK) we report as follows:

Reporting obligation	Outcome
We are required to report if we have anything material to add or draw attention to in respect of the Directors' Statement in the Financial Statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements and the Directors' identification of any material uncertainties to the Group's and the Company's ability to continue as a going concern over a period of at least 12 months from the date of approval of the Financial Statements.	We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's and Company's ability to continue as a going concern.
We are required to report if the Directors' statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.	We have nothing to report.

Reporting obligation

Outcome

We are required to report if we have anything material to add or draw attention to in respect of the Directors' Statement in the Financial Statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements and the Directors' identification of any material uncertainties to the Group's and the Company's ability to continue as a going concern over a period of at least 12 months from the date of approval of the Financial Statements.

We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's and Company's ability to continue as a going concern.

We are required to report if the Directors' statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

We have nothing to report.

Reporting on Other Information

The other information comprises all of the information in the Annual Report other than the Financial Statements and our auditors' report thereon. The Directors are responsible for the other information. Our opinion on the Financial Statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the Financial Statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report, Directors' Report and Corporate Governance Statement, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).

Strategic Report and Directors' Report

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the year ended 30 June 2018 is consistent with the Financial Statements and has been prepared in accordance with applicable legal requirements. (CA06)

In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors' Report. (CA06)

Corporate Governance Statement

In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement about internal controls and risk management systems in relation to financial reporting processes and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA ("DTR") is consistent with the Financial Statements and has been prepared in accordance with applicable legal requirements. (CA06)

In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement with respect to the Company's corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)

We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the Company. (CA06)

The Directors' Assessment of the Prospects of the Group and of the Principal Risks that Would Threaten the Solvency or Liquidity of the Group

We have nothing material to add or draw attention to regarding:

The Directors' confirmation in the Corporate Governance Statement of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
The Directors' explanation in the Corporate Governance Statement of the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing to report having performed a review of the Directors' statement that they have carried out a robust assessment of the principal risks facing the Group and statement in relation to the longer term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making enquiries and considering the Directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the Code); and considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules)

Other Code Provisions

We have nothing to report in respect of our responsibility to report when:

The statement given by the Directors, in the Audit Committee Report, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group's and Company's position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing our audit.
The section of the Annual Report in the Audit Committee Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.
The Directors' statement relating to the Company's compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.

Directors' Remuneration

In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06)

Responsibilities for the Financial Statements and the Audit

Responsibilities of the Directors for the Financial Statements

As explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the Financial Statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.

In preparing the Financial Statements, the Directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditors' Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.

A further description of our responsibilities for the audit of the Financial Statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.

Use of this Report

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other Required Reporting

Companies Act 2006 Exception Reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

we have not received all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
certain disclosures of Directors' remuneration specified by law are not made; or
the Company Financial Statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Audit Committee, we were appointed by the Directors on 23 October 2015 to audit the Financial Statements for the year ended 30 June 2016 and subsequent financial periods. The period of total uninterrupted engagement is three years, covering the years ended 30 June 2016 to 30 June 2018.

Andrew Hammond (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
3 September 2018

The maintenance and integrity of the Dechra Pharmaceuticals PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Independent Auditor's Report to the Members of Dechra Pharmaceuticals PLC