2018 Annual Report on Remuneration

The following section provides detail of remuneration earned by the Directors during the year in line with the Directors' Remuneration Policy approved by the shareholders at the Annual General Meeting held on 20 October 2017, along with details of how the Policy will be applied in the 2019 financial year. PricewaterhouseCoopers LLP (PwC) have audited the Letter from the Remuneration Committee Chairman and this Directors' Remuneration Report unless indicated otherwise.

Single Total Figure of Remuneration

The table below sets out the total remuneration for each person who has served as a Director in the period ended 30 June 2018. The table shows the remuneration for each such person in respect of the year ended 30 June 2018 and the year ended 30 June 2017:

Please note the following methodologies have been used in respect of the above table:

1. Salaries & Fees – this is the cash paid or received in respect of the relevant period.
2. Benefits – this represents the taxable value of all benefits paid or received in respect of the relevant period. The benefits provided include the use of a fully expensed car, medical cover and life assurance. The amount for Richard Cotton in 2017 includes a one-off relocation allowance of £15,000. SAYE options granted in the year have also been included in the benefits column. These have been valued using the fair value as per note 28 to the Group's financial statements.
3. Annual Bonus – this is the amount of cash bonus paid in respect of the financial year.
4. Long Term Incentives – this is the value of any long term incentives vesting where the performance period ended in the relevant period.
5. Pension – this is the cash value of the employer contribution to the Group stakeholder personal pension scheme or, in the case of Tony Griffin, defined contribution pension plan plus the value of any salary supplement paid.
6. The 2017 value assigned to the long term incentives for Ian Page and Tony Griffin was shown in last year's Annual Report as an estimate, with the value determined by reference to a share price of £17.741 (being the average market value of a share over the last quarter of the Company's financial period ended on 30 June 2017). This has been restated to show the actual value determined by reference to a price of £20.44 (being the market value of a share on 15 September 2017, the date of vesting).
7. Richard Cotton was appointed on 3 January 2017.
8. Tony Griffin's remuneration is paid in Euros but reported in Sterling for the purpose of this table. The exchange rate used for this purpose was 1.1681 for 2017 and 1.1286 for 2018. His salary was €341,144 for 2018 (reflecting two months at a salary of €334,182 and ten months at a salary of €342,537) and €332,560 for 2017 (reflecting two months at a salary of €324,449 and ten months at a salary of €334,182).
9. Tony Rice was appointed to the Board on 5 May 2016 and to the office of Chairman on 21 October 2016.
10. Lawson Macartney was appointed on 1 December 2016.

Additional Disclosures in Respect of the Single Figure Table

Salaries and Fees

As disclosed in the Directors' Remuneration Report in the 2017 Annual Report, the Executive Directors' base salaries were reviewed in September 2017 in order that the review is aligned with the performance development review calendar to provide a clearer link between performance and reward. Ian Page notified the Committee that he did not wish to be considered for a salary increase in 2018.

Following that review, Richard Cotton's and Tony Griffin's salaries were increased by 2.5%, to £358,750 and €342,537 respectively, with effect from 1 September 2017, broadly in line with the average range of increases awarded to employees in the wider Group.

The Committee's approach to Executive Directors' salaries for the year ending 30 June 2019 is summarised in the Directors' Remuneration Report.

The Chairman and other Non-Executive Directors are paid a fee for their role. The Senior Independent Director and the chairmen of the Remuneration Committee and Audit Committee receive an additional fee for those roles. As disclosed in the Directors' Remuneration Report in the 2017 Annual Report, no changes were made to any of the fees for the year ended 30 June 2018. Accordingly, the fees for the year ended 30 June 2018 were the same for the year ended 30 June 2017, as follows:

The approach to the Chairman's and Non-Executive Directors' fees for the year ending 30 June 2019 is summarised in the Directors' Remuneration Report.

Annual Bonus

The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the Committee in respect of the 2018 financial year having regard to the performance of the Group and personal performance objectives for the year.

The amount achieved for the year ended 30 June 2018 against targets for the 2018 financial year is as follows:

¹ The Committee considered the effect of the financing of the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (the Acquisition), including in particular the impact on the underlying profit before tax if the Acquisition had been purely financed by cash rather than 25% in equity and 75% in cash as well as taking into account that £102.3 million of the cash was obtained via the placing of shares. The Committee concluded that if the Acquisition had been funded solely by cash, the interest associated with the debt financing would have made a minimal impact on the underlying profit before tax figure and it would not have affected the resulting payment of 66% of salary.

² The Committee considers that the objectives for the forthcoming financial year (2019) are commercially sensitive as they give our competitors insight into our business plans and therefore are not detailed in this report. They will be disclosed in the 2019 Annual Report & Accounts.

The personal objectives of each Executive Director for the year ended 30 June 2018 are set on an individual basis and are closely linked to the corporate, financial, strategic and other non-financial objectives of the Company. This enables the Committee to reward the Executive Directors' contribution to both the annual financial performance and the achievement of specific objectives. A summary of the objectives is set out below along with a description of the performance against them. The Committee reviewed the performance of each Executive Director against their specific objectives based on a report by the Chief Executive Officer and with respect to the Chief Executive Officer, a report by the Chairman.

Based on the above assessment against objectives set, the Committee determined that the performance of Ian Page and Richard Cotton warranted maximum payout in relation to the non-financial elements of their respective bonuses. Tony Griffin warranted a payout of 8% in relation to the non-financial elements of his bonus. The Committee's approach to Executive Directors' annual bonus opportunities for the year ending 30 June 2019 is summarised in the Directors' Remuneration Report.

LTIP Awards Vesting in Respect of the Year Ended 30 June 2018

The LTIP awards granted on 15 September 2015 are due to vest on 15 September 2018. Ian Page and Tony Griffin were granted LTIP Awards on 15 September 2015, the performance targets for which are as follows: 50% of the award is subject to a performance condition based on the Company's total shareholder return (TSR) performance over the performance period relative to the constituent companies of the FTSE 250 index (excluding investment trusts) over the performance period as follows:

50% of each award is subject to a performance condition based on the growth in the Company's underlying diluted earnings per share (EPS) over the performance period as follows:

* This reflects the EPS performance requirement for maximum vesting as increased by the Committee, from the original level of 13%, to reflect the acquisition of Putney, as disclosed in the Directors' Remuneration Report for the 2016 financial year.

Both the TSR element and the EPS element are subject to an additional return on capital employed (ROCE) performance measure. Unless the Group's ROCE is 10% or more in the final year of the performance period, the awards will lapse in full regardless of TSR and EPS performance. The percentage vesting will be reduced by 10% for every 1% that ROCE falls below 15%.

The Company's TSR performance was over 185.6% compared with a 51.1% TSR for the upper quartile company in the comparator group (FTSE 250 Index (excluding investment trusts)). Therefore 100% of the TSR element will vest. In addition, the compound annual growth in the Group's underlying diluted EPS for the performance period was 24.2%. Accordingly, 100% of the EPS element will vest. Overall, taking into account that ROCE performance for 2018 was 15.4%, the LTIP awards will vest as to 100% of maximum opportunity. In the single figure table in the Directors' Remuneration Report, the value attributable to this award is calculated by multiplying the number of shares in respect of which the award is expected to vest by £27.707 (being the average market value of a share over the last quarter of the Company's financial period ended on 30 June 2018).

Recruitment Award for Richard Cotton

As disclosed in the Directors' Remuneration Report for the 2016 financial year, as part of his recruitment, the Committee agreed to award Richard two 'buyout' awards in respect of incentives forfeited as a consequence of joining Dechra. Each award was over shares with a value of £350,000 at the date of grant, 7 March 2017.

The vesting of the first of those awards was subject to a performance condition based on the Chief Executive Officer's assessment of his performance during the first year of his appointment (3 January 2017 to 3 January 2018). Based on the Chief Executive Officer's assessment of his performance over this period, the award vested as to 100% on 3 January 2018. In the single figure table in the Directors' Remuneration Report the value attributable to this award is calculated by multiplying the number of shares in respect of which the award vested (21,033) by £20.64 (being the mid market value of a share on 3 January 2018).

The vesting of the second award was subject to the same performance conditions as those applying to the LTIP awards granted on 15 September 2015, as detailed above. Therefore this second award vested as to 100% on 28 August 2018. In the single figure table in the Directors' Remuneration Report the value attributable to this award is calculated by multiplying the number of shares in respect of which the award vested by £27.707 (being the average market value of a share over the last quarter of the Company's financial period ended on 30 June 2018).

The details of the LTIP awards granted during the year ended 30 June 2018 are set out in the Directors' Remuneration Report. The Committee's approach to Executive Directors' LTIP awards for the year ending 30 June 2019 is summarised in the Directors' Remuneration Report.

SAYE Exercised During the Year Ended 30 June 2018

The aggregate gain made by the Executive Directors on share options and LTIP awards exercised during 2018 was £3,497,837 (2017: £2,872,032).

Pension

Ian Page and Richard Cotton were both members of the Dechra Pharmaceuticals PLC Group Stakeholder personal pension scheme throughout the year. Tony Griffin is a member of a defined benefit pension plan in the Netherlands. Contributions made by Dechra Pharmaceuticals PLC on behalf of the Executive Directors during the year equated to no more than 14% of pensionable salary for each Executive Director.

The annual allowance for tax relief on pension savings for individuals earning over £150,000 per annum reduced from £40,000 to £10,000 on 6 April 2016. Richard Cotton elected to receive a salary supplement in lieu of the employer contribution over and above the £10,000 limit for the entire period under review. From 6 April 2016, Ian Page's pension savings reached the lifetime allowance and from this date he elected to receive his pension contributions as a salary supplement.

Tony Griffin is a member of the Basispensioen, a defined benefit pension plan established in the Netherlands. The table below sets out the arrangements for Tony Griffin for the period under review.

The defined benefit pension plan is capped at €50,000. Pensionable salary over this cap is paid into a defined contribution plan. Following the implementation by the Dutch government of a reduction in the cap on maximum amount of pensionable income to €100,000, Tony Griffin elected to receive a salary supplement in lieu of the pension premium entitlement for earnings above €100,000. This was effective from 1 January 2015. The earliest date that a non-reduced pension is payable is 10 February 2040.

TSR Graph

The graph below shows the TSR performance of the Company over the past nine financial years compared with the TSR over the same period for the FTSE 250 Total Return Index. Throughout the financial year ended 30 June 2018 the Company has been a constituent member of the FTSE 250; for this reason it is considered that the TSR performance of the FTSE 250 Index is the appropriate comparator for this report.

Chief Executive Officer Remuneration for Nine Previous Years

Percentage Change in Chief Executive Officer Remuneration

The table below sets out in relation to salary, taxable benefits and annual bonus the percentage change in pay for Ian Page and the average percentage change for all UK based employees, comparing pay in respect of the year ended 30 June 2017 and the year ended 30 June 2018. For these purposes, UK employees were chosen as a comparator group reflecting that Ian Page is UK based and the number of UK employees was sufficiently large to provide a robust comparison. Employees outside the UK were not included in the comparator group since country specific differences could distort the comparison.

1. Ian Page notified the Committee that he did not wish to be considered for a salary increase in 2018, and accordingly, his salary for 2018 was not increased. The increase in the table above reflects that the 2017 salary increase was in effect from 1 September 2016.
2. Excludes SAYE options granted in the financial year.

Relative Importance of Spend on Pay

The following table sets out the percentage change in distributions to shareholders (by way of dividend and share buyback) and total remuneration paid to or receivable by all Group employees comparing the year ended 30 June 2017 and the year ended 30 June 2018.

Long Term Incentive Arrangements and Share Schemes:

LTIP Awards Made During the Year Ended 30 June 2018

Awards were granted to the Executive Directors on 2 March 2018, as set out in the table below. These awards were deferred from September 2017 due to the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (the Acquisition):

1. For these purposes, the face value of the award is calculated by multiplying the number of shares by £25.06 (being the average share price used to determine the number of shares comprised in the awards).
2. Each of Ian Page and Richard Cotton has also been granted a tax qualifying option over 1,197 shares at an exercise price of £25.06 as part of their LTIP award. These tax qualifying options are linked to the nil cost option such that, at the time of exercise, to the extent that there is a gain in the tax qualifying option, the nil cost option will be forfeited to the value of that gain, to ensure that the pre-tax value of the LTIP award is not increased by the grant of the tax qualifying option.
3. The exchange rate used for this purpose was 1.1297 (the exchange rate at grant).

One third of each award is subject to a performance condition based on the Company's TSR performance over the performance period relative to the constituent companies of the FTSE 250 index (excluding investment trusts) over the performance period as follows:

Two thirds of each award is subject to a performance condition based on the growth in the Group's underlying diluted EPS over the performance period. As disclosed in the Directors' Remuneration Report in the 2017 Annual Report, the EPS growth target required for maximum vesting was proposed to be 15.5%, however following the Acquisition it was agreed to increase this, recognising the additional earnings forecasted, to 18% CAGR. Accordingly, the EPS target is as follows:

Both the TSR element and the EPS element are subject to an additional ROCE performance measure. Unless the Group's ROCE is 10% or more in the final year of the performance period, the awards will lapse in full regardless of TSR and EPS performance.

Each award is subject to a two year holding period. Other than shares sold to satisfy tax liabilities arising in connection with the acquisition of shares or to fund the exercise price of the tax qualifying option, no shares acquired may be sold before the second anniversary of vesting.

SAYE Options Granted in the Year

The following SAYE options were granted during the year ended 30 June 2018.

Payments to Past Directors

There were no payments made to past Directors during the period.

Payments for Loss of Office

There were no payments for loss of office made to Directors during the period.

Shareholding Guidelines and Statement of Directors' Shareholdings and Interests:

Executive Directors

In respect of the financial year ended 30 June 2018, the Company's shareholding guidelines required Executive Directors to have acquired and retained half of any shares acquired under the LTIP and, if relevant, any recruitment award (after sales to cover tax) until such time as their holding has a value equal to 200% of salary. Unvested share based incentives will not be allowed to count towards the holding requirements. Shares which are vested, but which remain subject to a holding period and/or clawback, may count towards the holding requirement on a net of assumed tax basis.

The holdings of each person who served as an Executive Director during the period ended 30 June 2018 and their families as at 30 June 2018 are as follows:

* Calculated using the share price as at 30 June 2018.

Non-Executive Directors

By the third anniversary of their appointment to the Board, Non-Executive Directors are required to have acquired and retained a holding of Dechra shares equivalent to the value of at least 50% of their annual base fee. The holdings of the Non-Executive Directors and their families as at 30 June 2018 are as follows:

* Calculated using the share price as at 30 June 2018.

There have been no changes in the holdings of the Directors between 30 June and 3 September 2018.

Executive Directors' Interests under Share Schemes

Long Term Incentive Plan

Awards held under the Long Term Incentive Plan by each person who was a Director during the year ended 30 June 2018 are as follows:

1. Will vest on 15 September 2018 as to 100%.
2. Each of Ian Page and Richard Cotton has also been granted a tax qualifying option over 1,197 shares at an exercise price of £25.06 as part of their LTIP award. These tax qualifying options are linked to the nil cost option such that, at the time of exercise, to the extent that there is a gain in the tax qualifying option, the nil cost option will be forfeited to the value of that gain.
3. These awards are Recruitment Awards granted to Richard Cotton as referred to in the Directors' Remuneration Report. They were granted outside the rules of the LTIP.
4. Vested on 28 August 2018 as to 100%.

SAYE Scheme

The only options held under the SAYE Scheme by any person who served as a Director during the year ended 30 June 2018 are those granted on 12 October 2017 shown in the table in the Directors' Remuneration Report.

Implementation of the Directors' Remuneration Policy in the Year Ending 30 June 2019 (Unaudited):

The Directors' Remuneration Policy outlined in the Directors' Remuneration Report will be implemented in the year ending 30 June 2019, as set out below.

Salary and Fees

The next review of Executive Directors' salaries will be undertaken in September 2018. It is planned that the Executive Directors' salaries for 2018 will increase in line with the range of increases proposed for the wider workforce.

Following a review of the Non-Executive Directors' base and additional fees, it was agreed that no changes will be made to the base fee for the Chairman and Non-Executive Directors for the year ending 30 June 2019. With regards to the additional fees, it was agreed to increase the fees as follows:

Annual Bonus

No changes have been made to the bonus structure. Consequently Executive Directors will have a bonus opportunity of 100% of salary for the year ending 30 June 2019, on the same basis as for the year ended 30 June 2018. Details of the bonus structure can be found in the Directors' Remuneration Report. In the opinion of the Board, the performance targets applying to the annual bonus are commercially sensitive, and prospective disclosure could provide competitors with insight into the Group's business plans and expectations. However, the Company will disclose how any bonus earned relates to performance against targets on a retrospective basis when the targets are no longer considered commercially sensitive, as shown in the Directors' Remuneration Report in respect of bonuses for the Group's 2018 financial year.

LTIP

The Committee proposes that LTIP awards for the year ending 30 June 2019 (the 2019 Grant) will be made at the level of 200% of salary for Ian Page, 150% for Richard Cotton and 100% of salary for Tony Griffin. The performance measures remain as per the grant of LTIP awards made on 2 March 2018, details of which can be found in the Directors' Remuneration Report. In setting the EPS growth targets for the 2019 Grant, the Committee had regard to the Acquisition. The Committee concluded that maintaining the same growth targets appropriately balanced the required level of stretch with incentivisation. The Committee will consider the targets again in advance of the grants in respect of the awards for the year ending 30 June 2020, recognising that the base year for those awards will include a full year of AS Farma and Le Vet.

The awards will ordinarily be subject to a two year post vesting holding period.

Consideration by Directors of Matters Relating to Directors' Remuneration:

Governance

The Board has overall responsibility for the Group's Remuneration Policy and the setting of the Non-Executive Directors' fees, although the task of determining and monitoring the remuneration packages of the Executive Directors and agreeing the Chairman's fee level has been delegated to the Committee.

Membership

Details of each member's attendance at the Committee's meetings is detailed in the Corporate Goverance Report.

The Chief Executive Officer attended all meetings held during the financial year in order to assist on matters concerning remuneration of other senior executives within the Group. However, he was not present during the part of the meetings where his own remuneration was discussed. Furthermore, the Group HR Director has attended all meetings held during the financial year.

Responsibilities

The Committee has its own terms of reference, which are approved by the Board. These are reviewed on an annual basis to ensure that they continue to adhere to best practice. During the 2018 financial year this review took place at the June 2018 meeting. Copies can be obtained via the Company website at www.dechra.com. The Committee Chairman and the Company Secretary are available to shareholders to discuss the Remuneration Policy.

An overview of the Committee's terms of reference is provided in the Corporate Governance Report.

Service Contracts and Letters of Appointment

Details of the Executive Directors' service contracts and Non-Executive Directors' letters of appointment are set out below.

There are no expiry dates applicable to either Executive or Non-Executive Directors' service contracts. The Non-Executive Directors are entitled to compensation on termination of their appointment confined to three months' remuneration.

Policy on External Appointments

The Company recognises that Executive Directors may be invited to become Non-Executive Directors of other companies and that this can help broaden the skills and experience of a Director. Executive Directors are only permitted to accept external appointments with the approval of the Board.

The only Executive Director who held an external appointment was Ian Page. He was Non-Executive Chairman of Sanford DeLand Asset Management Limited, a position which he resigned from in October 2017. During the year, Ian Page received no remuneration for this appointment.

Advisers

The following have provided advice to the Committee during the year in relation to its consideration of matters relating to Directors' remuneration:

• Chief Executive Officer, Chief Financial Officer, Group HR Director and Company Secretary; and
• Deloitte LLP (Deloitte).

Deloitte is retained to provide independent advice to the Committee as required. Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. Deloitte's fees for providing remuneration advice to the Committee were £13,000 for the year ended 30 June 2018. The Committee assesses from time to time whether this appointment remains appropriate or should be put out to tender and takes into account the Remuneration Consultants Group Code of Conduct when considering this. Deloitte was appointed by the Committee and has provided share scheme advice and general remuneration advice to the Company. During the year Deloitte also performed global tax compliance work for Dechra.

Statement of Voting at Previous Annual General Meeting

The Company remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. The following table sets out actual voting in respect of the advisory vote on the Directors' Remuneration Report and the binding vote on the Remuneration Policy at the Company's Annual General Meeting on 20 October 2017:

Directors' Remuneration Policy

The Remuneration Policy was approved by Shareholders at the Annual General Meeting held on 20 October 2017 and became effective from this date. The full Remuneration Policy as approved by shareholders is available in the Directors' Remuneration Report included in the financial year 2017 Annual Report and Accounts at www.dechra.com.

We have set out below those parts of the Remuneration Policy which we consider shareholders will find most useful.

Policy Table for Executive Directors:

Policy Table for Non-Executive Directors:

Recruitment Remuneration Policy

When hiring a new Executive Director, the Committee will typically align the remuneration package with the above Policy.

When determining appropriate remuneration arrangements, the Committee may include other elements of pay which it considers are appropriate. However, this discretion is capped and is subject to the limits referred to below.

• Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may include agreement on future increases up to a market rate, in line with increased experience and/or responsibilities, subject to good performance, where it is considered appropriate.
• Pension will only be provided in line with the above Policy.
• The Committee will not offer non-performance related incentive payments (for example a 'guaranteed sign-on bonus').
• Other elements may be included in the following circumstances:
• an interim appointment being made to fill an Executive Director role on a short term basis;
• if exceptional circumstances require that the Chairman or a Non-Executive Director takes on an executive function on a short term basis;
• if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long term incentive award for that year as there would not be sufficient time to assess performance. Subject to the limit on variable remuneration set out below, the quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis;
• if the Director will be required to relocate in order to take up the position, it is the Company's policy to allow reasonable relocation, travel and subsistence payments. Any such payments will be at the discretion of the Committee.
• The Committee may also alter the performance measures, performance period, vesting period and holding period of the annual bonus or LTIP, subject to the rules of the LTIP, if the Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be clearly explained in the next Directors' Remuneration Report.
• The maximum level of variable remuneration which may be granted (excluding 'buyout' awards as referred to below) is 300% of salary.

The Committee may make payments or awards in respect of hiring an employee to 'buyout' remuneration arrangements forfeited on leaving a previous employer. In doing so, the Committee will take account of relevant factors including any performance conditions attached to the forfeited arrangements and the time over which they would have vested. The Committee will generally seek to structure 'buyout' awards or payments on a comparable basis to the remuneration arrangements forfeited. Any such payments or awards are excluded from the maximum level of variable remuneration referred to above. 'Buyout' awards will ordinarily be granted on the basis that they are subject to forfeiture or 'clawback' in the event of departure within 12 months of joining Dechra, although the Committee will retain discretion not to apply forfeiture or clawback in appropriate circumstances.

Any share awards referred to in this section will be granted as far as possible under Dechra's ordinary share plans. If necessary and subject to the limits referred to above, recruitment awards may be granted outside of these plans as permitted under the Listing Rules which allow for the grant of awards to facilitate, in unusual circumstances, the recruitment of an Executive Director.

Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue in accordance with their terms.

Fees payable to a newly appointed Chairman or Non-Executive Director will be in line with the policy in place at the time of appointment.

Policy on Service Contracts:

Details of the Executive Directors' service contracts and Non-Executive Directors' letters of appointment are set out in the Directors' Remuneration Report.

Whilst the Committee's policy is for the service contract of any newly appointed Executive Director to have a notice period of not more than 12 months, the Committee retains discretion to set an initial notice period of up to 24 months, reducing to 12 months after the initial 12 months of employment.