Tony Rice
Nomination Committee Chairman

Dear Shareholder

On behalf of the Board, I am pleased to present the Nomination Committee (the Committee) report.

During the year the Committee focused on the size and composition of the Board, which has led to the commencement of a recruitment process for an additional Non-Executive Director. The Committee believes that the appointment of an additional Non-Executive Director will strengthen the existing capability and good dynamics of the Board. The Committee believes that the Board continues to have the appropriate skills, knowledge and experience to oversee the effective delivery of our strategy. The Committee also oversaw the Senior Executive Team (SET) succession and emergency planning. As a result of this the Committee believes that the Company has an evolving and experienced SET to lead the development and implementation of this strategy.

The following report provides an overview of the work carried out during the year under review.

Should you have any questions in relation to this report or the Committee, please contact me or the Company Secretary.

Committee Membership and Attendance

The membership of the Committee, together with appointment dates and attendance at meetings during the year, is set out in the Corporate Governance Report. Other attendees at the meetings include the Chief Executive Officer, the Group HR Director and the Company Secretary (who acts as secretary to the Committee).

The Chairman does not chair the Committee meeting if it is dealing with the appointment of his successor. The Senior Independent Director, Ishbel Macpherson, takes the chair when required.

Role and Responsibilities

The role and responsibilities of the Committee are set out in the written terms of reference, which are available on the Company website at www.dechra.com. The Committee's terms of reference are reviewed on an annual basis and during the 2018 financial year this took place at the February meeting. An overview of the terms of reference is detailed in the Corporate Governance Report.

Principal activities of the Committee during the year included:

• Board Structure, Size and Composition

The Board seeks to ensure that the Board and the Committees have an appropriate composition to manage their duties effectively and to manage succession issues. It supports diversity in its broadest sense and considers it an essential driver of Board effectiveness. The Board recognises it is important that its composition is sufficiently diverse and reflects a wide range of knowledge, skills and experience.

During the year, the Board formalised its policy on diversity. It believes that everyone should be recruited and promoted on the basis of their personal ability, contribution and potential. The Board is committed to ensure that a culture of fairness, respect and equal opportunity is promoted and supported across the Group. The policy and its implementation will be reviewed annually.

The Board is generally opposed to the idea of stated gender quotas, however it acknowledges that there is a current low representation of female Directors (14.3%) on the Board. This is not a true reflection of the Group as female representation below Board level is 33% of the Senior Executive Team and 53% of the overall workforce.

It is our intention to restore the balance and as such we have commenced the recruitment for a further Non-Executive Director (see below). This would take our female representation at Board level to above 20%.

Board Composition

Non-Executive Chairman

Non-Executive Directors

Executive Directors

The Board
as at 30 June 2018
 

Male 86%

Female 14%

Senior Executive Team
as at 30 June 2018
 

Male 67%

Female 33%

Overall Workforce
as at 30 June 2018
 

Male 47%

Female 53%

Management Tier below the Senior Executive Team as at
30 June 2018

Male 62%

Female 38%

• Non-Executive Recruitment

During the year, an independent recruitment consultancy, Dzaleta Consulting, was retained. Dzaleta Consulting was provided with a role description detailing the skills and experience required for the position of a Non-Executive Director. The Committee in drafting the role description took into account the challenges and opportunities facing the Group and what skills and expertise were needed on the Board in the future. In particular it was determined that the candidates should have a Human Resources background which would be beneficial in light of the new Corporate Governance requirements around engagement with the workforce and oversight of the wider Group remuneration principles by the Remuneration Committee. In addition, they were required to have a broad business experience and be a good fit with the culture of the Company. Other areas of expertise were also considered such as a good knowledge and experience of digital and technology developments and their impact and use in business. Dzaleta Consulting were previously retained in relation to the recruitment of the last two SET vacancies.

To assist Dzaleta Consulting with the understanding of the requirements of the role, they met with the Group HR Director, Chief Executive Officer and the Chairman, and a long list of candidates were identified for interview. All of the candidates had a broad range of experience from a wide range of different backgrounds including executives in blue chip FTSE organisations, partners in consulting firms and a number of candidates with an established portfolio career.

The long list of candidates was circulated to the Committee for comments before a short list was agreed. The first interviews were with the Chief Executive Officer and Group HR Director, the second interviews will be held with the Chairman, and successful interviewees will meet with the remaining Non-Executive Directors prior to appointment.

• SET Succession Planning and Leadership Needs of the Group

Two of our key risks are people focused and they are:

• the failure to retain high calibre, talented senior managers and other key roles in the business; and
• failure to recruit or develop the good quality people to achieve our strategic aims.

To assist with this, the Group HR Director regularly presents to the Committee on the Group's succession planning and talent development programme. A regular review of succession planning takes place across the Group, with a particular focus given to the SET succession. The process of documenting the Group's Talent Map supports the decisions about the organisation design and structure. The results of this review are incorporated into the succession planning process and the Committee discusses the succession plan for the SET at least annually.

For Executive Directors and the SET, plans are in place for sudden, unforeseen absences, for medium term orderly succession and for longer term succession as well as supporting significant acquisitions that require full time Dechra leadership during the integration phase. For each SET member, we have either identified an internal candidate or have identified roles that would benefit from bringing new experience into the team. In addition the Committee has reviewed the emergency succession planning, which clearly identified individuals capable of covering key management roles on an interim basis whether this be due to an unanticipated absence or secondment of a key resource into a different role for a defined period. All these individuals will receive, or have received, the necessary coaching to assist them in obtaining the required skills to provide any critical support when needed.

In addition to this, a forward looking review of the future anticipated shape of the organisation will be considered next year to identify any potential gaps that may emerge and work to ensure the organisation's design remains fit for purpose.

One of the elements of our People Plan has focused on the continual development of the SET to provide world class leadership to the Group. We encourage regular contact between members of the SET and the Board, with all SET members presenting to the Board at least once a year, leading site visits of their respective businesses and attending one-to-one sessions with Non-Executive Directors to discuss specific issues when applicable.

Through acquisitions, recruitment and internal promotion we now have an experienced SET, with clearly defined roles. Dechra has increasingly focused on the centralisation of support services, to allow the Business Unit leaders to focus their efforts on their core businesses. During the year a Group Marketing Director, Andrea Dodds, was recruited to continue the evolution of the team. In addition to this the newly promoted Company Secretary, Melanie Hall, was appointed to the SET. Post year end the Group Manufacturing and Supply Director left the business and a recruitment process has been commenced.

• Effectiveness of Committee and Directors

The external evaluation, further details of which are provided in the Corporate Governance Report, found that the Committee was operating effectively and was covering all areas within its remit. It recommended that a Board skills matrix was compiled to inform future discussion and this was presented to the Committee for its discussion at the June 2018 meeting.

Following the external evaluation, which concluded that the Board is dynamic, robust and challenging, the Committee has concluded that each of the Directors seeking re-election continues to perform effectively and demonstrate commitment, not only in respect of their roles and responsibilities, but also in relation to the Group and its shareholders. At the forthcoming Annual General Meeting, all of the Directors will retire and offer themselves for re-election.