Remuneration Committee Chairman, Ishbel Macpherson

Ishbel Macpherson
Remuneration Committee Chairman


Dear Shareholder

I am pleased to present the Directors' Remuneration Report for the year ended 30 June 2018.

The report is divided into two sections: the Annual Report on Remuneration, followed by an abbreviated form of our Directors' Remuneration Policy (the full version can be found at The Annual Report on Remuneration provides details of the amounts earned in respect of the 2018 financial year and how the Directors' Remuneration Policy (the Policy) will be implemented in the 2019 financial year.

The Directors' Remuneration Report (excluding the Policy) will be subject to an advisory vote at the 2018 Annual General Meeting.

Our Directors' Remuneration Policy

The Policy was approved by shareholders at the Annual General Meeting on 20 October 2017, with 98.88% of all votes cast in favour, and will remain in force until 2020. We review the application of this Policy regularly, to ensure it remains appropriate, linked to strategy and reflective of developing market practices.

No changes to the Policy are proposed for 2019. The performance metrics for the bonus and LTIP awards for 2019 are set out in the Directors' Remuneration Report. An annual review of Executive salaries is undertaken in September along with all employees. This allows us to optimise the link between performance and reward for all employees. It is our expectation that any increases to the Executive Directors' salaries will be in line with the range of increases for the wider workforce.

Incentive Outturns in 2018

As a result of the progress in our strategy, we have delivered underlying profit before tax during the year of £93.7 million, an improvement of 23.6% at constant exchange rates (21.7% at actual exchange rates) on the prior year. Reflecting the performance of the Group in relation to profit targets and the performance of Executive Directors against personal objectives as described on Directors' Remuneration Report, bonuses for the year equal to 76% of salary have been earned by Ian Page and Richard Cotton, and equal to 74% of salary by Tony Griffin.

LTIP awards were granted to Ian Page and Tony Griffin in September 2015 and are due to vest on 15 September 2018. The awards are scheduled to vest:

  • as to 100% of the TSR element (50% of the total award) reflecting upper quartile performance; and
  • as to 100% of the underlying diluted EPS element (50% of the total award) reflecting that the compound annual growth in the underlying diluted EPS at 24.2% was above the maximum threshold of 16.0%.

In aggregate, taking into account the ROCE underpin (reflecting that the ROCE at 15.4% had not fallen below 15.0%), the LTIP awards vested as to 100%.

As disclosed in the Directors' Remuneration Report, the second of Richard Cotton's recruitment awards was subject to the same performance conditions and is scheduled to vest to the same extent.

Executive Director Remuneration Decisions in 2018

During the annual salary review cycle, Richard Cotton's and Tony Griffin's salary were increased by 2.5% in respect of the 2018 financial year, broadly in line with the average range of increases awarded to employees throughout the Group. Ian Page notified the Remuneration Committee (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.

We granted LTIP awards in March 2018 subject to TSR and EPS performance conditions (applying to one third and two thirds of the awards, respectively) with the EPS target for maximum vesting increased for these awards to 18% CAGR from the initial proposal included in the Directors' Remuneration Report for the 2017 financial year of 15.5%, which takes into account the acquisition of AST Farma B.V. and Le Vet Beheer B.V. (the Acquisition). A ROCE underpin continues to apply to each element. Details of the awards are set out in the Directors' Remuneration Report.

We also amended the EPS growth targets for the LTIP awards granted in respect of the 2017 financial year (performance period 1 July 2016 to 30 June 2019) to take account of the Acquisition, increasing the EPS target for maximum vesting to 25% CAGR from the original target of 20%.

Both the bonus opportunity and LTIP awards of the Executives are subject to malus and clawback. During the year we made a minor change to the malus and clawback provisions, broadening the circumstances in which they can be operated to take account of changes in best practice.

The Link between our Directors' Remuneration Policy and our Strategy

Dechra's Policy is designed to promote the long term success of the Group and to reward the creation of long term value for shareholders. The performance targets for all incentive elements are designed to reward high performance whilst not encouraging inappropriate business risks.

The table below describes how certain remuneration elements are linked to our strategy.

Remuneration ElementStrategic
Driver and
Link to our Key
Performance Indicators

Annual Bonus

Our annual bonus incentivises the delivery of the long term strategy through the achievement of short term objectives.

90% of the opportunity is based on a stretching profit target which requires performance above budget and market expectations to trigger the payment of a maximum bonus.

The balance of the bonus is based on the achievement of personal objectives which reflect the priorities of the business, achievement of which is necessary to deliver the longer term strategy.

  • Sales Growth
    Strong sales performance is required to maximise profit
  • New Product Sales
    This measure encourages innovation, growth and sustainability

Long Term Incentive Plan

The LTIP is designed to reward the generation of long term value for shareholders. Performance measures reflect our long term objectives including sustainable profit growth and the enhancement of shareholder value. Awards are based on growth in EPS and the delivery of shareholder returns. For the 2018 and 2019 financial year awards, the weightings are two third EPS and one third total shareholder return.

The application of a ROCE underpin ensures executives are focused on using capital efficiently and appropriately to allow the business to capitalise on growth opportunities in new territories and markets whilst maintaining returns.

The introduction of a post vesting holding period aligns management with the long term interests of shareholders and the delivery of sustained performance.

  • Underlying Diluted EPS Growth
  • Return on Capital Employed
  • New Product Sales
    This measure encourages innovation, growth and sustainability

Generation of Long Term Value for Shareholders/Alignment of Interests

The Policy is designed to promote long term Group success and to reward the generation of shareholder value. A significant proportion of the remuneration opportunity is linked to the achievement of stretching performance targets.

The interests of shareholders and executives are aligned by the post vesting holding period which applies to LTIP awards granted from 2018 onwards, and by formal shareholding guidelines. Executive Directors are required to retain 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 their base salary.

Forward Looking

During the 2019 financial year, as well as the Committee's more regular work, we will consider how we best respond to the Companies (Miscellaneous Reporting) Regulations which introduce a range of new corporate governance reporting requirements as they apply to the work of this Committee.

The Committee recognises the benefits of employee share ownership and the existing Dechra UK Save As You Earn (SAYE) scheme which has been in place since 2001 has proved both a popular benefit to our UK employees (the November 2017 grant had an uptake of 51%) and a helpful retention tool.

As Dechra continues to expand internationally we receive regular feedback and requests from employees and managers who want to be able to enjoy the benefits of participation in a share save scheme. We have therefore agreed, subject to shareholder approval, to offer a SAYE internationally on as close a basis as possible to its operation in the UK, and in the USA to offer an Employee Stock Purchase Plan (ESPP). This will enable the majority of our existing employee base the opportunity to benefit from share ownership which will, in turn, ensure a more equitable approach to our global reward schemes.

The current SAYE scheme rules are due for renewal in October 2020. However, in view of the above, it is proposed to ask for shareholder approval of new UK rules along with an International Plan at the forthcoming Annual General Meeting in October 2018 and to authorise the Directors to adopt ESPP as a sub-plan of the International SAYE. More information is included in the Notice of Annual General Meeting.

Initially the offer will be limited to our larger territories and it is hoped that we will be able to launch it in October 2019.

Shareholder Views

We consult with shareholders on policy and on any significant events and take shareholders' views into account before finalising our proposals. In 2018, we consulted with shareholders in relation to the approach to LTIP targets taking into account the Acquisition. The Committee and I believe that ongoing dialogue with our major shareholders is of key importance. Should you have any queries in relation to this report, please contact me or the Company Secretary.

Ishbel Macpherson
Remuneration Committee Chairman
3 September 2018