Delivering our Global Growth Strategy Proposed Acquisition of AST Farma and Le Vet Beheer
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Executive Summary Acquisition of AST Farma & Le Vet Strategic Rationale Funding Proposed Acquisition of AST Farma B.V. ( AST Farma ) and Le Vet Beheer ( Le Vet ) for 340 million (c. 298 million 1 ), on a debt-free/cash-free basis with 25% paid in Dechra shares (2 year lock-in) AST Farma and Le Vet are European developers of generic and generic plus CAP, based in the Netherlands; Dechra is an existing distributor Aggregated Revenue of 40.9 million & Adjusted EBITDA of 18.1 million (year ended December 2016) Class 1 acquisition requiring shareholder approval, expect completion mid-february 2018 Strengthens Dechra s portfolio in the Netherlands and across Europe New opportunities with their direct to vet model in the Netherlands Access to a broad portfolio of products and a robust development pipeline Potential for material revenue synergies over time and some minor cost synergies Issue of consideration shares (25% of total consideration) c. 100 million net proceeds of cash placing 2 Balance of c. 124 million funded through new debt facilities Pro forma net debt / EBITDA expected to be c.1.95 times at completion reducing to c.1.7 times by 30 June 2018 Financial Effects Acquisition expected to be accretive to underlying earnings per share in FY2018 and materially enhancing to underlying earnings in FY2019 and beyond Underlying return on capital employed expected to exceed Dechra s WACC in the year ending FY2019 1. Converted at an exchange rate of 1.140: 1 2. After placing costs and other related costs 2
Dechra s Strategy To continue to develop our position as an international, high margin, cash generative, veterinary pharmaceuticals and related products business with a clear focus on key therapeutic areas: Endocrinology Dermatology Ophthalmology Equine medicine Anaesthesia and analgesia Cardiovascular disease Food producing animal antibiotics Poultryvaccines Petdiets Complementary generics Pipeline Delivery Generating and maximising returns and long term value for shareholders Strategic Growth Drivers a b c Portfolio Focus Geographic Expansion Acquisition 3
AST Farma and Le Vet Overview Established in the Netherlands (AST Farma in 1999, and Le Vet in 2002) by two brothers, AST one of the leading CAP companies in the Netherlands and Le Vet established and increasing presence in Europe Le Vet and AST Farma operate effectively as one group. AST Farma provides product development and Le Vet acts as a European export business - Serves the Dutch market through a direct to vet delivery model, it is held in high regard by its customers - Serves European markets outside the Netherlands through an established network of marketing partners, including Dechra Approximately 90 products marketed in the Netherlands, 60 of which are sold in the EU, several new products launched over the last 18 months Strong pipeline Approximately 80% of revenues from CAP, 10% Equine, 10% FAP Outsourced product development and manufacturing 1 1. Some of the product development and manufacturing activities are undertaken by companies in which the selling shareholders have an interest with the balance undertaken by third parties. 4
Broad Range of Products c.90% revenues from generic plus products Product categories Antibiotic tablets Anaesthesia and analgesia Ear and eye preparations Other Example products Clavubactin antibiotic in dogs Metrobactin first registered Metronidazol for use in dogs and cats Phenoleptil epilepsy in dogs Prevomax nausea and vomiting in dogs and cats Prednicortone treatment of inflammatory and immune-mediated diseases in dogs and cats Equisolon alleviation of inflammatory and clinical parameters associated with recurrent airway obstruction in horses 5
Attractive Drug Pipeline Pipeline of over 30 products, of which - 8 submitted for EU registration; and - 2 recently approved with marketing to commence soon after completion Strong track record of success in achieving product approvals in the EU in recent years, as well as further success - in adding value versus originator (e.g. flavour, administration); and - being first generic to market The pipeline will further expand Dechra s portfolio to companion animal and equine practitioners while adding increased strength and depth to current focus therapeutic areas 6
Acquisition Rationale Portfolio Focus A leading independent developer of companion animal and equine generic pharmaceuticals in Europe Complementary therapeutic focus areas New opportunities through direct to vet model Pipeline Delivery The acquisition adds a strong pipeline to the Group Includes two recently approved products, one of which is the first Pan European licence for Tramadol for pain relief in dogs Geographical Expansion AST Farma adds further scale to operations in the Netherlands Strengthens portfolio in all major EU countries in which Dechra operates Revenue synergies by bringing products in-house Acquisition Highly complementary acquisition opportunity Meets our financial returns criteria Materially earnings enhancing in FY2019 and beyond 7
Financial Track Record Successful businesses with track record of organic growth Growth from market penetration of a broad portfolio Strong pipeline has delivered growth from new product launches Aggregated Financials for AST Farma + Le Vet ( m) (1) 2014 2015 2016 Turnover 28.2 32.3 40.9 Adjusted EBITDA (2) 11.3 13.5 18.1 Adjusted operating profit (2) 10.7 12.9 17.0 Total gross assets 10.8 12.7 19.6 Net assets 4.6 6.2 8.1 The table shows aggregated numbers, for illustrative purposes only, of AST Farma, Le Vet and the elimination of intercompany sales. Further information is set out in the Appendix on slide 15 Le Vet financials are subject to a disclaimer of audit opinion due to the auditors not being able to obtain sufficient audit evidence to provide a basis for an audit opinion due to insufficient internal controls to ensure the completeness of the underlying accounting records. Directors have gained comfort from additional procedures conducted during due diligence and from the businesses cgmp procedures amongst other things (1) Financial information was originally prepared under Dutch GAAP but has been re-presented under IFRS (2) EBITDA is Operating Profit before depreciation and amortisation. Adjusted EBITDA and Adjusted Operating Profit is EBITDA and Operating Profit respectively, after adding back royalties for AST Farma and Le Vet respectively, which relates to costs paid for certain product registrations, which will no longer be paid following completion 8
Current Trading Dechra European Pharmaceuticals Segment - reported revenue increased by c.5.5% at CER (c.8.5% at AER) - excluding third party contract manufacturing, and treating Apex on like for like basis, revenues increased by c.4.0% at CER (c.7.0% at AER) North American Pharmaceutical Segment reported revenue increased by c.20.0% at CER (c.17.5% at AER) AST Farma & Le Vet During the financial year ended 31 December 2017 - AST Farma is expected to have delivered continued revenue growth, mainly driven by new product launches to its product portfolio. Adjusted operating margins are expected to be in line with the Directors expectations - Le Vet is expected to have delivered strong revenue growth, driven by a combination of continued market penetration and new product launches. Adjusted operating margins are expected to be in line with the Directors expectations 9
Transaction Structure Total consideration on completion of 340 million (c. 298 million) Debt-free/cash-free Consideration Assumes a normalised level of working capital 25% to be paid in shares; two year lock-in Class 1 transaction conditional upon Dechra shareholder approval Completion Completion expected by mid-february Key Personnel Funding Post Transaction Structure Integration Costs Selling shareholders will remain for a transitional period Will be approximately 3.6% 1 shareholders in Dechra Consideration to be funded by: Issue of c.3.67 million consideration shares (25% of total consideration) c. 100 million net proceeds of cash placing 2 Balance of c. 124 million funded through new debt facilities Pro forma Net debt / EBITDA expected to be c.1.95 times at completion reducing to c.1.7 times by 30 June 2018 One-off transaction and integration costs of c. 3.5 million are expected in the current financial year 1. Assumes a raising of 105 million at 2050p, and the issue of c.3.67 million consideration shares, calculated as 85 million (being 25% of total consideration) converted to c. 75m at an FX rate of 1.140: 1 and divided by c.2031p per Dechra share (being the average closing price for the 30 days prior to the 18 January 2018). The actual number of consideration shares will be determined with reference to the 30 day average closing price up to the day before the transaction announces, at the prevailing FX rate at that time) 2. After placing costs and other related costs 10
New Debt Facilities 350 million multi-currency term loan facility, maturing 31 December 2020 Available to draw until 30 June 2018 Additional to existing Revolving Credit Facility of July 2017 Initial Margin of 1.70% until 30 June 2018 - Thereafter ranging from 1.10% to 2.00% (according to Net Debt: EBITDA leverage ratio) Balance of Facility available for any further acquisitions before 30 June 2018 11
Conclusion Acquisition of AST Farma and Le Vet is fully in line with Dechra s acquisition strategy Strengthens Dechra s portfolio in the Netherlands and across Europe New opportunities with AST Farma s direct to vet model Access to a broad portfolio of products and a robust development pipeline Attractive financial returns for Dechra and potential for material revenue synergies over time and some minor cost synergies Acquisition expected to be earnings enhancing in FY2018 and materially earnings enhancing in FY2019 and beyond 12
Appendix
Aggregated Financials for AST Farma and Le Vet 2014 2015 2016 AST Farma Le Aggre Vet (2) Adj. (3) -gated AST Farma Le Aggre Vet (2) Adj. (3) -gated AST Farma Le Aggre Vet (2) Adj. (3) -gated Turnover 17.2 12.2 (1.2) 28.2 18.2 15.7 (1.7) 32.3 19.9 23.2 (2.2) 40.9 Adjusted EBITDA (1) 8.4 2.9 11.3 9.1 4.5 13.5 10.0 8.1 18.1 Adjusted operating profit (1) 8.3 2.4 10.7 9.0 3.9 12.9 10.0 7.0 17.0 Total gross assets 4.1 6.8 10.8 4.7 8.0 12.7 5.2 14.4 19.6 Net assets 1.1 3.5 4.6 1.2 5.0 6.2 1.3 6.8 8.1 (1) EBITDA is Operating Profit before depreciation and amortisation. Adjusted EBITDA and Adjusted Operating Profit is EBITDA and Operating Profit respectively, after adding back royalties for AST and Le Vet respectively, which relates to costs paid for certain product registrations, which will no longer be paid following completion. (2) Le Vet financials are subject to a disclaimer of audit opinion due to the auditors not being able to obtain sufficient audit evidence to provide a basis for an audit opinion due to insufficient internal controls to ensure the completeness of the underlying accounting records. Directors have gained comfort from additional procedures conducted during due diligence and from the businesses cgmp procedures amongst other things. (3) The revenue adjustments relate to the elimination of sales and purchases between Le Vet and AST Farma 14
Glossary CAP Companion Animal Products cgmp current Good Manufacturing Practice EBITDA Earnings Before Interest Tax, Depreciation & Amortisation FAP Food production Animal Products Generic Plus an improved version of an original drug which has lost product patent protection ROCE Return on Capital Employed WACC Weighted Average Cost of Capital This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future and thereby involve a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company. Trademarks Trademarks appear throughout this document in italics. Dechra and the Dechra D logo are registered trademarks of Dechra Pharmaceuticals PLC. 15
Dechra Pharmaceuticals PLC 24 Cheshire Avenue Cheshire Business Park Lostock Gralam Northwich CW97UA T: +44 (0) 1606 814730 F: +44 (0) 1606 814731 E: corporate.enquiries@dechra.com www.dechra.com Stock code: DPH