Zoetis Inc. · NYSE:ZTS
Zoetis — Investor Day (November 2014)
131 slides from Zoetis's investor day presentation, Nov 18, 2014
Slide 1: Zoetis Investor Day
ZOETIS INVESTOR DAY
Slide 2: Forward-Looking Statements; Non-GAAP Financial Information
FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements, which reflect the current views of Zoetis with respect to business plans or prospects, future operating or financial performance, expectations regarding products, future use of cash and dividend payments, and other fut
Slide 3: Agenda
AGENDA ZOETIS BUSINESS & STRATEGY REGIONAL OVERVIEWS US CLAR APAC EuAfME RESEARCH & DEVELOPMENT MANUFACTURING & SUPPLY CHAIN FINANCIAL OVERVIEW CONCLUDING REMARKS Q&A 3
Slide 4: Juan Ramón Alaix
Juan Ramón Alaix Chief Executive Officer 4
Slide 5: Our Long-Term Value Proposition to Shareholders
OUR LONG-TERM VALUE PROPOSITION TO SHAREHOLDERS GROW REVENUE IN LINE WITH OR FASTER THAN THE MARKET GROW ADJUSTED NET INCOME1 FASTER THAN REVENUE TARGET VALUE-ADDED INVESTMENT OPPORTUNITIES RETURN CAPITAL TO SHAREHOLDERS 1 Adjusted Net Income is a non-GAAP measure and defined as the corresponding re
Slide 6: What You Will Hear Today
WHAT YOU WILL HEAR TODAY • Animal health is an attractive industry with steady and predictable growth drivers • As the industry leader, Zoetis has the characteristics, business model, financial strengths and strategies to capitalize on market opportunity • We have a clear focus on creating value for
Slide 7: How We Have Created Shareholder Value
HOW WE HAVE CREATED SHAREHOLDER VALUE • Leveraged competitive advantages – industry-leading sales force, R&D and manufacturing quality – to generate 7% operational revenue growth versus 3.6%1 animal health market growth in 2013 • Grew adjusted net income2 significantly faster than revenue in 2013; e
Slide 8: What You Should Expect From Us
WHAT YOU SHOULD EXPECT FROM US • Continue to deliver revenue growth in line with or faster than overall market • Drive adjusted net income1 growth faster than revenue by improving gross margin and continuing expense discipline • Invest in enhancing our competitive advantages • Improve working capita
Slide 9: At the Core of a $100+ Billion Industry
AT THE CORE OF A $100+ BILLION INDUSTRY $23B GLOBAL ANIMAL HEALTH MARKET EXPECTED TO EXCEED $33B BY 20201 ANIMAL HEALTH COMPANION ANIMAL ~$23 Billion 1 LIVESTOCK • Nutrition • Pet Supplies • Medicines • Vaccines • Genetics • Vet Services • Food Safety • Medicated Feed • Diagnostics Additives • Herd
Slide 10: A Distinct Industry
A DISTINCT INDUSTRY ANIMAL HEALTH DIFFERS FROM HUMAN HEALTH • Limited third-party payers; direct selling relationships • Less generic competition; greater brand loyalty • Innovation combined with focus on product lifecycle development • More predictable and less costly R&D model • Complexity of 8 di
Slide 11: Powerful Trends Creating Demand
POWERFUL TRENDS CREATING DEMAND PREDICTABLE, SUSTAINABLE AND FUNDAMENTAL ECONOMIC DRIVERS POPULATION A GROWING INCREASING GROWTH MIDDLE CLASS URBANIZATION 11
Slide 12: The World Depends on Animals
THE WORLD DEPENDS ON ANIMALS RELYING ON LIVESTOCK FOR NOURISHMENT people consume animal 7 protein as milk, meat, BILLION poultry, fish and eggs1 of the global value of 40% agricultural output 2 is from the livestock sector of arable land is dedicated 33% to producing feed for livestock3 1 Euromonito
Slide 13: Expanding Consumption of Meat and Milk
EXPANDING CONSUMPTION OF MEAT AND MILK 2050 POTENTIAL GLOBAL MEAT & MILK CONSUMPTION1 Meat 1.3x 2.3x 3.4x Milk 1.3x 2.4x 4.4x Increase Latin American Developed in global Population rates2 + world rates + consumption growth population population based on: growth growth 1 Assuming 2050 population leve
Slide 14: The Productivity Imperative
THE PRODUCTIVITY IMPERATIVE CONSTRAINED NATURAL RESOURCES & EMERGING DISEASE LIMIT PRODUCTION CHALLENGES OPPORTUNITIES Finite arable land • Long-term pressure on prices will drive Drought profitability for producers Climate change • Sustained rewards Urbanization for companies that can help food Bio
Slide 15: Solutions to Improve Yield and Quality
SOLUTIONS TO IMPROVE YIELD AND QUALITY HOW ANIMAL HEALTH ANSWERS THE PRODUCTIVITY IMPERATIVE VACCINES, IMPROVED ADVANCED MEDICINES AND PRODUCTION TECHNOLOGIES MEDICATED FEED PRACTICES AND & DEVICES ADDITIVES HEALTHCARE (DIAGNOSTICS PROTOCOLS AND GENETICS) 15
Slide 16: A History of Productivity Improvements
A HISTORY OF PRODUCTIVITY IMPROVEMENTS ANIMAL HEALTH HAS PLAYED A ROLE HEALTHIER ANIMALS ARE MORE PRODUCTIVE Source: UN FAO; FAPRI; USDA; Hill and Kirkpatrick, Annu. Rev. Ecol. Evol. Syst. 2010.41:1-19 16
Slide 17: Protein Needs Fuel Animal Health
PROTEIN NEEDS FUEL ANIMAL HEALTH LIMITS ON POPULATION & PRODUCTION DRIVE ANIMAL HEALTH SPEND PROJECTED GROWTH BY 2023 PROTEIN # OF ANIMALS1 PRODUCTION1 1.4% 1.5% Beef Cattle CAGR CAGR ANIMAL 1.2% 1.8% HEALTH 6% Dairy Cattle CAGR CAGR 1.3% 1.7% CAGR CAGR Pigs CAGR2 GLOBAL 2.1% 2.5% LIVESTOCK Poultry
Slide 18: The Need for Healthier and Productive Animals Drives Industry Growth
THE NEED FOR HEALTHIER AND PRODUCTIVE ANIMALS DRIVES INDUSTRY GROWTH • Higher intensity of medical care with modernization of production practices • Delivery of higher-value technologies through innovation • Price growth based on the value delivered to veterinarians and producers 18
Slide 19: The World Depends on Animals: Companion Animals
THE WORLD DEPENDS ON ANIMALS COMPANION ANIMALS ENRICH PEOPLE’S LIVES there are more than 2251 350 MILLION million dogs2 and 1251 million cats2 living in homes worldwide 62% of American households own at least one dog or cat 3 pet spending in Brazil, Russia 15% and China has been growing by more than
Slide 20: Premium Placed on Family Pets
PREMIUM PLACED ON FAMILY PETS PETS ARE BECOMING MORE INTEGRATED INTO HOUSEHOLDS PETS ON THE BED Therapeutic Areas • Vaccines • Higher-technology antibiotics PETS IN THE HOUSE • Parasiticides Therapeutic Areas • Pain/inflammation PETS IN THE YARD • Vaccines • Internal medicine Therapeutic Areas • Par
Slide 21: Drivers of Pet Care Growth
DRIVERS OF PET CARE GROWTH DISTINCT TRENDS IN EMERGING VS. DEVELOPED MARKETS EMERGING DEVELOPED MARKETS MARKETS INCREASED PET OWNERSHIP HIGHER MEDICALIZATION (ROUTINE CARE) SPECIALTY CARE PRICE 5% 1 Vetnosis STORM from 2013-2018 CAGR1 GLOBAL COMPANION ANIMAL HEALTH 21
Slide 22: Animal Health Presents Attractive Investment
ANIMAL HEALTH PRESENTS ATTRACTIVE INVESTMENT • Animal health is an attractive market ONE • Supported by strong LIVESTOCK growth drivers • Highly diversified in many ONE COMPANION dimensions • Unique characteristics 22
Slide 23: How We Deliver Value to Our Shareholders
HOW WE DELIVER VALUE TO OUR SHAREHOLDERS
Slide 24: World Leader
MARKET OUR FOCUS PRESENCE IN 35% 120+ 1 300+ PRODUCT LINES COMPANION ANIMAL HEALTH* COUNTRIES WE PROVIDE COLLEAGUES AROUND THE WORLD MEDICINES 65% 9,800+ 1 VACCINES DIAGNOSTICS LIVESTOCK HEALTH* GENETICS WORLD LEADER 2 In discovery, development and manufacture of veterinary vaccines and medicines 1
Slide 25: Diverse Portfolio Provides Strength
DIVERSE PORTFOLIO PROVIDES STRENGTH PORTFOLIO DIVERSITY IS CRITICAL TO OUR FINANCIAL RESULTS REVENUE REVENUE BY REVENUE BY REVENUE BY BY SPECIES1 THERAPEUTIC AREA1 SEGMENT1 PRODUCT LINE Top three products: 20% 2% 3% 12% 10% 16% 29% 15% 36% 39% 15% 17% 42% 61% 35% 16% 27% 25% Cattle Anti-infectives U
Slide 26: Competitive Advantage
COMPETITIVE ADVANTAGE THREE INTERCONNECTED CAPABILITIES UNDERPIN BUSINESS MODEL HIGH-QUALITY DIRECT SALES INNOVATION PRODUCTS 26
Slide 27: Path for Continued Leadership
PATH FOR CONTINUED LEADERSHIP STRATEGIC FOCUS & CORE BELIEFS PROVIDE ROADMAP FOR SUCCESS LEVERAGE OUR CAPABILITES • Leverage our local presence and customer relationships • Invest in innovation to extend our product portfolio • Provide high-quality products and improve margins EXTEND OUR REACH • Fur
Slide 28: Enhancing Our Long-Term Value Proposition with Business Development
ENHANCING OUR LONG-TERM VALUE PROPOSITION WITH BUSINESS DEVELOPMENT APPLYING DISCIPLINED PORTFOLIO MANAGEMENT FOR GROWTH BUSINESS DEVELOPMENT STRENGTHS AND EXPERIENCE Position of Strength: Core Capabilities and Scale Experienced in Licensing, Acquisitions, Integrations & Divestitures Partner of Choi
Slide 29: Zoetis Leads Animal Health Industry
ZOETIS LEADS ANIMAL HEALTH INDUSTRY SINGULAR FOCUS HELPS DELIVER GROWTH, STABILITY AND STRONG RETURNS 2013 AH REPORTED SALES AND % GROWTH (INCLUDING NON-AH SALES) $4,561 5.2% 2013 Reported Sales (US$M) $3,362 -1.1% $2,636 -5.9% $2,152 5.6% $1,735 $1,421 3.6% $1,171 4.1% $978 7.4% $827 9.4% 6.0% $398
Slide 30: Worldwide Market Leader
WORLDWIDE MARKET LEADER WELL POSITIONED ACROSS MULTIPLE GEOGRAPHIES, CATEGORIES & SPECIES MARKET POSITION MARKET POSITION MARKET POSITION BY GEOGRAPHY BY PRODUCT CATEGORY BY SPECIES North America #1 Anti-Infectives #1 Cattle #1 Latin America #1 Other Pharma1 #1 Swine #1 Asia #1 Medicated Feed Additi
Slide 31: Business Model Drives Outperformance
BUSINESS MODEL DRIVES OUTPERFORMANCE OVER THE LAST THREE YEARS, ZOETIS HAS GROWN IN LINE WITH OR FASTER THAN THE MARKET $1,113 REVENUE CAGR $942 24% 2010 – 2013 $806 22% ZOETIS1 5.1% AH MARKET2 4.6% 19% 2011 2012 2013 Adjusted EBIT ($M) 3 % of Revenue Source: Vetnosis; Company Filings 1 Zoetis repor
Slide 32: Our Long-Term Value Proposition to Shareholders
OUR LONG-TERM VALUE PROPOSITION TO SHAREHOLDERS GROW REVENUE IN LINE WITH OR FASTER THAN THE MARKET GROW ADJUSTED NET INCOME1 FASTER THAN REVENUE TARGET VALUE-ADDED INVESTMENT OPPORTUNITIES RETURN CAPITAL TO SHAREHOLDERS 1 Adjusted Net Income is a non-GAAP measure and defined as the corresponding re
Slide 33: Clint Lewis
Clint Lewis Executive Vice President & President, U.S. Operations 33
Slide 34: Global Leadership, Scale and Scope
GLOBAL LEADERSHIP, SCALE AND SCOPE Zoetis combines the local presence and knowledge necessary to serve the unique needs of individual customers with the global reach and resources essential to help advance animal health globally. REVENUE BY REGION • 42% U.S. • 25%1 EuAfME • 17% CLAR EUAFME • 16% APA
Slide 35: Direct Sales and Marketing Leadership with Strong Customer Relationships
DIRECT SALES AND MARKETING LEADERSHIP WITH STRONG CUSTOMER RELATIONSHIPS GLOBAL SCALE SALES FORCE TECHNICAL SERVICES 35
Slide 36: Our Customers and Their Needs Vary From Region to Region
OUR CUSTOMERS AND THEIR NEEDS VARY FROM REGION TO REGION VETERINARIANS PRODUCERS OTC/RETAIL DISTRIBUTORS 36
Slide 37: We Call Upon Three Tiers of Customers Across All Markets
WE CALL UPON THREE TIERS OF CUSTOMERS ACROSS ALL MARKETS DIRECT & TELESALES STRATEGIC SALES REPRESENTATIVES, ACCOUNTS & TECHNICAL SERVICES, VETERINARIANS DISTRIBUTORS MIDDLE TIER CUSTOMERS DISTRIBUTORS SMALL PRODUCERS / DEALERS / VETERINARIANS 37
Slide 38: Differences Between Human Health & Animal Health Drive Selling Approach
DIFFERENCES BETWEEN HUMAN HEALTH & ANIMAL HEALTH DRIVE SELLING APPROACH HUMAN HEALTH ANIMAL HEALTH • GATEKEEPER • DIRECT ACCESS TO • LIMITED TIME DECISION MAKER VS • GOVERNMENT • TIME FOR AND THIRD CONSULTATION PARTY PAYERS • HIGHLY FRAGMENTED • ONLY PRODUCT CUSTOMER BASE FOCUSED • PRODUCTS + EXPERT
Slide 39: Customer Engagement Framework: Solution Selling
CUSTOMER ENGAGEMENT FRAMEWORK: SOLUTION SELLING ADDRESSES TRUE DELIVERED IN A A COMPELLING OFFER TAILORED APPROACH CUSTOMER NEEDS CHANGES INCREASED SALES COMPETITIVE DIALOGUE ADVANTAGE A compelling OFFER can be a combination of products, expertise, or services 39
Slide 40: Zoetis Leads the Industry in Digital Selling Capabilities
ZOETIS LEADS THE INDUSTRY IN DIGITAL SELLING CAPABILITIES 40
Slide 41: U.S. Market Overview
U.S. MARKET OVERVIEW
Slide 42: Expanding Our Market Leadership in the U.S.
EXPANDING OUR MARKET LEADERSHIP IN THE U.S. GROWING FASTER THAN THE MARKET IN ALL SPECIES1 $1.9B 825 2013 REVENUE FIELD FORCE COLLEAGUES LARGEST ZOETIS SEGMENT (REVENUE) 1 Vetnosis 42
Slide 43: An Introduction to the U.S. Market
AN INTRODUCTION TO THE U.S. MARKET DIVERSIFIED REGIONAL REVENUE TARGETS KEY SPECIES 2013 U.S. SEGMENT REVENUE – BY SPECIES 5% 8% Companion Animal Dogs/Cats Horses 11% 41% Livestock Cattle Swine Poultry Other 35% 2013 Revenue: $1,902M 43
Slide 44: Our Business in the U.S. Market
OUR BUSINESS IN THE U.S. MARKET HISTORICALS AND OUTLOOK U.S. Segment Revenue & Earnings1 2,000 60% • Steady, consistent revenue 1,800 58% performance 1,600 55% 56% • 2014 YTD: 6% growth 1,400 54% • Outperforming the Revenue ($M) 52% 1,200 52% market2 1,000 49% 50% 800 47% 48% • Continued growth in 6
Slide 45: Key Trends Driving Growth
KEY TRENDS DRIVING GROWTH COMPANION ANIMALS • Overall spending per pet is growing1 • Role of the veterinarian is most important; alternate channels are evolving LIVESTOCK • Increased demand, both domestically and globally, across all protein segments2 • Increased producer profitability • Increased v
Slide 46: Key U.S. Approaches for Growth
KEY U.S. APPROACHES FOR GROWTH Expand & Maximize Leverage Performance Grow Our Influence Across the of Our Portfolio Complementary Stakeholder Chain Businesses Building on Increase Our Existing Penetration Portfolio & Revenue with Strategic Customers 46
Slide 47: Bringing All the Pieces Together to Drive Growth
BRINGING ALL THE PIECES TOGETHER TO DRIVE GROWTH 47
Slide 48: Portfolio Programs Drive Customer Value and Loyalty
PORTFOLIO PROGRAMS DRIVE CUSTOMER VALUE AND LOYALTY Medicated Pain & Feed Purchases Vaccines Antibiotics Sedation Additives $$$$ $$$$ Increasing Savings $$$ $$$ $$ $$ $ $ Increasing Savings 48
Slide 49: Customers Recognize the Value of Our Field Force
CUSTOMERS RECOGNIZE THE VALUE OF OUR FIELD FORCE OVERALL 1 Zoetis RANKING 2 Elanco 3 Merial 4 Novartis 5 Hill’s 6 Iams/P&G Pet Care 7 Boehringer Ingelheim 8 Royal Canin 9 Merck 10 Nestle Purina PetCare 2012 Sales Force Effectiveness Study, Brakke Consulting Inc. 49
Slide 50: U.S. Key Takeaways
U.S. KEY TAKEAWAYS • Largest Zoetis segment (42% of revenue) • Growing faster than market in all species1 • #1 animal health company in U.S. 1 Vetnosis 50
Slide 51: Joyce Lee
Joyce Lee Executive Vice President & Area President, Canada & Latin America Region 51 Privileged and confidential information. Not for distribution.
Slide 52: Market Leader in CLAR, the World's Fastest Growing Region
MARKET LEADER IN CLAR, THE WORLD’S FASTEST GROWING REGION $778M 2013 REVENUE 22 COUNTRIES 600 FIELD FORCE COLLEAGUES 2/3 OF THE WORLD’S NATURAL OUR 2ND AND 3RD RESOURCES LARGEST MARKETS ARE IN CLAR1 1 Inter-America Development Bank 52
Slide 53: An Introduction to the CLAR Market
AN INTRODUCTION TO THE CLAR MARKET 2013 CLAR SEGMENT REVENUE BY COUNTRY BY SPECIES 4% 3% 2% Companion Animal 6% Brazil 1% Dogs/Cats Canada 16% 11% Horses 40% Mexico 44% Livestock Venezuela Cattle 15% Argentina 17% Poultry Other* Swine 20% Other 24% 2013 Revenue: $778M * Includes key markets such as
Slide 54: Our Business in the CLAR Market
OUR BUSINESS IN THE CLAR MARKET HISTORICALS AND OUTLOOK CLAR Segment Revenue & Earnings1 900 • Recent acceleration in revenue 39% 800 growth 37% • 2014 YTD: 12% operational 700 35% growth • Outperforming rest of industry2 Revenue ($M) 600 34% 35% 33% 500 33% 31% • Significant improvement in 400 31%
Slide 55: Key Trends Driving Growth
KEY TRENDS DRIVING GROWTH A RAPIDLY GROWING MIDDLE CLASS1 • Strong population growth and increased middle class will drive growth in protein consumption and pet spending INCREASING INTERNAL CONSUMPTION & INCREASING EXPORTS2 HARMONIZING OF REGULATORY STANDARDS EARLY-ADOPTER MENTALITY • Driving increa
Slide 56: Key CLAR Approaches for Growth
KEY CLAR APPROACHES FOR GROWTH Leverage Invest in Commercial Innovation Realize our investment in Model value-based technical Fully utilize our people Invest in services and outcomes research and systems to bring results to our company Emerging and customers Markets Extract Maximum Value Capitalize
Slide 57: Capitalizing on Our Three Interconnected Capabilities
CAPITALIZING ON OUR THREE INTERCONNECTED CAPABILITIES EXTENDING TERRAMICINA PRODUCT LIFECYCLE WORLD-CLASS COMMERCIAL MODEL + INNOVATION R&D + MANUFACTURING TERRAMICINA LA • 60+ year product • We are able to continue to extend the lifecycle • Customer concern goes beyond just disease treatment • Loca
Slide 58: CLAR Key Takeaways
CLAR KEY TAKEAWAYS • Increasing middle class spending on meat and pets • Land and water are the fuel to increase productivity and meet demand • Commercial teams with deep relationships and the passion to deliver results • Market leader and growing faster than the market1 1 Vetnosis 58
Slide 59: Dr. Stefan Weiskopf
Dr. Stefan Weiskopf Executive Vice President and Area President, Asia Pacific Region 59 Privileged and confidential information. Not for distribution.
Slide 60: Expanding Our Market Leadership in Asia Pacific
EXPANDING OUR MARKET LEADERSHIP IN ASIA PACIFIC $713M 25+ 1,275 8 MANUFACTURING SITES 2013 REVENUE COUNTRIES FIELD FORCE COLLEAGUES 3 RESEARCH AND DEVELOPMENT SITES 60
Slide 61: An Introduction to the APAC Market
AN INTRODUCTION TO THE APAC MARKET DIVERSITY AND BALANCE IN GROWTH MARKETS 2013 APAC SEGMENT REVENUE BY COUNTRY BY SPECIES 7% 2% Companion Animal Australia Dogs/Cats 29% 25% 26% Japan Horses 18% China Livestock Thailand Swine India 8% 18% Cattle Other* 23% 24% 8% Poultry 12% Other 2013 Revenue: $713
Slide 62: Our Business in APAC
OUR BUSINESS IN APAC HISTORICALS AND OUTLOOK APAC Segment Revenue & Earnings1 • Fast growth supported by 750 41% emerging markets, tempered 675 38% 39% by slower growth in developed 600 markets 37% 525 Revenue ($M) 34% 35%• Outperforming the market2 450 375 33% 300 31% • Significant improvement in 3
Slide 63: Key Trends Driving Growth
KEY TRENDS DRIVING GROWTH DIVERSE MARKETS IN REGION • Significant differences between developed markets (Japan, Australia, New Zealand) and emerging markets (China, India, Southeast Asia) POSITIVE DEMOGRAPHICS & ECONOMICS • 46% of growth for region to come from China • Swine is the fastest growing s
Slide 64: Key APAC Approaches for Growth
KEY APAC APPROACHES FOR GROWTH Broaden Portfolio Win in Pockets To Increase Market of High Growth Access with focus on through leveraging R&D and emerging markets business development efforts and select species Leverage Our segments in Local Presence developed markets Drive & Customer Entrepreneuria
Slide 65: Win in China
WIN IN CHINA ZOETIS’ INTERCONNECTED CAPABILITIES • Invested in best-in-class field force (largest field force of all MNCs) • Formed joint venture (JV) with local partner for high-quality vaccine manufacturing • Established local R&D partnership to fuel JV pipeline with first product launch in 2013 (
Slide 66: APAC Key Takeaways
APAC KEY TAKEAWAYS • Market leader and growing faster than the market1 • China will contribute to ~50% of growth with swine as the fastest growing species • Our interconnected capabilities of innovation, quality and commercial strength position us to win in APAC 1 Vetnosis 66
Slide 67: Dr. Alejandro Bernal
Dr. Alejandro Bernal Executive Vice President and Area President, Europe, Africa & Middle East Region 67 Privileged and confidential information. Not for distribution.
Slide 68: Our Business in Europe, Africa and the Middle East
OUR BUSINESS IN EUROPE, AFRICA AND THE MIDDLE EAST SPENDING PER PET INCREASED 2X IN LAST 10 YEARS2 $1.1B 1 78 800 2013 REVENUE COUNTRIES FIELD FORCE COLLEAGUES FAST GROWTH IN EMERGING MARKETS 1 Effective in the first quarter of 2014, revenue associated with our Client Supply Services (CSS) organizat
Slide 69: An Introduction to the EuAfME Market
AN INTRODUCTION TO THE EUAFME MARKET DIVERSE REGION ACROSS COUNTRIES AND SPECIES 2013 EUAFME SEGMENT REVENUE BY COUNTRY BY SPECIES 5% 2% Companion Animal 19% Emerging* Dogs / Cats 24% 12% UK Horses 41% Germany Livestock 14% France 13% 8% Cattle Italy Swine 9% Spain 13% Poultry 13% Other Developed**
Slide 70: Our Business in the EuAfME Market
MARKET OUR BUSINESS IN THE EUAFME MARKET HISTORICALS AND OUTLOOK EuAfME Segment Revenue & Earnings1 1,200 •• Consistent Consistent 3%3% operational operational 39% 1,050 37% growth; in growth; in line, line, or or faster faster than than 37% the market the market 2 2 900 35% Revenue ($M) 35% 750 ••
Slide 71: Key Trends Driving Growth
KEY TRENDS DRIVING GROWTH TWO DIFFERENT MARKET DYNAMICS (Western Europe & Emerging Markets) • Tailored strategies / diversified business INCREASING CONSUMER INFLUENCE (Farmers, Pet Owners, Consumers) • New stakeholders (retailers, NGO’s) REGULATORY SCRUTINY (Anti-infectives, Generics, Animal Welfare
Slide 72: Key EuAfME Approaches for Growth
KEY EUAFME APPROACHES FOR GROWTH 1 2 CREATE THE BEST CUSTOMER EXPAND EXPERIENCE STAKEHOLDER FOR VETS REACH 4 INNOVATE PRODUCTS AND SERVICES 3 ACCELERATE ENTRY TO NEW MARKETS 72
Slide 73: Case Study: Success in Innovation
CASE STUDY: SUCCESS IN INNOVATION • First vaccine to market • Responds to market needs Poulvac E. coli Sales – EuAfME • Exclusive patented innovation 70% CAGR 2012-2014 46% layers and breeders Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2013 2013 2013 2014 2014 2014 vaccinated in France within first 2 years1
Slide 74: EuAfME Key Takeaways
EUAFME KEY TAKEAWAYS • A large and diverse region with strong growth opportunities • Customer engagement, geographic expansion and innovation as key strategic priorities • Unique fundamentals to deliver revenue growth and margin improvements for Zoetis 74
Slide 75: We'll Be Right Back
WE'LL BE RIGHT BACK
Slide 76: Catherine Knupp, DVM, MS
Catherine Knupp, DVM, MS Dr. Catherine Executive Knupp Vice President and President Executive Vice President and President of R&D 76
Slide 77: Our R&D Model Is Focused on the Unique Needs of the Animal Health Industry
OUR R&D MODEL IS FOCUSED ON THE UNIQUE NEEDS OF THE ANIMAL HEALTH INDUSTRY
Slide 78: Animal Health R&D Has Distinct Advantages Versus Human Health R&D
ANIMAL HEALTH R&D HAS DISTINCT ADVANTAGES VERSUS HUMAN HEALTH R&D More predictable results Higher success rate Shorter cycle time Lower overall cost 78
Slide 79: Our R&D Model Is Differentiated by Strengths in Multiple Areas
OUR R&D MODEL IS DIFFERENTIATED BY STRENGTHS IN MULTIPLE AREAS GLOBAL GRASP OF EXTENSIVE INTERNAL CUSTOMER NEEDS EXPERTISE & CAPABILITIES PARTNER OF CHOICE FOR REGULATORY EXPERTISE EXTERNAL ALLIANCES WORLDWIDE 79
Slide 80: Zoetis' Capabilities Deliver a Range of Products to Meet Customer Needs
ZOETIS’ CAPABILITIES DELIVER A RANGE OF PRODUCTS TO MEET CUSTOMER NEEDS Disease Prevention Treatment Performance & Control Optimization Biodevices Animal Genetics Diagnostics 80 CONFIDENTIAL AND INTERNAL TO PFIZER
Slide 81: R&D Investment Is Allocated Based on Revenue Opportunities
R&D INVESTMENT IS ALLOCATED BASED ON REVENUE OPPORTUNITIES
Slide 82: Customer Needs Define Opportunities for R&D Investment to Drive Revenue Growth
CUSTOMER NEEDS DEFINE OPPORTUNITIES FOR R&D INVESTMENT TO DRIVE REVENUE GROWTH MARKET GROWTH & DIFFERENTIATION R&D AREAS OF INTEREST CUSTOMER NEEDS CURRENT & FUTURE 82
Slide 83: A Structured Process Guides Portfolio Prioritization and Execution
A STRUCTURED PROCESS GUIDES PORTFOLIO PRIORITIZATION AND EXECUTION OPPORTUNITY SELECTION ANNUAL PROJECT OPPORTUNITY PRIORITIZATION IDENTIFICATION Led by decision-makers from R&D, marketing, ZOETIS commercial and MARKET GROWTH CUSTOMER alliances NEEDS 83
Slide 84: Investment Decisions Are Based on Four Key Criteria
INVESTMENT DECISIONS ARE BASED ON FOUR KEY CRITERIA Customer Technical Importance Feasibility Return on Commercial Investment Value 84
Slide 85: Our Global Presence Facilitates Execution and Delivery to a Global Market
OUR GLOBAL PRESENCE FACILITATES EXECUTION AND DELIVERY TO A GLOBAL MARKET Kalamazoo, MI Louvain-la-Neuve, Belgium Zaventem, Belgium Charles City, IA Melbourne, Australia College Park, MD Mumbai (Thane), India Olot, Spain Beijing, China Lincoln, NE Guarulhos, Brazil Campinas, Brazil 85 Co-located wit
Slide 86: Product Innovation Builds Enduring Brands
PRODUCT INNOVATION BUILDS ENDURING BRANDS
Slide 87: Our Model Delivers Customer-Focused Innovation
OUR MODEL DELIVERS CUSTOMER-FOCUSED INNOVATION NEW PRODUCT INNOVATION PLATFORM OF KNOWLEDGE BRANDED PRODUCT INNOVATION 87
Slide 88: Urgent Market Need Demands Speed
URGENT NEED DEMANDS SPEED 10 MARKET
Slide 89: Emerging Infectious Diseases Require Speed to Market
EMERGING INFECTIOUS DISEASES REQUIRE SPEED TO MARKET ZOETIS HAS THE CAPABILITES CRITICAL TO SUCCESS 1 Strong relationships with surveillance centers of excellence worldwide 2 Deep scientific knowledge in infectious diseases and product development 3 Manufacturing to scale up production rapidly at th
Slide 90: Customer Need Drives Rapid Response
CUSTOMER NEED DRIVES RAPID RESPONSE ACROSS BUSINESS, R&D AND MANUFACTURING March – July 2014 August 25, 2014 April 2013 November 2013 Clinical program & All pivotal registration PEDv identified in U.S. Clinical program initiated; manufacturing submissions complete USDA meeting preparations August –
Slide 91: New Product Innovation: First and Best in Class
NEW PRODUCT INNOVATION FIRST AND BEST IN CLASS
Slide 92: New Product Innovation in Allergic Skin Disease Transforms Markets
NEW PRODUCT INNOVATION IN ALLERGIC SKIN DISEASE TRANSFORMS MARKETS Novel Targeted Therapy CUSTOMER NEED NEW PRODUCT INNOVATION • Expertise in dermatology • Proven efficacy • New scientific insights • Improved safety • Influence with regulators • Rapid onset TARGET THE CAUSE, NOT JUST THE SYMPTOMS 92
Slide 93: Knowledge in Allergic Skin Disease Will Yield Future Products
KNOWLEDGE IN ALLERGIC SKIN DISEASE WILL YIELD FUTURE PRODUCTS 4 ISSUED PATENTS, 10+ PUBLICATIONS, 28+ CONFERENCE ABSTRACTS CREATED PLATFORM FOR CONTINUOUS INNOVATION 93
Slide 94: Continuous Innovation Builds Enduring Brands
CONTINUOUS INNOVATION BUILDS ENDURING BRANDS o4 zoetis
Slide 95: Lifecycle Improvements Are Diverse and Imperative to Market Leadership
LIFECYCLE IMPROVEMENTS ARE DIVERSE AND IMPERATIVE TO MARKET LEADERSHIP LIFECYCLE ENHANCEMENTS Claims Formulations Geographic Additional Expansion Routes/Schedule Species Combinations of Administration INNOVATION INTENSITY INNOVATION INTENSITY 95
Slide 96: The Ceftiofur Franchise
THE CEFTIOFUR FRANCHISE A REMARKABLE BRAND LIFECYCLE SUCCESS STORY FOR 25 YEARS FIRST MOST APPROVAL RECENT 1988 Naxcel/Excenel • Sterile Powder APPROVAL 3Q 2013 RTU (ready to use) RTU-EZ • Convenient Ready-to-Use • Reformulated • Longer shelf life to come out easier CCFA • Sustained release; one tre
Slide 97: Continuous Innovation Builds Enduring Brands
CONTINUOUS INNOVATION BUILDS ENDURING BRANDS PLANNING FOR A CONTINUOUS FLOW OF PRODUCTS 60+ YEARS YEARS 25+ YEARS <10 YEARS 15+ YEARS 97
Slide 98: The Future Is Now
THE FUTURE IS NOW
Slide 99: Depth and Breadth of Portfolio Ensures Sustained Delivery of Value
DEPTH AND BREADTH OF PORTFOLIO ENSURES SUSTAINED DELIVERY OF VALUE BIOPHARMACEUTICALS VACCINES PHARMACEUTICALS CROSS SPECIES SPECIES SPECIFIC Parasiticides Companion Animal Livestock Complementary Infectious Disease Solutions • Prevention Allergy/Dermatology Reproduction Genetics • Treatment Sedatio
Slide 100: Poised to Shape the Future
POISED TO SHAPE THE FUTURE ZOETIS HAS THE CHARACTERISTICS AND CAPABILITIES TO SHAPE AND EXPLOIT THIS FUTURE Customized vaccination protocols delivered with genomic profiles for performance Prevention and early detection of disease through diagnostics and prophylactic treatments Unrivaled safety thro
Slide 101: Research & Development Generates Revenue Growth
RESEARCH & DEVELOPMENT GENERATES REVENUE GROWTH KEY TAKEAWAYS • Breadth of capabilities to deliver on unique and complex needs of the animal health industry • Rigorous approach to evaluating, selecting and prioritizing project investments based on growth and revenue opportunities • Robust portfolio
Slide 102: Kristin Peck
Kristin Peck Executive Vice President and Group President 102
Slide 103: Key Features of Zoetis Manufacturing
KEY FEATURES OF ZOETIS MANUFACTURING DELIVERING QUALITY, RELIABLE SUPPLY AT A COMPETITIVE COST $ 1.67 BILLION 3,800 COLLEAGUES Cost of goods sold1 200 14K 30 300+ APPROXIMATELY FINISHED GOOD THIRD-PARTY MANUFACTURERS IN SKUs COUNTRIES PRODUCT LINES 46 INSPECTIONS 27 8 21 MAJOR 2 MANUFACTURING 0 DEFI
Slide 104: High-Quality, Trusted Products
HIGH-QUALITY, TRUSTED PRODUCTS CUSTOMERS’ TOP PRIORITIES FOCUS ON SUPPLY Q: HOW IMPORTANT ARE THESE ATTRIBUTES IN YOUR SELECTION OF AN ANIMAL HEALTH PROVIDER? 1. Provides high-quality, trusted products 92% 2. Delivers products with consistent performance 86% 3. Delivers products on time 80% 4. Alway
Slide 105: Designed for Global Customer Base
DESIGNED FOR GLOBAL CUSTOMER BASE DIVERSE NETWORK OF SITES, TECHNOLOGIES AND EXPERTISE DIAGNOSTICS/ BIOLOGICALS STERILES & PHARMAS APIs1 & MFAs2 DEVICES LINCOLN WILLOW DURHAM ISLAND SALISBURY EAGLE CHARLES U.S. GROVE CITY KALAMAZOO SAN DIEGO CHICAGO LAURINBURG WHITEHALL HEIGHTS LONGMONT VAN BUREN CA
Slide 106: Sourcing for the Best Solution
SOURCING FOR THE BEST SOLUTION BALANCE INTERNAL AND EXTERNAL RESOURCES FOR EFFICIENCY AND EXPERTISE INTERNAL EXTERNAL • Maximizes internal • Provides supplemental capacity and cost capacity efficiency • Responsible for • Responsible for approximately 35% of approximately 65% of manufacturing spend m
Slide 107: Manufacturing Execution & Excellence
MANUFACTURING EXECUTION & EXCELLENCE HISTORY OF MANAGING COMPLEXITY OF ANIMAL HEALTH SUPPLY • Consistent excellence in quality • Track record and culture of continuous improvement • Manage complex changes while maintaining high-quality supply • Partner on innovation for rapid development and supply
Slide 108: Evolving Our Supply Network
EVOLVING OUR SUPPLY NETWORK ENABLING FUTURE GROWTH WITH GREATER EFFICIENCY ZOETIS NETWORK STRATEGY PRINCIPLES IMPACT Investment in biologics and high-value Revenue growth 1 pharma formulations while leveraging strategic partnerships for other technologies (e.g., solids) that reflects a changed platf
Slide 109: Network Strategy Moving Forward
NETWORK STRATEGY MOVING FORWARD LEAN, FIT AND AGILE ▪ Lean/Six Sigma quality improvement program 1 ▪ Reduce inventory and waste ▪ Create working capital ▪ Focus on speed-to-market improvements by 2017 FOCUSED EXCELLENCE AND SIMPLIFICATION 2 ▪ Simplify internal plant network ▪ Focus investment on fut
Slide 110: Key Takeaways
KEY TAKEAWAYS • Delivering quality, reliable supply at a competitive cost • Managing diverse, global network of technologies, sites and partners • Optimizing network for future growth and efficiency 110
Slide 111: Paul Herendeen
Paul Herendeen Executive Vice President, Chief Financial Officer 111
Slide 112: Four Elements of Value Creation
FOUR ELEMENTS OF VALUE CREATION • Market leader gaining share with diverse portfolio Revenue Growth • Sustain revenue growth through innovation and lifecycle development • Improve gross profit margin through price, mix, efficiency and optimized manufacturing network Operating Margin • Leverage exist
Slide 113: Currency Footprints
CURRENCY FOOTPRINTS 2013 Non-USD Revenue by Currency 27% • Exposure to 3% 4% more than 35 5% currencies across the globe 6% • Translation & other 7% risks 28% 7% • We focus on 13% operational EUR BRL CAD AUD GBP results JPY CNY MXN Other ~54% NON-USD SALES 113
Slide 114: Revenue Growth in Animal Health
REVENUE GROWTH IN ANIMAL HEALTH SETTING EXPECTATIONS • Global animal health market delivering steady growth • Some years higher, some years lower • Mid-single-digit growth over the long term • Zoetis to grow in line with or faster than the market • Supported by DIVERSITY, DURABILITY, RESILIENCY of o
Slide 115: Diverse Revenue Stream by Many Dimensions
DIVERSE REVENUE STREAM BY MANY DIMENSIONS REVENUE BY PRODUCT LINE REVENUE BY SPECIES1 DIVERSE 2% Cattle 12% Top 10 Companion animal 39% 15% 36% product lines Swine DURABLE 61% All other 35% Poultry product lines Other livestock RESILIENT REVENUE BY SEGMENT1 REVENUE BY THERAPEUTIC AREA1 3% Anti-infec
Slide 116: Long-Duration Product Franchises
LONG-DURATION PRODUCT FRANCHISES Therapeutic Year Years on % of Product Line Area Introduced Market 2013 Sales Ceftiofur injectable line Anti-infective 1988 26 Revolution/Stronghold Parasiticide 1999 15 ~6-7% DIVERSE Draxxin Rimadyl Anti-infective Other Pharma 2004 1997 10 17 each Convenia Anti-infe
Slide 117: Steady Revenue Growth with Low Variability
STEADY REVENUE GROWTH WITH LOW VARIABILITY 2006 – 2013 Animal DIVERSE Health Industry 5.6% CAGR 1 Revenue Growth DURABLE 2009 Animal Health Industry Revenue Low single digits (excl. currency) RESILIENT Growth PROTEIN IS A OWNERS PRIORITIZE DIETARY STAPLE THEIR PET SPENDING 1 Data calculated from IFA
Slide 118: Improving COGS & Gross Margins
IMPROVING COGS & GROSS MARGINS MODEST IMPROVEMENTS IN NEAR TERM, ACCELERATION BEYOND 2017 Long-term Benefits: • Diversity of portfolio Optimize Manufacturing presents challenge to COGS EFFICIENCY PROJECTS • Long timelines to shift INITIATED NETWORK manufacturing network 2014 2017 2023 • Near-term 20
Slide 119: Leveraging Key Assets in SG&A
LEVERAGING KEY ASSETS IN SG&A Adjusted SG&A1 as % of Revenue Key assets with capabilities in place Growing to steady state ~$950M 21%* Field Sales, by year-end 2015 Marketing, A&P Growth with sales volume ~$310M 7%* G&A 2013 Adjusted ~$160M 3%* Distribution SG&A1: $1,426M 2013 1 Adjusted selling, ge
Slide 120: The Value of Our R&D Engine
THE VALUE OF OUR R&D ENGINE % of Adjusted R&D1 Maintaining the portfolio Regulatory & • Global effort to maintain ~15%* Maintenance marketability of ~14,000 SKUs Nurturing lifecycle development ~45%* Lifecycle • More than 600 product approvals Innovation over the last 5 years2 • Average duration of
Slide 121: Stabilizing Our Tax Structure
STABILIZING OUR TAX STRUCTURE Effective Tax Rate on Adjusted Income1 • Stabilized tax rate 45% 40%* 41%* • Best-in-class operating 40% model • Incentive tax rulings in 35% 34%* Belgium and Singapore 29% ~29% 30% • Modest improvement over time 25% • “Evolution” not “revolution” * Calculated on a carv
Slide 122: Relatively Fixed Net Asset Base
RELATIVELY FIXED NET ASSET BASE Net Asset Components ($B) $0.6 Cash Non-productive; some minimum operating level required $1.1 A/R 79 DSO; reasonable for industry and our company $1.4 Inventories 288 days; opportunity after SAP implementation $1.3 Fixed Assets Cap Ex above depreciation near term; lo
Slide 123: Increasing Return on Net Assets
INCREASING RETURN ON NET ASSETS Market Growth Zoetis Revenue Growth Zoetis Adjusted EBIT1 Growth Zoetis Adjusted Net Income2 Growth 2 STRONG ADJUSTED NET INCOME GROWTH ON A RELATIVELY FIXED NET ASSET BASE 1 Adjusted Earnings Before Interest and Taxes (EBIT) is calculated before the impact of purchas
Slide 124: Capital Allocation Priorities for Zoetis
CAPITAL ALLOCATION PRIORITIES FOR ZOETIS ALLOCATED AMONGST HIGH ROI ALTERNATIVES FREE CASH FLOW BUSINESS DEVELOPMENT OPPORTUNITIES RETURN CAPITAL TO SHAREHOLDERS ACTIVE MANAGEMENT OF CAPITAL STRUCTURE 124
Slide 125: Financial Guidance
FINANCIAL GUIDANCE Selected Line Items 2015 2016 - 2017 Revenue $4,850 million to $4,950 million Operational Growth1 6.5% to 8.5% Adjusted cost of sales as a percentage of revenue2 Approximately 35.5% Adjusted SG&A expenses2 $1,470 million to $1,520 million Adjusted R&D expenses2 $385 million to $40
Slide 126: Financial Guidance
FINANCIAL GUIDANCE Selected Line Items 2015 2016 - 2017 Revenue $4,850 million to $4,950 million 5% to 7% Operational Growth1 6.5% to 8.5% annually Adjusted cost of sales as a percentage of revenue2 Approximately 35.5% Adjusted SG&A expenses2 $1,470 million to $1,520 million Adjusted R&D expenses2 $
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Slide 128: Addressing Customer Needs
ADDRESSING CUSTOMER NEEDS ZOETIS ADVANTAGE GOES BEYOND PRODUCTS AND SERVICES PROVIDER/ INDUSTRY VETERINARIAN NEEDS VALUE ZOETIS COMPETITIVE ADVANTAGE More efficient production Vaccines, medicines and to drive profitability feed additives to prevent Global Leadership & Scale and treat disease Meaning
Slide 129: Our Long-Term Value Proposition
OUR LONG-TERM VALUE PROPOSITION GROW REVENUE AH Market growing mid single digits3 IN LINE WITH OR Zoetis 2015 Full Year Guidance: 6.5% - 8.5% FASTER THAN Zoetis 2016 – 2017 Full Year Guidance: THE MARKET1 5% - 7% annually GROW ADJUSTED Zoetis 2015 Full Year Guidance: 12% - 16% NET INCOME2
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