Zoetis Inc. · NYSE:ZTS
Zoetis — Investor Presentation (March 2015)
56 slides from Zoetis's investor presentation, Mar 26, 2015
Slide 1: Zoetis: The World Leader in Animal Health
ZOETIS: THE WORLD LEADER IN ANIMAL HEALTH Investor Presentation March 26, 2015
Slide 2: Forward-Looking Statements; Non-GAAP Financial Information
2 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 f
Slide 3: Our Long-Term Value Proposition to Shareholders
3 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
Slide 4: How We Are Creating Shareholder Value
4 HOW WE ARE CREATING SHAREHOLDER VALUE • Leveraging competitive advantages – industry-leading sales force, R&D and manufacturing quality – to generate operational revenue growth faster than animal health market growth • Growing adjusted net income1 significantly faster than revenue • Demonstrating
Slide 5: What You Should Expect From Us
5 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 capi
Slide 6: Path for Continued Leadership
6 PATH FOR CONTINUED LEADERSHIP STRATEGIC FOCUS & CORE BELIEFS PROVIDE ROADMAP FOR SUCCESS LEVERAGE OUR CAPABILITES 1. Leverage our local presence and customer relationships 2. Invest in innovation to extend our product portfolio 3. Provide high-quality products and improve margins EXTEND OUR REACH
Slide 7: At the Core of a $100+ Billion Industry
7 AT THE CORE OF A $100+ BILLION INDUSTRY ~$24B GLOBAL ANIMAL HEALTH MARKET EXPECTED TO EXCEED $33B BY 20202 ANIMAL HEALTH COMPANION ANIMAL ~$24 Billion 1 LIVESTOCK • Nutrition • Pet Supplies • Medicines • Vaccines • Genetics • Vet Services • Food Safety • Medicated Feed • Diagnostics Additives • He
Slide 8: Powerful Trends Creating Demand
8 POWERFUL TRENDS CREATING DEMAND PREDICTABLE, SUSTAINABLE AND FUNDAMENTAL ECONOMIC DRIVERS POPULATION A GROWING INCREASING GROWTH MIDDLE CLASS URBANIZATION
Slide 9: Differences Between Human Health & Animal Health Drive Selling Approach
9 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 + EXPE
Slide 10: Competitive Advantage
10 COMPETITIVE ADVANTAGE THREE INTERCONNECTED CAPABILITIES UNDERPIN BUSINESS MODEL HIGH-QUALITY DIRECT SALES INNOVATION PRODUCTS
Slide 11: Protein Needs Fuel Animal Health
11 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 Poult
Slide 12: Drivers of Pet Care Growth
12 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
Slide 13: Worldwide Market Leader
13 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 Add
Slide 14: Zoetis Leads Animal Health Industry
14 ZOETIS LEADS ANIMAL HEALTH INDUSTRY SINGULAR FOCUS HELPS DELIVER GROWTH, STABILITY AND STRONG RETURNS 2014 AH REPORTED SALES AND % GROWTH (INCLUDING NON-AH SALES) $4,785 4.9% 2014 Reported Sales (US$M) $3,454 2.7% $2,754 4.5% $2,347 9.1% $1,748 $1,499 0.8% 5.5% $1,174 $1,026 $1,016 0.3% 4.9% 22.6
Slide 15: Business Model Drives Outperformance
15 BUSINESS MODEL DRIVES OUTPERFORMANCE OVER THE LAST THREE YEARS, ZOETIS HAS GROWN IN LINE WITH OR FASTER THAN THE MARKET $1,266 $1,339 REVENUE CAGR $1,078 28% 28% 2010 – 2014 $940 25% ZOETIS1 5.1% 22% AH MARKET2 4.4% 2011 2012 2013 2014 Adjusted EBITDA ($M)3 % of Revenue Source: IFAH; Vetnosis; Co
Slide 16: World Leader
16 MARKET OUR FOCUS PRESENCE IN 34% 120+ COUNTRIES 300+ PRODUCT LINES COMPANION ANIMAL HEALTH* WE PROVIDE COLLEAGUES AROUND THE WORLD MEDICINES 65% 10,000+ VACCINES DIAGNOSTICS GENETICS LIVESTOCK HEALTH* WORLD LEADER 2 In discovery, development and manufacture of veterinary vaccines and medicines
Slide 17: Further Penetrate Emerging Markets
17 FURTHER PENETRATE EMERGING MARKETS 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. 1 REVENUE BY REGION • 43% U.S. •
Slide 18: We Call Upon Three Tiers of Customers Across All Markets
18 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
Slide 19: An Introduction to the U.S. Market
19 AN INTRODUCTION TO THE U.S. MARKET DIVERSIFIED REGIONAL REVENUE TARGETS KEY SPECIES 2014 U.S. SEGMENT REVENUE – BY SPECIES 5% 8% Companion Animal Dogs/Cats Equine 11% 39% Livestock Cattle Swine Poultry Other 37% 2014 Revenue: $2,059M
Slide 20: Our Business in the U.S. Market
20 OUR BUSINESS IN THE U.S. MARKET HISTORICALS AND OUTLOOK US Segment Revenue & Earnings1 2,000 • Steady, consistent revenue 1,750 57% performance 55% 1,500 52% • 2014 US Revenue Revenue ($M) 49% • Livestock: 12% growth 1,250 47% • Companion Animal: 3% 1,000 growth 750 • Continued growth in profitab
Slide 21: An Introduction to the EuAfME Market
21 AN INTRODUCTION TO THE EUAFME MARKET DIVERSE REGION ACROSS COUNTRIES AND SPECIES 2014 EUAFME SEGMENT REVENUE BY COUNTRY BY SPECIES 5% 2% Companion Animal 18% Emerging* Dogs / Cats 24% 12% UK Equine France 40% Livestock 15% Germany 13% 8% Cattle Italy Swine 9% Spain 13% Poultry Other Developed** 2
Slide 22: Our Business in the EuAfME Market
22 OUR BUSINESS IN THE EUAFME MARKET HISTORICALS AND OUTLOOK 1,200 EuAfME Segment Revenue & Earnings1 • Consistent operational growth; 1,050 38% in line, or faster than the market2 37% 900 35% • 2014 EuAfME Revenue 32% 32% • Livestock: 2%* growth Revenue ($M) 750 • Companion Animal: 4%* growth 600 4
Slide 23: An Introduction to the CLAR Market
23 AN INTRODUCTION TO THE CLAR MARKET 2014 CLAR SEGMENT REVENUE BY COUNTRY BY SPECIES 2% Companion Animal 15% Brazil 16% 1% Dogs/Cats Canada 4% Equine 38% Mexico 45% Livestock 9% Venezuela 16% Cattle Argentina Poultry 10% Other* Swine 20% Other 24% 2014 Revenue: $815M * Includes key markets such as
Slide 24: Our Business in the CLAR Market
24 OUR BUSINESS IN THE CLAR MARKET HISTORICALS AND OUTLOOK CLAR Segment Revenue & Earnings1 800 • Recent acceleration in revenue 38% growth 700 35% 34% • 2014 CLAR Revenue: 600 33% • Livestock: 13%* growth Revenue ($M) 500 31% • Companion Animal: 13%* growth 400 • Significant improvement in 300 prof
Slide 25: An Introduction to the APAC Market
25 AN INTRODUCTION TO THE APAC MARKET DIVERSITY AND BALANCE IN GROWTH MARKETS 2014 APAC SEGMENT REVENUE BY COUNTRY BY SPECIES 7% Companion Animal Australia 2% Dogs/Cats 24% 29% Japan 26% Equine 18% China Livestock India Swine 15% Thailand 8% Cattle Other* 24% 23% Poultry 9% 15% Other 2014 Revenue: $
Slide 26: Our Business in APAC
26 OUR BUSINESS IN APAC HISTORICALS AND OUTLOOK APAC Segment Revenue & Earnings1 800 • Fast growth supported by emerging markets, tempered by 700 slower growth in developed 38% 39% markets 600 Revenue ($M) 500 34% • 2014 APAC Revenue: 31% • Livestock: 8%* growth 400 28% • Companion Animal: (2%)* dec
Slide 27: Animal Health R&D Has Distinct Advantages Versus Human Health R&D
27 ANIMAL HEALTH R&D HAS DISTINCT ADVANTAGES VERSUS HUMAN HEALTH R&D More predictable results Higher success rate Shorter cycle time Lower overall cost
Slide 28: Our R&D Model Is Differentiated by Strengths in Multiple Areas
28 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
Slide 29: A Structured Process Guides Portfolio Prioritization and Execution
29 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
Slide 30: Investment Decisions Are Based on Four Key Criteria
30 INVESTMENT DECISIONS ARE BASED ON FOUR KEY CRITERIA Customer Technical Importance Feasibility Return on Commercial Investment Value
Slide 31: Lifecycle Improvements Are Diverse and Imperative to Market Leadership
31 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
Slide 32: The Ceftiofur Franchise
32 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
Slide 33: Depth and Breadth of Portfolio Ensures Sustained Delivery of Value
33 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 Seda
Slide 34: Key Features of Zoetis Manufacturing
34 KEY FEATURES OF ZOETIS MANUFACTURING DELIVERING QUALITY, RELIABLE SUPPLY AT A COMPETITIVE COST $ 1.68 BILLION 3,800 COLLEAGUES Adjusted Cost of goods sold1 200 30 THIRD-PARTY MANUFACTURERS IN COUNTRIES 300+ PRODUCT LINES 55 INSPECTIONS 27 8 21 MAJOR 2 MANUFACTURING 0 MANUFACTURING TECHNOLOGIES FA
Slide 35: Provide High-Quality Products
35 PROVIDE HIGH-QUALITY 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. Alw
Slide 36: Designed for Global Customer Base
36 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
Slide 37: Network Strategy to Improve Margins
37 NETWORK STRATEGY TO IMPROVE MARGINS MOVING FORWARD: 200 BASIS POINT IMPROVEMENT BY 2020 LEAN, FIT AND AGILE 1 ▪ Lean/Six Sigma quality improvement program ▪ Reduce inventory and waste ▪ Focus on speed-to-market improvements by 2017 FOCUSED EXCELLENCE AND SIMPLIFICATION 2 ▪ Simplify internal plant
Slide 38: Four Elements of Value Creation
38 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 ex
Slide 39: Currency Footprints
39 CURRENCY FOOTPRINTS 2014 Non-USD Revenue by Currency 28% • Exposure to 3% 4% more than 35 4% currencies across the globe 7% • Translation & other 7% risks 28% 7% • We focus on 12% operational EUR BRL CAD AUD GBP results JPY CNY MXN Other ~53% NON-USD SALES
Slide 40: Diverse Revenue Stream by Many Dimensions
40 DIVERSE REVENUE STREAM BY MANY DIMENSIONS REVENUE BY PRODUCT LINE REVENUE BY SPECIES1 DIVERSE 2% Cattle 12% Top 10 Companion animal 39% 36% product lines 15% Swine DURABLE 61% All other 34% Poultry product lines Other livestock RESILIENT REVENUE BY SEGMENT2 REVENUE BY PRODUCT CATEGORY1 3% Anti-in
Slide 41: Long-Duration Product Franchises
41 LONG-DURATION PRODUCT FRANCHISES Product Year Years on % of Product Line Category Introduced Market 2014 Sales Ceftiofur injectable line Anti-infective 1988 26 Revolution/Stronghold Parasiticide 1999 15 ~6-8% DIVERSE Draxxin Rimadyl Anti-infective Other Pharma 2004 1997 10 17 each Convenia Anti-i
Slide 42: Steady Revenue Growth with Low Variability
42 STEADY REVENUE GROWTH WITH LOW VARIABILITY 2006 – 2014 Animal DIVERSE Health Industry 5.1% 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
Slide 43: Improving COGS & Gross Margins
43 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
Slide 44: Leveraging Key Assets in SG&A
44 LEVERAGING KEY ASSETS IN SG&A Adjusted SG&A1 as % of Revenue Key assets with capabilities in place Field Sales, Marketing, Growing to steady state ~$950M 20%* A&P by year-end 2015 Growth with sales volume ~$375M 8%* G&A 2014 Adjusted ~$180M 4%* Distribution SG&A1: $1,507M 2014 1 Adjusted selling,
Slide 45: The Value of Our R&D Engine
45 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
Slide 46: Stabilizing Our Tax Structure
46 STABILIZING OUR TAX STRUCTURE Effective Tax Rate on Adjusted Income1 • Stabilized tax rate 45% • Elements driving down 41%* 2014 tax rate were not 40%* 40% structural 35% 34%* • Best-in-class operating model • Incentive tax rulings in 30% 29% ~29% Belgium and Singapore 27% • Modest improvement ov
Slide 47: Increasing Return on Net Assets
47 INCREASING RETURN ON NET ASSETS Market Growth Zoetis Revenue Growth Zoetis Adjusted EBITDA1 Growth Zoetis Adjusted Net Income2 Growth 2 STRONG ADJUSTED NET INCOME GROWTH ON A RELATIVELY FIXED NET ASSET BASE 1 Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is calc
Slide 48: Capital Allocation Priorities for Zoetis
48 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
Slide 49: Enhancing Our Long-Term Value Proposition with Business Development
49 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 C
Slide 50: Appendix
APPENDIX
Slide 51: Reconciliation of GAAP Reported to Non-GAAP Adjusted Information 2014
51 RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2014 Certain GAAP Purchase Acquisition Significant Non-GAAP in USD millions Reported Accounting related costs Items Adjusted Revenue $4,785 $0 $0 $0 $4,785 Cost of Sales 1,717 (4) 0 (33) 1,680 Gross Profit 3,068 4 0 33 3,105 Gross P
Slide 52: Reconciliation of GAAP Reported to Non-GAAP Adjusted Information 2013
52 RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2013 Certain GAAP Purchase Acquisition Significant Non-GAAP in USD millions Reported Accounting related costs Items Adjusted Revenue $4,561 $0 $0 $0 $4,561 Cost of Sales 1,669 (2) 0 (42) 1,625 Gross Profit 2,892 $2 0 $42 2,936 Gross
Slide 53: Reconciliation of GAAP Reported to Non-GAAP Adjusted Information 2012
53 RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2012 Certain GAAP Purchase Acquisition Significant Non-GAAP in USD millions Reported Accounting related costs Items Adjusted Revenue $4,336 $0 $0 $0 $4,336 Cost of Sales 1,563 (4) (9) (1) 1,549 Gross Profit 2,773 4 9 1 2,787 Gross P
Slide 54: Reconciliation of GAAP Reported to Non-GAAP Adjusted Information 2011
54 RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2011 Certain GAAP Purchase Acquisition Significant Non-GAAP in USD millions Reported Accounting related costs Items Adjusted Revenue $4,233 $0 $0 $0 $4,233 Cost of Sales 1,652 (34) (6) (31) 1,581 Gross Profit 2,581 34 6 31 2,652 Gro
Slide 55: Reconciliation of Adjusted Net Income to Adjusted EBITDA
55 RECONCILIATION OF ADJUSTED NET INCOME TO ADJUSTED EBITDA 2011 – 2014 in USD millions 2011 2012 2013 2014 Adjusted Net Income1 $503 $539 $709 $790 Interest Expense2 36 31 113 117 Interest Income2 0 (1) (3) (6) Income Taxes2 264 372 292 290 Depreciation2 117 119 138 131 Amortization2 20 18 17 17 Ad
Slide 56: Slide 56