ZOETIS: THE WORLD LEADER IN ANIMAL HEALTH
Transcription
ZOETIS: THE WORLD LEADER IN ANIMAL HEALTH
ZOETIS: THE WORLD LEADER IN ANIMAL HEALTH BMO 10th ANNUAL FARM TO MARKET CONFERENCE MAY 21, 2015 1 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 future events. These statements are not guarantees of future performance or actions. Forward-looking statements are subject to risks and uncertainties. If one or more of these risks or uncertainties materialize, or if management's underlying assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. Forward-looking statements speak only as of the date on which they are made. Zoetis expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, including in the sections thereof captioned “Forward-Looking Information and Factors That May Affect Future Results” and “Item 1A. Risk Factors,” in our Quarterly Reports on Form 10-Q and in our Current Reports on Form 8-K. These filings and subsequent filings are available online at www.sec.gov, www.zoetis.com, or on request from Zoetis. NON-GAAP FINANCIAL INFORMATION We use non-GAAP financial measures, such as adjusted net income and adjusted diluted earnings per share, to assess and analyze our operational results and trends and to make financial and operational decisions. We believe these nonGAAP financial measures are also useful to investors because they provide greater transparency regarding our operating performance. The non-GAAP financial measures included in this presentation should not be considered alternatives to measurements required by GAAP, such as net income, operating income, and earnings per share, and should not be considered measures of liquidity. These non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. Reconciliation of non-GAAP financial measures and GAAP financial measures are included in the tables accompanying our earnings release and are posted on our website at www.zoetis.com. 2 JUAN RAMÓN ALAIX CHIEF EXECUTIVE OFFICER ZOETIS IS THE WORLD LEADER IN THE DISCOVERY, DEVELOPMENT AND MANUFACTURE OF VETERINARY VACCINES AND MEDICINES OUR FOCUS • We operate in the ~$24B1 animal health market, which is expected to exceed $33B by 20202 • Broad diverse portfolio: – Eight core species – Multiple therapeutic areas 34% COMPANION ANIMAL HEALTH* WORLD LEADER 1Vetnosis 2Vetnosis 4 Review 2014 STORM FORECASTS: 2014-2023 2 65% LIVESTOCK HEALTH* PROTEIN NEEDS FUEL ANIMAL HEALTH LIMITS ON POPULATION & PRODUCTION DRIVE ANIMAL HEALTH SPEND PROJECTED GROWTH BY 2023 # OF ANIMALS1 PROTEIN PRODUCTION1 1.4% 1.5% CAGR CAGR 1.2% 1.8% CAGR CAGR 1.3% 1.7% CAGR CAGR 2.1% 2.5% CAGR CAGR Beef Cattle Dairy Cattle Pigs Poultry TOTAL RANGE 1 OECD-FAO 2 Vetnosis 5 1-2% Agricultural Outlook 2014-2023 STORM from 2013-2018 2-3% ANIMAL HEALTH 6% CAGR2 GLOBAL LIVESTOCK GROW REVENUE IN LINE WITH OR FASTER THAN THE MARKET • 2014 revenue was $4.8 billion, a 5% increase on a reported basis – 7% excluding impact of foreign currencies • We have delivered consistent performance, outpacing the market Annual Revenue Growth Rates 5.2% 4.9% 4.4% 2.0% 2013 2014 ZTS Industry1 1 6 IFAH and Vetnosis ZOETIS LEADS ANIMAL HEALTH INDUSTRY SINGULAR FOCUS HELPS DELIVER GROWTH, STABILITY AND STRONG RETURNS 2014 AH REPORTED SALES AND % GROWTH (INCLUDING NON-AH SALES) 2014 Reported Sales (US$M) $4,785 4.9% $3,454 2.7% $2,754 4.5% $2,347 9.1% $1,748 0.8% $1,499 5.5% $1,174 0.3% $1,026 $1,016 4.9% 22.6% $418 5.1% 2014 reported performance is the total sales revenue and growth reported by each AH company, which might include Non-Animal Health sales and merger/acquisition activity. Source: Vetnosis Executive’s Guide 2015 7 THREE INTERCONNECTED CAPABILITIES ESSENTIAL FOUNDATION FOR SUCCESS IN ANIMAL HEALTH DIRECT SALES 8 INNOVATION HIGH-QUALITY PRODUCTS OPERATIONAL EFFICIENCY INITIATIVE – RATIONALE Full control of our operations with opportunity for improvement Reduce complexity and barriers to delivering value Greater standardization and efficiency (ERP) Growing revenue and better allocation of resources 9 STRONGER, SIMPLER, & MORE COST EFFICIENT ZOETIS ZOETIS OPERATIONAL EFFICIENCY INITIATIVE WHAT IT WILL DO IT WILL Create a more focused, profitable organization 10 Better position Zoetis for longterm, profitable growth Preserve our most valuable competitive advantages ZOETIS OPERATIONAL EFFICIENCY INITIATIVE HOW WE WILL DO IT EFFECT Reduce complexity that does not add value to our business Optimize resource allocation and efficiency 11 Become more competitive by being more focused and cost-efficient, while taking full advantage of our scale and business model ZOETIS OPERATIONAL EFFICIENCY INITIATIVE WHAT IT WILL NOT DO IT WILL NOT Represent a change in our strategy or business model 12 Shift portfolio away from valuable areas of growth Limit our ability to pursue valueadded business development MARKET SHIFTS & SKU RATIONALIZATION • Today’s selling model: 70 direct and 50 indirect countries – Shifting to ~45 direct and ~75 indirect – >95% of our pro forma 2017 sales are expected to come from direct markets – Direct sales are critical to our long-term success; initiative results in more focused application of the model • A reduction of 5,000 SKUs represents the elimination of less than 10% of our 300 product lines – Most products remain, but we are rationalizing doses, packaging, and markets – Discontinued SKUs represent low growth, low margin, high cost, and ultimately low value to Zoetis 13 FINANCIAL IMPACT MARGIN IMPLICATIONS FROM INITIATIVE AND VENEZUELA DECISION • Grow Adjusted EBIT2 margin from 25% in 2014 to approximately 34% in 2017 Guidance1 Actuals $4,950 $4,785 • Will come from cost savings of $300 million in 2017, more than offsetting related adjusted gross profit2 reduction of $100 million • Initiative is incremental to previously announced gross margin improvement of 200 basis points by 2020 from our Supply Network Strategy 1Guidance $4,725 $4,725 $4,561 $1,130 $4,336 $790 $828 $940 $709 $539 22% 24% 25% Revenue 27% 31% Adjusted Net Income as of May 5, 2015. Revenue and Adjusted Net Income reflect midpoint guidance range. net income and its components are defined as reported U.S. generally accepted accounting principles (GAAP) net income and its components excluding purchase accounting adjustments, acquisition-related costs and certain significant items. Adjusted EBIT excludes interest expense net of capitalized interest and adjusted income taxes. 2Adjusted 14 Adjusted EBIT2 Margin 34% 2 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 reported U.S. generally accepted accounting principles (GAAP) income statement line item, excluding purchase accounting adjustments, acquisition-related costs and certain significant items. The adjusted net income measure is not, and should not be viewed as, a substitute for U.S. GAAP reported net income attributable to Zoetis. 15 Q&A APPENDIX RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2015 – 2017 NET INCOME GUIDANCE in USD millions Non-GAAP Adjusted1 Full-Year 2015 Net Income Guidance $400 - $515 $40 $290 – $370 $810 - $845 Full-Year 2016 Net Income Guidance $730 - $830 $40 $100 – $140 $910 - $970 Full-Year 2017 Net Income Guidance $995 - $1,085 $40 $40 – $60 $1,095 - $1,165 1 18 | GAAP Reported Certain Significant Items & AcquisitionPurchase Accounting Related Costs Adjusted Net Income is a non-GAAP measure and defined as the corresponding reported U.S. generally accepted accounting principles (GAAP) income statement line item, excluding purchase accounting adjustments, acquisition-related costs and certain significant items. The adjusted net income measure is not, and should not be viewed as, a substitute for U.S. GAAP reported net income attributable to Zoetis. RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2014 GAAP Reported Purchase Accounting Acquisition related costs Certain Significant Items Non-GAAP 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 in USD millions Gross Profit as % of Revenue Selling, general and administrative expenses 64.9% 1,643 0 0 (136) 1,507 Research & Development Expenses 396 (2) 0 (1) 393 Amortization of intangible assets 60 (45) 0 0 15 2,099 (47) 0 (137) 1,915 Total Operating Expenses Total Operating Expenses as % of Revenue 43.9% 40.0% Restructuring charges and certain acquisition related costs 25 0 (8) (17) 0 Other (Income) / Expenses 7 0 0 (18) (11) Income/(loss) before Interest and Taxes 937 51 8 205 1,201 Interest Expense 117 0 0 0 117 Income before provision for taxes on income 820 51 8 205 1,084 Provision for taxes on income 233 17 3 37 290 Income from continuing operations 587 34 5 168 794 4 0 0 0 4 583 34 5 168 790 Net income attributable to non-controlling interests Net income attributable to Zoetis 19 | 64.1% RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2013 GAAP Reported Purchase Accounting Acquisition related costs Certain Significant Items Non-GAAP 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 in USD millions Gross Profit as % of Revenue Selling, general and administrative expenses 64.4% 1,613 1 0 (188) 1,426 Research & Development Expenses 399 (1) 0 (7) 391 Amortization of intangible assets 60 (46) 0 0 14 2,072 (46) 0 (195) 1,831 Total Operating Expenses Total Operating Expenses as % of Revenue 20 | 63.4% 45.4% 40.1% Restructuring charges and certain acquisition related costs 26 0 (22) (4) 0 Other (Income) / Expenses (9) 0 0 1 (8) Income/(loss) before Interest and Taxes 803 48 22 240 1,113 Interest Expense 113 0 0 0 113 Income before provision for taxes on income 690 48 22 240 1,000 Provision for taxes on income 187 16 8 81 292 Income from continuing operations 503 32 14 159 708 Net income attributable to non-controlling interests (1) 0 0 0 (1) Net income attributable to Zoetis 504 32 14 159 709 RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2012 GAAP Reported Purchase Accounting Acquisition related costs Certain Significant Items Non-GAAP 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 in USD millions Gross Profit as % of Revenue Selling, general and administrative expenses 64.3% 1,470 1 (1) (18) 1,452 Research & Development Expenses 409 0 0 (10) 399 Amortization of intangible assets 64 (49) 0 0 15 1,943 (48) (1) (28) 1,866 Total Operating Expenses Total Operating Expenses as % of Revenue 44.8% 43.0% Restructuring charges and certain acquisition related costs 135 0 (43) (92) 0 Other (Income) / Expenses (46) 0 0 25 (21) Income/(loss) before Interest and Taxes 741 52 53 96 942 Interest Expense 31 0 0 0 31 Income before provision for taxes on income 710 52 53 96 911 Provision for taxes on income 274 17 19 62 372 Income from continuing operations 436 35 34 34 539 0 0 0 0 0 436 35 34 34 539 Net income attributable to non-controlling interests Net income attributable to Zoetis 21 | 64.0% RECONCILIATION OF ADJUSTED NET INCOME TO ADJUSTED EBIT 2011 – 2014 2012 2013 2014 $539 $709 $790 Interest Expense2 31 113 117 Interest Income2 (1) (3) (6) Income Taxes2 372 292 290 Adjusted EBIT3 $941 $1,111 $1,191 21.7% 24.4% 24.9% in USD millions Adjusted Net Income1 % of revenue 22 | 1 Adjusted Net Income is a non-GAAP measure and defined as the corresponding reported U.S. generally accepted accounting principles (GAAP) income statement line item, excluding purchase accounting adjustments, acquisition-related costs and certain significant items. The adjusted net income measure is not, and should not be viewed as, a substitute for U.S. GAAP reported net income attributable to Zoetis. 2 Interest Expense, Interest Income, and Income Taxes include charges as included in adjusted net income 3 Adjusted Earnings Before Interest and Taxes (EBIT) is calculated before the impact of purchase accounting adjustments, acquisitionrelated costs and certain significant items and is a non-GAAP financial measure. Adjusted EBIT excludes interest expense net of capitalized interest and adjusted income taxes.