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.