zoetis: the world leader in animal health · zoetis: the world leader in animal health corporate...

1

ZOETIS: THE WORLD LEADER IN

ANIMAL HEALTH CORPORATE PRESENTATION

UPDATED AS OF AUGUST 3, 2016

2

FORWARD-LOOKING STATEMENTS

NON-GAAP FINANCIAL INFORMATION

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, future guidance, future operating models, expectations

regarding products, future use of cash and dividend payments, tax rate and tax regimes, changes in the tax regimes and

laws in other jurisdictions, 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, 2015, 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.

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 non-

GAAP 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 appendix of this presentation as well as in the tables accompanying our earnings release and are

posted on our website at www.zoetis.com.

http://www.sec.gov/

http://www.zoetis.com/

http://www.zoetis.com/

3

STRONG LONG-TERM

INDUSTRY GROWTH

DRIVERS

4

AT THE CORE OF A $100+ BILLION INDUSTRY

COMPANION ANIMAL

LIVESTOCK

1 Vetnosis Review 2015

• Pet Supplies

• Vet Services

• Diagnostics

• OTC Health

• Nutrition

• Genetics

• Food Safety

• Herd Health

Management

• Diagnostics

~$30 Billion1

• Medicines

• Vaccines

• Medicated Feed Additives

• Parasiticides

ANIMAL HEALTH

5

POWERFUL TRENDS CREATING DEMAND

POPULATION GROWTH

A GROWING MIDDLE CLASS

INCREASING URBANIZATION

PREDICTABLE, SUSTAINABLE AND FUNDAMENTAL ECONOMIC DRIVERS

6

A HISTORY OF PRODUCTIVITY IMPROVEMENTS

HEALTHIER ANIMALS ARE MORE PRODUCTIVE

Source: UN FAO; FAPRI; USDA; Hill and Kirkpatrick, Annu. Rev. Ecol. Evol. Syst. 2010.41:1-19

ANIMAL HEALTH HAS PLAYED A ROLE

7

LIMITS ON POPULATION & PRODUCTION DRIVE ANIMAL HEALTH SPEND PROTEIN DEMAND FUELS ANIMAL HEALTH

# OF ANIMALS1 PROTEIN

PRODUCTION1

ANIMAL HEALTH

Beef Cattle

1.4% 1.5% CAGR CAGR

Dairy Cattle

1.2% 1.8% CAGR CAGR

Pigs

1.3% 1.7% CAGR CAGR

Poultry

2.1% 2.5% CAGR CAGR

1-2% 2-3%

6%

TOTAL

RANGE

PROJECTED GROWTH BY 2023

CAGR2

GLOBAL

LIVESTOCK

1 OECD-FAO Agricultural Outlook 2014-2023 2 Vetnosis STORM from 2013-2018

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

Animal

Population

Growth

Higher

Medical

Intensity

Value-Based

Price Growth

Market

Growth

8

DRIVERS OF PET CARE GROWTH DISTINCT TRENDS IN EMERGING VS. DEVELOPED MARKETS

INCREASED PET OWNERSHIP

HIGHER MEDICALIZATION (ROUTINE CARE)

SPECIALTY CARE

PRICE

EMERGING MARKETS

DEVELOPED MARKETS

5%

CAGR1 GLOBAL COMPANION ANIMAL HEALTH

1 Vetnosis STORM from 2013-2018

9

RESILIENT INDUSTRY REVENUE GROWTH

2006 – 2014

Animal Health Industry

Revenue Growth

2009 Global Recession

Animal Health Industry

Revenue Growth

Low single digits

(excl. currency)

1 Data calculated from IFAH Annual Report 2006 and Vetnosis Review 2014

5.1% CAGR1

PROTEIN IS A

DIETARY STAPLE

OWNERS PRIORITIZE

THEIR PET SPENDING

10

DIFFERENCES BETWEEN HUMAN HEALTH & ANIMAL HEALTH DRIVE SELLING APPROACH

VS

HUMAN HEALTH ANIMAL HEALTH

• DIRECT ACCESS TO

DECISION MAKER

• TIME FOR

CONSULTATION

• HIGHLY FRAGMENTED

CUSTOMER BASE

• PRODUCTS + EXPERTISE

+ SERVICES

• GATEKEEPER

• LIMITED TIME

• GOVERNMENT

AND THIRD

PARTY PAYERS

• ONLY PRODUCT

FOCUSED

11

MARKET LEADERSHIP

AND COMPETITIVE

ADVANTAGES

12

ZOETIS LEADS ANIMAL HEALTH INDUSTRY

2015 AH REPORTED SALES (INCLUDING NON-AH SALES)

Source: Vetnosis Executive’s Guide 2016

On December 15th, 2015 Sanofi (Merial) and Boehringer announced they had entered exclusive negotiations on a business swap that would make Boehringer the second largest animal health company

2015 R

ep

ort

ed

Sa

les

(U

S$

M)

$4.8B

$3.3B $3.2B

$2.8B

$1.7B $1.5B

$1.0B $0.9B $0.5B $0.4B

13

WORLDWIDE MARKET LEADER1

WELL POSITIONED ACROSS MULTIPLE GEOGRAPHIES, CATEGORIES & SPECIES

1 Vetnosis Executive’s Guide 2016, and does not consider the potential combination of Boehringer and Merial 2 Includes pain, sedation, internal medicine, etc.

MARKET POSITION BY PRODUCT CATEGORY

Anti-Infectives #1

Other Pharma2 #1

Medicated Feed Additives (MFA) #2

Vaccines (Biologicals) #2

Parasiticides #4

MARKET POSITION BY GEOGRAPHY

North America #1

Latin America #1

Asia #1

Rest of World #2

Western Europe #2

Eastern Europe #2

MARKET POSITION BY SPECIES

Cattle #1

Swine #1

Companion Animal #2

Poultry #3

14

INDUSTRY LEADING REVENUE GROWTH

WITH IMPROVING MARGINS

• We have delivered consistent

performance, outpacing the

industry

• 2015 revenue of $4.8 billion, an 8%

increase on an operational1 basis

• Adjusted EBIT Margin2 increased

from 14% in 2010 to 28% in 2015

• Savings from operational

efficiency initiative drove improved

profitability

• Continue to prioritize spending that

delivers value to customers

ZTS Revenue Operational Growth Rates

& Adjusted EBIT Margin

7% 7% 5%

7% 7% 8%

14%

19%

22% 24%

25%

28%

Operational Revenue Growth Adjusted EBIT Margin

1

2

1 Operational revenue growth is defined as revenue growth excluding the impact of foreign exchange

2 Adjusted 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, interest income and adjusted

income taxes.

*Also excludes the impact of incremental revenue from: the acquisition of King Animal Health, acquired by Pfizer on

January 31, 2011; the acquisition of Fort Dodge Animal Health (FDAH), acquired by Pfizer on October 15, 2009; and

government–mandated divestitures of legacy FDAH and our legacy products in connection with the FDAH acquisition

15

HIGH-QUALITY PRODUCTS DIRECT SALES INNOVATION

THREE INTERCONNECTED CAPABILITIES ESSENTIAL FOUNDATION FOR OUR SUCCESS IN ANIMAL HEALTH

16

ADDRESSING CUSTOMER NEEDS ZOETIS ADVANTAGE GOES BEYOND PRODUCTS AND SERVICES

PROVIDER/

VETERINARIAN NEEDS

INDUSTRY

VALUE

• More efficient

production

to drive profitability

• Meaningful innovation to

address unmet needs

and emerging disease

• Higher premiums placed

on healthier pets and

livestock

• Quality, safety and

reliability

• Vaccines, medicines and

feed additives to prevent

and treat disease

• Technologies and

programs to increase

efficiency and production

• Pet medicines and

treatments to address

unmet needs, provide

specialty care and

create value

COMPETITIVE

ADVANTAGE

• Diverse Portfolio

• Global Leadership &

Scale

• Local Presence &

Customer Relationships

• R&D Strength and

Manufacturing Quality

• Singular Focus

17

Product Line Product

Category

Primary

Species

Year

Introduced

Years on

Market

Ceftiofur injectable line Anti-infective Cattle, Sheep, Swine 1988 28

Draxxin® Anti-infective Cattle, Swine 2004 12

Revolution®/Stronghold® Parasiticide Cats, Dogs 1999 17

Convenia® Anti-infective Cats, Dogs 2007 9

Clavamox®/Synulox® Anti-infective Cats, Dogs 1994 22

Rimadyl® Other Pharma Dogs 1997 19

Aureomycin® MFA Cattle, Poultry, Sheep, Swine 1953 63

Lincomycin line MFA Swine, Poultry 1967 49

Apoquel® Other Dogs 2014 2

Dectomax® Parasiticide Cattle, Swine 1993 23

BMD® MFA Poultry, Swine 1954 62

Vanguard® line Vaccine Dogs 1978 38

Terramycin® line MFA Cattle, Poultry, Sheep, Swine 1952 64

Rispoval® line Vaccine Cattle 1982 34

Cerenia® Other Cats, Dogs 2007 9

Lasalocid line MFA Poultry, Cattle 1976 40

Vanguard® L4 Vaccine Dogs 1978 38

Suvaxyn® PCV/Fostera® PCV Vaccine Swine 2006 / 2011 10 / 5

Lutalyse® Other Cattle, Swine 1972 44

Embrex® devices Other Poultry 1988 28

ProHeart® Parasiticide Dogs 2001 15

Bovi-Shield® line Vaccine Cattle 1998 18

Cydectin® Parasiticide Cattle, Sheep 1986 30

Orbeseal®/Teatseal® Other Cattle 2001 15

~20% of

Revenue

Covered by

Exclusive IP

as of 2014

Average

Product

Duration of

Top 24 = 29

Years

DURABLE REVENUE STREAM LONG-DURATION PRODUCT FRANCHISES

% of

2015 Sales

~6-8% each

~2-3% each

~1-2% each

Top 24 =

58% of

Total

Revenue

18

CURRENCY FOOTPRINTS

26%

11% 8%

8%

7%

5%

4%

3% 28%

EUR BRL CAD GBP AUD

CNY JPY MXN Other

~47% NON-USD SALES

• Exposure to

more than 35

currencies across the globe

• Translation & other

risks

• We focus on

operational

results (constant

currency)

2015 Non-USD Revenue by Currency

19

SECTION

DIVIDER

U.S. & INTERNATIONAL

SEGMENTS

20

WE CALL UPON THREE TIERS OF CUSTOMERS ACROSS ALL MARKETS

DIRECT & TELESALES SALES REPRESENTATIVES,

TECHNICAL SERVICES, DISTRIBUTORS

DISTRIBUTORS

STRATEGIC ACCOUNTS & VETERINARIANS

MIDDLE TIER CUSTOMERS

SMALL PRODUCERS / DEALERS / VETERINARIANS

21

2015 U.S. SEGMENT REVENUE – BY SPECIES

42%

36%

10%

8% 4%

Other

Poultry

Swine

Cattle

Equine

Dogs/Cats

2015 Revenue: $2,328M

Livestock

Companion Animal

DIVERSIFIED REGIONAL REVENUE TARGETS KEY SPECIES AN INTRODUCTION TO THE U.S. SEGMENT

22

OUR BUSINESS IN THE U.S. SEGMENT HISTORICALS AND OUTLOOK

1 Defined as income before provision for taxes on income

* Represents Operational/Base revenue growth, which reflects changes in Reported growth excluding the impact of incremental revenues from: the acquisition of King Animal

Health, acquired by Pfizer on January 31, 2011, and Fort Dodge Animal Health (FDAH), acquired by Pfizer on October 15, 2009; government–mandated divestitures of legacy

FDAH and our legacy products in connection with the FDAH acquisition † In 2015, Zoetis acquired the assets of Abbott Animal Health, which contributed 4% to US revenue growth

• Steady, consistent revenue

performance

• 2015 US Revenue

• Livestock: 8% growth

• Companion Animal: 20%

growth

• Continued growth in profitability

• Expected long-term average

revenue growth:

• Mid single digits 13%* 7%* 6%* 7%* 8%* 13%

47% 49%

52% 55%

57% 60%

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2010 2011 2012 2013 2014 2015

Re

ve

nu

e (

$M

)

US Segment Revenue & Earnings1

Reported Revenue ($) Segment Earnings as % of Revenue

†

23

25%

36%

18%

15%

3% 3%

DIVERSIFIED REGIONAL REVENUE TARGETS KEY SPECIES

AN INTRODUCTION TO THE INTERNATIONAL

SEGMENT

2015 INTERNATIONAL SEGMENT REVENUE – BY SPECIES

Poultry

Swine

Cattle

Equine

Dogs/Cats

2015 Revenue: $2,386M

Livestock

Companion Animal

Other

24

250

172 168 144

123 120 108 101 90 86

75

Brazil Canada UK Australia China Germany France Japan Italy Spain Mexico

Key Market

Figures Brazil Canada UK Australia China Germany France Japan Italy Spain Mexico

Livestock/

Companion

Split

Operational1

Growth 11% 3% 9% 0% 17% (4%) (15%) 11% 3% 13% 7%

Reported

Growth (19%) (10%) 1% (17%) 15% (20%) (28%) (3%) (13%) (5%) (11%)

2015 Revenue by Market ($M)

DIVERSIFIED REGIONAL REVENUE TARGETS KEY MARKETS

85%

15%

62%

38%

49%

51%

63%

37%

80%

20%

58%

42%

62%

38%

54%

46%

55%

45%

75%

25%

87%

13%

1 Operational revenue growth is defined as revenue growth excluding the impact of foreign exchange

25

OUR BUSINESS IN THE INTERNATIONAL

SEGMENT HISTORICALS AND OUTLOOK

1 Defined as income before provision for taxes on income

* Represents Operational/Base revenue growth, which reflects changes in Reported growth excluding the impact of foreign exchange and incremental revenues from: the acquisition of King Animal Health,

acquired by Pfizer on January 31, 2011, and Fort Dodge Animal Health (FDAH), acquired by Pfizer on October 15, 2009; government–mandated divestitures of legacy FDAH and our legacy products in

connection with the FDAH acquisition

† Effective in the first quarter of 2014, revenue and earnings associated with our Client Supply Services (CSS) organization are reported within Other business activities, separate

from our four reportable segments. Reported Revenue for 2013 and 2012 has been restated to exclude the impact of these activities. Prior to 2012, CSS revenue and earnings

were not captured separately, therefore, 2011 and 2010 Reported Revenue has not been restated.

ⱡ In 2015, Zoetis acquired the assets of Abbott Animal Health, as well as PHARMAQ, which contributed a combined 1% to International operational revenue growth

Note: In May of 2015, Zoetis consolidated its three previous business units – EuAfMe, CLAR, and APAC – into one business unit, International, as part of its operational efficiency

initiative. As such, data from 2010 through 2012 is derived from aggregating previous business unit information, while 2013 through 2015 data is as shown in the most recent 10-K

• Resiliency in emerging markets,

particularly China and Brazil , due to: • Growing sophistication of production

practices

• Consolidation of producers

• Internal consumption demand for

protein, as well as favorable export

fundamentals in certain markets

• Expected long-term revenue growth of

mid-single digits • Faster growth in emerging markets

• Slower growth in developed Europe

• 2015 International Revenue • Livestock: 3% growth

• Companion Animal: 7% growth

† 4%* 7%* 5%*

† 5%*

† 6%* 4%*

ⱡ

31%

33% 34%

36% 38% 39%

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

3,000

2010 2011 2012 2013 2014 2015

Re

ve

nu

e (

$M

)

International Segment Revenue & Earnings1

Reported Revenue ($) Segment Earnings as % of Revenue

26

RESEARCH &

DEVELOPMENT

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

28

OUR R&D MODEL IS DIFFERENTIATED BY STRENGTHS IN MULTIPLE AREAS

EXTENSIVE INTERNAL

EXPERTISE & CAPABILITIES GLOBAL GRASP OF

CUSTOMER NEEDS

REGULATORY EXPERTISE

WORLDWIDE

PARTNER OF CHOICE FOR

EXTERNAL ALLIANCES

29

A STRUCTURED PROCESS GUIDES PORTFOLIO PRIORITIZATION AND EXECUTION

Led by

decision-makers

from R&D, marketing,

commercial and

alliances CUSTOMER NEEDS

OPPORTUNITY IDENTIFICATION

OPPORTUNITY SELECTION

ANNUAL PROJECT PRIORITIZATION

ZOETIS MARKET GROWTH

30

INVESTMENT DECISIONS ARE BASED ON FOUR KEY CRITERIA

Customer Importance

Technical Feasibility

Return on Investment

Commercial Value

31

LIFECYCLE IMPROVEMENTS ARE DIVERSE AND IMPERATIVE TO MARKET LEADERSHIP

Geographic

Expansion

Claims

Routes/Schedule

of Administration

LIFECYCLE ENHANCEMENTS

Formulations

Combinations

Additional

Species

INNOVATION INTENSITY

32

THE CEFTIOFUR FRANCHISE A REMARKABLE BRAND LIFECYCLE SUCCESS STORY FOR 25 YEARS

MOST RECENT APPROVAL 3Q 2013

FIRST APPROVAL 1988 Naxcel/Excenel

• Sterile Powder

RTU (ready to use)

• Convenient Ready-to-Use

• Longer shelf life

Spectramast

• Broad spectrum for today's mastitis

RTU-EZ

• Reformulated to come out easier

CCFA

• Sustained release; one treatment

33

COMPANION ANIMAL INVESTMENTS

COMING TO FRUITION

• Full supply of Apoquel and launching

in new markets

• Received conditional approval in U.S.

for our Canine Atopic Dermatitis

Immunotherapeutic (IL-31)

• Achieved U.S. and European

approval for Simparica, a

new product to help us compete in

market for oral

flea and tick products

34

CROSS SPECIES

Parasiticides

Infectious Disease

• Prevention

• Treatment

Pain/Inflammation

DEPTH AND BREADTH OF R&D PORTFOLIO ENSURES SUSTAINED DELIVERY OF VALUE

Companion Animal

• Allergy/Dermatology

• Sedation/Anesthesia

• Renal/Cardiovascular

Livestock

• Reproduction

• Food Safety

• Performance

Complementary

Solutions

• Genetics

• Diagnostics

• Biodevices

SPECIES SPECIFIC

68

TIME TO MARKET >7 Years 4-7 Years <4 Years

28 220 Research Programs

Early Development Projects

Development Projects

As of January 2016

BIOPHARMACEUTICALS PHARMACEUTICALS VACCINES

TECHNOLOGY

CLINICAL AREA

35

FINANCIAL

OVERVIEW

36

4%*

8%*

18%*

2015

Field Sales,

Marketing,

A&P

G&A

Distribution

Majority of spend related to

selling activities

LEVERAGING KEY ASSETS IN SG&A

Adjusted SG&A1

as % of Revenue

Growth with sales volume

2015 Adjusted

SG&A1: $1,399M 29% of revenue in 2015 vs. 31% in 2014

Further decreasing to 25% of revenue in

2017 at guidance midpoints2

~$845M

~$385M

~$165M

1 Adjusted selling, general and administrative expenses (SG&A) 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. 2 Guidance as of May 4, 2016

* Certain amounts and percentages may reflect rounding adjustments.

Decreasing with operational

efficiency initiative

37

OPERATIONAL EFFICIENCY INITIATIVE

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

CLEAR ROADMAP TO $300 MILLION IN ANNUAL COST SAVINGS BY 2017

STRONGER,

SIMPLER, &

MORE COST

EFFICIENT

ZOETIS

38

SUSTAINABLE MARGIN EXPANSION MARGIN IMPLICATIONS FROM OPERATIONAL EFFICIENCY INITIATIVE

$2,760

$3,582

$4,233 $4,336 $4,561

$4,785 $4,765 $4,850

$5,175

$189

$275

$503 $539

$709 $790

$889 $948

$1,155

Revenue Adjusted Net Income

Actuals Guidance1

• Grow Adjusted EBIT2

margin to

approximately 34% in

2017

• Will come from cost

savings of more than

$300 million in 2017,

more than offsetting

related adjusted gross

profit2 reduction of

$100 million

1Guidance as of August 3, 2016. Revenue, Adjusted EBIT Margins, and Adjusted Net Income reflect midpoint guidance range. 2Adjusted 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,

interest income and adjusted income taxes.

2

22% 24% 25% 28% 31.5% 34% Adjusted

EBIT2

Margin 19% 14% 12%

39

INCREASING RETURN ON NET ASSETS

STRONG ADJUSTED NET INCOME GROWTH

ON A RELATIVELY FIXED NET ASSET BASE

Zoetis Adjusted Net Income2 Growth

Zoetis Revenue Growth

Market Growth

Zoetis Adjusted EBITDA1 Growth

1 Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is calculated before the impact of purchase accounting adjustments, acquisition-related

costs and certain significant items and is a non-GAAP financial measure. Adjusted EBITDA excludes interest expense net of capitalized interest, interest income, adjusted

income taxes, and adjusted depreciation and amortization. 2 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

40

ENHANCING OUR LONG-TERM VALUE PROPOSITION WITH BUSINESS DEVELOPMENT APPLYING DISCIPLINED PORTFOLIO MANAGEMENT FOR GROWTH

AREAS OF FOCUS

Support for R&D Portfolio

New chemical entities, biological

substrates & technologies

Complementary Areas

Devices, Diagnostics, Food Safety

Portfolio Gaps & Geographical

Opportunities

ASSESSMENT CRITERIA

Strategic Fit

Clear Synergies

Financial Value

Anti-trust Considerations

Position of Strength: Core Capabilities and Scale

Experienced in Licensing, Acquisitions, Integrations & Divestitures

Partner of Choice for Animal Health Community

BUSINESS DEVELOPMENT STRENGTHS AND EXPERIENCE

41

Positions Zoetis with products

for fastest growing source of

animal protein

• Expands Zoetis’ companion animal

product portfolio

• Brings veterinarians solutions for

anesthesia, treating pain and

monitoring serious illnesses such

as diabetes

MULTIPLE FORMS OF BUSINESS DEVELOPMENT

SPECIES

STRATEGY

RATIONALE

Classic "bolt-on" to companion

animal portfolio

• Strategic fit that brings Zoetis an animal health leader in aquatic health

• Share similar strengths – an industry-leading portfolio, strong customer relationships, and world-class innovation and manufacturing

42

PHARMAQ TRANSACTION OVERVIEW

2014 Sales $76M

• On November 2, 2015 Zoetis announced an agreement to acquire PHARMAQ from the

UK-based private equity investment firm Permira, for a purchase price of $765 million in

cash

• The transaction is expected to close in Q4 2015 with no antitrust hurdles expected or

shareholder vote required

• Privately held and headquartered in Norway, PHARMAQ is recognized as the

world's leading pharmaceutical company specializing in aquatic health

• Established in 2004 as an independent company based on more than 25 years of

R&D in aquatic health

• PHARMAQ develops, manufactures and markets vaccines and therapeutic products

for farmed fish within key markets of Norway, Chile and the UK

– Strong market share in high-growth markets

– Market leaders in all key Salmon markets

• Headquartered in Overhalla, Norway; employs 200 (including 60 in R&D)

43

136 65

112

107

-20%

0%

20%

40%

60%

80%

100%

1.0% 1.5% 2.0% 2.5% 3.0% 3.5%Es

tim

ate

d A

nim

al

Me

dic

ali

za

tio

n R

ate

1

Annual Consumption Growth (%)

Annual Consumption (Million Metric Tons)

Beef

Poultry

Pork

Fish

• Fish is most consumed

meat protein in the world

• Fastest consumption

growth of all animal

proteins

• Current rate of

medicalization far below

other meat proteins

• Significant room to

improve efficiency in

aquaculture

• Growth in farmed

fish production

• New medicines and

vaccines

Source: United Nations Food and Agricultural Organization, USDA, Vetnosis 1Defined as estimated production animal population receiving medicines and vaccines

AQUATIC HEALTH HAS SEVERAL ATTRACTIVE GROWTH DRIVERS

44

FOUR ELEMENTS OF VALUE CREATION

Revenue Growth

Operating Margin

Improvement

Value-Added

Business

Development

Return Capital

to Shareholders

• Market leader gaining share with diverse portfolio

• Sustain revenue growth through new product innovation and

lifecycle innovation

• 900 bps of EBIT margin improvement through 2017 from

2014

• Improve gross profit margin through price, mix, efficiency and

optimized manufacturing network

• Maintain investment in productive Research & Development

• Regular dividend, growing over time

• Share repurchase program

• Focus on supporting R&D portfolio and adding

complementary businesses

• Utilize mix of licensing, partnerships and acquisitions to

strengthen portfolio

45

1 Adjusted research and development expenses (R&D) 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.

2015 – CAPITAL ALLOCATION FOR GROWTH

& CREATION OF SHAREHOLDER VALUE

$360M

Adjusted R&D

Investment1

$224M CapEx

$1.0B

Business

Development

~$1.6B INTERNAL AND EXTERNAL

INVESTMENT

$168M

Dividends

$200M

Share

Repurchases

~$370M EXCESS CAPITAL RETURNED

TO SHAREHOLDERS

APPENDIX

47 |

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2016 – 2017 NET INCOME GUIDANCE AS OF MAY 4, 2016

in USD millions GAAP Reported Purchase Accounting

Certain Significant

Items & Acquisition-

Related Costs

Non-GAAP

Adjusted1

Full-Year 2016 Net Income Guidance $705 - $780 $65 $105 – $145 $915 - $950

Full-Year 2017 Net Income Guidance $1,005 - $1,095 $60 $35 – $55 $1,120 - $1,190

1 Adjusted Net Income is a non-GAAP measure and defined as the corresponding reported U.S. generally accepted accounting principles (GAAP) income



48 |

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION 2015

in USD millions

GAAP

Reported

Purchase

Accounting

Acquisition

related costs

Certain

Significant

Items

Non-GAAP

Adjusted

Revenue $4,765 $0 $0 $0 $4,765

Cost of Sales 1,738 (9) 0 (62) 1,667

Gross Profit 3,027 9 0 62 3,098

Gross Profit as % of Revenue 63.5% 65.0%

Selling, general and administrative expenses 1,532 0 0 (133) 1,399

Research & Development Expenses 364 (2) 0 (2) 360

Amortization of intangible assets 61 (46) 0 0 15

Total Operating Expenses 1,957 (48) 0 (135) 1,774

Total Operating Expenses as % of Revenue 41.1% 37.2%

Restructuring charges and certain acquisition related costs 320 0 (19) (301) 0

Other (Income) / Expenses 81 0 (2) (94) (15)

Income/(loss) before Interest and Taxes 669 57 21 592 1,339

Interest Expense 124 0 0 0 124

Income before provision for taxes on income 545 57 21 592 1,215

Provision for taxes on income 206 18 (1) 103 326

Income from continuing operations 339 39 22 489 889

Net income attributable to non-controlling interests 0 0 0 0 0

Net income attributable to Zoetis 339 39 22 489 889

49 |


in USD millions

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








Other (Income) / Expenses 7 0 0 (18) (11)




Provision for taxes on income 233 17 3 37 290




50 |


in USD millions

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








Other (Income) / Expenses (9) 0 0 1 (8)






Net income attributable to non-controlling interests (1) 0 0 0 (1)


51 |


in USD millions

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


Selling, general and administrative expenses 1,470 1 (1) (18) 1,452

Research & Development Expenses 409 0 0 (10) 399


Total Operating Expenses 1,943 (48) (1) (28) 1,866




Income/(loss) before Interest and Taxes 741 52 53 96 942


Income before provision for taxes on income 710 52 53 96 911





52 |


in USD millions

GAAP

Reported

Purchase

Accounting

Acquisition

related costs

Certain

Significant

Items

Non-GAAP

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


Selling, general and administrative expenses 1,453 2 (3) (5) 1,447






Other (Income) / Expenses 48 0 1 (77) (28)

Income/(loss) before Interest and Taxes 430 82 122 172 806


Income before provision for taxes on income 394 82 122 172 770





53 |

in USD millions

GAAP

Reported

Purchase

Accounting

Acquisition

related costs

Certain

Significant

Items

Non-GAAP

Adjusted

Revenue $3,582 $0 $0 $0 $3,582

Cost of Sales 1,444 (107) 0 (19) 1,318

Gross Profit 2,138 107 0 19 2,264


Selling, general and administrative expenses 1,382 0 (17) 0 1,365

Research & Development Expenses 411 0 0 0 411


Total Operating Expenses 1,851 (41) (17) 0 1,793




Income/(loss) before Interest and Taxes 215 148 217 (84) 496


Income before provision for taxes on income 178 148 217 (84) 459

Provision for taxes on income 67 45 72 (1) 183

Income from continuing operations 111 103 145 (83) 276


Net income attributable to Zoetis 110 103 145 (83) 275


54 |

in USD millions

GAAP

Reported

Purchase

Accounting

Acquisition

related costs

Certain

Significant

Items

Non-GAAP

Adjusted

Revenue $2,760 $0 $0 $0 $2,760

Cost of Sales 1,078 (24) 0 (53) 1,001

Gross Profit 1,682 24 0 53 $1,759



Research & Development Expenses 368 0 0 (3) 365






Income/(loss) before Interest and Taxes (122) 40 247 157 322


Income before provision for taxes on income (148) 40 247 157 296

Provision for taxes on income (47) 13 79 63 108

Income from continuing operations (101) 27 168 94 188

Net income attributable to non-controlling interests (1) 0 0 0 (1)

Net income attributable to Zoetis (100) 27 168 94 189


55 |

RECONCILIATION OF ADJUSTED NET INCOME TO ADJUSTED EBIT 2009 – 2015

in USD millions 2009 2010 2011 2012 2013 2014 2015

Adjusted Net

Income1 $189 $275 $503 $539 $709 $790 $889

Interest Expense2 26 37 36 31 113 117 124

Interest Income2 0 0 0 (1) (3) (6) (6)

Income Taxes2 108 183 264 372 292 290 326

Adjusted EBIT3 $323 $495 $803 $941 $1,111 $1,191 $1,333

% of revenue 11.7% 13.8% 19.0% 21.7% 24.4% 24.9% 28.0%

1 Adjusted Net Income is a non-GAAP measure and defined as the corresponding reported U.S. generally accepted accounting principles (GAAP) income



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, acquisition-

related 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.

zoetis: the world leader in animal health · zoetis: the world leader in animal health corporate...

Documents