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POSITIONED
Delivering Results
FOR GROWTH
Analyst & Investor Day
October 14, 2015
John E. Adent
CEO, Patterson Animal Health
JOHN ADENT
2
• Former president and CEO, Animal Health International, Inc.
• 25-year agriculture industry veteran
• Former chairman of the National Future Farmers of America Foundation sponsor’s board
• Colorado Agriculture Hall of Fame
CEO, Patterson Animal Health
Key Milestones
Walco Founded
1954
Great Plains Chemical Founded
1967
Great Plains Chemical Changes Name to Lextron
1986
Webster Veterinary Joins with Patterson Companies
2001
Walco Goes Public as Animal Health International
2007
Patterson Veterinary & Animal Health International Combine Forces 2015
4
Lextron Acquires Animal Health International & Takes Company Private Walco & Lextron Join to Become Animal Health International
2011
Creating a New Model for Our Industry
15 years ago
• Distributors specialized in either companion or production
• 50+ manufacturers
Today
• Manufacturers blurring end-market distinctions, with five companies in BOTH companion & production markets
• Only two distributors have national coverage in both companion & production
Tomorrow
• Companion & production animal markets under one name is NEXT LEVEL of consolidation
• Distributors providing value-added services are more efficient & offer a cost-effective way to serve the market
5
Consolidation
by the Numbers
Animal Health Manufacturer Consolidation
14%
8%
9%
12%
6%
51%
2000
Merial Bayer
Intervet Pfizer
Fort Dodge Other
14%
8%
5%
11%
7%
55%
2008
Merial Bayer
Merck Pfizer
Fort Dodge Other
11%
7%
15%
20% 15%
32%
2015
Merial Bayer
Merck Zoetis
Elanco Other
6
Distributors in 2001
Vet Medical
Supply
Vetpo
7
Burns
Veterinary
Supply, Inc.
Animal Health as a Single Platform
Broad
coverage in
all species
Market leader in
beef, dairy, swine
and dealer
markets across
multiple product
categories
Strong long-term
relationships
with diversified
customer base
Deep product
portfolio and
value-added
services
Significant
revenue and
operating
synergies
9
Global
Opportunity –
The Protein
Imperative
10
More People, More Prosperity, More Protein
Global production animal health market is
projected to grow at CAGR of 5%
Today 2050
2 billion
increase
7.0B
9.0B
Global Population
Today 2050
Nearly
tripling
in size
1.8B
4.8B
Global Middle Class
More animal
protein production
required to sustain
trends
100 %
Required Animal Protein
11
Projected Protein Growth
45
40
35
30
25
20
15
10
1990 2000 2005 2010 2015 2020 2025
U.S. Red Meat and Poultry Production* Billion pounds
Poultry
Beef
Pork
100
90
80
70
60
50
40
30
1990 2000 2005 2010 2015 2020 2025
U.S. Per Capita Meat Consumption* Pounds per capita retail weight
Poultry
Beef
Pork
12
*Source: USDA
The U.S. Will Lead in Production/Exports
20
18
16
14
12
10
8
6
4
2
0
1990 2000 2005 2010 2015 2020 2025
U.S. Meat Exports* Billion pounds
Poultry
Beef
Pork
13
*Source: USDA
Our
Portfolio
14
Deep Product Offering
Animal health (production & companion) market share by
species, 2014
40% 43%
40%
14% 12%
4%
22%
0%
25%
50%
Production Swine Ruminant Equine Other SmallAnimal
Overallshare
36% 35%
25%
19%
15% 13%
0%
25%
50%
Antibiotics Hormones Vaccines Pharma Others Anti-
Parasitics Antibiotics Hormones Vaccines Pharma Others
Animal health (production & companion) market share by
product, 2014
Antibiotics & Hormones are
two key product categories
Swine & Ruminant –
Currently holds ~40% share
15
Antibiotics Hormones Vaccines Pharma Others Anti-
Parasitics
50% 25% 0%
Dairy 29.3%
Beef 33.0%
Swine 17.6%
Companion 12.4%
Revenue Mix by Species
16
Other 0.5%
Equine 0.9%
Poultry 1.3%
Mixed 5.0%
Recent Technology Investments
Utilizing Technology to Drive Revenue, Profitability & Customer Retention
ERP system for Producers
Only fully integrated system that supports health & feed on same platform
2013 Jan
2013 July
2013 July
B2B customer portals
Utilized EDI technology for seamless integration
2014 Nov
Acquired Turnkey Computer Systems
Launched New eCommerce Platform
Proprietary mobile application for sales rep
Real time marketing tool to push promotions & sales analytics
Developed Informed Rep Application
Cloud-based automated dispensing solution
Transactions processed & authenticated in real time
Launched New Apex Systems
Utilizing data capture to understand pricing leverage
Increase margin & focus salesforce
Zilliant-enabled Pricing Strategies
Now
17
Production Dynamics
Revenue timing can be affected by:
Regardless of economic cycles, we help
producers maximize profit & minimize loss
Weather Seasonality Animal Life
Cycles
18
Minimal Correlation to Feed Cost
Fluctuations
$0
$20
$40
$60
$80
$100
$120
2010 2011 2012 2013 2014
Total Spend/Animal/cwt Gain Vet Medicine Spend/cwt Gain Feed Cost/cwt Gain
19
Beef Input Costs
Revenue by Product Category
Biologicals 17%
Parasiticides 9%
Diet 8%
Pharma 8%
Antibiotics 28%
Diagnostics 1%
Livestock ID 2%
Equipment 3%
Med/Surg. 3%
Implants 4%
Feed Additives 4%
Other 6%
Micro-Ingredients
7%
20
Antibiotics in Production Animals
Therapeutic (treatment and control) Growth Promotion
Use Treat or prevent certain illnesses caused
by bacteria Prevent disease among animals
susceptible to infections
Dosage Large dose per unit of animal weight –
swift and complete recovery Low dose per unit of animal weight –
usually as continual / daily feed
Species Used in all animals Greater usage in animals raised in
confined spaces, e.g., swine, poultry
Availability Primarily requires prescription (Rx) Primarily over the counter (OTC)
Product Type Injectable Feed additives
21
Minimal Revenue Implications
Others
Implants
Dewormers - Rumen
Dairy Inst/Supplies
Biologicals - Swine
Pharmaceuticals
Biologicals - Rumen
Antibiotics
Feed Additives
FY 2014
$1,316M
25%
4%
5%
6%
6%
9%
10%
23% ($300M)
12% ($155M)
~$50M
~$105M Other Feed Additives
Preventative/ Growth Use Antibiotics
Feed Additives
$155M
U.S. Animal Health International revenue
Product categories at risk
Antibiotics
Therapeutic Use
Small revenue level at risk
Impacted category
Feed Additives Category
22
<$50M
Non-impacted category
$300M
Growth Promotant vs. Therapeutic:
A Zero-Sum Game
Aggregate Antimicrobial Use in Danish Swine Industry
220
180
140
100
60
20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
35
25
15
5
Prescribed human antibacterials Antimicrobial growth promoters Prescribed veterinary antimicrobials Pigs produced (mill. heads)
23
AGP ban and ban on vet sales DAN MAP 2012
Our
Customers
24
Highly Diversified Business
Producers / Farmers
Dairy Swine Beef
Number of customers 728K
64K 63K
Percent of total business revenue from
top 10 customers
3% 2% 4%
Vet Clinic
Production
4.6K
5%
25
Strong Customer Retention
0.0% 0.0% 0.1%
0.5%
1.9%
0.0%
1.0%
2.0%
3.0%
Top1000
1001 -2500
2501-5000
5001-10000
10000+
28%
40%
26%
5% 1%
0%
50%
Top 100 101 -1000
1001 -5000
5001-10000
10000+
Customer base tends
to be sole sourced … with low churn … and low concentration
Customer concentration % of revenue
Customer churn, FY13 to FY14
0.0 0.0 0.1 0.3 0.3 Rev. lost ($M)
651 187 102 62 18 Rev. FY13 ($M)
Market survey: Allocation of animal health spend
75% 73%
15% 19%
11% 8%
71
Vet clinics
Manufacturer
Production farms
Primary distributor
Other
34
26
Our Opportunity
Definition
Customer
type
Type of
products sold
Domesticated animals raised for food (e.g., cow, chicken, hog)
Distribution
Production market, $5B Companion market, $4B
Producers, farmers, veterinarians and dealers
Pets (e.g., dogs, cats, equine)
Veterinarians
Direct for large farms and small/mid- size retail/veterinarians
Mostly parasiticides, pharmaceuticals
Direct to veterinarians
Mostly antibiotics, biologicals, parasiticides
Global animal health market, $23B
United States, $9B Outside U.S., $14B
27
Attractive Long-Term Business
‘11-’16F ‘14-’20F ‘14-’19F ‘13-’18F ‘11-’16F ‘13-’18F ‘14-’20F ‘14-’18F ‘14-’20F ‘15-’20F ‘14-’20F ‘14-’20F
Consensus forecast range
Third-party market research firms
Distributors Manuf.
Public companies
Global North America
Animalytix RAMSAnimalytix
CowenandCo.
BCCRes.
Tech.Accl.
Partners
Vetnosis Free-doniaGroup
CowenandCo.
Transp.Mkt.Res.
Sundale HenrySchein
MWI Merck Zoetis
Production only
4.0% 4.2%
5.7% 6.0%
3.5% 4.0%
4.7% 5.0% 5.3%
9.5%
1.3%
5.1%
28
Projected Industry Growth Rates
Source:
Forecast
period:
Market Growth + Share Gains
5%
Price growth Animal inventory growth
1-2%
Overall growth
1-2%
Growth in spend, per animal
0.25- 0.75%
1-2%
Share gain growth
Market growth
~4-6%
29
OUR COMPETITIVE
ADVANTAGE
30
Solutions for Cattle Livestock Lifecycle
Ordering/ Receiving Ingredients
Ordering/ Receiving Commodities
Receive Cattle Bunk Reading Feed Manufacturing
Feed Scheduling Delivering
Feeding Health Treatments
Processing Cattle Movement
Shipping Environment
Turnkey
Systems
Micro Tech
Micro Machines Control Solutions Grain Solutions
Data Capture Capabilities for Business Analytics
31
Proprietary Systems Driving
Customer Loyalty
32
• ERP system for cattle producers
• Only fully integrated system that supports health & feed on same platform
• Multi-user / multi-site capabilities
• 60% of U.S. feedlot cattle tracking on Turnkey Systems
• Enabled real-time management of feedlot
• License fee drives recurring revenue
• International reach
• Largest development staff in industry
Proprietary Systems Driving Customer Loyalty
Health
Management
Payroll General
Ledger
Data
Analytics &
Reporting
Risk
Management Cattle
Inventory
Accounts
Receivable &
Payable
Product
Inventory
Feed
Management
The Company Owns the Captured Animal Health Data
• Utilize in consultative selling • Potential to monetize with manufacturers
33
CAPITALIZING
ON AN
ANIMAL HEALTH
MARKET LEADER
35
Largest Animal Health Distributor in the U.S.
Animal health (production & companion) market share
by species, 2014
Animal health (production & companion) market share
by product, 2014
40%
45% 42%
28%
23% 25%
22%
0%
25%
50%
Production Swine Ruminant Equine Other SmallAnimal
Overallshare
50% 25% 0%
50% 25% 0%
40%
20%
0%
39%
Antibiotics Hormones Vaccines Pharma Others Anti-
Parasitics
40%
35%
30%
23%
28% 33%
36
Value-Added Services Overview
Cattle Swine Retail Veterinary Poultry
• Turnkey ERP systems
• MicroTech systems
• GPS-monitored feeding
• Herd sorting technology
• Vet traceability records
• Automated inventory control w/RX Tracking
• Genomics-based feeding
• On-staff veterinarians
• Dedicated service staff
• Milk laboratory
• Biosecurity protocols
• Clean and dirty warehouses
• Limited access fleet
• On-staff veterinarian
• Distribute commodity products to limit cross contamination
• Water-soluble medication technology
• Waste lagoon consulting
• Category management for multi-unit customers
• Master merchant programs for independent customers
• B2C back-end fulfillment
• Training store personnel on product knowledge
• Broad capital equipment portfolio
• National technical service network
• Industry-leading technology platform
• Prescription home delivery platform
• Patterson Veterinary University education
• Patterson Software Connection
• Water-soluble medication technology
• Insect control programs
• Rodent control programs
• Water quality management techniques
• Litter amendments
37
COMPANION ANIMAL SLIDE COMING
Independent Practitioners
Special Markets (National/Large
Group Accounts)
Growing Share in Companion Animal Market
25% of U.S. companion animal market
Specialties (Emergency/Hospital)
38
68% U.S. households
that own a pet,
compared to
56% in 1988
(APPA)
Companion Animal Growth Drivers
$59B Estimated
expenditures by
pet owners in 2014,
up from $41B
in 2007
(APPA) 39
Key Strategic Partnerships
40
Mixed Practices: Our Enhanced Ability to Cross Serve
Patterson Animal Health – a single source for all animal needs, from pharmaceuticals to equipment
41
Technical Service: A Powerful Differentiator
• Complete service offering — installation, training & service
• Preventative maintenance programs generate recurring revenue
42
Synergies
Overview
SYNERGY REALIZATION
• Executed on 100-day projections
• Early savings capture through headcount reductions & implementation of cross selling functionality
• Devens office consolidation occurring
COMPANION ANIMAL CONSOLIDATION
• Distribution center consolidation plans under way
• Territory managers being trained on legacy systems & new products
• Introducing Animal Health International private-label portfolio
SALES & MARKETING
• At close, both sales & management team structure aligned, eliminating redundancies
• Cross selling implemented
43
Growth Our Focus for Growth
• Increase market penetration • Increase market share • Promote technology & service offerings • Grow private-label, proprietary product lines • Continue domestic/international acquisition strategy
44
POSITIONED
Delivering Results
FOR GROWTH
Questions?
45