monsanto 01-24-05_low

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monsanto 01-24-05_low

  1. 1. SEMINIS ACQUISITION INVESTOR CONFERENCE CALL Jan. 24, 2005 1
  2. 2. Forward-Looking Statements Certain statements contained in this presentation, such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, currency impact, business and financial plans and other non-historical facts are quot;forward-looking statements.quot; These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, the company’s actual performance and results may differ materially from those described or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, among others: the company's exposure to various contingencies, including those related to Solutia Inc., litigation, intellectual property, regulatory compliance (including seed quality), environmental contamination and antitrust; successful completion and operation of recent and proposed acquisitions; fluctuations in exchange rates and other developments related to foreign currencies and economies; increased generic and branded competition for the company's Roundup herbicide; the accuracy of the company’s estimates and projections, for example, those with respect to product returns and grower use of our products and related distribution inventory levels; the effect of weather conditions and commodity markets on the agriculture business; the success of the company’s research and development activities and the speed with which regulatory authorizations and product launches may be achieved; domestic and foreign social, legal and political developments, especially those relating to agricultural products developed through biotechnology; the company’s ability to successfully market new and existing products in new and existing domestic and international markets; the company’s ability to obtain payment for the products that it sells; the company's ability to achieve and maintain protection for its intellectual property; the effects of the company's accounting policies and changes in generally accepted accounting principles; the company's ability to fund its short-term financing needs; and other risks and factors detailed in the company's filings with the U.S. Securities and Exchange Commission. Undue reliance should not be placed on these forward-looking statements, which are current only as of the date of this release. The company disclaims any current intention or obligation to revise or update any forward-looking statements or any of the factors that may affect actual results, whether as a result of new information, future events or otherwise. 2
  3. 3. Non-GAAP Financial Information This presentation uses the non-GAAP financial measures of “free cash flow,” ongoing earnings per share (EPS), and Return on Capital (ROC). We define free cash flow as the total of cash flows from operating activities and cash flows from investing activities. A non-GAAP EPS financial measure, which we refer to as EPS on an ongoing basis, may exclude the impact of restructuring charges, charges associated with the settlement of litigation, gains and losses on the sale of assets, and certain other items. The specific items that are excluded from, and result in, our non-GAAP EPS financial measure are clearly identified as such in this presentation. ROC means net income exclusive of after-tax interest expenses, divided by the average of the beginning year and ending year net capital employed, as defined in the reconciliation at the end of this presentation. The presentation of free cash flow, ongoing EPS and ROC is intended to supplement investors’ understanding of our operating performance. These non-GAAP financial measures may not be comparable to similar measures used by other companies. Furthermore, these non-GAAP financial measures are not intended to replace net income (loss), cash flows, financial position, or comprehensive income (loss), as determined in accordance with accounting principles generally accepted in the United States. The non-GAAP financial measures used in this presentation are reconciled to the most directly comparable financial measures calculated and presented in accordance with GAAP, which can be found at the end of this presentation. Fiscal Year In this presentation, unless otherwise specified: References to years, or to fiscal years, 2001 through 2006 are on a fiscal year basis and refer to the 12-month period ending August 31. 3
  4. 4. Seminis Acquisition Completes Monsanto’s Transformation as a Leader in Seeds and Traits Definitive agreement to acquire Seminis Leading global vegetable and fruit seed company Acquisition price of $1.4 billion Plus performance-based payment of up to $125 million payable by end of FY 2007 Financed with cash and some incremental debt Expected to be accretive earnings and free cash flow in FY 2006 Transaction expected to close in FY 2005 Q3, pending regulatory approvals 4
  5. 5. Value Shift from Crop Chemicals to Seeds and Traits Already Under Way GLOBAL AGRICULTURAL INDUSTRY REVENUE 1996 2003 2008F $9.1 BILLION $7.6 BILLION $8.4 BILLION $0.1 $1.3 $2.7 $2.6 $3.0 $4.5 $3.5 $3.6 $3.8 CROP CHEMICALS GERMPLASM BIOTECH TRAITS Sources: U.S. 1996-2003 Doane Agrotrak & Seed Studies; 2008 Monsanto estimates Calendar years 5
  6. 6. Vegetable Seed Is Next Logical Strategic Move – High Value, High Growth Segment in Agriculture KEY TRENDS GLOBAL VEGETABLE CONSUMPTION VEGETABLE AND FRUIT… 1600 … Consumption grew at a 4.2% CAGR 1400 from 1980 to 20011 TOTAL METRIC TONS 1200 (IN MILLIONS) 1000 … Production grew 3.3 times the rate 800 of global population expansion from 1990 to 20002 600 400 … Harvested acres increased 3.2% 200 annually from 1990 to 2000, 0 compared with 0.3% for overall 1998 2002 2006 2010 agricultural harvested acres3 ASIA NORTH AMERICA EUROPE REST OF WORLD … Seed revenue projected to grow at 4% CAGR globally from 2000 Source: Datamonitor Calendar years through 20064 Sources: 1Seminis estimate 2004 10K; 2United Nations Food and Agriculture Organization; 3Ibid.; 4Seminis estimate 6
  7. 7. MARKET LEADERSHIP Seminis Provides Ready-Made, Leading Position in Untapped Seed Segment for Monsanto PROJECTED VEGETABLE SEED INDUSTRY GROWTH SEMINIS 2004 SALES BY MARKET POSITION 2900 GLOBAL SEED SALES ($ MILLIONS) R CAG 4% 2700 2500 2300 2100 MORE THAN 65% 1900 OF REVENUE DERIVED FROM PRODUCTS WITH 1700 #1 MARKET MORE THAN 20% POSITION OF REVENUE 1500 DERIVED FROM 2000 2001 2002 2003 2004 2005F 2006F PRODUCTS WITH #2 MARKET Source: Seminis estimates POSITION Calendar years 7
  8. 8. MARKET LEADERSHIP Seminis and Monsanto Hold Leading Seed Market Positions 2003 CORN & SOYBEAN SEED & TRAIT SALES 2003 VEGETABLE SEED SALES CORN 500 SOYBEANS 1800 400 1500 $ MILLIONS 1200 300 $ MILLIONS 900 200 600 100 300 0 0 S O II ER TA IS ZA TA IN N TO TA IN TA W EJ R K N IN A A EE AY TA A K N N N EN EN A B R R K U M A SA ZW N G G B SA N DV SE G G O A A N N N PI M M K A O SY SY LI IJ LI T/ M R N PO U D Sources: Phillips McDougall; Monsanto estimates Calendar year for all companies but Monsanto Source: Seminis estimates Advanta now part of Syngenta Calendar year 8
  9. 9. MARKET LEADERSHIP Combined Companies Raise the Bar for Leadership in Global Seeds 2003 SEED AND TRAIT REVENUE $3,000 $2,500 $2,000 $ MILLIONS $1,500 $1,000 $500 $0 MONSANTO MONSANTO LIMAGRAIN SEMINIS BAYER SAKATA PRO FORMA DUPONT SYNGENTA KWS TAKII DELTA & DOW PINE LAND Sources: Phillips McDougall, Monsanto reports Calendar year for all companies but Monsanto Syngenta pro forma for acquisition of Advanta and Golden Harvest (Sources: Phillips McDougall and news releases) 9
  10. 10. MARKET LEADERSHIP Monsanto Becomes the Leader in Fastest Growing Ag Market Segments 2003 GLOBAL MARKET SHARE IN MAJOR AGRICULTURAL SEGMENTS 100 TOTAL MARKET SHARE 80 (PERCENT) 60 40 20 0 VEGETABLE CORN INSECTICIDES HERBICIDES TRAITS SOYBEAN SEEDS SEED SEED MAJOR MARKET SEGMENTS MONSANTO FIRST LEADING COMPETITOR SECOND LEADING COMPETITOR Source: Insecticides, Herbicides: Phillips McDougall for calendar year 2003 Source: Corn, Soybeans: Monsanto estimates for fiscal year 2004; includes Monsanto branded and licensed share Source: Vegetables: Pro forma for acquisition of Seminis 10
  11. 11. MARKET LEADERSHIP Together, Monsanto and Seminis Are New Standard for Leadership in Large- and Small- Acre Crops SEED & TRAIT GLOBAL SEED GLOBAL SEED GROSS MARKET MARKET SHARE PROFIT AS % POSITION OF SALES CORN1, 2 LARGE- 41% 1 57% ACRE SOYBEANS1, 2 25% 1 63% VEGETABLES3 64% Beans 31% 1 SMALL-ACRE Cucumber 38% 1 Hot Pepper 34% 1 Sweet Pepper 29% 1 Tomato 23% 1 Onions 25% 2 1 Monsanto branded and licensed market share 2 Source: Monsanto reports and estimates for Monsanto fiscal year 2004 3 Source: Seminis reports and estimates for Seminis fiscal year 2004 11
  12. 12. FINANCIAL GROWTH Geographic Presence Further Diversifies with Addition of Seminis GLOBAL SALES BY WORLD AREA MONSANTO SEMINIS1 MONSANTO2 PRO FORMA3 9% 10% ASIA ASIA 20% 20% 23% 15% PACIFIC LATIN PACIFIC LATIN ASIA LATIN AMERICA AMERICA PACIFIC AMERICA 14% 16% EUROPE/ EUROPE- 24% 57% 38% 54% AFRICA AFRICA NORTH NORTH EUROPE/ NORTH AMERICA AMERICA AFRICA AMERICA 1 Source: Seminis reports for Seminis fiscal year 2004 2 Source: Monsanto reports for Monsanto fiscal year 2004 3 Source: Pro forma for acquisition of Seminis 12
  13. 13. TECHNOLOGY INNOVATION Technological Capabilities Are Complementary; Monsanto’s Research Now Leveraged More Broadly Mapping of plant genes to understand their structure and role in GENOMICS plant functions SMALL-ACRE CROPS CONVENTIONAL Cross-pollination of plants with desirable qualities to develop BREEDING improved plants in successive generations LARGE-ACRE CROPS Use of DNA markers for genes with physical measurement of MOLECULAR traits to manage plant breeding programs. Significantly BREEDING accelerates the efficiency of bringing new varieties to market. CROP Application of advanced analytical methods and technologies to ANALYTICS identify composition of food and feed traits. Application of scientific knowledge to transfer beneficial genetic traits to enhance plants’ growth or to provide nutritional or other BIOTECHNOLOGY benefits to farmers, food and feed processors, or consumers. 13
  14. 14. TECHNOLOGY INNOVATION Diversity of Corn Seed Breeding Is Driving Market Share Growth; Poised to Expand U.S. KEY MARKET ACRES BRAZIL ARGENTINA BRAND LICENSED ASI Corn 80M 30M 6M AVAILABLE MARKET CONTRIBUTING Breeding PLATFORMS 14% 33% 2% 35% 49% PERCENT PENETRATED 6-to-8 year process undertaken to accelerate breeding: GENOMICS Late 1990s: Acquired 36 major corn breeding programs (12 countries X average of 3 companies per country) CONVENTIONAL BREEDING Early 2000s: Crossed genetic lines across acquired companies MOLECULAR BREEDING Today: Launching new hybrids from inter-company crosses CROP ANALYTICS WHAT IS IT? THE MOST ADVANCED GERMPLASM CREATES THE BEST-YIELDING NEW CORN DISCOVERY HYBRIDS FOR PHASE I PHASE III PHASE II PHASE IV LAUNCH FARMERS Proof of Concept Adv. Development Early Development Pre-Launch 14
  15. 15. TECHNOLOGY INNOVATION Seminis Has Largest, Most Diverse Germplasm Pool in Vegetable Industry LATIN EUROPE- ASIA KEY MARKET POSITION NAFTA AMERICA AFRICA PACIFIC Vegetable 1 1 1 1 MARKET POSITION CONTRIBUTING Breeding PLATFORMS Germplasm investment is nearly double that of closest competitor GENOMICS 75% of R&D devoted to breeding CONVENTIONAL Vegetable seed germplasm is proprietary, scarce and expensive BREEDING Breeding strongly linked to market opportunities and refined for MOLECULAR BREEDING specific markets Focus on quality, taste, disease control and health benefits CROP ANALYTICS KEY BRANDS WHAT IS IT? LARGEST AND MOST DIVERSE GERMPLASM RESOURCE WITH 1.5 MILLION BREEDING LINES DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 15
  16. 16. TECHNOLOGY INNOVATION Seed Breeding Research Continually Refreshes Portfolio in Both Large and Small Acre Crops MONSANTO FRESHNESS INDEX: SEMINIS FRESHNESS INDEX: PERCENT OF CORN HYBRIDS WITHIN PERCENT OF SALES FROM NEW PRODUCT MIX IN 3-YEAR PERIOD2 BREEDING PRODUCTS1 90% 25% 20% 60% 15% 10% 30% 5% 0% 0% 2002 2003 2004 2005F 2002 2003 2004 2005F 1 Source: Seminis estimates for Seminis fiscal years 2 Source: Monsanto estimates for Monsanto fiscal years 16
  17. 17. FINANCIAL GROWTH Seminis Brings Historically High-Margin Businesses to Monsanto SEMINIS KEY FINANCIAL DATA 2002 2003 2004 NET SALES $453M $477M $526M GROSS PROFIT 62% 62% 64% AS % OF SALES1 Source: Seminis reports for Seminis fiscal years 1Source: Seminis gross profit in 2004 excludes effect of one-time adjustment for removal of inventory step-up premium costs 17
  18. 18. FINANCIAL GROWTH Gross Profit Growth Accelerates with Addition of Seminis to Monsanto Businesses GROSS PROFIT MONSANTO PRO FORMA1 MONSANTO 4% CAGR 7% CAGR $3,500 $3,500 $3,000 $3,000 $ MILLIONS $2,500 $2,500 $ MILLIONS $2,000 $2,000 $1,500 $1,500 $1,000 $1,000 $500 $500 $0 $0 2004 2005F 2006F 2004 2005F 2006F SEEDS AND TRAITS ALL OTHER ROUNDUP AND OTHER GLYPHOSATE-BASED HERBICIDES 1 Pro forma for acquisition of Seminis 18
  19. 19. FINANCIAL GROWTH R&D, SG&A as a Percent of Sales in Range with Monsanto’s Prior Goals MONSANTO PRO FORMA1: MONSANTO PRO FORMA1: R&D AS PERCENT OF SALES SG&A AS PERCENT OF SALES 30 12 25 9 20 15 6 10 3 5 0 0 2004 2005F 2006F 2004 2005F 2006F 1 Pro forma for acquisition of Seminis 19
  20. 20. FINANCIAL GROWTH Guidance for Ongoing EPS Reflects Addition of Seminis Earnings EPS ON AN ONGOING BASIS $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 2004A 2005F 2006F PRO FORMA FOR BASE MONSANTO UPSIDE MONSANTO ACQUISITION OF SEMINIS GUIDANCE GUIDANCE 20
  21. 21. FINANCIAL GROWTH Acquisition Also Contributes to Free Cash Generation Near-Term FREE CASH FLOW Current $500M Share Repurchase GUIDANCE PRE- Program Will ACQUISITION $950 Continue; Scheduled $700 Completion In July $450 2006 Dividends Will $200 Continue To Be Considered To -$50 2006F 2005F 2004 Return Additional -$300 Value To Shareowners GUIDANCE -$550 POST- ACQUISITION -$800 PRO FORMA FOR ACQUISITION OF SEMINIS 21
  22. 22. FINANCIAL GROWTH Return on Capital Targets in Line with Previously Stated Goals RETURN ON CAPITAL TARGETS 12 10 8 PERCENT 6 4 2 0 2003 2004 2005F 2006F BASE TARGET UPSIDE TARGET 22
  23. 23. Seminis Acquisition Leverages Market and Research Leadership to Generate Greater Near- and Long-Term Growth SUMMARY Market Leadership Ready made, global reach into high-value segments of agriculture Technological Innovation Leading, high-margin business with common technologies and opportunities to share breeding know-how Financial Growth Creates new growth proactively Builds on current commitments 23
  24. 24. Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow Fiscal Year 2006 Fiscal Year 2005 12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended $ Millions Aug. 31, 2001 Aug. 31, 2002 Target Target Aug. 31, 2004 Aug. 31, 2003 $740 $855 Net Cash Provided (Required) by Operations $975 $1,050 $1,261 $1,128 Net Cash Provided (Required) by Investing Activities $(665) $(482) $(274) $(300) $(1,800) $(262) $75 $581 Free Cash Flow $675 $(750) $999 $646 $123 $(711) Net Cash Provided (Required) by Financing Activities N/A N/A $(243) $(502) $198 $(130) Net Increase (Decrease) in Cash and Cash Equivalents N/A N/A $756 $144 Reconciliation of Non-GAAP EPS $ per share 12 Months Ended 12 Months Ended 12 Months Ended Aug. 31, 2004 Aug. 31, 2005 Aug. 31, 2006 Net Income (Loss) $0.99 $0.86-$1.06 $2.04 - $2.22 -- $0.36 -- Restructuring Charges -- Net 2004 Discontinued Operations and Related $0.02 -- -- Restructurings-- Net Goodwill Impairment Charge for Global Wheat $0.24 -- -- Business -- -- Estimated Purchase Accounting Adjustments $0.65 -- $0.70 - -- Tax Benefit on Loss from Sale of European Wheat and -- $(0.39) Barley Business -- -- $0.68 Solutia-Related Charge Net Income (Loss) from Ongoing Business $1.61 $1.85 - $2.00 $2.04 - $2.22 24
  25. 25. Reconciliation of Non-GAAP Financial Measures Reconciliation of Return on Capital 12 Months 12 Months $ Millions Ended Ended Total Monsanto Company and Subsidiaries: Aug. 31, 2004 Aug. 31, 2003 Operating Profit After-tax (excluding certain items) $ 475 $ 417 Average Capital 6,191 6,846 Return on Capital 7.7% 6.1% Operating Profit After-tax (excluding certain items): Net Income $ 267 $ 68 Adjustments for certain items, after-tax: Restructuring Charges – Net 98 26 Discontinued Operations and Related Restructuring 4 15 Adjustment of Goodwill 64 — Cumulative Effect of a Change in Accounting Principle — 12 PCB Litigation Settlement Expense – Net — 252 Interest Expense -- Net 67 69 (1) Tax on Interest Expense -- Net (at 38% tax rate) (25) (25) Operating Profit After-tax (excluding certain items) $ 475 $ 417 As of Aug. 31, 2004 2003 2002 Average Capital: $1,508 $1,527 $1,919 Short-Term and Long-Term Debt 5,258 5,156 5,258 Shareowners’ Equity (1,037) (281) (137) Cash and Cash Equivalents 125 125 125 Cash for Operations Total Capital 5,854 6,527 7,165 Prior Period Capital 6,527 7,165 Average Capital $6,191 $6,846 (1) Represents estimated combined federal and state statutory tax rates for the United States. 25

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