monsanto 02-15-05


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monsanto 02-15-05

  1. 1. BRETT BEGEMANN Executive Vice President, International CREDIT SUISSE FIRST BOSTON Agrochemicals Conference London Feb. 15, 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 may use 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 Monsanto’s fiscal years refer to the 12-month period ending August 31. Trademarks Roundup, Roundup Ready, Bollgard, Bollgard II, YieldGard and Vistive are trademarks owned by Monsanto Company and its wholly-owned subsidiaries. 3
  4. 4. Value Shift from Crop Chemicals to Seeds and Traits Well Under Way GLOBAL AGRICULTURAL INDUSTRY REVIEW 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 4
  5. 5. MARKET LEADERSHIP Seeds and Traits Are a Growing Contributor to Monsanto’s Gross Profit GROSS PROFIT 2001 2003 2005F PRO FORMA $2.9 BILLION $2.3 BILLION $2.6 BILLION 5% 23% 30% 27% 47% 50% 56% 16% 23% 23% ROUNDUP AND OTHER GLYPHOSATE-BASED SEEDS AND TRAITS HERBICIDES SEMINIS ALL OTHER AG PRODUCTIVITY 5
  6. 6. MARKET LEADERSHIP Monsanto Raises the Bar for Leadership in Global Seeds with Addition of Seminis 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) 6
  7. 7. MARKET LEADERSHIP - BREEDING Improvements in Corn Seed Breeding Expanding EU/SA Market Share U.S. KEY MARKET ACRES EU S. AFRICA BRAND LICENSED ASI Corn 80M 30M 7M AVAILABLE MARKET Breeding CREATING VALUE 14% 33% 2% 10% 43% PERCENT PENETRATED Monsanto’s branded corn germplasm out-yielded competitors’ • In 2005, across EU mid-maturities and South Africa in 2004 trials Monsanto’s branded seed Comparable performance in Mediterranean region versus gained 2 market share points in leading competitor EU, 3 points in Stronger pipeline under development for important EU silage South Africa market • Elite, high- CORN MARKET SHARE GROWTH yielding germplasm refreshes 45% 12% product portfolio 40% 10% at high end of pricing 8% 35% • New licensing 6% strategy for corn 30% 4% in Europe/Africa under 25% 2% development 0% 20% 2001 2002 2003 2004 2001 2002 2003 2004 FRANCE SOUTH AFRICA DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 7
  8. 8. MARKET LEADERSHIP - BREEDING Vistive Moved from Discovery to Launch in Three Years Through Molecular Breeding KEY MARKET ACRES U.S. BRAZIL ARGENTINA Vistive 5M TBD TBD AVAILABLE MARKET Low Linolenic Soy CREATING VALUE 0% 0% 0% PERCENT PENETRATED First of a three-product step-change in oil profiles • Contract grown, value shared. Most oil already under contract with food companies Monsanto sells Oil to be in on-the-shelf consumer products in late 2005 to growers, processors pay grower premium OIL PROFILES ALONG THE 3-STEP CHANGE IMPROVEMENT and royalty to Monsanto after LINOLENIC LINOLEIC OLEIC SATS harvest and 18:3 18:2 18:1 18:0 / 16:0 STANDARD crushing SOYBEAN • To be stacked with Mid-Oleic LOW LIN before full market penetration is MID OLEIC + LOW LIN achieved • 1 acre = ZERO SAT + approximately MID OLEIC + 500 lbs. of oil LOW LIN DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 8
  9. 9. MARKET LEADERSHIP - BREEDING 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 Breeding CREATING VALUE Germplasm investment nearly double that of closest competitor • Seminis branded seed recognized Vegetable seed germplasm is proprietary, scarce globally: Royal 75% of R&D devoted to breeding Sluis, Petoseed, Bruinsma, and Between 20%-25% of commercial products come from new Asgrow hybrids introduced in prior two years Vegetable • Breeding valued VEGETABLE FRESHNESS INDEX for quality, taste, health 25% benefits, disease control 20% • New seeds have 15% greatest pricing opportunity 10% 5% 0% 2002 2003 2004 2005F DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 9
  10. 10. MARKET LEADERSHIP - BIOTECHNOLOGY Biotechnology Is Most Rapidly Adopted Technology in History of Agriculture GLOBAL MONSANTO PLANTED BIOTECH ACRES 180 CANOLA 160 COTTON 140 SOYBEANS ACRES IN MILLIONS 120 CORN 100 80 60 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Monsanto estimates 10
  11. 11. MARKET LEADERSHIP - BIOTECHNOLOGY Market Potential for Roundup Ready Corn is Poised to Accelerate KEY MARKET AREAS U.S. ARGENTINA Roundup Ready TARGET MARKET 50M 5M Corn CREATING VALUE PERCENT PENETRATED 32% <1% Current forecast of 20M acres of Roundup Ready corn in • U.S. trait fee of 2005 U.S. season $8-$10 per acre With European import approval for single trait, market potential in Monsanto branded seed now 50M acres in U.S. • Grower profits Production plans under way to accelerate growth in 2006 average of $12 per acre on yield U.S. ROUNDUP READY CORN ACREAGE GROWTH gains alone; 25 additional cost savings on labor, 20 fuel and MILLIONS OF ACRES equipment Provides grower 15 greater flexibility in 10 weed control 5 0 1998 1999 2000 2001 2002 2003 2004 2005F DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 11
  12. 12. MARKET LEADERSHIP - BIOTECHNOLOGY Corn Product Mix Continues to Accelerate Toward Stacked Offerings U.S. CORN TRAIT ACRES YIELDGARD CORN BORER STACKED TRAITS ROUNDUP READY CORN & YIELDGARD ROOTWORM 50 SINGLE TRAIT SINGLE TRAIT 40 ACRES (MILLIONS) 30 20 10 0 1998 1999 2000 2001 2002 2003 2004 2005F Source: Monsanto estimates 12
  13. 13. MARKET LEADERSHIP - BIOTECHNOLOGY Introduction of Ingard II Accelerates Monsanto’s Growth in Australian Cotton Market KEY MARKET AREAS U.S. AUSTRALIA TARGET MARKET 10-15M 0.5-0.8M Cotton Traits CREATING VALUE PERCENT PENETRATED 75% 80% Biotech trait acreage has grown to approximately 600k acres • Ingard II requires from 275k in 2004 an average of More than two-thirds of cotton acres planted are Ingard II 85% less insecticide than varieties conventional Approximately 50% of all biotech cotton acres are stacked cotton Ingard II and Roundup Ready • Value reflects better insect AUSTRALIA MONSANTO BIOTECH ACRES protection, higher yields, 100% % TOTAL ACRES farmer 80% convenience and flexibility 60% 40% 20% 0% 2003 2004 2005 Stacked Ingard/Ingard II RR Cotton DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 13
  15. 15. INNOVATION - BREEDING Breeding Breakthrough Improves the Taste and Mouth-Feel of Soy-Based Foods KEY MARKET ACRES U.S. BRAZIL ARGENTINA Improved-Protein <1M TBD TBD AVAILABLE MARKET Soybeans for Food CREATING VALUE 0% 0% 0% PERCENT PENETRATED Created through breeding • Contract grown, technologies value shared. Monsanto sells Improves taste and mouth- to growers, feel processors pay grower premium Consumer applications in and royalty to beverages and meat Monsanto after alternatives harvest and crushing Developed with molecular markers and analytical • Small acres, but high value per screenings to accelerate acre breeding Produced in high-yielding varieties for testing DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 15
  16. 16. INNOVATION - BREEDING Molecular Breeding Can Be Applied to Seminis’ Sweet Corn Breeding Programs KEY MARKET POSITION WORLDWIDE Knowledge Transfer MARKET POSITION 4 to Sweet Corn CREATING VALUE Immediate access to broad • Breeding corn germplasm base knowledge transfer Corn genotyping increases capabilities applicable potential new across all corn germplasm product including sweet corn offerings Enables efficient selection • Molecular breeding speeds for disease and quality creation of new traits using marker- hybrids assisted selection • Accelerated genetic gains have potential to translate to market share gains, higher market value DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Early Development Adv. Development Pre-Launch 16
  17. 17. INNOVATION - BIOTECHNOLOGY Added Flexibility Means Better Weed Control, Greater Value in Cotton KEY MARKET ACRES U.S. AUSTRALIA Roundup Ready AVAILABLE MARKET 10-15M 0.5-0.8M Flex Cotton CREATING VALUE 0% 0% PERCENT PENETRATED Expanded window of over-the-top application for more • Value reflects “flexible” weed control greater convenience and Increased grower convenience enhanced weed Reduced need for specialized spray equipment control. Lifts the value of the 8 cotton seed companies currently breeding trait into Roundup Ready varieties trait • Roundup Ready Flex Cotton will be available only with Bollgard II, which also should boost Bollgard II adoption DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 17
  18. 18. INNOVATION - BIOTECHNOLOGY High Lysine Enhances Animal Feed, Shifts Value to Seed KEY MARKET ACRES U.S. BRAZIL ARGENTINA High Lysine Corn 4M 1M 4M AVAILABLE MARKET CREATING VALUE 0% 0% 0% PERCENT PENETRATED • Market value for Lower cost of animal feed-grade feed ration – lysine – lysine in roughly which cannot be $1 billion produced by animals, annually so must be obtained • Value shared through feed with Cargill through 50/50 LYSINE TOTALS IN TESTING Improved amino acid Renessen joint balance venture WITH GENE CONTROL Increased total energy 1,800 FREE LYSINE (PPM) 1,600 TARGET Excellent performance 1,400 demonstrated in 1,200 1,000 feeding trials to date 800 First of a two-product 600 step-change in lysine 400 200 content 0 U.S. SOUTH AMERICA DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 18
  19. 19. INNOVATION - BIOTECHNOLOGY Drought Stress Tolerance Will Be a Family of High Value Traits KEY MARKET ACRES U.S. BRAZIL ARGENTINA Drought-Tolerant TBD TBD TBD AVAILABLE MARKET Corn CREATING VALUE 0% 0% 0% PERCENT PENETRATED Yield protection on all acres against water deficits • Pricing depends Yield enhancement on all acres through improved water use on choice of and cost savings on irrigated acres market • Stacking with Two gene leads obtained positive results with more than one weed and insect transformed event control enhances the YIELD INCREASE IN TWO GENE TRIALS margin opportunity 3 EVENTS: GENE 1 3 EVENTS: GENE 2 18 30 16 • Irrigation currently costs 14 25 $50 to $100 per YIELD INCREASE 12 20 acre 10 15 8 6 (BU/AC) 10 4 5 2 0 0 EVENT 3 EVENT 1 EVENT 2 EVENT 3 EVENT 1 EVENT 2 GERMPLASM 1 GERMPLASM 2 DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 19
  20. 20. FINANCIAL GROWTH Gross Profit Growth Accelerates with Addition of Seminis to Monsanto Businesses GROSS PROFIT MONSANTO PRO FORMA1 MONSANTO SEED/TRAIT PRO FORMA1 7% CAGR AGR 5% C 1 $3,500 $3,500 $3,000 $3,000 $2,500 $ MILLIONS $ MILLIONS $2,500 $2,000 $2,000 $1,500 $1,500 $1,000 $1,000 $500 $500 $0 $0 2004 2005F 2006F 2004 2005F 2006F ROUNDUP AND OTHER ALL OTHER SEEDS AND TRAITS GLYPHOSATE-BASED HERBICIDES Pro forma for acquisition of Seminis 1 20
  21. 21. FINANCIAL GROWTH Guidance for Ongoing EPS Reflects Addition of Seminis Earnings EPS ON AN ONGOING BASIS $2.50 • 2005 guidance range increased to $2.25 $1.85 to $2.00 • 10% base business $2.00 growth for 2006 expected on $1.75 increased 2005 guidance $1.50 • Earnings in 2005 and 2006 affected by $1.25 Seminis inventory step-up $1.00 • Seminis is expected to be $0.20 accretive 2004A 2005F 2006F to Monsanto in 2007 PRO FORMA FOR BASE MONSANTO UPSIDE MONSANTO ACQUISITION OF GUIDANCE GUIDANCE SEMINIS 21
  22. 22. FINANCIAL GROWTH Acquisition Also Contributes to Free Cash Generation Near-Term Seminis expected FREE CASH FLOW to generate $50M free cash in 2005 and $75M in 2006 GUIDANCE PRE- $950 Current $500M ACQUISIITON share repurchase $700 program will continue; $450 scheduled $200 completion July 2006 -$50 2006F 2005F 2004 Dividends will continue to be -$300 considered to GUIDANCE -$550 return additional POST- value to ACQUISITION -$800 shareowners PRO FORMA FOR ACQUISITION OF SEMINIS 22
  23. 23. A Clear Focus To Deliver On Commitments Market Leadership Largest global seed and trait company Global reach in high-value agriculture segments Technological Innovation Leading breeding and biotechnology platforms Proven, highly productive new product pipeline Financial Growth EPS and free cash flow growth reflect seeds and traits leadership Commitment to return value to shareowners through dividends, share repurchases, investments 23
  24. 24. Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow Fiscal Year 2006 Fiscal Year 2005 12 Months Ended $ Millions Target Target Aug. 31, 2004 Net Cash Provided (Required) by Operations $975 $1,050 $1,261 Net Cash Provided (Required) by Investing Activities $(300) $(1,800) $(262) Free Cash Flow $675 $(750) $999 Net Cash Provided (Required) by Financing Activities N/A N/A $(243) Net Increase (Decrease) in Cash and Cash Equivalents N/A N/A $756 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