monsanto 02-17-05
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  • 1. EMERGENT ACQUISITION INVESTOR CONFERENCE CALL Feb. 17, 2005 1
  • 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. 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. Reference to Emergent’s fiscal years refer to the 12-month period ending September 30. Trademarks Roundup, Roundup Ready, Roundup Ready Flex, Bollgard and Bollgard II are trademarks owned by Monsanto Company and its wholly-owned subsidiaries. 3
  • 4. OVERVIEW Monsanto Has Established Strategic Platforms in High-Value Crops SEED & TRAIT CROP PLATFORMS SMALL-ACRE CROPS LARGE-ACRE CROPS CORN SOYBEANS COTTON VEGETABLE Branded Licensed Branded Licensed Branded Branded Licensed ASI ASGROW EMERGENT* DEKALB SEMINIS* DEKALB ASGROW ROYAL SLUIS* PETOSEED* HOLDEN’S/ HOLDEN’S/ COTTON BRUINSMA* CORN CORN STATES ASGROW* STATES STATES AMERICAN SEEDS, INC BIOTECHNOLOGY R&D PLATFORMS MOLECULAR AND CONVENTIONAL BREEDING *Pending 4
  • 5. OVERVIEW Emergent Genetics Is Third-Largest Player in Key Cotton Markets UNITED STATES1 U.S. COTTON SEED MARKET: $279M 12% U.S. BRANDS 52% D&PL EMERGENT 24% FIBERMAX OTHERS 12% INDIA2 INDIAN HYBRID SEED MARKET: $120M 23% 21% INDIAN BRANDS NUZIWEEDU EMERGENT ANKUR MAHYCO 10% RASI OTHERS 24% 8% PUBLIC HYBRIDS 8% 6% 1 2 USDA and Emergent Genetics estimates Industry and Monsanto estimates 5
  • 6. OVERVIEW Acquisition of Emergent Accelerates Growth in High-Value Cotton Seeds and Traits Market EMERGENT ACQUISITION Definitive agreement to acquire Emergent for $300 million, plus working capital adjustment Multiple of 15-16 times EBITDA for third-largest U.S. and Indian cotton seed businesses KEY FINANCIAL 2004 2005F 2006F DATA NET SALES $72M $82M $100M GROSS PROFIT $34M $39M $47M GROSS PROFIT 47% 48% 47% AS % OF SALES Key financial data based on Emergent actual performance and forecasts for its fiscal year ending Sept. 30 6
  • 7. OVERVIEW Emergent Repositions Monsanto with a Cotton Seed Platform and Provides Significant Synergies Access to quality germplasm and seed market share EXCELLENT Accelerates penetration of biotech traits and Cotton FIT States platform Grows reach of cotton trait business in India SIGNIFICANT 20 percent reduction in SG&A costs, roughly $5-$6 SYNERGIES million annually, or $40 million on an NPV basis over four years Seed market share growth of 1 point annually over next four years, plus increased trait penetration Neutral to earnings in 2005, accretive thereafter ACCRETIVE Delivers additional free cash flow starting in 2006 Adds to leadership position in global seeds and traits STRATEGIC Continues trend of greater contribution to profitability from seeds and traits segment 7
  • 8. MARKET LEADERSHIP Emergent and Cotton States Mirror Monsanto’s Market Approach for Corn BRANDED PLATFORM DEKALB EMERGENT ASGROW •Access to quality germplasm •Brand recognition in important markets •Seed and trait share growth LICENSING PLATFORM COTTON • Growth through seed breeding HOLDEN’S enhancements STATES • Trait value capture through enhanced marketing channels • Rapid penetration of future technology advances 8
  • 9. MARKET LEADERSHIP Emergent Has Held U.S. Market Share Over Last Six Years; Clear Opportunity to Drive Growth U.S. COTTON SEED MARKET SHARE 100% 80% 60% 40% 20% 0% 1999 2000 2001 2002 2003 2004 EMERGENT FIBERMAX PHYTOGEN DELTA & PINE LAND OTHERS Source: USDA, based on planted acres 9
  • 10. MARKET LEADERSHIP - BIOTECHNOLOGY Molecular Breeding Used To Create New Source of Seed for U.S. Cotton Farmers KEY MARKET AREAS U.S. TARGET MARKET 7M-8M Cotton States CREATING VALUE PERCENT PENETRATED 0% Germplasm licensed from third parties and developed through • Rapid and broad molecular breeding by Monsanto introduction of Seed production under way for commercialization in 2006 traits and future innovations Cotton States launching exclusively on a second-generation trait • Licensing fee platform reflects value of 2004 COTTON STATES FIELD TRIALS top quality germplasm, 1,600 separate from value of trait 1,500 • Cotton seed LBS LINT/ACRE currently sells 1,400 for average of $20 per acre 1,300 1,200 COTTON STATES COMPETITIVE VARIETIES VARIETIES DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 10
  • 11. MARKET LEADERSHIP -- BIOTECHNOLOGY Cotton Market Already Has Shifted to Stacked Offering; Emergent Can Accelerate that Trend in its Brands U.S. MONSANTO COTTON TRAIT ACRES 12 BOLLGARD & STACKED ROUNDUP READY BOLLGARD II ACRES (MILLIONS) 9 6 3 0 1998 1999 2000 2001 2002 2003 2004 2005F 11
  • 12. MARKET LEADERSHIP - 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 • Additional value “flexible” weed control for the Roundup Ready Flex trait Increased grower convenience while offering Reduced need for specialized spray equipment most growers a similar or lower Eight cotton seed companies currently breeding trait into total system varieties cost • Roundup Ready Flex Cotton will be available 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 12
  • 13. OVERVIEW Monsanto Has Established Strategic Platforms in High-Value Crops SEED & TRAIT CROP PLATFORMS SMALL-ACRE CROPS LARGE-ACRE CROPS CORN SOYBEANS COTTON VEGETABLE Branded Licensed Branded Licensed Branded Branded Licensed ASI ASGROW EMERGENT* DEKALB SEMINIS* DEKALB ASGROW ROYAL SLUIS* PETOSEED* HOLDEN’S/ HOLDEN’S/ COTTON BRUINSMA* CORN CORN STATES ASGROW* STATES STATES AMERICAN SEEDS, INC BIOTECHNOLOGY R&D PLATFORMS MOLECULAR AND CONVENTIONAL BREEDING *Pending 13
  • 14. FINANCIAL GROWTH Growth of Monsanto’s Ongoing Business Is Accelerating, Generating Significant Free Cash Flow MONSANTO ONGOING EPS MONSANTO FREE CASH FLOW BEFORE ACQUISITIONS BEFORE ACQUISITIONS 15% $3.00 growth $1,200 15% growth $2.50 $1,000 $ MILLIONS $2.00 $800 $1.50 $600 $1.00 $400 $0.50 $200 $0.00 $0 2003 2004 2005F 2006F 2007F 2003 2004 2005F 2006F 2007F 14
  • 15. FINANCIAL GROWTH Emergent’s Gross Profit Growth Rate Parallels That of Monsanto’s Seeds and Traits GROSS PROFIT MONSANTO EMERGENT SEEDS AND TRAITS $2,000 R CAG R CAG $50 18% 15% $1,500 $40 $ MILLIONS $ MILLIONS $1,000 $30 $20 $500 $10 $0 $0 2001 2002 2003 2004 2005F 2006F 2001 2002 2003 2004 2005F 2006F Source: Emergent estimate; Monsanto estimate 15
  • 16. FINANCIAL GROWTH Acquisitions of Seminis and Emergent Add to EPS and Free Cash Flow Forecasts MONSANTO PRO FORMA MONSANTO PRO FORMA FREE EPS FORECAST CASH FLOW FORECAST $3.50 $1,200 20%-25% growth $3.00 $1,000 17% growth $2.50 $800 $ MILLIONS $2.00 $600 $1.50 $400 $1.00 $200 $0.50 $0 $0.00 2003 2004 2005 2006F 2007F 2003 2004 2005F 2006F 2007F 16
  • 17. FINANCIAL GROWTH Emergent Acquisition Creates Significant Synergies for the Combined Business U.S. SEED & U.S. trait long-term value capture TRAIT U.S. trait value-based pricing VALUE GROWTH U.S. share gains in seed and traits OPERATIONAL Sales force integration SYNERGIES Back office integration Increased research efforts and elimination of TECHNOLOGY redundancies ENHANCEMENTS Rapid demonstration of trait value in marketplace 17
  • 18. FINANCIAL GROWTH Free Cash Flow Guidance Increases But Offset by Funding for Acquisitions Free Free cash guidance Cash $1,000 from ongoing business Seminis $800M before acquisitions in 2005 increased to $800M; $(1.7B) cash $500 use for acquisitions $MILLIONS Emergent Current $500M share repurchase program $0 will continue; scheduled completion In July 2006 ($500) Dividends will $(600M) continue to be considered to return ($1,000) $(900M) additional value to shareowners Seminis and Emergent acquisitions to be funded with current cash balances and short-term borrowings 18
  • 19. MARKET LEADERSHIP Monsanto Has Established Strategic Platforms in High- Value Crops SEED & TRAIT CROP PLATFORMS SMALL-ACRE CROPS LARGE-ACRE CROPS CORN SOYBEANS COTTON VEGETABLE Branded Licensed Branded Licensed Branded Branded Licensed ASI ASGROW EMERGENT* DEKALB SEMINIS* DEKALB ASGROW ROYAL SLUIS* PETOSEED* HOLDEN’S/ HOLDEN’S/ COTTON BRUINSMA* CORN CORN STATES ASGROW* STATES STATES AMERICAN SEEDS, INC BIOTECHNOLOGY R&D PLATFORMS MOLECULAR AND CONVENTIONAL BREEDING *Pending 19
  • 20. Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow 12 Months Ended Fiscal Year 2006 12 Months Ended Fiscal Year 2007 Fiscal Year 2005 $ Millions Aug. 31, 2003 Target Aug. 31, 2004 Target Target Net Cash Provided (Required) by Operations $1,100 $1,200 $1,261 $1,128 $1,000-$1,100 Net Cash Provided (Required) by Investing Activities $(482) $(300) $(300) $(2,100) $(262) Free Cash Flow $700-$800 $800 $(900) $999 $646 Net Cash Provided (Required) by Financing Activities N/A N/A N/A $(243) $(502) Net Increase (Decrease) in Cash and Cash Equivalents N/A N/A $756 $144 N/A Reconciliation of Non-GAAP EPS $ per share 12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended Aug. 31, 2006 Aug. 31, 2003 Aug. 31, 2004 Aug. 31, 2005 Aug. 31, 2007 Net Income (Loss) $0.26 $0.99 $0.71-$0.93 $2.13 - $2.30 $2.45 - $2.65 -- -- -- $0.05 -- Cumulative Effect of Change in Accounting Principle $2.45 - $2.65 Income (Loss) Before Cumulative Effect of Accounting Change $0.99 $2.13 - $2.30 $0.31 $0.71-$0.93 -- -- $0.36 -- Restructuring Charges -- Net $0.10 -- 2004 Discontinued Operations and Related $0.02 -- -- $0.05 Restructurings-- Net -- -- Goodwill Impairment Charge for Global Wheat $0.24 -- -- Business -- -- -- -- Estimated Purchase Accounting Adjustments $0.78 -- $0.85 - -- -- -- Tax Benefit on Loss from Sale of European Wheat and -- $(0.39) Barley Business -- -- -- $0.96 $0.68 Solutia-Related Charge $1.42 $2.45 - $2.65 Net Income (Loss) from Ongoing Business $1.61 $1.85 - $2.00 $2.13 - $2.30 20