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monsanto 03-30-06

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  • 1. HUGH GRANT CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER LEHMAN BROTHERS CHEMICALS CONFERENCE MARCH 30, 2006 1
  • 2. Forward-Looking Statements Certain statements contained in this release are quot;forward-looking statements,quot; such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, business and financial plans and other non-historical facts. 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: continued competition in seeds, traits and agricultural chemicals; the company's exposure to various contingencies, including those related to intellectual property protection, regulatory compliance and the speed with which approvals are received, and public acceptance of biotechnology products; the success of the company's research and development activities; the outcomes of major lawsuits, including proceedings related to Solutia Inc.; developments related to foreign currencies and economies; successful completion and operation of recent and proposed acquisitions; fluctuations in commodity prices; compliance with regulations affecting our manufacturing; the accuracy of the company's estimates related to distribution inventory levels; the company's ability to fund its short-term financing needs and to obtain payment for the products that it sells; the effect of weather conditions, natural disasters and accidents on the agriculture business or the company's facilities; and other risks and factors detailed in the company's filings with the SEC. 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 update any forward-looking statements or any of the factors that may affect actual results. 2
  • 3. Non-GAAP Financial Information This presentation may use the non-GAAP financial measures of “free cash flow,” earnings per share (EPS) on an ongoing basis, and Return on Capital (ROC). We define free cash flow as the total of cash flows from operating activities and investing activities. A non-GAAP EPS financial measure, which we refer to as on-going EPS, excludes certain after-tax items that we do not consider part of ongoing operations, which are identified in the reconciliation. ROC means net income (without the effect of certain items) 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. Our presentation of non-GAAP financial measures is intended to supplement investors’ understanding of our operating performance. 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. Furthermore, these non-GAAP financial measures may not be comparable to similar measures used by other companies. 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, Roundup Ready2Yield, Bollgard, Bollgard II, YieldGard, Monsanto, Imagine, Vine Design, Asgrow, DEKALB, Stoneville, Monsanto Choice Genetics, Posilac, Processor Preferred, Vistive, and French Kiss are trademarks owned by Monsanto Company and its wholly-owned subsidiaries and are italicized the first time they appear in this presentation. Mavera™ is a trademark of Renessen. 3
  • 4. OVERVIEW Farmers ‘Buy Yield,’ Creating Opportunity for Seeds and Traits Growth YIELD = GENETIC GAIN X % OF GENETIC GAIN PRESERVED FARMERS’ DECISION EQUATION MONSANTO’S POSITION: CORN SEED Retail brands (GENETIC GAIN) The starting point of all agriculture; Regional brands farmers need to maximize ‘genetics’ in + TECHNOLOGY seed for yield Licensing ‘Above ground’ protection (% OF GENETIC GAIN PRESERVED) Technology is used to protect and ‘Below ground’ protection maximize the yield potential of the seed = Weed control system MAXIMUM YIELD The elegance of a seed and trait POTENTIAL approach is that the seed is the package and traits can be ‘stacked’ for maximum The basic equation represents the effect maximum yield potential multiplied by the percent of that yield preserved by In 2005, Monsanto introduced the first technology triple-stack of biotech traits 4
  • 5. OVERVIEW Breeding and Biotech Provide Parallel R&D Paths to Commercial Products BREEDING and BIOTECHNOLOGY form two R&D pathways Separate, but parallel, the BREEDING and BIOTECHNOLOGY pathways are linked by shared tools. DISCOVERY PHASE I PHASE II R&D PHASE: PHASE III PHASE IV LAUNCH BREEDING COMMERCIAL IT PLATFORM GERMPLASM G ANALYTICS MARKERS GENOMICS SEED ELITE Germplasm SOLD TO FARMERS R BIOTECHNOLOGY 5
  • 6. OVERVIEW Seeds And Traits Strategy Is Played Out Across Four Core Crop Franchises SEED & TRAIT CROP PLATFORMS SMALL-ACRE CROPS LARGE-ACRE CROPS CORN SOYBEANS COTTON VEGETABLE Branded Licensed Branded Branded Licensed Branded Licensed ASI ASI ASGROW STONEVILLE DEKALB SEMINIS DEKALB ASGROW HOLDEN’S/ HOLDEN’S/ COTTON CORN CORN STATES STATES STATES AMERICAN AMERICAN SEEDS, INC. SEEDS, INC. BIOTECHNOLOGY R&D PLATFORMS MOLECULAR AND CONVENTIONAL BREEDING 6
  • 7. LEADERSHIP Diverse Genetic Pool in Corn Continues to Create New Opportunities Internationally Through End of Decade International Breeding Effort INTERNATIONAL GERMPLASM NETWORK Monsanto has the largest private international collection of corn germplasm, spanning 6 continents, 3 temperature zones, and 36 acquired breeding programs U.S. shares germplasm with Europe and Argentina Brazil shares germplasm with South Africa and Asia 7
  • 8. LEADERSHIP Monsanto’s Global Germplasm Reach Has Translated Into Greater Market Share Internationally International Corn Commercial Markets SCORECARD BRANDED MARKET SHARE GROWTH WORLDWIDE 2004 TO 20051 Sustainable growth of 1 to 2 +2.9% ALL WORLD AREAS points per year +2.2% NORTH AMERICAN REGION Multiple channels to market UNITED STATES +2.0% approach being replicated +2.2% EUROPE-AFRICA REGION internationally FRANCE +2.5% ITALY +1.7% Marker-based breeding HUNGARY +1.2% approaches accelerating TURKEY +5.2% Yield advantages are SOUTH AFRICA +5.7% consistently outperforming +1.9% ASIA PACIFIC REGION best competitive commercial INDIA +5.1% materials FLAT LATIN AMERICA REGION MEXICO +1% BRAZIL FLAT ARGENTINA FLAT 1 - Market share is for hybrid corn seed market only 8
  • 9. LEADERSHIP Corn Market Share Gains Still to Fully Reflect Power of Molecular Breeding Application 20% 6% MOLECULAR-BREEDING HYBRIDS AS A PERCENT OF BRANDED UNITS SOLD IN COMMERCIAL CORN PORTFOLIO 5% 2005 BRANDED IN COMMERCIAL CORN PORTFOLIO PERCENT OF BRANDED UNITS SOLD U.S. MARKET 15% SHARE: 16% 4% U.S. MARKET SHARE DEKALB AND ASGROW BRAND 3% 10% U.S. MARKET SHARE 2% 5% 1% 0% 0% 2001 2002 2003 2004 2005 2006F 2007F 2008F CYCLE 1: CYCLE 2: CYCLE 3: PROGRESSION INTEGRATION OF APPLICATION OF MOLECULAR SELECTION POWER OF OF BREEDING GLOBAL GERMPLASM BREEDING TO SELECTION MOLECULAR BREEDING TECHNOLOGY IN THE • MOLECULAR BREEDING • ASSEMBLED 36 MAJOR CORN • PREDICTIVE COMBINATIONS COMMERCIAL IMPROVES GENETIC POTENTIAL BREEDING PROGRAMS IN 12 ALLOW MORE EFFICIENT PORTFOLIO BY 2X VERSUS CONVENTIONAL COUNTRIES BREEDING BREEDING • FIRST INTRA-COMPANY • MOLECULAR BREEDING • BY 2006, FIRST MOLECULAR CROSSES; BY CYCLE 3, >50% ACCELERATES TRAIT BREEDING HYBRIDS ENTER OF HYBRIDS IN THE U.S. INTEGRATION BY COMMERCIAL PORTFOLIO PORTFOLIO MADE THROUGH SHORTENING ‘BACKCROSSING’ INTRA-COMPANY CROSSES CYCLES 9
  • 10. LEADERSHIP U.S. Market Opportunity for Roundup Ready Corn 2 on Track for 60M Acres Longer Term OPPORTUNITY INFLECTION POINT: VARIABLE Roundup Ready BASED PRICING INFLECTION 40 Corn 2 is on pace for POINT: EU IMPORT 50M acres by 2008 in INFLECTION APPROVALS 35 POINT: the U.S. DOMESTIC CHANNELING Supply now available 30 U.S. ACRES PROGRAM to sell 34M acres of 25 Roundup Ready corn and 10M acres of 20 YieldGard Rootworm SUSTAINABLE ACREAGE in 2006 15 GROWTH 10 5 0 1998 1999 2000 2001 2002 2003 2004 2005 2006F 2007F 10
  • 11. LEADERSHIP Stacking Shifts Value Opportunity to More Profitable Acre U.S. CORN TRAIT ACRES AVERAGE U.S. RETAIL VALUE ADDED WITH STACKED TRAITS SINGLE TRAITS TRAIT RETAIL VALUE 3.42 STACKED – DOUBLE TRAITS 3 .5 50 TRAIT RETAIL VALUE PER ACRE ADDED PER ACRE STACKED – TRIPLE TRAITS 3 40 (INDEXED) ACRES IN MILLIONS 2 .5 30 2 20 1.59 1 .5 10 1 DOUBLE TRIPLE STACK STACK 0 2001 2002 2003 2004 2005 1 = INDEXED VALUE OF SINGLE TRAIT 11
  • 12. LEADERSHIP Variable-Based Pricing Leverages Roundup Ready Corn Base and Expands Market for Stacked Traits Single Trait Stacked - Double Trait 2 1 Stacked - Triple Trait TRAIT BAGS OF SEED Indexed 2005 = 1 1 .5 24% 1 44% 41% 0 .5 54% 32% 0 2005 2006F STATES WITH WEED CONTROL NEEDS, SPORADIC CORN BORER AND Significant Incremental ROOTWORM Demand For Stacked STATES WITH CONSISTENT NEED FOR Combinations of WEED CONTROL, CORN-BORER CONTROL AND ROOTWORM CONTROL Roundup Ready and STATES WITH CONSISTENT NEED YieldGard in DeKalb / FOR WEED CONTROL, ROOTWORM Asgrow Brands in CONTROL AND SPORADIC CORN- BORER CONTROL Illinois and Indiana 1.Seed includes one or more traits 12
  • 13. PIPELINE Multi-Generational Drought-Tolerant Corn Is Advancing Closer to Commercial Reality KEY MARKET ACRES U.S. BRAZIL ARGENTINA 80M 30M 6M AVAILABLE MARKET 0% 0% 0% PERCENT PENETRATED SEGMENTED VALUE OPPORTUNITY WITH TRAIT WITHOUT TRAIT WITH TRAIT WITHOUT TRAIT RESULTS o C 32 34 40 BROAD ACRE STATES WITH STATES WITH Drought tolerance established through plant WATER USE INCONSISTENT CONSISTENT physiology (performance) over three years EFFICIENCY DROUGHT DROUGHT STRESS STRESS AND IRRIGATION REQUIREMENTS DISCOVERY PHASE I PHASE II PHASE IV LAUNCH PHASE III Proof of Concept Early Development Pre-Launch Adv. Development 13
  • 14. LEADERSHIP New Branded and Licensed Seed Businesses Showcase Strong Cotton Germplasm U.S. COTTON STONEVILLE KEY MARKET ACRES STATES 14M AVAILABLE MARKET CHANNELS TO MARKET 14% 0% PERCENT PENETRATED Stoneville will offer 9 varieties either with the Roundup Ready Flex trait or with Roundup Ready Flex stacked with Bollgard II Cotton States will have 5 licensees in 2006 launching exclusively on a 2nd generation trait platform MONSANTO COTTON SHARE GROWTH 2005 COTTON GERMPLASM PERFORMANCE 30% (19 LOCATIONS) 1600 25% 1400 1200 20% LBS LINT/ACRE 1000 RESULTS 15% 800 SUSTAINABLE 600 10% 1-2 POINT SHARE GAIN 400 WITH STONEVILLE 5% 200 0 0% 2005 MONSANTO COMPETITIVE VARIETIES 2004 2005 2006F 2007F LEADERS STONEVILLE 14
  • 15. LEADERSHIP Roundup Ready Flex Launch To Be Most Significant in 10-Year History of Biotech Traits KEY MARKET ACRES U.S. INDIA AUSTRALIA Roundup Ready 10-15M AVAILABLE MARKET 10-15M 0.5-0.8M Flex Cotton CREATING VALUE 0% 0% 0% PERCENT PENETRATED ROUNDUP READY Anticipated largest trait launch of 2-3 million acres in U.S. in 2006 FLEX COTTON through 10 cotton seed companies • U.S. pricing at a Roundup Ready Flex will only be stacked with Bollgard II at premium of $6-$11 approximately 70 – 80% of mix an acre over the first-generation of Introductory acres planted in Australia; full launch set for 2007 Roundup Ready cotton Trait in initial breeding phase in India in preparation for filing for regulatory field trials The Roundup Ready Flex cotton trait will be coupled with our Stoneville brand and our Cotton States licensing as a showcase of Monsanto’s cotton business DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch 15
  • 16. LEADERSHIP Multiple Margin Opportunities Accelerate With Second- Generation Launches in India and Australia Second-Generation Traits INDIA COTTON RETAIL VALUE IN AUSTRALIAN MARKET Biotech cotton economic and environmental benefits 150 Yield Increase 58% Pesticide Reduction (50%) 125 Farmer Net Return 163% Bollgard II launch in 2006 100 and Roundup Ready Flex US $/ACRE potentially in 2010 range, 75 pending regulatory approvals 50 AUSTRALIA High rate of biotech adoption 25 90% of acres have at least one trait 0 ROUNDUP ROUNDUP STACK WITH CONVENTIONAL BOLLGARD II 65% of acres with at least READY READY BOLLGARD II & COTTON SEED FLEX COTTON ROUNDUP one trait are a stack READY FLEX Full launch of Bollgard II stacked with Roundup Ready Flex starting in FY2007 16
  • 17. PIPELINE Second-Generation Roundup RReady2Yield Soybeans Enhances Yield KEY MARKET ACRES U.S. BRAZIL ARGENTINA Roundup RReady2Yield 70M 50M 35M AVAILABLE MARKET soybeans CREATING VALUE 0% 0% 0% PERCENT PENETRATED • Yield improvement of potentially five bushels per acre • Additional research being conducted to evaluate Roundup RReady2Yield system for potential Asian soybean rust control • Provides the platform for future soy technologies DISCOVERY PHASE I PHASE II PHASE IV LAUNCH PHASE III Proof of Concept Early Development Pre-Launch Adv. Development 17
  • 18. LEADERSHIP Vistive Family of Improved Oils Meets Multiple Needs in Food Industry TARGET: LOW LINOLENIC TARGET: LOW LINOLENIC TARGET: LOW SAT VISTIVE SOYBEANS VISTIVE RAPESEED +INCREASED OLEIC + LOW LINOLENIC 2005 LAUNCH 2005 LAUNCH 500K ACRES IN US 40K ACRES IN EUROPE VISTIVE III LOW LIN – MID OLEIC – LOW SAT TARGET: INCREASED OLEIC SOYBEANS + LOW LINOLENIC VISTIVE PHASE II FAMILY VISTIVE II LOW LIN – MID OLEIC SOYBEANS CONSUMER PHASE III MARKET OIL FOR FRYING AND IMPROVED SOYBEAN SPRAYING QUALITY FOR LIQUID OILS Crackers Snack chips 18
  • 19. LEADERSHIP Molecular Breeding Tools Will Be Applied to Seminis’ Global Germplasm to Capitalize on Leading Market Share Positions EUROPE-AFRICA 2005 Market Share 19% Market Position 1 ASIA-PACIFIC NORTH AMERICA 2005 2005 Market Share 7% Market Share 34% Market Position 3 Market Position 1 OPPORTUNITY Fruit & vegetable seeds only represent approx. 3.6% of farmgate value (corn: 13.2%; soybeans: 11.4%) Significant growth opportunities in hybrid creation Seminis has the largest SOUTH AMERICA global vegetable germplasm 2005 library; Molecular breeding Market Share 37% tools honed in row crops Market Position 1 will be applied to vegetables 19
  • 20. PIPELINE UPDATE DISCOVERY PHASE I PHASE II PHASE III PHASE IV Proof Of Concept Early Advanced Pre-launch Gene/Trait 2006 Pipeline Development Development Identification AS OF JANUARY 1, 2006 Roundup Ready Flex cotton Roundup RReady2Yield soybeans Roundup RReady2Yield canola Dicamba-tolerant soybeans Dicamba-tolerant cotton 2nd-Gen YieldGard Rootworm 2nd-Gen YieldGard Corn Borer Insect-protected soybeans YieldGard Rootworm II FARMER Soybean nematode-resistance Bollgard III Drought-tolerant corn 2nd-Gen Drought-tolerant corn Higher-yielding canola Drought-tolerant soybeans Drought-tolerant cotton Higher-yielding corn Nitrogen utilization corn Higher-yielding soybeans Mavera™ High-value corn with lysine PROCESSOR Mavera™ I High-value soybeans Mavera™ II High-value soybeans 2nd-Gen High-value corn with lysine Feed Corn with balanced proteins High oil soybeans for processing CONSUMER Improved-protein soybeans Vistive II Low Lin – Mid Oleic soybeans Vistive III Low Lin – Mid Oleic – Low Sat soybeans Omega-3 soybeans 20
  • 21. LEADERSHIP Early Adoption of Biotech Is Strong, But Significant Future Potential Still Remains 10 YEARS OF PROVEN BENEFITS GLOBAL ACRES USING MONSANTO 200 BIOTECHNOLOGY TRAITS 180 ACRES (IN MILLIONS) 160 140 120 100 80 60 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 SOYBEANS CORN COTTON CANOLA GLOBAL ADOPTION Biotech was first commercialized in 1996 on approximately 3 million acres Biotechnology acreage has grown by double-digits each year. Cumulatively, acreage has grown 50-fold since 1996, with biotech traits planted on more than 220 million acres in 20051 1. International Service for the Acquisition of Agri-biotech Applications (ISAAA), “Global Status of Commercialized Biotech/GM Crops: 2005” 21
  • 22. LEADERSHIP Market Potential for Biotech Traits Highlights Continued Growth Opportunity SOYBEANS COTTON CORN MARKET OPPORTUNITY: ROUNDUP KEY MARKETS BOLLGARD I ROUNDUP YIELDGARD YIELDGARD READY ROUNDUP READY AND II READY CORN BORER ROOTWORM FLEX UNITED 70M 10-15M 6-8M 60M 50-60M 25-30M STATES BRAZIL 50M 3M 2M 20M 15M 5M ARGENTINA 35M - - 5M 4M 1M INDIA - 10-15M 10-15M 3 – 5M 3 – 5M - EUROPE 1M - - 24M 8M 5M AFRICA 0.2M 11M 10M 6M 4M - AUSTRALIA - 0.5M-0.8M 0.5M-0.8M - - - TOTAL KEY 34.5- 156.2M 28.5-35.8M 118-125M 84-96M 36-41M MARKETS 44.8M 76% 0% 35% 19% 40% 10% BIOTECH ACRES PLANTED 2005 REMAINING AVAILABLE MARKET 22