monsanto 05-28-08


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monsanto 05-28-08

  2. 2. Forward-Looking Statements Certain statements contained in this presentation 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; developments related to foreign currencies and economies; successful operation of recent 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 most recent reports on Forms 10-Q and 10-K. Undue reliance should not be placed on these forward- looking statements, which are current only as of the date of this presentation. The company disclaims any current intention or obligation to update any forward-looking statements or any of the factors that may affect actual results. Trademarks Trademarks owned by Monsanto Company and its wholly-owned subsidiaries are italicized in this presentation. All other trademarks are the property of their respective owners. © 2008 Monsanto Company
  3. 3. OVERVIEW Market Forces Are Changing Supply-Demand Patterns Globally, Creating a New Dynamic Across Agriculture STATE OF AGRICULTURE: STRETCHING SUPPLY The New Demand Environment WORLD CORN AND SOYBEAN ENDING STOCKS1 FACTORS: ► INCREASING PROTEIN METRIC TONS (IN MILLIONS) DEMAND 140 Wealth drives meat 120 consumption – changing feed demand 100 ► ASCENSION OF CHINA 80 China’s growth is reaching 60 limits of domestic 40 production, driving huge changes in export 20 environment 0 ► ESTABLISHMENT OF 2003-04 2004-05 2005-06 2006-07 2007- 2008- BIOFUELS 08E 09P SOYBEAN ENDING STOCKS Assuming only base-case adoption of biofuels, more CORN ENDING STOCKS corn and soy needed in next decade U.S. corn ending stocks projected down 45%; lowest level since 1995-96 and a mere 6% stocks-to-use ratio 3 1. USDA World Agricultural Supply and Demand Estimates for corn and Informa Economics for soybeans
  4. 4. OVERVIEW Global Corn Production Per Acre Is Sub-Optimized Today, Creating an Opportunity for Innovation GLOBAL CORN PRODUCTION1: YIELD CORE PRODUCTIVITY MEASURES AND EVALUATION Boosting yield-per- acre can make a meaningful CANADA difference in EU 27 3M ACRES supply-demand 136 BU/AC 500M BUSHELS 27M ACRES 90% HYBRID environment U.S. 99 BU/AC CHINA 2B BUSHELS • If India, Mexico 90M ACRES 151 BU/AC 69M ACRES MEXICO 13B BUSHELS 83 BU/AC and Brazil moved 6B BUSHELS 18M ACRES 25% HYBRID to 100 bushel per INDIA 48 BU/AC BRAZIL 900M BUSHELS acre yields, they 20M ACRES 36M ACRES 45% HYBRID 75% HYBRID 32 BU/AC could produce 58 BU/AC 700M BUSHELS 2B BUSHELS nearly 4 billion additional ARGENTINA bushels of corn 10M ACRES 111 BU/AC 900M BUSHELS annually – equal to total world Optimization of yield per acre corn exports in 2007 Poor/Subsistence Sub-Optimized Optimized 4 1. Source is USDA FAS and internal estimates.
  5. 5. OVERVIEW Monsanto Is the Leading Technology Play in Ag, Creating Value By Using Innovation to Boost Yield and Reduce Risk MONSANTO’S TECHNOLOGY PROPOSITION: CREATING VALUE THROUGH ‘YIELD’ 2.00 BIOTECH PROTECTING YIELD U.S. Corn Yield Per Acre U.S. Yield Per Acre (Indexed: 1980) Making sure potential 1.75 yield translates to realized yield 1.50 REDUCING RISK 1.25 By reducing volatility caused by insects and environment, 1.00 biotech reduces production risk 0.75 1980 1985 1990 1995 2000 2005 BREEDING VALUE INCREASING YIELD Average U.S. yields for CREATING YIELD corn have increased >25% Food, Feed and Boosting the inherent yield in last 20 years Fuel possible from the seed 5 1. Source is USDA
  6. 6. OVERVIEW Our Growth Drivers Roll Out In Balanced, Additive Progression With Milestones Signaling Leadership Extension 2009 2012 2011 2008 2010 2008 2011 - 2012+ 2010 R&D Pipeline YieldGard VT Corn drought I, insect-protected soybeans, SmartStax approval Pro approval Vistive III approval targeted targeted targeted 2009 2008 2,500 markers in Vegetables Acquire De tomato, pepper; Ruiter Seeds * 1,500 in 11 crops GROWTH DRIVERS 2011-2012 U.S. cotton portfolio converted to second- Cotton generation stack 2012+ 2009 2010 Stacked trait Roundup Ready 2 Roundup Ready 2 Soybean soybean launches, Yield soybean on 1- Yield soybean launch including for Brazil 2M acres on 5-6M acres 2009 New corn traits Intl. Corn launched in Brazil and Argentina 2008 to 2012 Projected 1 to 2 branded corn share gains globally 2009 2012+ 2010 U.S. Corn Continued triple- U.S. drought-tolerant U.S. SmartStax stack penetration corn launch corn launch PROJECTED MILESTONES 6 * Pending Transaction
  7. 7. U.S. CORN DEKALB and ASI Gain Share as Investment in Breeding Delivers Yield Advantage U.S. CORN DEKALB AND ASI U.S. CORN SHARE EVOLUTION: 2001-2008F STATUS 30% • In June 2007, announced 3- DEKALB Brand Share – U.S. year, $610M plan to expand 25 - 26% ASI Share – U.S. and build seed facilities in 25% the U.S. • In 2008, plan has been 23% 20% accelerated to reflect 20% growth in DEKALB and ASI 15% combined with continued 16% 10 - 11% growth expectations 14% 9% 13% through 2012 10% 12% • Outlook to 2012: 10% 5% • DEKALB to grow share 4% 5% through 2012 by up to 10 points cumulatively from 2007 share of 23 percent 0% • Continued organic share 2001 2002 2003 2004 2005 2006 2007 2008F growth in ASI 2008F Projecting 2-3% share gains for DEKALB and 1-2% share gains for ASI 7
  8. 8. U.S. CORN Yield Gap for DEKALB Seed in U.S. Expected to Widen as New Hybrids Emerge from Molecular Breeding 2007 FINAL U.S. COMPETITIVE CORN YIELD FINAL: COMPARISON: DEKALB DEKALB GEOGRAPHY: 210 U.S. (APPROXIMATE DIFFERENCES) COMPETITORS 205 OBJECTIVE: Grow footprint 205 2007 PERFORMANCE 200 BUSHELS/ACRE • In > 14,000 comparisons, 195 197 195 Monsanto out-yields 190 193 191 competitive best by 190 189 185 188 8.4 bu/ac 186 180 • In 110-day RM, 179 Monsanto’s lead remains 175 a strong 12 bu/ac 170 advantage 165 Source: 2007 Monsanto 160 and third party trials 163 through November 15, 155 2007. Weighted 155 average, calculated to 150 15% moisture. DEKALB products are compared 95 RM 100 RM 105 RM 110 RM 115 RM Overall with national competitive RELATIVE MATURITIES (DAYS)► products that contain COMPARISONS: similar crop protection >480 >1,220 >1,820 >5,220 >5,270 >14,000 traits. APPROXIMATE BU/AC 7.8 10.4 5.1 12.0 5.5 8.4 ADVANTAGE: 8
  9. 9. U.S. CORN Triple Stack Penetration Accelerates, Creating Added Growth and Setting Stage for SmartStax Launch U.S. CORN TRAIT OPPORTUNITY: 2005-2010F 60 220 200 U.S. TRIPLE-STACK ACRES 50 180 U.S. TRAIT ACRES (IN MILLIONS) 160 (IN MILLIONS) 40 140 120 30 100 80 20 60 40 10 20 0 0 2008F 2007 2005 2006 2007 2008 2010F 2010 ORIGINAL Q2 Opportunity OUTLOOK UPDATE Rootworm Control 45-55M 20.8M 26-28M 27-29M Corn Borer Control 60-70M 42.4M 40-42M 40-42M Glyphosate Tolerance 80M 57.9M 63-65M 65-67M Triple Stack 17.6M 25-27M 26-28M 45-55M Trait acres reflect the total acres planted with each individual trait. In the case of stacked traits, each absolute acre will be reflected by two or more trait acres. 9
  10. 10. INTERNATIONAL CORN With Recent Trait Approvals, Door Opens for Technology Infusion in Latin America 2008 STATUS ARGENTINA BRAZIL 20 • Roundup Ready Corn 15-20M 2 with YieldGard Corn Borer stack YIELDGARD CORN ROUNDUP READY CORN 2 15 received regulatory BORER WITH YIELDGARD CORN approval in Argentina M ACRES BORER STACK end of August 2007 • YieldGard Corn 10 Borer received final 7M approvals in Brazil in early 2008 5 • Trait pricing to be on 1-2M par with the U.S. 1-1.5M 0 FY09F FY09F OPPORTUNITY OPPORTUNITY HYBRID ACRES – FY08E 10M1 27M MONSANTO SHARE 45% 40% FY08E AVG. RETAIL PRICE FOR DEKALB HYBRID CORN $29/ACRE $34/ACRE SEED – FY08 10 1. Source: KLEFFMANN Marketing Services
  11. 11. R & D PIPELINE - CORN SmartStax Expected to Reset Trait Platform, Change Competitive Standard and Increase Acreage Opportunity U.S. ACREAGE OPPORTUNITY: SWITCH FROM TRIPLES TO SMARTSTAX IN 2010 65 50-65M 60 +10-15M Total 55 Opportunity Expansion (10-15M) 17-29M 45-55M Opportunity 50 • All acres +7-8M 45 are in play (IN MILLIONS) 37-53M with 40 SmartStax ACRES 35 advantages Monsanto 30 Baseline • 4-10% yield 25 26-28M advantage 20 expected with 15 improved 10 insect 5 control and expected 0 refuge Acres from Potential 2008F Remaining Total 2010 Total Competitors Upside from Monsanto Upside; Triple-Stack reduction SmartStax Not Using Refuge Triple-Stack Shared with Opportunity Opportunity SmartStax Reduction Penetration Competitors TRIPLE-STACK BASELINE SMARTSTAX OPPORTUNITY 11
  12. 12. R & D PIPELINE - CORN Drought Focuses First On Consistent Water Shortage Acres, Then Expands to Broad-Acre Applicability DROUGHT-TOLERANT CORN CREATES SEGMENTED VALUE OPPORTUNITY ACROSS MARKETS R&D Pipeline Drought-Tolerant Corn Family: Drought I = Phase 3 STATUS: Drought II = Phase 2 PROJECT CONCEPT: Drought-tolerance family aimed at providing consistent yield and buffering against effects of water limitations VALUE: LAUNCH-COUNTRY 55M ACRES1: 2020 VALUE2: $300-$500M SOURCES OF VALUE: 2008 STATUS Low annual High annual precipitation precipitation Improved yield First generation targeted for Targeting 8-10% yield dryland region WESTERN DRYLAND 1 improvement in water-stress 10-12M Acres environments Second generation demonstrates performance over broad range of Water substitution stress conditions in both low- IRRIGATED 8-12M Acres 2 Variable costs in pumped and high-yielding environments irrigation of >$100/ acre 130 drought-tolerant I corn trials 1. Acre opportunity reflects acres where technology fits at STABILITY 60-70M Acres planned for summer 2008 Monsanto's current 2007 market share in respective crops 2. 2020 value reflects gross sales opportunity in launch country in year 2020 12 Source: Spatial Climate Analysis Service, Oregon State University
  13. 13. CORN VALUE Monsanto’s Pricing Model Aimed at Total Value Created; Shared with Farmer YieldGard VT Triple Improved Yield PRICING TO VALUE EXAMPLE: 2008 Yield-advantage value at 3-5 year average 1 Improved Yield commodity price IMPROVED YIELD • Value shared with farmers 15-20 (BU/AC): 3-5 YEAR COMMODITY PRICE: $2.35 Indirect Benefits Quantified benefits, such as convenience and $35-$47 peace of mind Indirect Benefits2 • Value shared with farmers INDIRECT BENEFITS: $5 Replacement Value Incremental Value Created $40-$52 (+) Factors costs farmers would have incurred for substitute insect and weed control • 100% of replacement value is captured PRICING APPROACH PRICING APPROACH Per-Acre Trait Cost3: $28-$36 Percentage of incremental value shared Replacement Value4 ($17) ultimately determined by market research, pricing simulations and focus groups to assess: Incremental Farmer Cost: $11-$19 • Market Share Implications Incremental Value Shared: 60-70% • Trait Penetration Effect • Competitive Reaction 1. Monsanto estimates, based on better insect and weed control over conventional options 2. Monsanto estimates, based on farmer surveys quantifying benefits such as convenience and peace of mind 3. Retail price range for YieldGard VT Triple in 2008, at normal seeding rates 4. Subtracts costs farmers would have spent had they not used a trait package 13
  14. 14. SOYBEANS Roundup Ready 2 Yield Soybeans Have Potential to Deliver Up to 10 Years of Breeding Gains Through One Trait ROUNDUP READY 2 YIELD SOYBEANS: SECOND-GENERATION WEED CONTROL OPPORTUNITY U.S. SOYBEANS Near-Isoline Comparisons: Roundup Ready 2 Yield vs. Roundup Ready 2007 U.S. AVERAGE 41.6 bu YIELD PER ACRE: % Yield Increase over Roundup Ready 12% AVERAGE ANNUAL GAIN OVER 30 0.5 bu/ac YEARS: 11% 10% 9% ROUNDUP READY 2 YIELD TARGETED YIELD 9% 7-11% 8% IMPROVEMENT: 7% 7% 6% 4% YIELD 2% Roundup Ready 2 Yield has potential to deliver up to 10 years 0% of breeding gains with a single 4 YEAR trait – making it the first-ever true 2004 2005 2006 2007 AVERAGE yield trait for soybeans Roundup Ready 2 Yield soybeans yield 7 to 11 percent higher than Roundup Ready soybeans based on 73 Monsanto field trials from 2004-2007 14
  15. 15. SOYBEANS Soybean Value Upgraded as Stacks of Roundup Ready 2 Yield, Modified Oil Traits and Insect Protection Emerge MULTIPLE STACKS IN SOYBEANS BY 2012 CROP: Soybeans MODIFIED OIL Growth via OBJECTIVE: COMPETITIVE U.S. SOYBEAN VALUE TRAITS new traits MARKET PLATFORM 2008 STATUS • Roundup Ready • $17-19/acre • Roundup Ready 2 Yield in for Roundup ROUNDUP market for 2+ tolerance soybeans at 95% READY 2 YIELD years plus 7-11% penetration in U.S., yield • Vistive III and 55% in Brazil • Oil premium other modified • Roundup Ready 2 Yield U.S. SOYBEANS: oil traits being launched approved in U.S., 60-70M ACRES Canada and Japan; key ROUNDUP READY 2 export approvals YIELD AND INSECT BRAZIL SOYBEAN VALUE pending from China, MARKET PROTECTED Mexico and Europe • Insect-protected •$2.50-$3.00+ 2012 OUTLOOK Roundup Ready per acre for • Five trait stacks in 2 Yield being Roundup ROUNDUP READY prepared for tolerance plus soybeans feasible, with launch 7-11% yield Roundup Ready 2 Yield •Insecticide as base trait for all replacement BRAZIL SOYBEANS: 50-60M ACRES 15
  16. 16. USES OF CASH Leadership and Innovation Underscored by Strong Cash Generation for Investment in Next Wave of Growth USES OF CASH FY08F ESTIMATED USES OF CASH CUMULATIVE: 2005-2007 ESTIMATED $2.5B CASH GENERATED BY OPERATIONS American Seeds, Inc. (2004-2007) FY2007 Seminis (2005) Dividend FY2008 $3,000 increased Delta & Pine Land $313M of $2,450 40% to 70 (2007) $2,500 dividends & cents/share share $545 Agroeste (2007) $2,000 repurchases ($200) through Q2 $1,500 $639 $1,000 ($950) $3,161 $266 $500 ($830) $0 ($500) $1,160 ($1,000) FY2008 Estimated $2.5B ($1,500) FY2008 of Operating FY2008 Cash Flows CAPEX: generated Acquisitions Year two of ACQUISITIONS: $610M corn Entered FY2007 seed Capital Spending agreement to Capital spending expansion purchase De focused on corn project; year Technology Investments Ruiter Seeds seed production one of for €546M - expansion $196M Dividends ~$830M if glyphosate closes in FY08 Share Repurchases expansion FY2008 Technology Operating Cash Flows Investments 16
  17. 17. VEGETABLES De Ruiter Seeds Accelerates Monsanto Vegetable Seed Capability and Reach, Bolstering Five-Year Growth Prospects FY07 Annual net Sales = $145M FY07 Annual Net Sales = $612M Portfolio Composition: Percent of Sales1 Portfolio Composition: Percent of Sales1 10% 12% Open-Field Protected-Culture 88% 90% Pairing Seminis with De Ruiter Seeds brings together the leading positions in open-field and protected-culture segments Both segments benefit from the coordinated molecular breeding infrastructure 1. Size of pies not to scale with revenue generated by Seminis or De Ruiter Seeds; De Ruiter seeds is a pending transaction 17
  18. 18. SUMMARY Monsanto’s Strategy to Extend Competitive Lead Through Innovation, Driving 2012 Growth 2012 GROWTH RANGE GROSS PROFIT OUTLOOK BY SEGMENT Gross profit targeted to more 2007-2012F than double from 2007 through >2X 2012 including recent lift in Roundup to $1.8B gross profit $10,000 2007 BASELINE STRATEGIC PLAYBOOK $8,000 All growth is organic, from base IN MILLIONS business and pipeline U.S. Corn $6,000 International Corn Soybeans $4,000 Cotton Vegetables R&D Pipeline $2,000 Acquisitions to be pursued, but are not included in this growth $0 projection Earnings continue to translate 2007 2008F 2012F into operating cash, and value created for shareowners All Other Agricultural Productivity through combination of Roundup And Other Glyphosate-based acquisitions, technology Herbicides investments, share repurchases Seeds & Genomics and dividends 18