monsanto 05-30-07
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monsanto 05-30-07 monsanto 05-30-07 Presentation Transcript

  • HUGH GRANT CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER SANFORD BERNSTEIN STRATEGIC DECISIONS CONFERENCE May 30, 2007 1
  • 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, including proceedings related to Solutia Inc.; developments related to foreign currencies and economies; successful completion and operation of recent and proposed acquisitions, including Delta and Pine Land Company; 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 periodic report to the SEC. 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. Mavera™ is a trademark of Renessen. All other trademarks are the property of their respective owners. © 2007 Monsanto Company 2
  • Non-GAAP Financial Information This presentation may use the non-GAAP financial measures of “free cash flow,” and earnings per share (EPS) on an ongoing basis. 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. With respect to the time period prior to Sept. 1, 2000, references to Monsanto in this presentation also refer to the agricultural business of Pharmacia. 3
  • OVERVIEW Building From Established Platform, Monsanto Has a Window of Opportunity to Extend Our Leadership R&D LEADERSHIP STRATEGIC PERFORMANCE BIOTECHNOLOGY TRAITS CHANNELS TO MARKET Monsanto was the first to Monsanto is the only develop and commercialize company in the industry to broad-acre biotech traits in offer three commercial the mid-1990s channels to market – widely employing the multi-market approach of branded and Since then, Monsanto has licensed seed and trait sales continued its first-mover advantage – as the first to COMMERCIAL COORDINATION launch stacked traits and Roundup, world’s best- second-generation traits selling herbicide brand, uniquely complements SEED & TRAIT seed-and-trait platform PLATFORM BREEDING BETTER SEED Monsanto combines a global library of seed germplasm unmatched in FINANCIAL PERFORMANCE scale with advanced High-margin technology breeding technology to business that generates develop and deliver the sustainable free cash flow industry’s best-performing seed for farmers 4
  • SUMMARY Monsanto’s Seeds-and-Traits Growth Moves Independently of Commodity Cycles MONSANTO PERFORMANCE VS. COMMODITY CYCLES: 2001-2007F 2 $3,000 CAGR for Monsanto’s 1.8 $2,500 INDEXED COMMODITY PRICE1 Seeds & SEEDS & GENOMICS GROSS PROFIT Genomics 1.6 $2,000 segment for 2001- (IN MILLIONS) 2007F is 26% 1.4 $1,500 1.2 During the same $1,000 1 time period, actual commodity $500 0.8 prices deviated by as much as 0.6 $0 30% below the 2001 2002 2003 2004 2005 2006 2007F price trend lines and 50%+ above CORN SOYBEANS COTTON SEEDS & GENOMICS GP the price trend lines 1. Commodity price per unit, indexed – base year: 2001; Corn and soybeans: price per bushel; Cotton: price per pound (Source: USDA) 2. 2007F: Reflects commodity prices as of March 2007; Reflects forecasted gross profit contribution 5
  • OVERVIEW Six Building Blocks Extend Leadership and Elevate Gross Margin Opportunity Through 2010 MONSANTO’S OPPORTUNITY GROSS MARGIN OPPORTUNITY Delta between 2006 gross margin and GROSS PROFIT AS A PERCENT OF SALES a 51-53% trajectory reflects continued 54% growth opportunity for seeds and traits FACTOR VALUE1 GROSS MARGIN ‘PULL’ 52% HIGH U.S. corn International MEDIUM 50% corn Global biotech MEDIUM traits 48% LOW CURRENT LEVEL Cotton platform MEDIUM Seminis 46% HIGH R&D pipeline 44% 2003 2004 2005 2006 2007F 2008F 2009F 2010F 1. Increment to total gross profit in the period 2006-2010; Some growth factors will overlap. MEDIUM LOW HIGH >$250M $100M - $250M <$100M 6
  • U.S. CORN GROWTH While Rising Corn Acres Grab Attention, Performance in the Expanding Market Generates Value and Creates Leadership GROW WITH THE MARKET GROW FASTER THAN THE MARKET ACCELERATING CORN MARKET: Opportunity associated with adding Opportunity associated with adding INCREASED ACRES vs. ACCELERATED incremental million acres of corn incremental million acres of corn PERFORMANCE TARGET ACRES 1M 1 share point TARGET ACRES (From estimated 85- RELEVANT SHARE ACRES 90M acre base) For DEKALB seed, gross DEKALB ~22% ~220K RELEVANT ACRES profit opportunity is ASI Brands ~8% ~80K approximately TOTAL ~850K-900K DOUBLE to TRIPLE Licensee Brands ~30% ~300K GROSS PROFIT DRIVERS for an incremental share TOTAL ~600K • Incremental Germplasm: Seed point versus an sales generate roughly 40-45% GROSS PROFIT DRIVERS incremental million corn gross profit acres • Incremental Germplasm: Value of • Incremental Traits: Trait sales germplasm sales primarily for generate roughly 80%+ gross profit sub-set of acres using DEKALB and ASI • Incremental Traits: Proportional trait sales across three channels; Incremental trait value generated in licensee channel shared proportionately 7
  • U.S. CORN GROWTH By Delivering Better Yielding Products, DEKALB on Track to Gain More Than 12 Share Points in Six Years DEKALB SHARE EVOLUTION: 2001-2007F U.S. Corn SITUATION: CREATION + YIELD CREATION PRESERVATION • In 2006, Monsanto’s Combining germplasm library and breeding Biotech traits preserve a DEKALB brand grew by 3 capability, focus is on boosting the inherent greater percentage genetic 25% genetic potential in the seed potential market share points OUTLOOK: 20% 22+% • Expected 3+ share gain for DEKALB, for 12 points U.S. SHARE 19% in 6 years 15% 16% 14% 13% 10% 12% 10% 5% 0% 2001 2002 2003 2004 2005 2006 2007F TOTAL U.S. PLANTED TRIPLE-STACK ACRES -- -- -- -- 1.3 6.0 16.0 (ACRES IN MILLIONS) DEKALB TRIPLE-STACK -- -- -- -- 8% 20% 40% TRAIT PENETRATION 8
  • U.S. CORN GROWTH Farmer Demand for Maximum Yield Performance Has Driven Accelerated Adoption of Biotech Traits in Corn U.S. Corn 160 SITUATION: 140 • With traits in strong demand, there has been 120 a significant jump in TRAIT ACRES IN MILLIONS trait demand from 2006 100 to 2007 OUTLOOK: 80 • In 2007, each bag of 60 DEKALB seed contains on average more than 2 40 traits – compared with an average of 1.7 traits 20 for the rest of the 0 industry 2005 2006 2007F 2010F 2007 FORECAST END-OF-DECADE U.S. CORN TRAIT 2005 ACTUAL 2006 ACTUAL MARKET ACRES1 INITIAL Q2 OPPORTUNITY ESTIMATE UPDATE (IN MILLIONS) U.S. YIELDGARD 4.1 10 >15 ~19 25-30 ROOTWORM ACRES U.S.YIELDGARD 32.1 32.3 >32 ~40 50-60 CORN BORER ACRES U.S. ROUNDUP READY 24.8 32.7 >40 ~50 60 CORN ACRES 1.3 6.0 >10 ~16 25-30 U.S. TRIPLE-STACK ACRES 9 1. 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.
  • INTERNATIONAL CORN GROWTH Gross Profit Value of Seed Internationally Varies, Yet Still Solid Contributor to Growth, Commercial Platform TOTAL HYBRID SHARE GROSS MONSANTO MARKET MARKET POINT PROFIT BRAND BIOTECH TRAIT STATUS SIZE SIZE CHANGE VALUE SHARE (ACRES) (ACRES) (’04-’06) PER ACRE1 International Corn EUROPE-AFRICA SITUATION: Limited acres planted, HIGH France 7.1M 7.1M 15% +5 beginning in 2006 • Primary value in HIGH Italy 2.8M 2.8M 21% +7 None currently international corn markets MEDIUM today is in the seed Hungary 2.8M 2.8M 32% +6 None currently • Breeding gains that have HIGH Turkey 0.8M 0.7M 21% +4 None currently been made in the U.S. set Corn Borer-Roundup South LOW pace for market share 6.0M 6.0M 50% +12 Ready Corn 2 stack Africa approved in January growth in other LATIN AMERICA international markets Field trials for OUTLOOK: MEDIUM Mexico 17.3M 3.9M 61% +3 regulatory approval underway • Monsanto is targeting to Key traits in grow share in each of the LOW Brazil 30.8M 20.6M 34% -1 regulatory approval most valuable corn-growing queue countries Roundup Ready Corn LOW Argentina 7.3M 7.0M 35% FLAT 2 and YieldGard Corn Borer planted ASIA-PACIFIC Field trials for LOW India 15.6M 5.9M 35% +6 regulatory approval underway 1. Average incremental value in gross profit opportunity for the seed value (excluding traits) of the addition of an acre in a Monsanto brand: MEDIUM HIGH LOW >$20 $10 - $20 <$10 10
  • GLOBAL BIOTECH TRAIT GROWTH Significant Growth Opportunity Lies in Expansion of Existing Commercial Biotech Traits Globally GLOBAL MARKET OPPORTUNITY MARKET OPPORTUNITY FOR BIOTECH TRAITS THROUGH 20101 Global Biotech Traits SITUATION: SOYBEANS COTTON CORN • Historically, most rapid BOLLGARD ROUNDUP ROUNDUP YIELDGARD ROUNDUP AND YIELDGARD adoption has been in the READY READY CORN READY BOLLGARD ROOTWORM CORN 2 BORER (FLEX) II U.S., also the most highly penetrated market United States 70M 10-15M 6-8M 60M 50-60M 25-30M • Penetration is moving globally, trait by trait, country Brazil 50M 3M 2M 20M 15M 5M by country Argentina 35M - - 5M 4M 1M OUTLOOK: • As is the case in the U.S., India - 10-15M 10-15M 3 – 5M 3 – 5M - largest category of Europe 1M - - 24M 8M 5M opportunity internationally is corn trait adoption Africa 0.2M 11M 10M 6M 4M - • With current traits, there’s 0.5M- 0.5M- Australia - - - - still opportunity to double 0.8M 0.8M acres from 2006 penetration 34.5- 28.5- 118- of 216M acres Total Key 156.2M 84-96M 36-41M Markets 44.8M 35.8M 120M 2006 86% 39% 57% 29% 42% 26% Penetration 1. Market Opportunity reflects total acres where technology is applicable, not necessarily acres projected for penetration by 2010. 11
  • COTTON GROWTH Upgrade to Second-Generation Cotton Traits Flourishes, Highlighted by 2007 Roundup Ready Flex Growth PENETRATION RATE OF SECOND-GENERATION TRAITS PENETRATION TREND OF COTTON TRAITS AS A PERCENT OF ANNUAL PLANTED ACRES1 Cotton Platform 2006 RESULTS SITUATION: • Cotton trait platform is the first 17% Bollgard II to move forward on complete replacement of first-generation 14% Roundup traits with second-generation Ready Flex upgrades • Roundup Ready Flex cotton 2007 FORECAST launched in the U.S. in 2006; 25-30% Launched in Australia for Bollgard II FY2007 planting 25-30% Roundup OUTLOOK: Ready Flex • Transition to second- generation traits continues in 2007 0% 5% 10% 15% 20% 25% 30% • Roundup Ready Flex was planted on ~14% of planted ROUNDUP READY FLEX acres in 2005 – that should double in 2007 Even on potentially lower total planted acres, Roundup Ready Flex penetration rate should double in 2007 to >25% of total cotton crop 1. Percent of annual planted acres reflects the ratio of number of actual trait acres planted to total planted acres in the identified year for the specified geography 12
  • SEMINIS GROWTH Seminis To Leverage Portfolio, Pricing and Molecular Breeding To Create New Growth SEMINIS VALUE CREATION STAGED OPPORTUNITIES FOR INCREASING BUSINESS VALUE Seminis SITUATION: Significant use of molecular markers • In 2006, narrowed commercial VALUE CREATION OPPORTUNITY and research focus to 25 crops Aggressively make hybrid that generate the most profit conversions in strategic crops • Began application of breeding technology, with a target of Identify and implement opportunities 1,000+ markers each for 9 to price products to value crops by 2009 OUTLOOK: Assemble genetic maps for key crops • Seminis is targeted to contribute $0.10 - $0.125 to EPS in FY2007 now that Focus on 25 most-profitable key crops inventory step-up charge is complete 2005 2006 2007 2008 2009 2010 PIPELINE OPERATIONAL EXCELLENCE NEW VALUE CREATION ADVANCEMENT Monsanto Seminis Seminis Commercialize acquires modestly projected to be first hybrids Seminis accretive accretive to developed by to FY2006 FY2007 EPS in molecular EPS range of $0.10- breeding $0.125 13
  • PIPELINE UPDATE Pipeline Demonstrates Increased Breadth and Depth; Key Projects on Track for Commercial Launch R&D PIPELINE: JANUARY 2007 PHASE PHASE PHASE PHASE PHASE PHASE PHASE PHASE D D 1 2 3 4 1 2 3 4 PROCESSOR BENEFITS FARMER BENEFITS MAVERA™ HIGH-VALUE CORN ROUNDUP READY FLEX COTTON WITH LYSINE1 ROUNDUP RREADY2YIELD SOYBEANS MAVERA™ I HIGH-VALUE SOYBEANS1 ROUNDUP RREADY2YIELD CANOLA MAVERA™ II HIGH-VALUE SOYBEANS1 DICAMBA-TOLERANT SOYBEANS 2nd-GEN HIGH-VALUE CORN WITH LYSINE1 DICAMBA-TOLERANT COTTON FEED CORN WITH BALANCED PROTEINS1 YIELDGARD VT ROOTWORM/RR2 2ND-GEN YIELDGARD ROOTWORM HIGH OIL SOYBEANS FOR PROCESSING1 YIELDGARD VT PRO 2ND-GEN YIELDGARD CORN BORER CONSUMER BENEFITS INSECT-PROTECTED SOYBEANS YIELDGARD ROOTWORM II IMPROVED-PROTEIN SOYBEANS SOYBEAN NEMATODE-RESISTANCE VISTIVE II SOYBEANS BOLLGARD III VISTIVE III SOYBEANS COTTON LYGUS CONTROL OMEGA-3 SOYBEANS HYBRIDIZATION SYSTEM FOR CORN DROUGHT-TOLERANT CORN 2ND-GEN DROUGHT-TOLERANT CORN High Impact Technologies (HIT) project HIGHER-YIELDING CANOLA Jan. 4, 2007 Advancements/Additions WATER-USE EFFICIENCY SOYBEANS Jan. 4, 2006 Advancements/Additions DROUGHT-TOLERANT COTTON 1. These product candidates are in the Renessen pipeline. Renessen is a HIGHER-YIELDING CORN Monsanto/Cargill joint venture. NITROGEN UTILIZATION CORN 2. The colored bar associated with each project indicates which phase that project is HIGHER-YIELDING SOYBEANS in. It is not intended to represent the relative status of the project within a particular stage. 3. Roundup Ready Flex Cotton advanced from Phase 4 to commercialization in 2006. 14
  • PIPELINE UPDATE Roundup RReady2Yield Soybeans in Phase 4, Poised for Commercial Opportunity KEY REGIONS U.S. BRAZIL ARGENTINA Roundup RReady2Yield AVAILABLE ACRES 70M 60M 35M Soybeans PERCENT PENETRATED 0% 0% 0% P R O JE CT GROWER PERSPECTIVE: ROUNDUP RREADY2YIELD UPGRADE WEED Satisfaction levels of 95%, noting “unsurpassed” ++ ++ CONTROL weed control Yield target for Roundup RReady2Yield soybeans ++ + YIELD BENEFIT is up to 5 bushel-per-acre improvement over comparable Roundup Ready soybeans With no residual issues, Roundup weed control + + FLEXIBILITY system allows for flexibility in annual corn- soybean rotation Monsanto has filed for patent protection and DISEASE licensed other third-party patents relating to RESEARCHING RESEARCHING CONTROL disease control. Testing is continuing to evaluate potential for control of Asian soybean rust. Roundup RReady2Yield is a yield trait – up to 5 bu/acre + Additive Performance to a yield improvement translates to roughly an average Farmer’s Operation boost of 10% in farmers’ revenue per acre 15
  • PIPELINE UPDATE Yield and Stress Biotech Collaboration with BASF Creates Enhanced Opportunity in Key Growth Area for Next Decade LICENSEE BRANDS MONSANTO DISOVERY REGIONAL BRANDS PROGRAM INTENSIFIED YIELD & STRESS BASF PIPELINE DISCOVERY NATIONAL BRANDS Collaboration creates PROGRAM DEVELOPMENT OF a new joint pipeline SUCCESSIVE UPGRADES focused on stepping TO CREATE A “FAMILY” up the volume of OF PRODUCTS leads and certainty of commercial success DISCOVERY DEVELOPMENT COMMERCIALIZATION in the emerging category of “yield” • Pairs two separate, but • Greater volume of leads • Broad-licensing approach traits for corn, complementary discovery and cost sharing reduce allows for products to soybeans, cotton and engines risk of failure, increasing reach broadest market canola probability of possible, allowing farmers • Increased rate of commercial success to choose traits in the discovery, unlocking more KEY seed brands they prefer sources of genes than • Successive upgrades ADVANTAGES for the greatest ever before emerge sooner, creating performance steady stream of traits in • With combined effort, a “product family” in products should advance each crop at faster-than-average development timelines, esp. in early-phase research 16
  • PIPELINE UPDATE First of Drought-Tolerant Corn Traits Continues To Deliver Yield Boost in Third-Year Testing KEY REGIONS U.S. BRAZIL ARGENTINA AVAILABLE ACRES 80M 30M 6M Drought-Tolerant Corn PERCENT PENETRATED 0% 0% 0% P R O JE CT 2006 TESTING: YIELD IMPROVEMENT OF LEAD EVENT UNDER R&D Pipeline DROUGHT STRESS Percent yield difference vs. control Drought-Tolerant Corn 14 7.3% 10.5% 10.9% 23.2% 9.0% PROJECT CONCEPT: 12 First-generation drought tolerance is targeted to minimize uncertainty in farming VS. CONTROL (BU/ACRE) 10 by buffering against the effects of water YIELD DIFFERENCE limitation, primarily in areas of annual water 8 stress KEY RESULTS 2006 PERFORMANCE UPDATE: 6 NOT TESTED Phase 2 2006 STATUS: 4 • Yield enhancement demonstrated 2 again in 2006 under water-stress conditions in U.S. 0 • Lead gene chosen 2004 2005 2006 • 2007 trials expected to demonstrate Hybrid 1: 2004, 4 locations; 2005 5 locs; 2006, 1 loc (20 reps) Hybrid 2: 2004, not tested; 2005, 5 locs, 2006, 3 locs yield enhancement in multiple hybrids under dryland conditions In third year field testing in U.S., drought-tolerant leads are VALUE CATEGORIES: consistently delivering higher yields compared with controls under drought-stressed conditions TOTAL RETAIL $10 - $30/acre VALUE/ACRE: First leads show primary benefit under annual water-stress conditions 17
  • SUMMARY Fueled By Seeds-and-Traits Business Performance, Monsanto Has Created a Strong Platform for Growth $3,000 FOCUS: ANNUAL GROSS PROFIT BY BUSINESS SEGMENT SEEDS & GENOMICS SEGMENT $2,500 AGRICULTURAL PRODUCTIVITY SEGMENT $2,000 ANNUAL GROSS PROFIT SEEDS & ($ IN MILLIONS) GENOMICS CAGR 2002-2006: 34% $1,500 $1,000 AGRICULTURAL PRODUCTIVITY KEY INFLECTION POINT: IN CAGR 2002-2006: (8)% 2003-2004, GROSS PROFIT FOR SEEDS & GENOMICS BUSINESS $500 SEGMENT SURPASSED AGRICULTURAL PRODUCTIVITY $0 2002 2003 2004 2005 2006 18
  • SUMMARY Monsanto Is Unique In Being a Technology Company That Generates Significant Free Cash Flow Free Cash Flow SOURCES OF CASH USES OF CASH SITUATION: CUMULATIVE: 2004-2006 CUMULATIVE: 2004-2006 • From 2004-2006, Monsanto ACQUISITIONS WORKING CAPITAL generated $1.3B from CAPITAL EXPENDITURES working capital NET INCOME TECHNOLOGY AND OTHER INVESTMENTS • During the same period, $1.8B was spent on acquisitions $860M $1.8B $1.3B $1.2B $270M CASH GENERATION AND USES Between 2004 and 2006, much of the cash generated from working capital improvements was used to fund key acquisitions 19
  • SUMMARY All Six Growth Drivers Are On Track in 2007, Setting Stage for Continued Growth Through End of Decade MONSANTO’S OPPORTUNITY FY2007 PRIORITIES FACTOR FOCUS: GROSS PROFIT AS A PERCENT OF SALES • Drive trait penetration, especially triple-stacks 54% U.S. corn • Seed share growth in U.S. national and ASI brands GROSS MARGIN ‘PULL’ 52% International • Grow share in key international markets corn • Achieve 2.5-5 cents EPS for 50% Global biotech Roundup Ready soybeans in traits Brazil • Complete Delta and Pine Land 48% acquisition Cotton CURRENT LEVEL platform • Continue penetration of second- generation stacked traits in U.S. 46% • Achieve 10-12.5 cents EPS Seminis contribution 44% 2003 2004 2005 2006 2007F 2008F 2009F 2010F • Emphasis on “HIT” projects R&D pipeline 20