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.monsanto 06-29-06

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  • 1. THIRD-QUARTER 2006 FINANCIAL RESULTS June 29, 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. 2003-2006F EPS figures do not reflect the stock split announced June 27, 2006 Trademarks Trademarks owned by Monsanto Company and its wholly-owned subsidiaries are italicized in this presentation. Mavera™ is a trademark of Renessen. © 2006 Monsanto Company 3
  • 4. PERFORMANCE SUMMARY Third-Quarter and Nine-Month 2006 Financial Summary Third Third Nine Nine Change Change Quarter Quarter Months Months 2006 2005 2006 2005 NET SALES $2,348M $2,040M 15% $5,953M $5,020M 19% GROSS $1,194M $1,005M 19% $3,068M $2,511M 22% PROFIT NET $334M $47M 611% $833M $380M 119% INCOME DILUTED EPS ON AS- $1.21 $0.17 612% $3.02 $1.40 116% REPORTED BASIS Note: 2003-2006F EPS figures do not reflect the stock split announced June 27, 2006 4
  • 5. PERFORMANCE SUMMARY Items Included in Reported Earnings Third Quarter 2005: $(0.91) per share in-process R&D write-off related to the Seminis and Stoneville acquisitions $0.02 per share income on discontinued operations Nine Months 2005: $(0.91) per share in-process R&D write-off related to the Seminis and Stoneville acquisitions $(0.66) per share for Solutia-related charge $0.39 per share tax benefit from loss incurred on European wheat and barley business $(0.03) per share net restructuring charges $0.03 per share income on discontinued operations Note: 2003-2006F EPS figures do not reflect the stock split announced June 27, 2006 5
  • 6. STRATEGIC REVIEW Seeds and Traits Performance Underpinned By Growth in Key Traits GROWTH TARGETS FOR SELECTED TRAITS CURRENT- CURRENT- ACRES IN MILLIONS PRELIMINARY END-OF- PAST-YEAR YEAR YEAR EARLY- CURRENT-YEAR DECADE SALES PRESEASON SEASON SALES STATUS OPPORTUNITY PROJECTION UPDATE (2005) (2006F) (2010F) CORN U.S. ROUNDUP READY CORN 2 24.3 30 34 33-34 60 ACRES 4.1 8 10 9-10 25-30 U.S. YIELDGARD ROOTWORM 1.3 -- 5 5-6 25-30 U.S. TRIPLE-STACK ACRES COTTON U.S. ROUNDUP READY FLEX N/A 2-3 2-3 2-3 10-15 COTTON SOYBEANS BRAZILIAN ROUNDUP READY 12.3 20 20-25 ~19 50 SOYBEANS1 1. Brazilian Roundup Ready soybean acres include acres representing both new-seed sales and point-of-delivery value sharing. 6
  • 7. STRATEGIC REVIEW Factors in Transition Today Will Redefine the Game By End of the Decade PERIOD : PERIOD : PERIOD : SEED & TRAITS ESTABLISHED CORN IS ON THE LEADING EDGE THE GAME CHANGES 2003 2004 2005 2006 2007 2008 2009 2010 Commercial viability of seeds With seeds-and-traits strategy Seed and trait growth comes from: penetration, and traits established; established, gross profit stacking and multi-generation traits, and Supporting infrastructure in opportunity expands in the United breeding enhancement; Corn defines the future place States and internationally with direction penetration, stacking, second- generation – even as competition becomes more significant PERIOD PERIOD KEY MILESTONES IN TRANSITION Advances in breeding technology combine Continued growth in the U.S. corn market, with 1 with biotech for market advantage in corn; additive gross-margin opportunity for the ASI U.S. share gains of 1-2 points businesses Roundup Ready Corn 2 reaches 50M acres Molecular breeding advances begin to benefit 2 Stacks become the trait package of choice international corn market share position in corn 3 New opportunities for global trait expansion Roundup Ready Flex cotton launches; Transition to second-generation traits Seminis poised to capture additional gross 4 starts in United States and Australia margin through commercial initiatives and technology infusion Ex-U.S. seeds and traits market established with cornerstones in India and Brazil Next-generation pipeline poised for enhanced 5 commercial delivery 7
  • 8. STRATEGIC REVIEW American Seeds, Inc. Companies Deliver High-Margin Opportunity, Offer Alternatives to Growers KEY MARKET ACRES U.S. AVAILABLE MARKET 80M CREATING VALUE PERCENT PENETRATED 5.2% BUSINESS OVERVIEW American Seeds, Inc. (ASI) FOCUS: CENTRAL OVERVIEW CORN BELT • ASI is a strategic and geographic complement to Asgrow and DEKALB national brands • The acquisitions in June 2006 add approximately 1.4% of corn market share to the 2006 base of 5.2%, for a total of 6.6% 2005 2006F (as of May 2006) CORN MARKET 3% 5.2% SHARE: CORN TRAIT 67% 77% PENETRATION: CORN STACKED 36% 54% PENETRATION: ASI COMPANY Channel Bio Corp. (inc: Crow’s Hybrid Corn Co., LOCATIONS FY2005 Midwest Seed Genetics, Inc., Wilson Seeds); NC+ ACQUISITIONS: JUNE 2006 ASI ACQUISTION Hybrids COMPANY LOCATIONS Core Group (inc: Fontanelle Hybrids, Stewart Seeds, PRIMARY ASI COMPANIES’ DIRECT TO GROWER AREAS Trelay Seeds, Stone Seeds); Specialty Hybrids; FY2006 Gold Country Seed, Inc; Heritage Seed; Kruger Seed ACQUISITIONS: Co.; Campbell Seed; Trisler Seed; Diener Seeds; Sieben Seeds 8
  • 9. STRATEGIC REVIEW Monsanto’s Global Germplasm Reach Is Paving the Way for Market Share Growth Internationally SCORECARD 2006 UPDATE GLOBAL BRANDED MARKET SHARE1 Strengths: CHANGE FY2004 FY2005 FY2006F (’04-’06) In Europe-Africa region, NORTH AMERICAN REGION 14% 16% 19% +5% growth was strongest across UNITED STATES2 14% 16% 18% +4% largest markets In Asia-Pacific and Latin EUROPE-AFRICA REGION 13% 15% 15% +2% America regions, market FRANCE 10% 14% 15% +5% leadership was maintained and profitability grew ITALY 14% 17% 21% +7% HUNGARY 26% 30% 32% +6% Challenges: TURKEY 17% 23% 23% +6% In Brazil, prudent credit policies and pricing reduced SOUTH AFRICA 38% 44% 49% +11% sales and limited share ASIA-PACIFIC REGION 35% 37% 35% FLAT growth opportunities INDIA 29% 34% 35% +6% LATIN AMERICA REGION 37% 38% 38% +1% MEXICO 58% 57% 60% +2% BRAZIL 35% 35% 34% -1% ARGENTINA 35% 37% 35% FLAT 1. Market share is for hybrid corn seed market only 2. U.S. market share is for Asgrow and DEKALB brands only; not inclusive of ASI companies 9
  • 10. STRATEGIC REVIEW Seminis To Leverage Portfolio, Pricing and Molecular Breeding To Create New Growth FOCUS: SEMINIS VALUE ENHANCEMENT TIMELINE OVER THE MID-TERM, SEMINIS WILL UNDERGO THREE PHASES OF EXECUTION EN ROUTE TO UNLOCKING ADDITIONAL VALUE + + OPERATIONAL EXCELLENCE NEW VALUE CREATION PIPELINE ADVANCEMENT BY END OF FY 2007 BY END OF FY 2008 BY END OF FY 2010 Prioritize product portfolio by Identify and implement Commercialize first focusing on 20 – 25 key opportunities to price products hybrids developed by crops that drive profitability to value molecular breeding Assemble genetic maps for Build business models to create Launch succession of key crops and capture downstream value consumer benefit opportunities products Enhance R&D capability and deploy molecular markers for Enhance product quality and agronomic and consumer reduce costs through benefits manufacturing and logistical improvements Integrate and streamline back-office operations Aggressively make hybrid conversions in strategic crops 10
  • 11. STRATEGIC REVIEW “HIT” Projects Streamline Internal Work and Bolster Commercial Readiness High-Impact Technology: A designated sub-set of the R&D pipeline placed on a HIT graduated track to streamline development work and improve commercial readiness, reflecting enhanced confidence and certainty in our ability to launch a commercially meaningful product; Designed to pull forward the Net Present Value (NPV) through larger-acre launches in forward-bred germplasm with a greater financial benefit. HIT Project Roundup RReady2Yield soybeans PHASE III • Parallel work from breeding and biotechnology organizations • Simultaneous regulatory work, submissions moving forward along with project testing for key launch countries HIT Project Drought-tolerant corn PHASE II • Parallel work from breeding and biotechnology organizations • Early-stage R&D and commercial integration HIT Project Vistive III soybeans PHASE II • Progress will allow Vistive III to “leap- frog,” shortening the gap in commercialization between Vistive I and Vistive III 11
  • 12. STRATEGIC REVIEW Vistive III Soybeans Poised To Leap-Frog Ahead on Commercial Development Track KEY MARKET ACRES U.S. AVAILABLE MARKET 12-15M Vistive III Soybeans CREATING VALUE PERCENT PENETRATED 0% IMPROVING THE NUTRITIONAL PRODUCT CONCEPT PROFILE OF SOYBEAN OIL HIT Project LINOLENIC LINOLEIC OLEIC SATS Vistive III soybeans 18:3 18:2 18:1 18:0 / 16:0 DISCOVERY PHASE I PHASE II PHASE III PHASE IV STANDARD SOYBEAN TARGET: VISTIVE III • Combining both breeding and biotechnology, Vistive III is LOW-LIN – MID OLEIC – designed to lower linolenic and saturate content while LOW SAT boosting oleic content SOYBEANS VALUE CONSIDERATIONS Major market segments for U.S. soybean oil • Approximately 40M acres of U.S. soybean crop is crushed NON- HYDROGENATED- HYDROGENATED- HYDROGENATED FRYING BAKING for oil; Vistive III is optimal for Non-hydrogenated and Hydrogenated-Frying segments (see table at right) For salad oils, For various For various • Vistive III has replacement value; To be priced at a household use frying baking premium to conventional soybean oil applications applications • Market opportunity assumes competition from other Uses 50% of Uses 25% of Uses 25% of sources for different needs of different food applications total crushing total crushing total crushing (~20M acres) (~10M acres) (~10M acres) • Vistive III to be in a Roundup RReady2Yield background, which will help establish penetration Source: Soyatech, USDA RETAIL Medium (>$10/acre to <$30/acre) VALUE/ACRE: TOTAL ACRE Medium (>5M acres to <20M acres) OPPORTUNITY: 12
  • 13. STRATEGIC REVIEW Roundup RReady2Yield Soybeans Offers Yield Improvement Over First-Generation Roundup Ready Soybeans KEY MARKET ACRES U.S. BRAZIL ARGENTINA Roundup RReady2Yield AVAILABLE MARKET 70M 50M 35M Soybeans CREATING VALUE PERCENT PENETRATED 0% 0% 0% PRODUCT CONCEPT HIT Project HISTORICAL U.S. SOY YIELD GAINS Roundup RReady2Yield soybeans OF HALF BUSHEL PER YEAR DISCOVERY PHASE I PHASE II PHASE III PHASE IV 45 BUSHELS/ACRE 40 • Roundup RReady2Yield is the second-generation of Monsanto’s popular herbicide-tolerant platform in 35 soybeans 30 VALUE CONSIDERATIONS 25 • Value is additive, with target of up to 5 bushel-per-acre 20 yield improvement over comparable Roundup Ready 1970 1980 1990 2000 soybeans 2005 AVERAGE SOYBEAN YIELDS • Value created through yield gains will be shared with farmer and value chain as has been Monsanto’s practice U.S. ~43 bu/ac • Market opportunity for Roundup RReady2Yield soybeans Brazil ~40 bu/ac recognizes competition from other traits RETAIL Source: USDA, ABIOVE Medium (>$10/acre to <$30/acre) VALUE/ACRE: TOTAL ACRE High (>20M acres) OPPORTUNITY: 13
  • 14. STRATEGIC REVIEW Multi-Generational Drought-Tolerant Corn Is Advancing Closer to Commercial Reality KEY MARKET ACRES U.S. BRAZIL ARGENTINA AVAILABLE MARKET 80M 30M 6M Drought-tolerant corn CREATING VALUE PERCENT PENETRATED 0% 0% 0% SEGMENTED VALUE OPPORTUNITY PRODUCT CONCEPT ACROSS MARKETS: U.S. EXAMPLE HIT Project Drought-tolerant corn DISCOVERY PHASE I PHASE II PHASE III PHASE IV High annual precipitation • Drought-tolerance is a family of products, aimed at providing consistent yield and buffering against the effects of water limitations VALUE CONSIDERATIONS Low annual • Farmers value water-use in “acre-inches of water” needed precipitation to support yield potential – farmers need 18-20 inches of Source: Spatial Climate Analysis Service, Oregon State University moisture from natural or irrigated sources during growing WESTERN IRRIGATED STABILITY season DRYLAND • Value of the trait is in better yields under moisture- 8-12M acres 10-12M acres 50-60M acres stressed conditions; Varies by region (see table at right) • The value will be specific to the variable costs of water use 14-18” typical 14-18” typical 17-19” typical precipitation in precipitation in precipitation in by farmers, not fixed costs of irrigation growing season growing season growing season • First value models are based in U.S.; International markets Irrigated Non-irrigated Non-irrigated follow similar value proposition RETAIL Value is in Value is in Value is in Medium (>$10/acre to <$30/acre) VALUE/ACRE: improved yields improved yields replacing annually, by when moisture is irrigation, reducing TOTAL ACRE improving water- less than optimal the variable costs High (>20M acres) OPPORTUNITY: use efficiency of irrigation 14
  • 15. FINANCIAL SUMMARY Seeds and Traits Strategy Drives Ongoing EPS Performance $3.00 $2.50 - $2.55 $2.50 ONGOING EPS ($/SHARE) $2.08 $2.00 $1.59 $1.42 $1.50 $1.00 $0.50 $0.00 2003 2004 2005 2006F 2005-2006: MILESTONES 2003-2004: 2004-2005: 20%+ ONGOING EPS GROWTH AND 12% ONGOING EPS GROWTH 31% ONGOING EPS GROWTH STRATEGIC • EU APPROVALS UNLOCK • IN 2003, GROSS PROFIT • U.S. CORN MARKET SHARE DRIVERS U.S. CORN GROWTH FROM SEEDS AND TRAITS GAINS FOR 5TH STRAIGHT YEAR SURPASSES ROUNDUP AND • VALUE-CAPTURE • INCREASED PENETRATION OF OTHER GLYPHOSATE-BASED SYSTEM ESTABLISHED STACKED CORN TRAITS IN BRAZIL FOR HERBICIDES ROUNDUP READY • LAUNCH OF ROUNDUP READY • BEGINNING OF THE SOYBEANS FLEX COTTON TRANSITION FROM SINGLE • LAUNCH OF VISTIVE – TRAITS TO STACKED TRAITS THE FIRST CONSUMER- ORIENTED PRODUCT Note: 2003-2006F EPS figures do not reflect the stock split announced June 27, 2006 15
  • 16. FINANCIAL SUMMARY Earnings Should Continue To Translate to Free Cash Flow $1,200 $825M - $900M $999M $1,000 FREE CASH FLOW $800 ($ IN MILLIONS) $646M $600 $400 $70M $200 $0 2003 2004 2005 2006F 2005-2006: MILESTONES 2003-2004: 2004-2005: AND • ESTABLISHED DISCIPLINED STRATEGIC • IN 2005, MONSANTO • ANNOUNCED $800 MILLION, APPROACH TO CASH DRIVERS USED ROUGHLY $1.5 FOUR-YEAR SHARE MANAGEMENT BILLION OF CASH REPURCHASE PROGRAM IN FOR ACQUISITIONS, OCTOBER 2005 • REDUCED RECEIVABLES AS A INCLUDING SEMINIS, PERCENT OF SALES FROM 46% • CUMULATIVE INCREASE OF 42 STONEVILLE AND IN 2003 TO 31% IN 2004 PERCENT IN ANNUAL DIVIDEND ASI SINCE 2002 SPIN-OFF • FREE CASH FLOW REACHED • COMPLETED $500 APPROXIMATELY $1 BILLION MILLION SHARE IN 2004 REPURCHASE • INITIATED A $500 MILLION PROGRAM SHARE REPURCHASE IN 2003 16
  • 17. FINANCIAL SUMMARY Transitional Opportunities Improve the Core Profitability of Monsanto’s Business PERIOD : PERIOD : PERIOD : SEED & TRAITS ESTABLISHED CORN IS ON THE LEADING EDGE THE GAME CHANGES 2003 2004 2005 2006 2007 2008 2009 2010 Commercial viability of seeds With seeds-and-traits strategy Seed and trait growth comes from: penetration, and traits established; established, gross profit stacking and multi-generation traits, and Supporting infrastructure in opportunity expands in the United breeding enhancement; Corn defines the future place States and internationally with direction penetration, stacking, second- generation – even as competition becomes more significant PERIOD IN TRANSITION Factors “in transition” provide a positive pull on Continued growth in the U.S. corn market, with 1 additive gross-margin opportunity for the ASI gross profit with higher- businesses margin, higher-growth opportunity. With those Molecular breeding advances begin to benefit 2 international corn market share position transitional items pulling 3 forward our seeds and traits New opportunities for global trait expansion growth, we believe strongly Seminis poised to capture additional gross that we can improve the core 4 margin through commercial initiatives and profitability of our overall technology infusion business. Next-generation pipeline poised for enhanced 5 commercial delivery 17
  • 18. Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow 12 Months Ended 12 Months Ended 12 Months Ended Aug. 31, 2006 12 Months Ended Aug. 31, 2004 Aug. 31, 2003 $ Millions Forecast Aug. 31, 2005 Net Cash Provided (Required) by Operating Activities $1,375-$1,450 $1,737 $1,261 $1,128 Net Cash Provided (Required) by Investing Activities $(550) $(1,667) $(262) $(482) Free Cash Flow $825 - $900 $70 $999 $646 Net Cash Provided (Required) by Financing Activities N/A $(582) $(243) $(502) Net Increase (Decrease) in Cash and Cash Equivalents N/A $(512) $756 $144 Reconciliation of Non-GAAP EPS 12 Months Fourth Quarter Ended Aug. 31, 12 Months 12 Months 12 Months Fiscal Year 2006 Ended Aug. 31, Ended Aug. 31, Ended Aug. 31, $ per share 2006 Forecast Forecast 2005 2004 2003 Net Income per Share $(0.56)-$(0.59) $2.41-$2.48 $0.94 $0.99 $0.26 Cumulative Effect of Change in Accounting Principle -- -- -- -- $0.05 Diluted Earnings (Loss) per Share Before Effect of $(0.56)-$(0.59) $2.41-$2.48 $0.94 $0.99 $0.31 Accounting Change Tax Charge on Repatriated Earnings $0.07-$0.09 $0.07-$0.09 -- -- -- In-Process R&D Write-off Related to the Seminis and -- -- $0.91 -- -- Stoneville Acquisitions Solutia-Related Charge and Tax Benefit -- -- $0.64 -- -- Tax Benefit on Loss from European Wheat and -- -- $(0.39) -- -- Barley Business Restructuring Charges -- Net -- -- $0.02 $0.36 $0.09 Loss (Income) on Discontinued Operations and -- -- $(0.04) -- $0.06 Related Restructuring Impairment of Goodwill -- -- -- $0.24 -- PCB Litigation Settlement Expense – Net -- -- -- -- $0.96 Diluted Earnings (Loss) per Share from Ongoing Business $(0.47)-$(0.52) $2.50-$2.55 $2.08 $1.59 $1.42 Note: 2003-2006F EPS figures do not reflect the stock split announced June 27, 2006 18