monsanto 2004/11/11

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monsanto 2004/11/11

  1. 1. Hugh Grant Chairman, President and CEO Lehman Brothers 2004 Materials Select Conference November 11, 2004 1
  2. 2. Forward-Looking Statements Forward-Looking Statements Forward- Certain statements contained in this presentation, such as statements concerning the company's anticipated financial statements results, current and future product performance, regulatory approvals, currency impact, business and financial plans and approvals, other non-historical facts are quot;forward-looking statements.quot; These statements are based on current expectations and non- quot;forward- expectations 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 those company’ such forward-looking statements. Factors that could cause or contribute to such differences include, among others: the forward- such company’s exposure to various contingencies, including those related to Solutia, Inc., litigation, intellectual property, company’ regulatory compliance (including seed quality), environmental contamination and antitrust; fluctuations in exchange rates contamination and other developments related to foreign currencies and economies; increased generic and branded competition for the economies; company's Roundup agricultural herbicide; the accuracy of the company’s estimates and projections, for example, those company’ with respect to product returns and grower use of our products and related distribution inventory levels; the effect of and weather conditions and commodity markets on the agriculture business; the success of the company’s research and business; company’ development activities and the speed with which regulatory authorizations and product launches may be achieved; rizations autho domestic and foreign social, legal and political developments, especially those relating to agricultural products especially developed through biotechnology; the company’s ability to successfully market new and existing products in new and new ’ company existing domestic and international markets; the company’s ability to obtain payment for the products that it sells; the company’ company's ability to achieve and maintain protection for its intellectual property; the effects of the company's accounting intellectual policies and changes in generally accepted accounting principles; the company's ability to fund its short-term financing principles; short- needs; general economic and business conditions; political and economic conditions due to threat of future terrorist economic activity and related military action; and other risks and factors detailed in the company's filings with the U.S. Securities factors and Exchange Commission. Undue reliance should not be placed on these forward-looking statements, which are current forward- only as of the date of this release. The company disclaims any current intention to revise or update any forward-looking forward- statements or any of the factors that may affect actual results, whether as a result of new information, future events or otherwise. 2
  3. 3. Non-GAAP Financial Information Non-GAAP Financial Information This presentation uses the non-GAAP financial measures of “free cash flow” and earnings per share (“EPS”) non- flow” (“ EPS” excluding the effect of certain items. We define “free cash flow” as the total of cash flows from operating flow” activities and cash flows from investing activities. A non-GAAP EPS financial measure (which we sometimes non- refer to as EPS from ongoing business) 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 non- in this presentation. The presentation of free cash flow and EPS excluding the effect of certain items is EPS intended to supplement investors’ understanding of our operating performance. These non-GAAP financial non- investors’ measures may not be comparable to similar measures used by other companies. Furthermore, these non- non- GAAP financial measures are not intended to replace net income (loss), cash flows, financial position, or (loss), comprehensive income (loss), as determined in accordance with accounting principles generally accepted in accounting the United States. The non-GAAP financial measures used in this presentation are reconciled to the most non- directly comparable financial measure calculated and presented in accordance with GAAP and can be found at in the end of this presentation. Fiscal Year In this presentation, unless otherwise specified references to years, or to fiscal years, 2001 through 2006 references are on a fiscal year basis and refer to the 12-month period ending August 31. 12- Trademarks Roundup, Roundup Ready, Bollgard, Bollgard II, YieldGard, VISTIVE and the Monsanto, Imagine and vine VISTIVE logo are trademarks owned by Monsanto Company and its wholly owned subsidiaries. All other trademarks owned are the property of their respective owners. © 2004. Monsanto Company. All Rights Reserved. 3
  4. 4. Overview One Year After Investor Day, Momentum Builds From Higher Base Free Cash Flow EPS Diluted Earnings per Share on an Ongoing Basis $ millions Nov-11-2004 Guidance Nov- 11- Nov-11-2004 Guidance Nov- 11- Nov-11-2003 Guidance Nov- 11- $1,000 $2.20 Nov-11-2003 Guidance Nov- 11- $2.00 $800 $1.80 $600 $1.60 $400 $1.40 $200 $1.20 $0 $1.00 2003 2004 2005F 2006F 2003 2004 2005F 2006F 4
  5. 5. Overview Seeds and Traits Continue to Accelerate Gross Profit Roundup and Other Glyphosate-Based Herbicides All Other $ millions Seeds and Traits $2,700 $2,400 $2,100 $1,800 $1,500 $1,200 $900 $600 $300 $0 2003 2004 2005F 5
  6. 6. Overview Momentum in Field Propels Earnings Growth Earnings per Share $1.95 to Diluted EPS on an Ongoing Basis $2.09 $1.77 to $2.00 $1.90 $1.80 $1.61 10% growth $1.60 $1.42 10% - 18% growth $1.40 13% growth $1.20 $1.00 † 2003 2004 2005F 2006F †2006F is GAAP basis (i.e. ongoing basis is expected to equal GAAP basis) GAAP 6
  7. 7. Overview Earnings Growth Expected to to Contribute to Free Cash Flow Generation Free Cash Flow $ millions $1,200 $1,000 $800 $600 $999M $400 $646M $600M $581M $500M to $500M to $75M $200 $600M $600M $0 2001 2002 2003 2004 2005F 2006F 7
  8. 8. Overview Return on Capital Goals Reflect Continued Improvement in Working Capital Return on Capital ROC Percentage 12% p* 100 b ent 10% vem impro bp* 130 ment ove impr 10% 10% p* 8% 60 b ent 9% 9% 1 em prov im 7.7% 7.7% 6% 6.1% 6.1% 4% 2% 0% 2003 2004 2005 Goal 2006 Goal * basis points 8
  9. 9. Momentum and Acceleration Biotechnology Is Most Rapidly Adopted Technology in History of Agriculture Global Monsanto Planted Biotech Acres Acres in millions 180 Canola 160 Cotton 140 Corn 120 Soybeans 100 80 60 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Monsanto estimates 9
  10. 10. Momentum and Acceleration Value Shift from Chemicals to Seeds and Traits in Motion Industry Sales Estimates 1996 2003 2008F $7.5 Billion $8.4 Billion $9.2 Billion $3.6 $2.6 $4.4 $0.1 $3.8 $1.3 $3.5 $3.0 $2.7 Crop Chemicals Germplasm Biotech Traits Source: U.S. 1996-2003 Doane AgroTrak & Seed Studies; 2008 Monsanto Estimate 1996- 10
  11. 11. Momentum and Acceleration Value Shift Is Starting to Take Place from Other Industries Water and Soil Value Shift Value Shift Nutrients Human Value Shift Value Shift Health Animal Value Shift Value Shift Nutrition Crop Value Shift Value Shift Chemicals Seed 11
  12. 12. Momentum and Acceleration Now Commercializing Inter-Company Corn Hybrids from Industry’s Most Diverse Genetic Pool 6-to-8 year process 6-to-8 year Late 1990s Early 2000s Today Acquired 36 major corn Crossed genetic lines Launching new hybrids breeding programs across acquired from inter-company (12 countries x average of 3 companies crosses companies per country) Temperate Temperate Sub-Tropical Sub- Sub-Tropical Monsanto corn Tropical Tropical germplasm flows globally Sub-Tropical Sub- Sub-Tropical Temperate Temperate 12
  13. 13. Momentum and Acceleration Early, Major Investment In Seeds Captured Value Shift Monsanto Brand Share Monsanto Licensed Share Monsanto Genetic Market Share in U.S. Corn Seed 60% 49% 48% 45% 43% 50% 40% 30% 20% 10% 0% 2001 2002 2003 2004 Source: Monsanto Estimates 13
  14. 14. Momentum and Acceleration Market Potential for Biotech Traits Highlights Continued Growth Opportunity Total Available Market in Acres Soybeans Cotton Corn Key Markets Roundup Roundup Bollgard I Roundup YieldGard YieldGard Ready Ready and II Ready Corn Root- Borer worm United States 70M 10-15M 6-8M 50M 30M-40M 15-20M Brazil 50M - - 20M 15M 5M Argentina 30M - - 5M 4M 1M India - - 10-15M - - - Australia - 0.5M-0.8M 0.5M-0.8M - - - Biotech Acres Planted 2004 Remaining 71% 66% 35% 22% 57% 7% 71% Available 66% 35% 22% 57% 7% Market 14
  15. 15. Market Expansion Available Market for Roundup Ready Corn Is Growing Key Market Acres U.S. Brazil Argentina Key Market Acres U.S. Brazil Argentina Contributing Platforms 20M Available Market 50M 5M 20M Available Market 50M 5M Genomics Percent Penetrated (2004) 33% 0% 0% Percent Penetrated (2004) 33% 0% 0% 1 Regulatory Processes Conventional Breeding European Union Molecular 22 products in regulatory queue Breeding under Directive 2001/18; 11 from Monsanto Crop Analytics Roundup Ready corn (NK603) Biotechnology approved for importation and whole corn feed in July 2004 NK603 Novel Food approval in October 2004 Argentina NK603 approved for planting in Argentina in July 2004 Application for stacks in queue Discovery Phase 1 Phase 3 Phase 4 Phase 2 Launch Proof of Concept Adv. Development Pre-Launch Pre- Early Development 15
  16. 16. Market Expansion EU Approvals Will Continue to Expand Global Market Potential 2 Monsanto Has 11 out of 22 Applications in EU Queue Application Import Cultivation Food and Feed 1. Yieldgard Rootworm X X** 2. Roundup Ready Canola X X* 3. YieldGard Plus X X 4. Roundup Ready Corn/ YieldGard X X Corn Borer Stack (NK603/MON810) 5. Roundup Ready Corn (NK603) X 6. Roundup Ready Corn/ YieldGard X Corn Borer Stack (NK603/MON810) 7. Roundup Ready Cotton X X X* 8. Bollgard Cotton X X X* 9. Roundup Ready Fodder Beet X 10. Roundup Ready Sugarbeet X 11. Roundup Ready Corn/ YieldGard X X Rootworm Stack (NK603/MON863) X –Indicates application in queue *Approved under Novel Food Regulation Regulation **Pending under Novel Food Regulation 16
  17. 17. Market Expansion Grain Channeling Offers Farmers Market Options 3 Grain Channeling in the U.S. Business Approach Website indicates to farmers which elevators in their area accept biotech grain not yet approved for import into the European Union Communication and education program under way Percent of growers citing grain marketing concerns has dropped from roughly 60% to nearly 30% in past year* *Based on Roundup Ready corn surveys taken in fall of 2003 and spring of spring 2004 in Eastern Iowa/Northern Illinois region www.866sellcorn.com 17
  18. 18. Second-Generation Traits Upgrades in Technology Raise the Bar -- Roundup Ready Flex Cotton Key Market Acres U.S. Australia Key Market Acres U.S. Australia Contributing Platforms 0.5M – 0.8M Available Market 10M-15M 10M- 0.5M – 0.8M Available Market 10M-15M Genomics 0% Percent Penetrated 0% 0% Percent Penetrated 0% 1 Expanded Window of Application Conventional Breeding Molecular Expanded window of over-the-top application Breeding - Increased margin of crop safety Crop Analytics - More “flexible” weed control Increased grower convenience Biotechnology Reduced need for specialized spray equipment Over-the-top window of application Roundup Ready® Flex Cotton Roundup Ready® Cotton (< 4 lf.) Emergence Layby Preharvest Harvest Discovery Phase 1 Phase 3 Phase 4 Phase 2 Launch Proof of Concept Adv. Development Pre-Launch Pre- Early Development 18
  19. 19. Second-Generation Traits Broad Licensing Will Accelerate Roundup Ready Flex Cotton Launch Key Market Acres U.S. Australia Key Market Acres U.S. Australia Contributing Platforms 0.5M – 0.8M Available Market 10M-15M 10M- 0.5M – 0.8M Available Market 10M-15M Genomics 0% Percent Penetrated 0% 0% Percent Penetrated 0% 2 Field Trial Update Conventional Breeding Molecular Over 200 field trials conducted in 2004 Breeding Crop Analytics 8 cotton seed companies participating in trial program Biotechnology Cotton States launching exclusively on a second-generation trait platform Results from the Field Results from the Field Coming in January 2005 Coming in January 2005 Discovery Phase 1 Phase 3 Phase 4 Phase 2 Launch Proof of Concept Adv. Development Pre-Launch Pre- Early Development 19
  20. 20. Stacking Stacking Biotech Traits Adds Dimension to Market Potential Monsanto U.S. Biotech Intensity Index* Average number of biotech traits per biotech acre 1.6 Cotton (2 Traits) 1.5 Corn (3 Traits) 1.5 Soybeans (1 Trait) 1.4 1.3 1.2 1.2 1.1 1.0 1 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F 2006F U.S. Biotech Margin Opportunities Corn Cotton 16 million 52 million 10 million 1.2 42 million 1.5 biotech biotech = = biotech intensity biotech intensity X X margin margin Acres index acres index opportunities opportunities 20 * Monsanto traits only
  21. 21. Pipeline Pipeline Products Reach New Markets and Expand Base in Corn, Soybeans and Cotton Feed Food Yield • High Lysine Corn • Low Linolenic Soy • Drought Tolerant Corn, Soy, • Low Linolenic/Mid-Oleic Soy Cotton • Enhanced High Lysine Corn • Low Linolenic/Mid-Oleic/Low Saturate Soy • Cold Tolerant Corn • Improved Protein Soy • Enhanced High Lysine Corn • Improved Protein Soy • Nitrogen Utilization Corn (Beta Conglycinin) • Omega-3 Soy (Stearidonic acid) Commercialized Agronomic Traits YieldGard Roundup YieldGard Corn Borer Ready Corn, Rootworm Bollgard I & II Soy, Cotton Corn Cotton 2nd Generation Roundup Ready YGCB II Corn YGRW II Corn Agronomic Traits Flex Cotton 21
  22. 22. Pipeline 2005 Launch of VISTIVE Soybeans Marks First- Generation Output Trait Key Market Acres U.S. Brazil Argentina Key Market Acres U.S. Brazil Argentina Contributing Platforms TBD Available Market 5M TBD TBD Available Market 5M TBD Genomics Percent Penetrated 0% 0% 0% Percent Penetrated 0% 0% 0% 1 VISTIVE Low Linolenic Soy Conventional Breeding More stable soy oil Molecular requiring less Breeding hydrogenation: reduces/eliminates Crop Analytics trans fats Biotechnology Yield parity and stacked with Roundup Ready trait Linolenic acid < 3% Linolenic 18:3 Linoleic Oleic Sats Std Soybean VISTIVE Discovery Phase 1 Phase 3 Phase 4 Phase 2 Launch Proof of Concept Adv. Development Pre-Launch Pre- Early Development 22
  23. 23. Food Traits Preparing for 2005 Launch of First-Generation Output Trait — VISTIVE Soybeans Key Market Acres U.S. Brazil Argentina Key Market Acres U.S. Brazil Argentina Contributing Platforms TBD Available Market 5M TBD TBD Available Market 5M TBD Genomics Percent Penetrated 0% 0% 0% Percent Penetrated 0% 0% 0% 2 VISTIVE Product Line – 3 Step Change Improvements Conventional Breeding Low Saturates Molecular Breeding with Mid Oleic Mid Oleic and Low Lin Crop Analytics and Reduce Low Lin Biotechnology Low Saturated Fat Linolenic and Improve Soy Oil Improve Flavor & Shelf Cardiovascular Life with Eliminate Health Oxidative Trans-fats Stability Transgenic Breeding Breeding Phase 1 Phase 2 2005 Discovery Phase 1 Phase 3 Phase 4 Phase 2 Launch Proof of Concept Adv. Development Pre-Launch Pre- Early Development 23
  24. 24. Pipeline Drought Stress Tolerance One of Potential New Agronomic Traits Key Market Acres U.S. Brazil Argentina Key Market Acres U.S. Brazil Argentina Contributing Platforms TBD Available Market TBD TBD TBD Available Market TBD TBD Genomics Percent Penetrated 0% 0% 0% Percent Penetrated 0% 0% 0% 1 Drought Tolerance Conventional Breeding Pricing depends on choice Yield protection Molecular of market on all acres to Breeding protect against Stack with weed and insect water deficits Crop Analytics control traits enhances margin opportunity Yield enhancement Biotechnology on all acres through improved water use Cost savings on irrigated acres Discovery Phase 1 Phase 3 Phase 4 Phase 2 Launch Proof of Concept Adv. Development Pre-Launch Pre- Early Development 24
  25. 25. Summary A Clear Focus To Deliver On Commitments Forecasted 10 percent to 18 percent EPS growth from ongoing business in 2005 Seeds and traits growth drivers with products, geographies “in – hand” Free cash flow generation is solid Cash being returned to shareowners in dividends, share – repurchases, investments Monsanto is unique among technology companies with this level of leadership Funding own growth with substantial returns to shareowners – Significant first mover advantage commercially – Proven, highly productive new product pipeline – Management team is dedicated to delivering on commitments and is building track record Guidance is commitment, not aspiration – 25
  26. 26. Questions? 26
  27. 27. Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow Fiscal Year 2006 Fiscal Year 2005 12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended $ Millions Aug. 31, 2001 Aug. 31, 2002 Target Target Aug. 31, 2004 Aug. 31, 2003 $740 $855 Net Cash Provided (Required) by Operations $850 – $900 $1,000 $1,261 $1,128 Net Cash Provided (Required) by Investing Activities $(665) $(482) $(274) $(350) - $(300) $(400) $(262) $75 $581 Free Cash Flow $500 - $600 $600 $999 $646 $123 $(711) Net Cash Provided (Required) by Financing Activities N/A N/A $(243) $(502) $198 $(130) Net Increase (Decrease) in Cash and Cash Equivalents N/A N/A $756 $144 Reconciliation of Non-GAAP EPS Fiscal Year 2005 $ per share 12 Months Ended 12 Months Ended Target Aug.31, 2004 Aug. 31, 2003 Net Income (Loss) $0.99 $0.26 $2.16 - $2.29 Cumulative Effect of Change in Accounting Principle -- $0.05 -- Income (Loss) Before Cumulative Effect of Accounting Change $0.99 $0.31 $2.16 - $2.29 Restructuring Charges – Net $0.10 $0.36 - Estimated 2004 Discontinued Operations and Related Restructurings – Net $0.02 $0.05 - Solutia PCB Litigation Settlement Expense – Net -- $0.96 -- Goodwill Impairment Charge for Global Wheat Business $0.24 -- - Tax Benefit Related to Loss on Wheat and Barley Business -- -- $(0.39) Net Income (Loss) from Ongoing Business $1.61 $1.42 $1.77 - $1.90 27
  28. 28. Reconciliation of Non-GAAP Financial Measures Reconciliation of Return on Capital 12 Months 12 Months $ Millions Total Monsanto Company and Subsidiaries: Ended Ended Aug. 31, 2004 Aug. 31, 2003 Operating Profit After-tax (excluding certain items) $ 475 $ 417 Average Capital 6,191 6,846 Return on Capital 7.7% 6.1% Operating Profit After-tax (excluding certain items): Net Income $ 267 $ 68 Net Income† Adjustments for certain items, after-tax: – [Interest Expense―Net X (1 – 38% Tax††)] Expense― (1 Restructuring Charges – Net 98 26 Discontinued Operations and Related Restructuring ROC = 4 15 Adjustment of Goodwill 64 — Average††† [Equity + Short-Term Debt + Short- Cumulative Effect of a Change in Accounting Principle — 12 Long-Term Debt - (Cash - $125M)] Long- $125M)] PCB Litigation Settlement Expense – Net — 252 Ongoing basis Interest Expense -- Net 67 69 † Represents estimated combined federal and state statutory tax (1) †† Tax on Interest Expense -- Net (at 38% tax rate) (25) (25) rates for the United States. Operating Profit After-tax (excluding certain items) $ 475 $ 417 ††† Average of beginning balances, from September 1, and ending balances, from August 31, of each fiscal year As of Aug. 31, 2004 2003 2002 Average Capital: Short-Term and Long-Term Debt $1,508 $1,527 $1,919 Shareowners’ Equity 5,258 5,156 5,258 Cash and Cash Equivalents (1,037) (281) (137) Cash for Operations 125 125 125 Total Capital 5,854 6,527 7,165 Prior Period Capital 6,527 7,165 Average Capital $6,191 $6,846 (1) Represents estimated combined federal and state statutory tax rates for the United States. 28

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