monsanto boa_tkc_04-30-08

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monsanto boa_tkc_04-30-08

  1. 1. TERRY CREWS CHIEF FINANCIAL OFFICER BANK OF AMERICA 2008 BASICS/INDUSTRIALS CONFERENCE May 8, 2008 1
  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 2
  3. 3. 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. 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. 3
  4. 4. OVERVIEW With Opportunities in Hand, Monsanto Has Potential to More Than Double 2007 Gross Profit Over Next Five Years GROSS PROFIT OUTLOOK BY SEGMENT 2012 GROWTH RANGE 2007-2012F Gross profit targeted to more >2X than double from 2007 through 2012 including recent lift in $10,000 Roundup to $1.8B gross profit 2007 BASELINE STRATEGIC PLAYBOOK $8,000 All growth is organic, from IN MILLIONS base business and pipeline $6,000  U.S. Corn  International Corn  Soybeans $4,000  Cotton  Vegetables $2,000  R&D Pipeline Earnings continue to translate into operating cash $0 2007 2008F 2012F All Other Agricultural Productivity Increased in Q2 2008 for Roundup And Other Glyphosate-based Herbicides new Roundup Seeds & Genomics target
  5. 5. OVERVIEW On Track to More Than Double Gross Profit From 2007 to 2012, Growth Drivers Roll Out In Balanced Progression GROSS PROFIT TARGET: • Yield & stress platform  R&D Pipeline DRIVERS: NEAR $9B IN 2012 • Breakthrough platforms • From 2007 baseline: $4.2B • Protected culture  Seminis DRIVERS: • Molecular markers • 2012 target increased by almost 10% in Q2 2008 on incremental 2012 Roundup • 2nd-gen trait acceleration expectations  Cotton DRIVERS: • Breeding inroads • Roundup Ready 2 Yield platform  Soybean DRIVERS: • Seed share growth • Seed share growth  International Corn DRIVERS: • New trait approvals in LA • Trait penetration and seed share growth  U.S. Corn DRIVERS: • SmartStax platform 2008 2009 2010 2011 2012 2012+ 2011-2012 2009 2010 U.S. drought- Delta and Pine Roundup Ready 2 U.S. SmartStax MILESTONES tolerant corn launch Land U.S. Yield soybeans corn launch portfolio controlled 2012+ Large-scale converted to commercial release Stacked trait Roundup Ready 2 second- soybean launches, First major selling Yield soybean generation stack including dedicated season for LA corn launch product for Brazil traits Projected branded corn share gains globally 2008 to 2012 5
  6. 6. OVERVIEW Strong Cash Position Gives Monsanto the Resources to Extend Its Competitive Lead MONSANTO’S FINANCIAL INDICATORS: Cash Generation OPERATING CASH AND ONGOING EPS – 2003 TO 2008F Strong cash generation $2,600 $3.50 allows Monsanto to invest to Operating Cash $2,400 extend its competitive lead: $3.00 Cash from Operations Ongoing EPS $2,200 (in $ thousands)  Bolster direct returns to Ongoing EPS shareowners $2.50 $2,000  Support commercial growth through capital spending $1,800 $2.00  Invest in future growth $1,600 $1.50 through R&D $1,400  Expand the core through $1.00 strategic acquisitions $1,200 $1,000 $0.50 2003 2004 2005 2006 2007 2008F 2008F 2003-2006 Monsanto operating >$1B in Working Capital cash guidance exceeds reductions used to fund key $2B, as net income acquisitions like Seminis grows and ASI 6
  7. 7. OVERVIEW Over Last Three Years, Use of Cash Focused on Areas That Contribute to Growth and Return Value to Shareowners USES OF CASH CUMULATIVE: 2005-2007 SHARE REPURCHASES 9% OF CASH USED • Initiated 4-year $800M share-repurchase program in October $ in thousands 2005 $545 DIVIDENDS 11% OF CASH USED • Increased dividends 3 times during this period, for a cumulative increase of 106% $639 TECHNOLOGY SPENDING 5% OF CASH USED $3,161 $266 • Nearly $150M spent to expand technology partnership network ACQUISITIONS 55% OF CASH USED $1,160 • American Seeds, Inc. • Delta & Pine Land (2007) (2004-2007) • Agroeste (2007) • Seminis (2005) CAPITAL SPENDING 20% OF CASH USED • Beginning of 3-year, $610M plan to expand corn seed production 7
  8. 8. RETURNING VALUE TO SHAREOWNERS Newly Authorized Program Accelerates and Extends Monsanto’s Share-Repurchase Initiative MONSANTO ANNUAL SHARE REPURCHASE: Share Repurchases 2003-2007 STATUS $300 • 54% through 4-year $800M program begun in October $250 2005 • Focus areas in 2008: $200 • In April, announced $ in millions acceleration of current program and new 3-year $150 $800M authorization $100 $50 $0 2004 2005 2006 2007 2006 FORWARD 2004-2005 • 4-year $800M repurchase 3-year $500M repurchase program initiated in October program – completed early 2005 • 2008 Update: Accelerated and added new program 8
  9. 9. RETURNING VALUE TO SHAREOWNERS Monsanto’s Strong Earnings Growth Continues To Be Reflected in Dividend Payout MONSANTO QUARTERLY DIVIDENDS: Dividends 2001-2007 STATUS $0.20 • Since establishment in $0.18 2001, Monsanto has increased dividends 6 $0.16 times – an increase of 200 Per-Share Amounts1 percent $0.14 $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 2007 Monsanto increases quarterly dividend twice in 12-month period 9
  10. 10. EXTENDING LEADERSHIP Expanded Capital Spending Supports Growth Areas of Current Commercial Business MONSANTO CAPITAL SPENDING: Capital Spending 2004-2007 STATUS $1,000 • Capital Spending is being $900 used to support growth areas of the commercial $800 business – supporting continued gross-profit $700 $ in thousands growth $600 • Focus areas in 2008: • Global corn seed $500 production expansion to support share growth in $400 DEKALB and ASI • De-bottlenecking for $300 glyphosate production to $200 increase volumes $100 $0 2004 2005 2006 2007 2008F 2008F Increased Capital Spending used to support acceleration of corn-plant expansions and new de-bottlenecking for glyphosate 1. Amounts for record dates from Jan. 1, 2001 – July 7, 2006 adjusted to allow comparison following Monsanto’s stock split 10
  11. 11. EXTENDING LEADERSHIP Primary Capital Spending Use For Acceleration of Corn Plant Expansions to Support DEKALB and ASI Share Growth Capital Spending 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% growth expectations 10 - 11% 14% 9% through 2012 13% 10% 12% • Outlook to 2012: 10% 5% • DEKALB to grow share 5% 4% 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 11
  12. 12. EXTENDING LEADERSHIP De-Bottlenecking of Roundup Production Moving to Increase Volumes to Meet Demand-Driven Opportunity Capital Spending ROUNDUP AND OTHER GLYPHOSATE-BASED HERBICIDES: BRANDED AND NON-BRANDED TRENDS – 2004-2008F STATUS 300 • In April, announced 18- Branded month $196M Non-Branded de-bottlenecking plan 250 • Demand-driven Global Volume (in gallons) environment is sustainable, with projection of $1.8B in 200 gross profit in 2012 • Factors: 150 • $16-$18 Branded price band • Single-digit volume growth • Increased capacity in 100 CY2009-2010 from Monsanto • Branded Roundup quality needed to service Roundup Ready opportunity 50 0 2004 2005 2006 2007 2008F GLOBAL VOLUME 209M 215M 235M 252M 262M (GALLONS): BRANDED PRICE BAND $11-$13 $11-$13 $11-$13 >$11-$13 $16-$18 (PER GALLON): TOTAL ROUNDUP AND ALL $703M $637M $648M $854M $1.8B OTHER GLYPHOSATE-BASED HERBICIDES GROSS PROFIT: 12
  13. 13. EXTENDING TECHNOLOGY Monsanto’s Significant, But Focused R&D Investment Helps Extend Lead in Core Seeds-and-Traits Business R&D MONSANTO’S R&D EXPENDITURES: 2004-2007 STATUS • Monsanto spends more on $900 12% seed and biotech R&D than any other ag company $800 10% R&D Spend (in $ millions) • R&D is targeted at 10% of R&D as Percent of Sales $700 sales • >90% of R&D spend is for $600 8% seeds-and-traits, split $500 roughly 50/50 between 6% breeding and $400 biotechnology $300 4% • Outlook for 2008: • R&D spend likely to be in $200 9% range given rapid 2% uptick in revenue, still $100 greater than $850M $0 0% 2004 2005 2006 2007 Monsanto’s R&D spending applies earnings from established products like Roundup herbicides to extend the company’s leadership in the high-margin seeds-and-traits segment 13
  14. 14. EXTENDING TECHNOLOGY Additional Spending for Collaborations and Other Investments Expand R&D Network R&D TECHNOLOGY SPEND FOR SEEDS & TRAITS1: COLLABORATIONS AND INVESTMENTS – 2004-2007 STATUS $70 • Beyond pure R&D expense, Monsanto also uses cash for technology $60 collaborations and other investments $50 • Monsanto has thousands $ in millions of research agreements, $40 licenses and collaborations with universities, institutes $30 and other companies $20 $10 $0 2004 2005 2006 2007 1. Reflects portion of “Technology and Other Investments” devoted to seed-and-trait programs; 2006 figure excludes a one-time $100M payment made for patents for Monsanto’s Animal Agriculture business 14
  15. 15. EXTENDING TECHNOLOGY R&D Engine Is Poised to Launch Average of One Game- Changing Technology Every Other Year Through Mid-Decade 2008 2009 2010 2011 2012 TO MID-DECADE      HIT Project HIT Project Nitrogen-Utilization SmartStax Roundup Ready Drought-Tolerant Corn Family TECHNOLOGY: 2 Yield Corn Family Soybeans • Resets trait • Resets trait platform • Value likely in • Targets ways to use platform for in corn improved yield nitrogen more PRODUCT soybeans under stress and efficiently CONCEPT: potential for water replacement 2020 COMMERCIAL HIGH HIGH HIGH HIGH VALUE1: U.S. ACRE 40-50M 60-65M 55M 55M OPPORTUNITY2: • On track for • On track for 2010 • Lead product in • Lead product in controlled launch Phase 3 testing Phase 1 testing commercial release • Second-generation in 2009 of 1-2M product in Phase 2 STATUS: acres • Full commercial launch of 5-6M acres in 2010 1. 2020 value reflects gross sales opportunity in launch country in year 2020; “HIGH” : $300-$500M 2. Acre opportunity reflects acres where technology fits at Monsanto's current 2007 market share in respective crops 15
  16. 16. EXTENDING TECHNOLOGY Strong Pipeline Reflects Growing Innovation and Leadership; Expected to Create Commercial Value of $>5B in 2020 DISCOVERY PHASE 1 PHASE 2 PHASE 3 PHASE 4 Drought- HIGH Tolerant FAMILY TRAITS► Family CORN: COLLABORATION YIELD & STRESS Nitrogen- BROAD-ACRE HIGH Utilization FAMILY TRAITS► YIELD Family Broad-Acre, MEGA Higher-Yielding FAMILY TRAITS► Family SOYBEANS: Broad-Acre, BROAD-ACRE HIGH Higher-Yielding FAMILY TRAITS► YIELD Family 2020 VALUE RANGES: Roundup Bollgard III Omega-3 Ready 2 Yield soybeans soybeans Roundup MEGA HIGH Ready 2 Yield canola $300M-$500M >$1BM Insect-protected RR2Y soybeans YieldGard VT PRO corn High-oil MID LOW soybeans <$150M $150M-$300M Dicamba-tolerant Improved- soybeans protein Corn Soybeans Cotton Canola Vistive III soybeans
  17. 17. EXTENDING PLATFORMS Recent Acquisitions Have Converted Cash From Roundup Into Higher-Margin Seed Opportunities INVESTMENT OPPORTUNITY In an expanding agriculture environment, value is defined by scarcity or innovation – Monsanto’s strategy is targeted on innovation: discovering and developing technology that is game-changing CATEGORY EXAMPLES OUTLOOK ► Delta and Pine Land • ASI and Delta and Pine Land  Intensify The Space moving to integration ► American Seeds, Inc. Strengthen position of the • Leading position in (ASI) Companies protected-culture established core business, largely by ► Agroeste (Brazil) in vegetables building the germplasm ► De Ruiter Seeds • Continued opportunity for footprint of seeds add-on international corn and (agreement signed) vegetable seed companies ► Seminis • Continually looking for areas  Expand The Space where Monsanto can apply core technology quickly or Expansion to adjacent spaces benefit from advanced – where core technology can research be applied quickly and with transformational benefits ► Yield and Stress R&D • Most highly transformational,  Redefine The Space but rarest to find appropriate Collaboration with BASF fit Investments that rewrite the ► SmartStax agreement with landscape, providing new Dow avenues, new technologies ► Global Seed Treatment and creating new markets Alliances 17
  18. 18. EXTENDING PLATFORMS Success of ASI Model Has Allowed Monsanto to Further Its Momentum in the U.S. Corn Business Acquisitions ASI GROSS PROFIT PER ACRE STATUS • Begun in November 2004, GP/acre increases 2 AVERAGE GROSS PROFIT/ACRE ASI now stands at >20 85% after ASI Average 1.8 seed brands acquisition GP/acre in 1.85 • With technology support same band 1.6 as DEKALB of Monsanto and local 1.4 (INDEXED) touch of established brands, ASI is poised to 1.2 grow 1-2 share points in 1 2008 1 0.8 0.6 0.4 0.2 0 POST- PRE- DEKALB ACQUISITION ACQUISITION • With technology infusion, gross profit per acre lifts when seed company brought under ASI umbrella
  19. 19. EXTENDING PLATFORMS De Ruiter Seeds Accelerates Monsanto Vegetable Seed Capability and Reach, Bolstering Five-Year Growth Prospects VALUE CREATION FOR VEGETABLE SEED PLATFORM: STAGED OPPORTUNITIES FOR INCREASING GROSS PROFIT VALUE CREATION OPPORTUNITY  New product launches; use of molecular markers  Aggressively shift mix via protected culture and hybrid conversion  Identify and implement opportunities to capture full product value  Assemble genetic maps for key crops  Focus on operational excellence; working capital management 2007 2008 2009 2010 2011 2012 PIPELINE OPERATIONAL EXCELLENCE NEW VALUE CREATION ADVANCEMENT ~2010 2012 2007 Seeds1 De Ruiter accretive to Monsanto vegetable Monsanto vegetable Monsanto vegetable seed EPS seeds projected to seed sales top contribution in second full fiscal be >$1B in sales, $600M in 2007; 7.5% year following closing mid-60s margin top-line growth 2008 2012 De Ruiter Seeds Molecular marker platform acquisition agreement begins transforming Seminis and De Ruiter announced1 – strengthens portfolios protected-culture portfolio 1. Subject to closing 19
  20. 20. SUMMARY Growth Is Underpinned By Financial Discipline, Continued Focus on Working Capital MONSANTO WORKING CAPITAL: Working Capital 2003-2007 STATUS 50% Receivables as a percent of sales • Even as business expands, 45% Inventory as a percent of sales discipline has been sustained on key working 40% capital elements 35% • 2007 Current Ratio – 1.65:1 Percent of Sales • Focus in 2008: 30% • Receivables as a percent of sales: High teens 25% • Inventories as a percent of 20% sales: 20% 15% 10% 5% 0% 2003 2004 2005 2006 2007 2007 Receivables and Inventories as a percent of sales decline to lowest point in Monsanto’s existence 20
  21. 21. SUMMARY Monsanto Using Strong Cash Backbone to Extend Competitive Lead Through Innovation, Driving 2012 Growth GROSS PROFIT OUTLOOK BY SEGMENT 2012 GROWTH RANGE 2007-2012F Gross profit targeted to more >2X than double from 2007 through 2012 $10,000 2007 BASELINE STRATEGIC PLAYBOOK All growth is organic, from $8,000 base business and pipeline IN MILLIONS  U.S. Corn $6,000  International Corn  Soybeans  Cotton $4,000  Vegetables  R&D Pipeline $2,000 Earnings continue to translate into operating cash, and value created for shareowners $0 through combination of 2007 2008F 2012F acquisitions, share repurchases and dividends All Other Agricultural Productivity Increased in Q2 2008 for Roundup And Other Glyphosate-based Herbicides new Roundup Seeds & Genomics target
  22. 22. Reconciliation of Non-GAAP Financial Measures Reconciliation of Non-GAAP EPS Fiscal Year Fiscal Fiscal Year Fiscal Year Fiscal Year Fiscal Year $ per share 2008 Year 2007 2006 2005 2004 2003 Net Income (Loss) per Share $3.38-$3.48 $1.79 $1.25 $0.47 $0.50 $0.13 Cumulative Effect of Change in Accounting Principle -- -- $0.01 -- -- $0.02 Diluted Earnings (Loss) per Share Before Effect of $3.38-$3.48 $1.79 $1.26 $0.47 $0.50 $0.15 Accounting Change Solutia Claim Settlement ($0.23) -- -- -- -- -- Tax Charge on Repatriated Earnings -- -- $0.04 -- -- -- Seminis In-Process R&D -- -- -- $0.38 -- -- Solutia-Related Charge -- -- -- $0.32 -- -- Tax Benefit on Loss from European Wheat and -- -- -- $(0.19) -- -- Barley Business Restructuring Charges -- Net -- -- -- $0.01 $0.18 $0.05 Operations 1 Loss (Income) on Discontinued -- ($0.13) -- $0.05 -- $0.03 Impairment of Goodwill -- -- -- -- $0.12 -- In-Process R & D Write-Off Related to the Delta & Pine -- $0.34 -- -- -- -- Land (D&PL) Acquisition PCB Litigation Settlement Expense – Net -- -- -- -- -- $0.48 Diluted Earnings (Loss) per Share from Ongoing Business $3.15-$3.25 $2.00 $1.30 $1.04 $0.80 $0.71 Note: EPS figures reflect the stock split effective July 28, 2006 1. The operating results of Stoneville and Nexgen have been conformed to discontinued operations for all relevant years presented. 22

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