monsanto 0_07_08


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monsanto 0_07_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 company's 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 d l t ti iti th t f jl it d l t l t dt f i i d 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 company's 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 Td k 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. ROC means net p g gp , 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 St t U it d States. Furthermore, these non-GAAP financial measures may not be comparable to similar measures used F th th GAAP fi il tb bl t i il d 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. Monsanto is unable to provide a reconciliation of the 2009 ROC goal to projected net income and financial position for 2009 with out unreasonable effort. As shown in the ROC reconciliation for the previous year, the calculation of ROC is complex and Monsanto does not have sufficient information at this point in year complex, the fiscal year to reasonably estimate its operating profit after-tax and average capital for 2009 due to market and other conditions that our outside of Monsanto’s control. 3
  4. 4. PERFORMANCE SUMMARY FY08 Full-Year and Fourth-Quarter Financial Results Fourth- Fourth- Fiscal-Year Fiscal-Year Quarter Quarter Change Change 2008 2007 2008 2007 Net Sales $2,051M $1,518M 35% $11,365M $8,349M 36% $960M $643M 49% $6,177M $4,230M 46% Gross Profit Diluted EPS on an $(0.03) $(0.18) 83% $3.64 $1.98 84% Ongoing Basis As a Percent of Net Sales: 47% 42% 54% 51% Gross Profit 35% 39% 20% 22% SG&A 15% 15% FLAT 9% 9% FLAT R&D Positive P iti movement in metric ti ti 4
  5. 5. PERFORMANCE SUMMARY FY08 Full-Year and Fourth-Quarter Segment Gross Profit Results Fourth- Fourth- Fiscal-Year Fiscal-Year Quarter Quarter Change Change 2008 2007 2008 2007 Gross Profit: CORN SEED & TRAITS $151M $178M (15)% $2,174M $1,721M 26% SOYBEAN SEED & TRAITS $76M $7M 986% $725M $588M 23% COTTON SEED & TRAITS $61M $45M 36% $313M $267M 17% VEGETABLE SEEDS $124M $57M 118% $394M $267M 48% ALL OTHER SEEDS & TRAITS $97M $72M 35% $251M $171M 47% $509M $359M 42% $3,857M $3,014M 28% Total Seeds & Genomics $451M $284M 59% $2,320M $1,216M 91% Total Ag Productivity As a Percent of Net Sales: CORN SEED & TRAITS 43% 49% 61% 61% FLAT SOYBEAN SEED & TRAITS 69% 21% 62% 65% COTTON SEED & TRAITS 69% 76% 70% 84% VEGETABLE SEEDS 56% 34% 53% 44% ALL OTHER SEEDS & TRAITS 60% 61% 55% 53% 54% 48% 61% 61% FLAT Total Seeds & Genomics 41% % 37% % 46% % 36% % Total Ag Productivity g y Positive movement in metric Negative movement in metric 5
  6. 6. PERFORMANCE SUMMARY Over 70% of the $2.8 Billion of Operating Cash Generated Invested in Acquisitions, Technology and Capital in FY08 USES OF CASH PERCENT OF $2.8B OPERATING CASH USED BY CATEGORY: FY2008 2% Cash Generation 13% $772M FY2008 Free Cash Flow: 37% CASH PRIORITIES Bolster direct returns to 15% shareowners Support commercial growth through capital spending Invest in future growth through R&D Expand the core through 33% strategic acquisitions tti i iti Acquisitions and Technology Collaborations Capital Spending Dividends Di id d Share Repurchase Other 6
  7. 7. FINANCIAL OUTLOOK 2009 Again Projects Double-Digit Earnings Growth and Strong Cash Generation 2008 2009F EARNINGS $4.20-$4.40 $3.64 ONGOING EARNINGS PER SHARE ~15-20% GROWTH >80% GROWTH FROM 2007 FROM 2008 Seeds & Genomics Gross Profit $3.9B $4.5-$4.6B Corn Seed & Traits Gross Profit $2.2B ~$2.8B Soybean Seed & Traits Gross Profit $725M ~$700M Cotton Seed & Traits Gross Profit $313M ~$300M Vegetable Seeds Gross Profit $394M ~$500M All Other Seed & Traits Gross Profit $251M ~$200M Roundup And All Other Glyphosate-based $2.0B $2.3-2.4B Herbicides Gross Profit All Other Ag Productivity Gross Profit $344M ~$400M CASH MANAGEMENT AND SPENDING FREE CASH FLOW $772M ~$1.8B Operating Cash $2.8B >$3B Capital Expenditures $918M ~$1B SG&A as a Percent of Sales 20% 19% Range R&D as a Percent of Sales 9% 9.5%-10% Range 7
  8. 8. FINANCIAL OUTLOOK 2009 Earnings Expected to Follow Seasonality of Recent Fiscal Years Q4 Q1 • Historical loss reflecting full SG&A and R&D • Earnings: Driven by Latin America – both spend against smallest sales base in year seed and Roundup sales • Earnings: Top line generated primarily by • Early orders begin for U.S. seeds, however Roundup and other glyphosate-based sales are not booked until shipment SEPT ▼ herbicides and vegetables • Vegetables and Roundup and other glyphosate based herbicides glyphosate-based S sales spread relatively evenly • Cash: One of primary periods of cash Q4 Q1 throughout year collections, reflecting U.S. season • Cash: Reflects pre-pays associated with early U.S. orders JUNE ▲ DECEMBER ▼ Annual Earnings Calendar • Historically largest quarter, increasing seed-and-trait shift Q3 Q2 • Second strongest quarter behind Q2 into Q2 • Earnings: Driven by seeds and traits • Earnings: Driven by U S seeds and U.S. MARCH ▼ – Continued soybean traits – Strongest quarter for cotton, reflecting U.S. – Particularly N. Hemisphere corn and U.S. corn and India seasons traits – Soybean seed and trait split roughly evenly with Q3 • C h U of cash t f d working capital needs Cash: Use f h to fund ki it l d of business begins to build, reaching peak in Q3 mid Q4 Q2 8
  9. 9. FINANCIAL OUTLOOK Monsanto’s Pricing Model Aimed at Total Value Created; Shared with Farmer YieldGard VT Triple Improved Yield PRICING TO VALUE EXAMPLE: 2009 UPDATE: Yield-advantage value at 3 year Improved Yield1 average commodity price g yp IMPROVED YIELD • One year back, current year and forward year 15-20 (BU/AC): • Value shared with farmers UPDATE: 3 YEAR COMMODITY PRICE: $4.00 Indirect Benefits $60-$80 Quantified benefits such as convenience and benefits, Indirect Benefits2 I di tB fit peace of mind INDIRECT BENEFITS: $5 • Value shared with farmers Incremental Value Created $65-$85 Replacement Value (+) Factors costs farmers would have incurred for Ft tf ld h i df substitute insect and weed control • 100% of replacement value is captured PRICING APPROACH UPDATE: Per-Acre Trait Cost3: $29-$49 UPDATE: Replacement PRICING APPROACH ($11-$19) Value4 Percentage of incremental value shared Incremental Farmer Cost: $18-$30 ultimately determined by market research, pricing simulations and focus groups to assess: Incremental Value Shared: 65-70% • Market Share Implications 1. Monsanto estimates, based on better insect and weed control over conventional options • Trait Penetration Effect 2. Monsanto estimates, based on farmer surveys quantifying benefits such as convenience and peace of mind • Competitive Reaction 3. Retail price range for YieldGard VT Triple in 2009, at seeding rate of 2.7 acres per unit 4. Subtracts costs farmers would have spent had they not used a trait package 9
  10. 10. FINANCIAL OUTLOOK Yield-Enhancing Technology Creates Value – Returning $ $1.50-$3 For Every Dollar Spent By Farmers in Corn $ y p y U.S. FARMER RETURN ON INVESTMENT: 1983-2008F 170 160 150 32 140 130 Bu/ac 120 FARMER RETURN OF bu/ac 1.5X – 3X 110 PER DOLLAR SPENT 100 ON YIELD-CREATING TECHNOLOGY @ COMMODITY PRICE RANGE OF $2-$4/BU $2 $4/BU 90 80 PRE-BIOTECH: 1983-1996 POST-BIOTECH: 1996-2008F AVERAGE YIELD DURING AVERAGE YIELD DURING 115.6 bu/ac 138.3 bu/ac PERIOD: PERIOD: 1.7 bu/ac 2.6 bu/ac ANNUAL YIELD GAIN: ANNUAL YIELD GAIN: YIELD-RELATED ODUCTION Seed/ Chem/ $27.07/ac $43.24/ac Equip/ Labor COSTS SCARCITY-RELATED C $19.33/ac $ $52.02/ac $ PRO Land Rent $6.23/ac $94.90/ac Fertilizer Source: USDA, Land Rent Averaged using Corn & Soybean, Doane Ag, dmrkynetec data, Yield is calculated using a 3 year rolling average, (32 Yield is 2.6 bu/ac/yr *12 years). 2008F Yield is April 08 Doane Ag. Return – Monsanto Estimate 10
  11. 11. FINANCIAL OUTLOOK Increased 2009 and 2012 Targets for Roundup Reflect Sustainability Even As Supply-Demand Comes Into Balance Supply Demand ROUNDUP AND OTHER GLYPHOSATE-BASED HERBICIDES: Roundup and Other BRANDED AND NON-BRANDED TRENDS – 2004-2008 Glyphosate-Based Herbicides 300 Branded 2009 Forecast Non-Branded GROSS PROFIT TARGET: $2.3-$2.4B 250 allons) Above BRANDED PRICE BAND (PER GALLON): $16 $18 $16-$18 Glob Volume (in ga 200 2012 Forecast GROSS PROFIT TARGET: $1.9B 150 BRANDED PRICE BAND $16-$18 bal (PER GALLON): 100 50 0 2004 2005 2006 2007 2008 GLOBAL VOLUME 209M 215M 235M 252M 257M (GALLONS): Above BRANDED PRICE BAND $11-$13 $11 $13 $11-$13 $11 $13 $11-$13 $11 $13 >$11-$13 >$11 $13 (PER GALLON): $16-$18 TOTAL ROUNDUP AND OTHER GLYPHOSATE-BASED $703M $637M $648M $854M $2.0B HERBICIDES GROSS PROFIT: 11
  12. 12. FINANCIAL OUTLOOK With Different Core Structure, Credit Access For Farmers Remains Solid As Purchase-Season Approaches Purchase Season U.S. FARM BUSINESS DEBT: U.S. Farm Credit SHARE BY CATEGORY, 2000-2006 2000 2006 LENDING SYSTEM 45 • One-third of farmers get financing for the Farm 42.4% 40 Credit System – government-backed lending 35 entage of Market t earmarked for agriculture k df il 32.6% 30 • Around 40 percent of farmers tap into regional 25 and community banks 17.2% 20 • Rely on core deposits for Perce funding 15 • Continue to hold interest rates steady and lines of credit open 10 5.3% • 15-20 percent use credit 5 lines provided by 2.6% agricultural suppliers g pp 0 2000 2001 2002 2003 2004 2005 2006 Commercial Banks Farm Credit System Individuals & Others Life Insurance Companies USDA FSA Source: USDA Economic Research Service Year-end 2006 preliminary estimates shown 12
  13. 13. STRATEGIC OUTLOOK FY2008 Performance Accelerates 2012 Opportunity; Monsanto Increases 2012 GP Target 2012 GROSS PROFIT TARGET GROSS PROFIT COMMITMENT: RELATIVE TO 2007 BASELINE 2007-2012F $ $9.5 - Total G T t l Gross Profit P fit $9.75B $10,000 $9.5- BUSINESS DETAIL $8.6-9.1B $9.75B Roundup and Other $8,000 ~$1.9B Glyphosate-Based $8-8.5B >2X ~2.25X ~2 25X Herbicides GP (in millions) ) ~2X 2007 2007 BASELINE ~$300M All Other Ag $6,000 BASELINE 2007 Productivity BASELINE $7.3- Seeds & Genomics $4,000 $ $7.5B $4,230 2.6-2.7x Corn Seed & $2,000 Traits ~2x Soybean Seed & $0 Traits ORIGINAL MID-YEAR CURRENT BASELINE TARGET UPDATE GUIDANCE ~2x Cotton Seed & 2007 2012F Traits >2.5x •INCREASED •BETTER Vegetable Seeds ROUNDUP GROWTH IN GP TARGET SEEDS & TO $1.8B TRAITS •2008 ACQUISITIONS •ROUNDUP GP TARGET OF $1.9B 13
  14. 14. STRATEGIC OUTLOOK While Metrics and Projections Vary, Fundamentals of Demand Driven Demand-Driven Environment for Grain Remain Strong USDA LONG-TERM PROJECTIONS: Demand Outlook CORN AND SOYBEAN TOTAL TRADE – 2006-2017 2006 2017 • USDA projections to 2017 anticipate tight continuation 110 70 of demand-driven Soybea – million metr tons environment for grain 60 105 • Global corn trade expected ons 50 ans to t grow 15 percent i th t t in that Corn – million metric to 100 timeframe 40 • Imports by China and Mexico 95 help spur demand 30 • USDA assumption on U.S. 90 20 planted corn acres: ~90M ric • Global soybean trade grows 85 10 40 percent by 2017 • 80 percent of growth is driven 80 0 by China • USDA assumption on U.S. planted soybean acres: ~70M 70M Corn Total Trade Soybean Total Trade Source: USDA Agricultural Projections to 2017, available at: 14
  15. 15. STRATEGIC OUTLOOK Monsanto’s Growth Opportunity Lies at the Intersection of Demand, Demand Innovation and Execution Monsanto’s Simple Philosophy on Opportunity: M t ’ Si l Phil h O t it YIELD More demand requires more q INNOVATION More yield requires more y q GROWTH More innovation delivers more 15
  16. 16. Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow Fiscal Year 2009 Fiscal Year Fiscal Year $ Millions Forecast 2008 2007 Net Cash Provided (Required) by Operations $3,000 $2,799 $1,854 Net Cash Provided (Required) by Investing Activities (1,200) (1 200) (2,027) (2 027) (1,911) (1 911) Free Cash Flow $1,800 $772 ($57) Net Cash Provided (Required) by Financing Activities N/A (102) (583) Effect of Exchange Rate Changes on Cash and Cash Equivalents N/A 77 46 Net Increase (Decrease) in Cash and Cash Equivalents N/A $747 ($594) Reconciliation of Non-GAAP EPS Fiscal Year Fourth Fourth 2009 Fiscal Year Fiscal Year $ per share Forecast 2008 2007 Quarter 2008 Quarter 2007 Diluted Earnings (Loss) per Share $4.20-$4.40 $3.62 $1.79 ($0.31) ($0.39) Solutia Claim Settlement -- ($0.23) -- -- -- Loss (Income) on Discontinued Operations -- ($0.04) ($0.15) ($0.01) ($0.13) In-Process R & D Write-Off Related to the De Ruiter -- $0.29 -- $0.29 -- Acquisition In-Process R & D Write-Off Related to the Delta & Pine Land -- -- $0.34 -- $0.34 (D&PL) Acquisition Diluted Earnings (Loss) per Share from Ongoing Business $4.20-$4.40 $3.64 $1.98 ($0.03) ($0.18) 16
  17. 17. Reconciliation of Non-GAAP Financial Measures Reconciliation of Return on Capital $ Millions Total Monsanto Company and Fiscal Year 2008 Fiscal Year 2007 Subsidiaries: Operating Profit After-tax (excluding certain $2,157 $1,106 items) Average Capital $8,967 $7,532 Return on Capital 24.1% 14.7% Operating Profit After-tax (excluding certain items): Net Income $2,024 $993 Adjustment for certain items, after-tax: 2008 In-Process R & D Related to the $161 __ De Rutier Acquisition 2007 In-Process R & D Related to the __ $186 D&PL Acquisition (Income) on Discontinued Operations $(17) $(80) Interest (Income) Expense – Net of Taxes $(11) $7 Operating Profit After-tax (excluding $2,157 $1,106 certain items) As of Aug. 31, As of Aug. 31, 2008 2007 Average Capital: Short-Term and Long-Term Debt $1,816 $1,420 Shareowners’ Equity 9,374 $7,503 Cash and Cash Equivalents $(1,613) $(866) Cash for Operations $150 $150 Total Capital $9,727 $8,207 Prior Period Capital $8,207 $6,857 Average Capital $8,967 $7,532 17