monsanto 05-08-07


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monsanto 05-08-07

  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, 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
  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 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
  4. 4. OVERVIEW Monsanto’s Success Is Rooted in Seeds and Traits, Creating Platform for Future Growth FOCUS: SEEDS & GENOMICS GROSS PROFIT FOCUS: ONGOING EPS PERFORMANCE The EPS performance of the overall business reflects Higher margins in the seed-and-traits business focus the growth trajectory of the seeds-and-traits Monsanto’s opportunity on accelerating gross profit business, Monsanto’s leadership in the industry, and growth the commercial potential of our proven R&D pipeline $3,000 $1.80 SEEDS & GENOMICS 2007 EPS GUIDANCE: ANNUAL GROSS PROFIT $2,500 CAGR 2003-2006: 32% 22-26% GROWTH $1.60 ($ IN MILLIONS) $2,000 $1.60-$1.65 $1.40 $1,500 $1.31 $1.20 $1,000 $1.00 AGRICULTURAL $1.04 PRODUCTIVITY $0.80 CAGR 2003-2006: $500 (3)% $0.80 $0.71 $0.60 $0 2003 2004 2005 2006 2007F 20031 2004 2005 2006 2007F 13% 30% 26% 22-26% GROWTH GROWTH GROWTH GROWTH 4
  5. 5. OVERVIEW 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
  6. 6. OVERVIEW Six Building Blocks Extend Leadership and Elevate Gross Margin Opportunity to 51 to 53 Percent through 2010 U.S. BUSINESS DRIVERS MONSANTO’S OPPORTUNITY By the end of the decade, Monsanto U.S. Corn projects a gross margin in the range of 51- 53%, reflecting growth opportunity in six KEY PRIORITIES 2007 STATUS 2010 OUTLOOK areas of seeds and traits ~50% of triple opportunity FACTOR VALUE1 Promote trait 16M triple stacks still ahead penetration, expected, up 160% HIGH Expanded corn acre base U.S. corn especially triple Double-digit trait growth creating potential for for all three corn traits stacks further trait expansion MEDIUM International corn Continue share Expected 3+ share gain for Continued expectation of growth for DEKALB, for 12 points in 6 1-2 share point growth MEDIUM Global biotech traits years through end of decade Monsanto brands LOW Cotton platform Cotton platform MEDIUM KEY PRIORITIES 2007 STATUS 2010 OUTLOOK Seminis Continue second- Penetration rate doubled >50% of target acres HIGH R&D pipeline generation trait for Roundup Ready Flex remain as upgrade and Bollgard II opportunity upgrade 1. Projected increment to total gross profit in the period 2006-2010; Some growth factors R&D pipeline: Launch Roundup RReady2Yield Soybeans will overlap. KEY PRIORITIES 2007 STATUS 2010 OUTLOOK HIGH >$250M Roundup RReady2Yield Launch Roundup On track for most MEDIUM $100M - $250M soybeans moved to Phase RReady2Yield significant commercial 4 – commercial LOW launch by end of decade soybeans <$100M preparation 6
  7. 7. 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
  8. 8. U.S. CORN GROWTH U.S. Corn Seed Business Has Progressed Through Three Distinct Phases, Currently Expanding Its Customer Base PROGRESSION OF DEKALB CUSTOMER STATUS: 1997-2007F 2000-2001 2007 1998 2002 2005 Establishment and DEKALB share Acquisition of First year of DEKALB First triple-stack ramp up of expected to increase DEKALB share gains trait introduced molecular breeding 3 or more points; platform in corn Sixth consecutive year of growth 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 CUSTOMER CUSTOMER CUSTOMER RETENTION INTENSIFICATION EXPANSION DEKALB brand’s First hybrids developed using intra- Completed acquisition of DEKALB and continued strong company crosses begin to enter other international seed companies yield portfolio; Molecular breeding becomes performance is Initial priorities revolved around new standard for Monsanto breeders earning integrating breeding and commercial Reflecting the improved yield potential increasing trial programs to present a single face to the from breeding, DEKALB seed begins and adoption customer gaining share from farmers Significant investment in production who’ve Primary growth initially comes from assets to maximize quality and yield historically existing farmers expanding acres potential of genetic base purchased other planted to DEKALB seed brands Organizational focus on customer retention 8
  9. 9. U.S. CORN GROWTH Reflecting Farmers’ Yield Orientation, Performance Loyalty Is Replacing Historical Notions of Brand Loyalty TOP PURCHASE DRIVER FOR FARMERS PLANTING NEW DEKALB ACRES IS BETTER YIELD1 65% of farmers planting a higher percentage of their 2007 DEKALB 65% CUSTOMER 2007 acres in DEKALB cited BASE “good yield” as their primary consideration 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% NEW DEKALB CUSTOMERS ARE COMING FROM OTHER NATIONAL BRANDS1 Almost 60% of increasing or 2007 DEKALB 59% new DEKALB users reported CUSTOMER that their additional DEKALB BASE acres replaced other national 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% brands From other brands Not replacing other brands From national brands FARMERS BUY PERFORMANCE AND ARE NOT WILLING TO SWITCH AWAY FROM SUPERIOR YIELD POTENTIAL1 More than 80% of farmers 2007 DEKALB surveyed indicated they 83% CUSTOMER would not switch away from BASE DEKALB if another seed brand offered the same set 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% of biotech traits Don’t know Would switch Would not switch 1. Market research: based on a sample of 500 corn growers completed in March 2007 9
  10. 10. 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 YIELD CREATION CREATION + PRESERVATION Combining germplasm library and breeding capability, Availability of stacked biotech focus is on boosting the inherent genetic potential in traits now preserves a greater the seed percentage genetic potential 25% 20% 22+% 19% U.S. SHARE 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 10
  11. 11. U.S. CORN GROWTH Farmer Demand for Maximum Yield Performance Has Driven Accelerated Adoption of Biotech Traits in Corn 160 2007 FRONTLINE 140 UPDATE: 120 TRAIT ACRES IN MILLIONS With triple-stacks in strong demand, 100 trait sales have exceeded early- 80 season estimates 60 40 20 0 2005 2006 2007F 2010F 2007 FORECAST END-OF-DECADE U.S. CORN TRAIT ACRES1 2005 ACTUAL 2006 ACTUAL MARKET INITIAL (IN MILLIONS) Q2 UPDATE OPPORTUNITY ESTIMATE U.S. YIELDGARD 4.1 10 >15 ~19 25-30 ROOTWORM ACRES U.S.YIELDGARD CORN 32.1 32.3 >32 ~40 50-60 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 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. 11
  12. 12. U.S. CORN GROWTH Price-for-Penetration Strategy Gives More Farmers Access to New Technology in Early Years of Introduction U.S. PENETRATION OF YIELDGARD ROOTWORM TRAIT PERCENT OF TOTAL MARKET OPPORTUNITY1 PENETRATED BY YEARS FOLLOWING COMMERCIAL INTRODUCTION 80% PERCENT OF TRAIT-ACRE OPPORTUNITY1 60% 40% 20% 0% 2003 2004 2005 2006 2007F TRAIT ACRES (IN 0.4 1.8 4.1 10.0 ~19 MILLIONS) EARLY ADOPTION DROUGHT VALUE VARIABLE PRICING • Primary users were “early adopters” – • Severe drought in • Variable-based pricing creates opportunity farmers with annual rootworm pressure, Midwest spotlights for “insurance” acres where pest pressure is using trait as an alternative to chemical YieldGard less consistent treatment Rootworm drought value, underscoring value in key Corn Belt states 1. Percent of total market opportunity reflects the ratio of number of actual acres planted to total trait-acre opportunity identified for a particular trait 12
  13. 13. U.S. CORN GROWTH Variable Pricing for Corn Traits Helps Expand Existing Trait Regions Faster and Open New Regions for Growth CENTRAL TRAIT- AREA 1: LOW TRAIT AREA 2: ACRE BASE INTENSITY ACRES CORN ACRES 70-75M CORN ACRES 15-20M Strong: Reflects early Minimal: Significantly HISTORIC adopters for traits HISTORIC TRAIT below historical TRAIT because of consistent PENETRATION national average PENETRATION corn borer and rootworm pressure Pricing is designed to STRATEGY access new acre Continue to promote opportunities penetration, creating STRATEGY VARIABLE-PRICING OPPORTUNITY incentive for upgrade from trait acres to • Creates a new margin opportunity stacked-trait acres • Most acres in this area were not VARIABLE-PRICING OPPORTUNITY likely to use insect- or weed-control VARIABLE-BASED PRICING: • Allows Monsanto to capture the traits, so variable pricing helps U.S. CORN TRAITS margin on stacked trait acres create a new opportunity sooner than would have likely been STRATEGY possible under historical pricing By creating a number of retail-price zones model correlating to relative insect-pressure, Monsanto creates incentive for adoption of stacked traits PRICING RANGE +15% (15%) MEDIAN PRICE Areas of Areas of sporadic consistent rootworm and rootworm and corn borer corn borer infestation infestation 13
  14. 14. U.S. COTTON Profitability in Cotton Favors Farmers Who Adopt Best Technologies GROWER PROFITABILITY ESTIMATE BASED ON 2006 YIELDS AND INPUT COSTS AND 2007 $600 COMMODITY PRICES Cotton growers’ cost reflects $500 approximately >90% of gross-profit $400 DOLLARS / ACRE opportunity per acre, compared with <75% $300 for corn growers Monsanto’s second $200 generation traits including Bollgard II $100 and Roundup Ready Flex should help cotton farmers $0 improve profitability COTTON CORN SOY WHEAT RETAIL VALUE COST Source: University Studies, USDA and Monsanto estimates 14
  15. 15. 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 Even on potentially 2006 RESULTS lower total planted 17% acres, Roundup Bollgard II Ready Flex 14% Roundup penetration rate Ready Flex should double in 2007 FORECAST 2007 to >25% of total cotton crop 25-30% Bollgard II Cotton trait platform 25-30% Roundup is the first to move Ready Flex forward on complete replacement of first- generation traits 0% 5% 10% 15% 20% 25% 30% with second- generation upgrades 1. Percent of annual planted acres reflects the ratio of number of actual trait acres planted to total planted acres in the identified year 15
  16. 16. COTTON GROWTH Upgrade to Double-Double Stacks in Cotton Significantly Enhances Value Versus Seed Alone INCREASED U.S. COTTON TRAIT RETAIL VALUE EXAMPLE: VALUE PROGRESSION OF COTTON TRAITS IN NORTH DELTA REGION OF U.S. Each trait in a stacked combination 2 adds functionality and value for the TRAIT RETAIL VALUE PER ACRE 1.50 farmer. Second- 1.5 1.17 generation stacks 1.00 further enhance that (INDEXED) 1 added performance From the base of a 0.5 single trait, move to second-generation 0 stack – ‘double- SEED ONLY FIRST-GEN SINGLE FIRST-GEN DOUBLE-DOUBLE double’ – can STACKED increase retail value by 50 percent 16
  17. 17. R&D PIPELINE: SOYBEANS Roundup RReady2Yield Soybeans On Target for Yield Upgrade, Expanded Benefits for Farmers AVAILABLE ACRES U.S. BRAZIL ARGENTINA Roundup RReady2Yield AVAILABLE MARKET 70M 60M 35M Soybeans PERCENT PENETRATED 0% 0% 0% P R O JE CT GROWER PERSPECTIVE: ROUNDUP RREADY2YIELD UPGRADE WEED Satisfaction levels of 95% for Roundup Ready, ++ ++ CONTROL noting “unsurpassed” weed control Yield target for Roundup RReady2Yield YIELD ++ soybeans is up to 5 bushel-per-acre + BENEFIT improvement over comparable Roundup Ready soybeans With no residual issues, Roundup weed control + FLEXIBILITY + system allows for flexibility in annual corn- soybean rotation Third-party patents have been filed and DISEASE Monsanto has obtained a license; Testing is -- RESEARCHING CONTROL continuing to evaluate potential for control of Asian soybean rust +: Additive Performance to a Farmer’s Operation 17
  18. 18. SUMMARY 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 18
  19. 19. Reconciliation of Non-GAAP Financial Measures Reconciliation of Non-GAAP EPS Fiscal Year Fiscal Year Fiscal Year Fiscal Year $ per share 2006 2005 2004 2003 Net Income (Loss) per Share $1.25 $0.47 $0.50 $0.13 Cumulative Effect of Change in Accounting Principle $0.01 -- -- $0.02 $0.47 Diluted Earnings (Loss) per Share Before Effect of $1.26 $0.50 $0.15 Accounting Change Tax Charge on Repatriated Earnings $0.04 -- -- -- $0.45 Seminis and Stoneville In-Process R&D -- -- -- $0.32 Solutia-Related Charge -- -- -- $(0.19) Tax Benefit on Loss from European Wheat and -- -- -- Barley Business Restructuring Charges -- Net -- $0.01 $0.18 $0.05 Loss (Income) on Discontinued Operations $0.01 $(0.02) -- $0.03 Impairment of Goodwill -- -- $0.12 -- PCB Litigation Settlement Expense – Net -- -- -- $0.48 Diluted Earnings (Loss) per Share from Ongoing Business $1.31 $1.04 $0.80 $0.71 19