monsanto 2004 08b

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monsanto 2004 08b

  1. 1. Round 1: Global Expansion & Value Capture Royalty Collection System Involves Many Parties Payment to Monsanto GROWER GRAIN DELIVERY: PARTICIPANT GRAIN TRANSFER: • Roundup Ready presence determination • No testing nor deduction (Roundup • If Roundup Ready, royalty deduction Ready grain under fee paid status) Grain Handler GROWER GRAIN DELIVERY: Payment to Grower • Roundup Ready presence determination Monsanto • If Roundup Ready, royalty deduction Roundup Ready Exporter/ Processor Cooperative COOPERATIVE GRAIN DELIVERY: GROWER GRAIN DELIVERY: • No Roundup Ready presence determination • If delivering to a Roundup Ready designated • Designated elevator assumed Roundup Ready elevator, load assumed as Roundup Ready • Roundup Ready royalty deduction • Roundup Ready royalty deduction 18
  2. 2. Round 2: Monsanto Is Uniquely Positioned to Bring Next Generation of Traits to Market • Continued Growth from Round 1 • Second-Generation Traits • Greater Intensity of Stacked Traits Round 1 Round 2 19
  3. 3. Round 2: Second-Generation Traits Roundup Ready Flex Cotton Brings a Step-Change in Performance Product Status • Roundup Ready Flex offers a • Phase 3 of wider window of Roundup development application with higher use rates and enhanced crop safety Value Considerations Available Market • Incremental pricing opportunity over • 10-15 million acre upgrade in U.S current Roundup Ready cotton • 0.5-0.8 million acre upgrade in • Stack with Bollgard II enhances margin Australia opportunity Over-the-top window of application Roundup Ready® Flex Cotton Roundup Ready® Cotton (< 4 lf.) Emergence Layby Preharvest Harvest 20
  4. 4. Round 2: Stacked Traits Stacking Biotech Traits Adds New Dimension to Market Potential—Multiplying Margin Opportunities 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 2004F 2005F 2006F U.S. Biotech Margin Opportunities – 2004 Preliminary* Corn Cotton 16 million 52 million 10 million 1.2 42 million 1.5 biotech biotech X = biotech X = intensity biotech intensity margin margin Acres index acres index opportunities opportunities 21 * Monsanto Traits Only
  5. 5. Round 2: Stacked Traits Corn and Cotton Stacking Strategy Unlocks Value U.S. Cotton Trait Acres Acres planted with Monsanto cotton technology (millions) 15 Roundup Ready cotton Bollgard I & II cotton Stacked cotton Value proposition most 12 apparent in stacked traits 9 Rapid penetration of technology demonstrates 6 value, cost and yield 3 advantages for growers 0 Double- and triple-stacked 1998 1999 2000 2001 2002 2003 2004F corn and cotton provide solid U.S. Corn Trait Acres defense against “me too” competitive entries Acres planted with Monsanto corn technology (millions) 45 Stacked corn 40 Stacked trait acres in corn YieldGard corn borer and rootworm 35 Roundup Ready corn increased by more than 80% 30 in 2004 25 20 15 10 5 0 1998 1999 2000 2001 2002 2003 2004F Source: Monsanto estimates 22
  6. 6. Round 2: Stacked Traits YieldGard Plus Protects Roots and Stalks All Season Product Concept APPROVED Stacks corn rootworm and corn borer control into one product First double-insect trait in corn Benefits All-season protection against the two leading insect pests in corn Seed inventory management through fewer SKU’s Available Market 14-19 million acres in U.S. Status Food and feed approvals in U.S., Canada and Japan Corn Root Corn Stalk plus Protection Commercial launch 2005 Protection 23
  7. 7. Round 3: Pipeline Potential Builds on Established Platform • Continued Growth from Rounds 1 & 2 • Improved Food and Feed Biotech Traits • Biotech Yield Traits Round 1 Round 2 Round 3 24
  8. 8. Round 3: Food, Feed and Yield Traits Pipeline Products Reach New Markets and Expand Base in Corn, Soybeans and Cotton Food Healthier Oil Soy Yield (Low Linolenic Feed Mid Oleic Omega-3 Soy Omega- Low Saturate) Enhanced High Drought Tolerant Improved Protein Soy Lysine Corn Corn, Soy, Cotton (Beta Conglycinin) Low Linolenic Cold Tolerant High Lysine Corn Soy Corn Improved Protein Soy Nitrogen Utilization Corn Commercialized Agronomic Traits YieldGard Roundup YieldGard Corn Borer Ready Corn, Rootworm Bollgard I & II Soy, Cotton Corn Cotton 2nd Generation Roundup Ready YGCB Borer II YGRW II Corn Agronomic Traits Flex Cotton Corn 25
  9. 9. Round 3: Food Omega-3 Biofortification a Food Industry Breakthrough Omega-3 Deficiency Implicated in CVD Omega-3 fatty acids are essential Japan Recommendations Ratio dietary omega-6:3 4:1 are for a ratio of 4:1 in human diet: omega-6 to omega-3 Canada American Heart Assn & American Dietetic UK Assn and 1,600+ research studies support health benefits US Diet 80:1 Product Concept 50 CV deaths/100,000 200 Vegetable oils enriched with bio- available omega-3 % general population stating they 39.1% consider their diet deficient in… Benefit 32.0% New consumer product options for 30.9% 29.4% omega-rich foods 24.9% 23.1% Qualified health claims Folic Acid 18.7% Whole Grains Environmental sustainability Omega-3 Soy Protein Vitamin C Vitamin E Economical supply Fiber 26 Source: NMI, Health & Wellness Trends Report, 2003; FF&N, 2003
  10. 10. Round 3: Yield Traits Drought Stress Tolerance Is One of Potential New Agronomic Traits in Pipeline Product • Drought tolerance offers yield and environmental benefits on all acres by improving water use • Also offers cost savings on irrigated acres Status: Phase 1 of development Available Market – 3 possible markets • Yield insurance on all acres to protect against water deficits • Yield enhancement on all acres through improved water use • Cost savings on irrigated acres Value Considerations • Pricing depends on choice of market • Stack with weed and insect control traits enhances margin opportunity 27
  11. 11. Mid-Term Earnings Growth Rate Is Achievable from Higher 2004 Base Seeds and traits projected to grow significantly Breeding advancements continue to improve seed – performance Second-generation and stacked traits offer unmatched – benefits to growers Roundup shifts focus toward improving return on capital Roundup remains major source of free cash flow – R&D advancements accelerate longer term growth 10% EPS CAGR in 2005 and 2006 from Ongoing Business with Strong Free Cash Flow 28
  12. 12. Fiscal Year 2004 Guidance Has Increased Gradually Reflecting Stronger Performance in Seeds and Traits Fiscal Year 2004 Targets Earnings Per Share – Ongoing $1.55 - $1.60 Quarterly Guidance Business $1.62 per share first Earnings Per Share – GAAP Basis $0.79 - $0.84 nine months actual $(0.02) to $(0.07) in Free Cash Flow $500M range the fourth quarter SG&A as a % of Sales 22% range R&D as a % of Sales 10% range Capital Expenditures $250M 29
  13. 13. Restructuring Actions Nearly Complete, Setting Up Focused Operations at Reduced Cost Estimated Costs and Savings Associated with Implementing Strategic Actions Fiscal Estimated Estimated Estimated Estimated SG&A as R&D as Year Cost to Cash Effect Non-Cash Savings Percent Percent Implement Effect* of Sales of Sales $135M $20M - $26M $205M after- $70M after- after-tax or after-tax or 2004 tax or $0.76 tax or $0.26 22% 10% $0.50 per $0.07 - $0.10 per share per share share per share $80M - $95M after-tax or 2005 None None None 20% 10% $0.30 - $0.35 per share $90M - $105M after- High 2006 None None None 10% tax or $0.33 - teens $0.39 per share 63% complete through 9 63% complete through 9 months ended May 31, 2004 months ended May 31, 2004 * Includes $69M effect from goodwill adjustment related to global wheat business global 30
  14. 14. Free Cash Flow Guidance for Fiscal Year 2004 Approximately $500M Free Cash Flow Year-to-Date Nine Months Ended May 31, 2003 Nine Months Ended May 31, 2004 $ Millions Net income and noncash items $1,200 $1,000 $800 Capital $600 Free cash flow spending and Working capital $400 other investing and other balance $200 359 activities sheet changes* 172 $0 -$200 -$400 -$600 -$800 -$1,000 -$1,200 *Includes $(400M) for PCB litigation settlement in 2004, and pension contributions of $(150M) in 2004 and $(35M) in 2003 31
  15. 15. ROC Improves With Earnings Growth and Significant Balance Sheet Improvements Earnings Accelerate Capture savings seed and trait from growth restructuring Reduce inventories Reduce receivables 25% in 2003 47% in 2003 22% in 2006 43% in 2006 Invested Capital Manage capital expenditures below ROC Targets depreciation Coming October 6, 2004 32
  16. 16. A Clear Focus To Deliver On Commitments Forecasted 10 percent EPS CAGR from ongoing business in 2005+ Seeds and traits growth is eminently achievable – As necessary, cost actions are implemented – Free cash flow generation is solid Cash being returned to shareowners in dividends, share – repurchases 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 33
  17. 17. Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow Fiscal Year 2004 9 Months Ended $ Millions Target May 31, 2004 Net Cash Provided (Required) by Operations $750 $112 Net Cash Provided (Required) by Investing Activities $(250) $60 Free Cash Flow $500 $172 Net Cash Provided (Required) by Financing Activities N/A $(126) $46 Net Increase (Decrease) in Cash and Cash Equivalents N/A *Approximate figures only Reconciliation of Non-GAAP EPS 3 Months Ending $ Millions August 31, 2004 Fiscal Year 2004 9 Months Ended Target Target May 31, 2004 $(0.31)-$(0.36) Net Income (Loss) $0.79-$0.84 $1.15 -- Cumulative Effect of Change in Accounting Principle -- -- $(0.31)-$(0.36) Income (Loss) Before Cumulative Effect of Accounting Change $0.79-$0.84 $1.15 $0.25 2004 Restructuring Charges – Net $0.46 $0.21 $0.04 Estimated 2004 Discontinued Operations and Related $0.04 -- Restructurings – Net -- 2000 and 2002 Restructuring Charges – Net -- -- -- Goodwill Impairment Charge for Global Wheat Business $0.26 $0.26 $(0.02)-$(0.07) Net Income (Loss) from Ongoing Business $1.55-$1.60 $1.62 34

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