TERRY CREWS MONSANTO EUROPEAN INVESTOR DAY CHIEF FINANCIAL OFFICER. Nov. 10, 2006

Transcription

1 TERRY CREWS CHIEF FINANCIAL OFFICER MONSANTO EUROPEAN INVESTOR DAY Nov. 10,

2 OVERVIEW Monsanto s Strategic and Financial Opportunity Lies In Seeds and Traits $3,000 FOCUS: 12-MONTH ROLLING GROSS PROFIT BY BUSINESS SEGMENT 12-MONTH ROLLING GROSS PROFIT ($ IN MILLIONS) $2,500 $2,000 $1,500 $1,000 $500 $0 SEEDS & GENOMICS SEGMENT AGRICULTURAL PRODUCTIVITY SEGMENT KEY INFLECTION POINT: MID-2004, ROLLING GROSS PROFIT FOR SEEDS & GENOMICS BUSINESS SEGMENT SURPASSED AGRICULTURAL PRODUCTIVITY SEEDS & GENOMICS CAGR: 36% AGRICULTURAL PRODUCTIVITY CAGR: (5)% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

3 OVERVIEW Six Building Blocks Extend Leadership and Elevate Gross Margin Opportunity Through % 52% 50% 48% 46% 44% GROSS MARGIN OPPORTUNITY GROSS PROFIT AS A PERCENT OF SALES GROSS MARGIN PULL CURRENT LEVEL F 2009F 2010F MONSANTO S OPPORTUNITY Delta between 2006 current gross margin and a 51-53% trajectory reflects continued growth opportunity for seeds and traits FACTOR U.S. corn International corn Global biotech traits Cotton platform Seminis R&D pipeline VALUE 1 HIGH MEDIUM MEDIUM LOW MEDIUM HIGH 1. Increment to total gross profit in the period ; Some categories will overlap. HIGH >$250M MEDIUM $100M - $250M LOW <$100M 3

4 U.S. CORN GROWTH Seed Market Share Gains Alone Yield Greater Profit Contributions U.S. MARKET SHARE VALUE SEED VALUE RANGE FOR ADDED ACRES IN DEKALB/ASGROW BRANDS U.S. Corn In 2006, Monsanto s DEKALB and Asgrow brands grew by 3 market share points Over five years, comparable market share gain was 9 points Gain of 1 market share point in U.S. adds approximately $10M to $15M to gross profit in seed alone for DEKALB/Asgrow brands MARKET FACTORS USDA Total Acres Planted (2006) COST FACTORS Acre: Market Share Conversion PRICING FACTORS GROSS PROFIT VALUE Average Seed Retail Price Per Acre Retail Value: Per Share Point Assumed Industry-Standard Gross Margin Average Gross Profit: Per Acre Average Gross Profit: Per Share Point LOW-END RANGE MATURE, LOWER-VALUE HYBRIDS IN PORTFOLIO $32 $23.4M 40-45% $12.80-$14.40 $10M-$11M 78.5M 780,000 acres MEDIUM HIGH-END RANGE NEW, HIGHER-VALUE HYBRIDS IN PORTFOLIO $42 $32.8M 40-45% $16.80-$18.90 $13M-$15M 1. Average incremental value in gross profit opportunity for the seed value (excluding traits) of the addition of an acre in a Monsanto national brand: HIGH >$20 MEDIUM $10 - $20 LOW <$10 4

5 U.S. CORN GROWTH Each New Trait Stacks Additive Gross Margin to Upgrade Financial and Commercial Platform U.S. Corn INCREASED MARGINS WITH STACKING VALUE PROGRESSION OF STACKED CORN TRAITS Stacking corn traits on to our germplasm improves gross profit contribution In 2006, Monsanto national brands sold more stacked traits than single traits In 2007, in our national brands, Monsanto expects to sell more triple stacks than singles Addition of each stacked trait increases gross profit as a percent of sales for each bag of seed sold TRAIT GROSS PROFIT VALUE PER ACRE (INDEXED) % 63% 65% 67% SEED ONLY 1 TRAIT 2 TRAITS 3 TRAITS 4 TRAITS GROSS PROFIT AS A PERCENT OF SALES 68% 66% 64% 62% 60% 58% 56% 54% 52% 50% GROSS PROFIT PER ACRE AS A PERCENTAGE OF NET SALES For currently commercialized traits, the demand for triplestack traits can double gross profit per acre over seed alone in DEKALB/Asgrow brands 4 trait value assumed to be an average of the retail value of the three other first-generation traits 5

6 INTERNATIONAL CORN GROWTH Gross Profit Value of Seed Internationally Varies, Yet Still Solid Contributor to Growth, Commercial Platform International Corn GERMPLASM VALUE: FRANCE SEED VALUE RANGE FOR ADDED ACRES IN DEKALB/ASGROW BRANDS Primary value in international corn markets today is in the seed In France, DEKALB market share has grown 5 points over the last 3 years For the first time ever, DEKALB is co-leader of French market Monsanto is targeting to grow share in each of the most valuable corn-growing countries MARKET FACTORS PRICING FACTORS COST FACTORS GROSS PROFIT VALUE Total Acres Planted (2006) Acre: Market Share Conversion Average Seed Retail Price Per Acre Assumed Industry-Standard Gross Margin FRANCE 7.5M (3.0M Ha) 7,500 acres $ % Average Gross Profit: Per Acre 1 $23-26 HIGH 1. Average incremental value in gross profit opportunity for the seed value (excluding traits) of the addition of an acre in a Monsanto-owned brand: HIGH >$20 MEDIUM $10 - $20 LOW <$10 6

7 GLOBAL BIOTECH TRAIT GROWTH Significant Growth Opportunity Lies in Expansion of Existing Commercial Biotech Traits Globally Global Biotech Traits GLOBAL MARKET OPPORTUNITY MARKET OPPORTUNITY FOR BIOTECH TRAITS THROUGH Historically, most rapid adoption has been in the U.S., also the most highly penetrated market Penetration is moving globally, trait by trait, country by country United States Brazil Argentina SOYBEANS ROUNDUP READY 70M 50M 35M ROUNDUP READY (FLEX) 10-15M 3M - COTTON BOLLGARD AND BOLLGARD II 6-8M 2M - ROUNDUP READY CORN 2 60M 20M 5M CORN YIELDGARD CORN BORER 50-60M 15M 4M YIELDGARD ROOTWORM 25-30M 5M 1M As is the case in the U.S., largest category of opportunity internationally is corn trait adoption Even where some traits like cotton are penetrated, there s still an upgrade opportunity to secondgeneration traits India Europe Africa Australia Total Key Markets - 1M 0.2M M 10-15M - 11M 0.5M- 0.8M M 10-15M - 10M 0.5M- 0.8M M 3 5M 24M 6M M 3 5M 8M 4M M - 5M M 2006 Penetration 86% 39% 57% 29% 42% 26% 1. Market Opportunity reflects total acres where technology is applicable, not necessarily acres projected for penetration by

8 GLOBAL BIOTECH TRAIT GROWTH Emerging Markets Require Business Solutions to Balance Reward and Risk Global Biotech Traits ROUNDUP READY SOYBEANS IN BRAZIL PROJECTED EPS CONTRIBUTIONS (2007 VS 2010) Genetic footprint in corn seed globally establishes platform for trait launches Largest soybean market outside U.S. is Brazil; Recent pricing action taken there to promote penetration of new seed Cotton traits among most advanced globally, with second-generation upgrades in 2007 in Australia and India CONTRIBUTION TO EPS ($ PER SHARE) $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.025-$0.05 $0.09-$0.11 Corn traits outside U.S. have significant opportunity for penetration Brazilian upside of 30M+ acres for Roundup Ready soybeans Cotton holds dual opportunity of initial penetration into markets and upgrading to second-generation traits $0.00 PRICING MARKET SIZE PENETRATION 2010F F 2009F 2010 ASSUMPTIONS ASSUMPTIONS $2.50-$3.00/acre 50M 45% PRICING MARKET SIZE PENETRATION $2.50-$3.00/acre 50M 90% 8

9 COTTON GROWTH Upgrade to Double-Double Stacks in Cotton Significantly Enhances Value Versus Seed Alone Cotton Platform 2 INCREASED U.S. COTTON TRAIT RETAIL VALUE EXAMPLE: VALUE PROGRESSION OF COTTON TRAITS IN NORTH DELTA REGION OF U.S. Cotton trait platform is first to move forward on complete replacement of first-generation traits with second-generation upgrades Roundup Ready Flex cotton launched in the U.S. in 2006; Will launch in Australia in 2007 From the base of a single trait, move to second-generation stack double-double can increase retail value by 50 percent TRAIT RETAIL VALUE PER ACRE (INDEXED) SEED ONLY FIRST-GEN SINGLE FIRST-GEN STACKED ADDITIVE VALUE IN STACKS DOUBLE-DOUBLE Each trait in a stacked combination adds functionality and value for the farmer. Second-generation stacks further enhance that added performance 9

10 SEMINIS GROWTH Seminis To Leverage Portfolio, Pricing and Molecular Breeding To Create New Growth Seminis In 2006, narrowed commercial and research focus to 25 crops that generate the most profit Began application of breeding technology, with genome-wide marker platform for tomatoes and peppers; Melons, watermelons and the brassica family of cabbage, broccoli and cauliflower next Seminis gross profit as a percent of sales was in the 60% range and will continue to grow through price increases SEMINIS VALUE NET PRESENT VALUE OF GROSS PROFIT BY PRODUCT TIERS ~50% PRODUCT RANKING WITHIN 25-CROP PORTFOLIO: FIRST TIER Tomato Sweet Pepper Hot Pepper Onion Melon SECOND TIER THIRD TIER FOURTH TIER SEMINIS VALUE The top 5 crops in Seminis portfolio represent ~50% of the expected gross profit contribution going forward 10

11 PIPELINE Monsanto s Pipeline Is Funded for Growth, but Focused on Return on Investment PIPELINE VALUE: TOP-TEN PROJECTS REFLECTING COMMERCIAL VALUE 1 R&D Pipeline In FY2006: There was positive movement advancing phases or adding to the pipeline in 50 percent of the pipeline projects Three projects were designated as HIT projects reflecting our confidence in their commercial track 1. Top ten not presented in ranked order; Commercial value calculated by penetration and retail value during three-year span at peak. 2. Value and acres are for direct feed piece only and do not include value for Renessen s corn processing system, which is to be determined HIT HIT HIT Renessen Corn Processing System and Mavera High- Value Corn with Lysine 2 Roundup RReady2Yield soybeans Omega 3 soybeans YieldGard VT PRO 2 nd -GEN YIELDGARD CORN BORER Drought-tolerant corn Vistive III soybeans Higher yielding soybeans Insect-protected soybeans WITH ROUNDUP RREADY2YIELD Drought-tolerant cotton Nitrogen utilization corn PHASE SOURCE OF VALUE Feed and fuel Yield enhancement Improved health Insect protection Water replacement and yield Improved health Yield enhancement Yield Water replacement and yield Nitrogen replacement and yield VALUE PER ACRE $10 - $30 $10 - $30 >$30 $10 - $30 $10 - $30 $10 - $30 $10 - $30 <$10 $10 - $30 $10 - $30 ACRE BASE 20M 155M 5M 41M 164M 12-15M 155M 95M 36M 164M CORE MARKETS U.S Brazil Europe U.S. Brazil Argentina U.S. U.S. Brazil Europe U.S Brazil Europe U.S. U.S. Brazil Argentina Brazil Argentina U.S. India Brazil Australia U.S Brazil Europe 11

12 FINANCIAL FOCUS 2007 Is First Step Toward Gross Profit Targets in % 52% 50% 48% 46% 44% GROSS MARGIN OPPORTUNITY GROSS PROFIT AS A PERCENT OF SALES GROSS MARGIN PULL CURRENT LEVEL F 2009F 2010F MONSANTO S OPPORTUNITY Delta between 2006 current gross margin and a 51-53% trajectory reflects continued growth opportunity for seeds and traits FACTOR U.S. corn International corn Global biotech traits Cotton platform Seminis R&D pipeline VALUE 1 HIGH MEDIUM MEDIUM LOW MEDIUM HIGH 1. Increment to total gross profit in the period ; Some categories will overlap. HIGH >$250M MEDIUM $100M - $250M LOW <$100M 12

13 FINANCIAL FOCUS Gross Profit Mix Shows Power of Seeds and Traits, Especially as Traits Expand ONGOING EPS FREE CASH FLOW $1.50-$1.57 $875M - $950M Gross Profit by Segment From 2005 to 2006, gross profit grew 18%; Gross profit from Seeds & Genomics grew 24% $4,000 $3,500 $3,000 GROSS PROFIT PERFORMANCE BY SEGMENT SEEDS & GENOMICS ROUNDUP AND OTHER GLYPHOSATE- BASED HERBICIDES ~$2.8B ~$600M IN MILLIONS $2,500 $2,000 $1,500 $1,000 ALL OTHER AG PRODUCTIVITY ~$400M $500 $ SEEDS & GENOMICS ROUNDUP AND OTHER GLYPHOSATE- BASED HERBICIDES ALL OTHER AGRICULTURAL PRODUCTIVITY 13

14 FINANCIAL FOCUS R&D and SG&A Spend Balances Growth with Focus ONGOING EPS $1.50-$1.57 FREE CASH FLOW $875M - $950M SG&A and R&D as Percent of Sales SG&A AS A PERCENT OF SALES LOW 20% RANGE Seeds and traits are highservice businesses, but that service is highly rewarded in the marketplace R&D as a percent of sales remains in 10 percent range R&D expense includes milestone payments and other expenses related to third-party agreements Renessen joint venture included in Other Expense, approximately $35M investment annually R&D AS A PERCENT OF SALES % RANGE 4 SG&A % SALES 21%-21.5% R&D % SALES ~10%

15 FINANCIAL FOCUS Earnings Should Continue to Translate to Free Cash Flow ONGOING EPS $1.50-$1.57 FREE CASH FLOW $875M - $950M Free Cash Flow In 2005, Monsanto used roughly $1.5 billion of cash for acquisitions, including Seminis, Emergent and ASI 2006 free cash also covered a one-time payment for a licensing agreement with University of California and a contingent payment related to Seminis acquisition IN MILLIONS $1,600 $1,200 $800 FREE CASH FLOW PERFORMANCE $999 $1,500 $1,049 $875 - $950 FREE CASH FLOW $875-$950M $400 $0 $ FREE CASH FLOW PERFORMANCE AND FORECAST 2005 FREE CASH USED FOR ACQUISITIONS 15

16 FINANCIAL FOCUS Working Capital Improvements Have Helped Fund Key Acquisitions ONGOING EPS FREE CASH FLOW $1.50-$1.57 $875M - $950M From , Monsanto generated $1.3B from working capital During the same period, $1.8B was spent on acquisitions Free Cash Flow SOURCES OF CASH CUMULATIVE: WORKING CAPITAL NET INCOME USES OF CASH CUMULATIVE: ACQUISITIONS CAPITAL EXPENDITURES TECHNOLOGY AND OTHER INVESTMENTS FREE CASH FLOW $875-$950M $1.2B $1.3B $1.8B $860M $270M CASH GENERATION AND USES Between 2004 and 2006, much of the cash generated from working capital improvements was used to fund key acquisitions 16

17 FINANCIAL FOCUS Working Capital Discipline Sustained Even as Business Expands ONGOING EPS FREE CASH FLOW $1.50-$1.57 $875M - $950M Receivables & Inventories as Percent of Sales Receivables as percent of sales have declined from 47 percent in 2003 to just under 20 percent in 2006, even with addition of acquisitions Credit policies in Brazil and Argentina remain disciplined, preference for receivables that are securitized As a result, receivables as percent of sales dropped in both Brazil and Argentina in 2006 Inventories as percent of sales have increased because of acquisitions but should drop modestly going forward 40% 30% 20% 10% 0% RECEIVABLES AS A PERCENT OF SALES 30% 20% 10% 0% INVENTORIES AS A PERCENT OF SALES

18 FINANCIAL FOCUS Investing Cash Targeted for Bolt-On Acquisitions, Technology Investments, Seed Production ONGOING EPS FREE CASH FLOW $1.50-$1.57 $875M - $950M Investing cash primarily used for bolt-on acquisitions to bolster seed positions in all crops globally Investing Cash Capital expenditures of approximately $400M in 2007, with primary investments in new or expanded seed production Technology investments expected to continue in $100M range IN MILLIONS $400 $350 $300 $250 $200 $150 $100 $50 CAPITAL AND TECHNOLOGY EXPENDITURES $ TECHNOLOGY CAPITAL 18

19 FINANCIAL FOCUS Consistent Commitment to Return Additional Value through Dividends, Share Repurchases ONGOING EPS FREE CASH FLOW $1.50-$1.57 $875M - $950M From , Monsanto has generated a cumulative total of approximately $4.6B in cash $800 million, four-year share repurchase program announced end of October 2005 $120 million of shares repurchased through end of FY 2006 Dividend payments Dividend yield as of 8/31/06: 0.84% FY 2006 GAAP pay-out ratio: 30.5% Uses of Cash Monsanto will continue to explore options for returning value to shareowners, including: Continued strategic seed acquisitions Continued technology investments Share repurchase programs Dividends USES OF CASH CUMULATIVE: Net of approximately $400M in pension contributions ACQUISITIONS SHARE REPURCHASE & DIVIDENDS DEBT REPAYMENT CAPITAL EXPENDITURES CASH ACCUMULATION USES OF CASH Between 2004 and 2006, 75% of the cash generated was either returned to shareowners or re-invested in the growth of the business 19

20 FINANCIAL FOCUS Return on Capital Has Leapfrogged Original Targets, Still Can Significantly Improve ONGOING EPS FREE CASH FLOW $1.50-$1.57 $875M - $950M ROC in 2006 of 11.2 percent surpassed original projections of an ROC target in 2007 of 10.5 percent ROC in 2007 will be dependent on timing of closing of potential Delta and Pine Land acquisition Return on Capital Exclusive of acquisition effect, target of another 100-basispoint improvement 12% 10% 8% 6% 4% 2% 0% RETURN ON CAPITAL ROC IMPROVEMENT From 2003 to 2007, ROC has the potential to double 20

21 SUMMARY Focus, Discipline and Leadership Translate to Continued Growth $1.60 $1.40 $1.20 EARNINGS PER SHARE GROWTH PROGRESSION OF ONGOING EPS (2003-) 2007 EPS GUIDANCE: 15-20% GROWTH $1.31 $1.50-$1.57 Earnings Per Share 1 Free Cash Flow SG&A as a % Of Sales R&D as a % Of Sales FY2007 GUIDANCE $1.50-$ %-20% GROWTH FROM 2006 YEAR-END PERFORMANCE $875M-$950M 21%-21.5% ~10% $1.00 $1.04 Capital Expenditures $350-$400M $0.80 $0.60 $0.71 $ % GROWTH 31% GROWTH 26% GROWTH Roundup and All Other Glyphosate- Based Herbicides Gross Profit All Other Ag Productivity Gross Profit ~$600M ~$400M Seeds & Traits Gross Profit ~$2.8B 1. EPS figures reflect the stock split effective July 28,

22 Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow $ Millions Fiscal Year 2007 Forecast Fiscal Year 2006 Fiscal Year 2005 Fiscal Year 2004 Net Cash Provided (Required) by Operating Activities $1,375-$1,450 $1,674 $1,737 $1,261 Net Cash Provided (Required) by Investing Activities $(500) $(625) $(1,667) $(262) Free Cash Flow $875-$950 $1,049 $70 $999 Net Cash Provided (Required) by Financing Activities N/A $(117) $(582) $(243) Effect of Exchange Rate Changes on Cash and Cash Equivalents $3 Net Increase (Decrease) in Cash and Cash Equivalents N/A $935 $(512) $756 Reconciliation of Non-GAAP EPS $ per share Fiscal Year 2006 Fiscal Year 2005 Fiscal Year 2004 Fiscal Year 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 Diluted Earnings (Loss) per Share Before Effect of Accounting Change $1.26 $0.47 $0.50 $0.15 Tax Charge on Repatriated Earnings $0.04 Seminis and Stoneville In-Process R&D $0.45 Solutia-Related Charge $0.32 Tax Benefit on Loss from European Wheat and Barley Business $(0.19) Restructuring Charges Net $0.01 $0.18 $0.05 Loss (Income) on Discontinued Operations $0.01 $(0.02) $0.04 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 $0.72 Note: EPS figures reflect the stock split effective July 28,

23 Reconciliation of Non-GAAP Financial Measures Reconciliation of Return on Capital $ Millions Total Monsanto Company and Subsidiaries: 12 Months Ended Aug. 31, Months Ended Aug. 31, Months Ended Aug. 31, Months Ended Aug. 31, 2003 Operating Profit After-tax (excluding certain items) $767 $612 $464 $413 Average Capital 6,827 6,256 6,068 6,774 Return on Capital 11.2% 9.8% 7.6% 6.1% Operating Profit After-tax (excluding certain items): Net Income $689 $255 $267 $68 Adjustment for certain items, after-tax: In-Process R&D Write-Off Related to the Seminis and Stoneville Acquisitions 248 Solutia-Related Charge 175 Tax Benefit on Loss from European Wheat and Barley Business (106) Restructuring Charges (Reversals) Net (1) Impairment of Goodwill 64 Tax Charge on Repatriated Earnings 21 Cumulative Effect of Accounting Change 6 12 PCB Litigation Settlement Expense Net 252 (Income) Loss on Discontinued Operations 3 (12) (1) 18 Interest Expense Net Tax on Interest Expense Net (30) (29) (21) (24) Operating Profit After-tax (excluding certain items) $767 $612 $464 $413 Average Capital: Short-Term and Long-Term Debt Shareowners Equity Cash and Cash Equivalents Cash for Operations Total Capital Prior Period Capital Average Capital As of Aug. 31, 2006 $1,667 6,525 (1,460) 125 6,857 6,797 $6,827 As of Aug. 31, 2005 $1,584 5,613 (525) 125 6,797 5,714 $6,256 As of Aug. 31, 2004 $1,368 5,258 (1,037) 125 5,714 6,422 $6,068 As of Aug. 31, 2003 $1,422 5,156 (281) 125 6,422 7,125 $6,774 23