monsanto 0_07_08
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FOURTH-QUARTER and FOURTH QUARTER and FISCAL-YEAR 2008 FINANCIAL RESULTSFINANCIAL RESULTS
October 8, 2008
Forward-Looking Statements
Certain statements contained in this presentation are "forward-looking statements," 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 maybased 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 d l t ti iti th t f j l it d l t l t d t f i i ddevelopment 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'sthe 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.
T d kTrademarksTrademarks 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
© 2008 Monsanto Company
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 g p ,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 U it d St t F th th GAAP fi i l t b bl t i il dUnited 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. 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 inprevious year, the calculation of ROC is complex, and Monsanto does not have sufficient information at this point in 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
FY08 Full-Year and Fourth-Quarter Financial Results PERFORMANCE SUMMARY
Fourth-Quarter
Fourth-Quarter Change Fiscal-Year Fiscal-Year ChangeQuarter
2008Quarter
2007Change 2008 2007 Change
Net Sales $2,051M $1,518M 35% $11,365M $8,349M 36%
Gross Profit $960M $643M 49% $6,177M $4,230M 46%Gross Profit $960M $643M 49% $6,177M $4,230M 46%
Diluted EPS on an Ongoing Basis $(0.03) $(0.18) 83% $3.64 $1.98 84%
As a Percent of Net Sales:
Gross Profit 47% 42% 54% 51%
SG&A 35% 39% 20% 22%
R&D 15% 15% FLAT 9% 9% FLAT
P iti t i t i
4
Positive movement in metric
PERFORMANCE SUMMARY
FY08 Full-Year and Fourth-Quarter Segment Gross Profit Results
Fourth-Quarter
2008
Fourth-Quarter
2007Change Fiscal-Year
2008Fiscal-Year
2007 Change
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%
$124M $57M 118% $394M $267M 48%VEGETABLE SEEDS $124M $57M 118% $394M $267M 48%ALL OTHER SEEDS & TRAITS $97M $72M 35% $251M $171M 47%
Total Seeds & Genomics $509M $359M 42% $3,857M $3,014M 28%Total Ag Productivity $451M $284M 59% $2,320M $1,216M 91%
As a Percent of Net Sales:
CORN SEED & TRAITS 43% 49% 61% 61% FLATSOYBEAN 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%Total Seeds & Genomics 54% 48% 61% 61% FLAT
Total Ag Productivity 41% 37% 46% 36%
5
g y % % % %
Positive movement in metric
Negative movement in metric
PERFORMANCE SUMMARY
Over 70% of the $2.8 Billion of Operating Cash Generated Invested in Acquisitions, Technology and Capital in FY08
USES OF CASHPERCENT OF $2.8B OPERATING CASH USED BY CATEGORY: FY2008
2%
13%
37%
Cash Generation
FY2008 Free Cash Flow: $772MCASH PRIORITIES
15%
CASH PRIORITIES
Bolster direct returns to shareownersSupport commercial growth through capital spending
33%
through capital spendingInvest in future growth through R&DExpand the core through
t t i i iti
Di id d
Capital Spending
Acquisitions and Technology Collaborations
strategic acquisitions
6
Share Repurchase
Dividends
Other
2009 Again Projects Double-Digit Earnings Growth and
Strong Cash Generation
7
2008 2009F
EARNINGS
ONGOING EARNINGS PER SHARE
$3.64>80% GROWTH
FROM 2007
$4.20-$4.40~15-20% GROWTH
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 Herbicides Gross Profit
$2.0B $2.3-2.4B
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
FINANCIAL OUTLOOK
2009 Earnings Expected to Follow Seasonality of Recent Fiscal Years
FINANCIAL OUTLOOK
Fiscal Years
Q1• Earnings: Driven by Latin America both
Q4• Historical loss reflecting full SG&A and R&D • Earnings: Driven by Latin America – both
seed and Roundup sales• Early orders begin for U.S. seeds, however
sales are not booked until shipment• Vegetables and Roundup and
other glyphosate-based herbicides
• Historical loss reflecting full SG&A and R&D spend against smallest sales base in year
• Earnings: Top line generated primarily by Roundup and other glyphosate-based herbicides and vegetables
SE
PT
▼
other glyphosate based herbicides sales spread relatively evenly throughout year
• Cash: Reflects pre-pays associated with early U.S. orders
• Cash: One of primary periods of cash collections, reflecting U.S. season Q1Q4
S
JUNE ▲
• Second strongest quarter behind Q2• Earnings: Driven by seeds and traits
• Historically largest quarter, increasing seed-and-trait shift into Q2
• Earnings: Driven by U S seeds andQ2Q3
DECEMBER ▼JUNE ▲
Annual Earnings Calendar
Earnings: Driven by seeds and traits– Continued soybean– Strongest quarter for cotton, reflecting U.S.
and India seasons
• Earnings: Driven by U.S. seeds and traits
– Particularly N. Hemisphere corn and U.S. corn traits
– Soybean seed and trait split roughlyevenly with Q3
C h U f h t f d ki it l d
MA
RC
H ▼
8
Q3
• Cash: Use of cash to fund working capital needs of business begins to build, reaching peak in mid Q4
Q2
Monsanto’s Pricing Model Aimed at Total Value Created; Shared with Farmer
FINANCIAL OUTLOOK
YieldGard VT TriplePRICING TO VALUE EXAMPLE: 2009
Improved Yield1
Improved YieldUPDATE: Yield-advantage value at 3 yearaverage commodity price
IMPROVED YIELD (BU/AC): 15-20
UPDATE: 3 YEAR COMMODITY PRICE: $4.00
$60-$80
I di t B fit 2
g y p• One year back, current year and forward year• Value shared with farmers
Indirect BenefitsQuantified benefits such as convenience andIndirect Benefits2
INDIRECT BENEFITS: $5
Incremental Value Created ( + ) $65-$85
Quantified benefits, such as convenience and peace of mind• Value shared with farmers
Replacement ValueF t t f ld h i d f
PRICING APPROACHUPDATE: Per-Acre Trait Cost3: $29-$49
Factors costs farmers would have incurred for substitute insect and weed control• 100% of replacement value is captured
UPDATE: Replacement Value4 ($11-$19)
Incremental Farmer Cost: $18-$30
Incremental Value Shared: 65-70%
PRICING APPROACHPercentage of incremental value shared ultimately determined by market research, pricing simulations and focus groups to assess:• Market Share Implications
9
1. Monsanto estimates, based on better insect and weed control over conventional options2. Monsanto estimates, based on farmer surveys quantifying benefits such as convenience and
peace of mind3. Retail price range for YieldGard VT Triple in 2009, at seeding rate of 2.7 acres per unit4. Subtracts costs farmers would have spent had they not used a trait package
• Market Share Implications• Trait Penetration Effect• Competitive Reaction
Yield-Enhancing Technology Creates Value – Returning $1.50-$3 For Every Dollar Spent By Farmers in Corn
FINANCIAL OUTLOOK
170
$ $ y p y
U.S. FARMER RETURN ON INVESTMENT: 1983-2008F
130
140
150
160
/ac 32
90
100
110
120Bu
32bu/acFARMER RETURN OF
1.5X – 3XPER DOLLAR SPENT
ON YIELD-CREATING TECHNOLOGY@ COMMODITY PRICE RANGE OF $2-$4/BU
80PRE-BIOTECH: 1983-1996 POST-BIOTECH: 1996-2008F
AVERAGE YIELD DURING PERIOD: 115.6 bu/ac AVERAGE YIELD DURING
PERIOD: 138.3 bu/acANNUAL YIELD GAIN: 1.7 bu/ac ANNUAL YIELD GAIN: 2.6 bu/ac
@ COMMODITY PRICE RANGE OF $2 $4/BU
YIELD-RELATED
Seed/ Chem/ Equip/ Labor $27.07/ac $43.24/ac
SCARCITY-RELATED
$ $OD
UC
TIO
N
CO
ST
S
Land Rent $19.33/ac $52.02/ac
Fertilizer $6.23/ac $94.90/ac
PR
O C
10Source: 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
FINANCIAL OUTLOOK
Increased 2009 and 2012 Targets for Roundup Reflect Sustainability Even As Supply-Demand Comes Into Balance
Roundup and Other Glyphosate-Based
Herbicides
Sustainability Even As Supply Demand Comes Into Balance
ROUNDUP AND OTHER GLYPHOSATE-BASED HERBICIDES: BRANDED AND NON-BRANDED TRENDS – 2004-2008
3002009 Forecast
GROSS PROFIT TARGET: $2.3-$2.4B
BRANDED PRICE BAND (PER GALLON):
Above $16-$18
250
300
allo
ns)
BrandedNon-Branded
$16 $182012 Forecast
GROSS PROFIT TARGET: $1.9B
BRANDED PRICE BAND (PER GALLON): $16-$18
150
200ba
l Vol
ume
(in g
a
50
100Glo
b
GLOBAL VOLUME (GALLONS): 209M 215M 235M 252M 257M
BRANDED PRICE BAND $11 $13 $11 $13 $11 $13 >$11 $13 Above
02004 2005 2006 2007 2008
(PER GALLON): $11-$13 $11-$13 $11-$13 >$11-$13 $16-$18TOTAL ROUNDUP AND
OTHER GLYPHOSATE-BASED HERBICIDES GROSS PROFIT:
$703M $637M $648M $854M $2.0B
11
With Different Core Structure, Credit Access For Farmers Remains Solid As Purchase-Season Approaches
FINANCIAL OUTLOOK
Remains Solid As Purchase Season Approaches
U.S. FARM BUSINESS DEBT:SHARE BY CATEGORY, 2000-2006
U.S. Farm CreditLENDING SYSTEM
35
40
45
SHARE BY CATEGORY, 2000 2006
t
42.4%
LENDING SYSTEM
• One-third of farmers get financing for the Farm Credit System –government-backed lending
k d f i l
20
25
30
enta
ge o
f Mar
ket
32.6%
17.2%
earmarked for agriculture• Around 40 percent of
farmers tap into regional and community banks• Rely on core deposits for
funding
0
5
10
15
Perc
e
5.3%
2.6%
funding• Continue to hold interest rates
steady and lines of credit open• 15-20 percent use credit
lines provided by agricultural suppliers0
2000 2001 2002 2003 2004 2005 2006
Commercial Banks Farm Credit SystemIndividuals & Others Life Insurance CompaniesUSDA FSA
g pp
12
USDA FSA
Source: USDA Economic Research ServiceYear-end 2006 preliminary estimates shown
FY2008 Performance Accelerates 2012 Opportunity; Monsanto Increases 2012 GP Target
STRATEGIC OUTLOOK
Monsanto Increases 2012 GP Target
GROSS PROFIT COMMITMENT: 2007-2012F
2012 GROSS PROFIT TARGETRELATIVE TO 2007 BASELINE
T t l G P fit $9.5 -
$8.6-9.1B$8-8.5B$8,000
$10,000
>2X
$9.5-$9.75B
)
Total Gross Profit $$9.75B
BUSINESS DETAIL
Roundup and Other Glyphosate-Based Herbicides
~$1.9B~2 25X
$4,230$4,000
$6,000 ~2X2007
BASELINE
>2X2007
BASELINE
GP
(in m
illio
ns) Herbicides
All Other Ag Productivity ~$300M
Seeds & Genomics $7.3-$7.5B
~2.25X2007
BASELINE
$0
$2,000
BASELINE ORIGINAL TARGET
MID-YEAR UPDATE
CURRENT GUIDANCE
$Corn Seed &
Traits 2.6-2.7x
Soybean Seed & Traits ~2x
BASELINE TARGET UPDATE GUIDANCE
2007 2012F•INCREASED ROUNDUPGP TARGET TO $1.8B
•BETTER GROWTH IN SEEDS & TRAITS
•2008
Cotton Seed & Traits ~2x
Vegetable Seeds >2.5x
13
•2008 ACQUISITIONS
•ROUNDUP GP TARGET OF $1.9B
While Metrics and Projections Vary, Fundamentals of Demand-Driven Environment for Grain Remain Strong
STRATEGIC OUTLOOK
Demand Driven Environment for Grain Remain Strong
USDA LONG-TERM PROJECTIONS:CORN AND SOYBEAN TOTAL TRADE – 2006-2017
Demand OutlookCORN AND SOYBEAN TOTAL TRADE 2006 2017
50
60
70
105
110
• USDA projections to 2017 anticipate tight continuation of demand-driven environment for grain
• Global corn trade expected t 15 t i th ton
s
Soybea
20
30
40
50
90
95
100 to grow 15 percent in that timeframe• Imports by China and Mexico
help spur demand• USDA assumption on U.S.
planted corn acres: ~90Mmill
ion
met
ric to
ans –m
illion metr
0
10
80
85 • Global soybean trade grows 40 percent by 2017• 80 percent of growth is driven
by China• USDA assumption on U.S.
planted soybean acres: 70M
Cor
n –
ric tons
Corn Total Trade Soybean Total Trade
planted soybean acres: ~70M
14Source: USDA Agricultural Projections to 2017, available at: http://www.ers.usda.gov/Publications/OCE081/
Monsanto’s Growth Opportunity Lies at the Intersection of Demand Innovation and Execution
STRATEGIC OUTLOOK
Demand, Innovation and Execution
M t ’ Si l Phil h O t it
More demand requires more YIELD
Monsanto’s Simple Philosophy on Opportunity:
q
More yield requires more INNOVATIONy q
More innovation delivers more GROWTHMore innovation delivers more GROWTH
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Reconciliation of Non-GAAP Financial Measures
Reconciliation of Free Cash FlowReconciliation of Free Cash Flow
$ Millions
Fiscal Year2009
ForecastFiscal Year
2008Fiscal Year
2007
Net Cash Provided (Required) by Operations $3,000 $2,799 $1,854
Net Cash Provided (Required) by Investing Activities (1 200) (2 027) (1 911)Net Cash Provided (Required) by Investing Activities (1,200) (2,027) (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)
Fiscal YearReconciliation of Non-GAAP EPS
$ per share
Fiscal Year 2009
ForecastFiscal Year
2008Fiscal Year
2007Fourth
Quarter 2008Fourth
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 Acquisition -- $0.29 -- $0.29 --
In-Process R & D Write-Off Related to the Delta & Pine Land (D&PL) Acquisition -- -- $0.34 -- $0.34
Diluted Earnings (Loss) per Share from Ongoing Business $4.20-$4.40 $3.64 $1.98 ($0.03) ($0.18)
16
17
Reconciliation of Non-GAAP Financial Measures
Reconciliation of Return on Capital
Total Monsanto Company and Subsidiaries:
Fiscal Year 2008 Fiscal Year 2007
Operating Profit After-tax (excluding certain items)
$2,157 $1,106
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 De Rutier Acquisition
$161 __
2007 In-Process R & D Related to the D&PL Acquisition
__ $186
(Income) on Discontinued Operations $(17) $(80)
Interest (Income) Expense – Net of Taxes $(11) $7
Operating Profit After-tax (excluding certain items)
$2,157 $1,106
$ Millions
As of Aug. 31, 2008
As of Aug. 31, 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
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