- 1. Hugh Grant Chairman, President and CEO Lehman Brothers 2004
Materials Select Conference November 11, 20041
2. Forward-Looking StatementsForward-Looking Statements Forward-
Certain statements contained in this presentation, such as
statements concerning the company's anticipated financialstatements
results, current and future product performance, regulatory
approvals, currency impact, business and financial plans and
approvals, other non-historical facts are quot;forward-looking
statements.quot; These statements are based on current expectations
and non- quot;forward- expectations currently available
information. However, since these statements are based on factors
that involve risks and uncertainties, the companys actual
performance and results may differ materially from those described
or implied by thosecompany such forward-looking statements. Factors
that could cause or contribute to such differences include, among
others: theforward-such companys exposure to various contingencies,
including those related to Solutia, Inc., litigation, intellectual
property, company regulatory compliance (including seed quality),
environmental contamination and antitrust; fluctuations in exchange
ratescontamination and other developments related to foreign
currencies and economies; increased generic and branded competition
for the economies; company's Roundup agricultural herbicide; the
accuracy of the companys estimates and projections, for example,
thosecompany with respect to product returns and grower use of our
products and related distribution inventory levels; the effect of
and weather conditions and commodity markets on the agriculture
business; the success of the companys research and business;
company development activities and the speed with which regulatory
authorizations and product launches may be achieved; rizations
autho domestic and foreign social, legal and political
developments, especially those relating to agricultural products
especially developed through biotechnology; the companys ability to
successfully market new and existing products in new andnewcompany
existing domestic and international markets; the companys ability
to obtain payment for the products that it sells; thecompany
company's ability to achieve and maintain protection for its
intellectual property; the effects of the company's accounting
intellectual policies and changes in generally accepted accounting
principles; the company's ability to fund its short-term financing
principles;short- needs; general economic and business conditions;
political and economic conditions due to threat of future terrorist
economic activity and related military action; and other risks and
factors detailed in the company's filings with the U.S. Securities
factors and Exchange Commission. Undue reliance should not be
placed on these forward-looking statements, which are
currentforward- only as of the date of this release. The company
disclaims any current intention to revise or update any
forward-lookingforward- statements or any of the factors that may
affect actual results, whether as a result of new information,
future events or otherwise. 2 3. Non-GAAP Financial Information
Non-GAAP Financial Information This presentation uses the non-GAAP
financial measures of free cash flow and earnings per share (EPS)
non-flow ( EPS excluding the effect of certain items. We define
free cash flow as the total of cash flows from operatingflow
activities and cash flows from investing activities. A non-GAAP EPS
financial measure (which we sometimes non- refer to as EPS from
ongoing business) may exclude the impact of restructuring charges,
charges associated with the settlement of litigation, gains and
losses on the sale of assets, and certain other items. The specific
items that are excluded from, and result in, our non-GAAP EPS
financial measure are clearly identified as suchnon- in this
presentation. The presentation of free cash flow and EPS excluding
the effect of certain items isEPS intended to supplement investors
understanding of our operating performance. These non-GAAP
financialnon-investors measures may not be comparable to similar
measures used by other companies. Furthermore, these non- non- GAAP
financial measures are not intended to replace net income (loss),
cash flows, financial position, or (loss), comprehensive income
(loss), as determined in accordance with accounting principles
generally accepted inaccounting the United States. The non-GAAP
financial measures used in this presentation are reconciled to the
mostnon- directly comparable financial measure calculated and
presented in accordance with GAAP and can be found at in the end of
this presentation. Fiscal YearIn this presentation, unless
otherwise specified references to years, or to fiscal years, 2001
through 2006 referencesare on a fiscal year basis and refer to the
12-month period ending August 31.12- Trademarks Roundup, Roundup
Ready, Bollgard, Bollgard II, YieldGard, VISTIVE and the Monsanto,
Imagine and vineVISTIVE logo are trademarks owned by Monsanto
Company and its wholly owned subsidiaries. All other
trademarksowned are the property of their respective owners. 2004.
Monsanto Company. All Rights Reserved.3 4. Overview One Year After
Investor Day, Momentum Builds From Higher Base Free Cash FlowEPS
Diluted Earnings per Share on an Ongoing Basis $
millionsNov-11-2004 GuidanceNov- 11- Nov-11-2004 Guidance Nov-
11-Nov-11-2003 GuidanceNov- 11- $1,000 $2.20 Nov-11-2003 Guidance
Nov- 11-$2.00 $800$1.80 $600 $1.60 $400 $1.40 $200 $1.20 $0
$1.0020032004 2005F 2006F 20032004 2005F2006F 4 5. Overview Seeds
and Traits Continue to AccelerateGross Profit Roundup and Other
Glyphosate-Based Herbicides All Other$ millions Seeds and
Traits$2,700$2,400$2,100$1,800$1,500$1,200 $900 $600 $300$0 2003
20042005F 5 6. Overview Momentum in Field Propels Earnings
GrowthEarnings per Share$1.95 to Diluted EPS on an Ongoing
Basis$2.09 $1.77to $2.00 $1.90$1.80 $1.6110% growth $1.60$1.4210% -
18%growth $1.4013% growth $1.20 $1.00 200320042005F2006F 2006F is
GAAP basis (i.e. ongoing basis is expected to equal GAAP basis)
GAAP6 7. Overview Earnings Growth Expected to to Contribute to Free
Cash Flow GenerationFree Cash Flow$ millions$1,200$1,000 $800
$600$999M$400$646M $600M$581M $500M to$500M to $75M$200 $600M
$600M$0 2001 2002200320042005F2006F 7 8. Overview Return on Capital
Goals Reflect Continued Improvement in Working CapitalReturn on
Capital ROC Percentage12%p* 100 b ent10% vem improbp* 130 ment ove
impr10% 10%p* 8% 60 b ent9%9% 1em prov im7.7%7.7% 6% 6.1% 6.1%
4%2%0%2003 20042005 Goal 2006 Goal * basis points8 9. Momentum and
Acceleration Biotechnology Is Most Rapidly Adopted Technology in
History of AgricultureGlobal Monsanto Planted Biotech Acres Acres
in millions180Canola 160Cotton 140Corn 120Soybeans 10080604020 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Monsanto
estimates9 10. Momentum and Acceleration Value Shift from Chemicals
to Seeds and Traits in Motion Industry Sales Estimates19962003
2008F$7.5 Billion$8.4 Billion $9.2 Billion $3.6$2.6 $4.4
$0.1$3.8$1.3$3.5$3.0 $2.7 Crop Chemicals Germplasm Biotech
TraitsSource: U.S. 1996-2003 Doane AgroTrak & Seed Studies;
2008 Monsanto Estimate1996-10 11. Momentum and Acceleration Value
Shift Is Starting to Take Place from Other IndustriesWater andSoil
Value Shift Value ShiftNutrients Human Value Shift Value Shift
Health Animal Value Shift Value Shift Nutrition Crop Value Shift
Value ShiftChemicals Seed 11 12. Momentum and Acceleration Now
Commercializing Inter-Company Corn Hybrids from Industrys Most
Diverse Genetic Pool6-to-8 year process6-to-8 yearLate 1990sEarly
2000s TodayAcquired 36 major cornCrossed genetic lines Launching
new hybridsbreeding programs across acquiredfrom inter-company (12
countries x average of 3companies crossescompanies per
country)TemperateTemperateSub-Tropical Sub- Sub-Tropical Monsanto
corn TropicalTropical germplasmflows globally
Sub-TropicalSub-Sub-Tropical TemperateTemperate 12 13. Momentum and
AccelerationEarly, Major Investment In Seeds Captured Value
ShiftMonsanto Brand Share Monsanto Licensed Share Monsanto Genetic
Market Share in U.S. Corn Seed 60% 49%48%45% 43% 50% 40% 30% 20%
10% 0% 2001 20022003 2004Source: Monsanto Estimates 13 14. Momentum
and Acceleration Market Potential for Biotech Traits Highlights
Continued Growth OpportunityTotal Available Market in Acres
Soybeans Cotton Corn Key Markets RoundupRoundup Bollgard
IRoundupYieldGard YieldGardReadyReadyand II Ready CornRoot- Borer
wormUnited States 70M10-15M 6-8M 50M 30M-40M15-20M Brazil50M - -20M
15M5M Argentina 30M - - 5M4M1M India - -10-15M- - - Australia -
0.5M-0.8M 0.5M-0.8M- - -BiotechAcresPlanted 2004Remaining71% 66%
35%22% 57% 7%71% Available66% 35%22% 57% 7% Market 14 15. Market
Expansion Available Market for Roundup Ready Corn Is Growing Key
Market Acres U.S. Brazil Argentina Key Market Acres U.S. Brazil
ArgentinaContributing Platforms 20MAvailable Market 50M 5M
20MAvailable Market 50M 5M GenomicsPercent Penetrated (2004)33%0%
0%Percent Penetrated (2004)33%0% 0%1Regulatory Processes
Conventional BreedingEuropean Union Molecular 22 products in
regulatory queue Breeding under Directive 2001/18; 11 from Monsanto
Crop Analytics Roundup Ready corn (NK603) Biotechnology approved
for importation and whole corn feed in July 2004 NK603 Novel Food
approval in October 2004Argentina NK603 approved for planting in
Argentina in July 2004 Application for stacks in
queueDiscoveryPhase 1 Phase 3 Phase 4Phase 2 Launch Proof of
Concept Adv. Development Pre-Launch Pre-Early Development 15 16.
Market Expansion EU Approvals Will Continue to Expand Global Market
Potential2 Monsanto Has 11 out of 22 Applications in EU
QueueApplication ImportCultivation Food and Feed1. Yieldgard
Rootworm XX** 2. Roundup Ready Canola XX* 3. YieldGard Plus XX 4.
Roundup Ready Corn/ YieldGard XXCorn Borer Stack (NK603/MON810) 5.
Roundup Ready Corn (NK603)X 6. Roundup Ready Corn/ YieldGardXCorn
Borer Stack (NK603/MON810) 7. Roundup Ready Cotton XX X* 8.
Bollgard CottonXX X* 9. Roundup Ready Fodder Beet X10. Roundup
Ready Sugarbeet X11. Roundup Ready Corn/ YieldGard XXRootworm Stack
(NK603/MON863) X Indicates application in queue *Approved under
Novel Food Regulation Regulation **Pending under Novel Food
Regulation 16 17. Market Expansion Grain Channeling Offers Farmers
Market Options3 Grain Channeling in the U.S. Business Approach
Website indicates to farmers which elevators in their area accept
biotech grain not yet approved for import into the European Union
Communication and education program under way Percent of growers
citing grain marketing concerns has dropped from roughly 60% to
nearly 30% in past year* *Based on Roundup Ready corn surveys taken
in fall of 2003 and spring of spring2004 in Eastern Iowa/Northern
Illinois region www.866sellcorn.com 17 18. Second-Generation Traits
Upgrades in Technology Raise the Bar -- Roundup Ready Flex Cotton
Key Market Acres U.S. Australia Key Market Acres U.S.
AustraliaContributing Platforms0.5M 0.8M Available Market
10M-15M10M-0.5M 0.8M Available Market 10M-15M Genomics 0%Percent
Penetrated0% 0%Percent Penetrated0%1Expanded Window of Application
Conventional Breeding Molecular Expanded window of over-the-top
application Breeding - Increased margin of crop safety Crop
Analytics - More flexible weed control Increased grower convenience
Biotechnology Reduced need for specialized spray equipment
Over-the-top window of applicationRoundup Ready Flex CottonRoundup
Ready Cotton(< 4 lf.) EmergenceLaybyPreharvest Harvest
DiscoveryPhase 1Phase 3Phase 4Phase 2 Launch Proof of Concept Adv.
Development Pre-Launch Pre-Early Development 18 19.
Second-Generation Traits Broad Licensing Will Accelerate Roundup
Ready Flex Cotton Launch Key Market AcresU.S. Australia Key Market
AcresU.S. AustraliaContributing Platforms 0.5M 0.8MAvailable Market
10M-15M 10M-0.5M 0.8MAvailable Market 10M-15M Genomics 0%Percent
Penetrated 0%0%Percent Penetrated 0%2Field Trial Update
Conventional Breeding Molecular Over 200 field trials conducted in
2004 Breeding Crop Analytics 8 cotton seed companies participating
in trial program Biotechnology Cotton States launching exclusively
on a second-generation trait platformResults from the Field Results
from the FieldComing in January 2005 Coming in January 2005
DiscoveryPhase 1Phase 3 Phase 4Phase 2Launch Proof of Concept Adv.
DevelopmentPre-LaunchPre-Early Development 19 20. Stacking Stacking
Biotech Traits Adds Dimension to Market Potential Monsanto U.S.
Biotech Intensity Index*Average number of biotech traits per
biotech acre1.6Cotton (2 Traits) 1.5 Corn (3 Traits)1.5 Soybeans (1
Trait)1.4 1.3 1.21.2 1.1 1.0 1 199619971998 1999 2000 2001 2002
200320042005F2006F U.S. Biotech Margin Opportunities Corn Cotton16
million 52 million10 million 1.242 million1.5biotechbiotech ==
biotech intensity biotechintensityX Xmarginmargin Acres indexacres
indexopportunitiesopportunities20 * Monsanto traits only 21.
Pipeline Pipeline Products Reach New Markets and Expand Base in
Corn, Soybeans and Cotton Feed Food Yield High Lysine Corn Low
Linolenic Soy Drought Tolerant Corn, Soy, Low Linolenic/Mid-Oleic
SoyCotton Enhanced High Lysine Corn Low
Linolenic/Mid-Oleic/LowSaturate Soy Cold Tolerant Corn Improved
Protein Soy Enhanced High Lysine Corn Improved Protein Soy Nitrogen
Utilization Corn(Beta Conglycinin) Omega-3 Soy(Stearidonic
acid)Commercialized Agronomic Traits YieldGard RoundupYieldGard
Corn BorerReady Corn, RootwormBollgard I & IISoy, Cotton Corn
Cotton 2nd GenerationRoundup Ready YGCB II Corn YGRW II Corn
Agronomic Traits Flex Cotton21 22. Pipeline 2005 Launch of VISTIVE
Soybeans Marks First- Generation Output TraitKey Market Acres U.S.
Brazil ArgentinaKey Market Acres U.S. Brazil Argentina Contributing
PlatformsTBD Available Market5M TBDTBD Available Market5M
TBDGenomics Percent Penetrated0%0% 0% Percent Penetrated0%0% 0%
1VISTIVE Low Linolenic SoyConventionalBreedingMore stable soy
oilMolecular requiring lessBreeding hydrogenation:
reduces/eliminatesCrop Analyticstrans fatsBiotechnology Yield
parity and stacked with Roundup Ready trait Linolenic acid < 3%
Linolenic 18:3Linoleic Oleic SatsStd SoybeanVISTIVEDiscoveryPhase
1Phase 3Phase 4 Phase 2 LaunchProof of Concept Adv. Development
Pre-LaunchPre- Early Development22 23. Food Traits Preparing for
2005 Launch of First-Generation Output Trait VISTIVE Soybeans Key
Market AcresU.S. Brazil Argentina Key Market AcresU.S. Brazil
ArgentinaContributing PlatformsTBDAvailable Market 5M
TBDTBDAvailable Market 5M TBD GenomicsPercent Penetrated 0%0%
0%Percent Penetrated 0%0% 0%2VISTIVE Product Line 3 Step Change
Improvements Conventional Breeding Low Saturates Molecular Breeding
with Mid OleicMid Oleic and Low Lin Crop Analytics and ReduceLow
Lin BiotechnologyLow Saturated FatLinolenic andImprove Soy
OilImprove Flavor & Shelf CardiovascularLife
withEliminateHealth OxidativeTrans-fatsStabilityTransgenicBreeding
BreedingPhase 1Phase 2 2005 DiscoveryPhase 1Phase 3 Phase 4Phase
2Launch Proof of Concept Adv. DevelopmentPre-LaunchPre-Early
Development 23 24. Pipeline Drought Stress Tolerance One of
Potential New Agronomic TraitsKey Market AcresU.S. Brazil
ArgentinaKey Market AcresU.S. Brazil Argentina Contributing
Platforms TBD Available MarketTBD TBD TBD Available MarketTBD
TBDGenomics Percent Penetrated 0%0% 0% Percent Penetrated 0%0% 0%
1Drought ToleranceConventionalBreedingPricing depends on choice
Yield protectionMolecularof market on all acres toBreeding protect
againstStack with weed and insect water deficitsCrop Analytics
control traits enhancesmargin opportunity Yield
enhancementBiotechnologyon all acres through improved water useCost
savings on irrigated acresDiscoveryPhase 1Phase 3 Phase 4 Phase
2LaunchProof of Concept Adv. DevelopmentPre-Launch Pre- Early
Development24 25. SummaryA Clear Focus To Deliver On
CommitmentsForecasted 10 percent to 18 percent EPS growth from
ongoing business in 2005Seeds and traits growth drivers with
products, geographies inhand Free cash flow generation is solidCash
being returned to shareowners in dividends, sharerepurchases,
investments Monsanto is unique among technology companies with this
level of leadershipFunding own growth with substantial returns to
shareowners Significant first mover advantage commercially Proven,
highly productive new product pipelineManagement team is dedicated
to delivering on commitments and is building track recordGuidance
is commitment, not aspiration 25 26. Questions? 26 27.
Reconciliation of Non-GAAP Financial MeasuresReconciliation of Free
Cash FlowFiscal Year 2006 Fiscal Year 2005 12 Months Ended 12
Months Ended 12 Months Ended 12 Months Ended$ MillionsAug. 31,
2001Aug. 31, 2002 Target TargetAug. 31, 2004 Aug. 31, 2003 $740
$855Net Cash Provided (Required) by Operations$850 $900
$1,000$1,261$1,128 Net Cash Provided (Required) by Investing
Activities$(665)$(482) $(274) $(350) - $(300)$(400)$(262)$75 $581
Free Cash Flow $500 - $600$600$999 $646 $123 $(711)Net Cash
Provided (Required) by Financing ActivitiesN/A N/A $(243)$(502)
$198 $(130)Net Increase (Decrease) in Cash and Cash EquivalentsN/A
N/A $756$144 Reconciliation of Non-GAAP EPS Fiscal Year 2005$ per
share 12 Months Ended 12 Months Ended Target Aug.31, 2004Aug. 31,
2003Net Income (Loss) $0.99 $0.26 $2.16 - $2.29 Cumulative Effect
of Change in Accounting Principle -- $0.05-- Income (Loss) Before
Cumulative Effect of Accounting Change $0.99$0.31 $2.16 - $2.29
Restructuring Charges Net$0.10$0.36 - Estimated 2004 Discontinued
Operations and Related Restructurings Net $0.02$0.05 - Solutia PCB
Litigation Settlement Expense Net -- $0.96-- Goodwill Impairment
Charge for Global Wheat Business$0.24 -- -Tax Benefit Related to
Loss on Wheat and Barley Business----$(0.39) Net Income (Loss) from
Ongoing Business $1.61$1.42 $1.77 - $1.90 27 28. Reconciliation of
Non-GAAP Financial Measures Reconciliation of Return on Capital12
Months 12 Months$ Millions Total Monsanto Company and Subsidiaries:
Ended Ended Aug. 31, 2004 Aug. 31, 2003 Operating Profit After-tax
(excluding certain items)$ 475 $ 417 Average Capital6,191 6,846
Return on Capital 7.7% 6.1%Operating Profit After-tax (excluding
certain items): Net Income $ 267 $68 Net Income Adjustments for
certain items, after-tax: [Interest ExpenseNet X (1 38% Tax)]
Expense(1Restructuring Charges Net9826Discontinued Operations and
Related Restructuring ROC =415Adjustment of Goodwill 64 Average
[Equity + Short-Term Debt +Short-Cumulative Effect of a Change in
Accounting Principle 12 Long-Term Debt - (Cash - $125M)]
Long-$125M)]PCB Litigation Settlement Expense Net252 Ongoing basis
Interest Expense -- Net 6769 Represents estimated combined federal
and state statutory tax (1) Tax on Interest Expense -- Net (at 38%
tax rate) (25)(25)rates for the United States. Operating Profit
After-tax (excluding certain items) $ 475 $ 417 Average of
beginning balances, from September 1, and ending balances, from
August 31, of each fiscal yearAs of Aug. 31,2004 2003 2002 Average
Capital: Short-Term and Long-Term Debt $1,508 $1,527$1,919
Shareowners Equity5,2585,156 5,258 Cash and Cash Equivalents
(1,037)(281)(137) Cash for Operations 125125125 Total
Capital5,8546,527 7,165 Prior Period Capital 6,5277,165 Average
Capital $6,191 $6,846 (1) Represents estimated combined federal and
state statutory tax rates for the United States.28
