Feb 15, 2012 - Better fuel efficiency than 8430 and 8320R. ⢠First row-crop ...... Significantly expanded mandatory le
John Deere
Committed to Those Linked to the Land
Deere & Company February / March 2012
Safe Harbor Statement & Disclosures This presentation includes forward-looking comments subject to important risks and uncertainties. It may also contain financial measures that are not in conformance with accounting principles generally accepted in the United States of America (GAAP). Refer to Deere’s reports filed on Forms 8-K (current), 10-Q (quarterly), and 10-K (annual) for information on factors that could cause actual results to differ materially from information in this presentation and for information reconciling financial measures to GAAP. Guidance noted in the following slides was effective as of the company’s most recent earnings release and conference call (15 February 2012). Nothing in this presentation should be construed as reaffirming or disaffirming such guidance. This presentation is not an offer to sell or a solicitation of offers to buy any of Deere’s securities.
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Table of Contents Slide # John Deere Strategy
3
4
Macroeconomic Tailwinds
19
Foundational Success Factors
26
Global Markets and Opportunities
38
John Deere Financial Services
67
John Deere Power Systems
73
Farm Fundamentals
76
Market and Currency Volatility
85
Appendix
88
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John Deere Strategy
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The John Deere Strategy
Our Purpose: Committed to those linked to the land
No longer “business as usual” – Global macro-trends present significant
opportunities for John Deere
– Global population and income growth – Global infrastructure needs – New customer segments – Technology advances
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The John Deere Strategy
Realizing Sustainable Growth Through Global Expansion
Sustainable SVA growth is delivered by distinctively serving our customers, employees, and investors Extend and enhance our financial and operating achievements of recent years Our challenge: to capture anticipated tailwinds by attracting more customers to the John Deere Experience across our six key geographies (US-Canada, EU 27, Brazil, CIS/Russia, India, China) in a manner that meets local needs while leveraging our global scale
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The John Deere Strategy
Agricultural and Construction Equipment Aspirations
Agricultural Equipment Solutions Strategy – Defend and grow market share in developed markets – Grow market share in developing markets
Construction Equipment Solutions Strategy – Continue to grow strong #2 position in North America – Globalize the business
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The John Deere Strategy
Performance Target Aspirations
Sales
U.S. - Canada BRIC
– Enterprise net sales of $50 billion at mid-cycle by 2018
Rest of World 2010 Normal Volume $25 billion
Asset Efficiency – Asset turns of 2.5 times at midcycle by 2018
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Equipment Operations
– Operating margins of no less than 12% at mid-cycle by 2014
Equipment Operations
Profitability
2018 Normal Volume $50 billion
12.3%
13.0%
2009
2010
2011
1.9
2.2
2.3
2009
2010
2011
6.6%
The John Deere Strategy Integrated Enterprise
Integrated portfolio of businesses, each with a vital and specific role Global Growth Businesses Agricultural and Construction Equipment Solutions – Invest in global expansion for profitable growth by capitalizing on macro-trends
Complementary Businesses Turf and Forestry Equipment Solutions – Defend and grow share, enhance SVA, strengthen the channel of the Global Growth Businesses
Supporting Businesses Financial Services, Power Systems, Worldwide Parts, and Intelligent Solutions Group – Strengthen and further differentiate our Global Growth and Complementary Businesses
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The John Deere Strategy
Foundational and Critical Success Factors Both Foundational and Critical Success Factors necessary…
FOUNDATIONAL SUCCESS FACTORS
Building on the core strengths that have guided our success
Exceptional Operating Performance Disciplined SVA Growth Aligned High-Performance Teamwork
CRITICAL SUCCESS FACTORS
Developing the capabilities essential to reaching our goals
Deep Customer Understanding Deliver Customer Value World-Class Distribution System Grow Extraordinary Talent
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…to ensure that Deere is the provider of choice across the world
The John Deere Strategy Foundational Success Factors
Exceptional Operating Performance - Equipment Operations − 29.8% OROA in 2011, a record high for the company 35% 2011
30%
2010 2007
25%
2006 20%
2009
28%
2005
12% OROA (SVA Neutral)
12%
10%
2004
20%
2009, adjusted* 15%
2008
2003 2002
5% 2001
0% 80% Low
100% Normal % of Normal Volume
120% High
*Excludes fiscal 2009 expenses related to goodwill impairment and voluntary employee-separation, for reconciliation to GAAP see “2009 OROA Reconciliation to GAAP” slide in Appendix.
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The John Deere Strategy Foundational Success Factors
Exceptional Operating Performance - Equipment Operations − SVA Model: Higher Net Cash Flow, More Consistently 3,500
Adoption of SVA Model
3,000
Sale of Trade Receivables to Credit
$ Millions
2,500
2,000
1,500
1,000
500
0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Over $7 billion in Pension/OPEB contributions, 2001-2011
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The John Deere Strategy Foundational Success Factors
Disciplined SVA Growth - Equipment Operations − SVA Journey, 1991 - 2011 2,800 2,400
SVA ($ millions)
2,000 1,600 1,200 800 400 0 -400 -800 -1,200 -1,600 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Note: For reconciliation of SVA to GAAP, please see “Equipment Ops SVA Reconciliation to GAAP” slide in Appendix
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The John Deere Strategy Foundational Success Factors Disciplined SVA Growth - Enterprise − SVA Journey, 2002 - 2011 − SVA in 2011 was ~ $2.5 billion – a record high for the company 2,800 2,400
SVA ($ millions)
2,000 1,600 1,200 800 400 0 -400 -800 2002
2003
2004
2005
2006
2007
2008
2009
Note: For reconciliation of SVA to GAAP, please see “Equipment Ops SVA Reconciliation to GAAP” slide in Appendix
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2010
2011
The John Deere Strategy Foundational Success Factors Aligned High-Performance Teamwork − Integral part of strategy, reinforced with compensation − Global Performance Management reinforces alignment − Base pay changes linked to achieving goals STI: Short-Term Incentive – Bonus focuses on OROA/ROE − Covers most worldwide salaried employees − Applies one enterprise-wide bonus metric MTI: Mid-Term Incentive – Bonus driven by sustained SVA creation − About 8,200 management employees eligible LTI: Long-Term Incentive – Primarily stock options − Top 900 employees eligible − Minimum stock holding requirements for senior management (~ top 125)
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The John Deere Strategy Measures
Commitment to execute and monitor all initiatives critical to our success Performance metrics – Traditional financial measures based on what we are delivering today to our stakeholders Metric
Target
Sales
Net Sales Growth Target
$50B* (2018, at mid-cycle)
Profitability
Return on Sales (Operating Margin)
12% (2014, at mid-cycle)
Asset Efficiency
Asset Turns
2.5x (2018, at mid-cycle)
*Implies a CAGR of ~ 9% (2010 – 2018) vs. historical CAGR of 7-8%
Performance metrics – The qualities, attributes and actions being introduced to ensure the sustainability of our performance over time Metric
Target
Exceptional Operating Performance
Quality
% JDQPS certification
Disciplined SVA Growth
Sales/SVA Mix by Geography
% Non- U.S. & Canada
Aligned High- Performance Teamwork
Employee Engagement
Employee Survey’s Engagement Index
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The John Deere Strategy In Summary
Accelerated emphasis on global growth –$50 billion mid-cycle sales by 2018 –Approximately 50% outside of U.S. & Canada –Capitalize on increased global demand for food, shelter and infrastructure
Focus on improved profitability –12% mid-cycle margin by 2014
Continued adherence to OROA/SVA model –30% OROA at mid-cycle sales (12% at trough) with improved asset turns
Focus on two growth platforms –Global pre-eminence in agricultural-equipment solutions –Global construction-equipment operations (with presence in China) –Complementary/supporting businesses to help drive performance of global growth platforms
Revised metrics reflect strategic direction –“Performance” metrics align compensation to strategy –“Health” metrics introduced to monitor underlying factors (e.g., market share, quality) to ensure performance is sustainable
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Macroeconomic Tailwinds Support John Deere’s Global Growth Businesses
Long-Term Macroeconomic Tailwinds Support Global Growth Opportunities
Population growing in size and affluence • By 2050, world population will reach 9 billion, up from ~7 billion today, with most of population growth in Asia and Africa • Large middle class developing in China and India
Opportunity #1: Feeding the world • Agricultural output must double by 2050 • Gross output must increase 3.4% annually in the next 10 years vs. 2.4% annual growth in past 10 years • Natural resources under strain, especially water
Opportunity #2: Massive urbanization • Migration from rural areas creates need for infrastructure development • 2010: For the first time in history, more than half the world population lives in cities • 2050: More than 70 percent will live in cities
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Strong Global Tailwinds in Ag & Construction Significant Growth from Developing Economies Agriculture and Construction amongst the Top 10 industry sectors in the G-20 countries . . .
Sector
Absolute increase in real value added 2009-18, $ Billions
Manufacturing
CAGR 2009-18 Percent 3,625
Real Estate and Business Activities
2,301
Wholesale and Retail Trade
1,805
Transport, Storage and Telecommunication
1,315
Financial Intermediation
1,052
Construction
757
Health and Social Services
647
Public Administration and Defense, Compulsory Social Security
575
Education
462
. . . Significant growth in Agriculture and Construction between 2009-2018 will happen in the BRIC countries
Sector
Share of growth from BRIC1
3.1
Private Household Services
71%
2.3
Agriculture
71%
5.3
Mining
2.9
Manufacturing
58%
5.2
Utilities
58%
4.0
Transport, Storage and Telecommunication
4.1
Construction
3.0
Wholesale and Retail Trade
3.2
Financial Intermediation
36% 36%
61%
49% 46% 39%
Agriculture
381
3.4
Public Administration and Defense, Compulsory Social Security
Social and Personal Services
351
2.9
Education
34%
Utilities
331
2.7
Hotels and Restaurants
34%
Mining
321
4.8
Social and Personal Services
Hotels and Restaurants
289
3.8
Real Estate and Business Activities
3.8
Health and Social Services
Private Household Services
88
Note: G20 countries account for 73% and 89% of agriculture and construction segments respectively.
1Brazil,
Total global growth for agriculture is $520B and construction is $854B
Source: Global Insight World Industry Service
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Russia, India, China
26% 24% 17%
Real value-added 2005 USD
Developing Economies Growing Faster While developed economies have always accounted for a larger share of GDP . . . CAGR, 1970-2008 46.6 Percent
Real GDP1 $ Trillions
3.8
12.0
28.1 5.2 22.9
1970
1990
10.0
Developing 1
Real GDP1 $ Trillions
3.0
6.1 1.9x
34.6
11.3 1.3
their growth will slow significantly, relative to that of developing economies ...
2008
3.3
65.5 46.6 12.0
22.5
34.6
43.0
2008
2020
CAGR, 2008-2039 115.3 Percent 53.3
2.6x 62.0
2039
Developed
Real GDP (expenditure method) base year 2005
Developed countries include OECD. Developing countries include all developing markets (Regions as defined by Global Insight) Source: Global Insight World Market Monitor
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4.9
1.9
Dynamics of Food Demand Per Capita Income
Services
>$10 per day
Processed Products
$2.50-10 per day
Livestock Products
27% of world’s population (Most hunger problems solved at $2.50 threshold)
$1.25-2.50 per day
Commodities
20% of world’s population (2/3rds experience hunger & malnutrition)
