Deere & Company · NYSE:DE
Deere & — Investor Presentation (December 2017)
68 slides from Deere &'s investor presentation, December 2017
Slide 1: CEO Business Overview
CEO Business Overview December 2017 – January 2018 1
Slide 2: Safe Harbor Statement & Disclosures
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 Deer
Slide 3: Table of Contents
Table of Contents Slide Summary Message 4 John Deere Strategy 18 Use-of-Cash 29 Supplemental Information Global Markets 34 John Deere Financial Services 45 Agriculture Fundamentals 50 Construction & Forestry Fundamentals 56 Appendix 60 3
Slide 4: Summary Message
Summary Message 4
Slide 5: Consistently strong financial results focused on the future
“Deere’s ability to deliver consistently strong financial results is proof of our success building a more durable business model. Even as we find continued ways to focused on the future make our operations more efficient and profitable, we are through investments in technology and advanced products
Slide 6: Net Sales and Diluted EPS
Net Sales and Diluted EPS Deere & Company Strong EPS* performance during recent downturn − U.S. & Canada Large Ag** industry down ~ 60% in 2016 vs. 2013 $40 $10 $30 $8 $20 $5 Per Share $ Billions $10 $3 $0 $0 -$10 -$3 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 Net Sales Diluted EPS * Earnings
Slide 7: Exceptional Operating Performance – SVA
Exceptional Operating Performance – SVA Equipment Operations $1.2 billion SVA* in 2017 $4,000 Adoption of SVA Model $3,000 $2,000 $ Millions $1,000 $0 -$1,000 -$2,000 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 * Shareholder Value Added; for reconciliation to GAAP see “SVA* Reco
Slide 8: Exceptional Operating Performance – Net Cash Flow
Exceptional Operating Performance – Net Cash Flow Equipment Operations $2.4 billion Net Cash Flow in 2017 $5,000 Adoption of SVA* Model $4,000 Sale of Trade Receivables to John Deere Financial $3,000 $ Millions $2,000 $1,000 $0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 * Share
Slide 9: Net Sales by Product Category
Net Sales by Product Category Agriculture & Turf – Fiscal 2013 vs. Fiscal 2017 Fiscal 2013 Fiscal 2017 Agriculture & Turf Agriculture & Turf $29.1 billion $20.2 billion Other Turf Turf Large Ag Large Ag Small Ag Small Ag 9
Slide 10: Fiscal 2018 Forecast
Fiscal 2018 Forecast Equipment Operations Fiscal 2018 ($ billions except where noted) Forecast* Net Sales ~ 22% Price realization ~ 1 point Currency translation ~ 2 points Wirtgen ~ 12 points Net Income (attributable to Deere & Company) ~ $2.6 Cash Flow (from operations) ~ $3.8 * Includes estimated
Slide 11: Investment in New Products and Technologies
Investment in New Products and Technologies Consistently spending at or above competition on technology and innovation R&D as Percent of Net Sales $1,800 8% $1,500 6% $1,200 $ Millions $900 4% $600 2% $300 $0 0% 2003 2005 2007 2009 2011 2013 2015 2017 Deere R&D $ Deere % Competitor A % Competitor B
Slide 12: Precision Ag
Precision Ag The Future of Farming Has Always Been Led by John Deere Our commitment to game-changing innovation makes farming easier, smarter and more precise 12
Slide 13: Wirtgen Acquisition
Wirtgen Acquisition – Strategic rationale: allows market entrance into road construction equipment, providing greater exposure to the transportation sector and enhancing global presence for Deere construction segment – Timing: acquisition completed 1 December 2017 13
Slide 14: Wirtgen Acquisition: Attractive Industry Fundamentals
Wirtgen Acquisition Attractive Industry Fundamentals Transaction provides greater exposure to transportation infrastructure, a faster growing, less cyclical sector than broader construction − Attractive margin opportunity with significant growth tailwinds − Road construction AND repair emphasized in
Slide 15: Acquisitions
Acquisitions Blue River Technology – Strategic rationale: accelerates implementation of machine learning technology that enables farm management decisions at the plant level – Timing: acquisition completed 12 September 2017 Mazzotti – Strategic rationale: accelerates European market reach with innov
Slide 16: Integration Update
Integration Update Monosem – Strategic rationale: accelerates European market reach in precision planting equipment and adds engineering expertise – Timing: acquisition completed 3 February 2016 – Integration Update: Deere Gen 4 Display in Monosem brand; leveraging/combining Deere and Monosem techno
Slide 17: Prime position to benefit from increasing need for food, shelter, infrastructure
“We’re confident these steps put Deere in prime position to benefit from the world’s increasing need for food, shelter and infrastructure and provide value to customers and investors for years to come.” - Sam Allen, Chairman and CEO 17
Slide 18: John Deere Strategy
John Deere Strategy 18
Slide 19: Long-Term Macroeconomic Tailwinds – Still Intact
Long-Term Macroeconomic Tailwinds – Still Intact Population growing in size and affluence – By 2050, world population will reach ~ 9.8 billion, up from ~ 7.6 billion today – Large middle class emerging in China, India and other parts of Asia Opportunity #1: Feeding the world – Agricultural output ne
Slide 20: The John Deere Strategy
20 THE JOHN DEERE STRATEGY OUR PURPOSE Committed to those linked to the land GLOBAL AGRICULTURAL — ¢,,GLOBAL OUTPACE rd 25 RLREASEIRATIONS EQUIPMENT soLUTIONs _ CONSTRUCTION INDUSTRY OPERATING MARGIN ASSET TURNS a aaron PREEMINENCE. IN GROWTH (ar MiD-cycte! (AT MIO-CYCLED gro rough innovatior pore a
Slide 21: Traditional Agriculture vs Precision Agriculture
Traditional Agriculture Precision Agriculture Bigger. Faster. Stronger. Easier. Smarter. More Precise. 21
Slide 22: Precision Ag: Equipment + Technology + Services
Precision Ag Equipment + Technology + Services Better machine performance Better job performance Better agronomic decisions – Ensure machines function as expected – Achieve quality outcomes for each job – See, collaborate and direct information – Maximize machine performance & uptime – Coordinate ma
Slide 23: Precision Ag Differentiated
Precision Ag Precision Ag Differentiated Equipment + Technology + Dealer Channel = 23
Slide 24: Innovative New Products: Large Ag Equipment
Innovative New Products Large Ag Equipment S700 Series Combine – Combine Advisor™ automatically adjusts settings to maintain ideal performance target as conditions change – Gen 4 CommandCenter™ 4600 display provides superior user-friendly interface – ActiveYield™ eliminates time-consuming manual yie
Slide 25: Innovative New Products: Tractors
Innovative New Products Tractors 5R Series Tractors – 4 models (90 to 125 HP); unique combination in the less than 130 HP segment: comfort, compactness, and capability – Proven world-record fuel efficiency (diesel only) measured by the DLG (Powermix); “best-ever” result under 150 HP segment 3036EN T
Slide 26: Innovative New Products: Small Ag, Turf and Utility
Innovative New Products Small Ag, Turf and Utility Equipment 0 Series Round Balers – MegaWideHC2: 2.2 meter precutter for 4-ft and industry first for 5-ft balers; precut bales reduce time for processing hay and maintaining feed quality – MegaWideHC2 feed system, larger baffle, twin rotor, self-clean
Slide 27: Innovative New Products: Construction Equipment
Innovative New Products Construction Equipment 950K Crawler Dozer – Expands Production Class Dozer line-up with a second offering available in both outside-dozer and power-angle-tilt (PAT) configurations – 950K PAT is the industry’s largest six-way blade with the capability for mass excavation combi
Slide 28: Innovative New Products: Forestry Equipment
Innovative New Products Forestry Equipment L-Series Skidder – Gen 1.5 – Horsepower increases across all models has positioned Deere as the most powerful skidder on the market – New 17.5 ft2 grapple is a popular option for 748L customers and delivers the largest range of grapple sizes on the market 1
Slide 29: Use-of-Cash
Use-of-Cash 29
Slide 30: Deere Use-of-Cash Priorities
Deere Use-of-Cash Priorities Cash from Operations Manage the balance sheet, including liquidity, to support a rating that provides access to low-cost Committed to “A” Rating and readily available short- and long-term funding mechanisms Reflects the strategic nature of our financial services oper
Slide 31: Deere Quarterly Dividends Declared
Deere Quarterly Dividends Declared 1Q 2004 – 4Q 2017 Dividend raised 114% since 2010 $0.70 $0.60 $0.60 $0.50 $0.40 $0.30 $0.28 $0.20 $0.10 $0.11 $0.00 2004 2005 2006 2007* 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Adjusted for 2 for 1 stock split on 26 November 2007 31
Slide 32: Share Repurchase
Share Repurchase As Part of Publicly Announced Plans 35% net share reduction since 2004 2004–2017: Share Repurchase Cumulative cost of repurchases $16.4 billion 40 $3.0 Shares repurchased 245.0 million Millions of Shares* Average repurchase price $66.96 $2.5 30 $2.0 $ Billions December 2013 authoriz
Slide 33: Sources and Uses of Cash Fiscal 2004-2017
Sources and Uses of Cash Fiscal 2004-2017 Equipment Operations $50,000 ~ 58% of cash from = Source of Cash operations returned to = Use of Cash $665 $146 shareholders $40,000 $10,652 $1,345 $30,000 $ Millions $7,848 $37,440 $20,000 $13,904 $621 $10,000 $8,168 $4,287 $0 Beginning Cash Cash From Dives
Slide 34: Global Markets
Global Markets 34
Slide 35: Net Sales by Major Markets
Net Sales by Major Markets Equipment Operations U.S. & Canada* $21.8 $20.8 $20.2 $17.4 $16.6 $14.5 $15.1 Western Europe Latin America $4.4 $4.3 $4.4 $4.4 $4.3 $4.1 $3.6 $3.6 $3.3 $3.2 $3.3 $3.2 $2.4 $2.4 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2
Slide 36: U.S. and Canada Factory Locations
U.S. and Canada Factory Locations Alberta, Canada North Dakota, USA • Remanufactured Components • Air Seeding Equipment Wisconsin, USA British Columbia, Canada • Electronics • Lawn & Garden Equipment • Log Loaders & Specialty Products • Utility Vehicles • Tillage Equipment • Golf & Turf Reel Mowers
Slide 37: EU Factory Locations
EU 28 Factory Locations Horst, The Netherlands Joensuu, Finland • Spraying Equipment • Wheel Forwarders • Wheel Harvesters • Forestry Attachments Saran, France Germany • Engines Mannheim • Tractors Largeasse, France Zweibrücken • Planting Equipment • Combines & Forage Harvesters Stadtlohn • Headers
Slide 38: Brazil Factory Locations
Brazil Factory Locations Catalão, Brazil • Sugarcane Harvesters • Sprayers Indaiatuba, Brazil • Backhoe Loaders Horizontina, Brazil • 4WD Loaders • Combine Harvesters • Motor Graders • Planters • Excavators (JV) Montenegro, Brazil Porto Alegre, Brazil • Tractors • Wirtgen Milling Machines • Vögele P
Slide 39: CIS Factory Locations
CIS Factory Locations Orenburg, Russia Domodedovo, Russia • Seeding Equipment • Tractors • Tillage Equipment • Combine Harvesters • Motor Graders 39
Slide 40: China Factory Locations
China Factory Locations Langfang, China • Wirtgen Milling Machines Jiamusi, China • Vögele Asphalt Paving • Combine Harvesters • Hamm Rollers • Cotton Pickers Tianjin (TEDA), China • 4WD Loaders • Excavators • Engines (85-254 hp) • Tractors (85-320 hp) Ningbo, China • Tractors (30-55 hp) • Cane Harv
Slide 41: India Factory Locations
India Factory Locations Sirhind, India • Combine Harvesters Pune, India • Engines • Transmissions • Tractors (36-75 hp) Dewas, India • Electronics • Tractors (36-50 hp) • Hamm Compactors • Kleemann Screens 41
Slide 42: Other Regions Factory Locations
Other Regions Factory Locations Ramos, Mexico • Ag Loaders • Compact Utility Tractor Loaders • Utility Tractor Cabs • Hydraulic Cylinders Kibbutz Beit Hashita, Israel • Cotton Picker Components Monterrey, Mexico • Rotary Cutters • Implements • Components Saltillo, Mexico • Ag Tractors • Transaxles T
Slide 43: Worldwide Parts Services
Worldwide Parts Services Supporting the Growth of Our Equipment Operations Highlights: – Miami, Florida (United States) – Directly supports the Latin America dealer network, operational November 2017 – China footprint – Strategic distribution locations to support China market, operational 2016 – Cam
Slide 44: Engine Emissions
Engine Emissions 2018 Worldwide Off-Road Emissions Regulations > 75 hp U.S. and Canada EU28* Russia Final Tier 4 Stage V – starting 2019 Ag tractors: Stage II China China NR III India TREM 3A >50hp Stage II/Tier 2 Stage IIIA/Tier 3/TREM 3A/MAR 1/China NR III Brazil Stage IV/Final Tier 4 (> 75-750 hp
Slide 45: John Deere Financial Services
John Deere Financial Services 45
Slide 46: John Deere Financial Services
John Deere Financial Services Supporting the Growth of Our Equipment Operations Owned Operations Bank/Finance Company Partners Retail programs through JDF not currently offered 46
Slide 47: John Deere Financial Services: Net Income
John Deere Financial Services Consistent earnings throughout the cycle Net Income $4,000 $3,000 $2,000 $ Millions $1,000 $0 -$1,000 -$2,000 1989 1993 1997 2001 2005 2009 2013 2017 John Deere Financial (attributable to Deere & Company) Deere & Company 47
Slide 48: John Deere Financial Services Net Owned Portfolio
John Deere Financial Services $40.0 billion Net Owned Portfolio as of 29 October 2017 Portfolio Composition by Segment Portfolio Composition by Geography Portfolio Composition by Product Australia Operating C&F Latin Asia 3% Lease 16% America 1% 17% 7% Europe 6% Revolving Canada Credit 11% 9% Wholes
Slide 49: John Deere Capital Corporation
John Deere Capital Corporation Continued extremely low write-offs in Agriculture & Turf and Construction & Forestry Agriculture & Turf* Construction & Forestry 4.0% 4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% -1.0% -1.0% 1983 1988 1993 1998 2003 2008 2013 1995 2000 2005 2010 2015 Net Write-offs (Ag
Slide 50: Agriculture Fundamentals
Agriculture Fundamentals 50
Slide 51: Global Stocks-to-Use Ratios
Global Stocks-to-Use Ratios 60% 120% 50% 100% 40% 80% Wheat Cotton Cotton Ratios Corn 30% 60% 20% 40% Soybeans 10% 20% 0% 0% 1996 1999 2002 2005 2008 2011 2014 2017P Source: USDA, 9 November 2017 51
Slide 52: Global Grain Supply and Demand
Global Grain Supply and Demand 3,000 2,500 2,000 Million Metric Tons 1,500 1,000 500 0 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 Consumption Production Source: USDA, 9 November 2017 52
Slide 53: Global Grain Demand With and Without Biofuel Use
Global Grain Demand With and Without Biofuel Use 3,000 3,000 2,000 2,000 Million Metric Tons Million Metric Tons 1,000 1,000 0 0 2006 2008 2010 2012 2014 2016 2018F 2006 2008 2010 2012 2014 2016 2018F Consumption with biofuel use Consumption without biofuel use * Compound Annual Growth Rate Source:
Slide 54: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts $500 $400 $300 $ Billions $200 $100 $0 2002 2004 2006 2008 2010 2012 2014 2016 2018F Crops Livestock Government Payments Source: 2001–2016: USDA, 30 August 2017 2017F–2018F: Deere & Company forecast as of 22 November 2017 54
Slide 55: U.S. Farm Balance Sheet
U.S. Farm Balance Sheet $3,500 30% $3,000 25% $2,500 $2,000 $ Billions 20% $1,500 $1,000 15% $500 $0 10% 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018F Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) Source: 1974–2016: USDA, 30 August 2017 2017F–2018F: Deere & Co
Slide 56: Construction & Forestry Fundamentals
Construction & Forestry Fundamentals 56
Slide 57: U.S. Housing Starts
U.S. Housing Starts 2.5 2.0 Millions of Units 1.5 1.0 0.5 0.0 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018F Multi-Family Housing Starts Single-Family Housing Starts Source: 1968–2016: U.S. Census Bureau, October 2017 2017F–2018F: Deere & Company forecast as of 22 November 2017 57
Slide 58: U.S. Construction Spending
U.S. Construction Spending $2,400 % Total Construction Spend 60% 40% $2,000 20% 0% $1,600 -20% -40% $1,200 -60% $ Billions* $800 -80% -100% $400 -120% -140% $0 -160% 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F Government Infrastructure Investment Government Investment in Structures Nonre
Slide 59: Transportation Spend Outpacing General Construction Spending
Transportation Spend Outpacing General Construction Spending Transportation Includes: 2015 Global Construction Spending ($9.5 trillion) 17% − Roads & Bridges Transportation − Railways 37% 15% Residential − Airports Energy & Health Transportation Spending: 31% − $1.6 trillion worldwide in 2015 Non-Re
Slide 60: Appendix
Appendix 60
Slide 61: Net Sales by Product Category
Net Sales by Product Category Equipment Operations – Fiscal 2017 Agriculture & Turf Construction & Forestry $20.2 billion $5.7 billion Other Turf Compact Large Ag Forestry Small Ag Construction 61
Slide 62: Net Sales and Net Income
Net Sales and Net Income Deere & Company Much-improved performance vs. prior downturns $40 $4 1981-1986 1990-1992 1998-1999 2013-2016 U.S. & Canada Large Ag* $30 ~ 60% ~ 24% ~ 35% ~ 60% $3 Industry Decline Deere Net Sales Decline ~ 35% ~ 16% ~ 19% ~ 33% $20 Net Income Decline $2 $ Billions $ Billion
Slide 63: Exceptional Operating Performance - OROA
Exceptional Operating Performance - OROA Equipment Operations 21.0% OROA* in 2017 40% 2013 2011 30% 2014 2012 2010 2007 2008 2004 28% 2006 2017 2005 20% 2015 20% 2016 2009 12% OROA (SVA** Neutral) 10% 12% 2003 2002 0% 2001 -10% 80% 100% 120% % of Mid-Cycle Volume * Operating Return on Operating Asse
Slide 64: Fiscal 2018 Forecast
Fiscal 2018 Forecast Agriculture & Turf – Deere worldwide net sales up ~ 9% – U.S. and Canada ag industry up 5-10% – EU 28 ag industry up ~ 5% – South America ag (tractors and combines) industry flat to up 5% Construction & Forestry – Deere worldwide net sales up ~ 69% – Wirtgen worldwide net sales
Slide 65: The Wirtgen Group – Premium Brands
The Wirtgen Group – 5 Premium Brands Road Technologies Mineral Technologies Milling Machines Concrete Paving Crushers Compactors Asphalt Paving Asphalt Plants 65
Slide 66: End to End Road Construction Portfolio
End to End Road Construction Portfolio 66
Slide 67: SVA Reconciliation to GAAP
SVA* Reconciliation to GAAP Equipment Operations ($ millions except where noted) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Net Sales 6,479 7,663 8,830 9,640 11,082 11,926 9,701 11,169 11,077 11,703 13,349 17,673 19,401 Average Identifiable Assets With Inventories at LIFO 5,449
Slide 68: John Deere
E=3) JOHN DEERE
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