Deere & Company · NYSE:DE
Deere & — Investor Presentation (December 2018)
56 slides from Deere &'s investor presentation, December 2018
Slide 1: CEO Business Overview
CEO Business Overview December 2018 – January 2019 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 2018 Performance 4 Agriculture Fundamentals 11 Construction & Forestry Fundamentals 16 2019 Outlook 19 Acquisitions 22 John Deere Strategy 29 Research & Development 38 Use of Cash 45 John Deere Financial 50 Appendix 54 3
Slide 4: 2018 Performance
2018 Performance 4
Slide 5: CEO quote on consistent financial results
“John Deere has continued to show an ability to produce solid financial results on a consistent basis. This resilience – notable in light of the cyclical markets we serve – reflects our steady investment in new products and markets, amplified by our success controlling costs and assets. As a result,
Slide 6: Exceptional Operating Performance – SVA
Exceptional Operating Performance – SVA Equipment Operations $1.8 billion SVA* in 2018 $4,000 Adoption of SVA Model $3,000 $2,000 $ Millions $1,000 $0 -$1,000 -$2,000 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018** * Shareholder Value Added; for reconciliation to GAAP see “SVA* Re
Slide 7: Exceptional Operating Performance - OROA
Exceptional Operating Performance - OROA Equipment Operations 24.1% OROA* in 2018 40% 2013 2011 30% 2014 2012 2010 2007 2008 2004 28% 2018** 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 Returns on Opera
Slide 8: Exceptional Operating Performance – Operating Cash Flow
Exceptional Operating Performance – Operating Cash Flow Equipment Operations $3.3 billion Net Cash Flow in 2018 $5,000 Adoption of SVA* Model $4,000 Sale of Trade Receivables to John Deere Financial $3,000 $ Millions $2,000 $1,000 $0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018**
Slide 9: Net Sales by Product Category
Net Sales by Product Category Equipment Operations – Fiscal 2018 Agriculture & Turf Construction & Forestry $23.2 billion $10.2 billion* Other Turf Compact Construction Large Ag Forestry Small Ag Wirtgen *Including Wirtgen 9
Slide 10: Net Sales by Major Markets
Net Sales by Major Markets Equipment Operations** U.S. & Canada* $21.8 $20.8 $20.2 $18.8 $16.6 $14.5 $15.1 Western Europe Latin America $5.1 $4.3 $4.1 $4.3 $4.4 $4.4 $3.6 $3.4 $3.2 $3.3 $3.2 $3.3 $2.4 $2.4 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016
Slide 11: Agriculture Fundamentals
Agriculture Fundamentals 11
Slide 12: Global Stocks-to-Use Ratios
Global Stocks-to-Use Ratios 60% 120% 50% 100% 40% 80% Wheat Cotton Ratios Corn 30% 60% Cotton 20% 40% Soybeans 10% 20% 0% 0% 1994 1997 2000 2003 2006 2009 2012 2015 2018P Source: USDA, 8 November 2018 12
Slide 13: Global Grain Supply and Demand
Global Grain Supply and Demand 3,000 2,500 Million Metric Tons 2,000 1,500 1,000 500 0 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 Production Consumption Source: USDA, 8 November 2018 13
Slide 14: U.S. Farm Cash Receipts
U.S. Farm Cash Receipts $500 $400 $300 $ Billions $200 $100 $0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019F Crops Livestock Government Payments USDA Aid* *USDA Aid includes only the ~$4.7B crop aid payment Note: USDA authorized a one-time $12B aid package to assist farmers from the trade dispu
Slide 15: 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 $0 10% 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019F Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) Source: 1975–2017: USDA, 30 August 2018 2018F–2019F: Deere & Co
Slide 16: Construction & Forestry Fundamentals
Construction & Forestry Fundamentals 16
Slide 17: Worldwide Construction & Forestry
Worldwide Construction & Forestry U.S. Economic Indicators Fiscal 2019 Forecast GDP Growth Housing Starts (thousands) Total Construction Investment Government Construction Investment Global Transportation Investment Crude Oil Price Source: IHS Markit, Calendar Year Estimates – October 2018 17
Slide 18: Global Transportation investment spending to increase 5% in 2019
Global Transportation investment spending to increase 5% in 2019 Source: IHS Markit, September 2018 18
Slide 19: 2019 Outlook
2019 Outlook 19
Slide 20: Fiscal 2019 Forecast
Fiscal 2019 Forecast Equipment Operations Fiscal 2019 ($ billions except where noted) Forecast Net Sales ~ 7% Price realization ~ 3 points Currency translation ~ 2 points Wirtgen ~ 2 points* Net Income (attributable to Deere & Company) ~ $3.6 Cash Flow (from operations) ~ $4.8 * Represents additiona
Slide 21: Fiscal 2019 Forecast
Fiscal 2019 Forecast Agriculture & Turf – Deere worldwide net sales up ~ 3% – U.S. and Canada ag industry flat to up 5% – EU 28 ag industry ~ flat – South America ag (tractors and combines) industry flat to up 5% Construction & Forestry – Deere worldwide net sales up ~ 15% – Wirtgen worldwide net sa
Slide 22: Acquisitions
Acquisitions 22
Slide 23: Wirtgen Acquisition
Wirtgen Acquisition – Operating performance: continued growth, solid order book – Integration: high confidence in synergies by 2022 23
Slide 24: End to End Road Construction Portfolio
End to End Road Construction Portfolio Deere Benninghoven/Kleeman Hamm Vogele Wirtgen 24
Slide 25: Technology makes farming automated, easy to use and more precise
With our technology we make farming automated, easy to use and more precise across the production process
Slide 26: Strategic Acquisitions
26 Strategic Acquisitions + Planters HAGIE Manis High Clearance Sprayer f. pisis ae Ro MAZZOTII tegog eoriog 8 + sorayers (Peal! a: Bocapers Ss
Slide 27: Acquisitions & Integration Update
Acquisitions & Integration Update Blue River Technology – Strategic rationale: accelerates implementation of machine learning technology that enables farm management decisions at the plant level – Integration Update: retained and growing key talent; increasing capability and productivity of the See
Slide 28: CEO quote on positioning for market conditions
well-positioned to capitalize on today’s “Deere is improving market conditions and respond to the world’s increasing need for advanced machinery and services. What’s more, we’re committed to do doing so in ways – proven ways – that produce value for our customers and investors well into the future.”
Slide 29: John Deere Strategy
John Deere Strategy 29
Slide 30: 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 31: The John Deere Strategy
THE JOHN DEERE STRATEGY OUR PURPOSE Committed to those inked to the and I OUR ASPIRATIONS: GLOBAL AGRICULTURAL jh Cone RUC TION outpace 15% 2 I Realizing sustainable EQUIPMENT soLUTiONs N CONT INDUSTRY oreranncmaran Ml asserTurys I eee innovation PREEMINENCE SOLUTIONS INGROWTH J MBE] TMI) and discip
Slide 32: Environmental, Social and Governance
Environmental, Social and Governance “Sustainability initiatives remain core to our purpose of helping improve living standards for people everywhere through our commitment to those linked to the land. Macro environmental and social trends based on population and income growth, especially in develop
Slide 33: Revolutionizing Agriculture with Technology
Revolutionizing Agriculture with Technology
Slide 34: Machines have more technology today than ever
Machines have more Operations Center technology today GPS than ever… Real-Time Data Communications Technology Sensors …ensuring the best outcome 34 for each pass across the field.
Slide 35: Decisions for the last 180 years… for the next 180 years
Decisions for the last 180 years… Decisions for the next 180 years… Based on hundreds of observations, Based on thousands of observations worldwide, manual action, field by field automated action, plant by plant 35
Slide 36: Better Decisions – Better Outcomes
Better Decisions – Better Outcomes Herbicide Applications Documentation Regulations A grower has to make over 140 & Reporting Crop Health Farming Crop Practices major decisions in a crop growing N Rotation Product practices Harvest Compatibility Settings cycle, many are real time in cab Water …and w
Slide 37: Equipment + Technology + Services
Equipment + Technology + Services Better Machine Performance Better Job Performance Better Agronomic Decisions 37 When you want more: for each decision, each job…every season
Slide 38: Research & Development
Research & Development 38
Slide 39: Investment in New Products and Technologies
Investment in New Products and Technologies R&D as Percent of Net Sales 1,800 8% 1,600 1,400 6% 1,200 1,000 4% $ Millions 800 600 2% 400 200 0 0% 2004 2006 2008 2010 2012 2014 2016 2018 R&D $ % of Net Sales 39
Slide 40: Innovative New Products – Production Ag Equipment
Innovative New Products Production Ag Equipment 9000 Series Self-Propelled Forage Harvester – 956 HP delivering +10% throughput with 10% improvement in fuel efficiency – 772 12 Row Large Drum Header – matched header and machine capacity – John Deere Xstream™ KP – Superior kernel processing at any le
Slide 41: Innovative New Products – Precision Ag Technology
Innovative New Products Precision Ag Technology John Deere Operations Center - Field Analyzer Beta – Overlay map layers to understand yield performance – Data can be analyzed by product to learn which hybrids were most effective – Compare seeding and harvest events side-by-side – Quickly evaluate di
Slide 42: Innovative New Products – Small Ag & Turf Equipment
Innovative New Products Small Ag & Turf Equipment 5ML Series Tractors – 125 horsepower model added to the line-up, providing three key power levels – New transmission and hydraulic features give operators ease of use and the ability to operate high flow implements 3036E & 3036EN Tractors – Best-in-c
Slide 43: Innovative New Products – Construction Equipment
Innovative New Products Construction Equipment Mastless SmartGradeTM introduced on Motor Graders – Deere SmartGrade delivers the industry first-of-its-kind mastless grade control system. – Factory installed or field kit – An all new Automation Suite is included with SmartGrade, reducing the number o
Slide 44: Innovative New Products – Forestry Equipment
Innovative New Products Forestry Equipment L-II Series Skidders & Wheel Bunchers – L-II is an ongoing evolution of the industry leading products, focusing on improved quality, uptime and serviceability 910/1010G Forwarder – Best in class capacity & performance with Intelligent Boom Control and Adapt
Slide 45: Use-of-Cash
Use-of-Cash 45
Slide 46: 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 47: Deere Quarterly Dividends Declared
Deere Quarterly Dividends Declared 1Q 2004 – 4Q 2018 Dividend raised 171% since 2010 $0.80 $0.76 $0.70 $0.60 $0.50 $0.40 $0.30 $0.28 $0.20 $0.10 $0.14 $0.00 2005 2006 2007* 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019** * Adjusted for 2 for 1 stock split on 26 November 2007 ** Include
Slide 48: Share Repurchase
Share Repurchase As Part of Publicly Announced Plans 36% net share reduction since 2004 Share Repurchase 2004–4Q 2018: 40 $3.0 Cumulative cost of repurchases $17.4 billion Millions of Shares* $2.5 Shares repurchased 251.0 million 30 $2.0 $ Billions 20 $1.5 December 2013 authorization of $8 billion:
Slide 49: Sources and Uses of Cash Fiscal 2004-2018
Sources and Uses of Cash Fiscal 2004-2018 Equipment Operations $50,000 ~ 57% of cash from = Source of Cash operations returned to = Use of Cash $4,425 $601 shareholders $40,000 $11,545 $30,000 $1,345 $ Millions $40,719 $8,654 $20,000 $14,645 $10,000 $597 $4,287 $3,195 $0 Beginning Cash Cash From Acq
Slide 50: John Deere Financial Services
John Deere Financial Services 50
Slide 51: 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 1990 1994 1998 2002 2006 2010 2014 2018 John Deere Financial (attributable to Deere & Company) Equipment Operations 51
Slide 52: John Deere Financial Services – Net Owned Portfolio
John Deere Financial Services $43.5 billion Net Owned Portfolio as of 28 October 2018 Portfolio Composition by Segment Portfolio Composition by Geography Portfolio Composition by Product Australia Operating Latin Asia C&F 3% Lease America 2% 17% 17% 6% Europe 5% Revolving Canada Credit 11% 9% A&T Wh
Slide 53: John Deere Capital Corporation
John Deere Capital Corporation Continued extremely low write-offs in Agriculture & Turf and Construction & Forestry Agriculture & Turf* Construction & Forestry 4.0% 4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% -1.0% -1.0% 1983 1988 1993 1998 2003 2008 2013 2018 1995 2000 2005 2010 2015 Net Write-off
Slide 54: Appendix
Appendix 54
Slide 55: SVA Reconciliation to GAAP
SVA** Reconciliation to GAAP Equipment Operations ($ 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 5,44
Slide 56: John Deere
@é JOHN DEERE
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