Replies to post #19 on Monument Circle Acquisition Corp (MON)

[Democritus_of_Abdera]

Q4 CC focus on growth strategy for seeds and traits....

In the preamble to the Oct CC, Scarlett Foster, VP Investor Relations, explained that the presentation “is really focused on two areas”: 1) an outline of growth strategies for seeds and traits.., and, 2) an outline of milestones that will demonstrate progress towards doubling total company gross profit in 2012 over that of 2007...

Carle Casale was responsible for outlining the growth strategies for seeds and traits. He spoke at some length on the topic. My primary take-home message was that the significant FY2010’s growth strategies are largely a reiteration and refinement of those employed in FY2009; i.e. strive to increase market share and convert farmers to higher margined triple stack corn.

Introduction of SmartStax corn and Roundup-Ready 2 Yield soybeans hold promise for the future, but provide only incremental growth contributions in FY2010. Not much was said concerning germplasm/hybrid penetration of Latin America.... But, I suspect that this might represent a significant opportunity in the future, perhaps as important as Roundup-Ready 2 Yield (see Dew’s post #msg-42577340).

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My summary of the growth strategies “detailed” by Carle Casale (I added quotes because the details for the strategies per se were vague) ....

MON intends to grow seeds and traits 13-15% in FY2010; i.e. gross profit from this segment is expected to grow from $4.5B in FY2009 to $5.1 - $5.2B in FY2010. This growth is roughly equivalent to that which occurred between FY2008 and FY2009 (i.e. seeds and traits grew from $3.9B in FY2008 to $4.5B in FY2009). The FY2009 growth was due to a 25% increase in pricing of the higher yield corn and to increased technology penetration; market share remained flat in FY2009.

As in the past, most of that growth ($0.5-0.6B) is expected to result from Corn Seed and Traits sales. Approximately 60% of the earnings should flow through in Q2 (to be reported in Apr 2010) and the remaining 40% in Q3 (to be reported in Jul 2010).

A $0.5B increase in Corn Seed and Traits in FY2010 is expected to result from:

1. an increased representation of triple stack and SmartStax to >75% of Monsanto’s US corn portfolio (it was 70% in FY2009). This is about 50% of the penetration growth rate seen in FY2009. The strategy to get this increase is to focus on the sales team so that there are more “touches” per customer and, presumably, incentives offered to farmers switching to higher margined trait corn. The expected financial effect will be gross profit growth in the 19% range but with flat margins. Note that due to the refuge requirement, the maximum penetration of triple stack corn in Monsanto’s portfolio is 80%.

The FY2010 SmartStax launch is expected to be about 3-4M acres, about 10% of the 31.2M Triple Trait acres planted last year. Currently, SmartStax is priced at $19/acre premium over DEKALB VT Triple.

2. trait and germplasm penetration and upgrade in Latin America. Currently, Monsanto holds about 50% of the market share in Latin American hybrid corn acreage (58% of northern Latin America, 41% of Brazil, and 49% of Argentina). In northern Latin America total hybrid acres constitute about 33% of the total planted acres, the percentage hybrids represent in the other countries was not listed. Competition in Argentina is expected to be fierce in FY2010.

3. continued corn seed and traits growth in the rest of the world. Currently, Monsanto holds about 13.5% of the market share in European hybrid corn acreage and 37% of the market share in Indian hybrid corn acreage. As for latin america, it would be useful to know what percentage of the total acreage is planted with hybrids in these markets.

A $0.08B increase in Soybean Seed and Traits is expected to result from:

1. a Roundup Ready 2 Yield launch of 7-8M acres

2. increased Roundup Ready seed trait penetration in Brazil

3. germplasm portfolio upgrades

A $0.09B increase in Vegetable Seeds is expected to result from:

1. protected culture growth and open field product focus (I don’t know exactly what this means)

2. completion of the De Ruiter integration.

The $0.03B increase in Cotton Seed and Traits is expected to result from:

1. cotton germplasm upgrade (i.e. new seed varieties)

2. trait upgrades in US and India.