AGCO Corporation A World of Solutions for Your Growing Needs

Transcription

1 AGCO Corporation A World of Solutions for Your Growing Needs Goldman Sachs Capital Goods Conference November 2, 2004

2 Safe Harbor Statement Statements which are not historical facts, including sales, earnings, cash flow, cost reduction, production volume and capitalization and coverage ratio forecasts, industry demand outlook, and our goals and objectives for margins, asset management, revenue and productivity improvements, are forward looking and are subject to risks which could cause actual results to differ materially from those suggested by the statements. Although we believe that the statements are based on reasonable assumptions, they are based on current information and beliefs, and accordingly, the Company can give no assurance that the statements will be achieved. The Company bases its outlook on key operating, economic and agricultural data which are subject to change including, but not limited to: farm cash income, worldwide demand for agricultural products, commodity prices, grain stock levels, weather, crop production, farmer debt levels, existing government programs and farm-related legislation. Additionally, the Company s financial results are sensitive to movement in interest rates and foreign currencies, as well as general economic conditions, pricing and product actions taken by competitors, the success of its facility rationalization process, production disruptions and changes in environmental, international trade and other laws which impact the way in which it conducts its business. Further information concerning other factors that could significantly affect the Company s results is included in the Company s filings with the Securities and Exchange Commission. The Company disclaims any responsibility to update any forward looking statements. 2

3 AGCO Corporate Profile World s third largest manufacturer and distributor of farm equipment Formed in 1990 through management buyout of Deutz-Allis A major force behind industry consolidation, with 21 acquisitions Revenues have grown from $220 million in 1990 to an estimated $5 billion in 2004 Diversified geographic and product mix Major brands are recognized worldwide with network of 8,900 dealers and distributors in over 140 countries 3

4 Significant Role in Industry Consolidation (2002) (1990) (1991) (1991, 1993) (1995) (1995) (1996) (1997) (1998) (1998) Superior Technology New Distribution Geographic Diversity (1994) (1996) (2000) Economies of Scale (1994) (1997) Synergy Opportunities (2001) (1994) (1997) (2001) (2004) 4

5 Diversified Geographic and Product Sales 2003 Net Sales = $3.5 billion South America 12% Asia Pacific 4% Rest of World 4% Parts 16% Sprayers 7% Other 3% Row Crop Tractors 35% North America 34% Hay & Forage 6% Europe 46% Combines 9% Compact Tractors 1% Utility Tractors 23% 2004 Net Sales Target = $5 billion 5

6 Global Presence and Experience Sprayers/Tracked Tractors Jackson, Minnesota Implements Beloit, Kansas Combines/Hay Equipment Hesston, Kansas Tractors Queretaro, Mexico Parts Distribution Batavia, Illinois Headquarters Atlanta, Georgia Sprayers Grubbenvorst, The Netherlands European Headquarters Coventry, England Tractors Suolahti, Finland Diesel Engines Linnavuori, Finland Combines Randers, Denmark Cabs Baumenheim, Germany Tractors Marktoberdorf, Germany Parts Distribution Ennery,, France Tractors GIMA-Transmissions Tractors/Engines Beauvais, France Mogi das Cruzes, Brazil Tractors Canoas, Brazil Combines Santa Rosa, Brazil 6

7 Extensive Distribution Channel Farmers loyalty to local Dealer is an important factor in each buying decision Dealers are responsible for providing after sales parts and service Dealer profitability and capitalization is a critical factor for generating growth in some products and markets Goal: Improve quality of our distribution resulting in higher net revenue per dealer Provide for complete territory coverage in each significant market Bundle franchises in key dealers, improving share of dealer Assess existing dealer performance in meeting standards Establish improvement goals and reward system 7

8 Growing Solutions - Tractors 8

9 Brand Positioning THE WORLD S LEADING TRACTOR BRAND Massey Ferguson is a global brand with broad appeal, offering a wide range of products and services which provide competitive solutions and tangible value satisfying a wide variety of customer ownership needs. Its products are backed by a professional and responsive dealer network, providing comprehensive sales, parts and service support to each market area that meets or exceeds customer ownership expectations and satisfaction. EXPERIENCE THE FUTURE Fendt is the premium tractor brand in regions with highly developed agriculture. It targets professional farmers, contractors, agribusinesses and specialist growers. These customers have the highest expectations in low cost of ownership, technological leadership, exclusive features, high brand image, reliability and durability and a 24/7 premium service support. Distribution is channeled through professional dealers with dedicated sales and service teams who offer the complete range of premium services to keep the customer in the field. 9

10 Brand Positioning SERIOUS MACHINERY Challenger is a growing global agricultural brand targeting professional and commercial producers whose outputs represent 75% of the world s commodity production. This customer base seeks evolving technology, high quality and reliable products, and unmatched parts and service resulting in the highest levels of customer satisfaction. Distribution is through the Caterpillar dealer network whose financial strength and customer support reputation is unparalleled. YOU VE GOTTA DRIVE ONE AGCO is the traditional farmer s brand of choice for those seeking reliability and sound performance coupled with the latest North American features at a competitive price. The AGCO brand is comprised of a consortium of heritage brands and is offered through and supported by an independent dealer network which delivers products, service, parts and financing from AGCO. CUSTOM BUILT TRACTORS Valtra is a customer oriented brand with strong Nordic heritage providing individualized, top quality products for professionally run farming operations. It serves its customers through a direct sales/franchised service and dealer network. Each Valtra is tailored to the needs of the end user. Valtra is recognized for its long life, reliability and versatility in ultimate conditions. 10

11 Common Platform Strategy Common Platform Elements Engines Cabs Drive Lines 11

12 Common Platform Strategy Brand Differentiation Engines Cab Interior Exterior 12

13 Growing Solutions - Combines Industry AGCO Units 23,000 4,000 Product Development: Class 8 Combine Rotary/Axial Flow Hybrid for Europe Family and Platform Rationalization 13

14 Growing Solutions Full Line Agricultural Equipment 14

15 Growing Solutions - Precision Agricultural Equipment Farm Management - Productivity 15

16 Growing Solutions - Diesel Engines 2004 volume: ~22,000 units Marine Industrial Agricultural 85 hp to 280 hp 90 hp to 340 hp 90 hp to 340 hp Introduction of SISU engines into core AGCO business lines is significant element of common platform strategy. Target: 45,000 to 55,000 units $20 million savings Engine emissions standards for off-road and agricultural machines have been met at the Stage 2, Tier 2 level. 16

17 Award winning technology AGCO products are recognized worldwide for their advanced technology This year we have: Been awarded AE-50 certification awards for Outstanding Innovation in 2004 by the American Society of Agricultural Engineers for: AGCO RT Series tractors, Fendt 200 V/P Series tractors, Fendt 800 Vario Series tractors, and the Top auger pickup for the Hesston large square baler Been recognized in Brazil with the Top of Mind award for Massey Ferguson tractors. In 2003, our products won some of the most prestigious accolades in the industry: Agritechnica Fair, Germany Massey Ferguson 7400 Series tractors awarded Machine of the Year Fendt 200S tractor awarded Machine of the Year in the specialty category Auto-Guide automatic steering system awarded Silver Medal for Innovation EIMA Show, Italy Fendt 930 Vario tractor awarded Tractor of the Year by from international jury panel with members from 14 countries Expointer 2003, Brazil Challenger MT765 Track Tractor received special recognition for imported equipment in Gerdau Best of the Land Awards United States Fendt was awarded AE-50 certification for the Variotronic implement control system by the American Society of Agricultural Engineers 17

18 World Demand for Productivity Improvement Billions Population is expected to grow by 653 million over the next 9 years; 95% of this growth will be in developing nations Worldwide harvest losses from pests nearing 40% Land available for agricultural use per person is expected to continue its rapid decline ,100 sq meters per person ,700 sq meters per person ,800 sq meters per person Continued advances in productivity is required World Population 18

19 Farming methods are evolving. 19

20 to meet the needs of professional farmers Yields of cereal crops have more than doubled in 50 years Man hrs/ha Dry metric tons/ ha

21 AGCO s Vision High-tech solutions for professional farmers feeding the world 21

22 AGCO s Values Our Customers We listen to our customers needs and create solutions that exceed their expectations Our Dealers We recognize that dealer profitability is instrumental to our success and expect to be the preferred supplier Our Employees We provide the necessary environment to attract, develop, motivate and retain our employees and expect to be the preferred employer in our industry Our Heritage We recognize the tradition and value of brands, the loyalty of our customers and the identification of our dealers. AGCO s multiple brand strategy maintains brand value Our Products We deliver the highest quality products and services in the industry with a goal to be recognized by our customers and dealers as being number one. Our Integrity We conduct ourselves in an ethical manner and act as a good corporate citizen in all communities in which the company operates. Our Shareholders We expect our activities to result in profitable growth and to manage our investments to provide superior returns to our shareholders. 22

23 AGCO s Mission Profitable growth through superior customer service, innovation, quality and commitment 23

24 Strategies for Long-Term Success Increased Shareholder Value Improve Debt Ratings Improve Cash Flow Improve Earnings Revenue Growth Productivity Improvement New Product Development Strengthen Dealers Cost out and synergy initiatives Improve Asset Utilization 24

25 Revenue Growth Strengthen Dealers Increase revenue per dealer in North America Dealer organizations Develop new distribution in developing markets Position brands to enhance value New product development Invest product development resources to support segmentation efforts Focus on developing highest quality products Improve technology to deliver value to customer and realize pricing opportunities Increase investment in 2005 to accelerate benefits Capitalize on Brazilian agricultural market growth Acquisitions to expand product line and leverage existing distribution Capitalize on international capabilities of Challenger Dealers 25

26 Challenger Product Line Initiative Grow market share 10 pts. in NA Strategy: Exclusive agreement with CAT dealers to distribute Challenger branded farm machinery Focus on North America and on developing markets Provide CAT dealers with a full line of Challenger branded equipment, based on the flagship track tractor and common platform products developed by AGCO Leverage relationship with finest equipment distribution network in the world The CAT distribution channel is the most financially sound, customer oriented dealer network Future Focus: Continued product differentiation for Challenger product line Challenger brand development Encourage CAT dealer investment in AG sales people and appropriate new AG store locations Become the preferred provider of agricultural machinery to the commercial / professional producer Leverage existing CAT dealer relationships with governmental and light construction markets 26

27 Brazil Opportunity Brazil possesses 18.6% of total cultivable area in the world Estimated to have 220 million acres to be developed for farming World Production Rankings AMAZON RAIN FOREST No. 1 in Cattle No. 1 in Coffee No. 1 in Oranges 220 MILLION ACRES TO BE OPENED No. 1 in Sugar Cane No. 2 in Soybeans No. 3 in Corn AGCO Market Share in Brazil No. 1 in Tractors No. 2 in Combines 27

28 Productivity Improvements Improve Cost Structure Leverage AGCO global spend Long term agreements with key suppliers Consolidate suppliers for efficiencies Improve material management to reduce cost and inventory requirements Improve Asset Utilization Share Best Practice Process Focus investments to update technology Improve capacity utilization Outsource non-core activities Randers, Denmark rationalization Cost Reduction Team approach Product Development Activities Common platform design to reduce cost and leverage technology Reduce complexity of product design Target: Annual margin improvement ½% to 1% Increase investment in 2005 to accelerate benefits 28

29 Valtra Acquisition Synergy Development Purchasing savings from supplier rationalization and leverage Operating cost reduction from sales office and parts facilities consolidation Incremental sales from leveraging AGCO/Valtra distribution strengths Migration of manufacturing and inventory best practices between facilities Migration of AGCO leading technology to common platform product solutions (cabs / transmissions) Increase utilization of Sisu Diesel engine facility by expanding use Target savings of of Sisu engines in existing AGCO $20 - $25 million products in three years Realize tax benefits through de-leveraging US balance sheet 29

30 Asset Management Initiatives Focus business on asset returns Working Capital management Improve order to cash lead times Improve dealer inventory turns Focus on large dealers to improve asset efficiency Factory inventory reductions through best practice implementation Transfer interest bearing A/R to finance JV Target Working Capital to Sales reduction from 12.5 to 11 30

31 Summary of Initiatives and Targets Revenue Growth Challenger Product Line Focus on North America Grow market share by 10% Capitalize on Brazilian Market Growth 220 million acres of land available for agricultural operations Consolidate and Strengthen Dealers Focus on North America New Product Development Develop reputation for highest quality products Support branding strategy and segmentation efforts Acquisitions that aid product development and dealer strengthening initiatives Productivity Improvement Improve Cost Structure Purchasing initiatives Valtra synergy development Product Development Activities Common platforms Complexity reduction Asset Utilization Working capital reductions Outsourcing initiatives 31

32 Industry Overview Tractors over 40hp 200, , , , , ,000 80,000 60,000 40,000 20, US & Canada W. Europe Brazil & Argentina 32

33 Industry Overview Combines 14,000 12,000 10,000 8,000 6,000 4,000 2, US & Canada W. Europe Brazil & Argentina 33

34 Agriculture Market Overview North America 2004 market indicators continue to look positive favorable crop prices, favorable tax treatment, and higher farm cash receipts Commodity prices have recently dropped but still high on a historical basis 2002 Farm Bill stabilized subsidies and low debt promotes capital investment Western Europe Weakness in 2003 due to drought conditions / market has bottomed Trend towards higher HP fewer units higher margin sales Common Agricultural Policy (CAP) subsidies remain high; reforms focused on subsidies to new EU entrants and changing payment structures South America Brazil continues as major market with strong demand due to continued availability of subsidized financing Increased arable land resulting from major corporate farm expansion Argentina farm economy continues to recover N. America >40 HP Tractors Combines W. Europe Tractors Combines S. America Tractors Combines Sept. YTD +17% +39% % +23% 34

35 Historical Financial Information (In $ millions, except per share amounts, FY ended December 31) Net Sales Adjusted Operating Income (2) 2, , ,495.3 MM $ Margin % Adjusted Earnings Per Common Share (1) Free Cash Flow Notes: (1) Adjusted for restructuring and other infrequent expenses, restricted stock compensation and other items (2) Excludes restructuring expenses and restricted stock compensation expense 35

36 Interim Financial Information (In $ millions, except per share amounts, YTD September 30) Net Sales Adjusted Operating Income (2) 2, ,739.2 $MM MM $ Margin % Adjusted Earnings Per Common Share (1) Free Cash Flow (26.6) (180.6) Notes: (1) Adjusted for restructuring and other infrequent expenses, restricted stock compensation and other items (2) Excludes restructuring expenses and restricted stock compensation expense 36

37 YTD Results September 30, 2004 Positive Factors Strong South America market and margins Improved market conditions in North America Improving efficiency in manufacturing plants Negative Factors Steel prices Weak dollar on European sourced tractors distributed in North America European market conditions (Germany/Finland) 37

38 Summary Capitalization and Credit Statistics ($ in millions) September 2004 Target 2004 Cash and Equivalents $ 29 $ 34 $ 147 $ 68 Debt Senior Secured Debt $ 89 $ 127 $ - $ 416 Subordinated Convertible Notes Senior and Subordinated Notes Other Debt Total Debt $ 618 $ 637 $ 711 $ 1,128 Net Debt $ 589 $ 603 $ 564 $ 1,060 Shareholder s Equity ,315 Total Net Capitalization $ 1,388 $ 1,321 $ 1,470 $ 2,375 Net Debt / Net Capitalization (%) 42.4% 45.7% 38.4% 44.6% 40.0% Net Debt / EBITDA (2) 3.0x 2.7x 2.0x 3.4x (1) 2.0x -2.2x Notes: (1) 2004 value is on LTM Proforma EBITDA (2) Excludes restructuring expenses and non-cash portion of restricted stock expense 38

39 Appendix: Operating Income and EBITDA, as Adjusted (In $ millions) Years Ended December 31, Nine Months Ended September 30, Operating Income $96.7 $104.0 $183.5 $120.0 $234.2 Restricted Stock Compensation Restructuring and Other Infrequent Expenses Operating Income, Adjusted $116.8 $190.8 $211.7 $148.3 $235.7 Net Income $22.6 ($84.4) $74.4 $44.6 $108.1 Interest Expense, Net Discounts on Sale of Receivables Taxes Depreciation and Amortization Deferred Debt Issue Costs Amortization (2.6) (3.1) (5.4) (2.9) (11.7) Equity in Earnings of Affiliates 4.0 (2.7) (0.8) (6.8) (7.2) Restricted Stock Compensation (Non Cash) Restructuring and Other Infrequent Expenses Cumulative Effect of Accounting Change, Net EBITDA, As Adjusted $196.5 $225.3 $278.0 $192.1 $

40 Appendix: Net Income, As Adjusted (In $ millions) Nine Months Ended Years Ended December 31, September 30, Net Income (Loss) per Common Share - Diluted $0.33 ($1.14) $0.98 $0.59 $1.27 Restructuring and Other Infrequent Expenses Restricted Stock Compensation Deferred Tax Valuation Allowance Adjustment Cumulative Effect of a Change in Accounting Principle Net Income per Common Share - Adjusted $0.51 $1.17 $1.25 $0.85 $

41 Appendix: Free Cash Flow (In $ millions) Nine Months Ended Years Ended December 31, September 30, Cash provided by (used in) operating activities $ $ 73.2 $ 88.0 $ (132.6) $ 20.2 Capital Expenditures (39.3) (54.9) (78.7) (48.0) (46.8) Dividends (0.5) Free Cash Flow $ $ 18.3 $ 9.3 $ (180.6) $ (26.6) 41

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