Monsanto Combined Regional Sales 2017
Combined Regional Sales
European regional sales declined by (12.7%) for the quarter, but grew +1.6% for the full fiscal year 2017 and +1.7% for the calendar 2017 9-month period.
Growth was mainly due to sales of maize and oilseeds in the first half of 2017. Sales were driven primarily by their seeds and corn traits and slightly by branded Roundup herbicides businesses. Their older herbicides like alachlor, acetochlor have been facing legal pressure from farmers claiming damages arising from injury. Glyphosate formulations with tallow-amine additives are also facing restrictions in France and other countries. The EU has cleared glyphosate registration as being non-carcinogenic, giving Monsanto and other marketers some good news, backed by CropLife the association representing the industry.
North American sales grew +12.6% for the quarter, while the fiscal 2017 year showed growth of+7.6% and the 9-month calendar 2017 period grew by 7.5%.
The company’s performance was driven by advance orders for their new dicamba-based herbicides and the genetically engineered seeds to go with those formulations in the 3 main crops of corn, cotton and soybeans. Strategic partnerships for selective herbicides, soil and ST insecticides and ramp-up for XtendPlus/XtendFlex™ varieties incorporating the dicamba-tolerant trait, in partnership with Syngenta and DuPont as licensees have all helped growth in the year-to-date performance.
Droughtgard™ produced with BASF’s biotechnology collaboration showed lower sales volumes in 2017, due to heavy rainfall and cold spells in several geographic locations. Replanting of corn occurred in several zones due to excess rainfall and this was largely using conventional seed as farmers wanted to save on costs.
Sales in Latin America grew marginally by 0.6% for the quarter, although annual sales in fiscal 2017 grew by 13.3%, while calendar 2017 9-month sales grew by 4.4%.
This growth was driven by higher licensing revenues from new collaborators in Argentina and brazil during Q4 2017, double-digit price increases for new germplasm introduced in the region and the strong demand in the main season during Oct-November 2016 and the safrinha season from Feb-April 2017 for their biotech maize seed hybrids in Argentina and Brazil. The success of their soybean varieties carrying the IntactaRR™ traits also contributed to the growth as demand from Brazilian farmers was strong.
Another contributing factor was the fact that along with a 10%-12% price increase to counter exchange rates, the Real suddenly strengthened and offset currency losses from the start of the fiscal year. Reduced sales of own-brand premium herbicides in Brazil, Argentina, loss of Argentinian and Brazilian royalties for traits under litigation and negotiations with grain buyers offset the book-growth in sales. The company has re-negotiated terms with distributors and reduced exposure in these two countries.
Sales in the Asia-Pacific region for the quarter declined (4.5%) largely due to seasonal delays in China and SE Asia and problems in India associated with price control and unpaid royalties for Bt-cotton seed from licensed growers. This was partly offset by a strong season in Australia for their seeds as well as herbicides businesses.
Growth during the fiscal 2017 year increased 10.9% while the calendar 2017 9-month period declined (3.1%).
Monsanto receives royalties from Roundup sales in Australia, China and other markets distributed by and licensed to Sinochem. Claims made by Indian farmers for poor performance of Bollgard II hybrids and non-payment of licensing fees by contracted producers refusing to pay what they call excess charges have shown their impact in India. Licensee seed companies are refusing to pay for a number of reasons/excuses like price control, weather impact, failure of trait expression among others. The Indian government has instituted an inquiry into illegal sales of Monsanto-licensed hybrid cotton seed in western India.
Interestingly Sinochem has begun internal consolidation to take control of their domestic sourcing (manufacture, formulation) with a view to strengthen their position in China and in foreign/export markets as they compete with the Adama consolidation of M-A and Sanonda et al from ChemChina. This will certainly lead to interesting developments in the near future as they expand into western markets.
Precision Ag (Climate Fieldview Platform) has been separated – analysed above in the regional section.
Total Monsanto Company sales for the quarter grew 4.8% of which volume was +4.1%, price +1% and currency (0.3%). For the 2017 fiscal year sales grew 8.4% of which volume +6%, price +2.1% and currency +0.3%. For the 2017 calendar 9-month period growth was 6.3%, of which volume +4%, price +2% and currency +0.3%.
Company Operating Profits
Total company EBIT for the quarter declined (39.8%) due to a (145%) decline in Ag. Productivity operating profits and also a (433%) decline in operating profits of the Seeds and Traits business.
The decline in the agrochemicals business was due to additional costs of the new formulations based on dicamba and added expenses in the new facilities for these formulations. The decline in Seeds and Traits profitability was due to the lack of a royalty agreement for licensing of their alfalfa seeds and traits to third parties. (Rather strange for a company that thrives on its germplasm and traits business, to say the least!!).
For the 2017 fiscal year, EBIT grew 38.4%, of which Seeds and Traits grew +27.3%, while Ag Productivity grew +204.3%. For the calendar 9-month period EBIT of Ag Productivity grew +496%, while Seeds and Traits grew 3.5%.
The former largely due to growth in the new herbicides as well as in seed treatments and price stability and licence fees for Roundup. The latter largely from new seed sales for the XtendiMax/XtendPlus/XtendFlex™ system, with an estimated share of 20 million acres (8 m ha) of which cotton is 25% and corn, soybean are estimated at 35% and 40% respectively. Although approx. $201 million of revenues are from trait royalties for corn, cotton and soybean, it seems most odd that no royalties were received from sale of alfalfa business to S&W – due to lack of an agreement!!
Royalties from IntactaRR™ soybean seeds and traits sold in Brazil, corn and cotton traits and seeds sold in Latin America, Africa, Australia during fiscal 9-m 2017 contributed to growth in EBIT. Brazil royalties were impacted especially for soybean as government backed farmers’ refusal to pay. Monsanto is likely to continue facing problems in Latin America as royalties are difficult, and nearly impossible to collect from farmer-saved seeds.
Monsanto-Mahyco supplying Indian cotton seed growers faced payment problems and royalty payments did not come in as expected due to insufficient sales by licensees as farmers refused to pay for non-performing seed; a similar problem seen in Burkina-Faso, during last year’s cotton season.
Another threat that is bound to be transferred in 2017-18 from Bayer to another company is from glufosinate as farmers are increasing usage of seeds with the LibertyLink™ trait wherever glyphosate resistance is very high. Bayer and BASF have already signed an agreement for the sale of the technoclogy and the related seeds and traits to the latter.
Monsanto has also begun expansion in its plants to accommodate dicamba production for its Xtend® portfolio. This is concurrent with BASF expanding its own facility in Texas.
A separate entry is being made for the Precision Agricultural Services as the sector is expected to grow rapidly in North America, Europe and Latin America. EBIT in this segment grew 50% for the quarter and 42.9% for the 2017 fiscal year and 9-month 2017 calendar period. This represents only about 10%-12% of the total area covered, based on paid subscriptions and is forecast to expand rapidly.
Company depreciation and amortisation increased 8.2%, for quarter while increasing 2.98% for the 2017 fiscal year; for the calendar 2017 9-month period. Agricultural Productivity D&A grew 2.9% for the quarter, 21.1% for the 2017 fiscal year and 19.6% for the 9-month calendar 2017 period. It increased in Seeds & Genomics by 6.1% for the quarter, (1.2%) for the fiscal 2017 year period and (1.6%) for the 9-months calendar 2017 period, this was due to cost reductions in seed production and divestment of the alfalfa forage seed business to S&W.
Company EBITDA grew 69% during the quarter and 27.3% in the 2017 fiscal year; it grew 11.6% during the 2017 calendar 9-months.
EBITDA in Crop Protection/Agricultural Productivity declined (193.2%) but increased 108.2% for the fiscal year 2017 and 196% for the 2017 calendar 9-months, largely due to Monsanto upgrading its Luling and Missouri plants to start dicamba production and Xtend® formulations.
EBITDA in Seeds and Traits for the quarter declined 80% while it increased 21.5% for the fiscal year 2017. During calendar 2017 9-month period it grew +2.8%. The growth comes through licensing revenues.
EBITDA for FieldScripts®, Climate Corp initiation for precision farming added to depreciation of acquired technology. This increased by 41.2% for the fiscal 2017 year and 58.3% for the calendar 2017 9-month period.
The litigation class action suit for Nitro environmental pollution has a primary $21m environmental fund with $ 63m for toxic site clean-up and an additional $9m for clean-up of residents homes. $44m claims paid out so far may increase as more residents file claims.
Research & Development Expenses
Company R&D spending increased 4.3% for the quarter, +6.3% for the fiscal year 2017 and +7.8% for the calendar 9-month period.
Spending in Agricultural Productivity (agrochemicals/crop protection) increased 12.5% for the quarter, +41.2% for the fiscal year 2017 and +50% for the calendar 9-month period.
Expenditure was largely for seed enhancement development with Novozymes, tioxazafen trials on nematodes, and on regulatory approvals for the launches of XtendiMax™/XtendPlus™ systems in maize, cotton and soybeans.
For Seeds and Traits it grew +3.7% for the quarter, +5.3% for the fiscal year 2017 and +6.8% for the 2017 calendar 9-month period.
Expenditure was largely for trials and development of Intacta2RR™ in Brazil and the dicamba-tolerant varieties in USA and Canada.
The Precision Farming technologies Climate Corp and FieldScripts™ have incurred higher investment/expenditure, growing 33% for the quarter, +14.3% for the fiscal year 2017 and +20% for the calendar 2017 9-month period. Extensive trials and testing have been carried out in Brazil, USA and investment in service providers in Europe and North America.
Many companies tend to gloss over gluts in regional markets, as seen over the last couple of years with DuPont, Monsanto and others supplying the North and Latin American markets, where sales are frequently pushed to achieve target numbers at the end of the financial year for the agro-input manufacturer – thus Jun-Aug for Monsanto and Oct-Dec for DuPont etc. This often can be detrimental if the actual planting season is hampered by seasonal weather problems and/or switch to planting alternate crops when commodity prices are not attractive, or, as in the case of Argentina currently, where the export levies are being re-imposed, triggering a switch to corn – a lifeline for all corn seed marketers.
Unfortunately, all to often, the subsequent quarters can show lower sales as the pre-season sales can block financing for the distribution/supply chain. It is also typical of takeover targets where they pump in as much as possible to clog the supply chain, show unexpectedly high sales revenues thus driving up their share prices pre-takeover.