John Deere
Committed to Those
Linked to the Land
Strategy Overview
Deere & Company
December 2015
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 Deere’s reports filed on Forms 8-K (current), 10-Q (quarterly), and
10-K (annual) for information on factors that could cause actual results to differ
materially from information in this presentation and for information reconciling
financial measures to GAAP. Past performance may not be representative of
future results.
Guidance noted in the following slides was effective as of the company’s most
recent earnings release and conference call (25 November 2015). Nothing in this
presentation should be construed as reaffirming or disaffirming such guidance.
This presentation is not an offer to sell or a solicitation of offers to buy any of
Deere’s securities.
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December 2015
Table of Contents
Slide
John Deere Strategy
3
4
Macroeconomic Tailwinds
19
Appendix
25
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December 2015
John Deere
Strategy
The John Deere Strategy
*
*
* SVA: Shareholder Value Added
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December 2015
The John Deere Strategy
Adapting to Win
Markets worth winning
Best-in-industry integrated solutions
Industry-leading innovation
Distinctive product quality
Developing global talent
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December 2015
The John Deere Strategy
Committed to Those Linked to the Land
Long-term global macro-trends present significant
opportunities for John Deere
– Global population and income growth
– Global infrastructure needs
New customer segments
7250R Tractor
Technology advances
1050K Crawler Dozer
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December 2015
944K Hybrid Wheel Loader
S670 Combine
748L Skidder
5085M Utility Tractor
The John Deere Strategy
Realizing Sustainable Growth Through Global Expansion
Sustainable SVA* growth is delivered by distinctively serving
our customers, employees, and investors
Extend and enhance our solid financial and operating
performance throughout the cycle
Our challenge: to capture anticipated tailwinds by attracting
more customers to the John Deere Experience across our six key
geographies (US/Canada, EU 28, Brazil, China, India, CIS) in a
manner that meets local needs while leveraging our global scale
* SVA: Shareholder Value Added
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December 2015
The John Deere Strategy
Agricultural and Construction Equipment Aspirations
Agricultural Equipment Solutions
Strategy
– Defend and grow market share in
developed markets
– Profitably grow market share in
developing markets
9620RX Tractor - USA
S660 Combine – Latin America
710K Backhoe Loader - USA
624K Wheel Loader – Latin America
Construction Equipment Solutions
Strategy
– Continue to grow strong #2
position in North America
– Globalize the business
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December 2015
The John Deere Strategy
Performance Target Aspirations
Sales
U.S. & Canada
– Enterprise net sales of $50 billion at
mid-cycle by 2018
Outside U.S. & Canada
2010 Normal Volume
$25 billion
Asset Efficiency
– Asset turns of 2.5 times at mid-cycle
by 2018
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December 2015
6.6%
14.5% 13.0%
12.3%13.0%13.1%
8.4%
2009 2010 2011 2012 2013 2014 2015
Equipment
Operations
– Operating margins of no less than 12%
at mid-cycle
Equipment
Operations
Profitability
2018 Normal Volume
$50 billion
1.9
2.2
2.3
2.2
2.2
2.1
1.9
2009 2010 2011 2012 2013 2014 2015
The John Deere Strategy
Integrated Enterprise
Integrated portfolio of businesses, each with a vital and specific role
Global Growth Businesses
Agricultural and Construction Equipment Solutions
– Leverage global investments to support profitable
growth
Complementary Businesses
8295R Tractor
410L Backhoe Loader
7200A Mower
1210E Forwarder
Turf and Forestry Equipment Solutions
– Defend and grow share, enhance SVA*, strengthen the
channel of the Global Growth Businesses
Supporting Businesses
Financial Services, Power Systems, Worldwide
Parts, and Intelligent Solutions Group
– Strengthen and further differentiate our Global
Growth and Complementary Businesses
* SVA: Shareholder Value Added
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December 2015
Financial
Services
Power
Systems
Worldwide
Parts
Intelligent
Solutions
The John Deere Strategy
Critical Success Factors
Developing the capabilities essential to reaching our goals
Deep Customer Understanding (DCU) - Understanding our customers’ most important
local needs, and translating these into winning products and services better than
any competitor
Deliver Customer Value (DCV) - Profitably translating our
customers’ needs into products and services at prices our
customers are willing to pay
World-Class Distribution System - Enabling our customers
around the world to participate in the unique John Deere
Experience by developing world-class channels of dealers
that are professional, profitable and sustainable
businesses, oriented to the customer, aligned with John
Deere and achieving market preeminence
Develop Extraordinary Global Talent - Enabling preeminent customer value and business results through
extraordinary leaders and engaged employees delivering
aligned high-performance teamwork globally
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December 2015
The John Deere Strategy
Foundational Success Factors
Exceptional Operating Performance - Equipment Operations
15.7% OROA* in 2015
35%
2013
30%
2014
2007
2010
25%
2006
20%
2004
28%
2005
2009
12%
10%
2003
12% OROA (SVA** Neutral)
2002
5%
0%
2001
-5%
80%
Low
100%
Normal
% of Normal Volume
* OROA: Operating Return on Operating Assets
** SVA: Shareholder Value Added
For reconciliation to GAAP see “SVA* Reconciliation to GAAP” slide in Appendix.
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2012
2008
20%
2015
15%
2011
|
December 2015
120%
High
The John Deere Strategy
Foundational Success Factors
Exceptional Operating Performance - Equipment Operations
Higher Net Cash Flow, More Consistently
5,000
Adoption of SVA* Model
4,500
4,000
Sale of Trade Receivables to
John Deere Financial
$ Millions
3,500
3,000
2,500
2,000
1,500
1,000
500
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
 Over $8 billion in Pension/OPEB contributions, 2001-2015
* SVA: Shareholder Value Added
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December 2015
The John Deere Strategy
Foundational Success Factors
Disciplined SVA* Growth - Equipment Operations
SVA Journey, 1993 - 2015
3,600
Adoption of SVA Model
3,200
2,800
2,400
SVA ($ millions)
2,000
1,600
1,200
800
400
0
-400
-800
-1,200
-1,600
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
* SVA: Shareholder Value Added
Note: For reconciliation of SVA to GAAP, please see “SVA* Reconciliation to GAAP” slide in Appendix
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December 2015
The John Deere Strategy
Foundational Success Factors
Aligned High-Performance Teamwork
− Integral part of business strategy, reinforced with compensation
− Global Performance Management reinforces alignment
− Base pay changes linked to achieving goals
STI: Short-Term Incentive – Bonus focuses on OROA*/ROE**
− Covers most worldwide salaried employees
− Applies one enterprise-wide bonus metric
MTI: Mid-Term Incentive – Bonus driven by sustained SVA*** creation
− About 10,800 management employees eligible
LTI: Long-Term Incentive – Primarily stock options
− Top 1,000 employees eligible
− Minimum stock holding requirements for senior management (~ top 125)
* OROA: Operating Return on Operating Assets
** ROE: Return on Equity
•*** SVA: Shareholder Value Added
•
•
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December 2015
The John Deere Strategy
Performance and Health Measures
Commitment to execute and monitor all initiatives critical to our success
Performance measures
– Traditional financial measures based on what we are delivering today to our stakeholders
Metric
Target
Sales
Net Sales Growth Target
$50B* (2018, at mid-cycle)
Profitability
Return on Sales (Operating Margin)
12% (at mid-cycle)
Asset Efficiency
Asset Turns
2.5x (2018, at mid-cycle)
Health measures
– The qualities, attributes and actions being introduced to ensure the sustainability of our
performance over time
Metric
Target
Exceptional Operating
Performance
Quality
% JDQPS** certification
Disciplined SVA*** Growth
Sales/SVA Mix
by Geography
% Non-U.S. & Canada
Aligned High-Performance
Teamwork
Employee Engagement
Employee Survey’s
Engagement Index
* Implies a CAGR of ~ 9% (2010 – 2018) vs. historical CAGR of 7-8%
** JDQPS: John Deere Quality and Production System
*** SVA: Shareholder Value Added
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December 2015
The John Deere Strategy
In Summary
Accelerated emphasis on global growth
– $50 billion mid-cycle sales by 2018
– Approximately 50% outside of U.S. & Canada
– Capitalize on increased global demand for food, shelter and infrastructure
Focus on improved profitability
– 12% mid-cycle margin
Continued adherence to OROA*/SVA** model
– 30% OROA at mid-cycle sales with improved asset turns
Focus on two growth platforms
– Global pre-eminence in agricultural-equipment solutions
– Global construction-equipment operations
– Complementary/supporting businesses to help drive performance of global growth platforms
Revised metrics reflect strategic direction
– “Performance” metrics align compensation to strategy
– “Health” metrics introduced to monitor underlying factors (e.g., market share, quality) to ensure
performance is sustainable
* OROA: Operating Return on Operating Assets
** SVA: Shareholder Value Added
•
•
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December 2015
Macroeconomic Tailwinds
Support John Deere’s
Global Growth Businesses
Long-Term Macroeconomic Tailwinds
Support Global Growth Opportunities
Population growing in size and affluence
– By 2050, world population will reach ~ 9.7 billion, up from ~ 7.3 billion
today, with most growth in Asia and Africa
– Large middle class emerging in Latin America, China, India, and other
developing economies
Opportunity #1: Feeding the world
– Agricultural output needs to nearly double over the first half of the century
– To achieve this, the rate of productivity growth must accelerate over recent
trend rates
– Natural resources under strain, especially water and land
Opportunity #2: Massive urbanization
– Migration from rural areas creates need for infrastructure development
– More than 50% of the global population today lives in urban areas, will be
nearly 70% by 2050
Source: UN, 2015, Deere & Company Forecast as of 25 November 2015
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December 2015
Developing Economies Growing Faster
While developed economies have
always accounted for a larger
share of GDP...
CAGR,
1970-2010
Percent
Real GDP1
$ Trillions
4.0
35.8
27.5
1970
1990
11.5
1
Real GDP1
$ Trillions
2.8
6.4
116.6
23.0
1.9x
5.6
13.5
2.0
Developing
65.4
their growth will slow
significantly, relative to that
of developing economies
...
42.4
3.3
65.4
23.0
42.4
2010
2010
78.6
2020
2045
Real GDP (2010$ Base)
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December 2015
93.2
60.9
Country aggregation defined by Global Insight (Developing countries inclusive of emerging markets)
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4.1
55.5
Developed
Source: Global Insight, Deere Analysis, November 2015
171.8
CAGR,
2010-2045
Percent
2.3x
1.8
Dynamics of Food Demand
Per Capita
Income
Services
>$10.00
per day
Processed
Products
$3.10-$10.00
per day
Livestock
Products
Most hunger problems solved at this
threshold
$1.90-$3.10
per day
~ 13% of world’s population
experience hunger and malnutrition
Commodities
~ 10% of world’s population live on
less than $1.90 per day
Source: World Development Indicators 2015, World Bank
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<$1.90
per day
Global Crop Value of Production
Key Crops
Value of production, a good proxy for the health of agribusiness, expected to grow
Corn
Soybeans
Cotton
Sugarcane & Beets
Wheat
Global Crop Value of Production
Billions of Dollars
6.2%
CAGR
20002015
Percent
CAGR
20152018
Percent
CAGR
20002018
Percent
6.3%
5.9%
6.2%
5.3
7.1
5.6
5.0
8.1
5.5
2.8
8.2
3.7
8.6
-0.7
7.0
7.9
7.2
7.8
641,448
539,792
217,148
2015
2000
Source: IHS Global Insight, November 2015
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2018
Global Construction and Infrastructure Needs
Infrastructure is expected to be the fastest growing segment of construction
Residential
Non-residential
Infrastructure
CAGR
19982010
Percent
CAGR
20102022
Percent
CAGR
19982022
Percent
1.8%
3.3%
2.5%
4,119
1.1
3.1
2.1
3,443
1.7
3.4
2.6
3,764
2.6
3.3
3.0
WW Construction Spending
Gross output, $ 2010 Billions
2.5%
11,326
7,663
6,210
2,866
2,504
2,301
1,869
1,837
2,496
1998
2010
Source: IHS Global Insight, September 2015
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2022
Appendix
SVA* Reconciliation to GAAP
Equipment Operations
(millions of dollars unless stated otherwise)
Equipment Operations
Net Sales
Average Identifiable Assets
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
Equipment Operations
Net Sales
Average Identifiable Assets
With Inventories at LIFO
With Inventories at Standard Cost
Operating Profit
Percent of Net Sales
Operating Return on Assets
With Inventories at LIFO
With Inventories at Standard Cost
SVA Cost of Assets
SVA
1993
6,479
1994
7,663
1995
8,830
1996
9,640
1997
11,082
1998
11,926
1999
9,701
2000
11,169
2001
11,077
2002
11,703
2003
13,349
2004
17,673
5,449
6,442
242
3.7%
5,551
6,494
847
11.1%
6,187
7,131
1,006
11.4%
6,502
7,488
1,125
11.7%
6,682
7,703
1,402
12.6%
7,672
8,711
1,476
12.4%
7,724
8,739
272
2.8%
8,069
9,039
693
6.2%
8,743
9,678
(46)
-0.4%
6,229
7,147
401
3.4%
5,965
6,925
708
5.3%
6,482
7,477
1,905
10.8%
4.4%
3.8%
(773)
(531)
15.3%
13.0%
(780)
68
16.3%
14.1%
(856)
150
17.3%
15.0%
(898)
226
21.0%
18.2%
(924)
477
19.3%
16.9%
(1,045)
431
3.5%
3.1%
(1,049)
(776)
8.6%
7.7%
(1,085)
(392)
-0.5%
-0.5%
(1,162)
(1,208)
6.4%
5.6%
(858)
(457)
11.9%
10.2%
(831)
(123)
29.4%
25.5%
(897)
1,008
2005
19,401
2006
19,884
2007
21,489
2008
25,803
2009
20,756
2010
23,573
2011
29,466
2012
33,501
2013
34,998
2014
32,961
2015
25,775
7,248
8,312
1,842
9.5%
7,546
8,634
1,905
9.6%
8,092
9,205
2,318
10.8%
9,652
10,812
2,927
11.3%
9,647
10,950
1,365
6.6%
9,196
10,494
2,909
12.3%
11,516
12,875
3,839
13.0%
13,594
14,965
4,397
13.1%
14,569
15,924
5,058
14.5%
14,113
15,493
4,297
13.0%
12,491
13,840
2,177
8.4%
25.4%
22.2%
(998)
844
25.2%
22.1%
(1,036)
869
28.6%
25.2%
(1,094)
1,224
30.3%
27.1%
(1,284)
1,643
14.1%
12.5%
(1,301)
64
31.6%
27.7%
(1,259)
1,650
33.3%
29.8%
(1,545)
2,294
32.3%
29.4%
(1,795)
2,602
34.7%
31.8%
(1,911)
3,147
30.4%
27.7%
(1,860)
2,437
17.4%
15.7%
(1,661)
516
* SVA: Shareholder Value Added
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