C&F Sales & Marketing Brazil Analyst Review September 2014
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. Guidance noted in the following slides was effective as of the company s most recent earnings release and conference call (13 August 2014). 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. 2 C&F Sales & Marketing Brazil l September 2014
Brazil Market Entry If you are going to participate in any industry in Brazil AGRICULTURE INFRASTRUCTURE FORESTRY
Agenda Brazil Current Environment Brazil Opportunity C&F Objective Strategy How We Are Doing So Far Fit Within JD C&F, Americas 4 C&F Sales & Marketing Brazil l September 2014
Brazil Environment 9% GDP Growth 3.0 FX Rate: BRL vs. $U.S. 7% 5% 3% 2.5 2.0 1% 1.5-1% 1.0 10% Unemployment Rate 16% Short-Term Interest Rate 8% 6% 4% 12% 8% 2% 4% 0% 0% Source: Global Insight August 2014 5 C&F Sales & Marketing Brazil l September 2014
Brazil Environment Soybean Exports Chinese Imports x Brazilian Exports 60,000 100,000 50,000 40,000 80,000 60,000 30,000 20,000 10,000 40,000 20,000 0 0 United States Argentina Brazil Chinese Import Brazilian Exports Source: Global Insight August 2014 6 C&F Sales & Marketing Brazil l September 2014
Brazil Opportunity 7 C&F Sales & Marketing Brazil l September 2014
Brazil Opportunity 8 C&F Sales & Marketing Brazil l September 2014
Brazil Opportunity (Growth Drivers) Monthly household income growth (less inflation), BRL Growth Drivers Strong Growth of Internal Consumption Agroindustry Productivity Electricity Consumption (latest 10 years) + 55% Residential + 30% Industrial + 10% Population Economic Stability International Reserves 2004 2013 % 2,189 2,933 +34% Source: IBGE - Brazilian Institute of Geography and Statistics September 2014 Harvest, Millions of Tons 250 200 150 100 50 0 Grain Harvest Source: Ministry of Agriculture of Brazil Growth Drivers 9 C&F Sales & Marketing Brazil l September 2014
Brazil Opportunity (Construction) Concessions as a way to promote infrastructure development Highways - Auctions just concluded for 5 highways (total will be 9) - 7.500 Km Airports - Auctions concluded for 5 of the largest airports in Brazil Ports - Concessions start in 2014 Railroads - Concessions start in 2014-10.000 Km Source: National Terrestrial Transportation Agency January 2014 Kilometers x 1000 USA China India Russia Brazil Roads 6.500 4.100 4.700 1.200 1.600 Paved Roads 4.200 2.500 1.500 760 200 Railways 200 77 63 87 26 Source: ABDER Brazilian Association of State Road Departments June 2013 10 C&F Sales & Marketing Brazil l September 2014
Brazil Opportunity (Construction) Energy as a way to promote the development of the North of Brazil Investments in energy generation will amount 32.7 billion USD in 4 years 10 Hydropower Plants will be auctioned in the next 3 years 20,000 Km of transmission lines in 4 years ~ 10 billion USD Hydroelectric Dams Region Capacity (MW) Bid Conclusion Jari North 370 2015 Colider Center West 300 2015 Belo Monte North 11.233 2015 Teles Pires Center West 1.820 2015 Baixo Iguaçu South 350 2016 Sinop Center West 400 2018 São Manoel North 700 2018 São Luiz do Tapajós North 6.133 2014 2019 Àgua Limpa Center West 380 2015 2020 Jatobá North 2.338 2015 2020 Tabajara Center West 350 2015 2020 Bem Querer North 708 2016 2021 Itapiranga South 725 2016 2021 Salto Augusto North 1.462 2017 2022 São Simão North 3.509 2017 2022 Marabá North 2.160 2017 2022 Torixoréu Center West 408 2017 2022 Source: MME - Brazilian Ministry of Mines and Energy December 2013 11 C&F Sales & Marketing Brazil l September 2014
Brazil Opportunity (Construction) PAC 3 to focus on urban mobility (to be launched in Sep/2014) Mobility Pac launched in 2013, 470 projects, 50 Billion BRL São Paulo subway system compared to other cities City Opening Extension, km Xangai 1995 420 Seul 1974 558 São Paulo 1974 74 Beijing 1969 336 New Delhi 2002 193 Mexico City 1969 226 Source: BBC Brasil January 2013 80 Subway Cost, MM USD per km Source: CBTU Urban Trains Brazilian Company August 2014 20 VLT (Light Vehicle over Tracks) 15 BRT 12 C&F Sales & Marketing Brazil l September 2014
Brazil Environment - Risk Factors Risk Factors Labor Cost and Availability Political Instabilities 14% 13% 12% 11% 10% Unemployment at historical low levels: large contractors face great difficulty in hiring construction workers 9% 8% 2004 2005 2006 2007 2008 2009 2010 7% 2011 6% 5% 5% 2012 2013 Risk Drivers 4% jan feb mar apr may jun jul aug sep oct nov dec 2014 13 C&F Sales & Marketing Brazil l September 2014
Brazil Forestry Opportunity M m³ 250 200 150 100 50 Projected wood consumption from planted forests 183 = +17% 213 4 54 48 154 131 5 0 2012 2023 Eucalyptus Pine Others Source: Poyry silviconsult 14 C&F Sales & Marketing Brazil l September 2014
2018 C&F Brazil Strategic Ambition Be a TOP 3 Construction Equipment Solution Provider by 2018 2018 Ambition 2018 Ambition Top 3 TOP 3 TODAY 15 C&F Sales & Marketing Brazil l September 2014
Brazil Product Line - 59 Models CONSTRUCTION 24 MODELS 6 models 2 models 8 models 1 model 7 models FORESTRY 13 MODELS 2 models 3 models 2 models 1 model 3 models 2 models HITACHI MINING 17 MODELS WARATAH 5 MODELS 6 models 5 models 6 models 16 C&F Sales & Marketing Brazil l September 2014
Competitive Landscape John Deere Cat Case New Holland JCB Volvo Komatsu Hyundai Construction Full Full Full Full Partial Full Partial Partial Mining Full Full N N N N Full N Forestry Full Partial N N N N Partial N CWP No Full Full Full Partial Full N N Dealers 5 2 6 8 15 6 9 1 Selling Points 18 (26) 58 32 40 45 34 29 20 Factories in Brazil 2 2 5 1 1 1 1 Product Families Locally Manufactured 3 7 1 3 6 4 3 Reman in Country N Y N N N Y Y N Exports N Y Y Y Y Y Y Y Strengths Quality Products A&T Brand Banco JD In country infrastructure Alternative to large contractors Brand Reputation After-Sales Broad Line CAT Financial Technology Leader Competitive Prices Well accepted designs (W20E) Strong in Governmental Bids Competitive Prices Governmental Bids Truck Reputation SDLG Growth Fuel Consumption Product Reputation Broad Line Competitive Prices Automotive Reputation Source: Yengst 2013 & Competitive Websites 17 C&F Sales & Marketing Brazil l September 2014
Brazil Distributor Channel
Brazil Channel Strategy Current: 18 facilities End of 2014: 26 facilities 19 C&F Sales & Marketing Brazil l September 2014
On-highway Volvo Truck Dealer John Deere Ag Dealer Total Revenues $0.7 Billion USD 5,300 Employees 3 facilities 20 C&F Sales & Marketing Brazil l September 2014
On-highway VW Truck Dealer John Deere Ag Dealer Previous Hyundai CE Dealer Total Revenues $0.6 Billion USD 2,850 Employees 6 facilities 21 C&F Sales & Marketing Brazil l September 2014
Previous CE Terex Dealer Shareholder Equity $0.3 Billion 170 Employees 3 facilities 22 C&F Sales & Marketing Brazil l September 2014
On-highway Scania Truck Dealer, Center West Total Revenues $0.2 Billion USD 285 Employees 1 facility 23 C&F Sales & Marketing Brazil l September 2014
Previous CE Hyundai Dealer Wirtgen & Metso Dealer Total Revenues $20 Million USD 95 Employees 5 facilities 24 C&F Sales & Marketing Brazil l September 2014
The Americas C&F Dealer Channel Brazil 5 Dealer Owners 18 Locations 8 Locations Underway 25 C&F Sales & Marketing Brazil l September 2014
The Americas C&F Dealer Channel Brazil 5 Dealer Owners 18 Locations 8 Locations Underway Latin America 23 Dealer Owners 103 Locations 26 C&F Sales & Marketing Brazil l September 2014
The Americas C&F Dealer Channel Brazil 5 Dealer Owners 18 Locations 8 Locations Underway Latin America 23 Dealer Owners 103 Locations U.S. and Canada 41 Dealer Owners 426 Locations 27 C&F Sales & Marketing Brazil l September 2014
Closing Thoughts Great opportunities in Brazil John Deere in optimal position C&F complement to JD Brasil Brazil great complement to JD Americas 28 C&F Sales & Marketing Brazil l September 2014