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Robert W. Lane |
2007 Annual Meeting of Shareholders
Moline, IL
Remarks by Robert W. Lane
Chairman & Chief Executive Officer
Deere & Company
February 28, 2007
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Ladies and gentlemen, this year marks our 170th anniversary as a company. That makes John Deere one of the oldest, and certainly most venerable, enterprises based in the United States. For the better part of two centuries, Deere has been adapting to changes in the marketplace. We've moved from plows and basic implements, to tractors and harvesters that propel themselves, to today's highly automated, intelligent mobile machines in multiple industries that make many of their own operating decisions.
Much of Deere's present success is directly attributable to our 170–year heritage of integrity and honest value — a heritage nurtured, in good times and bad, by the generations of employees and company leaders in whose footsteps we are privileged to follow. Some of these men and women are in the auditorium this morning. To them, we say thank you for coming and for your enduring contribution.
Today, as Deere's skilled, committed employees from nations around the world compete in an increasingly demanding, global–business arena, they are building on this rich foundation. They are aiming higher, reaching farther, and delivering more than ever before. Their efforts, moreover, are guided by the knowledge that nothing means more than how our business results are achieved and how we conduct ourselves in our jobs.
In this competitive environment, John Deere had another good year in 2006. After reporting our first–quarter results two weeks ago, we're looking forward to a positive 2007. Looking back on 2006, total revenues rose 5 percent, to some $22 billion. Net income increased to $1.69 billion, a new record.
John Deere's recent performance has been encouraging. In our view, however, the company is capable of producing even greater levels of value — for customers and investors alike — well into the future. While our progress building a great business is driving improved performance today, in our 170th year, we're confident Deere is delivering performance — performance that endures — in a way that will continue to be relevant for years to come, say, on our 200th birthday. It's very likely, in fact, that those who will lead the company to, and into, its third century are already vitally engaged as part of our employee team.
John Deere aspires to distinctively serve customers – those linked to the land – through a great business. To realize this aspiration, the company is moving ahead in vigorous pursuit of a three–pronged strategy: exceptional operating performance, disciplined SVA growth, and aligned high performance teamwork.
Let's take a closer look at where we stand in these three areas.
Exceptional operating performance means delivering the highest–possible level of service and value to our customers, while making our operations more efficient, more effective, and more sustainable, which includes being environmentally sound.
To do that we're making significant investments in our operations, notably the $140 million redevelopment of our tractor facilities in Waterloo, Iowa. Not surprisingly, this project, now in its final stages, is making quite an impact on manufacturing cost, cycle times, asset levels, and customer responsiveness.
Several months ago, Deere was pleased to host a group of Wall Street analysts and investors, who visited our Waterloo facilities and met managers and employees there. What they saw impressed them. They came away with a clearer understanding of how Deere is making fundamental changes in its operations and of how these changes are being translated into tangible business results.
Though smaller in scale, similar projects are under way or have been completed at other facilities. These include our flagship combine plant in East Moline, our turf care facility in N. Carolina, our construction–equipment factory in Dubuque, Iowa, and our cab–making facility in Bruchsal, Germany. In every case, the projects are improving our ability to distinctively serve customers while identifying ways to drive out excess costs and inventories. Of course, the latest manufacturing technology and processes are being built into our newer factories, in Brazil, India, and China, literally from the ground up.
Many of our facilities are benefiting from the adoption of the Deere Production System, or DPS. It establishes a set of common manufacturing practices and standards that are among the world's most exacting. While the first certifications were made only three years ago, virtually all our worldwide manufacturing locations are on track to adopt, and gain from, our DPS processes.
In addition to following common procedures and processes, all employees around the globe – from the corner office to the factory floor — are subject to the same uncompromising, no–nonsense business–conduct guidelines which our company is known for wherever we operate.
Rigorous asset management tied to retail–customer demand – a primary benefit of the Deere Production System — remains the linchpin of our strategy to achieve better, more consistent results. Last year, trade receivables and inventories declined by a further $258 million, reaching their lowest point relative to sales in recent times. Asset intensity measured on this basis has been reduced by almost half since 1999. Through the first quarter of 2007, it has declined for 27 consecutive quarters, compared with the same period of the prior year.
Such gains would not have been possible without the cooperation of our suppliers and unmatched dealers. They have revamped and, in many cases, reinvented their own business processes as well.
Exceptional operating performance puts Deere on track for improved financial results when markets are strong — and when they are weak. It also helps us continue being a strong producer of cash – cash being deployed for the benefit of investors.
As an example, the company is funding – and will continue to fund — the aggressive research and capital programs needed to sustain and drive our operating plans, deliver growth, and generate value to investors for the long term.
At the same time, our board of directors has increased the dividend on four occasions in the past three years, doubling the quarterly rate. They also have authorized the repurchase to date of more than 30 million shares of stock. Last year, Deere returned $1.6 billion directly to shareholders through dividends and buybacks. Furthermore, our U.S. pension plans are fully funded, an important and strong statement indeed.
Disciplined SVA growth constitutes the second leg of the company's strategy. Our goal is to deliver average SVA gains of 7% a year over the cycle. SVA, or Shareholder Value Added, is essentially the difference between operating profit and the cost of capital. For some time now, it has been the primary metric used in managing the company. SVA is applied in every product line, every business, and every geography in which we operate.
Meeting our aspiration for SVA growth will require continuing discipline, including higher sales and revenues. It will also benefit from an accelerated emphasis on innovation. Deere's accelerated–innovation initiative brings a more intense focus to those geographic markets, customer groups, technologies, and products that present promising opportunity to the company. These efforts are being supported by a robust business growth process – BGP. It outlines a series of steps to help us identify, evaluate and, ultimately, seize the most attractive opportunities.
In addition, powerful global economic tailwinds are having a positive effect on the company. Farm commodity production has been strong across the world in recent years, but demand has been even stronger. Global carryover stocks of wheat and corn have consistently fallen in recent years, reaching historic lows in relation to use.
Consumption is being driven by a global population growing in both size and affluence, and by increasing interest in renewable fuels such as ethanol and biodiesel.
The world is gaining over 200,000 people – new mouths to feed – every single day. A lot of them are upgrading their diets, too, by putting more meat on the table. That pushes up demand for feed grains even further since meat requires several times its weight in grain to produce.
Most of the world's population growth is occurring in emerging markets, where the advanced technology of today's equipment is speeding along the process of farm mechanization. This, too, should be beneficial for farm machinery demand in the future.
Yet another favorable trend concerns growing demand for renewable energy such as biodiesel, ethanol, and wind.
It is significant that many customers in rural locations are now driving their John Deere tractors within sight of the very wind turbines that Deere helped build, and which are proving to be quite–attractive investments, for both the customers and for the company.
Roughly 20% of last year's corn crop in the U.S. is being used for the production of ethanol. That percentage has doubled in three years. It is almost surely headed higher – conceivably much higher — as a result of various legislative mandates.
Renewable energy is good for the people of the world. It's good for the environment. And it's good for John Deere. What's more, Deere is involved with multiple sources of renewable energy – from corn, sugar, soybeans, switchgrass, or wind. We encourage investments that seek out the best ideas, and are confident that significant technological and scientific progress to this end will continue to be made.
Positive economic trends are not just an agricultural story. Rising incomes have sparked and supported a growing long term demand for construction and global infrastructure, which has driven sales of construction and forestry equipment. Growing affluence also is leading more people to make use of professional lawn care and landscaping services. Others own large plots of acreage, which is being maintained with green and yellow equipment. In meeting these and other needs, Deere attracts and retains customers through our well–managed, growing credit operations around the world.
That brings us to the third point of our strategy — aligned, high performance teamwork.
John Deere people are working together like never before. And they're working smarter, too, with a clear purpose in mind. The vast majority of our salaried workforce, top to bottom, around the world, follows detailed performance plans that connect each individual's efforts to broader unit and company goals. These plans are updated annually and reviewed twice a year. That way, employees know where they stand relative to their objectives on a regular basis. Our compensation system reinforces this alignment. It ties bonus payments to sustainable performance and the very financial metrics that drive everyday decisions.
An emphasis on collaboration and alignment is found in every corner of the company. In this regard, Deere has launched a formal initiative based on the concept of team enrichment. We're confident it will become a key part of our accelerated efforts to attract, retain and develop the best talent from every background throughout the world, then to assemble that talent into the strongest–possible, highly aligned teams.
Talent is the high–octane fuel that will ensure Deere's ability to meet its goals, rise to future challenges, and keep our company going strong as it approaches its third century, only 30 years away. Talent – talent that works together — is the ultimate competitive advantage.
The company's focus on team enrichment will help Deere develop a talent base geared for success serving customers in the world of tomorrow. It's a world sure to become even more competitive, as well as increasingly global and diverse.
Our goal is performance that endures. It is, in many respects, a noble objective, made possible when a focus on exceptional performance and disciplined growth delivers products and services that contribute to the well–being of customers and society as a whole.
Through food, feed, fuel, fiber, wood, water, wind, shelter, infrastructure, or recreation – John Deere makes a major impact on the world's quality of life. We enhance the lives and the livelihoods of those linked to the land and contribute to human flourishing around the globe. That's something every employee can be proud of — whether in Brazil, Mexico, Germany, India, China, Russia or here in the United States.
It's something which inspires us each and every day to put our plans into successful action. It inspires us to make our company as well–known as a business and an investment as for the products bearing our brand.
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