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Speeches

2009 Speeches

Robert W. Lane     Robert W. Lane 2009 Annual Meeting of Shareholders
Moline, Illinois
Remarks by Robert W. Lane
Chairman & Chief Executive Officer
Deere & Company
Deere & Company
February 25, 2009

John Deere aspires to distinctively serve customers, those linked to the land, through a great business. This has been our guiding vision for some time now, and it continues to help drive performance to higher levels in our company.


At last year's meeting, we discussed some of the global competitive forces that might sidetrack our plans for growing and sustaining such a great business. In fact, I cautioned that for all of John Deere's many strengths, there is no guarantee of our future success. As noted last year, nearly half of the 100 largest U.S. companies that existed in the early 1970s — the time I started my own career — have disappeared one way or the other.


Over the last year, as you all know, the skies have darkened and the waves have risen. A tide of gloomy financial news has swept over the global economy. Many more companies, including some iconic ones, have run aground or lost their independence.

The economic crisis is quite serious and should not be underestimated. Deere itself reported sharply lower financial results for the first quarter of 2009, and is clearly feeling the recession's impact.


At the same time, of course, we have an impressive record of weathering challenges of virtually every sort for over 170 years now. In times of adversity, we often emerge in an even stronger competitive position. What's more, as we will discuss, the opportunities for seizing competitive advantage have probably never been greater. We have an impressive crew of experienced global executives working on our behalf to assess, and then seize, these very opportunities.


John Deere executives are of the highest caliber. Furthermore, this dedicated global management team embodies our values of integrity, commitment, quality and innovation, meaning they insist on upholding a high level of ethics in all they do. All our leaders, with the support of our general counsel, Jim Jenkins, keep an unrelenting focus on what is known throughout the company as the how.


Have we reached our goal of building a great business? Have we? Not yet. It is too soon to show the needed sustained evidence, but it's not too soon to show we have made meaningful progress. That's a credit to our 50,000 + employees who are helping create a high-performance culture at John Deere.


Our company, as an example, has set earnings records for the last five years. During this time, sales have nearly doubled. Net income last year topped $2 billion for the first time. Importantly, last year, our SVA, or Shareholder Value Added, increased to $1.7 billion. In each of the last five years, starting in 2004, SVA has been more than twice as high as in any year prior to that period.

svahistory


SVA — or economic profit — is our primary metric in managing the company. Our annual report, which all of you have received and is available on our Web site, has more information on the way SVA is calculated. SVA, when sustained year after year, is evidence of efficiently and effectively meeting customer needs — in other words, performance that endures. It is essential to generating the funds needed to invest in the future and reward investors.


As an outcome of our success generating economic profit — and the resulting strong cash flow — the company over the last five years has raised its dividend on six occasions by a total of 155%. The responsibility for managing our cash, as well as for its productive deployment, falls to Mike Mack, our chief financial officer. It is in demanding times like these, when funding is more of a challenge, that the benefits of an SVA focus become particularly clear.


Why, then, is it too early to claim "great business" status? Because we need to show enduring performance, whether markets are strong or weak. We need more time, more years, to prove great performance is sustainable, both at the top and, especially, at the bottom.


Supporting the quest for sustained SVA is our three-pronged strategy of exceptional operating performance, disciplined SVA growth and aligned high performance teamwork. As you saw, this strategy already has produced a few years of sound results. We're confident it provides a framework for advancing our global competitive position when markets are strong, and when markets are weak.


In nautical terms, think of exceptional operating performance, the first leg of our strategy, as our way of adjusting the rigging of our corporate vessel. That way, we can make it faster, more efficient, and more flexible. In other words, trimmed to capture more earnings and convert those earnings into more cash, for the good of the company.


Our agricultural division, led by Dave Everitt and Mark Von Pentz, is a prime example. Under their leadership, our largest, most global, and best-known business has dramatically improved its performance. A terrific accomplishment.


As shown on page 8 of the [2008] annual report, Ag had an operating return on assets last year of 36% and record SVA of about $1.5 billion. The division expects to deliver a solid performance in 2009, yet is working tirelessly to make its operations even better and to deliver its advanced products with even higher quality.


Another example of improved rigging is the way our construction and forestry business — that is, C&F — has responded to the latest downturn in its markets. It wasn't so long ago that C&F's markets were strong. In those conditions, C&F was performing at unprecedented levels. In fact, in 2006, the division delivered more SVA than the entire company had ever achieved previously. That is nothing less than a remarkable achievement!


Fortunately, like other divisions, C&F was making preparations for a downturn even when markets were hot. Therefore, when demand started to falter as a result of a weakening economy and plunging construction rates, the division was ready. Under Sam Allen, it trimmed factory production. It jettisoned non-essential costs. Now, in stronger and weaker markets alike, there has been evidence of "great business" performance. C&F remained profitable even in the difficult first quarter of what promises to be a very challenging year ahead.


At the same time, the division has picked up market share in key categories and expanded its product line. Like other divisions, C&F is implementing plans to widen its global footprint through projects in India, China and Russia, among other areas. In addition, great focus has been put on dealer development, which is a key source of Deere's competitive advantage across the enterprise.


Another important business that reflects strong operating performance is John Deere Credit, under the leadership of Jim Israel. During this decade alone, Credit has generated $2.5 billion of earnings and its portfolio of loans, leases and revolving credit has more than doubled in size. What's really special, though, is the quality of that portfolio. It has remained strong even as the division has grown and supported the sale of John Deere equipment all around the globe.


At a time when many lenders are struggling to stay afloat, this is a record to be proud of. And it's yet another example of how we're implementing the first leg of the strategy, exceptional operating performance.


The second part of the John Deere strategy is disciplined SVA growth. In this regard, the company is continuing to make meaningful investments in a future we still believe holds exciting opportunity.


One key to the success of our growth efforts is accelerated innovation. To that end, we have identified key innovation segments, or spheres, that have ample growth potential and relevance to our operations even in these most difficult times. That's the subject of this year's video presentation.


The distinguished individuals you will see in the beginning of the program are external technology advisers. Their role is to bring an outside perspective to our advanced technology and to our process of innovating. [INNOVATION SPHERES VIDEO PRESENTATION]


Innovation, as you just saw, is a key ingredient to achieving growth and extending our competitive advantage. As you could see, there are tailwinds that could be quite favorable to John Deere. We intend to maneuver our John Deere craft to take full advantage of them.


Another priority, even as we navigate the worldwide economic slide, is expanding the reach of the John Deere brand to a wider global audience. Last year, company sales outside the U.S. and Canada rose fully 40% and surpassed $10 billion for the first time.


As an example of such a global focus, our commercial and consumer equipment division, under Jim Field, has introduced exciting new products, expanded its customer base, and improved its operations, especially in Europe.


Our vital parts operation, under H.J. Markley's leadership, is already renowned for meeting the needs of customers throughout the world. It is focused on delivering still-higher levels of customer service and performance.


John Deere, as well, is making a major financial commitment to new-engine technology. This is in response to more demanding clean-air standards, which start taking effect at the next level of severity for our products in January 2011, less than two years from now. In spite of the significant technical challenges, we're confident Deere will meet the far tougher interim Tier 4 emissions requirements in a way that helps customers and adds to our comparative advantage.


The third leg of our strategy, aligned high-performance teamwork, aims to help employees make the most of their talents. By encouraging a culture of collaboration, it aims to help them contribute in the fullest measure as John Deere performs at still higher levels in the future.


Our quest for the best talent takes us to every corner of the world, allowing Deere to recruit, develop and benefit from a diverse and inclusive workforce that works well together. Never before has this been more important considering the present competitive landscape. Fortunately, Deere finds itself in an advantaged position to attract, and to benefit from, some of the best talent in the world.


The journey ahead will be daunting. It will include challenges perhaps never seen before, especially as brutal global competition further accelerates, even as we manage through the current recession. And our success, as previously noted, is far from assured.


We don't have to look much beyond the daily headlines to see what happens to companies that shy away from making vital investments and crucial, often difficult decisions. John Deere will not be faint-hearted in this regard. Rather than sink, we are determined to prosper.


What is the best assurance, then, of getting it right? Above all, a crew of experienced, skilled and committed executives guiding the way and making the right calls in the right way. Deere is fortunate, indeed, to have hundreds of such leaders. What's more, when it emerges as a sustainable great business, John Deere will have a splendid future — a future of much opportunity and further potential for service to humankind.


As we move forward, therefore, we're confident our efforts will be of benefit to our customers, employees, retirees, dealers, suppliers and investors, and ultimately advance the cause of human flourishing everywhere. Human flourishing has long been one of the company's primary contributions. It is a fundamental outcome of what we do. And it motivates our efforts each and every day.


As we said in our most recent annual report, "Opportunity for meaningful improvement still abounds." Yes, partly as a consequence of the deep global crisis we are experiencing today, opportunity abounds. What a sobering, yet inspiring, thought that is. There is so much more to do. Yes, opportunity abounds!


Thank you for your attention, ladies and gentlemen. Now let's move on with the rest of our meeting.