| Robert W. Lane ||Building a World Class Global Company: |
Deere & Company Shapes its Future
Association of Construction Equipment Managers
Las Vegas, Nevada
Remarks by Robert W. Lane
Chairman & Chief Executive Officer
Deere & Company
March 11, 2008
Thank you Roger. And thank you ACEM for the opportunity to host your conference, so aptly titled, "Shaping the Future."
It's a real pleasure for me to be able to spend some time with you this morning before we all move on to Con-Expo, North America's largest trade show, which is either a remarkable tribute to the construction industry, or a sign of how much people want to visit Las Vegas!
I'm always eager to talk with customers, and potential customers, about John Deere. These days I'm better equipped to talk not so much about Deere's great products, but the business that stands behind those products — a business where we work very hard to understand our customers' unique needs and then provide them with highly valued goods and services that make their jobs more efficient, productive and profitable.
And so I appreciate the opportunity to share with you an overview of our 171-year-old company, as seen through the eyes of our Construction & Forestry Division.
As a publicly-held company, we aspire to deliver solid profits to our shareholders. Those profits are tangible evidence of how we're serving our customers. It's our belief that when we serve each customer in an exemplary manner — what we call the value proposition — through a committed and highly-aligned team of employees, we are well on our way to building a great business. Simply put, the only way John Deere can build a sustainable, great business is by exceeding our customers' expectations.
Our firm commitment to understand and serve our customers is one of the reasons John Deere had a strong year in 2007, and is off to a positive start in 2008. Last year's total revenues increased 9 percent to some $24 billion. For the fourth year in a row, we set record earnings, and are likely to do so again in 2008, based on our forecasts.
There are other reasons as well for our recent successes. First, we are benefiting from significant economic and demographic trends — such as a rising global population that is also growing in affluence, resulting in increased demand for food, biofuels, and infrastructure. But more importantly, John Deere is fundamentally changing the way it does business with a sharp focus on managing costs and controlling assets, as well as an intense concentration on serving customers like you at a high level.
Our plans are to grow a business that is more resilient, more profitable and more rewarding to our investors, our employees and our customers. We are striving to produce solid profits under all conditions, and exceptional profits when markets are strong.
Nowhere was that aspiration more clearly demonstrated than in our Construction & Forestry Division in 2007, which remained profitable in spite of significant sales drops due to a weakening U.S. economy and a slowdown in residential construction.
Our C&F Division was able to move decisively — slowing, and in some cases, halting factory production, while effectively managing costs. C&F's success has extended into the first quarter of 2008, with an operating profit of $117 million, or 23 percent more than the same period a year ago.
Considering today's conditions, this performance by our C&F business is a remarkable achievement, and further evidence of exceptional customer satisfaction.
Through this performance, the Construction & Forestry Division has earned the "right to grow," and cemented its position as a core part of Deere's business portfolio.
But C&F isn't alone in their success. I'm proud to say that for the first time ever, each of our businesses reached their financial targets in 2007, by earning a 20 percent operating return on assets. Indeed, the opportunities are great throughout our enterprise, as we seek to extend our global reach and serve those linked to the land.
From your perspective in the construction industry, you may not all be fully aware of Deere's global presence. We employ more than 50-thousand employees around the world, nearly half of those residing outside the U.S. We have more than 90 global locations, serving sales and marketing, research and development, credit, parts distribution and other key operations. In addition, we have manufacturing operations in 15 countries. As the world's premier farm equipment manufacturer, a majority of those overseas locations are associated with our Ag Division.
While we are a solid number two in the construction market in North America, we're aggressively expanding to become more of a global player in that business. We are growing our construction business in Latin America, Africa and Australia. And just a few weeks ago, we announced a joint venture with XCG Excavator Machinery Company in China — our first entry as a manufacturer into the rapidly growing construction markets in the BRIC countries of Brazil, Russia, India and China. XCG is the third largest excavator producer in China, with a 14-model product line.
When it comes to forestry equipment, we are the global leader, and we're looking to leverage that success in more construction equipment markets.
Extending the John Deere brand to a wider global audience remains a top priority as we seek disciplined, profitable growth. Last year, sales outside the U.S. and Canada surpassed $7 billion for the first time. Our sales in the emerging BRIC markets nearly doubled, as important projects and developments in these countries moved ahead at a rapid pace.
Allow me to briefly share with you our global growth plans, focusing on some recent important investments.
Let's start with Russia, the world's largest country, with 133 million hectares of arable land. Russia and the other countries of the Commonwealth of Independent States are dynamic, fast-growing markets, thanks to their fertile soil, abundant water and sheer size.
Russia has a vast forested area, of which only a small fraction of its timber is being harvested. An increased demand for mechanized and environmentally-responsible approaches to realizing the potential of this land creates great growth opportunity for our forestry operation. Our construction business, too, stands to benefit from Russia's improving economic development and need for infrastructure.
Throughout Russia, our presence is growing. In the past five years we have gone from only three dealers to 13. We established a manufacturing presence in 2005 with the opening of a factory in Orenburg, which assembles seeding equipment to serve Russia and other eastern European markets.
We are excited with the prospect of continued market growth in Russia for ag equipment, as well as construction and forestry equipment, as the need for highly-productive products and services increases.
Now let's move halfway around the globe. Despite recent economic instability in Brazil, we still regard this South American country as a top growth prospect for our Ag and Construction & Forestry Divisions. Brazil is experiencing higher commodity prices, better credit terms, expanded corn and sugar cane production and increased demand for feedstocks for biofuels.
John Deere is a leader in combine harvesters there, but still has room to grow in the tractor market. So to enhance our position in Brazil's growing farm sector, we opened a 60,000 square meter state-of-the-art tractor factory in Montenegro last year. The facility produces up to 200 horsepower tractors, primarily for the South American market.
The C&F division marked a milestone in Brazil last year when it delivered its largest single order for forestry equipment to harvest eucalyptus, which grows to maturity in just seven years in that country.
Moving on now, to the developing country of India — the second fastest growing economy in the world, and the world's largest tractor market. In the village of Sanaswadi in western India, we run a high-tech manufacturing facility that builds small horsepower tractors, in addition to engines and transmissions. When the factory opened in 2000, it produced 30-thousand units a year. Today, closer to 45-thousand units a year roll off the assembly line there.
The need for mechanization in India is still modest, yet the country's growing population will require as much as an additional 50 million metric tons of food production by the year 2020. John Deere stands ready to provide Indian farmers a more complete line of equipment, implements and attachments to help them achieve those higher yields.
Equally critical to our success in this country is the John Deere Technology Center-India. In its first three years of operation, the Technology Center in India has grown from 35 to 900 employees and supports our entire company through such areas as information services, supply management and engineering support.
India's educated labor force allows the Technology Center to take advantage of a surplus of experienced engineers and analysts. Because of its time zone, the Technology Center in India often can complete a project overnight for a John Deere unit, say in the central U.S., thus creating time and cost savings.
China is yet another excellent example of a developing country that plays a significant role in John Deere's future. China's growing population and improved economic health are creating wonderful growth opportunities for the company.
As I mentioned a minute ago, the C&F division is entering the world's largest and fastest growing market for construction equipment through its new joint venture with excavator manufacturer XCG.
We've recently expanded our ag equipment operations in China as well. In 2006, Deere opened a drivetrain facility to complement our established tractor and combine factories there. And last year, we acquired the largest tractor manufacturer in southern China, expanding our product line for farmers in that country. Currently in China, we build tractors in the 60 to 120 horsepower range at a joint venture tractor factory in the city of Tianjin. Our new acquisition, Ningbo Benye, primarily builds tractors in the 20 to 50 horsepower range. We expect to sell their products beyond China into other Asian, African, and Commonwealth of Independent States markets.