ADM’s Returns Strategy Showing Early Results, Luciano Says
Cites ROIC Improvement as Evidence of Progress
Company Doubles Year-End Cost-Reduction Target to $400 Million in Run-Rate
DECATUR, Ill. -- May 22, 2014
Archer Daniels Midland Company (NYSE: ADM) is making progress on its strategy
to enhance shareholder value by improving returns, and the company sees many
more opportunities ahead, according to President and Chief Operating Officer
“Our returns strategy is beginning to deliver for us, and we are just getting
started,” Luciano told investors at the BMO Farm to Market conference in New
York City, adding that the strategy comprises several integrated elements,
including capital allocation, costs, cash, portfolio-management and strategic
He noted that the company’s trailing, four-quarter average adjusted return on
invested capital of 6.9 percent at the end of the first quarter of 2014
represented an increase from 6.6 percent at the end of the fourth quarter of
2013, and an improvement of 140 basis points over the company’s first-quarter
2013 ROIC. ADM’s objective is to achieve, on average, ROIC of 200 basis points
above its weighted average cost of capital, or WACC, over an agricultural
cycle. Based upon long-term WACC of 8 percent, ADM will aim to achieve, on
average, a 10 percent ROIC when the U.S. interest rate environment returns to
more normal historical levels.
Improving Cost Structure, Capital Allocation and Cash Position
ADM achieved its 2014 year-end goal of $200 million in run-rate cost savings
more than a half-year ahead of schedule through an emphasis on maintenance,
procurement, and improvements in energy efficiency and process technology,
Luciano said. This success has led the company to double its cost-reduction
target to a total of $400 million in run-rate savings by Dec. 31, 2014.
A more disciplined approach to capital allocation and planning has generated
positive results as well, he added. The soybean crush operation ADM opened in
Paraguay in May 2013 generated first-year ROIC of 11.3 percent. And through
ongoing efforts to improve ADM’s cash position, the company has identified an
additional $500 million in opportunities and is pursuing them aggressively,
Ongoing Portfolio Management to Improve Future Returns
Luciano noted that ADM had taken several recent actions to optimize its
portfolio of businesses as part of the broader returns strategy.
“We’ve sold or are working to sell businesses that we don’t expect will meet
our returns criteria long-term,” Luciano explained, citing as examples the
pending sale of its South American fertilizer business to The Mosaic Company
and efforts to sell ADM’s global chocolate and Brazilian sugar ethanol
“With businesses that can be improved, we’ve taken decisive steps to enhance
performance, either by reducing invested capital, managing costs and
production levels, or repurposing the asset entirely,” he added.
“Finally, there are situations where an acquisition, or increased ownership,
is in the best interest of the company and our shareholders,” Luciano said,
noting as an example ADM’s pending acquisition of the remaining 20 percent
stake in Alfred C. Toepfer International G.m.b.H.
Strategic Growth that Furthers Returns Objectives
Luciano closed his presentation with a review of how the company’s recently
announced growth investments are aligned with efforts to create shareholder
The acquisition of a port in northern Brazil will strengthen the company’s
ability to transport and export crops from key production regions, Luciano
noted. A greenfield sweetener and soluble fiber complex in Tianjin, China,
demonstrates how the company is expanding processing capabilities in key
demand regions. And the construction of a $250 million protein specialties
plant in Brazil illustrates the company’s commitment to extending its value
chain by producing value-added ingredients for the food industry. The plant
will produce innovative, value-added protein concentrates and isolates that
add nutritional value to foods and beverages.
“Today, packaged-foods manufacturers are working to develop products that
satisfy consumers’ desire for function, nutrition, texture and taste … and we
have a strong portfolio to address these needs,” Luciano said.
He noted that ADM’s returns focus has helped create the high-performance
culture needed to help ensure future success. “We implemented this strategy
sequentially to ensure that we not only achieved our goals, but did so in a
way that would embed new skills and practices in the organization so we can
expand and sustain the gains,” Luciano said.
Some of the above statements constitute forward-looking statements that
reflect management’s current views and estimates of future economic
circumstances, industry conditions, company performance and financial results.
These statements are based on many assumptions and factors that are subject to
risk and uncertainties. ADM has provided additional information in its reports
on file with the SEC concerning assumptions and factors that could cause
actual results to differ materially from those in this presentation, and
investors and potential investors should carefully review the assumptions and
factors in our SEC reports. To the extent permitted under applicable law, ADM
assumes no obligation to update any forward-looking statements as a result of
new information or future events.
For more than a century, the people of Archer Daniels Midland Company (NYSE:
ADM) have transformed crops into products that serve vital needs. Today,
31,000 ADM employees around the globe convert oilseeds, corn, wheat and cocoa
into products for food, animal feed, industrial and energy uses. With more
than 270 processing plants, 470 crop procurement facilities, and the world’s
premier crop transportation network, ADM helps connect the harvest to the home
in more than 140 countries. For more information about ADM and its products,
Archer Daniels Midland Company
Jackie Anderson, 217-424-5413
Press spacebar to pause and continue. Press esc to stop.