To our Shareholders and Colleagues,
In previous letters to you, I have commented on the need for “bifocal” vision: looking ahead, and planning and investing for economic growth; while also looking closely, and driving for results quarter-by-quarter and year-by-year amid constantly changing external conditions.
For ADM, this bifocal vision has prompted a streamlining and strengthening of our entire organization to improve our earnings power. At the same time, we are defining our strategy and investing to lay the path to profitable growth. In the process, I believe our 112-year-old company has evolved into a more disciplined, higher performing organization.
Our growing strength was evident in 2013, as global agriculture registered a significant shift—from exceptionally tight global supplies to record harvests. Throughout this dynamic environment, our ADM team managed well, and late in the year—as global crop supplies reached record levels—we began to realize the benefits of our efforts.
A solid year
For the year, net earnings were $1.34 billion, essentially even with the prior year. Excluding certain non- recurring items, segment operating profit increased year-over-year, from $2.87 billion to $2.95 billion.
Our Oilseeds Processing team had an excellent year, with several businesses setting profit and volume records. Corn Processing results were highlighted by the work our ethanol team has done to improve a business that was not meeting our expectations for returns. That work—which included implementing cost-management projects, enhancing risk management and reducing inventories—positioned the group to capitalize on a significantly improved margin environment later in the year. Sweeteners and starches also realized improved results, with good risk management. Though the performance of our Agricultural Services segment was negatively impacted by the lingering effects of 2012’s historic U.S. drought, it was enhanced by consistently strong profits from our milling business. Within the segments, we also saw good performance from some smaller but growing businesses with higher-margin product lines, including protein specialties and lecithin within Oilseeds and our renewable chemicals business in Corn.
The earnings improvement we achieved over the course of the year also led to better returns on invested capital. Our trailing four-quarter average adjusted ROIC of 6.6 percent as of Dec. 31, 2013, came in just below our weighted average cost of capital of 6.7 percent. The spread turned positive in the fourth quarter, with the static quarterly spread above our target of 200 basis points. We are working hard to continue this trend.
We expect our earnings improvements to continue, and this expectation—along with our strong operating cash flows—enabled us to raise the quarterly cash dividend by 26 percent to 24 cents per share, effective with the March 2014 payment. We are also particularly pleased to have delivered a total shareholder return of 62 percent in 2013.
Overall, I credit our good performance both to the geographic and operational diversity of our business model and to our 31,000 colleagues’ unflagging commitment to improving the earnings power of our business and generating returns for our shareholders.
Strengthening our earnings power through emphasis on 3C’s
A key driver of our recent improvements has been an intense—and enthusiastic—companywide focus on costs, cash and capital—our 3C’s.
||In 2013, we followed our previous year $150 million reduction in annual run-rate savings with a commitment to achieve an additional $200 million in cost reductions. We are more than half way to our goal, through improvements in technology, procurement and overall operational excellence.|
||In June, we completed a year-long campaign to unlock more than $2 billion in cash by streamlining processes, reducing inventories and other working capital, and divesting non-strategic assets. Beyond generating additional cash for investment, this companywide campaign helped build a culture of “cash-consciousness.” The original target for this campaign was $1 billion, but our team’s success emboldened us to double this challenge, in the same timeframe, and we achieved it.|
We continued to strengthen our capital processes to ensure that both current and future investments deliver strong returns to shareholders. In 2013, we kept our capital spending under $1 billion, with high-value growth capital targeted mostly outside North America.
Advancing our growth strategy
The work I have described—to improve our earnings power—both supports and enables our strategy for profitable growth. That strategy is focused on expanding our geographic footprint in origination and select processing, and growing the number and variety of products we make from our agricultural feedstocks. In 2013, we advanced that strategy through investments and partnerships.
Our Paraguay soybean crush plant, which increased our total South American soybean processing capacity by about 25 percent, opened in time for the country’s record harvest, and the facility ran hard through its first months in operation. Expansion at our Belém port facility in northern Brazil is nearly complete, and we are awaiting permits that will enable full operations. We believe this investment—along with our plan to increase the size of our South American barge fleet—will build ADM’s competitive position in an increasingly important growing and exporting region.
In Europe, we are capitalizing on synergies and complementary operations between ADM and Alfred C. Toepfer International, in which we hold 80 percent ownership. We launched ADMIntermare, which combines both companies’ ocean freight operations and leverages resources, expertise and best practices. We are also advancing our Olenex joint venture with Wilmar International Limited, Asia’s leading agribusiness in which we hold about 16 percent ownership. Olenex markets refined oils, margarines, non- dairy and confectionery fats to food companies throughout Europe.
In North America, we began operations at our new biodiesel plant in Lloydminster, Alberta, and opened an intermodal container ramp in Decatur, Illinois. With direct access to three Class I railroads and close proximity to four interstate highways, the intermodal ramp enables ADM to lower our own transportation costs and offer transportation and logistics expertise to third parties. It also provides a platform for economic growth in central Illinois.
In Australia, we were disappointed by the government’s rejection of our bid to acquire 100 percent of GrainCorp. We maintain approximately 20 percent ownership of the company and are committed to supporting opportunities that build value.
Strong balance sheet enables investment for returns
Our strong balance sheet represents a significant advantage for ADM as we continue identifying high- value growth opportunities. In 2013, our ratio of net debt to total capital improved significantly, thanks to a focus on capital efficiency and generating cash. For 2014, our projected capital expenditures include about $400 million in maintenance, $100 million in an enterprise resource planning project, and $900 million in growth capital and cost-reduction projects—with more than 60 percent of growth spending targeted outside the U.S. We also plan to return $1.4 billion to shareholders through dividends and share repurchase. And we are quite confident that our balance sheet can also support good M&A opportunities that may arise.
Optimizing our business portfolio
Our focus on returns also extends to our existing portfolio. We continue to assess and work to optimize the portfolio, directing resources to where they can create the greatest value—including investing in higher-margin businesses while considering various options, including divestiture, for businesses that don’t meet our returns expectations.
Positioning for a global future
As we take a“bifocal”view of our company, we recognize that our markets, our work and our opportunities are increasingly global. That awareness is reflected in our decision to establish a new global headquarters and customer center. Located in Chicago, the new global center will make it easier for us to meet and work with customers, business partners, investors and colleagues around the globe. It will also help us attract and retain the strong, global leaders we will need to ensure our current and future success. During 2013, we made progress increasing our talent pool with experienced new hires who brought additional capabilities and global perspective to the team.
As we talk about strong, global leaders, I am pleased to say that in February we named Juan Luciano president of the company. Juan is the 12th person to serve as president in our 112-year history. His promotion recognized the excellent results he has achieved, particularly as he has focused the ADM team on improved returns, and I am confident that as president, in partnership with his colleagues, he will continue to create greater value for ADM’s shareholders.
As I reflect on accomplishments of the past year, I’m proud of the tremendous work our teams did to help ADM navigate a wide range of market conditions while improving our earnings power and delivering strong returns. And, I’m excited about what this performance says for our prospects going forward. With strong global demand for our products, crops in abundant supply, and a world economy that continues to improve, I believe the future looks bright. I look forward to working with our outstanding teams around the world to continue creating value as we fulfill our purpose of serving vital needs.
Patricia A. Woertz Chairman and CEO