Cites ROIC Improvement as Evidence of Progress
Company Doubles Year-End Cost-Reduction Target to $400 Million in Run-Rate Savings
DECATUR, Ill.--(BUSINESS WIRE)--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 Juan Luciano.
“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 growth.
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
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, Luciano said.
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 businesses.
“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
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
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
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, visit www.adm.com.
Archer Daniels Midland Company
Jackie Anderson, 217-424-5413