CHICAGO, ILLINOIS, U.S. — Archer Daniels Midland Company (ADM) on Dec. 3 outlined a comprehensive strategy to grow returns and economic value added (EVA) by setting the competitive standard for the industries in which it operates and by implementing a balanced capital allocation framework that includes an increase in the company’s dividend payout ratio.
“Over the past few years, we’ve been working to grow ADM’s earnings power and create greater value for our customers and our shareholders,” Patricia Woertz, chairman and chief executive officer, told analysts and shareholders at ADM’s Investor Day. “We’ve made significant progress toward operational excellence; we’ve developed and implemented an aggressive strategy for growth; we’ve put the company in a very strong position financially; and we have strengthened and developed the organization.
“Today, our company is exceptionally well-positioned — with an excellent team managing the business and strong trends supporting our continued growth.”
President and Chief Operating Officer Juan Luciano, who will become ADM’s CEO effective Jan. 1, 2015, discussed actions the company is taking to increase the number of levers under its control:
• Optimizing the core business through increased destination marketing, portfolio management and an enhanced mix of value-added products.
• Driving operational efficiencies by leveraging technology for competitive advantage, standardizing for scale, and optimizing critical business processes and systems to improve productivity.
• Expanding strategically, through geographic expansion, by growing the company’s market-facing units, and by incubating an innovation platform.
“Our focus on these levers will enable us to fully capitalize on enduring trends, set the competitive standard in our industries and maintain our balanced approach to capital allocation,” Luciano said.
Ray Young, senior vice-president and chief financial officer, reiterated the company’s target adjusted return on invested capital of 10% — 200 basis points above its 8% long-term weighted average cost of capital — and its commitment to continue growing EVA.
The company will maintain a balanced approach to capital allocation, he said, reinvesting approximately 30% to 40% of future operating cash flows in value-generating capital projects, and the remaining 60% to 70% in strategic growth initiatives including mergers and acquisitions and/or return of capital to shareholders. As part of this capital allocation framework, and with growing earnings and more stable cash flows, Young indicated that dividend payout ratio ranges will increase from the historic range of 20% to 25% of earnings to a medium-term range of 30% to 40%.
Other presentations outlined ADM’s plans to set the competitive standards in the industries in which it operates.
With the industry’s most diverse geographic footprint and product portfolio, Oilseeds Processing has many more opportunities to grow EVA. Among its most significant projects, the business is growing its specialty products portfolio to serve growing demand across Brazil and expanding its origination network in Brazil’s northern frontier region, where soybean production is projected to continue growing at a 20% compound annual rate through 2017.
Leaders of the company’s Corn Processing business said that while the business has performed well in 2014, there remain significant opportunities for further improvement and growth. The business has only just begun expanding its geographic footprint outside the U.S.; increasingly robust exports are expected to support favorable results in the U.S. ethanol business; and the Sweeteners & Starches group is continuing to expand the range of higher-margin products it generates from raw material streams.
The Agricultural Services business unit plans to expand its crop origination volumes outside the U.S. with the goal of doubling handling volumes worldwide. The business also plans to expand its destination and distribution network, which provides an opportunity to triple margin-per-ton in the distribution network.
The company has set a goal of growing sales in its new WILD Flavors and Specialty Ingredients business unit to $10 billion from $2.5 billion. Executives reiterated that combining the capabilities of newly acquired WILD Flavors GmbH with ADM’s existing specialty ingredients businesses should drive an estimated $125 million in revenue and cost synergies within three years.
Research and Development leaders said that a wide range of operational excellence and process-improvement initiatives should yield $350 million in incremental cost savings by 2019.
Executives also discussed the company’s rich product-development pipeline to advance the company’s ability to serve evolving customer demand and to drive sales growth across the business.