ADM to capitalize on Asia's boom to boost earnings power

by World Grain Staff
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BOCA RATON, FLORIDA, U.S. — Archer Daniels Midland Co. (ADM) leaders on Feb. 21 outlined the company’s plan to boost earnings power and drive future earnings growth at the annual meeting of the Consumer Analyst Group of New York.

Chairman and Chief Executive Officer Patricia Woertz said ADM’s business strategies are designed to capitalize on the opportunities presented by the world’s growing, more prosperous population, particularly in Asia.

“To supply growing demand for agricultural products, the world will need more crops and global networks that can connect those crops with growing markets,” said Woertz. “ADM is expanding our operations and transportation network to meet those needs.”

ADM is enhancing its collaboration with Wilmar International Limited, Asia’s largest agribusiness. Executive Vice-President and Chief Operating Officer Juan Luciano announced that the companies have signed a memorandum of understanding to collaborate in purchasing and distribution opportunities in the global fertilizer business; the utilization and management of ocean freight assets; and the optimization of their tropical oil refining operations in Europe.

Collaborations between ADM and Wilmar began in the mid-1990s, when they jointly built a network of soybean processing operations in China. Today, ADM owns a 16% equity stake in Wilmar. The companies have significant supplier relationships with each other.

Under the recent agreement, the companies will collaborate on purchasing and distribution in fertilizer; they will partner to improve the utilization and management of their shipping fleets, with each company contributing two ships to the effort; and they will work together to optimize utilization of tropical oil refining in Europe.

ADM and Wilmar will look to finalize the definitive agreements over the next few months.

“We have an excellent relationship with Wilmar’s leadership, and we see Wilmar as a key partner, especially in our strategy to serve growing Asian demand for agricultural products,” Woertz said. “Our teams are currently working together on many projects, and we look forward to finding more opportunities to work with our friends and partners at Wilmar.”

Luciano also discussed how ADM is driving improvements to grow profits.

“We continue our pursuit of operational excellence, which will help grow our competitive advantage. We have enhanced our capital allocation program, improving the process, analysis and strategic focus, resulting in a clearer sense of how our investments — individually and in aggregate — will drive returns,” he said. “We are managing our business portfolio, growing businesses that are seeing results, and reevaluating businesses and operations that aren’t.”

“ADM has had a track record of growing earnings over the past 10 years. Recently, we have seen this growth rate slow, and this is a concern on our part,” said Senior Vice-President and Chief Financial Officer Ray Young. “So, all the actions that we have recently been taking are meant to boost the earnings power of our company,” while achieving returns on capital consistent with ADM’s objective.

Young said ADM’s balance sheet is a source of competitive strength and provides the company with tremendous flexibility, both in managing through crop price and credit market volatilities and in making opportunistic acquisitions. He also said the company’s track record of cash flow generation and earnings growth has allowed ADM to increase its dividends annually recently.

Woertz provided an update on the ongoing workforce reduction, noting that the company currently projects annual pretax savings from these measures and other targeted cost reductions to be more than $125 million. She said the company would further update the savings number and the charge related to the reorganization during its third-quarter earnings conference call, 

“ADM has a sound strategy, a strong balance sheet, a drive to improve, and a focus on delivering returns for our shareholders,” Woertz said.



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