ADM expects to realize additional US$200M in savings by end of 2014, sees US$1B in working cash improvements by end of this year amid operational improvements in such areas as energy and water use, procurement, company says

Nevin Barich

NEW YORK , May 15, 2013 (press release) – Additional $200 million savings expected from operational, technological improvements by end of 2014

Additional $1 billion in working cash expected from inventory reductions, asset sales in 2013

Operational improvements in areas ranging from energy and water use to procurement, inventory management and maintenance are expected to enable Archer Daniels Midland Company (NYSE: ADM) to realize $200 million in additional cost savings by the end of 2014, and to free up an additional $1 billion in cash by the end of 2013, the company will tell investors today.

ADM Executive Vice President and Chief Operating Officer Juan Luciano will tell the BMO Capital Markets 2013 Farm to Market Conference in New York that the new targets reflect ADM’s focus on driving value from existing assets as part of an overall emphasis on enhancing earnings power and shareholder returns. He will note that company’s focus on what it calls the 3C’s—cost, cash and capital—took on added importance in the wake of last year’s U.S. drought, which sharply lowered the volume of crops available for the company to originate and process.

Luciano will tell investors that ADM already achieved $150 million in annual run‐rate savings following an organizational restructuring and other cost-saving activities in 2012. The additional $200 million is expected to come from reducing energy and water use; implementing a companywide maintenance-management system; standardizing processes, procedures and inventory controls; and leveraging the company’s scale in the area of procurement.

The additional $1 billion in working cash improvements would bring the total the company has unlocked since mid-2012 to $2 billion. ADM already realized $1 billion in the last half of 2012 through better inventory-management; monetization of underutilized assets as part of an ongoing portfolio management effort; extracting cash from various joint ventures; and improved processes for managing payables and receivables. Luciano will note that the company’s employees have contributed more than 1,700 suggestions for further cash improvements, and that these will help ADM reach the next $1 billion milestone.

Capital Project Review Highlights Global Expansion

In a review of major strategic growth projects ADM has completed in recent years, Luciano will explain that discipline and effective execution strengthened returns on the investments. Among the highlights he will cite:

The recent opening of a large soybean crush plant in Paraguay was completed on-time and several million dollars under budget, and its first quarter operating profit exceeded projections.

The 2012 acquisition of a port in Belém, Brazil, will significantly enhance ADM’s ability to export grain from the country’s northern and western regions.

ADM captured 6.3 million Euros in first-year synergies following its 2011 acquisition of Poland’s Elstar Oils. Original projections were for synergies of about 4 million Euros.

The company’s Olenex edible oils joint venture with Wilmar International Limited, announced in the summer of 2012, has given ADM the ability to offer customers a wider oils and fats product portfolio with a relatively small capital outlay. Customer response to date has been highly positive.

In addition, Luciano will note that the company’s planned acquisition of Australia’s GrainCorp is expected to be earnings‐accretive in the first full year, and that run‐rate synergies of A$50‐70 million are expected by the end of year two. The transaction remains subject to approval from governments and GrainCorp shareholders.

Optimism about Ethanol Business

Also at the BMO conference, Luciano will update investors on ADM’s ethanol business. A gradual drawdown in Renewable Fuel Identification Numbers, or RINs, and an increase in mandated demand should restore balance to the market and improve margins, according to Luciano.

As demand increases further, and as ADM continues its work to improve yields, reduce costs and capitalize on co-product opportunities, ADM expects to drive better returns from the ethanol business.

Reiterating Return Focus

Luciano will also reiterate ADM’s goal of achieving an Adjusted Return on Invested Capital of 200 basis points above the company’s Weighted Average Cost of Capital. He will also note that the company aims to achieve an Adjusted ROIC at least equal to WACC even at the bottom of the cycle.

About ADM

For more than a century, the people of Archer Daniels Midland Company (NYSE: ADM) have transformed crops into products that serve vital needs. Today, 30,000 ADM employees around the globe convert oilseeds, corn, wheat and cocoa into products for food, animal feed, industrial and energy uses. With more than 265 processing plants, 460 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.

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