Archer Daniels Midland Company - Shareholder/Analyst Call - TheStreet

Archer Daniels Midland Co. (ADM)

March 28, 2012 2:00 am ET


Juan R. Luciano - Chief Operating officer, Executive Vice President and Member of Risk Management Committee

Matthew J. Jansen - Senior Vice President and President of Oilseeds Business Unit

Greg Morris -

Valmor Schaffer - President of South America

Brent Arthur Fenton - Managing Director

Ray G. Young - Chief Financial Officer and Senior Vice President

Unknown Executive -


John E. Roberts - The Buckingham Research Group Incorporated

Unknown Analyst

David Driscoll - Citigroup Inc, Research Division


Juan R. Luciano

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Good morning. I'm Juan Luciano, and I would like to thank you all for joining us in Hamburg. Pretty pleased to be here with you today to describe our Oilseeds business. We really have a great agenda we put together, a combination of presentations, some material that you see on the back and a plant tour. And I think this will provide you the opportunity today to take a deep dive into our Global Oilseeds business and, perhaps, more importantly, have the opportunity to interact with the wonderful management team that runs the business.

The way we're going to start is I would provide a brief introduction on ADM, cover some of the trends that we're facing in the agriculture industry and how we are positioned in our strategies to capitalize on those trends. After that, I will turn it over to Matt Jansen, the Global Oilseeds President; and he will be joined by Greg Morris, who will cover North America; Valmor Schaffer, who will cover Europe; our Host and President of Europe, Brent Fenton, who will cover Europe and sub-continent India. Then after that, we will have a

Q&A, where we will be joined by our CFO, Ray Young; our Chief Risk Officer, Craig Huss; our Corporate Strategy Vice President, Dwight Grimestad; and we have a new addition the team, and I would like to welcome Ruth Ann Wisener as the Vice President for Investor Relations. Welcome.

Today's discussion is obviously covered by our Safe Harbor statement, which you can read on the slide or on our website at Those of you listening on the webcast who may not be that familiar with ADM, I would like to present some key facts about our business: our fiscal 2011 revenue was $81 billion; we operate more than 665 facilities, 400 origination and about 265 processing units; we serve customers in over 160 countries; and our market cap is slightly above $20 billion. On the right hand side, you can see the 3 key businesses that we have, Oilseeds Processing, Corn Processing and Ag Services and the respective percentage of profits from the $4 billion of OP the business generated in 2011.

Now let me show you how we are positioned in our company to capitalize on these global trends. While the world is experiencing volatility, there are some signs that are very certain. When you look at the demographics and you realize the global population is growing by 0.5 billion people every decade and that we are probably witnessing the biggest change in standard of living that we have witnessed in many generations, and you have these people increasing the standard of living and, obviously, increasing their diet and consuming much more protein, many of our large customers are advancing strategies to serve these growing needs, particularly in Asia. Our business, Oilseeds business, is aligned with those strategies.

In this favorable long-term environment, we are expanding our core models. This is our core model, our value chain. We buy crops from farmers

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on the left, move crops through our global transportation network and either sell them as crops or process them

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biofuels, industrial products.

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strong core model that's grown over the last century and continues to evolve.

Now let me show you how we're planning to continue to leverage this core model to capitalize on growing opportunities. I think some of you have seen this chart before, the top of it describes the regions where we're active, and the left side highlights the business activities. Orange boxes represent the strategic priorities. Places like South America, Eastern Europe and China that are growing and producing regions, we are focusing on growth. In other regions, we're optimizing our operations. In short, we're making sure that our growing global network feeds a glowing -- growing global population.

Maybe let me give you an example of one of them, in particular, the Wilmar partnership. You might recall that during our presentation at CAGNY in February, we announced that we had signed an MOU with Wilmar to partner in the areas of ocean freight, fertilizer and refined oils. We believe the partnership will leverage our strength in origination and distribution of fertilizers, save cost in fleet management and optimize our refining capacity in Europe.

We are pleased to let you know that our partnership in this area is progressing well. Earlier this month, we signed a definitive agreement to move forward in these ventures and, since then, both companies are preparing for the implementation process. We're excited about this venture and about our entire strategy of growth, faced with a growing, changing world.

Now Matt and his team will take you through our Oilseeds business in more detail, region-by-region. Matt?

Matthew J. Jansen

Great. Thank you, Juan, and welcome, everyone, to Hamburg. I'm very glad to share with you the Oilseeds division and our business overview. We're very near our oilseed crushing plant in Hamburg that we've passed last night. That's the largest of its kind in Europe. And I'm sure, this afternoon, as you get a chance to visit that plant, you'll gain a better appreciation for what we do there.

I'll begin this morning by giving a general overview of our global operations, and I'll talk briefly about what we do in China. And my objective is to share with you a footprint of our global assets. We'll talk a little bit about our recent earnings history, and I'll touch on some of the overarching trends that are shaping our industry across the globe. I'll introduce to you some of the specialty businesses that we have within our portfolio that are higher-margin product lines. And finally, I'll talk about our global strategy. And our global strategy is about extending -- or expanding our geographic footprint, it's growing our higher-margin business, and it's increasing our productivity and efficiencies through operational excellence.

So this map shows an overview of our global asset base, which is unparalleled in our industry, and we're very well positioned to meet market demand. And we have the capacity to process over 100,000 metric tons of oilseeds on a daily basis, and we are the top 3 in the global processors, with top positions in North America and in Europe.

Our business unit has over 130 processing facilities across the globe, many of which are crushing plants. About 1/2 of those are oilseed -- or oil refineries, packaging plants, biodiesel plants and higher-margin businesses, especially proteins, vitamin Es, lecithins and even sterols.

We participate in China largely through our participation in Wilmar, but we also do a lot of business in China selling to customers soybeans, rapeseeds and products. Bear in mind that in North America, we're primarily a processor, and many of our origination and export facilities are under the Ag Services division. While in Europe and in South America, much of our origination is within the Oilseeds division, together with the crushing plants and other processing plants.

Through this network, we can ship and source and process products virtually anywhere in the world. Taken as a whole, this integrated network, along with our insight and exceptional

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experience to manage the market dynamics, enables us to efficiently and cost-effectively connect growing supply and growing demand around the world.

Put you on OP just for a minute. You can see, roughly 2/3 of our OP comes from crushing and origination. About 1/4 comes from refining, packaging, biodiesel and other; and approximately 10% to 15% come through our relationship with Wilmar. Last year, OP exceeded $1.5 billion. That included a $71 million gain related to the acquisition of the remaining 50% of Golden Peanut. And after 6 months, this year, we're at $432 million. And as we discussed in our recent earnings calls, this year's slow down reflects margin challenges that are dragging the market down as a whole.

But we are confident that our efforts to grow our market presence and earnings power are positioning us to make the most of some of the undisputable trends that are shaping the global supply/demand base. And I'll talk a little bit more about those trends here in just a minute.

Risk management represents a critical aspect of our business, and it's one of ADM's core strengths. Beyond the basic supply and demand picture that influences our business and everyone else's, we have to account for variables such as macroeconomic conditions, FX and even speculative interest. These are all external factors that impact the price of commodities everyday, and we work hard to manage them effectively. But ADM benefits from having boots on the ground around the world; in-house experts who have first-hand, real time knowledge; everything from soybean yields in Mato Grosso, to feed-grain demand in pork and poultry customers in China, South America, North America and Europe. We know what growers are growing in South America, and we know what buyers are buying in all parts of the world. And we talk as a global team throughout the day, nearly everyday, to ensure alignment among our teams. This enables us to make timely, well-informed decisions and to capitalize on emerging opportunities.

Our belief is that having the right information is just part of the equation, how you interpret that information and what you do with it that makes the difference.

Some of the major factors working in ADM's favor are certain indisputable trends that are shaping the world around us. I'm talking, first and foremost, about the growth in population, which is expected to grow by 2 billion people between now and 2050. We see this as an opportunity, 1 billion people who will need more food and energy to live. Some of this growth will be in North America, which is projected to be in the low-single digits. South America is estimated to be 2x the rate as North America. Growth in Asia will be massive, an estimated 41%.

Increasingly affluent population is expected to rely heavily on agricultural production of North America, South America and Europe. This demographic inevitability gives us the confidence to continue pursuing our growth plans as we define them. A growing number of mouths to feed, along with rising incomes, particularly in China and Asia, is enabling millions of consumers to enjoy better diets.

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