ADM bets big on nutrition to drive profit as it amps up capacity in high-growth areas
Less than a decade old, ADM’s nutrition business is still in its infancy in many regards, but already generating “give or take, north of $800m in operating profits this year and probably $1bn of operating profit next year,” CEO Juan Luciano said last week during BMO Markets Global Farm to Market conference in New York.
While this may sound ambitious given the competitive landscape that pits ADM against several well established players in the nutrition segment, Luciano said the company’s efforts to differentiate itself will allow it to grow at an estimated 15-20% annually – making its $1bn target “absolutely” within reach in the next year.
“We knew we were late to this industry. So, when we looked at the industry, we said, ‘How can we differentiate ourselves?’ And our way to do that was to change the paradigm. Instead of people competing in verticals of colors and flavors and textures and some products, we said, ‘I don’t want to look at business like that.’ … And so, we introduced this concept of bringing systems into it.”
By bringing full systemic solutions and not just individual ‘pantry’ items, Luciano said ADM is able to help customers accelerate product development and marketing so that launches can occur in months rather than years.
He explained that ADM plans to “copy and paste” this philosophy to new segments within nutrition in coming years – exponentially growing its base and profits.
“We started in human nutrition beverages, we expanded into food, we expanded into pet, we expanded into biomaterials as well. So, my point is, we are at the beginning stages. So, will the business get to $1bn? Absolutely, next year. And the business will continue to thrive and move beyond that number,” with a runway of 15-20% over the next five to 10 years, he said.
A refined portfolio and expanded capacity
In addition to adopting a systems approach, ADM is steadily reshaping its portfolio and building its capacity to provide solutions in high-growth categories, Luciano said.
For example, CFO Vikram Luthar noted, between 2015 and 2020, ADM generated almost $3bn from the sales of non-core assets, “and that philosophy continues,” with the recent sale of the company’s ethanol production complex in Peoria, Ill., to BioUrja Group to free up and redeploy capital to other strategic investments.
These include a $300m expansion of alternative protein capacity in Decatur that nearly doubled its existing extrusion capacity in a deal announced last month, as well as expanded starch production capacity in Minnesota, announced earlier this month.
Other high-profile acquisitions in recent years include South African flavor distributor Comhan in February as well as Flavor Infusion International last December, a growth investment in the production of non-GMO soybeans in Germany in April, the acquisition of non-GMO soy ingredient business Sojaprotein last November and before that the acquisiton of Deerland Probiotics & Enzymes, among other deals.
Looking forward, Luciano said, that of the $1.3bn the company plans to spend this year and next “a high proportion of that is going to nutrition.”
While he didn’t tip his hand about what, if anything, the company is looking at, he did say ADM is not forecasting any major acquisitions within the next five years – preferring to focus on organic growth and potential bolt-on deals.
He reasoned that current valuations for full acquisitions in the nutrition space are high – “exacerbated” by “years of cheap money,” and that ADM would rather wait for those valuations to correct and “then we can flex our balance sheet and our great cash flow, which are a source of competitive advantage.”
A global perspective
Beyond specific areas of interest within nutrition, ADM also is considering how to expand its footprint globally, Luciano said.
“From a geography perspective, we are very good in the areas that are growing in North America and Europe, but we are just getting started in Latin America and Asia Pacific,” he said.