When Vikram Luther left General Motors to become a treasurer at agriculture giant Archer-Daniels-Midland (ADM) 17 years ago, the move was more than just an uphill career for him: The idea of joining a food company struck a strong personal chord.
“I was born and raised in India, with a population of 1.3 billion and a relatively low GDP per capita, and I had a keen awareness of the value of good nutrition at an affordable price in that it lifts people up from a social and economic perspective,” Luther said, speaking in a room Meetings overlooking Lake Michigan at the ADM headquarters in Chicago. “I really bought it. I felt that I could participate in helping this noble purpose.”
In one of his first interviews with a reporter since taking over the financial leadership in April, Luther, 55, outlined some of the details involved in the move. He spoke of a relatively “smooth” transition into his new job, in part due to his experience taking on a number of strategic and financial roles across the company. He worked for many years with his predecessor as CFO – also a guide – Ray Young as well as CEO Juan Luciano said.
“I saw the company from very different sides and was closely involved with Joanne Wray and other key leaders and the strategic transformation that took place at ADM,” Luther said. “So I feel like I understand business well and know people – This is very important in any company. The people who work there are absolutely vital to making things happen and getting them to work.”
Looking ahead, he describes some of his key financial priorities in his new role as he seeks to ensure that the company exercises the financial discipline necessary to fund its growth strategy. He said he is also looking forward to ensuring that his senior financial team is recognized as one of the most effective financial institutions in his sector by focusing on the development of his staff.
In setting the course of his career, Luther was particularly moving when describing a transformation strategy that tilted over a century ago an ag company better known for corn and grains toward sustainable products as well as newly developed, consumer-friendly nutritional ingredients.
He said carbon-neutral wheat flour, probiotics for gut health, and plant-based proteins are some of the product areas ADM has expanded into. At the same time, Luther stresses, the company must continue to explore new ways to grow and develop food through synthetic biology and other methods.
“The world’s population will continue to grow,” he said. “But the supply of grain and arable land is limited, so there must be other ways to meet the nutritional needs of the world’s population.”
A into four powerful agribusiness companies known as the ABCD Group, ADM is reshaping itself through acquisitions and investments to expand its business in food products and human and animal ingredients at a higher profit margin.
The main focus came in 2014 with ADM’s $3 billion purchase of Swiss-German natural ingredients company Wild Flavors, according to Seth Goldstein, senior equity analyst at Morningstar. Since then, the company has been investing and making other small acquisitions downstream, as the crop business has faced low profit margins, in part because more market participants have leverage and access to pricing information that was once the prerogative of ABCDs, As Goldstein said.
“I think continuing to invest in nutrition is the right strategy because it has more levers under management control,” Goldstein said, in contrast to the more volatile grain and crop trade. While the acquisition of WIld Flavors has been significant, the company has recently been growing its business with increased acquisitions and investments, he said. It also has a strong balance sheet and is seen as a “Aristocratic Distributions,” He said.
Looking ahead, Luthar expects that the company’s human and animal nutrition business, which includes a range of products and ingredients used in everything from vegan burgers to pet food, will grow from generating $700 million, or about 15% of the company’s total operation. Luther said its profit last year will be $1.5 billion, or about 25 percent of its operating profit, by 2025.
under the radar
The company announced in the second quarter that its segment operating profit rose to $1.8 billion from $1.14 billion in the same period a year earlier. However, it is not overwhelmed by rising costs and inflation. At a Barclays conference earlier this month, Luciano, ADM’s CEO, indicated that the company may have been seeing energy values in Europe that were ten times what it was paying last year.
This year appears to be the “cyclical peak” of the company’s agriculture and oilseed business services, according to a July 26 report from Morningstar’s Goldstein. ADM’s grain trading business likely benefited from a pause in grain exports from Russia and Ukraine during the quarter. As customers who normally import grain from those countries are scrambling to secure other supplies, we think there is likely to be more disruption to grain prices, resulting in more profit opportunities.”
With the increase in grain exports from Russia and Ukraine during the second half of the year, the report indicates that grain trading conditions are expected to decline. Meanwhile, Goldstein expects the company to continue to make more small investments downstream. Will more consumer-oriented food products make ADM a household name? Not likely, Goldstein said. He said ADM would be there, but “under the radar”.