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General Body Meeting 03.10.11

General Body Meeting 03.10.11. Agenda. News Updates Macro Sector Pitch. News Updates. Emdeon Q4 Earnings. Revenue of $275.7 million (increased 15.5% over 2009 Q4 revenue) Revenue cycle management and payment services solutions continued to lead growth

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General Body Meeting 03.10.11

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  1. General Body Meeting 03.10.11

  2. Agenda • News Updates • Macro Sector Pitch

  3. News Updates

  4. Emdeon Q4 Earnings • Revenue of $275.7 million (increased 15.5% over 2009 Q4 revenue) • Revenue cycle management and payment services solutions continued to lead growth • Completion of Chamberlin Edmonds acquisition in Q4 broadens revenue cycle management offering • Strategy of layering value-added products and technology-enabled services on top of leading health information network

  5. China Inflation Update • Dec 2010 Inflation: 4.6% (Target: 4%) • Jan 2011 Inflation: 4.9% (Target: 4%) • People’s Bank of China (PBOC) has boosted reserve requirement ratio for commercial banks 8 times since Q1 2010 (19.5%) • PBOC has increased interest rates 3 times since Q1 2011 (6.06%) • Government: will maintain at 4% in 2011

  6. China Inflation Update • Key Areas • Skyrocketing food prices: overall costs increased 10.3% in January • Housing costs: increased 6.8% in January • Mideast Violence • Increases in price of oil putting further inflationary pressures on Chinese products

  7. China Inflation Update • Government Fears • Population growing increasingly unhappy as rising cost of living “endangering the Chinese dream” • Government support closely tied to economic success, inflation seen as a catalyst for unrest • “Jasmine Revolution” – recent online calls for protest, evidence of discontent • Controlling inflation and restoring price stability is a critical priority

  8. China Inflation Update • Expectations • A further increase in the reserve requirement, up to 23% • Ramping up existing agricultural capacity • An additional increase in the interest rate • Massive investment in low-cost housing: 10 million units planned for 2011 • 5 year GDP growth target: 7% • “Keeping prices stable is the top macroeconomic control goal for this year” - Wen

  9. News Update: Fiscal Budget, Debt Ceiling Real Estate Team

  10. Fiscal Budget • 2011 budget deficit to hit record $1.65T (10.9% GDP), Congress debate over spending cuts • Deadline March 18 • Obama’s proposed budget for 2012: • Slash deficit by $1.1T in the next 10 years , two-thirds from spending cuts and rest from tax revenue • “Doesn't even scratch the surface.” – Ward McCarthy, Chief Financial Economist, Jefferies & Co. • 2012 Budget to fall to $1.1T in 2012 • Does not address entitlements (43% of budget)

  11. Debt Ceiling • Theoretically, a way for Congress to control debt the US Treasury takes on • Currently at $14.29 trillion • Expected to reach between Apr. 15 and May 31 • No ceiling hike means default • Bernanke: “We’ve never had a failure to raise the debt limit.” • Raised 37 times since 1980 • Jan 27: S&P downgraded Japan to AA-minus: a warning?

  12. Unemployment Update • Unemployment rate: 8.9% • Jobless claims under 400K • Few workers who stopped looking for jobs have returned to the labor force • Unemployment rate may rise • True unemployment rate still close to 16% • Counts underemployed, unemployed who have stopped working

  13. Current Problems • Tunisia and Egypt • Bahrain and Yemen • In Libya, Qaddafi Forces attack Rebels in strategic refinery town • The Libyan Emirates Oil Refining Co. has shut down one of the largest crude refineries in the area; nearby terminals bombed • Supply shock continues

  14. Crude Compared to the Dow

  15. Impact on the Markets • Supply uncertainty causing price fluctuations • OPEC to compensate for lost Libyan production • Rising oil prices will weigh on markets; global growth • Non MENA oil companies • Increased demand for fuel efficiency?

  16. What to Look For • Aid to rebels in Libya; relatively quick end to stalemate (thanks Patel) • Saudi “Day of Rage” • Are we better prepared?

  17. Archer Daniels Midland Co. (ADM)

  18. ADM Background • Consumer, non-cyclical • Vertically integrated • Procures, transports, stores, processes, and merchandises agricultural commodities and products • oilseeds, corn, wheat, cocoa, and other agricultural commodities • Manufactures vegetable oil and protein meal, corn sweeteners, flour, biodiesel, ethanol, and other food and feed ingredients • Oilseeds Processing: 43%
Corn Processing: 13%
Agricultural Services: 36%
Other: 8%

  19. Management • CEO: Patricia Woertz • President and CEO since April 2006, Chairman of the Board of Directors since February 2007 • Previously Executive VP of Chevron Corporation and Director of Proctor and Gamble. • Currently on the board of directors of P&G, serves on the international business council of the world economic forum, and VP chairman of The Business Council. Appointed to the president’s export council.

  20. Operations Breakdown

  21. Favorable Macroeconomic Trends • Emerging Market Middle Class will lead to higher demand for wheat, corn as both food and livestock feed (higher demand for proteins) • Rise in Oil Prices with continuing Middle East instability will help alternative energy cost effectiveness including biofuels • Current Federal Reserve policy will eventually lead to inflation and this raises ADM profit margins without major impact on demand

  22. Russian Export Ban • Russia is third largest wheat exporter • Bad weather destroyed 20% of wheat crop • Lead to temporary ban on grain exports • Forecasters don’t see better weather in the coming months • Other wheat supply constraints caused by flooding in Canada and China

  23. Russian Floods and Supply Shocks • Not affected by Canada floods, Russian harvest, etc. • The Company is engaged in milling wheat, corn, and milo into flour in the United States, Canada, the Caribbean, and the United Kingdom.

  24. U.S. Corn Use

  25. USDA Production Forecast • U.S. corn harvest forecast slashed • USDA announcement on Oct. 26 declared supply even weaker than initially indicated • wheat, corn, and soybean prices affected

  26. QE2 and Inflation • Federal Reserve have been executing a $600 billion stimulus that will end in June 2011 • Fed purchasing bank assets and government bonds • Two effects • Weaker dollar raises commodity prices (inflation) • Money leaves low-yielding treasury market into other assets

  27. Favorable Macroeconomic Trends • Emerging Market Middle Class will lead to higher demand for wheat, corn as both food and livestock feed (higher demand for proteins) • Rise in Oil Prices with continuing Middle East instability will help alternative energy cost effectiveness including biofuels • Current Federal Reserve policy will eventually lead to inflation and this raises ADM profit margins without major impact on demand

  28. Other Supply and Demand Factors • Depreciation of the Yuan could hurt ADM export. However, critics claim Yuan is in fact undervalued • Improved weather conditions in competing economies. Argentina soybean crop being planted at a quicker pace as farmers take advantage of rains in September and October.

  29. Federal Gov. Subsidies • Agricultural industry receives wide range of government aid through subsidies, tariffs, and tax breaks • Tax breaks for ethanol-blended gasoline end this year • Some in Congress want to end tax cut • Would lead to higher food prices • Obama Administration announces backing of indefinite extension of tax cuts

  30. China • China is largest soybean consumer in the world - Chinese import U.S. Soybeans, which are relatively cheap, to sell into domestic market at higher prices - Should last as long as U.S. supplies are cheaper • Demand from China is stronger than ever • Demand will continue to grow as economy expands

  31. China • Prosperity in developing world – more demand for agriculture intensive food • Demand driven by emerging economics, China in particular, behind ADM growth • ADM, unlike Bunge, has developed immense soybean crushing capacity in China, one of the world’s largest markets for soybean oils. It has acquired facilities in the 10 best Chinese ports.

  32. Livestock Feed • Livestock feed is a large demand factor for for corn and wheat • As world economies recover and grow, demand increases for meat products • With higher GDP follows rising incomes and boosted demand for meat and fuels. A growing livestock industry will need increasing supplies of feed grains.

  33. Global Meat Production

  34. Favorable EPA Rulings • EPA approved E15 gasoline for 2007+ model light vehicles • Only 20% of vehicles • December EPA ruling based on 2001 – 2006 model vehicles • 70% of vehicles on US roads • $20,000 installation costs • Currently, corn for biofuels accounts for a third of total corn volume.

  35. EPA Ruling EPA ruling drastically affects corn demand Percentage of U.S. Cars Affected 2007+ 2001-2006

  36. Effect of Higher Commodity Prices • Previous quarter conference call: • 90% of the increase (in net sales and profits) was attributable to increases in selling prices, primarily resulting from the significant increase in underlying commodity costs. The remaining 10% of the increase in sales revenue was due to higher sales volumes • This is important because it signals higher selling prices are sticking and not hurting demand.

  37. From Capital Expenditures to ROE • ADM prefers to large capital expenditures and company growth over stock buyback • Have completed a series of large investments and still have a series of other capital expenditures over the next few months • Plants and factories in Europe and Asia • Possibly looking at share buyback • Will result in share price appreciation

  38. CapEx investing results in long term growth

  39. Possible M&A • “We have our ongoing CapEx program that's got a little more than a year to kind of run out… and we see some good M&A opportunities out there that we're evaluating each and every day.” • Potential buyout of Brazilian company

  40. Other Opportunities • Brazil’s elimination of 20% ethanol tariff until Dec. 31, 2011 • Agricultural industry’s strong lobbying power • Could push legal ethanol requirements even further

  41. Expansion (2009-2010) • Past five years, the Company has experienced significant growth- $6.7 billion for construction of new plants and the acquisitions of plants and transportation equipment • Constructing two dry corn milling plants which will increase the Company’s annual ethanol production capacity by 550 million gallons to 1.7 billion gallons

  42. Research & Development • “We are working to provide customers with palm oil sourced from crops that are responsibly grown and harvested.” – Commitment to Sustainable Oil Production (ADM Publication, 2009). • Thanks to this exceptional utility and to its relatively high oil yield, world palm oil production more than tripled between 1990 and 2005. • Palm oil now constitutes approximately one-third of the roughly 130 million total tons of the eight major vegetable oils and fats consumed worldwide every year

  43. Research & Development • ADM Research Finds Corn Stover Can Be Effective in Cattle Feed With Simple On-Farm Treatment • Corn Stover: Corn stover consists of the leaves and stalks of maize plants left in a field after harvest and consists of the residue: stalk; the leaf, husk, and cob remaining in the field following the harvest of cereal grain. • Mike Baroni, VP of Economic Policy for ADM and Dr. Mike Cecava, both state that: • “Global agriculture needs to produce more using less water, fertilizer and other inputs, and without bringing vast amounts of new land into production. Using crop residues and co-products, rather than higher-value grains, to help feed animals could enable the world to make more of the global harvest and help agriculture expand to meet all needs.”

  44. ADM in the News • Friday, March 4 – Burcon NutraScience Corporation announced that the Company has amended the license and development agreement between Burcon, Burcon NutraScience (MB) Corp., and Archer Daniels Midland Company (ADM) to provide an extended development period for continued research aimed at expanding the commercial value of Puratein® and Supertein™. Burcon and ADM have agreed to an amendment of the license and development agreement to effectively provide a one-year extension to March 1, 2012, to facilitate continued research. • Burcon's main research objective during the one-year term of this amendment is to further the commercialization potential of Burcon’s canola protein products Puratein® and Supertein™, particularly with respect to their unique functional and nutritional characteristics. • Thursday, March 3 – Archer Daniels Midland Company was ranked the world’s most admired company in the food production industry for the third consecutive year by Fortune. Fortune ranked ADM at the top spot in the food production industry in six of the nine categories by which companies were evaluated: people management, social responsibility, quality of management, financial soundness, quality of products, and global competitiveness.

  45. ADM in the News Wednesday, March 2 – Rising Oil Boosts The Fortunes Of Biofuel Stocks: On a historical basis, alternative fuels come into the spotlight when oil prices surge and analysts and economists speculate that rising prices at the pump could crimp economic activity. That seems to be the case now as investors seem to be favoring ethanol and biofuel stocks. Most Index members have market values of less than $300 million, but Archer-Daniels Midland has more and is by far the largest Index constituent and is doing quite well as oil prices soar. Wednesday, February 9 – ADM to Invest in Sustainable Palm Production in Brazil. Project will diversify ADMs product portfolio and support family farms. Spanning five years, the ADM investment will encompass approximately 12,000 hectares of palm production in the state of Pará and include the construction of a palm processing plant. This investment adds a new crop to their value chain in Brazil and diversifies their feedstock options for biodiesel production there, while at the same time supporting commitment to sustainability in terms of both agricultural production and the livelihoods of farm families in Brazil. Tuesday, January 4 – Archer Daniels Midland Company announced that it has acquired all of the outstanding capital stock of Alimenta (USA), Inc., from Alimenta S.A., an international trading company based in Geneva, Switzerland. Alimenta (USA) is ADM's 50% partner in Golden Peanut Company, LLC. As a result of this transaction, ADM now controls 100% of Golden Peanut Company. The Company’s operations include seven handling facilities located in peanut-producing regions of the United States and one facility in Argentina.

  46. Marketing & Culture • 5-year plan announced in February to invest in nearly 30,000 acres of palm trees in Brazil and build a new processing plant. • Part of a long-term program to use palm in its biodiesel production • Focus on palm oil is a new strategy that ADM began in 2007 • Less focus on Soybean Processing • ADM has teamed with the not-for-profit organization ‘Business for Social Responsibility’ to undertake an analysis of their palm supply chain, and to determine how they can meet their customers’ desire for sustainably-sourced products • Fortune ranked ADM at the top spot in the food production industry in: • People Management • Social Responsibility • Quality of Management • Financial Soundness • Quality of Products • Global Competitiveness

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