Vikram Luthar was fresh off reporting nearly a doubling of ADM’s third-quarter EPS recently when he pivoted to a very different kind of presentation at a conference in early December: helping announce the commodity giant’s new goal of engaging 1 million acres in “regenerative agriculture” within the next year.
“As CFO, I’m actively involved in sustainability, because it’s core to our strategy and integrated into it,” Luthar told StrategicCFO360. “We want to make sure we support our customers and suppliers to support their own strategic objectives. So we work with farmers and influence their practices and reduce our carbon footprint, benefiting customers and consumers on the other end.”
Indeed, helping figure out a program that will incentivize farmers to reduce tillage and to plant cover crops on their farms isn’t too far afield these days for a CFO of Chicago-based ADM, said Luthar, a senior vice president and 18-year veteran of the company.
“The CFO gets siloed at many companies depending on how willing they are to stretch themselves across the organization,” he said. “The role is evolving. I’ve always had that broader mindset, but now it’s much more germane and common across corporate America and the world.
Dealing With Risk
“The world is getting a lot more complicated. The amount of complexity that people are dealing with is significantly greater today, and that’s one thing CFOs handle well. They deal with risk. They can provide a fresh perspective to an organization in understanding and achieving its growth objectives. That raises the profile of the CFO.”
In general, Luthar said, he sees his role as being “an effective business partner” to ADM chairman and CEO Juan Luciano. In that regard, the duo has been effective lately, with the CFO promising “a record year again in 2022 across all financial metrics. This includes significant gains in its oilseeds and agricultural-services operations, much-improved results in its starches and sweeteners subsegment, and rising demand for plant-based proteins that have become vogue for food processors all over the world.
Luthar—who has served various roles at ADM, which drove nearly $99 billion (TTM) in revenue in 2022, from head of investor relations to president of the Health & Wellness business to CFO of the corn-processing segment, after an 11-year stint with General Motors—leans into his traditional duties as CFO. “My focus areas from a metrics perspective are really driving returns on invested capital,” he said. “And if you boil it down, that’s essentially margins, multiplied by asset turnover.”
This discipline includes, for instance, recognizing when a business line is no longer pulling its weight, such as when ADM sold its cocoa business to Olam and its chocolate business to Cargill, in 2015. “We will never lose sight or focus on optimizing our cost structure across every part of the value chain, including optimizing working capital,” Luthar said. “That includes re-sourcing. It’s important that we reallocate our capital and resources to our strategy. It’s important for the organization and the CFO to be active there.”
He’s also dealing with new exigencies such as strong inflation. “We expanded our gross margins for the nine months versus last year in spite of cost increase because we had a very strong emphasis on margin management,” Luthar said. “That includes pricing and also the mix of products.” In 2023, he said, ADM expects “productivity initiatives to more than offset inflation, by one or two percentage points.”
With a supply chain that truly wraps around the world, ADM also has been attentive not just to fixing kinks but to getting ahead of problems, and that’s where Luthar said his role has been important. “We’ve shifted our discussion into leading indicators” of supply-chain health, he explained. “What’s happening around the world could influence what’s happening in our supply chain. Not just internal, but external metrics. Given a CFO’s focus on KPIs, that’s what we bring to that discussion. Focusing on leading indicators is a vital evolution of the role and of our ability to influence that dialog.”
As economies worldwide weaken, the trend also increases the opportunity for potential acquisitions by financially healthy players such as ADM. “One of the things across corporate America that will become more and more important is ensuring you have a strong balance sheet and strong access to liquidity, which we do,” Luthar said. “This will become more and more of a competitive advantage as rates continue to increase and financing becomes more expensive and less available.
“In that environment, growth rates are likely going to decline. We’re seeing some compression already in our industry. So we have the balance sheet, liquidity access, and we’re capable of doing M&A. We’ll see a rich pipeline of opportunities, and we have the balance sheet and the capacity to execute. But we’re more disciplined from a value perspective, because values are coming down.”
Human-capital management is an area where CFOs traditionally didn’t tread but where Luthar, as part of a new breed, feels the involvement of his function can be crucial.
“Labor entails the right financial incentives, to ensure you’re looking at it effectively not just from a country-specific point of view but also region-specific,” he said. “How do we make sure we’re competitive in terms of compensation, not just tomorrow but one or two years ahead. Planning for the cost increases that will entail, and how to offset that in terms of expanding margins, is a vital role for any CFO.”
And of course, there are ESG concerns, which helped lead to ADM’s regenerative-agriculture initiative. “You’ve got to think about how ESG plays into your strategy,” he said. “We have a strategy based on three enduring trends: food security, sustainability, and health and well-being. ESG is very linked to sustainable, so that’s crucial to our strategy.
“It’s not just a compliance issue but integrated into our overall strategy. For example, with sustainable aviation fuel, we can actually enable that transition, and also renewable green diesel. We’re already one of the world’s largest soybean suppliers. So we can create value in a lot of aspects there.”
Helping guide ADM’s approach to environmental, social and governance issues also involves his role “to bring the external-investor perspective” into play. “I talk to them all the time. When they look at ESG as an investment requirement, the number who look at metrics in totality as a requirement for investment is very low. But when they look at greenhouse-gas reductions specifically, that number is more than 50 percent. So that perception of ‘environmental’ factors is vital to us. Neither do we ignore ‘S’ and ‘G’; DEI, for example, is critical to driving the right culture and future growth.”