Operator: The next question today comes from the line of Ben Theurer from Barclays. Please go ahead. Your line is now open.
Ben Theurer: Thank you very much. Good morning, Juan. Good morning, Vikram.
Juan Luciano: Hi, Ben.
Vikram Luthar: Good morning.
Ben Theurer: Just wanted to quickly follow-up on the Nutrition dynamics you seen in the fourth quarter and how that translated into 1Q and somehow if you could frame it for that medium-term growth algorithm you’ve laid out a little over a year ago during your Capital Markets update. So fair to assume that there was obviously a lot of specific issues around fulfillment, some very specific demand items that kind of impacted in the fourth quarter, and you expect this, obviously, to continue into the first half and then recover into the second half. Now clearly, the 10% you’ve laid out and what you’ve talked about of growth in 2023 is kind of below the algorithm. So can you help us frame how €˜23 kind of fits within your €˜25 strategy and where you want to go?
Is that just a small dip can then be recovered? Or would you need some M&A to get back on track to the target of 1.2 at least by 2025, so that we understand how to think about the specific headwinds that can potentially be offset versus what might be more of a structural challenge within Nutrition?
Vikram Luthar: Yes, Ben, in terms of Q4, the issues that affected Q4, I’d say, are kind of a little more temporary, right, that we think we will be able to work through over the course of 2023, as I talked about. Specifically, what’s important for you to know that the demand is very, very strong, right? So that is €“ we talked about the strongest-ever pipeline in the Human Nutrition business and very strong win rates. So across every category that we play in, almost we’ve got strong demand. Yes, there is some softening in certain parts of the business, right? We are aware of dietary supplements that being a little softer. Plant-based protein growth may moderate a bit from the pace we’ve seen historically. But nevertheless, our growth has been very strong in Human Nutrition.
The challenge we’ve had is the demand fulfillment. That’s going to take us a while to address and overcome. Animal Nutrition, on the other hand, we benefited from strong margins in lysine, but in Q4, the compression in margins were sharper and faster than we expected, and that’s going to continue over the course of 2023. So we’ve got to offset that plus drive growth, and that’s what gives us a slightly below trend line growth for 2023 around 10% plus. Having said that, the outlook remains robust. And maybe, Juan, do you want to talk about the 2025 perspective?
Juan Luciano: Yes. Thank you, Vikram. Ben, listen, I think we have been €“ you have been witnessing how we built this nutrition business over the years. This is a business that, if I take over the last 3 years, it has been growing OP by 20%, CAGR if you will. So, it’s a business that we continue to add layers of capabilities so we can continue to win at the customer front, whether it is we go from individual ingredients to systems, where we bring functionality to those systems through bioactives, whether we bring sustainability benefits to that through our decarbonization or regen Ag. So, we continue to add layers to continue to help customers excel at the consumer level. And we see that in our win rates, and we see that in our pipeline.
So, we have visibility into that. As Vikram said, maybe some of the categories soften a little bit, but our ability to gain share, to win faster than those categories, has been demonstrated. I think this year, we grew revenue significantly higher than the market. So, when we look forward, as I said in my €“ I think one of the earlier answers, we continue to expect bolt-on and M&A €“ bolt-on M&A and organic growth. We had four companies in 2021. We are building capabilities and new capacity in 2022 that we are going to see on the stream in €˜23, and we are going to continue to grow that. So, we haven’t deviated from our 2025 plan. And I don’t think it will require massive M&A to achieve there. It will €“ you will see this steady state.
But this is a business that we are building in the middle of a lot of volatility in the market. This is of course, versus the legacy ADM business, it’s more complex in the number of SKUs that we have, in the number of customers that we have, in the number of plants and categories that we manage. So, when supply chain issues happen or market volatility happen, it’s a little bit more complex to fix in this business. And that’s why we expect a first half that’s going to be a little bit subdued when you add the demand fulfillment issues and some of the capability building, with the fact that also lysine is coming down, if you will, in prices, at least for the moment. So, I would say nothing that deviated. Certainly, if you ask me personally, and I think the management team, are we happy with Q4, I mean of course, Q4 underperformed our own expectations.
I mean that’s nothing new for a business that, again, has been growing 20% per year CAGR. And €“ but we think that this is just a trajectory in the business that continued to win faster than what the market gives us at this point in time. We don’t expect a deviation to our long-term plan at this point.
Operator: Thank you. Our next question today comes from the line of Manav Gupta from UBS. Please go ahead. Your line is now open.
Manav Gupta: Congrats on the beat and the dividend hike, shareholder returns matter and you have continuously rewarded your shareholders. My quick question here is, and you have kind of alluded to it also is we are seeing a lot of new capacity start up on the renewable diesel side. I think major projects starting up even last quarter. And then your outlook for both soybean oil and soybean meal, it seems pretty strong right now, any risks to that? And how do you see the year progressing from the perspective of both soybean oil and soybean meal?
Juan Luciano: Thank you, Manav. Thank you for the question. We continued to see very strong demand across the world, not only for all the oils. I think that if you take the four oils, demand is running harder than production, if you will, globally. So, even I would say before renewable green diesel happened, we had already a tight balance sheet from an oils perspective, and that has continued. When you think about the capacity that renewable green diesel is installing, it’s going to have a huge pull in soybean oil. And we have found that there is €“ we have found relatively easy to place the mill in the export markets. And if you look at the market overall, the meal market is a market of like 175 million metric tons and growing.
So, if you calculate by 2026, we need to have 20 million tons more soybean meal, just to catch up with the demand. And if you look at everything that we are building through the RGD and the capacity expansions, we are estimating about 15 million tons of supply on soybean meal. So, it’s still we have €“ we are still covered in only 75% of the expected soybean meal demand out there. So, we are looking at this as you can understand very carefully. Remember, as I always mentioned, it took us 2 years to assess Spiritwood and start building it. I am happy to report that is going to come online for the harvest. So, I would say we look at this, but the demand on both sides on the soybean meal and soybean oil clearly can support all this capacity.
So, we continued to see an environment in which crush margins will be strong and highly supportive for many, many years.
Operator: Thank you. The next question comes from the line of Steve Byrne from Bank of America. Please go ahead. Your line is now open.
Salvator Tiano: Yes. Thank you very much. This is Salvator Tiano filling in for Steve. So, firstly, I wanted to ask a little bit about China and specifically, you mentioned mill demand. So, a little bit short and long-term view. In the short-term, I guess the re-openings there, etcetera, do you see actually a positive momentum for demand for soybean meal or soybeans versus what you saw in the past couple of years with COVID zero? And then long-term actually is we have been reading how Chinese population dropped last year, essentially, it seems to have peaked much than it’s expected. And there are articles talking about what could be the long-term trajectory of food demand there, including protein demand and therefore, what would be the demand for feed. So, how are you seeing the long-term outlook in China for soybean meal and other products that you make?
