2016

Financial performance

Cargill reported adjusted operating earnings of $1.64 billion, down 15 percent from a year ago. Net earnings on a U.S. GAAP basis rose 50 percent to $2.38 billion, boosted by gains on the sales of several businesses that were partially offset by impairments taken on the company’s Venezuelan operations and other assets. Revenues decreased 11 percent to $107.2 billion, reflecting lower commodity prices, a strong U.S. dollar and divestitures. Cash flow from operations totaled $3.41 billion.

Across the company, our trading activities yielded mixed results, in part due to low volatility in agricultural commodity markets for most of the fiscal year. Three years of good weather in major growing regions and sluggish global demand led to large food stocks, weak prices and flat markets. Stalled growth also curbed results in many emerging economies. Even so, several of our businesses delivered strong earnings growth:

• Animal feed and nutrition
• Grain and oilseeds in China and South America
• Poultry in Central America, Europe and Thailand
• Turkey and value-added protein in North America
• Salt
• Starches and sweeteners
• Texturizing solutions
• Cocoa and chocolate in North America
• Trade and structured finance

Segment results

Adjusted operating earnings in Animal Nutrition & Protein decreased slightly due to difficult market conditions globally in beef. That was nearly offset by strong performance in animal nutrition, poultry and value-added protein, which benefited from low input costs, targeted marketing and strong demand. Our poultry business in China, however, continued to struggle.

Food Ingredients & Applications rose significantly, as the segment transitioned from 26 business units to four global product groups. Results improved broadly across edible oils, malt, starches, sweeteners, texturizers and bioindustrials, while salt and deicing products delivered outstanding performance.

Origination & Processing also moved to larger business groups. The low-price, low-volatility environment held earnings well below the year-ago level, notwithstanding some strong regional performances. An improved regulatory environment in Argentina – as well as depreciating currencies there and in Brazil – lifted agricultural exports, allowing us to fully utilize our assets in the region.

Industrial & Financial Services recorded a segment loss, reflecting the dissolution of subsidiary Black River Asset Management and an adjustment taken for counterparty risk in ocean transportation. The energy, metals and ocean transportation businesses dealt with oversupplied markets and weak demand that flattened prices to lows not seen in many years.
Outside of the segments, our business that offers trade and structured finance products notched excellent results, innovating throughout the year. Our risk management business was recognized as Agriculture Commodities House of the Year by Risk.net.

Transforming operations for growth

We re-envisioned the path to future growth by simplifying our leadership and organizational structure. We replaced the former two-tiered leadership structure with a smaller executive team that represents Cargill’s major lines of business and key functions, and is responsible for strategic direction, portfolio management, capital allocation and talent development. We initiated a cross-company move toward fewer, larger business groups to speed decision-making, increase accountability and take better advantage of Cargill’s global reach.

We focused companywide on competitive excellence – everything from running our plants and supply chains more efficiently to improving how we deliver services to our businesses. With this leaner, more direct structure, we are better positioned to meet customers’ emerging needs.

We made significant changes to Cargill’s portfolio. We acquired businesses and invested capital to make us more competitive in markets where we intend to lead. Key moves included:

• Purchasing EWOS, the global leader in salmon nutrition. We see aquaculture as essential to sustainably meeting rising demand for protein in the years ahead.
• Acquiring a chocolate business that strengthened our North American brands and capabilities.
• Partnering with Jollibee Foods, Asia’s largest foodservice company, to build a supply chain for specialty poultry products in the Philippines.
• Completing a new oilseed crush, refining and port complex in northeastern China.
• Forming a joint venture to build a grain export terminal in Ukraine on the Black Sea, well-situated to serve destinations in the Middle East, North Africa and Asia.
• In the U.S., acquiring a case-ready ground beef plant, opening a new beef distribution center, and adding capacity in cooked meats and specialty protein products.

We sold businesses where we did not see a consistent path to growth, including pork processing and custom sauces in the U.S., as well as Cargill’s stake in North Star BlueScope Steel. And we spun out Black River Asset Management into independent, employee-owned firms. Totaling nearly $2.4 billion, these divestitures were the most significant in years.

A trusted partner

Cargill aims to be the most trusted source of sustainable products and services for our customers. In 2016, for example, we worked with Unilever to help the company reach its goal of sustainably sourced agricultural raw materials by providing sustainable cocoa, rapeseed oil, soybean oil and responsibly sourced glucose derived from wheat.

For more than a decade, Cargill has been a leader in advancing long-term solutions to protect forests. This year, we launched a policy and action plans to halve deforestation in our supply chains by 2020 and eliminate it by 2030. Priority supply chains in 2016 included soy in Brazil and Paraguay, palm oil globally, cotton and maize in Zambia, and strategic sourcing of paper-based packaging.

Within our own operations, we also are working to improve environmental performance. In 2016, our energy program yielded $18 million in cost savings through efficiency gains.

Our actions in the areas of food security and nutrition are intrinsically linked to our business strategy. We were named to Fortune’s 2015 “Change the World” list for reducing malnutrition in India by fortifying our cooking oil brands with vitamins A and D.

The U.S. State Department honored Cargill for strengthening food security and farmer livelihoods with its 2015 Award for Corporate Excellence. We received the award for our investments in Vietnam’s agricultural economy, where we have trained more than 1 million farmers in animal husbandry, and built and improved 76 schools, benefiting more than 13,000 students annually.

Building a safer workplace

Our greatest disappointment in the year was the failure to send each colleague home safe every day. As a company, we experienced nine fatalities, a tragic loss of life that we refuse to accept as inevitable. We are focused on eliminating fatalities through our LIFE and LIFEsavers programs, and are deploying a new LIFEsavers tool to identify gaps in managing our highest-risk activities.

In other aspects of people safety, our recordable injury frequency rate reached a record low. Since fiscal 2010, we have reduced total injuries by nearly 50 percent. This year, we also saw a continued reduction in serious injuries. Our executive team is dedicated to building a culture where discipline, anticipation of risk and teamwork end fatalities.

In closing

We move into the new fiscal year invigorated by the task ahead: continuing to build the food and agriculture company the world will need in the future. This entails developing smart, sustainable and scalable solutions to nourish the world, while operating ethically and delivering the high performance our shareholders, employees, customers and partners deserve.

Envisioning tomorrow, we are driving transformation today.

David MacLennan
Chairman and
Chief Executive Officer

Marcel Smits
Executive Vice President,
Chief Financial Officer and
Chief Compliance Officer

August 16, 2016