Good morning, and welcome to the Archer Daniels Midland Company Conference Call, ADM to acquire Neovia and Pro Bye International Limited. Juan Luciano, Ray Young and Vince Machockey. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Victoria De La Huerga, Vice President, Investor Relations for Archer Daniels Midland Company. Ms.
De La Huerga, you may begin.
Thank you, Regina. Good morning, and thank you for joining the call. Starting tomorrow, a replay of today's call will be available at adm.com. For those of you following the presentation, please turn to Slide 2, the company's Safe Harbor statement, which says that some of our comments constitute forward looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. These statements are based on many assumptions and factors that are subject to risks and uncertainties, ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation.
And you should carefully review the assumptions and factors in our SEC report. To the extent permitted under applicable law, ADM assumes no obligation to update any forward looking statements as a result of new information or future events. On today's call, our Chairman and Chief Executive Officer, Juan Luciano will discuss our strategy and how our acquisitions today align with it. Then Vince Machockey, President of our Nutrition Business Unit will take you through the details of both agreements. Then Ray Young, our Chief Financial Officer will detail the financials of each deal.
And after that, we'll take your questions. Please turn to Slide 3. I'll now turn the call over to Juan.
Thank you, Victoria. Welcome, everyone. We are very excited to discuss 2 important additions today. First, ADM has agreed to terms granting exclusivity in discussions to purchase Neovia, a global provider of value added animal nutrition solutions. 2nd, as we announced on Friday, we have reached an agreement to purchase UK based probiotics International Limited known more widely by its umbrella brand Protexin.
We'll talk about each of these deals in detail on today's call. But first, I wanted to spend just a minute to put them in the context of our overall strategy to create shareholder value. Over the last several quarters, we've talked about how we have taken specific actions to grow our earnings power. Focusing on strengthening our business even when global market conditions were weaker in 2016 2017. Which put us in the right position to capitalize on improving Those actions have all been within the framework of the strategy we first presented to you in 2014.
Today, we're continuing to optimize our core. We strengthened our base businesses with a clear focus on continuous improvement, cost savings and margin improvement. We are seeing the benefits of these actions and they are one of the reasons we continue to be confident about delivering significantly improved results this year. I spoke in detail last quarter about our focus on our 2nd pillar. Enhancing Readiness.
Readiness is not about incremental improvements. It's about fundamentally changing the way we do business. Using technology, data and updated processes so that we're growing our earnings power as a result of the way we operate every single day. Readiness is how we are taking our businesses to a whole new level of efficiency, speed and agility as we build the best organic growth machine. Our 3rd pillar is strategic expansion, Earlier this morning, we announced the formal launch of 2 new joint ventures in Egypt we have launched soybean, our fiftyfifty oil and meal joint venture with Cargill.
This is a strong opportunity for us to fund into a new market with growing demand. And we launched AKP, a fifty-fifty partnership with Aston Foods to provide starches and sweeteners to food and beverage customers in Russia, another important expansion into a new geography. And of course, today, we're discussing 2 additions to our integrated nutrition business, neovia and protecting. Slide 4, please. As you know, we are focusing our growth efforts on 5 key platforms that have potential to drive growth and returns.
They are taste, human nutrition, animal nutrition, health and wellness, including bioactives and carbohydrates. These 5 focus areas represent the logical next steps in our portfolio transformation. There strongly aligned with consumer preferences and growth trends and fit our competencies well. The two transactions we're discussing today falls squarely into these priorities. Neovia will be a platform for growth and innovation for our animal nutrition business and protecting will fill out the commercial side of our bio actives value chain in health and wellness.
More broadly, both of these additions show how we're building an important growth machine, our integrated human and animal nutrition business unit. Please turn to Slide 5. For the last 4 years, we have been significantly expanding our human nutrition animal nutrition and health and wellness capabilities. Each of these business areas grew from places of existing ADM expertise. Our unparalleled portfolio of plant based proteins, fibers, emulsifiers and texturizers, were developed from our corn, oilseeds and wheat processing businesses and products and pointed the way toward the last 4 years of targeted expansion down the value chain into higher margin differentiated products for human and animal nutrition.
In each of the 3 nutrition areas, we have followed a strategic framework of investment. Targeting key platforms upon which we build growth, along with bolt on acquisitions and organic growth projects. In human nutrition, we started with the acquisition in 2014 of wild flavors, and the ability to create natural flavor systems for food and beverages. We followed with acquisitions like Ethan Foods And Harvest Innovations, and organic growth projects such as Campo Grande specialty proteins and our TMG Fibersoll facility. In animal nutrition, we have been building new plants in China and the U S, and we acquired pet treat manufacturer cross wind industries.
And now of course, we're adding a platform for global growth and innovation in Neovia. In health and wellness, which includes botanical extracts, specialty nutritional oils, and our bioactives business, we acquired world class probiotics R&D with biopolis. We then expanded our capabilities further collaborations with Mayo Clinic And Villan Biotech and opened our new Ensign Lab in California. And now we are adding new capabilities, including an important commercial distribution channel with protecting. Earlier this year, we brought human nutrition, animal nutrition and health and wellness together under a single nutrition umbrella.
Trends in human nutrition, such as clean label, natural ingredients and innovative solutions, are being echoed in animal nutrition and the same consumer preference for healthy food and drink is leading to demand for proactive nutritional solutions, bioactive and eventually the promise of personalized nutrition. With our new integrated nutrition business, we are better able to benefit from those common trends, using technologies and capabilities that span our nutrition platform to build an industry leading integrated human and animal nutrition solutions provider. And Neovia and protecting will be important steps in meeting those goals. Slide 6, please. Let's start with Neovia.
Neovia is a France based provider of value added animal nutrition products. With sales of EUR 1,700,000,000 in 2017. Neovia will be ADM's largest acquisition since we acquired Wild in 2014 and a transformative next step for our animal nutrition business. The addition will create 1 of the world's leading animal nutrition providers with estimated 2018 combined revenue $3,500,000,000. It would move us further than the value chain, adding substantial capabilities in the high growth value added additives, remixes, pet care, and aquaculture businesses.
These transactions meet our strategic goal of geographic expansion offers significant synergy opportunities, achieves our return objectives, and provides a strong platform for future growth. All told, this would represent a major milestone in the execution of our strategic plan the growth of our Protixent represents an important expansion of our health and wellness platform. Biopolis brought us world class bioactives R&D. Now, protecting strong commercial presence will fill out the other end of the value chain, providing a channel to market that when combined with biopolis will create a fully integrated probiotics and nutraceuticals business.
Now I'll turn the call over to Vince to discuss each acquisition in more detail. Thank you, Juan. Please turn to Slide 7. Neovia is a leading international player in animal nutrition, headquartered in St. Knowles, Britney, France, with about 8200 employees, Its footprint and capabilities include 72 production facilities and a presence in 25 Countries, 11 R&D Centers, 140 dedicated scientists and more than 40 partnerships with universities in 17 countries.
When we entered into this process, we saw a business with leading positions, a strong brand portfolio a strategic focus on expansion in attractive and high growth value added segments. As we carried out our due diligence, our positive impressions were confirmed. What we saw was a great company with a tremendous leadership team, deep global experience a strong reputation in the marketplace, impressive innovation and R and D capabilities, and a global footprint that perfectly complements and expands our own. Slide 8 illustrates what ADM and Neovia would look like together, a global leader in animal nutrition with a strong platform for continued growth. When you look at the global picture for animal nutrition, you see growing demand and evolving customer needs.
Global animal nutrition sales totaled more than 700,000,000,000 with about 2.5% compound annual growth rates. Much like human nutrition, animal nutrition customers are becoming increasingly health conscious and are looking for organic ingredients, antibiotic free and non GMO products and solutions tailored for their specific needs. Together ADM and Neovia would be perfectly positioned to meet those needs for customers around the globe. Combined, the two companies would offer a differentiated or of attractive and high growth potential product lines crossing a broad range of species, including commercial stock, including poultry, swine, cattle, and equine pets, including dogs, cats and other companion animals, and aquaculture, including fish and shrimp. The 2 companies are highly complementary.
Adding Neovia would add both geographic and product diversity to our animal nutrition business. Neovia has a strong footprint in Western Europe, Latin America, and Southeast Asia. While ADMs animal nutrition business is strongest in the U. S. And has a growing presence in China.
Neovia also has impressive capabilities in important value added segments like pet care and aquaculture. And it offers a strong platform for growth whether through future bolt on acquisitions, the addition of solutions that can be applied to our entire integrated nutrition platform, or through the innovation opportunities offered by substantial R&D Resources. Slide 9 details our expected synergies. We estimate 1,000,000 of run rate synergies by the 4th full year of ownership. On the revenue side, we combine existing and new products and expertise to create both human and animal systems and solutions and cross selling and expansion opportunities across products and geographies.
All told, we expect approximately 15% of our synergies to come from revenue. In terms of cost synergies, we are looking at the streamlining of direct and indirect purchasing and other expenses via integration into ADMs global operations. Optimization of the combined businesses' global footprint, implementation of ADM operational excellence standards, and the leveraging of ADM's global scale, logistics infrastructure and processing footprint. We expect about 85 percent of our estimated synergies to come from the cost by. The cost to achieve expected synergies will be reflected in our operating and capital expenditures.
Long term, we expect to see ongoing benefits as our greatly enhanced animal nutrition business contributes to and benefits from its integration with Slide 10, please. And the second deal we are discussing today, Protexin. Based on Somerset UK, Protexin is a leading provider of probiotic supplements for human wellness as well as a variety of animal markets, including aquaculture, equine, livestock and companion animals. With sales into more than 60 countries, For Texan's offerings include the popular BioCulp brand of probiotic supplements along with contract manufactured profits. This acquisition represents an important step in our ongoing expansion into bioactives and novel ingredients After the acquisition of Biopoulos, we are continuing to accelerate our work in microbiome based solutions for human and animal applications.
We have a strong base and we are building on it through our internal expertise in the field of enzymes, food ingredients, prebiotics and probiotics, are broadening the network of collaborations with academic centers of excellence, the acquisition of targeted assets and a development of diagnostic and monitoring tools to sustain a customized personalization of nutritional solutions. Protection is a key component to our expansion plans, offering an extensive sales and marketing network to partner with our existing R and D expertise and capabilities. By bringing these two sides of the value chain together, we are creating a world class fully integrated probiotics and nutraceuticals business. Now I'd like to turn the call over to Ray who
will go through the financial aspects of each transaction. Thanks Vince. Please turn to Slide 11. We've agreed to terms granting exclusivity in discussions to acquire 100% of Neovia for 1,535,000,000, including assumption of approximately 1,000,000 of net debt. The transaction value reflects a 14.1 times multiple of our estimated fiscal year 2018 EBITDA of Neovia.
We would expect to realize run rate EBITDA synergies of EUR 50,000,000 by the 4th full year following the close of the transaction. When adjusted for expected synergies, the transactions EBITDA multiple is about 9.7 times. We would expect the transaction to be GAAP EPS accretive in the 1st full year after close with a ROIC above ADM's long term cost of capital by the end of year 3. This would be a cash transaction. There'll be no impact on our dividend policy.
Nor will we expect this deal to impact our perspective on capital spending in 2018? This transaction is subject customary employee consultations in France as well as regulatory approvals. Pending those actions, we would expect close in the fourth quarter. On Slide 12, we see some details on our Protexin transaction. We have signed an agreement to acquire 100 percent of probiotics International Limited for £185,000,000.
The transaction value reflects a multiple 16.2 times estimated fiscal year 2018 EBITDA and a 10.6x when adjusted for expected run rate synergies. We expect the transaction to be GAAP EPS accretive in the first full year after close with ROIC above ADM's long term cost of capital by the end of year 3. We are targeting closing this deal in the third quarter pending regulatory approvals. Now, I'd like to turn the call back to Juan.
Thank you, Ray. Slide 13, please. We're excited about these additions and how they align with and will contribute to our strategy for value creation. We're expanding our geographic reach. We're moving further down the value chain, We're investing in 2 of our key growth areas and we're building a world class nutrition business that is increasingly contributing to earnings.
As you'll see on the chart, if we look back to 2014, the year we bought wild, Our nutrition business has currently configured, will have contributed about $250,000,000 in adjusted operating profit. With the additions and investments we have made since then, including the ones we are announcing today. Our 2017 adjusted operating profit on a pro form a basis would be well over $400,000,000. And the percentage contribution of our nutrition business profits would more than double from 7% to 15%. Backwind, we bought WILD and embarked on this journey.
We told you it was an exciting time to be at ADM and with addition like this, it is it is still lease. It's a time of change and of growth. From Readiness to the acquisitions we are announcing today, We are continuing to drive returns and EBA growth, create shareholder value and build a great and enduring company. With that, operator,
Our first question will come from the line of Adam Samuelson with Goldman Sachs. Please go ahead.
Yes, thanks. Good morning, everyone. Good
morning, Adam. Good morning, Adam.
I guess a little bit first, I was hoping for a little bit more color just on the growth that this business has generated over time. And then on the margin structure, The transaction multiple implies about a 6.5 percent EBITDA margin. I'm guessing that's because it's a feed premix and so there's just a lot of cost plus on the purchase feed in that. But help me just think about the margin structure and how that gross of sales and how I should think about that in the context of this being a targeted as a more value added business?
Hi, Adam. This is Vince. And so, thanks for the question. And in terms of the margin structure, you're right, in terms of the existing portfolio lends itself to EBITDA margins that you suggested. But what we really see the opportunity is the combination in the integration of those product lines into our more nutrition overall solutions based approach.
System solutions, the opportunity to increase ins. As you saw in the information that we presented, there's the convergence of animal and human any opportunity to create systems and value add up the entire segment. So that's an area where we're extremely excited and optimistic about our ability to improve.
And then the growth of the businesses has generated over the last couple of years. And Do you know it? Can you disclose what R and D is for the business?
So from an R and D basis, as we mentioned, they, they have over 100 and 40 scientists, 11 R And D And Innovation Centers. And the business has continued to grow organically and via acquisition.
Okay. I appreciate the color. I'll pass it on Thanks.
Our next question comes from the line of Heather Jones with Vertical Group. Please go ahead.
Good morning. Congratulations on the acquisition.
Good morning, Heather. Good
morning. So quick question on Neovia, can you give us a sense of on a pro form a basis, currently on a pro form a basis, what portion of the business would be, like livestock versus aquaculture versus companion animals?
That's contained in our deck, as you saw. And I can refer you to
I saw it for, I saw it for, that's pro form a. I thought that was just for Neovia.
That's where Nuvia, you were just too like when we're combined with ADMs together?
Yeah, pro form a combined numbers?
Yes. So, on a combined basis, estimated revenue will be 3.5 $1,000,000,000 for the combined company, both ADM animal and in the OVIA combined. And as we do in the opening, Neovia sales were 1,000,000,000 in 2017.
Yes, I think I wasn't clear in how I asked. I was wondering, could you give us a down to that $3,500,000,000, what proportion of that would be livestock versus aquaculture versus companion? The combined $3,500,000,000, do you have those figures?
We have it for Neovia. We do not have it on
a combined basis. We'll follow-up with you afterwards on that.
Okay, perfect. And my second question is, so you're now on a pro form a basis about 15% nutrition. If I remember correctly, I think y'all are targeting 25 percent plus. So I was wondering to get there. Do you think you can do that organically or through a series of bolt ons or do you anticipate another, relatively large scale acquisition to get you there?
Yes, Heather. I tried to describe in my initial remarks the way we think about building this platform, which is we continue to unveil 3 pieces of that. 1 is every now and then in one of these, we're going to need a platform like we did with flavors. Now we do it with Neovia. We may do what we like we did with bioactives in with biopulies.
Then we do, bolt ons that are just a matter of cover specific gaps either products or geography gaps. And fundamentally, we try to build our organic growth. So we use that blended approach to make sure that that we keep our returns objective and we develop our strategy. So I would say, if you think about the large acquisition that we made in this space within 2014. So we keep a pace for this.
We need to make sure that we see the EBITDA going into the bottom line before we jump into the next one. But then we have gotten very good that doing these bolt ons and tagging them quickly into our system. And we balance all that with the organic growth, which that provide a very large potential earnings stream that will come either through Campo Grande, the OTMG. So I would say It's a mix of that. There's not a rush to get to any specific number or at any point in time.
We're thinking about long term value creation. And mostly Heather, we are excited about the growth opportunity here. These are three segments where consumers are demanding changes. And that fits perfectly well into the sweet spot of ADM, bringing their technology and solutions to bear into that space. So They are not only growing, but there is an opportunity for differentiation.
So we're building our capabilities and as we go. And we feel comfortable that we will hit 25% of our profits over the cycle at the right time with the right metrics.
Thank you. That was very helpful. I appreciate it.
You're welcome.
Our next question comes from the line of Ann Duignan with JP Morgan. Please go ahead.
Hi, good morning.
Good morning, Ann.
Good morning. Just out of curiosity, I'm looking at the breakdown of Nailvia's business. And conspicuous by that, since there's no U. S. Exposure, and then you talk about ADM's core business being primarily U.
S. And China, Is there any reason are there any barriers to entry for these businesses that make them so regionally focused and not global in nature?
Hi, Ann. This is Vince. No, I think it's really kind of how we built our business. When you look at the business focused primarily on amino acids as well as some premixed complete feed. And then obviously moving into the value added pieces of pet ultimately aqua.
So with our business primarily being U. S. Based and now we've expanded it into Asia, I think it just lends itself to the complementary nature of the deal and the complementary nature of where Neovia is strong when you look into Western Europe And South And Central America in other parts of Asia. I think the combined complementary pieces of the business will end up to give us a full global platform on a worldwide basis. It's poised for growth.
But there are no, you know, FDA reason. There are no dietary reasons why, you know, there has no U. S. Exposure.
No, absolutely not. It's a business that started in France and actually does 80% of its business outside of France and is truly on a global basis in in future was planning further expansion into other regions, but it obviously fits very nicely with where we're already at.
Okay. I appreciate that. And then my follow-up will be around the balance sheet post close. What how should we model leverage ratio, etcetera, etcetera? Any significant changes?
Our leverage will go up temporarily in As you know, we're generating strong cash flows, especially in the context of the current environment of ADM. We're going to have a very strong 2018 we will be generating a lot of cash. I mean, given where commodity prices have fallen off, our working capital had actually coming down actually as well. So you should probably expect us, we'll probably raise some debt, to take advantage of really the lower rates that we're starting to see. We haven't defined the plan.
You can actually see euro rates or actually remain very, very low. So, we will probably raise some debt in order to finance the transaction, but overall, the balance sheet is going to remain strong. We will rapidly de leverage after the acquisition.
Okay. I appreciate the color and I can get into more detail after the call. Thanks.
Our next question will from the line of Robert Moskow with Credit Suisse. Please go ahead.
Hi, thank you, Ray and Juan. I was just just looking at the pie of what your earning stream will look like pro form a for 2017 with 15% of it from nutrition, if you look at 2018, it's going to be a lower number, probably 13% just because the commodity parts of your business are are going to be much stronger in 2018. And I guess I look at that as kind of a blessing, but also a curse in a way because I feel like the market's not giving you a very high multiple for origination, carbohydrates solutions, oilseeds, And so this is definitely a step in the right direction to take you more into value added. But I guess the two questions are years ago, 1, you put out kind of a $4.50 earnings kind of, long term target that a I think was kind of aspirational. So I'd like to know, do these deals get you closer to that?
And can you see yourself getting getting more up to that level? And then secondly, just this pie, could you foresee this being 30% kind of value added someday, does that require a lot more M and A? I guess it does. What's your longer term vision for how high value added could be?
Sure. So first of all, let's divide a couple of things. If you think about our base business, our base business has leadership positions in all their markets and it continues to be strong and strengthening. We went through this down part of the cycle in 2016 2017, and we fared very well. And now we're enjoying some tailwinds and you're going to see us getting back to delivering all that earnings power that we thought we had.
So, What we're doing here is every business is going closer into the customers. We've done that Oils in Ag Services with destination marketing. We've done that in oilseeds with edible oils and blends. We've done that in in carbohydrates with a specialty starches and specialty sweeteners. So what we see in nutrition is the opportunity to take some of those customers and some of those products and actually, actually profit from those competence is being applied to high margin, high margin and high growing businesses that maybe we didn't have before in our base.
So, what do we see that when we forward our projections? We see that could become 25 percent of our mix over the cycle. As you said, when there is the upcycle in the commodity part, those percentages might be different than we are in the down cycle. But we think that over time, since nothing stays same, we will get to that level. So whether it's 25% or 30% directionally, it will be on how do we seize the opportunity to growth in those areas.
And I explained to Heather, we're going to do it three ways. Every now and then we're going to do platform acquisitions. We're going to do several bolt ons as we need to fill gaps and we're going to do organic growth. Regarding your comments about the 450, What we did at that point in time is we tried to quantify the value of our strategy and what we said at that point in time is since the base at that point was about dollars, we said there were 4 pillars to get to that dollar to $1.50 of incremental value. Those 4 pillars, if I can remind everybody where one was the Wild Flavors acquisition.
It was about $0.10 accretion per year over 3 years. And we achieved that. The second was about operational improvements. It was about $100,000,000 per year and we're running probably a slightly north of that. So it's been very good.
The third bucket of that was a group of organic growth and a small bolt on acquisition growth project, if you will, they were about 15 or 16 and they are at different points in their evolution of those. But you have a portfolio of 15, 16, it's a relatively safe portfolio will deliver over time. So some of them are organic growth and maybe more in the more backend loaded, if you will, in those 3 years. But that's a very good. And the 4th one was, buyback shares and we achieved that.
So I would say strategically, we have delivered in those 4 buckets and now when you see the recovery of the base that so we feel still directionally correct into that. We're not going to call it an exact day that that's going to happen, but that's the direction we're taking. And we feel good about how we have implemented.
So, Juan, it sounds like all four of these things have been achieved and the environment is better And you have some more accretive deals here. I mean, it sounds like you're there, it
sounds like we just feel very good about the future, not only about 'eighteen, but also 'nineteen and 'twenty.
Is there anything missing from the 450 of the 4 things you achieved, was there anything missing or has everything been achieved?
I think of the 4 things that we said to achieved that they were all achieved. As I said, I think some of the organic growth project take a little bit longer. Rob, if you think about Grando Grande, they are basically 6 plants. You take a full year because one plant output is the input of the next one. So it takes a full year to getting them to work.
So, the plant is working now. We're going to be building up that plant. So, has it contributed in the past? It has not. It will contribute into the future.
So, with those dynamics, you know, the issue with organic growth is more value creating in the long term sometimes. But what happened is you have 18 months that you're building a plant and then you have another 12 to 18 months until you make money with the plant. So it takes you about 2, 3 years before you do that. But everything is online in that regard, so we feel good about it.
Okay. Thank you.
Our next question comes from the line of Eric Larson with Buckingham Research. Please go ahead.
Yes, thank you everybody. Congratulations. My question is for Vince, while we have an opportunity to have him on the call. Vince, the U. S.
Business is they don't have a large U. S. Business. And I believe you stated that you felt that about 15% of the synergies would be more revenue related is there products that you can bring in from France and elsewhere in the world into the U. S?
That might be different than your immuno based or amino acid based type products, would seem that you potentially would have better revenue synergies, but I'm always very careful with revenue synergies. It's sometimes it's a figment of one imagination. So I understand why want to be conservative, but is there a real opportunity in the U. S. With their products?
Yes, Eric, thank you. There absolutely is. And you're right about revenue synergies. And I feel like we have good experience from our previous acquisitions and accomplishments in terms of revenue synergies, so we know what it takes to achieve those. If you look at more broadly on a worldwide basis and some of the things they would bring in not only from France, but on a worldwide basis, when you think about some things in the aqua area, in terms of fish and shrimp, you think about complete feed and you talk about equine, you talk about a lot of areas where we're not currently playing their tremendous opportunity to bring those products and portfolios into the U.
S. And then more importantly, where we always kind of stay grounded is in solution selling and selling systems broadly across the entire portfolio. So, yeah, I think we are confident in the numbers we've indicated from a revenue synergy perspective.
Okay. And then the second question, which is which is kind of related to that. When you look at the competitive set across all the countries that you're now going to be operating in. I would assume that some of your major competitors continue to be the cargills, the typical players that talking about. So can you talk a little bit about what the competitive nature of these where you said what your share positions look like, where you feel your strongest markets are, just broadly?
Yes. So I think, Eric, it certainly puts us as one of the leaders in terms of the marketplace. And when you think of where everybody plays, again, for us, it's really about pet care. It's about aqua. It's about additives and ingredients in the premix business and really driving those increased margin businesses in a complementary way to what we're already doing.
Okay. That makes sense. And then just the final question, I mean, this has been, I think, one of Lon's goals for some time is to reduce the volatility of earnings. And he's been wants to talk about that for a long time. So you we kind of it came up earlier with sort of the EBITDA margin of, let's say, roughly 6.5% and maybe you get a chance to improve that.
So is that a pretty stable margin over time? Do you get pricing if you get some input costs inflation? Can you describe a little bit more, is this more of a how much more of a consumer driven type business is this as opposed to obviously origination and oil season, stuff like that, which are purely commodity. Can you give us an idea of how sticky those margins are?
Eric, I would say they're extremely sticky. Certainly to your point, we will have some volatility in input costs and things like that. But on a go forward basis and where we plan to take the portfolio, we do really believe there's great margin stability and the opportunity to margin up these businesses as well. Again, where we're going to play as you get into systems in the space, those things obviously carry higher margins than example. So as we begin to transform the portfolio of our overall animal nutrition business, we're going to see some margin opportunities.
Okay. Then just a final question is, is Neovia, are they already pretty much a systems driven business model and platform, that you can learn from or can you bring some of that to them? I mean, how do you view Neovia from those types of capabilities?
Yes, it's actually both. And when we had the management presentation, at their headquarter, I had some great interaction with their leadership team. And one of the things they were heavily focused on already within their own portfolio was creating systems and bringing total solutions to the various markets and various segments in animal nutrition. So, obviously, we couple that with what we're doing And think about it. There's a great opportunity on flavors and colors and some of the specialty proteins and areas we to combine with some of the products that are existing in both portfolios.
So, but they did have a very good value add approach great innovation capabilities and R&D capabilities. So we're excited about the opportunities.
All right. Thank you. I'll turn it over. Thank you.
Our next question will come from the line of Ken Zaslow with Bank of Montreal. Please go ahead.
Good morning, Ken.
Just a couple of questions. What do you say the actual accretion was for year 1?
It's going to be a positive on a GAAP basis. So it is a positive number. I guess my guidance to you guys, as you kind of think about this business is, as we indicated, we will be achieving our long term lack in year 3, which is 7%. So when you actually put it through your models and with the amount of invested capital, we'll put into the business, which on a U. S.
Dollar basis about $1,800,000,000. If you run that number through, we'll probably have some interest expense associated with the deal. You'll probably get yourself we'll probably get ourselves towards mid teens, you know, cents per share by the time you get to year 3 when you actually put it through the models. There. So you can see us actually, from an accretion perspective, kind of grow this business starting in 2019, it'll be positive on a GAAP basis.
And grow ourselves towards a mid teen cents per share type of number. And that will be consistent with achieving like a 7% ROIC by year 3.
Okay. But the 1st year sounds like it's modest. Like, it's on the order of like $0.01 to $0.03 accretive.
It's probably on the higher end of your number count.
Okay. And then the second question is the 6.5% EBITDA margin I'm confused. Why is that so low? And if it's a value added business, why would you not aspire to make that closer to like a 10%, 12% EBITDA margin. What's the impediments to doing that?
It just seems when I think of value added business, I'm not sure if I think of it as 6.5%.
Yes, Ken. This is Vince. The opportunity is to put it all together. And I think as we transform the business. When you really look at the current construct with the heavy reliance on Complete B and premix, we're going to shift that.
As we focus into pet, we focus on aqua, we focus in more of the additives and ingredients. There will be a natural earns to raise the margin. So it's really kind of the existing portfolio that's already in process of being shifted.
So in 5 years, what would you envision? And again, let's say ex the synergies, which again is another question I'll have, but ex the synergies, where will the margin structure of this underlying business be? Is it a 10%, 12% or and how long will it take to get there? And then the other question I have is why are the the the the cost energy is so low?
I think there's opportunity obviously if you obviously we have to dig into the portfolio, but there's opportunity certainly by the end of the 1st year, full operating the business to margin the business up anywhere between 8% 10% margin range, which we have talked out. And on the cost side, we actually think the cost side, there's we detailed a significant amount in terms of when you really get into the ADM system, from a procurement spend side of things, optimization of the global footprint leveraging our operational excellence capabilities, our logistics infrastructure and all those things, there will be certainly in realizable cost synergies. And again, we took an approach to synergies where we are confident and comfortable based on our some of our prior experiences as well.
Okay. And then my last question is what is the underlying growth rate on the top line or volume line? What has it been and where do you think it's going to be?
Yes. So when you look at the market as a whole, the $700,000,000,000 animal nutrition space growing at a growth rate of 2.5%. We obviously expect to exceed that. And and exceed the marketplace growth from that standpoint.
The 5 year historical CAGR on revenue has been about 8% per annum. That's the lookback.
Right. And then would that be the rate that you'd expect given all the revenue synergies, the growth, the mix, all this stuff, is that the ongoing rate or is there a reason that that should not be the case? And I'll leave it there.
Yes, I think there's no reason why that wouldn't be the case. We would absolutely continue and hopefully further grow. Again, we have to get inside once we expect the business to close and get inside into a deeper dive, but we would certainly expect able to increase that based upon our overall capabilities.
Our next question will come from the line of Farhar Aslam with Stephens Inc. Please go ahead.
Good morning, everyone. This is Tim on for Farah.
Hey, good morning. Good morning.
Can you just talk about what makes animal nutrition an attractive space on the long term and some of key underlying demand drivers of the business and how that fits into, I guess, existing animal nutrition portfolio for ADM?
Sure. We have we find animal nutrition very attractive. And I think it's some of the things we discussed earlier. But I think one key component is really when we talk about the convergence of human and animal in evolving customer needs, when you talk about non GMO, you talk about clean label. You talk about healthier solutions.
That's what's really exciting. And what's more exciting than that even is the combination of our entire portfolio as it exists in nutrition. But Juan talked earlier about the 5 growth platforms for our company, they can all be incorporated into the animal nutrition space. So great opportunity. And that's obviously why we're very excited And I think the other piece that's very exciting to us is that now we are a complete provider on a worldwide basis in the segment.
Great. Thank you. And I just had one follow-up question. How are you thinking of the cadence of the synergies? Will they be split pretty evenly among the 4 years or more front half or back half loaded?
Yes, I think that, like I said, by year 4, we'll be up to about 1,000,000. As Vince indicated, roughly 85% costs 15% revenue. How I'd be thinking about this thing is probably fairly, fairly even in terms of the up every year. That's how, how we're thinking about at this point. And naturally, we'd like to try to bring it up as fast as we can, but at least for now in terms of how how we're modeling it, it's kind of a steady step up over the 4 year period.
Our last question will come from the line of David Driscoll with Citi. Please go ahead.
So I just wanted to ask, when we look at that slide that you have, the 3 pieces of the nutrition businesses human nutrition, animal nutrition, health and wellness, can you break down the approximate revenues in each of these pieces? Because I feel like human nutrition WFSI, really big segment, you've got scale there. In Innovia, you've given us the numbers here today, that's a big piece. I'm just curious, everyone, about the health and wellness side just is it big enough to have the right scale that you need on a go forward basis? But if you could just give us the percentages so that we're all tracking a little bit with how the composition of nutrition is post the deals?
Yes. So you know, WFSI is about 2.5 1,000,000,000 animal nutrition with this acquisition will be about $3,500,000,000. And health and wellness, I would say, at this point in time, is running between $150,000,000 $200,000,000 revenue per year. We expect that to be in the range of about 4 50 to 500 by year 2021, something in that range. And I would say the issue the big difference here is that the 2 for segments are, although we are breaking new ground and pushing into terms, they are already developed markets.
The area of health and wellness, especially in the bioactives and with all the new knowledge that we're getting into the micro own every day. There is an opportunity to create the market there. And so at the point in time, we don't feel that we are not in a scale when compared to the market, if you will, we are probably not in a scale when compared to ADM as you compare with the other massive businesses that we run. So we will continue to build it and it will be built, as I explained before, David, with the same combination of if we find platforms that make sense, but we're not going after sites. You saw biopolis, for example, one of the greatest acquisition we will ever make, great technology there, relatively small, but the ability to take that technology and take it like to 8 different markets is spectacular.
The issue now is as we have like 8 different markets that we can go into create value into that, we may need different partners and different channels to to create. So you can go all the way to testing people and making money by testing people or by selling kids or by selling nutraceuticals or by selling probiotics or by selling, add innovative food, there are many things that we can do. And we will be finding our way to create those different eight businesses around that platform. So it will take time and it will take patience, but but we think it's very value creating and it's very high growth area. So, I would say we are not seeking a specific area.
That's a very focused group. They are value add and we feel that we build the capabilities for that to become a platform that ADM will profit for many years to come. And as it happened with animal nutrition, all of a sudden, we're going to find the right piece that will create the size, if you will, that maybe it will start becoming more needle mover for ADM. From a value perspective, you know, we always have these incubators inside, if you will, before 2014, we have a very vibrant specialty proteins business within oilseeds. And then when we acquired Wild flavor, it became WFSI, to a certain degree, we had the same with some of the premix feed that we have in animal nutrition now with neovia, then it becomes a size.
So that's a little bit what's happening health and wellness, there is a little bit of an incubation process and it's a very thoughtful process on how to leverage that technology in to many, many different markets that are growing very fast and that today don't have an undisputed leader and we think we can create that.
And then just a follow-up here on the integration. When you guys did some of the bolt ons in FCI, particularly comes to mind, there were some difficulties on that integration. Can you just make some comments about your confidence on integrating these businesses and the kind of the 1 year forward plans. I just remember that you had some difficulties on those things and it turned out a bit different than what you had expected, but Nuvia feels like, it feels like it's going to be a pretty nice stand alone piece inside of nutrition, but I just don't know how much integration actually has to go on that piece of the acquisitions that are occurring today?
Yes. And, David, let's put it in perspective because we've been very, our difficulties in SCI, but SCI was 1 out of like 8 to 10 acquisitions that we made over this year. And I remember we had the same concerns about how a quote unquote commodity company like ADM will take on a specialty company like wild flavors and if I remind you what flavor has been growing 20% per year since we've taken over there. So, so I think that all the other acquisition we've done a very good job of that. And when we look at their management team, the chemistry with our management team, the talent we are acquiring with the Neovia management team, we feel very good about how they are thinking about the business, the complementarily of not only geographically, but our business models, of course, before we make a bid for any company or an attempt, we look at all those things and the probability of being a big mix, a good mix for the future.
And we feel extremely strongly about that. So I think we learned a lot and we have a very good track record of doing these things. So we don't feel that that's an area we should worry too much about it. Of course, we are we're going to put a lot of effort into making sure that goes as expected.
Last question for me is just the growth rates again. I think you guys said that the trailing look at Innovia was an 8% CAGR And then I think you were intimating that maybe something in that zip code is okay. Given the growth at Wild Flavors and Innovia, that would put this entire segment at a high single digit rate of top line growth and maybe operating profits even stronger given all the start that have been running through the organic growth projects. Ray, can you square me up if I'm off on any piece of those statements?
No, I think, again, we're going to see good top line growth. I do believe, for example, this year, those leakages, as we've talked about last year, we'll actually, we're managing those leakages and the startup costs associated with Campal Grande and Tien Tsin Fibersal, we're managing those costs. And so, from our perspective, we feel good about the growth prospects in the nutrition business.
Thank you, David.
I will now turn the call back over to Juan Luciano for any closing remarks.
Thank you, Regina. So thank you, for joining us today as always. Please feel free to follow-up with Victoria. If you have any other questions and Have a good day and thanks for your interest in ADM.
Ladies and gentlemen, this concludes today's call. Thank you all for joining and you may now disconnect.