To Our Shareholders Darling Ingredients is entering its 140th year of operations. We have come a long way from what my daughter used to call “a used cow business” to an essential circular economy converting waste into essential, sustainable products like green energy, renewable diesel, collagen, fertilizer, and fats and proteins vital for animal feed and pet food ingredients. Simply put, we are the original recyclers. We make a difference, and we protect the environment and generate value for our shareholders and other stakeholders. Delivering Strong Results 2021 was another record year for Darling Ingredients. We ended the year with a record combined adjusted EBITDA of $1.235 billion. Our global ingredients business had a record year with $851.4 million of adjusted EBITDA. Diamond Green Diesel, our joint venture with Valero, sold a record 370 million gallons of renewable diesel at an average EBITDA of $2.07 per gallon. Our feed ingredients business had an incredible year due to a growing global demand for fats and proteins and a focus on decarbonization through the use of lower carbon intensity feedstocks. We ended the year with $613.7 million of adjusted EBITDA versus $317.8 million in 2020. Over the last 5 years, we added capacity in critical areas that allowed us to handle more volumes due to surging global demand for protein. Another area we continue to invest in is our food ingredients business. I continue to remain bullish on this segment because of the strong demand for collagen peptides within the health and nutrition market. We are the world’s leading collagen supplier and we produce many different gelatin- and collagen-based products for industries and consumers around the world. Over the last 3 years, this business has grown at a compound annual growth rate of 14.5%. Our food ingredients segment finished the year at $194.9 million of adjusted EBITDA versus $167.1 million in 2020. Some other key financial highlights from 2021 worth noting are:
Growing the Base Business At the end of December 2021, we announced that we entered into a definitive agreement to acquire all the shares of Valley Proteins for $1.1 billion, subject to various closing adjustments. The acquisition is currently awaiting government approval. Valley Proteins is a privately owned rendering company primarily serving the poultry industry in the southern, southeast and mid-Atlantic U.S. The company also has a significant used cooking oil business, which will expand our ability to provide additional low carbon intensity feedstocks to fuel the growing demand for renewable diesel. Valley Proteins has a strong leadership team that will fit nicely into the Darling Ingredients family, and I am excited about the business opportunities this acquisition brings. Diamond Green Diesel: Fueling a Low-Carbon World In 2013, Valero and Darling Ingredients became the first in the United States to take used cooking oil along with waste fats and oils and convert those products into renewable diesel. When we first started, our renewable diesel capacity was 137 million gallons per year. Ten years later, we will be at ten times that capacity. Our most recently completed expansion will bring our capacity to 750 million gallons in 2022. We are also on schedule and on budget to complete construction in the first quarter of 2023 of a new $1.45 billion renewable diesel plant in Port Arthur, Texas, capable of producing an additional 470 million gallons of renewable diesel, that will bring our total capacity to approximately 1.2 billion gallons. What sets Darling Ingredients apart from recent announcements of renewable diesel facilities is the vertical integration we have built with our robust, sustainable oil field. Our supply of used cooking oil and animal waste fats and oils is unparalleled in the industry. We sell edible fats for human food. We use waste fats and oils for fuel. This means it is not our practice to take valuable food away from people to make fuel. Our sustainable feedstock pipeline, pretreatment expertise and superior transportation options for inbound and outbound product, makes Diamond Green Diesel the industry leader. While as of the date of this letter, EBITDA per gallon is lower than last year, it is not unexpected, and I continue to be very optimistic. Our supply chain is unparalleled in the industry. We have tremendous tailwinds—demand should continue to grow as energy prices increase and more states look to implement low carbon fuel standard (LCFS) mandates. We ultimately believe LCFS and RIN prices will normalize and improve to reflect the growing demand and realization of higher input costs. No matter how you look at it, DGD is well positioned in 2022 and beyond. Green Before Green Was Cool As the world drives toward decarbonization, Darling Ingredients is at the forefront. We have set a goal to be net zero GHG emissions by 2050. We plan to submit a commitment letter to the Science Based Targets Initiative by the end of 2022, committing to set a science-based, 1.5°C-aligned greenhouse gas emissions reduction target. We have also formed a new ESG committee at the Board level. Additionally, we identified short-term and long-term targets in our 2021 ESG report published last fall and are currently working on setting mid-term targets. As far as our short-term targets are concerned, we are investing in various capital improvements at our plants that will reduce our energy intensity. As for water, we are investing in a new state-of-the-art recovery system in our Ghent, Belgium Rousselot factory that will reduce water consumption by 46%. Additionally, we have begun an engineering study to evaluate water usage at some of our U.S. plants. We hope this work will provide us with a blueprint for best practices in water use, reuse and recycling in an effort to meet our short-term goal of reducing water withdrawal by 5% per unit by 2025 over 2020 values. At our core, we help our customers have a positive impact on the climate. We have embarked on a journey to better tell our carbon handprint story—the solutions we provide to our customers that decrease their carbon footprint. For example, we produce meat and bonemeal as an alternative to soybean meal, positively impacting land use change and carbon emissions. The carbon intensity of the renewable diesel produced at DGD is up to 85% less than fossil diesel. We play a critical role helping protect the planet and creating better lives, and we can do so while providing superior financial returns. Our Best is Yet to Come While we have had a great year, I like to say that our best is still yet to come. The world’s population is expected to increase by 2 billion people in the next 30 years to 9.7 billion in 2050. With population growth there are two things the world will need, more energy and more food. And Darling Ingredients is at the center of that. We play an essential role in creating solutions that sustain life. From a financial perspective, I have a few goals that I would like to see in the near term. I want to see Darling Ingredients as an investment grade company and return money back to our shareholders. I want to thank you for your continued investment in our company. Sincerely,
Randall C. Stuewe |
