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Archer Daniels Midland, the global agricultural commodities merchant, overstated historical profits at its fast-growing nutrition business by up to 10 per cent, it said on Tuesday, setting out for the first time the details of an accounting probe that led to its chief financial officer being put on leave.
ADM shares plunged in January when it revealed the investigation into the nutrition business, a pillar of the company’s strategy to move beyond volatile commodities.
The Chicago-based company is one of the world’s largest traders and processors of grains and oilseeds, and the nutrition business supplies flavourings, probiotics and other ingredients to sectors including animal feed and alternative protein.
Sales of products by the company’s largest divisions — agricultural services and oilseeds, and carbohydrate solutions — to the nutrition business had not been recorded at market prices, it disclosed on Tuesday on filing its delayed annual report for 2023.
The misstatements did not affect the company’s reported profits or cash flows overall, but flattered the profits of the nutrition business, often significantly. Executive bonuses since 2020 were tied in part to the performance of the business, but the company said payouts were not affected by the misstatements.
After the investigation by the audit committee of the company’s board, ADM restated the past six years of operating profits for all three of its main divisions. In 2022, the most heavily affected year, the profit of the nutrition business was cut by $68mn to $668mn and the profits of the agricultural services and carbohydrates divisions raised commensurately.
In 2023, the real profit of the nutrition business was $427mn instead of $458mn, it said. The company took a $137mn impairment charge to reflect the lower value of the business.
“Our strong commitment to compliance and integrity in our financial reporting is evidenced by the diligence and breadth with which the audit committee has conducted its internal investigation,” ADM’s chief executive Juan Luciano said.
Vikram Luthar, a former chief financial officer of the nutrition business who has been group CFO since 2022, was placed on administrative leave in January after the company got a request for documents from the US Securities and Exchange Commission.
ADM confirmed on Tuesday that it was also now facing a criminal investigation by the US Department of Justice and a grand jury had subpoenaed documents from current and former employees.
The annual report set out new potential risks to the business because of the investigations, including management being distracted, employee morale falling, and the costs of legal fees and possible fines and litigation settlements.
It also said the company had implemented a plan to remediate the weaknesses in its internal controls that the accounting probe had revealed, including training staff on accounting policies.
The company’s shares rose 5 per cent in early New York trading, but remain about 17 per cent lower than before the accounting investigation was announced.
