February 22, 2024

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Commodity trader ADM probes accounts and puts finance chief on leave

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Archer Daniels Midland shares tumbled by nearly a quarter on Monday after the global agricultural commodities trader placed its chief financial officer on leave and delayed its quarterly earnings release as it investigates accounting practices in its nutrition business.

Vikram Luthar, who has been finance chief since 2022, was put on administrative leave with immediate effect and has been replaced on an interim basis by Ismael Roig, ADM said late on Sunday.

Chicago-based ADM is one of a handful of companies that dominates the international trading and processing of grain and oilseeds, with operations in nearly 50 countries. The group reported more than $100bn in revenue in 2022.

The low-profile company has occasionally found itself in the spotlight, notably in the 1990s when ADM pleaded guilty to charges it fixed the prices of lysine and citric acid in a case that resulted in prison terms for three former executives.

ADM said late on Sunday it had launched a probe into accounting practices and procedures in the nutrition business after a request for documents from the US Securities and Exchange Commission.

“The board takes these matters very seriously,” said lead director Terry Crews. “Pending the outcome of the investigation, the board determined that it was advisable to place Mr Luthar on administrative leave.”

He added: “The board will continue to work in close co-ordination with ADM’s advisers to . . . ensure ADM’s processes align with financial governance best practices.”

ADM shares closed more than 24 per cent lower, erasing billions of dollars from the company’s market capitalisation.

Line chart of Share price, $ showing ADM shares have biggest one-day percentage drop in decades

As a result of its probe, ADM said the release of its fourth-quarter earnings would be delayed. The company gave no further details but added it was also co-operating with the SEC. Luthar replaced ADM’s longstanding finance chief Ray Young in early 2022.

The SEC said it “does not comment on the existence or non-existence of a possible investigation”. EY, the company’s auditor, did not immediately respond to a request for comment.

Analysts at UBS noted: “We believe on top of earnings under pressure now there could be confidence issues as the street will likely look at the numbers with caution.” Investors are likely to be wary “until they have more clarity as to what exactly went wrong with nutrition segment accounting”.

Over the past decade, ADM has poured billions of dollars into its nutrition business. In 2014, it acquired European ingredients manufacturer Wild Flavors for €2.3bn, a record deal for the group. Four years later, it bought French animal feed maker Neovia for $1.8bn.

ADM, which employed just over 40,000 people at the end of 2022, competes with the likes of Bunge and Louis Dreyfus. Like its rivals, the company benefited after Russia’s full-scale invasion of Ukraine sent the price of agricultural commodities soaring in 2022.

Its nutrition business generated $468mn of the group’s $4.67bn of operating profits in the first three quarters of last year but has struggled recently as demand for plant-based protein has waned. In December, ADM appointed Ian Pinner to run the unit.

In its statement on Sunday, ADM said it expected to report $6.90 in adjusted earnings per share for 2023. In October, the group had forecast it would earn $7 a share.

Additional reporting by Stephen Foley in New York and Stefania Palma in Washington


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