ADM doubles provision to settle corruption claims

06.08.2013

Archer Daniels Midland clouded an improvement in underlying profits, thanks to revival in ethanol margins, by revealing it had doubled its funds set aside to settle a longstanding foreign corruption probe.

The agribusiness giant, which in May said it was "appropriate" to earmark $25m to settle claims lodged by US government agencies, revealed that "based upon recent progress" in talks with officials it had lifted the allocation to $54m.

ADM, one of the top four global agricultural traders, is in negotiation in relation to claims made under the Foreign Corrupt Practices Act (FCPA), a US law that prohibits the bribing of foreign officials.

The group, which operates in areas from North America to the former Soviet Union, and is beefing up in Australia through the purchase of GrainCorp, restated that its talks with the US Department of Justice and the US Securities and Exchange Commission relate to a "matter dating back to 2008 and earlier".

One-offs

The hike in the provision marred a rise in underlying earnings per shares to $0.46 in the April-to-June period, up from $0.38 a year earlier, and narrowly above Wall Street expectations of a $0.44-a-share figure.

While reported earnings fell 22% to $223m, this figure included, besides the FCPA sum, factors including a $51m charge on hedges taken out against the Australian dollar, as part of the ongoing acquisition of GrainCorp.

Operating profits from the group's divisions, which undertake functions from oilseeds processing to grain transport, rose 19% to $647m.

'Ethanol margins profitable'

The improvement reflected in part a "significant" rise in results from oilseeds crushing in Europe, where delays in arrivals of South American soymeal lifted demand for locally-produced alternatives and "contributed to strong margins".

However, the main swing was in the ethanol operations which, thanks to a slide in corn prices, churned out a $97m profit compared with a $61m loss a year before.

"Overall ethanol margins were profitable, albeit volatile," said ADM, whose improvement in biofuel profits echoes that reported by Valero Energy two weeks ago.

The improvements more than offset a 34% tumble, to $81m, in profits from agricultural services, reflecting the slide in US crop export volumes following last year's drought-reduced harvests.

The cocoa division, which ADM is trying to sell, also reported a second successive quarter in the red, this time of $6m, compared with a $52m profit a year before.

'Tight crop supplies'

"The team managed well through this period, as tight US crop supplies reduced volumes," Patricia Woertz, the said ADM chairman and chief executive, said, adding that last year's small crop remained a headwind to growth.

"Looking ahead, we'll be managing through tight crop supplies until the forecast large but delayed US harvest."


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