Sweetener settlement knocks ADM profits

Related tags High-fructose corn syrup Adm

US ingredients giant ADM saw double-digit sales growth for the year
but overall profits were dragged down by a recent payout of
millions of dollars to leading food and beverage manufacturers to
settle a lawsuit linked to the popular sweetener high fructose corn

Sales for the Decatur, Illinois-based firm leapt 18 per cent for the year to $36.1 billion, but the agricultural processor saw fourth quarter results slip to a loss of $103 million due to the $400 million (€333m) settlement in the anti-trust case that claimed the US firm conspired to fix the price of the food sweetener high fructose corn syrup used expansively in food and soft drink products.

Ignited in the early 1990s the settlement has its roots in a law case filed by over 20 plaintiffs, including soft drink giants Coca-Cola and PepsiCo, who accused the agribusiness group of linking up with other manufacturers to fix prices of the sugar substitute, also known as isoglucose in Europe.

"In light of the potential exposure inherent in litigation, the board of directors concluded that it was in the best interests of the company to dispose of this matter,"​ G. Allen Andreas, chairman of ADM, said last month.

The class-action lawsuit filed in 1995 alleged that ADM​'s actions cost them $1.6 billion. The case had been scheduled for a September jury trial and ADM could have faced damages three times this amount at nearly $5 billion, as jurors could have tripled any award if they found the company guilty.

In addition to the payout ($252 million after tax), ADM said in a statement announcing its year-end results that the year had been marked by "extreme volatility and difficult business conditions for global agribusiness"​. Loss of business from China particularly hit the core oilseed processing unit of the group.

ADM said the oilseed processing business sustained a $15 million operating loss after Chinese soybean producers who had over-purchased soybeans defaulted on agreements to buy more when soymeal demand in China collapsed, the result of price rationing and avian flu. The company said that caused a dramatic drop in soybean prices, which also prompted a loss in its South American operations.

But all other major segments - cocoa, corn processing, food and feed ingredients - of the business recorded improvements. Corn processing operating earnings rose to $150 million, boosted by increased volumes and selling prices of alcohol and lysine products that more than offset higher net corn costs. But the higher corn costs pushed earnings from sweetener and starch products lower.

CEO G. Allen Andreas said the legal settlement took care of the company's remaining significant litigation exposures. Net earnings for the fiscal year came in at $494.7 million, or 76 cents a share, compared with $451.1 million, or 70 cents a share, a year earlier.

ADM is one of the world's largest processors of soybeans, corn, wheat and cocoa. The ingredients side of the business supplies an extensive product range, to include vegetable oils and fats, lecithins, xanthan gum and acidulants, emulsifiers and thickeners.

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