Louis Dreyfus profits rise on oilseed volatility
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Louis Dreyfus Company, one of the world’s biggest traders of agricultural commodities, has reported a 13 per cent surge in annual profits as its oilseeds business took advantage of ructions caused by the US-China trade war.
After struggling in the first six months of 2018, LDC bounced back in the second half of the year as its traders locked in strong crushing margins and benefited from increased volatility thanks to existing hedging contracts.
“We posted a very good performance for 2018, supported by a strong second half of the year, as expected, and despite lower sales and volumes due to divestments,” said chief executive Ian McIntosh.
The privately owned company, which is controlled by Russian-born heiress Margarita-Louis Dreyfus, said group net income was $323m in the year to December, up from $316m a year earlier. Income from continuing operations rose 44 per cent from $224m to $323m.
The results mark a strong turnround in performance from the first six months of the year when net income from continuing operations slumped by more than 50 per cent to $67m.
The 168-year-old company is one of a small group of merchants that dominate the global flow of food stuffs.
Its majority shareholder Margarita-Louis Dreyfus, a Russian-born heiress, completed the buyout of family members earlier this year as she looked to consolidate control of the business.
Ms Louis-Dreyfus took out a loan to help fund the $900m share purchase, which increased to 96 per cent her stake in the holding company that controls the trading house. The group’s equity value fell to $5.03bn from $5.13bn mainly due to a $411m dividend payment.
Mr McIntosh said LDC’s oilseeds business had captured improved crush margins, while the US-China trade war, and tariffs on soyabeans, had led to greater volatility and shifts in global trade flows that it had been able to exploit.
On current trading he said it was more of the same with the US-China trade war still not settled and noting a “complex” trading environment.
Mr McIntosh took the helm of LDC in September after the sudden departure of the company’s chief executive and finance director. He said the results also reflected work done to refocus the company and exit businesses where LDC lacked scale. That includes its dairy unit, which will close later this year.
Mr McIntosh said LDC was looking to strike partnerships and joint ventures in Asia as it looks to move downstream and get closer to the end customer.
Last year, LDC acquired a crushing plant in Tianjin, China, which it also planning to use to make feed for the aqua culture market. He said it was “perfectly feasible” that LDC could invite a strategic investor to take a stake in the company.
Revenue was $36.5bn, down from $38bn and the company reported adjusted net debt of $3bn, up from $2.6bn.
Although net debt rose, the ratio of net debt to earnings before interest, tax, depreciation and amortisation — a key measure used by the company to measure leverage — fell to 2.9 times, down from 4.6 in the first half of 2018, and beating a target 3.5 to 4 times set by Mr McIntosh.