Louis Dreyfus profit slides on soya hedging

Louis Dreyfus Company, one of the world’s largest agricultural commodity traders, said adjustments to its hedging policy for soya beans contributed to a fall in first-half profits, but would benefit its full-year results.

Louis Dreyfus said group net profit, including discontinued operations, had fallen to $100m from $160m.

Excluding divested assets, notably its profitable metal trading business, net income dropped to $67m from $134m.

The lower earnings come at a sensitive time for the 167-yearold company, which has just undergone a management shake-up. The company’s controlling shareholder, Margarita Louis-Dreyfus, needs to find $2bn to support debt-laden Brazilian sugar unit Biosev and buy out family minorities.

However, echoing comments by CEO Ian McIntosh after his appointment two weeks ago, the company said it was expecting a decent year.

“The lower net income reflects a temporarily negative mark-to-market recognised by the group as of June 30, attributable to our hedging strategy of locking in soya crush margins,” Louis Dreyfus said in a statement.

“This will ensure a high return from our crushing activities for the whole of 2018.”

The adjustment to its soyamargin strategy, which had a negative $65m effect in the first half of the year, would ensure positive crushing margins in the second half and into 2019, Louis Dreyfus said.

FACTORY ACQUISITION

The company said that the recent acquisition of a processing factory in northern China would boost its oilseed activity at a time when trade tension between the US and China was fuelling volatility in the soybean sector.

A rise in financing costs to $142m from $94m, due partly to higher interest rates, also weighed on first-half profits, Louis Dreyfus said.

LOWER EARNINGS COME AT A SENSITIVE TIME FOR THE GROUP, WHICH HAS HAD A MANAGEMENT SHAKE-UP

First-half sales were stable at $18.8bn as a 6.3% drop in volumes linked to the group’s asset divestments was offset by higher prices. Louis Dreyfus’s results statement also provided clues on how Margarita Louis-Dreyfus may finance a bailout of Biosev and the buyout of a minority stake in the group’s holding company worth more than $800m.

The report showed that the operating firm had lent $1bn to its holding company, mostly related to Biosev, with that loan due to mature in 2023.

A $411m dividend was also awarded to shareholders on the basis of 2016 and 2017 results.