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Louis Dreyfus says open to talks with 'strategic partners' as it unveils profits dip

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Margarita Louis-Dreyfus revived ideas that Louis Dreyfus Company was open to tie-ups with “strategic partners” as it revealed a 37% drop in profits for 2019, “one of the most challenging years in recent times”.

 

Ms Louis-Dreyfus, chairperson of LDC, highlighted as “important” her $825m purchase from other family members of a 16.6% stake in the agricultural trading giant’s holding company, Louis Dreyfus Holdings, a deal completed last year.

 

The move “secures the flexibility to engage with strategic partners at group level”, she said.

 

Such partners “could bring further value to the business, and make LDC even stronger”.

 

‘Potential to become a reality’

She said that there was “no timeline for such a move”.

 

However, company’s consolidated ownership meant that “the confirmation of a strategy envisioned since 2009… now has the potential to become a reality”, said Ms Louis-Dreyfus - who took control of LDC in 2009, after the death of her husband Robert Louis-Dreyfus, the grandson of the empire’s founder.

 

LDC was early in the last decade reported to have held merger talks with rivals including Glencore International, and confirmed negotiations with Singapore-based Olam International.

 

The talks over the Olam tie-up, which would have created the third-largest ag trading group, after Cargill and Archer Daniels Midland, broke down early in 2011.

 

‘Difficult commercial environment’

Ms Louis-Dreyfus made the comments as LDC unveiled a fall to $228m, from $366m, in earnings for 2019, which she termed “one of the most challenging years in recent times”.

 

“Our new reality is one of higher global volatility, political unpredictability, changing consumer trends and a ticking clock on environmental issues on a planetary scale.”

 

Ian McIntosh, the LDC chief executive, said that the group had “faced difficult commercial environment” last year, thanks to factors including China-US trade tensions, geopolitical instability, and the “general oversupply affecting markets”.

 

He also cited the African swine fever outbreak which the group said meant that “the number of pigs raised in China dropped by almost half between 2018 and the end of 2019”.

 

However, although “overall results were lower than 2018, LDC put in a solid performance, made the right strategic decisions and took the first steps to adjust its cost base, without losing focus on our transformation plans and future growth trajectory”.

 

The group was revealed in November to have launched an economy drive, including restrictions on travel and expenses, and a review of hiring and salary rises.

 

Cotton, coffee, sugar

The group reported sales last year down 6.6% at $33.6bn, as a dent from lower ag prices more than offset the boost from a 1.3% increase in volumes.

 

Operating profits fell by 31% to $569m at the LDC value chain segment, reflecting factors including a dent to soy crush margins from weakened US ag shipments, hurt by the China-US trade war, and a slowdown in crop sales by farmers in Argentina, which has raised taxes on some exports.

 

The merchandising division reported operating profits down 21% at $387m, despite “good results” in the cotton business, which was able to mitigate the impact of the China-US trade dispute by switching to other origins, such as Brazil, adding Mexico to the list too.

 

In the coffee business, LDC reported an early-2019 setback from low arabica prices which led “to slow farming selling and limited business opportunities”, although the unit “successfully captured the opportunities” arising from a tighter market and recovering prices later in the year.

 

In sugar, LDC said it maintained a “decent level of profitability”, as ideas of disappointing Indian and Thai output later in the year played to the group’s strength in the US beet sugar market.

 

Coronavirus comments

 

Mr McIntosh added that although this year had "started well, it is too early to say what impact the new coronavirus may have on our 2020 performance."

 

The group was "working hard with our employees, customers and suppliers to ensure their health and safety, and prevent further spread of the virus, even as we strive to fulfill our mission of providing essential products, like food and feed, to customers and consumers around the world”.

 

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