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Louis Dreyfus underlines expansion aims, despite profits drop

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Louis Dreyfus Commodities underlined its ambitions for investment even as it extended the round of poor results from agriculture giants, unveiling a halving in earnings, blamed in part on a dearth of crop price volatility.

Claude Ehlinger, the Louis Dreyfus Commodities finance director, and acting chief executive said that the group's strategy "remains focused on capturing any beneficial investment opportunity available."

The comment, which contrasts with reports on Tuesday that rival Cargill is to wind down its $7bn hedge fund division, came even as Mr Ehlinger acknowledged an "overall challenging environment" for ag traders which saw Louis Dreyfus earnings for the January-to-June period halve to $130m.

"The external environment remained difficult during the first half of 2015, with some key countries in the agricultural space facing economic (China and Brazil) and political (Black Sea region) uncertainty," the group said.

However, Mr Ehlinger said that Louis Dreyfus "has experienced and successfully steered through a range of market cycles in its 164-year history".

Debt declines

The group said capital investment in the first half of the year had come in at $135m, well down on the $315m in the same period of 2014, directed on projects such as grain elevators and fertilizer storage in South America, and a biodiesel plant in Indonesia which remains ongoing.

In July, the company unveiled the purchase, for an unnamed sum, of a grain terminal on the Azov Sea in Russia's Rostov region, with capacity for 500,000 tonnes, which it plans to raise to 1m tonnes.

However, one balance sheet benefit to agricultural commodity groups from the low crop prices which fuelled a 22% slide to $26.4m in Louis Dreyfus Commodities' revenues in the first half of the year is that it has freed up capital tied up in crop inventories.

The group's working capital demands at the end of June, at $8.6bn, were down 15.7% year on year.

Underlying net debt, at $3.6bn, was down some 10% year on year.

'Reduced commercial opportunities'

The company said that while revenues fell during the half, as "plentiful crops added to already [global] high inventory levels" and depressed prices, its sales volumes actually rose by some 4%.

This reflected performances in grains and oilseeds within the value chain division, which saw its operating profits fall by a relatively mild 8.4% to $369m.

Merchandising operations saw operating profits tumble by 37% to $269m, reflecting "reduced commercial opportunities" within a market marked by lower price volatility.

"The absence of major market disruptions and a steady growth led suppliers and customers to require less risk management expertise from agri-commodity traders," Mr Ehlinger said.

The announcement follows the release by Cargill last month of its first quarterly loss in 14 years, while Archer Daniels Midland and Bunge, the other two members of the sector's big four trading houses, also unveiled bigger-than-expected profits falls in their latest quarters.


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