Louis Dreyfus Commodities underlined plans to expand into food, to boost margin prospects, even as it unveiled a strong finish to 2018, as it exploited disruptions related to trade tensions and to a US freight squeeze.
Ian McIntosh, who took over in September as the Louis Dreyfus Commodities chief executive, said that the group would over the next five years “evolve to become more of a diversified food and nutrition company”.
This would involve expanding further from raw commodities further down the food chain, for example from oilseed crushing further into the use of the oils and meals produced, and ride a trend of growing consolidation among links in the processes between farmer and consumer.
Furthermore, the group will seek to expand in higher-margin items such as ag-based pharmaceutical ingredients, and boost innovation in technology, to improve the likes of traceability of food, as a well as products including plant-based and insect proteins.
This could include “acting as a conduit” for outside capital.
“For a company like ours, a high degree of integration across the value chain has become fundamental,” said Mr McIntosh, who first joined the group 33 years ago as a UK trader, before a career which took him through the likes of sugar, cocoa and coffee to Edesia, the now-closed asset manager.
“It is clear that our margins lie across the full spectrum, from producer to end consumer.
“It is our ability to seamlessly master each stem along the way that will allow us to create and leverage opportunities.”
He termed “key” the discovery of the “right breadth and balance of origination and destination markets”.
‘Rise to the challenges’
The comments came as the group unveiled a 13.0% rise in earnings to $357m for 2018, on revenues down 4.1% at $34.57bn.
Gross margin rose by 26% to $1.33bn, with the data implying particularly strong growth, of 38%, in the second half of the year, which Mr McIntosh said was “very strong”.
Indeed, while rival Bunge issued a profit-warning after an oilseeds bet went awry on a late-2018 thawing in US-China relations, Mr McIntosh said the LDC had shown an “ability to rise to the challenges of… the fallout from US-China trade tensions”.
In oilseeds it last year achieved “a new record in volumes exported from Brazil”, as to tapped into the shift from the US to South America in Chinese demand for soybeans, while exploiting too a boost to biodiesel margins from higher crude oil prices.
In coffee, LDC reported “improved” results, although held back by a reluctance among farmers to sell beans thanks to low prices, a factor which had created “challenges for many operators”, and is prompting the group to boost its origination operations in the likes of Brazil, Colombia, Honduras, and Vietnam.
‘Superior risk management’
However, Mr McIntosh singled out in particular performance in sugar, where the group said it had been helped by “superior risk management”, and cotton, for which LDC reported an “excellent yeas” and “strong returns”.
“We grew both origination and sales volumes ahead of the significant increase in global production (16%) and consumption (6%) during the 2017-18- crop year,” the group said.
Furthermore, as the US “experienced a major shortage of available truck freight in 2018”, spurred by a tightening of trucker regulations, LDC said it exploited its “strong base of logistic assets”.
In grains, the group highlighted expansion in the Black Sea region, where it said it is to “continue to invest in origination and logistic capabilities”, having last year bought 330 railcars in Ukraine, and with the opening of extra loading capacity in Russia on the Azov Sea due in May.