UPDATE 2-Louis Dreyfus' profits slide on fallout from US drought

Wed Mar 26, 2014 12:48pm EDT

* Louis Dreyfus Commodities full-year net income $640 mln

* Says margins better in H2 after tight grain supply hit H1

* Tropicals business hit by oversupply, notably in sugar

* Plans Azov Sea port in push in Black Sea grain region (Writes through to add tropicals, quote, background)

By Gus Trompiz

PARIS, March 26 (Reuters) - Global trading group Louis Dreyfus Commodities B.V. posted a sharp drop in net profit for 2013 after a U.S. drought disrupted grain markets and as sugar and other soft commodities were hit by oversupply.

Net income for the full year fell to $640 million from a record $970 million in 2012, the group said in a results statement on Wednesday

Louis Dreyfus is the "D" of the so-called ABCD majors that dominate agricultural commodities, alongside Archer Daniels Midland, Bunge and Cargill.

The worst drought in half a century in the United States in 2012 curbed global grain output the following year and sent prices soaring, cutting volumes and processing margins for traders such as Louis Dreyfus that do business all along the agricultural supply chain.

The trading firm was more upbeat about the latter part of 2013, saying a rebound in grain supply pushed up margins, echoing comments made by its rivals in recent earnings reports.

Second-half profits were in line with the average of 2009-2011, excluding spun-off Brazilian unit Biosev, it said.

But the consequences of the U.S. drought on grains and oilseeds in the first half and the difficult conditions in some soft commodities kept profits well below the record levels of 2012.

"There were solid performances from the Proteins and Other Products segments, while the Tropicals segment faced challenging conditions - including oversupply and unusual Brazilian weather conditions, which resulted in a lower performance," Louis Dreyfus said in its results document.

Dreyfus said its Proteins business, which includes grains and oilseeds, posted operating profit of $1.1 billion, down from $1.3 billion in 2012.

Operating profit from the Tropicals arm, which includes products such as sugar, orange juice and cotton, fell to $437 million from $844 million in 2012, or $698 million excluding one-off gains.

Its other activities, including metals and dairy businesses, reported $211 million in operating profit, up from $156 million, helped by Chinese demand for dairy products.

TOUGH YEAR

Last year proved tough for many commodity trading firms as margins narrowed and competition stiffened.

Top oil trader Vitol this week reported flat full-year revenues despite higher crude and product volumes, pointing to competition from new entrants.

Dreyfus said its full-year net sales rose to $63.6 billion from $57.1 billion in 2012, supported by a 10 percent increase in shipped volumes.

The 163-year-old group, still controlled by the founding family, is grappling with a fast-changing commodity trading world and is stepping up investment.

Capital expenditures increased to $689 million last year from $652 million in 2012.

Dreyfus started raising funds in the bond market recently but has opted against making any headline acquisitions or a stock market listing, avenues pursued by other traders.

It completed a 500 million euro ($678 million) bond issue in December, marking the trading firm's third foray into bond markets in just over a year.

MANAGEMENT

The group last year changed its top management. But in a reshuffle that suggested continuity, former head trader Ciro Echesortu became chief executive, succeeding Serge Schoen who was named supervisory board chairman with a strategy role.

Schoen said last year the group might need to go public in the next five years to get more access to capital.

But Margarita Louis-Dreyfus has stressed her family trust, Akira, wants to raise its stake further by buying shares from minority family shareholders.

The company has made a series of investments along its supply chain in the past year, including the creation of a joint venture to develop a commodity port terminal in major grain exporter Ukraine.

The annual review also mentioned the group was developing a port on the Azov Sea, which is bordered by Russia and Ukraine and skirts the disputed region of Crimea, for an expected launch in 2015. The company declined to say where the port would be or provide any other details. (Reporting by Gus Trompiz; Editing by Veronica Brown and Jane Baird)