March 27, 2014 / 2:30 AM / in 4 years

UPDATE 3-Louis Dreyfus sticks to spending plan despite profit slide

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

* Fallout from U.S. drought hits grains, oversupply hurts softs

* Still seeks $4 bln spending by 2014, aims to double sales

* Eyes coffee consolidation, expanding Black Sea logistics (Recasts with investment, sales targets to 2018, analyst comment)

By Gus Trompiz

PARIS, March 26 (Reuters) - Global trading group Louis Dreyfus Commodities B.V. said it will stick to plans to double sales within five years by boosting investments, shrugging off a drop in 2013 profits from dought-hit grain markets and an oversupply in soft commodities.

The 163-year-old Louis Dreyfus group is the “D” of the so-called ABCD majors that dominate agricultural commodities, alongside Archer Daniels Midland, Bunge and Cargill.

The company aims to invest $4 billion, or on average $800 million a year, between 2014 and 2018, it said in an annual report accompanying its results statement on Wednesday.

This would be in line with the investment pace envisaged in the group’s previously indicated $5 billion target for 2012-17, excluding spun-off Brazilian unit Biosev, but above capital investment of $689 million last year and $652 million in 2012.

“We are four times larger in terms of sales than in 2006, but only half the size we plan to be by the end of 2018,” Chief Executive Ciro Echesortu, who took up his post in mid-2013, was quoted as saying in the annual report.

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

Main shareholder Margarita Louis-Dreyfus said in the annual report that the $4 billion investment programme to 2018 would go towards mid-size assets around the world.

The group said it was pursuing growth through vertical integration, developing both upstream and downstream commodity activities, and specified it wanted to play “a strong consolidation role” in the coffee trade.

The remarks were in keeping with the group’s recent strategy of adapting to a fast-consolidating commodity trading sector by raising investments, supported by a series of bond issues, but stopping short of headline acquisitions or a stock market listing, avenues pursued by other traders.

“While maintaining the spirit of a family company, we are now aligning our business model and operations more closely with those of a publicly listed company,” Louis-Dreyfus said in the report.

The group 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.

The Black Sea grain-exporting region has also been a focus for the group’s investments, including the creation of a joint venture to develop a port terminal at Odessa, Ukraine, and the development of a port at an undisclosed location on the Azov Sea, which is bordered by Russia and Ukraine, for an expected launch in 2015.


Louis Dreyfus said net income for the full year fell to $640 million from a record $970 million in 2012.

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.

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 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.

“They don’t do as much further processing as a Cargill, or an ADM or a Bunge. So in a drought year when there are less volumes to handle it would make sense their earnings would decline,” said Chris Johnson, analyst at Standards & Poor’s in New York.

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.

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.

Ciro Echesortu, formerly head trader and chief operating officer, took over as Louis Dreyfus Commodities’ chief executive last year from Serge Schoen who was subsequently named supervisory board chairman with a strategy role. (Reporting by Gus Trompiz; Editing by Veronica Brown and Jane Baird)

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