Tough Year for Louis Dreyfus
(Bloomberg) -- Louis Dreyfus Co. suspended dividend payments to its family owners in 2017 for the first time in at least a decade as the storied food commodities merchant suffered another year of tepid profit.
The firm, controlled by 55-year-old billionaire Margarita Louis-Dreyfus, has been battling tough conditions as big harvests from Russia to Canada hurt prices and volatility, eroding trading opportunities. It said in its annual report Wednesday that it paid no dividends at all last year. That compares with average annual payouts of $270 million in the previous decade, filings show.
Dreyfus declined to comment on its dividend policy, but said in the annual report that its bonds and bank loans contain covenants that “require maintenance of levels of working capital, net worth, ratios of debt to equity, dividend restrictions and limit of indebtedness.” It also said it increased its financing to Biosev SA, the sugarcane processor that’s owned by the family.
Dreyfus, one of the world’s top four agricultural traders, said net income rose 4 percent to $317 million last year, largely supported by a record year in metals. But excluding the metals unit -- which it agreed to sell in December -- net profit at the core agriculture business fell 16 percent to $224 million.
"The continuing unpredictable environment of fluctuating market conditions and demands has created many challenges for our sector,” Louis-Dreyfus said in a statement. Chief Executive Officer Gonzalo Ramirez Martiarena said that the industry is still facing challenges.
Louis-Dreyfus owns about 80 percent of the company’s parent, with four other relatives owning most of the remaining equity.
The low profit and lack of a dividend at the 167-year-old business comes at a critical time for Russian-born Louis-Dreyfus. She’s facing a payment of as much as $1 billion to fulfill an obligation to buy out family members stakes’ in the holding company that controls the business. The billionaire has in the past used dividend proceeds to help fund the purchase of family members’ shares.
Furthermore, she needs extra cash to keep afloat Biosev, the world’s second-biggest sugarcane processor. Dreyfus said that it has extended credit in the form of pre-payment facilities and trade receivables worth $831 million to Biosev, up from $608 million the previous year.
Louis Dreyfus Holding BV, the parent of the trading house, has agreed to a $1 billion capital increase to rescue its Brazil sugar subsidiary as part of a debt-extension agreement with banks, people with direct knowledge of the matter said this month. The agreement is expected to be completed by the end of March and includes a $750 million debt-to-equity conversion and $250 million in new equity, the people said.
Dreyfus’s earnings in the last three years have been much lower than between 2007 and 2014, when profits totaled more than $600 million annually as traders benefited from a golden period of crop failures, which tightened supply and increased trading opportunities. Now, lower prices and reduced volatility have hurt margins.
As part of planned cost cuts and asset sales, Dreyfus last year offloaded its Africa-based fertilizers business and has agreed to sell its LDC Metals unit to China’s NCCL Natural Resources Investment Fund.
Dreyfus, based in Rotterdam, shipped 81 million metric tons of commodities in 2017, up 5 percent from a year earlier. Adjusted net debt fell to $2.6 billion, down from $2.9 billion the previous year.
The company represents the ‘D’ in the group of the big-four agricultural merchants known as the ‘ABCD’ that also include Archer-Daniels-Midland Co., Bunge Ltd. and Cargill Inc. which for a century have dominated food trading.
Dreyfus’s earnings release comes a day after Cargill and ADM said things are starting to look up in the grains market, helped by drought in Argentina and unfavorable weather in the U.S.
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