March 25, 2019 / 11:03 AM / 3 months ago

UPDATE 1-Louis Dreyfus gets soybean boost from trade war

* Agricultural merchant’s full-year net profit up 12 pct

* Says trade war shifts helped soybean activity in Brazil

* LDC had expected improvement after tough first half

* Annual report cites risk over Russia project loan (Adds detail)

By Gus Trompiz

PARIS, March 25 (Reuters) - Agricultural commodity merchant Louis Dreyfus Company (LDC) said on Monday trading opportunities created by the U.S.-Chinese trade dispute boosted its soybean business last year, contributing to a sharp rise in group profit.

LDC posted record soybean export volumes from Brazil as the South American country increased flows to China during the Asian country’s trade row with Washington, the company said.

The tariff battle between Washington and Beijing has brought mixed fortunes for grain trading firms. A setback for Bunge in soybean price fluctuations in Brazil contributed to the U.S. group’s fourth-quarter loss.

LDC said group net profit reached $355 million in 2018, up 12 percent from a year ago, while segment operating results increased to $1.33 billion from $1.06 billion.

That reversed a sharp fall in the first half and was in keeping with comments made by LDC’s Chief Executive Ian McIntosh in late September when he said year-to-date results had significantly improved.

“Our results clearly demonstrate our capacity to rise to the challenge of managing differing trends among business platforms and the fallout of global trade tensions,” McIntosh said in a statement.

The company said its hedging of soybean crushing margins brought a positive $38 million mark-to-market effect by the end of the year, supporting its previous expectation that a negative first-half impact would be recouped.

The 168-year-old private firm also pointed to improved results in commodities such as grains and sugar where it has struggled in recent years due to low prices and ample supplies.

Global merchants have been grappling with lower margins in sourcing and transporting crops, prompting cutbacks in trading teams and investment down the food chain.

The divestment of LDC’s profitable metal trading unit has put the onus on its agricultural businesses, which also include cotton, rice and coffee, to boost returns.

LDC said group net profit from continuing operations had also risen to $321 million from $224 million.

Improved margins offset a drop in sales which fell to $36.5 billion from $38.0 billion in 2017, including an 8.8 percent decrease in volumes, it said.

The higher profit helped push down its adjusted debt/EBITDA earnings ratio to 2.9 by end-2018, after it surged to 4.6 in the first half from 3.3 at the end of 2017.

But its gearing ratio of debt over equity rose, to 0.59 from 0.51 at the end of 2017, as its equity value was cut by a previously announced $411 million dividend to shareholders last year.

The firm’s auditors, meanwhile, cited in the annual report a risk that a $165 million loan made by LDC to a joint venture to develop a grain terminal at Russia’s Taman port may not repaid, amid arbitration proceedings concerning the delayed project. (Reporting by Gus Trompiz; Editing by Sudip Kar-Gupta and David Evans)

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