Grain trader Louis Dreyfus to cut costs in ongoing overhaul

SAO PAULO/PARIS, (Reuters) – Louis Dreyfus Company is making sweeping cost cuts, starting with travel, entertainment, hiring and salaries, as the 168-year-old agricultural commodities firm tries to revive dwindling profits.

Global trade tensions and the African Swine Fever epidemic in Asia have piled pressure on grain trading firms as they try to emerge from a period of falling margins. Family-owned LDC, known as Dreyfus, is the “D” of the ‘ABCD’ quartet of global traders that also includes Archer Daniels Midland Co, Bunge Ltd and Cargill Inc.

LDC said an in an internal memo seen by Reuters that five senior executives would lead a review to achieve “cost and productivity gains”.

The group is also introducing temporary “measures on travel and entertainment, hiring and salary restrictions”, the memo, which was sent to employees on Wednesday, said.

A spokeswoman confirmed the plan in an email, saying LDC aimed to optimize its cost base in a challenging external environment.

LDC said last month that international trade tensions and the spread of a deadly pig disease in China would continue to weigh on profit. It paid out a $428 million dividend- the highest since 2014 – even as first-half earnings slid.

Losses at Brazilian sugar and ethanol unit Biosev SA and an acrimonious buyout of minority family interests by its main shareholder and chairwoman Margarita Louis-Dreyfus have taken their toll on LDC.

The company said this year it may look at selling a stake to a regional player, adding to speculation about consolidation after takeover approaches for U.S.-based Bunge.

Diversified commodity group Glencore made an approach for Bunge two years ago and has said the sector needs consolidating.

COFCO International, the trading arm of Chinese-owned food group COFCO, has also been seen as a potential bidder for other trading firms as it seeks to continue expanding overseas.

LDC has been subject to speculation since Louis-Dreyfus took control in 2009, with the chairwoman at times raising the possibility of a merger or a market listing.

Like its peers, LDC has restructured operations, exiting activities including dairy and metals trading while focusing more on food processing, notably in Asia.

The firm has awarded dividends of up to 50 percent of net profits as Russian-born Louis-Dreyfus has taken on additional debt to acquire minority shares for more than $800 million and support a $1 billion rescue plan for Biosev.

LDC has also been through a series of CEO changes and other management reshuffles since Louis-Dreyfus assumed control of the group following the death of her late husband Robert, whose family founded the company.

This month LDC appointed former head of coffee Michael Gelchie as its new chief operating officer, while promoting Ben Clarkson to be its new coffee head.

LDC has also changed the roles of two other senior executives, its website showed.

Anthony Tancredi, formerly in charge of grains and co-head of the recently merged grain and oilseeds division, has been named to a new position of senior advisor.

Andre Roth has taken sole responsibility for grains and oilseeds after previously heading the oilseed side.

Gelchie and Roth are part of the five-strong group leading the cost review and signed the memo to staff, which said LDC’s strategy would not change as it “aims to increase revenue today and for the future”.

The other participants are Chief Financial Officer Federico Cerisoli, Global Head of Risk and Compliance Nigel Mamalis, and Murilo Parada, who heads the juice division and North Latin America zone.

Timeline:

• 2009 Robert Louis-Dreyfus, head of the group and great-grandson of founder Leopold Louis-Dreyfus, dies in July. His wife, Russian-born Margarita Louis-Dreyfus, inherits control of the group through the Akira family trust created by Robert.

• 2010 Margarita Louis-Dreyfus and Chief Executive Jacques Veyrat study options for bringing in outside investors to help fund expansion. Merger talks are held with Singapore-based commodity group Olam International.

• 2011 LDC and Olam break off merger talks. LDC also considers a stock market listing and a merger deal with diversified commodity giant Glencore, according to media reports. Margarita Louis-Dreyfus and Jacques Veyrat announce in an interview with French business daily Les Echos that Veyrat is leaving the group. Serge Schoen, in charge of LDC’s main commodity trading business, becomes CEO.

• 2012 Family minority shareholders ask to sell a 15 percent stake in LDC’s holding company, exercising an option established by Robert Louis-Dreyfus allowing them to sell shares to the Akira trust during a 15-year period starting in 2012. LDC issues its first-ever bond. It sets out plans to increase investments by 40 percent in the coming five years compared with the previous five years. LDC sells an energy trading business it jointly owned with bank JPMorgan, coming after a first round of energy asset sales the previous year.

• 2013 LDC announces a record net profit of $1 billion for 2012 as erratic weather and growing global demand boost earnings for crop traders. Serge Schoen resigns after eight years as head of the commodities business. He is replaced by head trader Ciro Echesortu. Schoen remains on the company’s board. LDC makes two more bond issues. 2014 LDC reports much lower profits for 2013 as rising supply and stiffening competition hit margins. Margarita Louis-Dreyfus tells the Financial Times she would consider a share listing or a tie-up with a partner, saying she will keep options open about the group’s capital – a phrase she will use on several occasions.

• Ciro Echesortu steps down as CEO after only a year, taking on a strategy role. Chief Financial Officer Claude Ehlinger becomes interim CEO.

• LDC names Mayo Schmidt, a former head of Canadian grain handler Viterra, as its new CEO before cancelling the appointment days before Schmidt was due to take up the post. CFO Ehlinger continues as interim CEO. 2015 Margarita Louis-Dreyfus announces she has raised her stake in the group’s holding company to 80 percent from 65 percent, after agreeing terms on the sale option exercised by other family members. Minority family members then exercise their sale option again by asking Akira to buy another 16.6 percent. LDC ends its long hunt for a CEO by appointing former Asia head Gonzalo Ramirez Martiarena. CFO Ehlinger leaves the group.

• 2016 Ramirez confirms the group is seeking partners to invest in some activities such as fertiliser distribution, as the group reports a decade-low net profit of $211 million for 2015. Former CEO Schoen leaves the group. Armand Lumens, a former executive with oil company Shell, becomes the group’s fourth CFO in just over a year.

• 2017 Margarita Louis-Dreyfus and minority shareholders agree to go to arbitration to settle the second share sale. LDC’s global head of grains, David Ohayon, leaves the firm with several other traders. They later set up a grain desk at Sierentz Global Merchants, a commodity firm owned by Louis-Dreyfus family members not involved in the LDC group. LDC agrees to sell its profitable metals trading business to a Chinese investment fund for more than $400 million. 2018 The group announces in September the departure of CEO Ramirez and CFO Lumens. Company veteran Ian McIntosh is named CEO.

• The sudden leadership shake-up combined with lower first-half profits causes a spike in LDC’s bond yields. The interim results also cause a stir as they show a $411 million dividend and a $1 billion loan to the holding firm to cover a bailout of Brazilian sugar subsidiary Biosev. Margarita Louis-Dreyfus announces she has secured a bank loan to cover the buyout of minority shares.

• 2019 Margarita Louis-Dreyfus concludes the second buyout of minority shares, taking her stake in the holding firm to 96 percent. LDC later says it could sell a stake in its capital to a regional player. As part of a focus on Asia and food distribution, LDC forms an alliance with Chinese retail chain Luckin Coffee Inc.

• After a rebound in profits in 2018, first-half results decline and LDC warns the rest of the year will remain tough. It discloses its biggest dividend since 2014. It introduces more management changes, including making coffee chief Michael Gelchie its new COO, and announces internally plans to cut costs, including immediate steps to curb personnel costs.

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