Bunge Global SA (BG) 2004 Q4 法說會逐字稿

Good day everyone, and welcome to the Bunge, Limited fourth quarter conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Susie Ter-Jung. Ms. Ter-Jung, please go ahead ma'am.

Thank you, operator, and thank you, everyone, for joining us this morning. Welcome to Bunge, Limited's fourth quarter 2004 earnings conference call. With me on today's call to discuss the results are Alberto Weisser, Bunge's Chairman and CEO, and Bill Wells, Bunge's Chief Financial Officer. For today's call, we are providing a realtime transcript to subscribers of CCBN Street Events. To access the service, please go to myccbn.com, and select the Street Events tab after logging in and selecting our ticker symbol, BG.

Reconciliation of non-GAAP measures disclosed orally on this conference call to the most directly comparable GAAP financial measure are posted on our website, www.bunge.com, in the Investor Information section of the site. Before I turn the call over to Alberto, I would like to read the Safe Harbor statement. This call may contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about future financial and operating results.

These statements are based on management's current expectations and beliefs, and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. The printed risk factors can be found in our SEC files and reports. And now, let me turn the call over to Alberto.

Good morning, everyone. Thank you for joining us. Bunge's 2004 results added to our track record of solid growth and generation of shareholder value. It was the fourth consecutive year in which we achieved record net income and earnings per share. Return on invested capital was 11 percent in 2004, and return on equity was 16 percent. We are pleased that we continued to earn returns well in excess of our weighted average cost of capital. Despite significant volatility, 2004 was a great year for our company and for the industry as a whole.

The short 2003-2004 U.S. soy crop led to futures prices that hovered near $10 per bushel for weeks on end, a level seen only a few brief times before. There was also volatility in ocean freight rates and unexpected disruptions in trade with -- in trade with China. These conditions made for a challenging marketplace, but Bunge performed well. Our balanced operating model proved again its effectiveness at capturing value, and our team's logistics and risk management expertise enabled us to navigate changing conditions with agility. The industry achieved good results, as well. This demonstrates that the increased scale of its major participants leads to a more stable environment.

Over the past few months, the market has returned to more normal conditions. The board price for soybeans has been around $5 in September; and as we detailed in our press release, 2005 supplies should be ample, and demand strong. Looking ahead, we are confident in Bunge's ability to continue growing. There are clear reasons for our confidence. First, the fundamental drivers of growth in our industries remains strong. Population and GDP growth, especially in the developing world and Asia, continue to fuel demand for meat, vegetable oil and protein feeds.

We believe global demand for soybean meal will rise by more than 4 percent per year, and demand for vegetable oil will grow at a similar rate. Long-term increases in demand will drive production growth in South America and Eastern Europe. This is especially true in Brazil. Production in that country is up in 2005, and the USDA expects continued growth. The Brazilian fertilizer industry, which has grown at over 8 percent per annum since 1990 will continue to benefit from this expansion. The second reason for our confidence is Bunge's focus on the region's end markets with the highest growth rate in the industry.

South America, we continued building new origination assets and logistics systems, including a state of the art port complex in Ramallo, Argentina. In eastern Europe, where growth in per capita vegetable oil consumption outpaces growth in global demand, and where there is outstanding potential for grain and soft seed production increases, we purchased a premium bottle oil brand, broke ground on a new crushing plant and bought or constructed grain terminals in strategic ports on the Black and Baltic Seas. Southeast Asia, where the USDA forecasts an over 25 percent increase in soybean meal imports by 2010, we signed an exclusive throughput agreement at the panamax ready port of Phu My in Vietnam. All of these elements -- healthy supply and demand, consistent growth trends and enhanced strategic positions for Bunge, point toward a good year in 2005.

Specifically, we anticipate that 2005 will provide an opportunity for Bunge to use its efficient asset base, logistics and risk management expertise and integrated operations to create value for the company, customers and farmers. Big crops and strong demand increase volumes. The more volume we move through our asset network, the more efficiently we operate. We capture more value and can pass more along to our customers and farmers. Larger volumes also provide flexibility that benefits customer service and quality. The benefit we gain from our integrated business model is perhaps most dramatic.

Maintaining integrated operations from farm to consumer means Bunge can extract value at a number of points on the food production chain and capitalize on opportunities when and where they occur. For example, in our Brazilian phosphate mines, we benefit from solid margins due to our low logistic costs versus input phosphate. On the farm fields, we sell retail fertilizers, provide financing and buy crops. At our silos, we earn storage income. At our integrated crushing, refining and packaging plants, we earn [INAUDIBLE] margins. In our port terminals, we earn loading, unloading and brokerage fees. In our marketing offices, we execute sales and provide freight, trade structured finance and risk management services; and on the retail shelf, we earn profits from the sale of our branded oils and food products.

Considering that over 100 million tons of fertilizer, oilseeds, grains and edible oils passed through this chain last year, the earnings potential becomes quite clear. To put this in context, despite being the world's largest soybean processor, soy processing typically accounts for only 25 percent of our operating profit. We are confident that our operating model, strong values and an excellent team can prosper in a variety of market conditions and fuel long-term growth. We will continue to strengthen Bunge by investing in the right places, by improving efficiency and customer service and by staying true to the way we work.

Before I conclude, I would like to reiterate that the right way to look at our results is to focus on the full year, as profits can shift from quarter to quarter. There are two major harvests per year, one in the northern hemisphere and one in the southern hemisphere. They occur roughly six months apart so there is a natural seasonality to our earnings, especially in the agribusiness and fertilizer. That said, the precise timing and the size of these harvests vary as to farmer buying and selling decisions. A yearly assessment of our results offers more clarity on our performance.

In conclusion, I'm optimistic for a good 2005, and believe that our results will bear this out. I will now turn the call over to Bill, who will focus on financial performance and our outlook for 2005.

Good morning. First, let me give you some perspective on the fourth quarter. The fourth quarter is typically the peak of crushing activity in North America and Europe, with reduced activity in South American agribusiness and fertilizer operations. Let me remind you that the fourth quarter of 2003 was anything but typical. High soybean prices caused a wave of farmer selling in the Americas.

As a result, agribusiness volumes in Brazil in the fourth quarter of 2003 were almost 50 percent above the same quarter of 2002. This aggressive selling, combined with very strong customer demand, caused significantly higher than expected margins across the board, and thus produced extraordinary results. Now, let me turn to our results. In Bunge's agribusiness segment, volumes in operating profit were below the exceptional levels experienced in the fourth quarter of 2003. Volumes declined primarily due to unusually low farmer selling in all origins and lower volumes in international marketing.

Excluding China, global demand was down slightly as customers worked through higher-priced contracts. In the current large crop, low-price environment, we are seeing demand increase, and expect 2005 volumes to benefit. Results in both North and South America declined, due to lack of farmer selling. Increased earnings on advances to farmers in Brazil and increased storage revenue in North America helped offset some of the margin impact of slow farmer selling. Results in North America were also affected by higher natural gas prices and higher logistics costs due to disruptions in rail service. Europe benefited from increased bio-diesel demand and good soft seed margins.

Agribusiness selling, general and administrative expenses increased, primarily due to bad debt provisions associated with higher selling prices and increased labor-related provisions in Brazil. The fourth quarters of 2004 and 2003 included pretax impairment and restructuring charges of 17 million and 56 million, respectively. related to Bunge's Western European oilseed processing operations. One of our four strategies is a relentless focus on efficiency, and we are always looking for ways to reduce costs, upgrade our facilities, improve our asset footprint and streamline production. Due to our restructuring efforts, we have seen a significant improvement in operations and results in many of our businesses in Western Europe.

Turning to Bunge's fertilizer segment, higher average selling prices for fertilizers resulted in improved segment operating profit. International selling prices for imported fertilizers and raw materials were higher than in the fourth quarter of last year. For example, the price of phosphate in the form of granulated MAP was 28 percent higher than in the fourth quarter of 2003. And the price of nitrogen in the form of urea was 41 percent higher. Brazilian fertilizer is priced to import parity. Fertilizer volumes also increased, particularly in our retail business, as a result of expanded sales and marketing efforts.

The Brazilian retail market was flat. However, we were able to grow our market share slightly. Fertilizer SG&A increased, primarily due to bad debt provisions associated with higher selling prices and higher labor-related provisions in Brazil. In Bunge's edible oil product segment, volumes grew as lower prices stimulated demand, particularly in Brazil and the United States. Bunge's edible oil business in North America suffered from greater competition and higher logistics and energy costs.

Results in Eastern Europe were negatively affected by margin pressure as a result of higher raw material prices and lower seed quality and yields. Fourth quarter 2004 results include a $4 million pretax, non-cash impairment charge relating to Bunge's Brazilian packaged oil operations. In our milling products segment, results benefited from higher volumes of corn milling products sold to both commercial customers and the U.S. government for its food aid program, and higher volumes and margins in Bunge's Brazilian wheat milling business.

These were offset in part by lower margins on corn milling products sold to commercial customers. Bunge's SG&A increased 36 percent from the fourth quarter of 2003, due to higher bonus provisions associated with improved results, increased head count in our international marketing business compared to the same quarter of last year, a 24 million increase in bad debt provisions associated with higher commodity and fertilizer prices and increased labor-related provisions in Brazil. Interest income increased 53 percent from the fourth quarter of 2003, primarily due to higher average balances of interest-bearing accounts receivable, as well as higher levels of invested cash in our fertilizer business.

Interest expense on debt financing readily marketable inventories decreased, as average readily marketable inventories were $300 million lower in the fourth quarter of 2004 compared to the same quarter in 2003. In the fourth quarter of 2004, the Brazilian real and the Euro appreciated 8 percent and 10 percent against the U.S. dollar, respectively, as compared to 1 percent and 8 percent in the same period last year. As a result, we recorded foreign exchange gains on net U.S. dollar-denominated liabilities in Brazil and Europe. You will recall that these effects are substantially compensated by inventory mark to markets included in segment operating profit.

In the fourth quarter of 2003, we recorded a gain on a net U.S. dollar-denominated monetary asset position in Argentina. Other income expense net decreased compared to the fourth quarter of 2003, primarily due to lower earnings from Bunge's Solae and Saipol joint ventures, offset in part by $5 million gain on interest rate derivatives. Our fiscal 2004 effective tax rate was 32 percent, a slight decline from our fiscal 2003 effective tax rate of 33 percent, excluding the gain on sale of Bunge's Brazilian soy ingredients business in 2003.

It is worth noting that both our quarterly and annual effective tax rates declined despite 8 percent and 9 percent appreciations of the Brazilian real, as we were able to hedge almost all of the tax effects related to such appreciation. Despite the September, 2004 repurchase of an additional 15 percent interest in Bunge Brazil, minority share of net income increased from the fourth quarter of 2003, primarily due to increased profitability at Fosfertil. Cash flow from operations in 2004 was $802 million. Cash flow provided by operations was favorably affected by strong operating results and the return of soybean prices to normal historical levels.

Free cash flow in fiscal 2004 after Cap Ex and dividends was $279 million, which was used to reduce outstanding debt. Now let me say a few words about the outlook for our business. We are looking forward to a good year in 2005 following the extraordinary one we experienced in 2004. Supplies of oilseeds and grains are ample, and we expect large South American harvests. Demand from our customers is very strong as they seek to take advantage of lower prices and a weak U.S. dollar.

Fertilizer demand is expected to remain strong with good margins. Due to our continued positive outlook, and assuming stable currencies in South America and Europe and normal harvests in Europe and the Americas, our 2005 net income guidance is between $455 million to $475 million. This translates to fully diluted earnings per share of $3.82 to $3.98. This fully diluted per share guidance is based on an estimated weighted average of 120.5 million shares outstanding. Our guidance excludes any effects of the anticipated adoption of new accounting standards for expensing of stock options.

If we have expensed stock options in 2004 our net income would have been reduced by $7 million. and our EPS by $0.06 per share. In anticipation of a more normal seasonal distribution of results than last year, we expect our earnings to be split roughly 30 percent in the first half of 2005 and 70 percent in the second half of 2005. In October 2004, we increased our long-term EPS target by increasing the base from which we intend to grow to between $3.42 to $3.59 per fully diluted share.

At that time, we noted several exceptional factors in 2004 that caused our new higher base to be below our expected 2004 net income. Our 2005 guidance represents an 11 percent increase in EPS from this new base for measuring progress towards our long-term goal of 10 to 12 percent average annual increases in EPS. Now we will be happy to take your questions. Operator?

Thank you, sir. Ladies and gentlemen, our question and answer session will be conducted electronically. If you would like to ask a question, please firmly press the star key followed by the digit one on your touch-tone telephone. We will come to you in the order that you signal. And if you find that your question as been asked and answered before you can ask it and you would like to remove yourself from the question roster, please firmly press the star key followed by the digit two. Also, if you're on a speaker phone, make sure that the mute button is disengaged so that your signal can reach our equipment. Again, if you would like to ask a question, please firmly press the star key followed by the digit one. And for our first question, we go to David Nelson with Credit Suisse First Boston.

Good morning.

Good morning, David.

Good morning.

There's never a normal year, probably, in your business, and you seem to be managing things to capture upside and avoid downsides. The upsides you mentioned in the call today, and you obviously also missed a big downside with China last year. As we look out on '05, I'm trying to think about to the extent you can expect the unexpected, I was thinking about things related to genetically modified crops that are now approved in Brazil, I was thinking about Asian rust that may be in the states now -- maybe some shifting with new regulations coming on in January '06 regarding transfat labeling as possible issues that could come up in '05. What are the issues you think you're positioning yourself to manage through for the coming year?

The two issues that are a little bit on our mind for 2005 are, one, that we expect that the fertilizer prices will be a little bit lower than they were in 2004. And also the slower selling of farmers of grains and oilseeds. So these are the -- let's call it the two worries. Are we too worried about it? No. I think we have -- in our guidance we have included them, and we believe we will manage it through. I think these are the two areas where we are concerned. The ones you mentioned -- GMO Asian rust and trans-fatty acids, I think we are well prepared for that. I think GMO has been kind of digested in South America and it's moving, it's going quite well. Also, Asian rust, there's enough -- there are enough solutions for it in South America and also in North America, so that's not something we are too -- too much worried about.

Anything new on the bio-diesel front that you may be positioning yourself to capitalize on?

The way we look at it, the bio-diesel is a very interesting additional demand for oil, which probably has a good positive effect on margins, and there are programs in Europe, in the U.S. and also in Brazil for additional bio-diesel demand, and if all of these plans are implemented there will be an additional 5 million tons of vegetable oil consumed, which has a net positive effect on margins. So we -- as you will remember, we participate on the bio-diesel business in Europe, and so we see the biodiesel as something positive, but it will not revolutionize the industry.

But is there anything -- I've been reading some stories about bio-diesel in Brazil. Is that for real?

Yes, that is for real. It is also for castor oil for small families and in different areas. It is for real, and because of the logistics expenses, there are some areas far away from the coast, where bio-diesel is very competitive, even without -- even without tax incentives, so -- but I don't believe it would be on a scale of what we are seeing in Europe. It's probably more a niche area in some spotty places.

Great. And congratulations on a great '04.

Thank you.

Thank you.

As for our next question, we go to Leonard Teitelbaum with Merrill Lynch.

Good morning.

Good morning.

Good morning, Lenny.

Let me ask a couple of questions. I mean, I don't know why guys are heading for the lifeboat on the stock today. That's something I guess we need kind of to live through. You know, a lot of companies talk about synergies from all their acquisitions, et cetera, and you seem to be, you know, kind of down -- not downplaying, but certainly not trumpeting it. How much of the earnings this year have come from synergies from acquisitions? Because it sounds to me like this is the project of the future, to ring the synergies and cost savings out of these acquisitions you really haven't had time to do up until now. Is that a fair way to look at this, and can you quantify what the cost savings might be and its benefit or hurt to earnings?

Well, we're clearly getting good synergies out of some of the acquisitions that we've done in the past. The one public target that we put out there related to the Cereol acquisition, where we said that we would get 20 to 25 million in the first 12 months after the acquisition, and growing within three years to 40 to 45 million on a run rate, and we believe that we are achieving that. The synergies from some of the other acquisitions we have done are reasonably substantial as well, and I think you are seeing the effect of those within our numbers. So that's one of the reasons why over the last few years you've seen this steady increase in the net income that the business has been producing. But clearly, we are nowhere near the limit of those synergies yet. We know that there is a lot of things that we can do to improve productivity within our business.

We have done a number of acquisitions over the last few years, and when you're combining a bunch of different businesses, it takes -- it takes awhile to really wring everything out and get everything operating as efficiently as you want, and we know that we have a lot of opportunities there. Now we did initiate a number of new productivity programs last year that are starting to show results. We expect we will see more of those results in this year and the future as we go forward. I would not want to put a number on that at this point , but we do think that it's going to be meaningful as we go forward.

And not to push the point beyond what I guess you're going to answer, but, you know, we pushed some numbers around here -- I did just now -- and to me, I just can't see why it couldn't be as much as $0.10 to $0.20 a share over the next three years that we could add to the numbers -- or maybe are in the numbers. And that's really -- I don't want to double pound it. First, am I looking at it too aggressively? And number two, you said they're partially in the numbers. How much of it is in the numbers now?

We have built in some productivity gains within our guidance for this year, but there is more there to be gotten, and we're working on getting that. I really would not want to comment on your estimate related to earnings per share. Let me just say that there are material opportunities and we are working hard to get them.

Also, Lenny, you have to remember that all these productivity improvements -- some of the advantages or some of the -- the goodies, you end up either giving to farmers or you end up giving to customers, so normally you don't keep it all in the company. So it's very difficult to say what kind of effect it has. At the end, it has a positive effect because you are becoming more efficient vis-a-vis the competition.

Okay, could you – put some estimate of the real and the Euro are going to be at what levels next -- that you've built into your plan?

We're assumed stable currencies for this year, both the Euro, the Argentine peso and the real. Now, the real has strengthened a little bit since we -- since we originally put in place our budget and the guidance for the year, but I think we have been able to hedge ourselves against any of those negative effects.

And just remind me again your Cap Ex and interest expense that you're using for '05?

The Cap Ex range is 410 to 460. We have increased it a little bit because we anticipate stronger cash flow coming out of the business; and as you know, we have a pipeline of very good high return projects, and so we would like to accelerate some of that pipeline. The interest expense should be roughly the same as interest expenses this year.

And would that be the same on net interest as well?

Yes.

Okay, fine. Thank you very much. Oh -- yes, thank you very much.

You're welcome.

Thank you, Lenny.

And for our next question, we go to John McMillin with Prudential.

Good morning, everybody.

Good morning.

Good morning, John.

Congratulations on a great year.

Thank you.

If we use a dollar operating number, that number basically includes expense -- or increased expense for bad debt, but it also includes a bit of a gain from a derivative sale, is that right?

That's correct, yes, if you're looking at EPS.

Great. And just to go to Lenny's question on Cap spending. It almost seems like you're saying Cap spending -- and it's more than just a little bit. I was using a 350 number for this year -- just almost seems like you're saying, well, we're going to spend more because we got more money to spend.

We -- our range for last year in terms of guidance was 350 to 400. Obviously, we came in a little higher than that range. We are trying to match our investment to our cash flow, and that is in fact one of our strategies. First half of last year when we had the higher product prices and cash flow was not as strong in the business, we did, in fact, retired some of our Cap Ex. And then in the second half of the year when prices came down as we had expected and we saw strong cash flow within the business, we accelerated some of our Cap Ex. This year, we are anticipating somewhat better cash flow, so we have increased the amount we are willing to spend. We have consistently said that we are trying to match our investments to the cash flow which is being produced by the business, and to the extent the business produces more cash flow, we anticipate we would increase our investment spending.

And the bad debt expense went up strictly because as a function of sales going up or, you know, there’s been some reports of farmer financial issues in Brazil. Was that an issue at all?

We're not experiencing any unusual level of farmer defaults in Brazil. Typically, our credit experience in Brazil is quite good, and has been for the last 25 years that we've been in this activity of farmer financing. However, the absolute level of financing has gone up because the prices of the products have gone up. And the experience level on a percentage basis is exactly the same; but just because the amounts being financed is larger, it means you have slightly larger bad debt expense.

And just help me model. I know you don't do segment modeling. But let's just pretend you're a fertilizer company for a second. Because a lot of your positive supplies in this quarter and the year was a function of higher fertilizer prices -- which you're now admitting, Alberto, that prices are coming down, and I think what the market might be responding to a little bit is your ability to manage through that. What kind of segment -- I mean, do you think you have a chance for flat segment fertilizer profits this year?

It is very difficult to say at this stage. The only feeling we have is that the prices should be a little bit weaker, but the volume -- we are optimistic about the volume. The volume we expect the growth. You have to remember that we do not only sell to -- only one third of our sales are to soybeans. We are seeing a strong demand on sugar cane. We are seeing a strong demand on coffee, and we should also see a strong demand on cotton and corn.

So the volume -- we are quite confident that the volume will be there, with prices a little bit softer. But it's -- anyways, it's early in the year, and you remember that most of our sales -- and probably two thirds of fertilizers -- is in the second half, and we will have much better visibility as we reach the summer.

Sure, if you've got a short U.S. crop. Is there any way to read your costs in fertilizer? I mean, I know you're vertically integrated. Do they change much?

Our costs don't change a whole -- a whole lot, no.

And don't you want the real, all things being equal, to go down?

We would like the real to be a bit weaker, yes.

It just looks funny kind of looking at '04, where the real went the other way and blew then out numbers on the upside. So I mean, there's obviously a lot of different moving parts.

Well, there is actually, I think, a good message there. The real did go against us in '04 and it did have an effect on SG&A and industrial expenses and on the tax line, although we were able to hedge a large amount of the -- those effects on the tax line. But it was certainly a headwind throughout '04. If we get a little bit of weakness in the real in '05, that's likely to help us.

Okay. Thanks a lot.

Thank you.

As for our next question, we go to Christina McGlone with Deutsche Bank.

Good morning.

Good morning.

Good morning.

In terms of the quarterly allocation of earnings, I know back in '02 and '03 it was a 30 percent / 70 percent split between first half and second half; and then last year in '04 it was more of a 40 to 60 split. And I'm just curious, can you refresh my memory, what was unusual about last year?

Yes, it was the carryover of the effect of these higher prices that -- that occurred in 2003. You'll recall that that price rise began in September of 2003, and so we had this huge spike through the fourth quarter of 2003 and that really continued into the first and second quarter of 2004.

Okay. And to what extent has trade with China resumed? Has it returned to normal levels?

In general term,s it is a little bit below. China had a good crop, and -- like the rest of the world -- and -- but it's slowly getting back to normal; and you have to remember, there were some weaker individual customers who had the trouble, and it is adjusting itself. So we expect it to soon to be back to normal.

Okay. And just looking at the cash flow statement. It looks like advances to suppliers really jumped in the year, as well as there's a swing in other net. Can you maybe explain that a little?

Yes, the advances to suppliers are certainly higher, and that's predominantly Brazil. We have seen the farmers wanting to take more financing over this last three or four month period, primarily because they are holding on to their crop. The farmer, I think, would like to see some what better prices or a weaker real, which is also very important for the farmer. And so they have taken out more advances to finance their crop inputs and are waiting to sell. Now we know that the crop is developing very well.

There is going to be a lot of soybeans available in Brazil, and that's the source of repayment, so we're very confident that there's not going to be any credit issue in Brazil with the farmers. It's actually somewhat of a good situation for us, because to the extent the farmer is withholding selling, we are, of course, earning interest earnings on the advances and it offsets any effect that we might have from the farmer reluctance to sell.

Okay, and finally, Alberto, can you talk about -- with the huge crop coming in in South America, what is the potential logistics issues down there, and how does Bunge expect to manage through that?

We continue expecting that there are going to be some issues about the logistics bottlenecks. Now, there are -- we have constantly improved our position with long-term contracts on rails and also on terminals and in alternative venues to export the products, and so we believe that overall, we are in a relative good position. Now, also because of the larger crop, what we are probably going to see is also not so much of a concentration of the products going out in a couple of weeks, because we have still a large crop from North America, so this will be spread more evenly over the -- during the year. So there will be issues. We believe we are quite well positioned; but it should not be the same pressure as we have seen in the two years ago.

Okay. Thank you.

Thank you.

And for our next question, we go to Christine McCracken with Midwest Research.

Good morning.

Good morning, Christine.

Good morning, Christine.

Quick question, I guess, relative to your earlier comments. You had talked about farmers holding back beans; and given the very large crop in South America, is it just the move in the Brazilian real that's going to, I guess, get these guys to unload the crop? At what point -- what's the catalyst that you're looking for in terms of being able to sell those crops and improve volumes through your system?

Right. The -- there is selling. It's not that they are not, selling but they are selling a little bit slower, hoping that there is going be a change, perhaps a drought or something. A problem here or there, more Asian rust in U.S.. But we have to remember that overall, the prices are at trendline, so eventually the farmer is very capitalized so he's hoping for any event; but what we believe is that as they are selling, there will be continuing selling and sooner or later they will sell a little bit more. We do not expect a major change at this stage.

We have to remember that farmer was actually carrying in a large amount of soybeans -- old crop soybeans -- coming into this crop in both Brazil and Argentina, and we're looking at massive crops in both Brazil and Argentina. So there's just no storage capacity on the farms. The beans have to come to us, and the farmer is going to need to sell because there will be this large amount of soybeans available, so we are very confident it's going to happen.

Does that go into your guidance in terms of timing 30 percent and 70 percent?

Well, it's one of the reasons why we are reluctant to give quarterly guidance, is because these kinds of farmer decisions certainly shift the numbers backwards and forwards between the quarters, as we've seen so many times. But, yes, we've -- we've tried to factor that into the 30 percent / 70 percent.

And then just in terms of the fertilizer, you've talked about the number of crops that you do provide -- or I guess do work with farmers that are producing other crops. And so it's not strictly tied to soybeans; but at the same time, you know, you're looking at a slightly lower price environment. Farmers last year when they were making their decisions were looking at maybe 9 or $10 beans -- now they're looking at sub $5 beans. To what extent does that go into the decision-making process in terms of buying decisions for the next planning year? And you know, your expectations are for good volumes. Does that take into account any impact from the weaker market for beans?

Yes, it does. There was -- because of the very high prices, there was a -- probably an excessive expansion, and the normal rotation programs into cotton and corn that we will see -- we probably will see not an expansion in the soy in acreage, but we will see continued expansion. There is more and more export of sugar and ethanol from sugar from Brazil, so there's a strong demand for the sugar cane there and the coffee, as well. So we believe, from all our indication and talking to the farmers, the farmers are -- the farmers are looking to a normal environment, so that is why our feeling about the normal type of volume growth this year, we will see a normal type of growth. You also have to remember in the whole of Cerrato, the soil is very poor. It's good sun -- good sun and good water, but they really need all the nutrients. There are very little nutrients in the soil, so if they don't use the fertilizer for the products, the yield will be very, very low, so that is why whoever is growing it there, they will need the fertilizer.

And if the farmers plant something else, it would probably be sugar or cotton or -- and those crops actually use a lot more fertilizer than soy does, so to the extent there is some substitution going into these alternative crops, it will tend to improve volumes in the fertilizer business.

And one of your large competitors just talked on their last conference call about getting into the fertilizer business. Is there a lot of structural change left, do you think, in the Brazilian or South American market that would, I guess, precipitate entry in by some other large players -- or do you see any large-scale consolidation still left in that business?

I don't think so, because there is -- there are six very large phosphate mines, and we work -- either we control or work with them. We work with five of them. So if -- to have an integrated model with phosphate mines with the chemical production and the retail, it is very difficult to replicate our model. You might have some players in the retail area. Now the retail area, the barrier of entry is not very large. But now in the mining, there are not so many opportunities out there.

And most of the money is made in the mining and production of intermediate products.

And you are expanding your mining operations?

Yes.

We're going double them over the next five years.

So the hurdles would be almost insurmountable at this point?

And also open new mines. We work also with new mines. The level of commitment is very, very large. On the retail side, we might see new entrants as we see all the time, but the barrier of entry is not very large there.

Thanks for the insight.

Thank you.

As for our next question, we go to Ken Zaslow with Harris Nesbitt.

Good morning, guys.

Good morning, Ken.

Now that 2004 is over, what do you consider now your new base EPS?

The base EPS is the same as what we established back in October.

No, I -- I -- I got that number from -- no, the only thing I'd say about that is it seems odd for two reasons. One is, a base year -- what I would think would be an actual number, not a range anymore, given than '04 is over. And the second is that if that's the base year, then all of the upside in this quarter doesn't get into future results. So that means that everything that happened this quarter is again, you know, one-time in nature. Is that what you are indicating?

What we're trying to do with establishing the long-term base is to give something that we think that we can grow from over the next five years, so it's a long-term target. We don't want to adjust it with, you know, every quarter where we exceed or if we, in fact, fall short of our results in a particular quarter. So we are not going to adjust it every single quarter based on what happens in that quarter. We are going to set it as a long-term target. As we go through this year, if in fact the business is performing a little bit better than we had anticipated, then I do think that we would reset that -- reset that target. The -- with regard to the specific things that happened in the fourth quarter, we had, I think, a very solid, strong fourth quarter. It was, in fact, a little bit better than we had originally anticipated, but I don't think that that justifies us resetting our base for our five year earnings target.

I guess -- let me take it at maybe a different perspective. If I look back at your initial net income guidance for 2004 I think it was 300 to 320. You beat numbers by about 50 or -- more than 50 percent. What do you attribute that to, I guess, is the first question?

Well, first, there were a lot of unusual things that happened during the year. We did see the sustained rise in the price of fertilizers. We were able to buy fertilizer raw materials well at the start of the year. And consequently, we benefited when we sold that fertilizer later on in the year because prices had risen. We saw a substantial volatility in the first half of the year with these price movements that caused anxiety in both farmers and customers who wanted to sell and wanted to buy, and that meant we were in a good margin environment. So all of those things, I think, allowed us to have exceptional results during the year.

The fact is that if we ignore some of those exceptional things, the year was still a little bit stronger than our original guidance had -- had indicated. And I think the reason for that is we were talking about our productivity initiatives earlier and how we are trying to ring out synergies out of the business. I think you started to see some of those results coming through in 2004. And, in fact, we were a little bit better at it than even we had anticipated. So I think those are the principal factors.

Also, Ken, the whole integration of all of the operations, we expected them to work well, but when you talk about the futures you want to first deliver before you -- before you talk about it. So the -- all of the origins with the destination, the freight, the risk management -- we expected it to work but we did not know exactly how long it would take, so that is why we raised the bar from 300 million to 400 million, and so you have to remember we have been growing at 30 percent per annum over the last seven years, and we have to make sure that all of the pieces work very well together. So they are working well together a little bit earlier than we even thought.

And it just seems to me that -- if I I look at your guidance and I think about what you did in '04, in being, you know -- even assume your $50 million of one-time, you know, financing and tax related benefits that are truly one-time and then get to a base year in '04 of about 435 or so, it seems like your '05 guidance is only 4 to 9 percent higher, so it seems a little lighter than I would have thought. I guess that's kind of what I'm getting at. And I can't figure out if you're just being conservative or if 2004 was truly an aberrational year.

Well, I think we've said repeatedly that 2004 was an exceptional year. We have to look at this business from a long-term perspective. It's a very good business, and there are lots of opportunities. We have solid organic growth. I think we have opportunities to improve our margins and improve our returns through productivity enhancement. All of those things we are very confident we can produce over time. But as you know, this is a very difficult business to forecast, particularly on a quarter to quarter to quarter basis. We feel very confident in our earnings guidance for 2005. We will be working hard to try and see if we can do better than that, obviously, with some of these things we were talking about in terms of productivity initiatives, et cetera. But I just don't think that it's -- it's prudent for us to deviate much from the long-term trend that we really think we can achieve, which is, in fact, perfectly in line with our 2005 guidance.

Let me just ask one last question. Soybean meal demand, I think during the prepared remarks, you said it was expected to increase 4 percent. Is that slower than history?

In fact, the -- the meal demand is going to -- is expected to pick up this year. USDA sees an increase of 8 percent this year.

Okay.

And so to be very honest, we are also a little bit surprised that in 2004, with the very high prices that so little substitution occurred, and that it was relatively flat or slightly down in 2004. Now, the long-term trend is -- continues to be the 4-5 percent or 4.5 percent meal and oil, as we have seen before. So in -- we believe that 2005 is a mixture of catching up, pipeline filling, so that's why USDA -- this number is 8 percent growth. It was a couple of weeks ago or months ago, it was around 4, but they raised it to 8 percent, and we're seeing the demand on meals picking up -- and oil as well.

Well, thank you very much.

Thank you.

For our next question, we go to David Driscoll with Citigroup.

Hi, good morning, everyone.

Good morning.

Good morning, David.

Congratulations on a very good 2004. Great job.

Thank you.

Thank you.

And I would -- I would make a comment here before I think of my question. My comment would just simply be that I would just want to make sure that it was said to you guys that I think you're doing a very, very good job here by trying to give us the guidance. You know, I am very appreciative of how sensitive these markets are and how volatile things are, you know, both up and down; and certainly, I mean, your largest competitor, which arguably has an even more diversified business, refuses to give any type of earnings guidance. So I would say, you know, keep doing what you're doing, and I think you're doing a very good job of that, and we certainly appreciate the help on it.

Thank you.

In terms of my question, you've discussed that you are accelerating capital spendings and I'd kind of like you to take us a little bit in terms of, you know, maybe some of where some of these new spendings are going to go. Is this a multi-year trend? You had previously talked about, you know, years ago when you IPO'd, it was a $300 to $400 million range. That range has steadily moved up. You've talked to us about the 350-400 range for a number of years, but now today, you're racheting the bar up again. You know, I really do get the impression is, you guys are taking advantage of the cash flows, and it's really nothing more complicated than that; but I would interpret this as a positive sign, given than if you're spending higher levels of capital on projects that you consider to be well above your weighted average cost of capital, then this is something that potentially, I think, investors should look at quite positively. But I'd really appreciate it if you could make some comments about where the money is going, how you do view those returns on invested capital?

Okay, David, why don't I start, and then ask Bill to complement. The biggest tension we have inside Bunge is about projects. And we have -- we say normally we have around 1 to $1.2 billion of cash flow available for the next three years for expansion projects. But we have over $2 billion of projects available to work on. So there is always tension inside Bunge about who will -- which project has the highest priority. So the fact that we have now a little bit more room, a little bit more cash flow, it's a very positive.

And when you just think about our industry fertilizer growing at 5-7 percent, the food products growing at 3-5 percent and the agribusiness growing at 6-7 percent, it is very natural just to keep market share, we do need to invest. And the fact that we -- and the reason -- the fact that we are in the growth areas like South America and Eastern Europe, it -- naturally, our market share expands by just keeping our position locally. So there is this big tensions.

Now, our program is around the world. It's all areas, in fertilizer, food products. It is also in agribusiness, it's in South America, Eastern Europe, a little bit in Asia, a little bit also in North America. It is spread between logistics, processing plants, origination facilities. So it is -- we believe it is very well balanced to attend to our long-term trends.

When we look at the returns, we -- we're only investing in projects which we believe have good, solid high levels of return. We actually have a different hurdle rate depending on where the project is physically located, so we do have adjustments for country risk, and also in which industry the project is. So we would have a different hurdle rate from an investment in fertilizers in Brazil versus a port facility in Russia, for example. But in general, in the emerging markets, our hurdle rates are going to be in excess of the return on invested capital that we just posted, which was 11 percent, and we are confident that we are going to be able to get those returns.

We actually go through a process of post mortem Cap Ex reviews, where we will go back after 12 months and then after 36 months and review projects to check and make sure that those projects actually delivered the results that -- that we expected when we originally approved the project. And by and large we are -- we are either in line or exceeding the targets that we set when we originally approved projects. So we are in fact achieving the levels of return that we want.

So then the biggest conclusion I really come to on this one is -- and I guess I just want to hear you guys say that you -- that I'm getting this right, is that when we see this acceleration on capital spending, it's driven from your, you know, above-expected cash flows. So that was a positive event, you can then reinvest this money at the rates you just cited, or you know, at projects that will earn above those rates. So then it seems to me that the story is actually gaining momentum from where you were just a few years ago when you IOP'd. Is that a fair characterization?

I think so. I think that's right. We'll take every opportunity. Our philosophy is to keep our capital structure. So if we have more cash flow available, we accelerate it.

That's right.

Super. If I could just switch to just a couple other quick questions. Are you at all concerned that the U.S. farmers will reduce soybean acres due to rust fears?

Not really. Not dramatically. There are enough fungicides and there are enough ways of dealing with that. There are even some programs in the biotechnology sphere. You might see a little rotation, and we are not concerned at all. This is -- you might see a small movement; but as we have seen in Brazil -- in fact, in certain areas when you use the fungicides, the yield has even gone up in certain areas, so we are not concerned about it.

And then in Brazil, can you just -- and I apologize if you answered this a moment ago, but do you consider Asian rust to be a problem with the current Brazilian crop?

We don't expect it, and -- but there is also enough. Last year, there was not enough fungicide; but this year, there is enough. So it is an issue, perhaps, for the profitability for the farmer, but from all we have talked to farmers to government agencies to crop chemical companies, this seems to be a normal year.

And then maybe lastly on the fertilizer side, that project expansion that you've been talking about for some time, the real impact in terms of volumes from the internally-produced phosphates should occur in what year -- or can you give me a range of years? Because I actually believe it's over a period of time.

Yes. We're going to start getting some impact the end of this year, and then it will gradually roll out over the next three or four years. But you will probably not see an impact in our volume numbers because you have to remember that we are not self-sufficient in phosphate. We only produce about 50 percent of the phosphate that we sell to farmers. So we're buying 50 percent of our phosphate from the international markets. So what really happens here is that we are substituting our own production for phosphate we are currently buying from third parties, and when we do that, there's a big margin pickup.

And then how about just a final question? This is -- this is a question that kind of relates to your capital spending. It's really about acquisitions. In the past, you have discussed that you would be interested in some kind of mid-sized acquisitions. Do you still maintain that position, and is there -- is there -- is this a near-term type of item or is this out, you know, 12 months or beyond that?

We always have a pipeline of things that we are working on. Unfortunately, with acquisitions, you can never really predict when they're going to happen, so I'm not going to venture to try and say whether it's near term or medium term, but we are always looking at opportunities. We are currently looking at opportunities, and I expect we will do acquisitions in the future.

Super. Well, nice quarter, everyone. Thanks a lot.

Thank you.

Thank you.

We go next to Eric Katzman with Deutsche Bank.

Hello, everybody.

Hello, Eric.

Hi, Eric.

A quick question for you. One of the things I was calculating was that over the last four years, your Cap Ex has gone up compounded by 25 percent, while depreciation, depletion and amortization has only gone up 9 percent. I'm wondering, Bill, based on the amortization schedules and depreciation schedules, when DD&A should start ramping up, I guess, based on older spending? And also, just as a comment, appears to me that while investors may be concerned about Cap Ex, it's really basically been at the same percentage of sales over the last four years, at like 1.8 to 1.9 percent of sales.

Let me comment on the last first -- I think that's logical. If we're matching our Cap Ex to our cash flow availability and we're seeing the business grow in terms of sales and gross profit, thereby generating more cash flow, it's logical that the Cap Ex should be roughly in line with that. With regard to the fact that the Cap Ex has been growing a little faster than DD&A, I think you're starting to see some of the effect of a higher depreciation charge come in in our guidance for this year, where you will see that we are increasing the guidance from 230 to 240 million in DD&A, so we are starting to see that impact now.

Okay. All right. Thank you.

Thank you.

We go next to Christina McGlone with Deutsche Bank.

Thanks. Bill, I wasn't sure if you had answered this question previously, but the swing in other net in the cash flow statement, did you answer that or did I miss it?

No, I don't think I answered it. Other net in the cash flow statement, let me see if Susie can help me here. One moment. Okay. The main effect there was related to changes in the -- let's see. One moment, bear with me. Yes. The main effect was related to changes in realized and unrealized losses on commodity derivatives, which is in that other net.

Okay. And this year I guess it was just more profitable?

I think this year we probably had more realized -- more realized gains in it.

Okay. Thanks.

We go next to Andrew Whitmore [PHONETIC] with MSW Asset Management.

Good morning, guys.

Good morning.

Good morning.

Just a question on SG&A growth, sort of accelerated throughout the year and the 36 percent growth in this quarter. I was just wondering the factors behind that and what we should be looking for going into '05?

The main factors are increased bonus provisions and some increases in labor provisions in Brazil in the fourth quarter. We also have been growing our international marketing business, and so we have some higher head count, some new offices in the international marketing area that's also contributing to that increase. Looking at SG&A coming into 2005, I expect we will still see a growth in SG&A, but it should probably be in line with our anticipated growth in volumes, gross profit.

Okay, and what would that be -- around 4 percent?

I don't think we've given guidance on that at this point. But volume growth should be at trendline, which is approximately 6-8 percent.

Okay, thank you.

We go next to Todd Duvick with Banc of America Securities.

Yes, good morning.

Good morning.

Good morning.

Quick question for you. You had mentioned last quarter about the three and seven quarter (sic) percent convertible notes, and you had told us to assume that they would be converted into equity. Can you give us an update on that, please?

For EPS purposes --

Okay.

-- when we are providing our guidance, we are including all of the dilution associated with those convertibles. We have made no public statement about what we intend to do with regard to those convertibles.

Okay. So those are still -- those notes are still out there, correct?

Those notes are still out there, yes.

Okay. And another question with respect to -- if I could dig just for a minute in the fertilizer industry that you talked about. Is there any opportunity for you to increase your ownership stake in Fertifos? I think Cargill is one of the other big owners there, but are there minor owners that you could look to pick up a portion of their share?

You're referring to Fertifos or Fosfertil -- Fosfertil is a publicly traded company in Brazil.

I was thinking Fertifos, but either one, actually.

Well, these are the kind of things we would not comment on, but it's also a question of is the price right, and naturally what you could say we would be interested, but it is a question of price and opportunities also.

Okay. All right. And one final question. With respect to the percent of your debt at subordinate levels, can you comment on that? I know that over the past several years you've been consolidating your debt at the parent level. Do you have an estimate of the portion of your total debt that is at subordinate levels?

I -- I do know exactly what that level is. I would not like to comment publicly on it, other than to say that this is closely monitored by the rating agencies, and they have given us limits with regard to where we should be given our ratings, with regard to subordinated debt, and we are in compliance with those limits and expect to be in compliance as we go forward.

Okay. Very good. Thank you.

And we have no further questions on our roster at this time. Therefore, Ms. Ter-Jung, I'll turn the conference back over to you for any closing remarks.

Thank you all for joining us this morning, and we look forward to talking to you again about our first quarter 2005 results. Have a good morning.

And ladies and gentlemen, this does conclude today's conference call. We do appreciate your participation, and you may disconnect at this time.