Bunge Global SA (BG) 2005 Q1 法說會逐字稿

Please standby we are about to begin. Good day everyone and welcome to the Bunge Limited's First Quarter Conference call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Ms. Susie Ter-Jung. Please go ahead Ma'am.

Thank you. Thank you, Abe (ph) and thank you every one for joining us this morning. Welcome to Bunge Ltd First Quarter 2005 Earnings Conference call. With me on today's call to discuss our 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 real time transcript to subscribers at CCBN StreetEvents. To access the service, please go to myccbn.com and select the StreetEvents tab after logging in and select our ticker symbol BG.

Reconciliation of non-GAAP measures disclosed early 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 statement. The pertinent risk factors can be found in our SEC filed reports. And now, let me turn the call over to Alberto.

Good morning everyone. Thank you for joining us. Bunge had a good first quarter. We continue to be pleased with the way in which our team, business model, and strategy combined to produce strong results for Bunge and it's shareholders. In terms of income, the first quarter is traditionally the weakest of the year for Bunge. This is due to the normal seasonal patterns of the industry. We're just getting started for the year. Last quarter, I told you that we expect 2005 to bring a return to more typical market conditions than those we saw in 2004. At that time, indicators pointed toward a year of healthy supply and demand. Overall, we see that forecast confirmed by today's market. Farmers have produced large crops. USDA estimates the total world oil seed crop at 383 million tons, a 14% increase over the last year. The world's soybean crop is up 16% to an estimated 219 million tons. This growth comes despite a severe drought in parts of Southern Brazil. Keep in mind, however, that even with today's reduced estimates, Brazil's crop is very large.

Rising CBOT soy prices during February and March led farmers to increase crop deliveries and fixed prices, especially in the US and Argentina. While farmer selling has picked up in Brazil, as well, it remains behind last year's rate. Large crops and increased farmer selling have given Bunge ample supply with which to serve our customers. This is good because demand for our products is strong. USDA expects global soymeal demand for the year to top 136 million tons, a 6% increase over last year. Growth in meat production is one driver of this demand. Global chicken production is projected to be up 4% from last year and Brazilian chicken production is expected to grow even more, up 5% from last year.

In 2004, Brazil became the world's largest exporter, not only of beef, but of chickens as well. In United States, the USDA expects crush for the 2004, 2005 crop year to be up 8%, driven by a strong export demand for both meal and oil and a 3.5% increase in domestic soymeal use.

Vegetable oil demand is expected to rise by over 7% to 106 million tons. Strong rapeseed crush margins in the European Union reflect rising demand for biodiesel. Bunge crushes rapeseed in Germany, Austria, Poland, and through our joint venture in France. Good supplies and strong demand helped capacity utilization and this year is no exception. Soy bean crush levels are up from last year in all three major origins and in Europe.

The National Oilseed Processors Association (NOPA) puts March US capacity utilization at 86%, up from 75% March, last year. All in all, these are solid fundamentals. Bunge's global strategy has four parts, positioning for growth, focusing on efficiency, improving customer service and quality, and developing our unique operating model.

Let me give you a couple of examples of how we continue to improve our efficiency. Over the past several months, we have been creating partnerships that leverage all our skill and capabilities to improve logistics in Brazil. Brazil's infrastructure needs improvement. Large crops like this year's stretch the country's logistics network. One inefficiency is Brazil's reliance on trucks to transport agricultural products. Trucks are less reliable, less environmental friendly, and about 15% more expensive than rail.

To increase Bunge's use of rail, we signed a long-term agreement with America Latina Logistica (ALL), a railroad that serves the southern part of the country. The agreement guarantees Bunge future rail capacity at competitive rates and gives ALL the volume commitments needed to expand their network. Efficient ports are also essential. We recently began work on the new terminal in the port of Santos, which is the largest and most efficient located port for servicing the center west of Brazil. Terminal is a joint venture with Brazil [Ferrobia] , another Brazilian railroad. When completed, it will handle grains, meal, oil, and fertilizer raw materials and improve our efficiency in competitive position in Brazil and in export markets.

Just this month we have started unloading at our newly constructed state-of-the-art port complex in Ramallo, Argentina. This high-volume export terminal will serve the province of Buenos Aires, which produces 35% of Argentina's agricultural output, but exports only 5% due to insufficient port capacities. We also continue to invest for growth. In March, we announced the construction of a new Sunseed Crushing, Refining, and Bottling Plant in Voronezh, Russia.

This large scale, low cost, and highly efficient plant, will help us grow the market share of Oleina and Ideal, our two bottle oil brands, by creating a reliable, high quality domestic oil supply. Russia, the CIS states, and the rest of Eastern Europe also have strong potential for growth in grain, oil seeds, including sunseeds and meat production. The Voronezh plant will also supply sunseed meal to regional meat producers and position Bunge to benefit from growth in this sector. Voronezh is the latest addition to our network of integrated assets that stretches from oil grain elevators in Ukraine and Rumania to retail shelves throughout the region to export markets by our own grain terminals in Liepaja, Latvia, Derince, Turkey, and Rostov, Russia.

And our throughput agreements in the ports of Illichevsk, Ukraine and Constanta, Romania. In Illichevsk, we, together with our joint venture partner are constructing a multiseed crushing plant. We intend to continue this strategy of partnerships and strategic investments in important markets. We are confident that it'll help Bunge grow and improve its performance. I will now turn the call over to Bill who will discuss our financial performance.

Good morning. First, let me give you some perspective on the first quarter. The first quarter typically represents the end of peak crushing activity in North America and Europe, with reduced activity in South American agribusiness and fertilizer operations. The first quarter is also typically the weakest quarter of the year for Bunge. Now let me turn to our results. Last year, Bunge's agribusiness segment experienced an exceptional first quarter making it a tough comparison. This first quarter, agribusiness volumes rebounded as markets responded to lower prices for agricultural commodities compared to last year's high prices.

A late quarter rally in the price of soy due to reduced Brazilian harvest expectations, triggered farmer selling particularly in Argentina and North America which benefited margins and capacity utilization in all three major origins. Europe experienced lower margins in Hungary and Poland compared to last year's extraordinary levels and startup costs related to the commencement of grain origination activities in Ukraine and Russia. Agribusiness result this quarter included a 27 million pretax reversal of the remaining balance of the allowance for recoverable taxes in Argentina. Recoverable taxes were previously reserved until we either received payment or were able to compensate amounts owed to us against other tax payments owed to the government. Amounts owed by the government are being paid without delay and Argentina's financial condition has improved significantly.

Turning to Bunge's fertilizer segment, sales volumes decreased slightly. The Brazilian retail NPK market declined due to unattractive corn prices that lowered planting intentions for the winter corn crop and credit constraints in Southern Brazil related to the drought. However, Bunge's retail market share increased. For the year, the Brazilian retail NPK market is expected to decline slightly from 2004, but we continue to expect Bunge's volumes to increase from 2004. Nutrient volumes benefited from increased demand for nitrogen based fertilizer as Brazilian farmers responded to favorable prices for sugarcane and coffee to increase plantings of these crops.

Fertilizer segment operating profit decreased from an exceptional first quarter in 2004. Let me remind you that for seasonal reasons most of fertilizer's segment operating profit is generated in the second half of the year when Brazilian farmers purchase fertilizer for the next crop. Margin benefits on locally produced phosphate generated by higher prices were able to offset the slight decline in volumes. Margin benefits were not sufficient to offset higher expenses and the effects of a stronger Brazilian real on local currency costs when translated into US dollars.

In the first quarter of 2005, the average real dollar exchange rate was 2.67 real compared to 2.90 real for the first quarter of 2004. The stronger real affects the quarter-to-quarter comparison of our results as the average exchange rate used to convert local currency costs into dollars was significantly lower in this first quarter compared to the first quarter of last year. Fertilizer results were also hurt by higher industrial and depreciation expenses attributable to new mixing, granulation and acidulation units that came on line after the first quarter of 2004, higher hedging costs due to an increase in US dollar debt funding increased working capital, and higher bad debt expenses related to the aging of accounts receivable.

In Bunge's edible oil product segment, sales volumes increased in all regions. Margins in Brazil and Poland improved compared to last year due to lower raw material costs. Results in Romania were negatively affected by margin pressure from lower sales prices and higher sunseed costs and higher foreign exchange hedging costs. SG&A expenses increased primarily due to higher promotional and advertising expenses, particularly in Brazil.

In our milling product segment, wheat-milling results benefited from higher volumes as bakery and industrial customers accelerated purchases in anticipation of rising international wheat prices and productivity enhancements as a result of measures taken to improve our asset footprint and operating efficiency. Corn milling results declined slightly from last year due to lower volumes and margins on sales to the US government for a food aid program.

Bunge's SG&A increased due to increased headcount in Brazil and Europe as we expand our business in those geographies and the impact of translating the local currency expenses into US dollars at a stronger real and stronger euro. Interest income increased primarily due to interest earned on higher levels of interest bearing accounts receivable. Interest expense increased primarily due to a higher short-term interest rates partially offset by lower average borrowing.

Other income increased primarily due to the higher earnings from Bunge's French oil seed processing and German biodiesel joint ventures. Our quarterly effective tax rate was 28% compared to 40% in the first quarter of 2004 and 32% for fiscal 2004. The decline in tax rate from 2004 was primarily attributable to a higher earnings and lower tax jurisdictions.

Net financial debt and readily marketable inventories at March 31, 2005 increased 346 million and 365 million respectively from year-end 2004 primarily due to purchases of newly harvested crops in South America. Adjusted for changes in levels of readily marketable inventories, net financial debt declined by 19 million from year-end 2004.

Cash flow used by operations was 226 million for the quarter ended March 31,2005 compared to cash flow used by operations of 720 million for the quarter ended March 31, 2004. Cash flows in the first quarter of the year are typically negative due to the purchase of the South American harvest which begins during the quarter. Cash flow from operations in the quarter ended March 31,2004 reflected higher levels of working capital caused by the high commodity prices experienced during the first half of 2004.

Now let me say a few words about the outlook for our business. We anticipate a good year in 2005 and a strong first quarter has given us a solid start. Supplies of oilseeds and grains are ample and South American harvests are large, even if a bit smaller than originally expected. Demand from our customers is strong as they seek to take advantage of lower prices and a weak US dollar. We continue to expect firm fertilizer demand with a return to a more normal seasonal pattern for farmer fertilizer purchases and 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 updated 2005 net income guidance is between 485 million to 505 million. This translates to fully diluted earnings per share of $4.06 to $4.23 per share. Our guidance includes 19 million or $0.16 per share from the reversal of the allowance against recoverable taxes. It excludes any effects of expensing stock options. Now we will be happy to take your questions.

[OPERATOR INSTRUCTIONS] David Nelson, Credit Suisse First Boston.

Good morning and congratulations. The 16 cents tax reversal should we think about that as the prior period was really better than we thought?

Well I really don't think that we should get into commenting on what you should put in and take out in quarters -- our numbers are our numbers. The - we did have an effect in the quarter of 2004 of a $9 million related to the ATA, a positive effect and that compares with the 19 cents or 27 million pre-tax that you are seeing in these numbers this quarter.

Previously I think you mentioned that you are looking for little bit different progressions through the year 30-70 split, is that the kind of split you still would expect for this year?

We are thinking now that we l probably see a something more like 35% in the first half of the year, we think there might have been a little acceleration of results into this first half of the year.

Okay. And I guess really big picture does the world look at all different to you today versus the last time we spoke 3 months ago? Now there’s been China has made noise politically with Taiwan and Japan, I know that doesn't affect the economies. But the business environment with Russia and Putin putting some people in jail and I know you have a new facility -- building a new facility in Voronezh. The transportation situation with rates high and fuel high. Just curious as to how the world might look different to you today than 3 or 4 months ago.

I would say it looks a little bit better you might be surprised. We have now the crop in, it is a big crop both in North and South America. We see a good demand, you know these issues about China and Russia, I think these will always be there. We had crisis in the past but people have to eat and we sell very basic staple product. So we are not concerned, vis-a-vis 3 months ago, we in fact are little bit more domestic. Also South America is I would consider a little bit more stable. We are in a better position from a logistics point of view from transportation and also from the energy situation, I think it is kind of stabilizing. So we are kind of more optimistic now than we were 3 months ago.

You mentioned South America's transportation I’ve heard of some reports of looking into a new road system going from Mato Grosso west through Peru, are you looking at that?

That cannot work. Transporting anything over the end is not feasible. So I don't know what you mean, there is a road that takes to Portoviejo and then it brings products down to Rio Madeira. But over the end is, I don't see it as realistic.

Great. Well, thank you very much

Christine McCracken, FTN Midwest.

I am just wondering -- kind of following on Dave's question. We know we've seen the freight rates actually coming down lately and could that potentially help you as you move into on the next quarter? It seems like exports out of the US have been -- this quarter have been high that – but we really haven't seen a lot out of South America. Can you talk about that dynamic one, maybe why exports out of South America were so high, especially given freight rates and then two, how lower freight rates going into the next quarter might help you -- particularly with the large inventory you are sitting on in South America?

In fact what we have seen is due the higher freight rates. We have seen more export from North America because of freight rates, obviously because of the shorter lines -- it make the North American beans more competitive and at the same time we have seen very good volume from Argentina. So Brazil was a little bit lower because of farmers being more reluctant in selling and also more of the beans have been sold domestically before the local crush because of the increase, the fast increase of the local meat industry. So we see a much more relaxed picture than it was in 2003.

But if we look at the US, what has happened with the higher freight rats is that there has been dislocation of product to being exported out of the Pacific Northwest as opposed to being exported out of the Gulf, because of the higher freight rates. And as freight rates come down I think we will see more volume shifting towards the Gulf and we a have much stronger presence in the Gulf. So, that is likely to help us.

And then just in terms of -- I guess increase in bad debt. You had mentioned that as part of your SG&A, but I am looking at your cash flow and your bad debt expense really didn't move a lot. Can you talk about why that happened and two, if it really is that large? Or if it is relatively small?

Actually it's quite small. The reason it happened is because the farmers in Brazil are delaying paying on some of their fertilizer receivables because they have been reluctant to commercialize their crop and so this is actually a paradigm that we've seen before as they delay payments on those receivables. We have a policy that after 30 days, we write off 50% of our receivables if it – I’m sorry, after 60 days we write off 50% if it goes past 60 days and after 90 days we write off 100%. And so as a receivable age they get written off but the farmers have historically paid, although they paid on a delayed basis and so we expect that we would probably pick that up -- as we go forward in the year. But it's really a very small amount.

And then just relative to again these loans that you are making to farmers that amount obviously has gone up over the past year pretty considerably -- clearly you had a benefit as a result of that interest expense. Or that interest that you are -- interest income that you are charging to farmers. Can you talk little bit about how that helped you this quarter? Is that I guess all in bag or business segment and is that something you expect to see going forward? It seems like it's a pretty stable environment – it would be a safe assumption to make. Is that your view?

The -- it certainly helped a little bit during the quarter all those results are in agribusiness. It is an interesting offset because the farmers delayed commercializing their crops but obviously they hold on to their advances a little bit longer and so we earn a -- little bit more interest on that which helps our results in agribusiness.

Let me just talk a little bit about the level of farmer advances. The level has come down a little bit during the quarter. It's little bit north of 700 million at this point but it is important to note that we are receiving physical soybeans into our silos in Brazil that act as a cash collateral against those advances. So we've received over $200 million worth of soybeans that are actually sitting in our silos that when the farmers decides to fix prices and commercialize those soybeans, the cash related to that will be used to reduce the advances and so the actual delivery of physical soybeans into the silos are running at a normal rate. We are not seeing anything abnormal versus prior years. So we’re very comfortable with the level of advances and that overall position.

And in terms of your question about growth. It is more and less in line with our volume growth.

And then just one last question. we have a lot of soybeans as you mentioned worldwide and it seems like despite that soy prices have been higher than I would have expected. Is it your outlook that generally – you would be looking for these soybean prices to be coming down, as you head into the spring, I guess a lot of it depends on the US crop and how that goes? But generally what is your outlook for soybean prices?

As you know we are very much unrelated to the prices, the way our business goes. So we really -- and as we are always hedged -- mostly hedged on the positions on price risk. We really don't have a real strong view on where it is going to go and normally we don't talk about where we expect it to go. And as it affects -- very little of our profitability, we do not have a strong view on it.

Leonard Teitelbaum, Merrill Lynch.

Good morning. Hell of a quarter.

Thank you.

Let me just -- I got on just a little bit late. Just review for me what the crush margins were in North America and in South America, just those two areas versus last year please.

The crushing margins in North America were a little bit better than last year. And in South America they were more or less in line with last year. So, they are normal crushing margins.

Thank you. Now -- and I want to project forward a little bit although this may be a little difficult, but I would have to guess that the future of fertilizer for you guys is really going to depend on mix in the second half of the year. And even though corn -- South American corn is off to a bad start, would it be -- would it not be logical to assume that corn and cotton might take over acreage from soybeans in the second half of the year and at least help the fertilizer sales or is that too optimistic?

We are confident that the volume pattern for the rest of the year will be as expected. And we see a little bit more -- little bit higher increase in coffee and in sugarcane. And these are crops that are in the second half -- the planting is starting now especially on sugarcane, but it is not a very relevant situation. We do not see a major change to corn and to cotton. That is already happening in the Central West of Brazil, the farmers are doing the normal rotations. So the cotton crop has increased dramatically in Brazil over the last years and it is quite normal. That is why also we have expanded our cotton seeds crushing business, and we are now operating 4 plants already, but it is a very normal pattern. At this stage from all what we see is the farmers are very positive about continual planting as what they had in mind before. No major shift.

Yes, certainly the higher level of soybean prices, I think, will help their planting intentions and is also a bullish indicator for fertilizers.

Now -- when I am taking a look at overall margins this year and trying to project ahead, are we looking at operating margins in the first quarter albeit it has been a small quarter, but it got bigger, are these going to be typical of -- if we project through the margin pattern over the last year, if we start with the first quarter, would you expect that or has this been kind of an unusual quarter?

Sorry. In which business, Lenny?

Let us take -- let's start first with, well really agribusiness obviously, but, you know, this has always been the weak quarter. I sort of plugged through well if it's this much in the first quarter we should look for this much maybe in the second, third, and fourth. And I just wonder if this is going to be an abnormal year, this first quarter may have been a bit better than we thought.

The first quarter, I think is perhaps a little bit better than we had originally expected, but as we go forward we are expecting a pretty solid year.

Okay. And finally could you give us an update on where you stand with Dupont and you know the new soybean problems that you have out and a couple of comments on China on how you expect to -- you are going to stay in that market as really an export agent or you are going to start to invest some capital in China?

In terms of the low linolenic asset the product with Dupont, The NUTRIUM it is going quite well. We have done our contract farming in US as we expected in...

A crop is going to go into the ground in the Spring?

Yes.

Thank you.

And -- so this is moving as expected. So, we are quite positive about that. And it is going quite well. Now in terms of China, as we have said before, we are selling to China on enhanced terms of soybeans and oil. But we always are going to look at opportunities. We have looked at opportunities in the past to invest into China. We have not found the right balance of return, reward, and risk. So, we will be watching it. So, we have a good size team in China and we always are on the outlook for opportunities, but we have not found the right one yet.

And one final question. Bill, we have talked and I think you had mentioned on earlier calls that you had been so busy acquiring assets and getting them in place you really haven't had a chance to work diligently on the synergies. Could you kind of give us an update on if there were synergy savings in this quarter or what we can look for, let us say, for the balance of this year and leave it at that?

We have been putting an increasing emphasis on our productivity programs. We really started that last year. I think we are starting to get some traction from those programs. Yes, there were some benefits in this quarter related to that. Clearly on the operating side of the business, but also when we look at for example, the tax line -- we have been doing a lot work with our effective tax rate in trying to manage that a little bit better and I think you see some of those results starting in this quarter. And I hope that we will see other productivity gains as we go through the year.

Thank you very much and continue to beat the Street. we love it. Thank you.

Thank you, Lenny.

David Driscoll, Smith Barney Citigroup.

Hi, good morning everyone. Its certainly a fantastic quarter, congratulations. I want to follow up on what Lenny was talking about in terms of cost savings. Bill, you and I have talked about this in the past about how the rapid growth of the company has created the opportunity for you to go after some rather large savings, specifically it looks to me like on the SG&A side, the number came in a bit higher than I was looking for. And so if you could -- maybe just talk about the plans in terms of how you worked this stuff down over time, yet balance it with all of your expansion plans into those new markets in Eastern Europe etc?

We work pretty relentlessly on all of this. You have to remember, some people might have forgotten it, but we have shut down 5 plants in Brazil, smaller plants and we have expanded other ones, larger plants. We have shut down plants in US and we have built Council Bluffs. So when you look at it we are always working on this. You see our effort now in Spain as well. We shut down the Bilbao plant and building one state of the art in the port. So we have over 500 facilities worldwide. We are always watching them very, very carefully. We also take writes downs like we had to take it last year on [Inaudible] and we are always working extremely fast and focused on all this. We have internal initiatives, we have started a project at the beginning of the year, we are using lean Sigma to extract even more constant improvements. And we realize and its part of our strategy to be efficient we always have to work on it. It is not a one time effort, its not a task force, its not a one-time project, it has to be constant, and we see it.

The problem is that not all of that always goes directly to the bottom line. Often you end up giving it to the customer, you are giving it to the farmers, to the supplier. But what we do see is that as we become more efficient some of the, our facilities get larger scales. We see also, especially some of the weaker competitors having to close down their plants, and that is why it is a constant effort. You will not see it, you will not see something -- you will see it every quarter, but its included in our day-to-day numbers. Its not a separate project.

Maybe if I could follow up that with a question that just specifically should we expect the rate of increase in SG&A to continue at the rate implied by this quarter?

What I hope to see as we go forward is that our SG&A increase is lagging significantly the growth in volumes and the growth in our gross profit, and that's what we are trying to achieve. And also you have to remember Dave our largest component of costs first is logistic, second largest is industrial, and SG&A is really the smaller one. And this year we are suffering a little bit because of the weaker dollar. So the expenses in Europe and the expenses in South America, they look higher because of the conversion of the exchange rates.

We are confident that we will be able to generate significant operating leverage in the business as we go forward.

Okay. And this next question, I apologize I did join the call a bit late. Gross margins in the fertilizers segment really gross profits per ton as we calculate it. Were down fairly considerably, either on a year-over-year basis or on a sequential basis. I do know that you have made some comments on this but nonetheless I am confused as to exactly what to expect going forward in the next 3 quarters remaining in 2005. Should we expect a similar negative impact related to those higher costs and foreign currency translations?

Yes. There is a few factor going on there. The first relates to our management of working capital and also our foreign currency hedging related to that working capital. And here I think we could have done a better job on this. I think we should have been sharper on it this last quarter. However, we are very focused on it now and so I think as we go forward we are not going to have a significant impact from that.

Related another effect was simply the translation effect of a stronger real and while we do have some ways to offset a little bit of that particularly through productivity exercises, we are not going to be able to offset all of it. And so to the extent that the real stays strong for the remainder of the year we will see some effect from that.

And another effect is that we have been expanding capacity in our fertilizer business and a lot of that capacity came on in the third and the fourth quarter of last year and so we are seeing some expenses associated with that and in particular depreciation, which is in the first quarter of this year but was not included in the first quarter of last year. And we are still in the slow period of the year for fertilizers, so the real benefit from that capacity is going to come in the third and the fourth quarter. So you might see some of this effect rolling into the second quarter but I think we will see some incremental benefits in the third and the fourth quarter from that additional capacity. Overall, when we look at the whole year we are expecting a good year in fertilizers.

On the earnings in the quarter, I don't know if you addressed this on the call, but according to my notes in the fourth quarter of '01, the company took a $20 million reserve for setting up the -- I guess it was the bad debt or the fact you didn't think that the Argentine government was going to pay on the VAT taxes. At the time, again if I recall correctly, this penalty was included in the first call numbers. The way you've written in the press release, I think a lot of folks are going to read the press release and think that that's the 19 million or $0.16 per share is a one-time unusual item unrelated to the basic business that you run. Is that the impression you want people to make and then should it really have been that in the fourth quarter '01 we shouldn't have included the $20 million penalty and then -- bottom line I feel like there is some inconsistency here, it either feels like you either include these things all the times or don't. I do recognize that sometimes they don't match in the quarter in which the money was maybe technically truly earned but this is a common problem that we always seem to run into. Any comments that you can share some thoughts on on that topic?

Well. You know our numbers are our numbers and we are not encouraging you to either take out or put in anything in the analysis of those numbers.

But do you consider this as part of the operations, I mean, really that's the fundamental question that hopefully you can answer.

Okay. VAT -- increases and decreases in VAT balances are a normal part of our operation.

That's really the answer I am looking for. Okay. Last question, just be on the agribusiness volumes. I think they are up about 13% in the quarter. What is your outlook for volume improvement over the next couple of quarters or for the full year, however you would like to do it?

We are expecting a solid year in terms of volume in agribusiness, and I don't know that we will see it at the same level that we did this quarter but expect we are going to see good volume increases. In fertilizers, we expect to see positive volume increases in fertilizers this year but probably not that strong given that the Brazilian fertilizer market is likely to contract slightly for the year and in food products, I think we will see again positive volume increases probably in line with our long-term guidance, which is around 3 to 5%.

Well, thanks for all your answers and again congratulations on a very nice quarter.

Christian McGlone, Deutsche Bank.

Alberto, maybe if you could talk about the Brazilian crushing margin environment a little bit more. I know to Lenny's question you said that margins were pretty normal, but I was under the impression that this is a kind of a second year of weakness, and I was wondering if it is being driven by the fact that the crops have been short of expectation or if there is excess capacity there and when do you see this turning and becoming and then margins improving?

I think the issue, Christina, is more that is -- because of the logistical problems in Brazil, the margins are very different for different people in different sites and different lands, because we always are so focused on being at the right place, and as I mentioned before, we shut down 6 plants and increased others. So for us, the crushing environment is positive. We do know that for a couple of smaller crushers, it is not the same situation and you do not have such a transparent market like you have in others -- like in US where it becomes very clear how everybody is doing, but for us this is the normal market, and we feel it is a good market, a normal market, and we don't expect it to be significantly better. What we do imagine is that a couple of plants not so well located and in smaller size that they are having trouble, and we know that but that has been always like this, perhaps it has never been so clear to most people, and as I said we had some of these issues before because we also have to shut down plants. So I think the overall environment is positive.

In terms of fertilizer, I guess, just delving into that a little bit more, I think Bill that you had said you expected flattest operating profits for fertilizer for this year maybe on the last call and given your comments about -- you know the fact that soybean prices have come up. You seem to be a little more bullish about that despite the fact that the first quarter was weak. Can you reconcile that for me?

I would say our view really hasn't changed from the last quarter when we talked about it. I think we saw a weaker quarter this quarter, but we are anticipating a stronger remainder of the year.

And then last question. The startup costs in Eastern Europe. Could you maybe quantify them or give a ballpark about them and then also just say how long you expect them to continue maybe to the second quarter or the full year?

I don't have a number for you on the startup costs, but I don't think that they were terribly material in the quarter. We have a lot of new activities that we are getting involved in in Eastern Europe and so I think we are going to see some ongoing pressure really for the rest of the year related to new activities in Eastern Europe but that's all included in our guidance.

Kenneth Zaslow, Harris Nesbitt

To get a little bit of a balanced view a little bit here. You beat consensus numbers by I think 16 or so cents and your guidance went up about $0.07 of $0.08 for the full year? I guess the question here is, is there a change in your outlook in terms of the next three quarters is it's going to be slower than you expected or just give a little color to that, I guess?

I think our outlook is pretty much the same as it was at the beginning of the year. Things are becoming a bit clearer as we go forward as Alberto said earlier we're perhaps even feeling a little bit more optimistic, but as you know it's still early in the year. We still have to see how the US harvest develops and so we are typically more cautious at the beginning of the year.

And also Ken it's always a question of we have to take a yearly look. You might have some shifting of volumes and profitability from one quarter to the other. We always like to insist on that. We take always a yearly look at it. So we are little bit more optimistic and that's what we are showing.

The next question is on cost savings. You allude to it on a very high level. Can you drill down say what future projects you are working on and give us some sort of parameters on types of savings you could see on either on annual basis or going forward it will be very helpful?

Look I would suspect that we have probably 1500 different projects all over the companies with 500 facilities you have it all over. I always see it is like cutting nails. You have to do it regularly and fingernails not the steel nails. And you know it is part of the day to day business. We do not see it as something and is very difficult to measure, Ken, because you end up giving some away to the farmers. You end up giving away some to the customers. So it is we see this as our normal target. If we are not doing others, competitors are doing it and it will become tougher for us.

We obviously do have some productivity targets that we give out as part of our budgets to our operating units. But all of that is implicit in the guidance that we give you.

So out of the 1500 projects can you talk about three or four of them?

I mentioned to you the very obvious one which are like the Spain shutting down one build another one. These are very major ones. Talked about logistics projects where we build terminals, but inside the companies they are -- you will get bored when you talk and see what we all kind of things do. We have projects from $10,000 to $400,000, so this is normally the type of projects we are doing. The big ones you end up seeing anyway because these are related to moving plants, shutting down plants, making alliances like we talked about with the railroads and building terminals. The large ones you end up seeing and talk about it, but the smaller ones I don't think it is worth talking about it.

In terms of the releasing of soybeans by farmers, you know, I understand is done in spurts. To what extent -- how long do you have right now to keep your utilization rates as high as they are right now before you have to really worry about another spurt?

It is very comfortable. You know it is very, very comfortable and also as Bill said many of our silos are full because although they have not fixed the prices yet, but they are in our possession already. So we have no issue in terms of -- it has normalized from where it was at the beginning of the year. After the spike in prices a lot of farmers sold their or delivered their products and I think the harvest is quite very, very advanced in Brazil, so we are not worried at all about that.

So you think utilization rates will be fine throughout the year?

We think so.

Then the last question is can you comment on the Asian rust in the US, I mean, is it because I think there was a report yesterday that it came. We found a discovery of it in the US. I don't think it is a surprise that we found it, do you make it anything of it more than just a spurious issue?

I think everybody obviously is worried about it, but we have seen that it can be solved with a fungicide. So it's a question of cost more for the farmer and so everybody is worried about it. But it is a little bit early, so you have seen how it has been well solved in South America so from a supply point of view I am not too worried. It is obviously is the issue of additional cost for the farmers.

John McMillin, Prudential Equity Group

I guess I got in under the wire. Congratulations. The cash flow statement also showed a $76 million loss in unrealized, I guess derivative contracts. I know the normal course of business for you to kind of hedge existing inventories. But can you just go into that -- certainly there was an expectation in the market, that you’d have some big trading loss in the quarter, just can you go into what that is and some kind of potential for you to have these type of trading losses?

Okay, John, you know, it is like bad debits and credits on an accounting statement. You can't look at just one side. You have to look at both the debits and the credits. And when we buy a ton of soybeans, we immediately hedge those soybeans on the board of trade and depending on where prices go, we can either end up with a gain on that hedge position or a loss on that hedge position. And it shows up in this line of unrealized gains or losses on the cash flow statement. But what you don't see is you are seeing -- is the mark to market on the soybeans, which is in the inventories, which exactly offsets it and when we sell those soybeans the – futures contracts are liquidated. The two offset and there is no effect on the -- on the P&L. This practice on how we deal with managing price volatility in the commodities markets is why Alberto says -- that price really doesn't have any effect on our results, because we offset that pricing --

There was a new play in the stock options in your stock yesterday I guess. Just in terms of the tax rate concern, a lot of this quarter's to -- this kind of follow-up on – Ken Zaslow’s reviewing -- some of the positive surprise in this quarter came from a lower tax rate. How sustainable is that?

As you know, we did decrease the effective tax rate in the guidance for the year compared to what we experienced last year. And so we were expecting that we would have a lower effective tax rate this year. Because of some initiatives that we took to try and manage that effective tax rate to make sure we were a bit more efficient in how we were approaching our tax position. And I think we are starting to see results from it.

Yes, but this even came amidst a low end of your new guidance, even if you do on an operating basis and take the $0.16 out, it was a bit below the 28 level. Is that the rate we are now looking at or are you going to still keep to this 28 to 33 range?

No, we are not ready to reset guidance on that. So we want to keep the guidance where it is. However, I think we are very encouraged by what we actually saw happening during the quarter.

Can you just go through this minority interest line again in terms of -- for some reason I was using a higher number, just in terms of what drives that line?

The minority interest that we are seeing there is primarily related to our [Inaudible] subsidiary in Brazil, which is a publicly traded company in Brazil. As you know last year, we bought out the 17% interest publicly traded interest in Bunge, Brazil and took that company private and that is most of the reason why we are seeing a decrease in the minority interest line coming into the first quarter. I think we are pleased with the how that has worked out. We are starting to see some earnings, accretion coming from that transaction and we think that that transaction was a good transaction for Bunge shareholders as well as being fairly priced for the minority shareholders in Brazil.

And can we just go to fertilizer for one second? Could you -- you used the word good and then you used the word flat and I sometimes don't know kind of what base you are working off for the last year, because that was a year where you had some kind of very low costs built in, but can you just kind add more color to what you think the next three quarters of fertilizer, you say strong growth. But you know why, again I am trying, strong growth versus last year's reported numbers?

Let’s remember that last year was a truly exceptional year in fertilizers. And we have some benefits last year from having bought raw materials early you’ve seen prices go up, that flowed through really in the third and fourth quarter of last year. This year I think we used the word firm as we are expecting firm volumes in fertilizer, which implies that we expect to see a slight increase in fertilizer volumes this year, despite the fact that we think the NPK market will actually trend downwards a little bit overall in Brazil. That means we expect our market share to go up. In terms of profitability, again profitability was exceptional last year, so I think we would expect profitability to be down slightly from last year, which was what we indicated when we originally established guidance for the year and that perspective has not changed.

I understand that. Now the bad debt expense of only going up, I guess 3 million, surprised me a little bit -- I know your exposure to Southern Brazil is not tremendous but is this bad debt expense, just totally mathematical, Bill, where you just kind of -- the people that don't pay in a month, you just automatically hit a bad debt expense or do you have judgment in this -- and then kind of what is your liability in the South of Brazil?

We are not expecting a huge impact from the South of Brazil. We may have a little bit of impact in the fertilizer business, but we expect that that will probably be offset by some other positives that we are also expecting to see in the business. In the agribusiness side of things, there will be advances on farmers, we are not expecting any significant effect from the drought in the South of Brazil. What you are seeing in the bad debt expense in fertilizers in this quarter is not related to the drought in the South of Brazil. This is purely a mathematical effect. Is that -- as farmers delay their payments to us because they are not commercializing their crop yet, we have as our policy that after 60 days, we take 50% of any receivable, which has not been paid into bad debts and after 90 days we take a 100%. And so this is just purely mathematical, there is no discretion associated with it. However, when the farmer pays later on, assuming they do pay which we believe is a high probability, then we reverse that.

And that does conclude our call. We do appreciate your participation. At this time, you may disconnect, thank you.