Bunge Global SA (BG) 2007 Q4 法說會逐字稿

Good day everyone and welcome to this Bunge Limited's Fourth Quarter Conference Call. Just as a reminder, today's call is being recorded. At this time for opening remarks and introductions I'd like to turn the conference over to Mr. Mark Haden. Please go ahead, sir.

Great thank you, Christina, and thank you everyone for joining us this morning. Welcome to Bunge Limited's Fourth Quarter 2007 Earnings Conference Call. Before we get started, I wanted to inform those of you who may not have seen it in the Press Release this morning that we have prepared a slide presentation to accompany the discussion of the fourth quarter financial results. It can be found in the investor information section of our website, www.bunge.com under Investor Presentations.

With me today to discuss our results are Alberto Weisser, Bunge's Chairman and CEO, and Jackie Fouse, Bunge's Chief Financial Officer. Reconciliations of non-GAAP measures disclosed orally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the investor information section.

Before we proceed, 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 pertinent risk factors can be found in our SEC filed reports.

And, now let me turn the call over to Alberto.

Good morning everyone. 2007 was an outstanding year. Bunge leveraged its integrated global operations leading positions in key markets and good teamwork to produce record results. In 2007 the agribusiness and fertilizer markets were characterized by improved structural conditions. Demand for Bunge's end products grew and farm economics in Brazil strengthened. Our risk management strategies performed well in a dynamic market and we were well positioned to serve our customers during a period marked by significant supplies and locations. The conditions that made 2007 compelling should continue in 2008. The USDA forecast higher global protein meal and vegetable oil demand as well as strong demand for and trade in other agriculture commodities. Crop prices should remain high, promoting input purchases by farmers.

Not all market forces are working in Bunge's favor, however. For example, the strong real will increase local costs in our Brazilian businesses and higher input costs could pressure margins in fertilizer and edible oils during the year. We plan to build on our success by continuing to follow our strategy of investing for growth and efficiency in our core businesses and in complementary value chains.

In 2007 we expanded our oil seed processing network and launched a regional consumer packaged oil brand in China. We also enhanced processing assets in the Americas and Europe, purchased our first sugar mill, sugar cane mill, and established a joint venture with OCP the Moroccan fertilizer manufacturer, which will provide our business with valuable supply of fertilizer, raw materials and products.

Construction on the ventures production facilities is well on the way and we expect initial phosphoric acid capacity to come on line later this year. This morning we announced an agreement to acquire Walter Rau Lebensmittelwerke, one of Germany's leading private label and branded margarine producers. With this acquisition, Bunge takes another important step in our strategy to strengthen our European food products business. Overall we are pleased with how our asset network is growing and becoming more balanced across geography and also products.

Now I would like to turn over the call to Jackie who will take you through the fourth quarter results and our outlook.

Thank you Alberto. Good morning everyone. Thank you for being on the call with us this morning. As Mark mentioned, I'll just remind you that there are some slides that you can follow along with my comments on the Web if you have access to those.

Starting off we will look at some key line items in the income statement for both the quarter and year 2007 for the Bunge Limited Group. Looking at the volume numbers, we saw very solid growth in the fourth quarter in both agribusiness and food products. Fertilizer volumes were a bit down, as we said that they might be, due to the strong Q2 and Q3 in '07 and Q4 '06 that included some late fees in buying.

With respect to segment operating profit, the growth there was led by agribusiness as well as fertilizer gross margins, which held up quite well during the quarter. These favorable impacts more than offset somewhat higher SG&As in both of those segments where the primary increases came from currency, somewhat higher variable costs and growth in our infrastructure, as we added some people here and there, notably in the sugar business. In edible oils we started to see some benefit from price increases that we took in Europe during the fourth quarter but this is more than offset in the quarter by notable item charges. Milling was somewhat impacted by higher input costs for wheat and an impairment charge.

At the net income level, that was affected by the return of the effective tax rate to a sustainable range. Now we are out about 26%, so when you compare that to Q4 of 2006 when the Company recorded a benefit in the tax line, that's when you don't see growth in net income. EPS followed net income and includes the impact of the convertible shares, both those issued in November of '06 and those issued in November of '07.

With respect to the full year, on the volume side agribusiness, fertilizer and edible oils all posted mid-teens volume growth for the full year. Operating profit wise growth was led by agribusiness and fertilizer and, as you know, foods had a tough year due to high input costs, higher SG&A costs as we invested in the infrastructure there and the impact of notable items charges as well. And the same factors for the full year as for the quarter drove somewhat higher agribusiness and fertilizer SG&A, so again currency impact, variable cost increases and some investments in the infrastructure. The same phenomena applies to both the net income and earnings-per-share for the full year, as I discussed, for the quarter with respect primarily to the tax rate returning to an ongoing sustainable range versus the benefit recorded last year.

When we look at the results by segment starting with the quarter, agribusiness was driven by very good results in oil seed distribution, particularly in Europe, by grain distribution and origination, meal volumes were also strong and structural margins in the meal business especially in Europe and the Middle East and we saw strong crush margins in Europe, North America and South America. Ocean freight preformed its role well through management of both physical flows and risks.

On the fertilizer side for the quarter, again lower volumes in the quarter for the reasons I've already mentioned and the operating profit, the growth there came about from higher unit gross margins, which more than made up for the lower volumes and somewhat higher SG&A.

On the food side of the business, that one was particularly impacted in the quarter by notable items, but as I mentioned, we did start to see benefits from price increases taken in Europe and in Brazil edible oils and margarines were very solid in the quarter.

Moving to the full year results for the segment, again you have heard some of this before. Some of the same fundamentals held up in the fourth quarter as we saw in the third quarter. Agribusiness results were strong across the board for the full year with all regions performing well though the stronger real has somewhat negatively impacted our profits. The strongest contributors were oil seed processing in all regions and grain origination and distribution as well. Ocean freight again performed well for the full year, as in the quarter with respect to managing physical flows and risks.

Fertilizer wrapped up a very strong year with above average historical volume, growth and high margins driven by high international fertilizer prices and our ability to take advantage of our local integrated model in Brazil. As you all know, food experienced a difficult year during the over-all year 2007 as a result of high crude oil prices and the limited ability to pass that higher cost on through price increases until we got to the latter part of the year. And profits were also negatively impacted during 2007 by higher SG&A spend, as we continued to build the business primarily in Asia and Europe and then by some notable items charges as well.

Turning to the balance sheet, a few things we would like to highlight, as you know historically high agricultural commodity prices prevailed throughout the full year 2007 and caused inventory levels to increase significantly. Despite this we were able to manage overall operating working capital growth to something less than that growth in inventory and our cash cycle improved versus last year by about 11 days. This shows that we've made good progress in terms of our asset efficiency efforts and we saw positive evolution in both day sales outstanding, which were down about 5 days and inventory days which were down about 6 days. We also strengthened our balance sheet through a combination of higher profit generation and issuance of a mandatory convertible in November of 2007.

For those of you who can see the slides, it's page 7 or slide 7. On the webcast there's a graphic there that shows you the evolution over the last seven years or six years since 2001 in these key items of the balance sheet and over the past six years you can see that Bunge's operating working capital has grown roughly in line with sales though somewhat slower than sales and our shareholder's equity has increased significantly faster than net financial debt. So we're happy with the state of our balance sheet.

With respect to cash flow, in Q4 we were pleased to see strong results and funds from operations before working capital changes with those being driven by profits and those strong funds operations more than offset a modest increase in working capital, thus allowing to generate positive cash flow from operations in the quarter. For the full year, cash flow from operations remained negative but modestly so, given the significant t growth in working capital for the year based on higher commodity prices.

When we turn to the 2008 outlook, as Alberto already mentioned, we see very solid, positive market fundamentals for our business and we continue to see growing global demands for soy bean meal and vegetable oil with the meal growth forecast at just over 5% and oil at about 4.5%. So far we see South American harvests looking good and we expect for fertilizer demand to be strong on continued good farm economics. For us particularly we think our food products segment should improve and we've been working on the efficiency of our food network of assets, especially in Europe and South America. We are again seeing our price increases hold and a positive impact from that in Europe and we expect to see good results from the investments we've made in the business, but are mindful that input costs in some areas could remain high.

There are some broader headwinds that we will face going into 2008. The stronger real is increasing costs in our Brazilian businesses. We are also seeing some indication of inflation in emerging markets that we will deal with on the cost side and higher input costs could put some pressure on margins in both fertilizer and edible oils. As we move into 2008, we should keep in mind that during 2007, as a result of our global foot print and asset infrastructure, we were able to benefit from opportunities that arose where we were able to move product through the system and manage market dislocations and supply demand in balances to our benefit. These included poor wheat production outside the U.S. and poor soft seed production in Europe as examples during 2007. We don't know to what extent such opportunities will be available in 2008 and we don't include the potential for those in our guidance.

So with that backdrop just to highlight the financial guidance for 2008, we're forecasting net income of $830 to $870 million or $6.01 to $6.30 per share. That includes an assumption of an estimated weighted average of 138 million shares outstanding. Again, that includes dilution related to the two convertible issues. We anticipate depreciation, depletion and amortization of about $450 to $470 million and we expect CapEx to increase to a range of $1 to $1.1 billion with about a little less of a third of those going to sustaining and maintenance type of projects and a bit over two thirds going towards growth. And, of course, we've got the impact, the incremental impact, of the sugar business in there now and the plans for that expansion as we go forward as well. We're maintaining the effective tax rate guidance range and 24 to 28% the same as it was in our last guidance and where we came out for 2007.

So with that, I will open it up to Q and A. Thank you very much.

(Operator Instructions) And our first question will come from Robert Moskow with Credit Suisse.

You know I think that the guidance for '08 is going to be a little bit lighter here than what a lot of people including me had been hoping for but you did mention the fact you are not forecasting any kind of benefit from potential dislocation of grain with a glut this year or in '07 that we had in the U.S. and deficits abroad. Can you give us any kind of quantifications, not really a fair question, but can you give us any kind of quantifications as to how much '07 benefited from that dislocation?

Rob, this is very difficult to estimate but giving anecdotal situation we use to ship something like 500,000 tons to Spain normally. Last year we were able with our network, with our logistic systems, with our origination, we were able to increase our business to 3.5 million tons and we believe that most of that we will be able to keep. So, we had similar situations like that in different parts in the Middle East so it is very, very difficult to put exact number on it. But also these kind of dislocations happen from time to time. More or less you have it every year in one area or the other, but this year-- last year obviously it benefited us with a large network of assets and a large network of the good infrastructure and logistics. It's very difficult to put a precise number on it.

Okay well I appreciate the color. And, then in the fertilizer business can you give us a sense of to what extent you are going to be able pass through higher input prices for your blended fertilizer products to the farmers in Brazil? You know you've said that you expect margins to be smaller year-over-year, but at the same time the blended prices are so much higher than they were and then at the same time you want to be careful not push the envelope too far. So, what kind of a position are you taking here and what should we-- how should we think about it?

We went into 2007 with a better input price structure than we are going into '08, so that is why we consider that we had a little bit more margins last year because of the good raw material input price structure. That is one component. The second component, you have to remember with the high petroleum prices diesel went up and transportation is more expensive, so we estimate that for the Mato Grosso farmer the probably to cover all of the farmer's costs the soybeans have to be around something like $7.50 per bushel. So it has gone up the break even for them. So, we have to be careful.

Also where the fertilizer prices are, they are expensive so we feel that it will-- there is enough margin for the farmers but we feel there is also pressure on all the raw material prices. So the petroleum prices had a very strong effect on all the input costs. So the two components we have to be careful how it will evolve. It is very early. I think the commodity prices should stay strong during the harvest of South America, but it's very early to say the farmer will only decide planting the big crop in South America for soybeans, corn in June, July and August and we have to see whether commodity prices will be by that time. Our estimate is they should stay high. It should be good but we have to be careful here.

Yes the futures market has soybeans closer to $13 a bushel so and you said $7.50 for a break even in Mato Grosso. I mean what is the farmer in Mato Grosso really getting today? Are they getting $7.50 or are they getting something much higher?

They are getting much higher but you also have to take an average. Some of them have already sold. Some didn't sell, so we have to make a combined. Those who are selling at the moment spot obviously are having a good price at the moment. But, many sold before and many are going to sell a little bit later, so you have to take an average. You're right; the environment is very positive for the farmer.

Okay I'll leave it there, thank you.

Our next question will come from Christina McGlone with Deutsche Bank.

Alberto, I guess following up on Rob's questions with respect to agribusiness, if I look at the opportunity in terms of dislocation, it still exists. So my question is, is there anything about your ability to capitalize on this opportunity that changes as we go from North America where the crop has pretty much been sold to South America? Is your origination less robust in South America? Is the crop availability different? I mean, what changes now as we head to the South American harvest?

The outlook for South America is positive. We believe the crops will be very good. We have visited. I have personally visited some of the areas. They look good. So, we don't expect any significant trouble from the South American crops in terms of availability and yield. Now, also we probably are better prepared. We have now the Santos terminal TGG in (inaudible). Our port in Argentina is better prepared. We have bought [Sao Separ], the other port in [Paulo Negre], so from an infrastructure we are also better prepared this year than we were last year. So if the market gives us opportunities in Asia and Europe to have a good flow, we should benefit from that. So, but this is very, very difficult to plan, so we are planning more like a normal situation.

Okay so you are planning for normal but with the wheat crop in Europe not coming in until the middle the year and China still short beans in soy bean oil and you having the opportunity to execute on that demand, really I mean from what we see today, things shouldn't change?

We are optimistic. We are clearly optimistic about '08 but you know how things can change very fast on a dime. The plantings of soybeans were a little bit later last year than usual so the window for the winter corn crop [du Sofringe] has-- normally it's 21 days. It has been a little bit shorter. So to get it right, for the farmers to get it right on the winter corn crop there's a little bit more risk. At the moment we see it very positively, especially because it probably the window closed for the cotton business so there is a little bit more space for corn. But it can change at any moment so it is very, very difficult in our business. It can change very fast.

Okay, thank you and then turning to fertilizer, if I understand what you were saying in terms of the farmer and things getting expensive, but there does seem to be some buffer between what the farmers in Mato Grosso are receiving even including the basis and what there break even is. But then if you consider the fact that 30% of global phosphate production is the hands of non-integrated fertilizer producers, wouldn't you think that they would set the price and that higher phosphate prices, higher sulfur, higher ammonia prices would be passed through because they are not in that position to really eat those higher prices? And then the global price of DAP, MAB, PSP etcetera would increase?

Yes, up to a limit. You hear when you talk directly to the farmers like we do, they are really complaining so there's only so-- there's a limit how much you can-- the international prices can be passed on. There will be a moment where the farmers probably will start cutting on technology. So at the moment there's room for both, for corn for soy bean but there is a limit. We have to be careful. They are complaining very hard and what we also have to remember is that the real has been stronger over the last three years but the inflation has continued going up so the personnel costs, the salaries continue going up locally, so when you think about it last year we were talking about full cost coverage for the farmer at $6 per bushel. Now we are talking about $7.50. It is important, so we only want to be cautious. The sky is not the limit here.

Okay thank you. And I guess last question, Jackie, the CapEx guidance is significantly higher than you've been running, so what does this mean in terms of your cash flow generation next year and given the fact that working capital can still be onerous.

Well I think we're seeing the degree of price increases not be quite as high probably when we look at the full year as we expected last year, so the increase in working capital should be slowing down. In terms of our plans, our business plan for 2008, we're expecting to be more or less net cash flow neutral including funding those CapEx projects and, as I mentioned, the sugar is completely incremental for us now, so it has to be thought about in terms of the mix on a go forward basis and I think we have always said that we have lots of opportunities, more than we can avail ourselves of. And one of the reasons why we did the mandatory preferred back in November and we talked about it at the time was to help us fund the expansion of sugar on a go forward basis, so now we're seeing that all come together and we'll be able to digest all of this.

So how much of the 1 and 1.1 is dedicated-- will be dedicated to sugar?

Around 300 million.

Ken Zaslow with BMO Capital Markets.

Not to harp on this question of opportunity, are you seeing the opportunities right now in this quarter? Have they gone away?

The exact opportunity where we saw last year with the grain and the oil seeds we don't see, so-- but obviously with a very high prices of grains the demand is strong for soy bean meal. We were a little bit surprised how strong the fourth quarter was for the oil, this oil seed distribution, meal oil as Jackie was saying. So we continue seeing a very positive environment in the distribution oil seed processing, meal and protein sales and oil sales.

And is, in the guidance is there any-- I think it was like last April that there was an issue with the hedging between Brazil and the U.S. Has there been any of that that we should-- is there something in these numbers that may not be operating that may come out throughout the year or is it not the case?

As we said at that time, these kind of-- this connection between the physical and the futures market happened all the time. It was very unusual last year because we didn't have the physical demand, so we have to consider that these kind of divergences will happen but we like to remind that when you look at the whole year, like we always want to investors look at, it converged so we at the end we were able to deliver the products at the margins we wanted. So the future market adjusted to the physical market or the physical to the future but we obviously cannot plan for a situation like that.

But you don't have anything like that right now.

No.

Everything is back to normal. There is no issues at all because I guess as I think Rob asked, the guidance is a little bit lower than we would have expected as well. I didn't know if there was anything in the guidance that was--

No we are expecting traditional normal kind of an environment. Let's say it is positive. We should realize the high commodity prices are very good for our farmers and this is very positive for the fertilizer business, so we see it for '08 and probably even for '09, so there is a structural change, which is positive. And we have to remember we often forget that with the global economy the way it has been growing in the past you have also smaller countries shifting their diet away from just cereals, carbohydrates to consumption of more meat and, therefore, the demand for soybean meal and for oil, vegetable oil, has been higher. In fact, even the demand in the United States last year was up [20.7%] in soybean meal versus normally that it has been around 1%, so the demand picture is positive around the world.

And in terms of recovering bad loan debts from a couple years back, to what extent do you think that there will be any recovery this year or will it still be in '09? How does that play out throughout the next 12 to 18 months?

Well, as you probably know I mean this-- or can imagine, this is a process that probably moved a little bit slower than what we might like, so it takes time but what we are seeing is that we have been able to improve credit terms on our current sales. We actually in terms of currency aside, we added a little bit less to the provision this year than last year and there was an impact from purely from currency though. We have recovered slightly more in 2007 than we did in 2006, so all of the individual pieces of it look like there's starting to be some degree of response but it takes a long time for this to work its way through the system and those balances, which were the most significant ones, were incurred back in 2005. Some of those have been renegotiated and some of them are in a legal status where it's just going to take some time to recover those. But we're not seeing anything wrong in that regard.

And then I guess my last question is when do you guys come up with guidance? Is it last week or is it two months ago?

Well, we've looked at this when we go through our business plan process in the latter part of the fourth quarter and then obviously, given the number of moving parts in this business and how quickly things change, we watch how we're finishing the year along the same time that we're looking at what we think we're going to have in our plans for 2008 and we continue to do that as we start the year, especially monitoring how things are going in South America. And so you we-- you can't say that we just looked at it last week by any means because we start looking at it when we put our plans together in the latter part of the year before, but we do try to reassess those plans in light of how we finish the year and how we see the year starting.

David Driscoll with Citi Investment.

First off, I would say congratulations, Alberto, and to your whole team on an excellent 2007, truly outstanding results.

Thank you.

Second thing is, Alberto, for a long time you have been very consistent in establishing a long-term algorithm. You established I believe it was the 2003 period as the base from which you believe that the Company could grow its earnings 10 to 12%. Can you update us today on where that base is? Obviously '07 is unlike anything we've ever seen before. You gave us some '08 guidance but really appreciate your perspective on how to think about the Company and the business over the long term.

Yes. The-- obviously the Company has changed a lot. When you think about from '03 to today we have grown significantly and added segments and geographies and products, so I think we have to look as base for growth it's problematic calling one year a base, but I would consider '08 as a good base for our target of [grace], the guidance of '08 for the basis of growth for this 10 to 12% EPS growth. You are right, like I often say, from the 15 variables of our business in '07 14.5 were aligned and we have to consider that in our business in the commodity business related to weather and climate and so on there are some-- often there things are not exactly perfect so '08 should be a good base.

Thank you for that. In your 2008 earnings guidance is the split in profits between agribusiness and fertilizer similar to 2007? Would that be roughly accurate in assessing '08?

Roughly I would say, although fertilizer had such a strong year in '07 you could see a little bit of a down movement in fertilizer and with the corresponding shift I guess being in agribusiness.

And foods.

And foods, foods is a small piece of the total pie, so we know that it's not going to move the needle massively but we do expect the foods business from a relative performance standpoint to be much higher in '08 than it was in '07 because '07 was such a difficult year.

Jackie, if I could just come back to the fertilizer point that you made, there is just within the last 8 or 9 weeks or so we've seen a $250 per metric ton increase on [debt] fertilizer prices internationally. This is an astounding increase in an incredibly short period of time. I think can you just explain a little bit more why that fertilizer business wouldn't see an enormous increase in profitability? Is it really simply the story on input costs?

You have to remember that we have only the phosphate mines. We have a small nitrogen business in Fosfertil but for us very important is the phosphate business and we are ramping up every year a little bit more of our production but we are limited, so we had an increase of 10% in our production for this year. By the end of this year we will have a further increase but we might not benefit so much because we have to import some of the products and there the margins are we don't benefit exactly the same way when we don't sell from our own mines.

Can you guys give us some specific volume numbers or volume projections, percentages on fertilizer and agribusiness for '08?

We have for the first time we perhaps are a little bit more optimistic than ANDA. That's the fertilizer association in Brazil. We think probably it will be more like the 5 to 7% growth that we considered sustainable long-term growth rates with perhaps a small potential for upside if the commodity prices stay strong.

That 5 to 7% was for fertilizer?

Fertilizer growth vis--vis '07.

What about agribusiness?

Agribusiness, we think more in the case of Bunge is also the 6 to 8% growth rate.

Last question and I'll pass it on. Jackie, can you give us guidance on interest expense?

Well, obviously we've benefited or are benefiting to the fact that rates have come down on the floating portion of our interest rate exposure but because the working capital needs continue to stay high and they are a bit higher of right now than they were in our forecast right around the end of the year, those two things may offset each other a little bit. But depending on how working capital goes, otherwise we could maybe see a little bit of favorability in interest expense because of the lower rates.

Christine McCracken with Cleveland Research.

Just on your fertilizer business, not to focus too much because there's been a number of questions, but you clearly had a benefit this year from the increase in prices there as fertilizer prices continue to escalate through the most of the year until you sold it and I am wondering is it your view now at this level that prices have peaked and so you're not going to see that same kind of benefit this year? Or do you expect another leg up in fertilizer prices assuming China comes in, in the next couple months, for example?

We don't plan too much on-- the way we are looking at it we don't plan too much on further price increases. We, what we do see is a small contraction on our margins vis--vis '07. You know there is-- I think there will be a point where the farmers will start reducing their demand if the prices get too high you'll start seeing them suffering because also the crop chemicals are up, transportation are up because of the increase in petroleum. So there is some pressure. We don't plan-- we don't see further increase.

Okay and when you talk about your input costs are you also referring to the increase of sulfur costs that you've seen or--

Yes.

Is that a non factor?

Yes sulfur is a very important one, very, very important. One of our main products we sell in South America is the SSB, which is phosphate and sulfur.

And it's your expectation that prices are going to continue to go up there?

We hope not but they have been going up and we have to remember we have to renegotiate the purchases during the year, so it worries us.

All right. And then in terms of your [Aerishot] expansion you talked about it coming on I guess this year. I am wondering is that going to be a late 2008 event?

No the 10% is already it happened, so it will be in '08 but the other increase will be only for 2009, the 30% increase of Aerishot.

And then just in terms of-- switching gears a little bit, in terms of the embargos that we've seen in some parts of the world kind of limiting some trade of commodities, has that had any material impact on your business and especially at those port locations?

It has. For example, we suffered a lot in Ukraine with the embargos. We really suffered there, not only from not having enough for the physical products but also the products we had obviously had to be resold at the lower value. But at the same time these open up opportunities to export more wheat from the U.S. or from South America, so this is the beauty of being in many countries, many ports, many origins, many destinations. You can what Jackie said that these locations they affect us in one area but can have a positive effect in other areas, so last year clearly U.S. farmer benefited in on wheat, the Russian farmer benefited on wheat, the Brazilian farmer benefited on corn, so some of the farmers-- and we were able to serve our customers, as I gave the example in Spain. Very fast we were able to deliver and now we have very solid, good new customers in some parts of the world.

So it's basically offsetting.

They offset yes. Probably the offset last year has been more positive but there obviously is some major trouble like Ukraine.

And then just one last question, when you look at the outlook, at least most analysts have, for a shift in U.S. acres to soy and you look at your overall business, is that-- do you view that as a net positive or do you not even agree with that outlook as you head into the next year?

You mean in the U.S.?

Yes.

We are relatively neutral where our plans are. We see this as not affecting too much the net effect of perhaps having more or less soybeans most of the time only affects the exports, so you might-- the shutting down of our Marks Mississippi plant had nothing to do with the agricultural component there but it's more a situation of the cost of that plant. And but for the U.S. I think we are well positioned. That's why you see we expanded our Council Bluffs, Iowa plant and reduced Marks and we expanded the canola plant in Canada. Now net, net for Bunge it is probably positive these changes because more of the expansion of soybeans have to come from South America and there is where we are well positioned.

Diane Geissler with Merrill Lynch.

Congratulations on your quarter and your year.

Thank you.

I want to-- just some questions about the fertilizer business and how you contract with the farmer. When you sell the fertilizer to the farmer does he have the choice to either pay the contract in cash or beans up front or how does that work? I just-- I am just-- what's behind the question is really we've seen soy bean prices obviously move here pretty aggressively and beginning in 2008 and I am just wondering about his flexibility in terms of when the contract comes due when he harvests can he choose then to change his method of payment from beans to cash?

Normally we have very long-term relationships with these farmers. We help them grow, expand so there is obviously a strong connection and the way it normally happens is that we finance them with the fertilizer. They commit to the physically deliver and then either the prices are fixed earlier when he needs the money or not, the prices are fixed later. Now normally the farmer doesn't do these kind of transactions for 100% of their needs because they obviously also want to have a little bit more flexibility if prices go up to fix the prices later. But as we-- the funding part of their working capital is so relevant, the quid pro quo is that we get the beans.

Okay, so you see very limited risk in terms of beans have moved forward that he's going to change his mind and pay you in cash and then go in the market and sell at a higher price.

It always happens here and there but it is de minimis and obviously this is something that we are very-- we pay a lot of attention and where the long-term relationships do matter and often it is you know we have all our silos network, so if the farmer doesn't want to sell to us sometimes they have to drive quite a long way to the next silo. So there is a risk and we include this as part of our risk of our business and the same way we also consider default on bad debt for the fertilizer sales but we include that in our outlooks.

All right. Well, I appreciate the clarity on that. And then I guess my other question is you know it seems like you have done a lot of work on the assets footprint this year and you've had some sort of extraordinary items run through with the plant closures. Is you-- like just keeping the CapEx growth, CapEx kind of out of the picture on your base infrastructure where you are right now, is it kind of where you want it to be or do you see further plant closures, that kind of thing that we should be aware of?

Not really because we do a very thorough analysis, especially a systematic analysis during the business plan and when we see what we have to do we do it and like. But at the same time we have to be realistic. Five years ago we didn't see that Marks in Mississippi was an issue, so there are always when you take the list of the 50, 60 oil processing facilities we have you always have the best and you always have the less best one and every year we look at some of them. I would not be surprised that over the next five years you would see one or two or three plants that we would shut down around the world. Now at the moment we clearly take the decision now for '08 or '09 we don't see it but it can happen and in Europe you have seen a little bit more aggressive moves because we had to redo our network in Spain with shutting down four plants and rebuild two new ones. We have redone it in Poland. Now we have redone it in Austria and also in Hungary and the plan for Hungary and for Bulgaria and Romania, this is it. We are building a new plant in [Buzou] and the ones we announced they are shut down, so there is no new, absolutely no new movement at the moment in that area.

Vincent Andrews, Morgan Stanley.

I missed Alberto's prepared remarks, so I apologize if some of this has already been addressed but can you-- what has to happen for commodity price volatility and supply dislocation to revert to normal levels during 2008? I guess from where we sit looking at the global acreage battle between corn, soybeans and wheat it seems likely to us that the status quo is going to persist.

That is our estimate as well.

But what would if you're thinking of a world when you're looking at your plan and you're thinking about what could happen, I mean how would corn-- I mean how would soybeans get back to $10 a bushel this year?

If they come back to $10 per bushel it is not, no problem. It's very attractive and what you-- what could happen is that we would have an outstanding yield in South America and a tremendous harvest and the harvest looks good but the ending stocks are still very low and you would still have to have a very strong U.S. crop as well and then the ending stock are still very low. So I would say there is always a risk, weather risk but that probably would mean even higher prices and there would be an issue about availability of--

Yes wouldn't one argue if you had an outstanding soybean crop you'd-- that acreage would then go back to corn next year and then soybeans would have to rally to fight to get that acreage back? Isn't that sort of what happened with corn this year in the U.S.?

I-- the relationship, the price relationship between soybeans and corn is favoring more the soybeans at the moment, so we are probably going to see-- it's early to say, but we probably will see that in the U.S. some there will be a little bit more planting than soybean this year than last year. But to your overall question, we don't see too much of a change in the environment of commodity prices. We do think they will stay high this year.

And then 2007 was obviously an unprecedented operating environment and your performance was clearly excellent but given that there was really no precedent for it and assuming a similar environment on a go forward basis, are there things that you would do differently or that you think you could do better now that you have some experience in this environment under your belt?

Oh this is a tough question. I am never happy. I would like to redo many things, do it differently but-- and we try to do it all the time and I do feel, Vincent, that we are better prepared this year than we were last year. I am very pleased with the way we manage the working capital and I give a lot of credit to the commercial team, the finance team and everybody worked very hard together to reduce our cash cycle from 53 to 42. It's quite something. I am very happy with that. At the same time our returns are higher, so that was a very positive one. What worries me obviously is the higher costs. There is inflation. The weaker dollar, it affects us and I would have preferred to have this year also the same type of contract we had on sulfur but we don't have it. But overall every year I think we are a little bit better prepared but also the environment changes.

Yes I think-- I mean just very macro is that we've got the last year was maybe the first full year under our belt with the expanded asset infrastructure and footprint and then really starting to focus on the whole value chain, so one can say that you start to build on the experience from that, so I think those are things we would expect to be able to continue to do well as we've gotten that experience in seeing what we can do with it. But, as we've highlighted a number of times, we do have things that we're cautious about while all the rest of that is very positive.

Yes I assume you have operating scenarios in your plan where the overall environment improved substantially and you were therefore, you know if soybeans for example were to go to $15 or $16 and the environment would change like that, you know exactly what you want to do in that environment?

We do it but this is-- we probably plan much more for the down side so that we are well prepared. If the up side happens, we are open for the up side but we focus much more on the risk side on the problems that could happen, so we-- I think we were well positioned to take advantage of the up side in '07.

Yes and this whole thing with asset efficiency plays into that too because you want to, if you do a good job with that then you can set yourself up to be-- to have the capacity to be able to take advantage of those opportunities as they present themselves, but from a planning standpoint even when we run scenarios, as we have said, if somewhere between 11 and 15 out of the 15 things went right you're not going to run too many scenarios that assume that they all go right. You're going to run more that include a mixture of things but if we do a good job with all the rest of it, then we set ourselves up to be able to take advantages of things if they do all go right.

It was 11 the number for 2007?

I think that's Alberto's number.

Pablo Zuanic with JPMorgan.

I just want to make sure I understood a comment that was made on guidance. You're saying that the fertilizers segment operating profit in absolute terms is going to be lower or did you say that as a percentage of segment operated profit is going to be lower?

We feel that the-- when you compare to '07 fertilizer should be a little bit lower.

In dollars.

Food products should be much higher, although on a small base, and agribusiness more or less flat.

Now just to understand that, I mean do you under it's in dollars. If I think of three variables, you know volumes, absolute dollar prices and cost, clearly you're guiding for volume growth. We all see what's been happening with prices, which obviously are going to be up significantly year-on-year, so it's a cost side but it just seems to me when we try to think about that in terms of the margins you are projecting, which obviously will be lower year-on-year. If I break out a business within the local component and the imported component the pressure has to be in the local component, right, because the imported component is more of a if you can call it a wholesale trading business with relative to stable margins. Is that a fair analysis?

I think we will see both the domestic and the also the imported one slightly smaller margins and obviously end margins and industrial and SG&A expenses will be also higher.

Okay and just to be clear regarding sulfur, I understand that the contracts are set every six months so, for example, your next contract for sulfur would be set in April so what we've seen pretty much in the December quarter in terms of cost we should see in the March quarter. And then when you're setting the price in April for the next six months how quickly does that kick in? So if I am looking at prices, you know spot prices for sulfur in April that's pretty much your cost for the next six months or is there a lag in terms of how quickly that sets in?

There is not much of a lag but you remember that when you look at our business in fertilizer the first half is something like one third and the second half is two thirds, so it will be a very critical negotiation, the April one.

Right and just a couple of more questions, I mean structurally the fact that you have this joint venture with-- the OCB joint venture in Morocco and the fact that you're expanding your local mine, isn't that structurally going to help margins? And related to that if you can briefly comment why margins in your fertilizer business are so much lower than what we see for other fertilizer companies? What is it structurally or the set up of your business that would justify Bunge's margins being so much lower?

I think the big difference is we have a relatively large retail business and the retail business, which is a lot of volume and smaller margins, makes the average look lower, so on the nutrient sides we are probably comparable and perhaps we are slightly advantaged because of the location where we are and but the retail business we-- when we sell the NPK some of, a good portion of that is imported, so that is why the overall average of our fertilizer margin looks smaller.

Right and just a structural question, did the joint venture in Morocco and the expansion in the local mines, isn't that structurally going to help margins or it's not about that, it's just about having more fertilizers available?

It's more fertilizers available. We will have an advantage on participating on that infrastructure but we don't benefit from the ownership of the mines. The mines continue to be owned by OCP.

Okay and just a couple of follow-ups if I may, when you look at your fertilizer volumes in 2007 would you say that you actually gained share and if you gained share how does that compare to the rest of the market and why did you gain share if supposedly you're being more cautious on the credit front?

We probably lost a little bit of market share. We were more careful on the credit side.

And one very last one, I know you don't break down within that of your business your earnings from oil seed crushing and agricultural services. I mean Archer Daniels does that but you guys don't do that. But when I look at the year-on-year earnings growth in 2007 roughly did not 80% come from the agricultural services side and 10% from the crushing side? I mean any color there would help to understand the growth that we saw in that business in '07.

As Jackie was saying, it is we look at the business in a value chain. You have the origination of logistics. You have the processing, then you have the distribution. We don't see it as meaningful to separate the chain, so for us it is very important to look at it one and it moves around. We indicated that the distribution and the grain origination performed quite well and the middle piece, the processing part, was better than in '06 but not significantly so the crushing margins were good. So it is very difficult to-- we don't see it as meaningful of separating. We don't do it exactly like that internally, so we also don't do it externally.

Thanks, Alberto, and one last one if I may, just trying to understand this issue on the dislocation argument. I mean the example that you gave about Spain, which obviously is anecdotal, I am just trying to understand. Is it that Spain actually imported more than normal or is it that you have people on the ground and you have the connections now, that infrastructure that you didn't have before that allows you to benefit from that? So I am just trying to understand how much is it of which?

Yes we are the largest player in selling soybean meal to the livestock industry and their traditional suppliers of the grain were unable to get it. Smaller players, local ones, and they did not have the infrastructure that we have to bring it in either from South America or from North America, so we knew we were very close to the customers and we saw their need so we were able to jump in and immediately deliver that so I think--

Why were the guys not able to supply that? What was the problem for them?

They don't have the same global network of origination. They don't have the port infrastructure. They don't have the logistics so in that one year they didn't have the origination of that grain.

And there is no reason to think that that will change right?

Normally you keep these kind of customers but over the time if the markets get completely normal you get again some competition from the smaller players.

Thank you. That's very helpful.

And our last question will be a follow-up question and that question will come from David Driscoll.

Alberto, there has been a lot of debate about what's the sustainable price, long-term sustainable price for crops. Certainly the large cap foods, the branded food manufacturers, they frankly outlined a view that there's just long-term inflation in the crops. Do you share that opinion or do you hold to a thesis of mean reversion with crop prices eventually going back to where they came from? What's your thought process? Any color here would be helpful.

We believe that the prices changed structurally to a higher level and the main reason is the higher energy prices. The energy component in crops are very relevant. It's transportation as crop chemicals, as fertilizer transportation, so there is a stronger correlation nowadays between the energy prices and food, so we have done long, very thorough analysis, especially on the sugar and ethanol component and you see that the kind of Greenfield investments you have to do in that business. It is at the higher level that it used to be and especially because the global trade has increased and the prices have to be determined on the lower cost operators and the lower cost regions but this has, as you see more and more expansions of coming from both soybeans, corn and also sugar from let's say the case of Brazil, it's in the interior. There's a longer transportation to the ports, so the prices have to be higher.

Then just kind of marrying on to this discussion, when you look at or think about acreage expansion in Brazil in the coming one or two or three years you've argued for a long time that the available acreage there was absolutely tremendous. Given just where prices are as of yesterday for corn, soy and wheat etcetera, would it not stand to reason that that new acreage even with a higher transportation costs to the coast would still be something that would put pressure on prices over the long term?

Yes probably. They probably would not stay where they are now. They would come down but not to the mean, to the 50 years mean that everybody is talking about like the $0.09 sugar, the five fifty soybeans. I don't think we will see that coming back but what you are seeing more instead of opening new areas in Brazil, what you are seeing is conversion of pasture. You see more and more conversion of pasture to agricultural and not so far in the interior to avoid the logistics' expenses.

Super. Thanks a lot for the comments.

Well thank you everyone for joining our call. We'll see you next quarter.

That does conclude our teleconference for today. We'd like to thank you. Thank you for your participation and have a wonderful day.