Bunge Global SA (BG) 2011 Q4 法說會逐字稿

Welcome to the Q4 2011 Bunge Limited earnings conference call. My name is Monica, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mark Haden. Mr. Haden, you may begin.

Thank you, Monica, and thank you everyone for joining this morning. Welcome to Bunge Limited's fourth quarter 2011 conference call. Before we get started, I want to inform you that we have prepared a slide presentation to accompany our discussion. It can be found in the investor section of our website, www.Bunge.com under Investor Relations. Reconciliations of non-GAAP measures disclosed verbally on this conference call to the directly comparable GAAP financial measure are posted on our website in the investor section.

I would like to direct you to slide 2, and remind you that today's presentation includes forward-looking statements that reflect Bunge's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in it's reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and encourages you to review these factors. Participating on the call this morning are Alberto Weisser, Bunge's Chairman and Chief Executive Officer, Andrew Burke, Bunge's Chief Financial Officer. I will now turn the call to Alberto, and he will begin with slide 3.

Good morning, everyone. In 2011, Bunge produced strong results in Agribusiness, edible oils and milling, with a record full-year combined EBIT of over $1.1 billion. However, results in our Sugar and Bioenergy segment were negatively impacted by back-to-back years of poor weather in Brazil that materially reduced cane volumes, and hence our results. In Fertilizer, we made progress transitioning our Brazilian business to a standalone blending distribution business, but volumes are still behind our targets. We reorganized the team and structure of the business, improved risk management and filled gaps in our facility footprint, but are still working on finding the right balance between volume growth and acceptable risk. We expect to get it right in 2012.

Slide 4. In 2011, we made important investments in new businesses and regions, and took steps to strengthen our core operations. These actions helped position us well for the future. During the year, we entered into joint ventures in palm in Indonesia, Agribusiness in business in south Africa, corn wet milling in Argentina, oilseed processing in Paraguay, and opened grain handling facilities in Mexico. Slide 5. In our core businesses, we announced the acquisition of food operations in India and Brazil, acquired margarine business in US, acquired a new port terminal and grain handling facility in Ukraine, acquired new grain handling facilities in the US, and expanded sugarcane planting and cogeneration in Brazil.

Slide 6. Looking forward, we see some challenges, but also see very positive signs for 2012, and expect to achieve good results. I feel very good about where we are at Bunge. We have the strongest balance sheet in decades, a superb team, strong network, and strong market positions, and an ever-growing geographic footprint. This gives me the confidence we will continue growing and performing well. I will turn over the call to Drew, who will discuss our fourth quarter financial results and 2012 outlook.

Thank you, Alberto, and good morning. Let's turn to page 7 in the earning highlights. For the full-year, Bunge had diluted earnings per share, excluding certain gains and charges, of $5.80, versus $4.13 in the prior year. Our segment EBIT was $1.154 billion versus $3.228 billion in the prior year. The prior year included a gain of $2.4 billion on the sale of our Fertilizer nutrient business. After adjusting for this [short] gain, our year-over-year EBIT demonstrated strong growth, driven by our Agribusiness, and Food and Ingredient businesses.

Turning to the fourth quarter, total segment EBIT was $273 million versus $381 million in 2010. The fourth quarter 2010 performance was exceptional. It was driven by our grain merchandising business, which utilized it's global network in origination capabilities to supply all alternative sources of product necessitated by the drought in the Black Sea. Fourth quarter 2011 volumes of 39 million tons were significantly higher than the prior year, and were driven by new investments coming online in our grains and oilseed businesses, and higher merchandising volumes in the Black Sea region.

Agribusiness EBIT in the quarter was $203 million versus $377 million in the prior year. The decline was primarily due to the reduction in grain merchandising profits. Oilseed processing results were better than the prior year, as higher results in Asia, Europe and South America more than offset weaker results in the United States. Sugar and Bioenergy results were a profit of $3 million, versus a loss of $56 million in the prior year. Our industrial business performed better than prior year, on increased volumes and prices. While higher than 2010, milling volumes were negatively impacted by current and prior year weather problems. Our 2011 planting program was completed in the quarter, and should allow us to produce significantly higher volumes next year. Merchandising results were slightly lower in 2010.

Food and Ingredients profits increased from $59 million in 2010 to $70 million in 2011. This increase was driven by our corn and rice milling businesses in North America. Edible oil results were in line with the prior year. Results in Europe improved considerably when compared to second and third quarters of 2011, as both prices and volumes were higher. Fertilizer had a loss of $3 million in the quarter, compared with a profit of $1 million in the prior year. Market conditions were more challenging in the quarter, as margins contracted. Net income for the quarter is $254 million, versus $301 million in the prior year. For the full year, net income was $942 million versus $2.354 billion in the prior year. The prior year amount includes $1.9 billion related to the profit on the sale of the Fertilizer Nutrients business.

Turning to page 8 in the balance sheet, our financial condition continues to be very strong. Our balance sheet continues to strengthen, and we have significant liquidity available. Our working capital usage has declined approximately $1.5 billion, primarily due to lower inventories, resulting from lower commodity prices and inventory levels. Our total debt has decreased $800 million to $4.1 billion. At year-end, we had $3 billion of available and unused credit lines. Turning to page 9, and the cash flow statement, cash provided by operations was $2.6 billion in 2011. Funds from operation was $1.373 billion, primarily consisting of net income of $942 million, plus depreciation, depletion and amortization of $526 million. Changes in operating assets and liabilities provided $1.241 billion, as a result of our lower working capital usage. Cash provided by operations was primarily used for capital expenditures of $1.125 billion, and debt reduction of $800 million.

Let's turn to page 10, and the outlook for 2012. We expect another good year in 2012, but with some challenges. Agribusiness and Food and Ingredients should again be solid. Sugar should make a significant step forward, as our planting program allows us to operate at a much higher level, and begin to reach our earnings potential. Fertilizer remains on track, and should show significant improvement as we move through the year. Turning to the chart, in Agribusiness, our grain merchandising business should continue to grow, as we expect strong plantings, large crops and increased global trade. Our new investments in export terminals in the Ukraine and in Longview, Washington, will be fully on-stream and add to our volumes. Oil seed processing has a mixed outlook. In the near term, European rapeseed and US soy crushing are facing challenges, but they should see some improvement with the next harvest. On the other hand, margin remains strong in Europe for sunseeds, and Canadian canola processing margins are also performing well. South American margins should strengthen with the new crop. Asian demand remains strong, but conditions continue to be volatile -- the margins continue to be volatile.

Turning to page 11, we expect to see improvement in our Sugar and Bioenergy business. Our 2011 planting program should allow us to crush 17 million to 19 million tons next year, versus 14 million tons this year. While that is still short of our capacity of 21 million tons, it represents a significant increase from this year in a business with a large fixed cost base. We expect demand for our products to remain robust in 2012. As a reminder, the Sugar business profitability is heavily weighted toward the second half of the year, due to the crop cycle. Food and Ingredients should other solid year in 2012. Our growth rate will be enhanced by the results of our acquisition of the North American margarine business, and our Brazilian tomato business in 2011, and an Indian edible oils acquisition we expect to close shortly. We expect our Fertilizer business to make significant improvement in 2012, as the actions taken in 2011 take hold. We should continue to see reduced costs, and we expect increased volumes as we move through the year. This business is also weighted toward the second half of the year, reflecting farmer buying patterns.

In conclusion, we look forward to 2012. While the macroeconomic situation is uncertain, there are reasons to expect a degree of resilience in our business, due to the nature of our products. Our businesses are well-positioned. Our Agribusiness and Food and Ingredients divisions have consistently performed well in a variety of market conditions, and will have their growth accelerated by the new investments and acquisitions. Sugar and Bioenergy should have enough cane available to begin to show their earnings potential. While we expect a significantly better year in 2012, we will not reach our full potential in 2013, when we should have enough cane available to crush at full capacity. Fertilizers should hit our targets in 2012. Thank you. And we are now ready to take your questions.

Thank you.

(Operator Instructions).

Our first question comes from Christina McGlone of Deutsche Bank. Please go ahead.

Good morning.

Good morning, Christina.

I guess first question is, Drew, when you were talking about the outlook and you said the US and European rapeseed margin should get better with crops. I guess it will get better, but they are still below normal. Right? Is -- there is still over capacity there? And maybe Alberto, if you can talk about crush margins just around the world, and what we are looking at in terms of utilization?

Why don't I start with the crush margins, and, obviously, they were under pressure in the US in the fourth quarter. But more recently, they have improved, because one of the reasons is that it's clearer that the South American crop will not be as large as originally thought, because of the drought, and that is shifting some business back to the US. And I think there has been some more rational behavior in the industry. Rapeseed is too early to say, but in Europe, as the crop -- we expect it to be better, when the crop comes in to harvest. And around the world, sunseed crush margins are very good. In China, they are volatile, but they are okay. And in South America the margins are -- at the moment -- lower because it's -- the harvest is starting soon. But they should improve. So overall, I would say that the margins are slightly below a normal level. And they are weaker in the US, but improving.

Okay. That's helpful. In terms of the South American crop coming in short, both corn and soybeans, what does that mean for Bunge?

It is -- you probably have seen today the USDA report. It's the first estimate -- it's a little bit early, because February is an important month. We only will know it, by the end of February. But overall, I would say, it does not -- it has no negative impact. It might be slightly positive, because it gives us ample supply in South America. But it also gives us the opportunity to start earlier in the northern hemisphere. So the change, the drought, probably doesn't affect prices, but has a better dynamic in terms of margins.

Okay. Great. Thank you. And then last question, Drew, in terms of the pattern for 2012, so seasonally, fertilizer, sugar, second half weighted. In terms of agribusiness, how do we think about the weighting throughout the year there?

I think it's going to be a little bit more second half weighted, than we would normally expect. Mainly, because the carryforward from the US crop last year is not as strong as historically, as the profit opportunity is in the first half of the year. And we expect much more normal fourth quarter in our US businesses. So I think you should look at agri-business a little more second half oriented than usual.

Okay. Thank you.

Our next question comes from Robert Moskow of Credit Suisse. Please go ahead.

Thank you.

Hi, Rob.

Hi. I didn't hear any commentary about risk management in the quarter. And I was just watching the behavior of your -- one of your closest peers, Cargill, seemed to have a very weak quarter. And said, it had a lot to do with the trading environment working against them. Did you make an effort here to kind of take risk off the table, and did that help your results, maybe versus some of your peers?

You might remember in the earnings call of the third quarter is when we said, we did take at that time, already off. And we continued to be very, very conservative through the whole fourth quarter. And so that is also, because the market -- the whole market was much more difficult. And all of the players were more risk averse, so farmers slow in selling, and customers slow in buying. So we were very, very cautious in the fourth quarter.

Okay. And as you looked to 2012, and I know agribusiness is tough to forecast, I imagine there is no change to that attitude towards risk. The way I would look at it is, that means there is probably fewer opportunities for upside on the margins for agribusiness. Does that mean that we should be expecting kind of a tougher comparison year-over-year for agribusiness in general?

It's difficult to say. We obviously see the challenges with a global macroeconomics situation, and everybody more cautious in every sector. So originally, we thought that agribusiness should in 2012, should be higher than '11 because of all of the investments. So when we say, we see the challenge, we are realistic, it could be as '11, more or less.

Okay. I got you. And lastly, I'm trying to forecast edible oils and milling. It sounds like there were several acquisitions in edible oils, if I got that correct, because of tomatoes and margarine. Can you give me a sense what that means to the volume in that segment of the business? And is it material enough to really boost your forecast year-over-year in that segment?

I don't have the volumes here now. Do you have them, Drew?

No. I know, Rob, let me come at it in a different way. I would think we spent between $200 million and $300 million on those acquisitions in total. So if you start to think about it that way, and what a return would be, you could get somewhat of an estimate where we'll be. We will have the first two for the full year. And as I've said in my comments, the third is expected to close shortly. We've already announced the Indian acquisition, and should close it soon. So I'd rather give you kind of a hint in that direction, versus trying to give you a volume projection.

Sure. And those are all in edible oils?

We believe right now, they will all be reported in the edible oils.

Yes.

Thank you very much.

Thank you.

Our next question comes from Diane Geissler of CLSA. Please go ahead.

Good morning.

Good morning, Diane.

So Drew, I wanted to talk to you about this -- your comments on the sugar business. And you had said, I think, that 2012, you expected it to be below -- kind of optimal rates, because the crush would be below your capacity. Can you just -- given where ethanol prices have gone, sugar, the cogen, what is your total expected on a metric ton basis, when you get to full capacity? And then I guess, as you think about 2012, I think you have done some replantings in 2011, how much benefit will that be on the year-over-year profit change?

Thank you for the question. I think it was about eight questions. (Laughter).

Yes, sorry.

I'm trying to sort through it here. I mean, we still feel very favorable for the outlook on the sugar business. I think before we said, at pretty high rates of production, we would be at $8.00 to $10.00 EBIT per ton. Certainly, we said this year will be 17 to 19 million, and those rates of production are high enough to be there. Obviously, embedded in any number we give you like that, is just not the volume we crush, but it also has to do where pricing is in the markets, at any one point in time. So there is a number of variables, but directionally we feel it's still right for '12 and actually beyond. The projection of 17 to 19 million tons is based on the plantings we have done. It's too -- still too early to make a specific call on that crop.

That will probably be sometime in the April time period, where we start to get an idea -- a clear idea of the size of the crop. So that will become the case. And limitation on our ability to use our 21 million tons of capacity is the crop size, so that's why we are below. It's not commercial or operational reasons. It's just how much crop we have available to crush. We have in other significant planting program for scheduled for 2012, and that should put us in a position to be able to crush at full capacity in 2013.

Okay. So if we take a midpoint of both of those ranges for this year, that suggests EBIT of $160 million. Is that what you have in your plan for 2012?

We don't give guidance.

But you can even run at those very high EBIT levels --

Yes, yes.

-- even if you are not at the 21 million --

Yes.

-- metric ton range. Even if you're just in 17 to 19, you can still see that level of profitability, given the current --

Yes.

-- (inaudible) environment.

Yes, we can. Yes.

Okay. All right. Terrific. Thank you.

Our next question comes from David Driscoll of Citi Investment Research. Please go ahead.

Great. Thank you. Good morning.

Good morning, Dave.

I would like to just go back to agribusiness for a minute. So first, Alberto, I believe what you said in response to one of the questions, that you think more or less the entire agribusiness segment is roughly flat, in terms of profitability year-over-year, 2012 versus '11. Did I get that correct?

It's obviously, very early to say. We should, based our investments, continue to be growing in '12 versus '11. But we were realistic that there might be, continue to be some margin pressure. So we expected perhaps to be more in line with '11.

Okay. And so my kind of comments on there is that we have seen US cash crushing margins pick up. And it looks like, kind of the -- the oligopoly structure in the United States is working, I think reasonably favorably, relative to the overcapacity that is there, that we see in capacity utilization rates. So I just want to -- kind of maybe push a little bit on this one, and just say why wouldn't you think that in aggregate, profitability in agribusiness wouldn't be directionally better? Because it is clear, that you do have stronger volumes that will come through. You mentioned grain merchandising capacity increases, and with cash crush margin increases in the United States, and a good South American margin environment, I guess I'm not -- I'm not pulling it all together, in terms of why you wouldn't be a little bit more confident, that you would see directional improvement in profits within the business segment?

Look, Dave, it could -- it could very well be. But obviously, we are seeing the end of the northern hemisphere crop, and the margins are under pressure in North America. So that is exactly what we see now. And we saw it in the fourth quarter, so we have to deal with that. That's the current challenge. But we see there is -- the picture is constructive as positive, the demand is there. The USDA estimated the soybean meal demand 4%, and soybean oil, oil in general 4%. The crop in South America is good, and the way it's structured, it will also help the northern hemisphere. So that picture is constructive, but it is very early in the year. And you are right, at the moment the margins have improved in the last couple of weeks. You see it on the CBLT board crush. So -- but it's early. We have to be realistic, there are challenges, and the global macroeconomic pictures with the sovereign debt, so we have to be careful.

That sovereign debt point, is one I want to pick up the thread on. In the last quarter, you of course, talked about a risk-off because of the difficulties from the -- perturbations in the sovereign debt markets, which then crept into your markets, in the agricultural markets. If we presume that those types of disturbances don't happen, or happen to a much lesser extent in 2012, isn't that also just a fundamental positive for agribusiness?

Yes, it is. It is, and we should see much more normal buying and selling of farmers and customers, and that should normalize. I think, you are right.

Okay. Two more questions for me, and I will pass it along. I want to do a big picture question. You talk a lot about return on invested capital. Obviously, we are -- the Company is not returning adequate returns, versus it's expected return on invested capital --sorry, versus it's expected weighted average cost to capital. What I want to get a sense from you is, when you think about getting back to -- and I put these numbers, I put normalized number between $8.00 and $9.00 a share. When you think about that kind of an area, what kind of time frame, given the growth inherent to these markets, would you put at directionally to get to -- to get back to some kind of appropriate returns? Is it a two year time frame? A five year time frame? I think people really need to hear some commentary regarding this, because the very significant increases in total invested capital over the last five years, have gone largely unnoticed when you look at earnings per share. So there is a lot of folks out there, Alberto, that just don't understand this, and what the leverage of this Company is. It's a long question, but perhaps you can provide thoughts.

No, I understand. It's relatively easy to answer, because it is very much related to sugar bioenergy and fertilizer. When you look at the investments we have done in sugar and bioenergy, which is around $2.5 billion, and the returns are not there yet. So -- but we know exactly why they are not there, and we believe they will be there as we ramp up the sugar cane production. So if we do the 17 to 19 million tons of sugar cane processing, the $8.00 to $10.00 per ton in EBIT, we are closer. So we probably should be at cost of capital, in the sugar and bioenergy business as we mentioned in the past, in year '14, '15. And we probably should be this year or next year in fertilizer, hopefully in this year we should be, agribusiness and food and ingredients and fertilizer would be above cost of capital. And we are just ramping up sugar and bioenergy.

You have to remember, when you build a new business, greenfields, brownfields --at the moment we have the highest amount of investment. So the denominator is at the highest value, highest amount. And the numerator is also affected, because the appreciation is the highest. As these business become seasoned more, it will get -- very soon it will be very close to cost of capital. That is always the problem when you build new businesses. And but, we say it very clearly, we believe in it, the returns, all the time. We analyze it, I -- exactly, as we expect it, perhaps long-term, even better. Because when we got into this business, we didn't think about cogeneration, which is an additional interesting income stream. So we are very confident that we will get there. We are a little bit unlucky in sugar and bioenergy, that we had this major problem in 2010 of drought and fires and affected the cane field. But we had heavy investment in planting in 2010, and another heavy one in 2011. We exceeded our plans. And with all of the plantings, we have in -- planned for 2012, we should be there in 2013.

So if I bring it all together, then it sounds like the agribusiness segment is -- in 2012, it's flat, perhaps directionally higher pursuant to the factors we just discussed. Sugar and fertilizer, clearly improving. And food ingredients, just been a nice solid business, continues to be so. So the net-net, you didn't flat out say this in the press release, but net-net, earnings are up in 2012, over 2011, no ambiguity on that. Would you agree?

I like your analysis, Dave.

I like it, too. Let me pass it along.

Thank you.

Our next question comes from Lindsey Druckerman of Goldman Sachs. Please go ahead.

Thanks. Good morning, everyone.

Good morning.

Could you talk a little bit about the volumes in agribusiness in the quarter? They were larger than what we were expecting. Just wanted some clarification, on why you had such strong volume?

Sure. I think it came from several places. First, we've made significant investment in the US grains business. Both in terms of interior grain handling facilities, and in terms of the port on the west coast. While the port has not started shipping, and which it will do shortly, we have been originating volumes for that program. We had the origination volumes in the new businesses, we had the volumes moving out to the port. So we had good growth in volumes in North America. We also have a much bigger crop in the Black Sea, so we have origination opportunities there. And we brought on new oil seed crushing capacity during the year. So it was kind of all three of those things, coming into the fourth quarter, and producing the type of strong volume growth you have seen.

Is that something we should -- until the next slug of investments come online, is that a good run rate to use in terms of volumes for the business going forward?

We always hesitate to give run rates, because it's heavily dependent on crop sizes and other factors, other than our underlying business. The one thing I would say, is in the current year we don't have the [P&W] export volumes, and they will fully come in next year.

You mean in '12.

In '12, they will fully come in. And that will add -- it's about 8 million tons total, and we are 50% owners, so we get benefit of 4 million tons there. In the Nikolai port did not operate with us for the full year and further, so we will get another 1 million tons there. And a number of the other facilities I mentioned, only came on later in the year. So there is still some inherent growth out of those investments. I don't think you can assume it will be flat, until you hear other investments announced. You will get the full year impact of many of these things coming on. But again, be-- just caution that other things affect our volumes other than our capacity.

Also, we continue believing that we will be growing at 5% to 7% on volume on average.

Would 2012 be a larger volume year given some of your investments than your average?

We believe so.

Great. Then I just wanted to clarify on the sugar business. You talk about this $8 to $10 a ton profit number. What would you think that profit number could be, when you are fully loaded with cogen and all of the other investments you intend to put in place layered on?

Well, it has to be above -- because think about we have to cover our returns. So if you have invested $2.5 billion. And we will do some -- as we are doing at the moment, expanding -- we are expanding -- we were doing expansion in planting, but also in cogeneration. So there will be some more operational assets -- and it will have to return -- at the end it will have to be 10, 2% points above cost of capital, so more or less around 10. So it gives you an idea where EBIT per ton will be. The traditional number of $10 per ton came -- it's an older number from 5 to 10 years ago, which was at the time when sugar was also priced at $0.10 per pound. With the environment we have today, and sugar has to be priced at $0.20 per pound for the Brazilian farmers to expand, so the numbers should be above 10. We will see how it evolves with cogeneration, and with ethanol, and with sugar. We don't want to exactly say yet, what our expectation is. But it will be above these numbers.

Okay. And then lastly, if you can just shed some light on what you are seeing in the US biodiesel market, now that we have gone through the credit expiration.

I think, in the biodiesel market there is a downturn in the first part of the year, that as people ramped up production in the last part of the year to take advantage of the credit. So we see a short-term shift down, but longer term the mandates are in place. And we think it will come back to normal volumes and follow the mandates.

So are you essentially seeing people cashing on the [RINs] that they accumulated in prior -- specifically last year, and ultimately the expectation is that you will cash in on those? And then in 2013, we will be back to RFS levels?

Yes, I think -- we think you are going to move back to the mandate levels, as everything clears through the system.

Okay. Thank you.

Thank you.

Our next question comes from Christine McCracken of Cleveland Research.

Good morning.

Good morning, Christine.

Alberto, I think -- you said that it's a little too early to tell how large next year's sugar crop might be, but you've put in -- replanted a lot of cane. Your competitors, I think, are doing the same. Wouldn't you expect to see a pretty sizable improvement, just on productivity gains alone for next year?

When you talk about us, yes. We have exceeded even our target. And now the whole industry has not invested as much, so not every player in the industry has invested as much as we have, on even on the relative term. So it is -- there will be an increase in yield and productivity. But it is not going to be all what is necessary to cover the -- all of the demand that is out there.

All right. From the drought, that we have seen here for a few years now, how much of a hangover impact then, are you expecting on next year's cane still -- maybe the overall cane crop? And is it fair to say, that the sugar that you replanted may be more drought resistant, and therefore perform better, even if there were ongoing issues for next year?

I would say that, we are always going to have some weather issues. And that's why the target is to have a little bit more than what we really need. And we have seen -- many of you have mentioned it, there are some competitors who have performed better exactly, because they have a little bit excess capacity, and that is also our target. So we always have to consider there would be weather issues. What was different was in 2010, where it was so drastic, so tough, that there were even the fires. So that one affected everybody in the stronger way. So what we expect is, that in 2013, we will be in a position where even if there are weather issues, we should be able to producing close or at capacity.

Great. And then one last question. Can you remind us how much of your cane, you actually produced yourself, and how much is coming from third-parties?

It is, I think at the moment 60% is -- we produced, and 40% is from third parties.

All right. Thank you.

Our next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Thanks. Thanks very much. Just a couple of questions. Maybe, Drew, on the tax rate, it came in I think below what you had sort of been talking about for the third quarter. And then your guidance for next year, it's come in lower as well. So my guess is that it's just a shift in geographically, where you think you will make your money. But could you give us a sense of what that shift is, and what's causing it, and where the surprise is coming from?

Thank you for the question, Vincent. I think you summarized it pretty well. In the current year, the drop in the tax rate towards the end, is because our pre-tax income was lower in certain of the higher tax jurisdictions than we expected. And in our capital structuring, that we said we improved about a year or two ago, is providing a little bit better results than we expected. So that is why you see the drop this year, and the drop in what we are seeing next year, we think that program is going to work out a little bit better. The increase from this year to next year, is really driven by the improvement we expect to see in our sugar and our fertilizer business, as Brazil is a pretty high tax rate jurisdiction for us.

Okay. Can I ask you, on the comments you made in fertilizer, was that the conditions are going to be challenging, I guess to start things off, or that's what's in the press release. My guess is that's a function of some of the price movement at the end of the fourth quarter. So you're -- it's less that you need to take an inventory writedown, and more just that you are going to have to move some higher cost inventory through the system? Is that the right way to think about it?

For the first quarter of next year, that is -- no, for the first quarter of next year of -- (Multiple Speaker).

For '12, for this year.

For '12. Sorry.

Okay.

Sorry, for confusion on the year. For the first quarter of '12, that is correct. We are talking about pressure on margins in the first part of the year. Or maybe not even first half of the year, but maybe first quarter, but not at the level where we expect to see any writedowns in 2012.

Okay. And when you first started getting big in the sugar business, I kind of remember there being a conversation around ultimately changing the mix of owned-plantation versus third party purchasing. And then, of course, the last couple of years, from a share crop perspective have been, unique to say the least. So is that still -- can you remind us of what your thought process is, and what you want your mix of owned versus third party to be?

Our target is to get to 70/30, and we should probably be able to reach it in 2012.

Okay. And then my last question is just on -- it goes back to the sort of commentary around your return profile, which I agree it's very important. And my question is, is you sold the wholesale fertilizer business several years ago. And you got -- I can't remember the exact amount of proceeds -- but if memory serves me correct, you have not completely reinvested in those proceeds into new assets. If I recall some of those proceeds went into working capital during a period of rising commodity prices. So first, is that recollection correct? And second, do you envision being able to take some of that working capital and reinvest it into harder assets? Because part of my sense is that your return profile, is not only hindered by the sugar not performing the way that it's capable of, but also because you have a little bit of a return drag from the higher working capital.

I would perhaps characterize it a little bit different. We mentioned that we have now the strongest balance sheet we have had in decades. So you could say we could leverage up and have a higher return. But this is not that easy because we have very clear rules about hurdle rates and what kind of returns we want to achieve. And we have not been able to do, perhaps one other acquisition that we wanted, because of price expectations or it didn't meet our hurdle rate. We don't mind to be in this moment to be well-capitalized in a very difficult environment. So we could take advantage of opportunities that might arise.

But I will say your recollection is correct, that we used some of the money to invest in working capital. But as you saw as commodity price have come down, the money is coming back. So we are capitalized. We think we will be able -- with our capital structure to reach our target of being 2% points above cost of capital. Not this year, but perhaps next year or '14. But it also allows us the flexibility to take advantage of opportunities that might occur.

Okay. Thanks very much. I will pass it along.

Thank you.

Our next question comes from Ken Zaslow of BMO Capital Markets.

Good morning, everyone.

Good morning, Ken.

Just a couple of questions. One is can you talk about the change in the South American crop, and how that's going to affect your agribusiness business?

The drought that is occurring in the southern part of South America is going to reduce the crop expectation. You might have seen the first estimate from USDA this morning, and it will not have a negative impact. It's either neutral or positive for us, because the crop will be big enough that we have enough products to process and to merchandise. At the same time, it is not too big, that it doesn't affect the US crop. So you might remember that last year we had a tail of the southern hemisphere, and affected somewhat the northern hemisphere. So this should have slightly positive impact on the US or the northern hemisphere -- impact on profitability on margins for the processors and merchandisers.

And then, secondly, in terms of the sugar business, when you are doing your volume expectations, I guess over the course of the last little bit, you have -- keep on ratcheting it down. What is the risk that gets ratcheted down again? I mean, how confident are you in your forecast going forward?

Look, I think we are -- obviously, we are learning and we are getting more used to estimating these crops. And that's why we have this wide range of 17 to 19. Our target is 19, but it might be 17. What is -- has been really unique, was the problem in 2010. You might remember that the whole industry including the federation or the association, Unica, estimated the crop of for the centers south of Brazil, of 560 million tons, and it ended up coming in at 492 million.

So I think everybody underestimated how dramatic the impact of the drought and the fires were in 2010. Because it was not only an absolute acreage that was reduced, but it had also an impact on the yield of existing fields. But the reason we are confident -- more and more confident is that, the average, on average you will keep these sugarcanes growing for five years, and we are replenishing them. So we have now two major replantings and expansions, '10, '11, and we will have another one in '12. So obviously we will replanted to an amount that will be more than we need, so that we have enough reserve for these weather events. So I think we are becoming more and more confident. And so far the weather is, it's obviously very early, so far the weather has been benign for sugarcane plantations.

What about also in the sugar margin side. I mean, gain, kind of saying this as gently, but you have not got than margin that you have expected. And in forecasting it, to what extent is it like a theoretical exercise, versus the confirmation you will be able to get that 8% to 10%. I mean, again, what is your level of confidence? It just seems like a very abstract number, and want to make it 7% to 9%, why not, make it 9% to 11%. Like -- how do you come up with that number. It just doesn't -- it seems more abstract, than -- founded in numbers I guess.

No, ken, it is grounded in numbers. But -- which we model the business, using several different scenarios But that margin is also -- it is a dynamic margin, where prices matter, volumes matter, et cetera. So you have a number of factors going through there. And it may seem to you a wide range, but that's the range we are comfortable looking at. The other thing I would point out, is sugar is a heavy fixed cost business. So within a certain range, that those type of numbers hold up. You start getting below that range, you've got a big increment profit moving for the last ton, and it can move quickly. So one reason why our projections have not held to that is, when we producing down at 14 million tons with 21 million tons of capacity, that's an awful lot of fixed costs absorbed. If you are up at 17 million to 19 million, it's a much different level of fixed cost absorption that's having an impact. So that's why we've always said, be careful using that range, getting out of a reasonable production levels, because it will move quickly. It will also move quickly to the upside, by the way, if you get above the totals we are looking at. But if you get below it, it moves quickly also.

What type of return do you expect to have on the CapEx prior to your -- you actually laid out in the press release -- in the presentation.

We have -- our traditional hurdle rate, which is above significantly above cost of capital, 25% of our CapEx is -- doesn't bring any returns, because it's maintenance -- is sometimes it's regulatory issues. And obviously, you have to remember also, it is not immediately -- it's not immediate, because it takes sometimes three years, until all of these numbers to completely in. And we feel good at the moment, because many of the projects over the last couple of years are now coming up. It's the plant in Asia. It's the ports. So some of the sugar expansions. So we are now starting to see some the benefits of the investments over the last three years. But overall, you should expect something only after three years, of after we have invested it. That's why sometimes we prefer acquisitions, because they are immediate. But CapEx takes a little longer.

And my last question is, there is a lot going on in Canada, in terms of the Canadian Wheat Board going away. Is there a plan of action for you to take advantage of that? Is it an internal? Is it an external opportunity? How do you think about that?

I think we look at every options. You should remember that we are present in Canada. We have a large terminal in eastern Canada, 6 or 7 silos. We have already silo in western Canada. We are one of the largest, if not the largest originator of canola seeds. So we are -- we have a significant presence. There are 800 employees. So to expand this to doing more of grains is not a big issue. And we have shown in the past, that we can do this. We went from nothing into eastern Europe, and have done it relatively well. So at the same time, we will take a, as always a cautious approach. We will go step by step.

So do you think you will be able to capture some of the wheat -- I mean, is there --

I'm -- I'm --

-- are you able to quantify it. But I didn't realize that you capture the wheat -- accessing the wheat, and then being able to move it around. I didn't realize that. Is that going to be a sizable benefit or is that something that --

It's not something for '12, or -- it will not move the needle. But I think you will see us involved in that.

Great. Thank you very much.

Thank you, Ken.

Our next question comes from Christine Healy of Scotiabank. Please go ahead.

All right, thanks. First question, just on oil seed processing. You talked about how there has been some rationalization in the US soy bean industry. Can you just talk about what Bunge has done in this regard, and if there are any further plans over the next few months?

We feel good about what we have done. When you look at the last six years, we have rationalized our plans. We in effect have reduced our capacity by nearly 1.5 million tons over the last 5 or 6 years. And we have done, what we need to do. And have -- the plans are efficient, are the right place, are the right size. We have shut down plants, in total 4 plants, so we are done. We feel we have done, what we need to do.

Okay. And then on the agribusiness segment, your increase in volumes was in part of the Black Sea volumes, your new port there. So how concerned are you by this year's crop situation in Ukraine? And what impact you think this will have on Bunge.

It's very early to say. But it should be okay, Russia and Ukraine. There are some doubts like always, about whether there is going to be a winter kill or not. It was a little dry in Ukraine during planting season. But there might be -- it's early to say -- but there might be some reduction, but at the same time the Russian crop is supposed to be very large. It is early. We are not yet concerned.

Okay. Then one last question on the sugar segment. Just curious, should we expect more earnings to be weighted to the second half this year, than in normal year? I seen some reports the harvest could be delayed by a month or two. Is that your view?

I don't know if it's so much more than a normal year. There are always pretty strongly weighted to the second half. So maybe a little bit more, but not a lot. And we have not made all of the final decisions of when our plants are going to start up. We will do that as the crop develops, and as we plan out our capacity for the year, because you want to maximize the yields. So if people have the opportunity to delay, they are actually going to take it, because they will get better yields. But it depends on how much volume you need to process over the full year, as to when your start-up date is.

Okay. Thanks so much. Appreciate it.

Thank you.

Next question comes from Ryan Oksenhendler of B o A Merrill Lynch.

Good morning.

Good morning.

I wondering if you could talk about sugar and what happened in the quarter? Because I thought, Drew, you talked about last quarter on the conference call, that this quarter should be solidly profitable. And you had $29 million unrealized loss last quarter, that should have reversed or at least some of it this quarter? And so, I think, I was just a little disappointed in the results in the quarter. If you could just talk about what happened there?

One, I think it was a significant increase from the prior year. Our plants ran better, and we had gotten -- a small increase in volume, and quite a [bid]. I would say that we did sell less than we projected in the quarter, and are carrying a decent amount inventories over the 2012. So that had some impact. And again, it was just the crop size, and the lacking of volume in the fourth quarter.

And if I would summarize, one line. The volume came in lower than we expected. And as Drew was saying before -- it has -- and it was because of the high amount of fixed costs, it has a significant impact.

Okay. And then just follow-up on some of Ken's questions, in terms of forecasting. How many hectares do you source from, totally?

Well, it's --in 2012 -- 70% should be our own, what we are directly responsible for the planting, and 30% of the third party. I think the total amount is around 230,000 hectares.

So I -- just want to get sense -- I think 25 of that will -- so you replanted 50,000, and 25 was incremental. Is that correct?

We in fact exceeded our target. We planted much more than that. And what you should think about it is that on average, every year you have to replant 16% of your cane fields. And the ones you own, you own, or you directly are responsible for the planting. So everything above that is for expansion.

Okay. Because I was just trying to get a sense of forecasting it for next year. If you had around 200,000 hectares this year, you milled about 14 million metric tons, it would have been about 70 tons per acre -- or hectare, which is about in line with the industry. And I'm trying to get a sense, if I'm think being next year -- you've got, I don't know --

You are on the right direction. The only thing is much more complicated because, the first year plantings, the yield is closer to 100 tons per hectare. And the fields that are in the 50, are much, much lower. So we still have some older fields out there. And some of the planting you use for seedlings for next year. So what we do is we maximize the amount long-term. We might sacrifice perhaps, when we say 17 million to 19 million, that implies already, that we might use more cane that we planted, to use as seedlings, so that we reach in '13, we reach capacity that we need. So it's a little bit -- there are many things, there is yield, is how poor was the crop of the third and fourth and fifth year sugar cane. How much you use for seedlings, and how much is replanting. But that why we give you indication, that we think -- planting was better than we thought, but we were keeping our storm system for 17 to 19 million tons of sugar cane production than we would process.

Okay. I wanted to see if you were expecting -- the cane that you didn't replant, with the yields on that would be versus this year? Because last year was impacted by weather, but this year, the crop is a year older, even if you assume a normal weather pattern.

The yield should be up, because we took advantage of the ones that were problematic. We just replanted them. So we are being very aggressive. It's all about maximizing yields and getting to full capacity. So we are not, we are not being cheap here. We are looking at it very, very economically. So where we don't have the yields, we are replanting. Period.

Okay. And how many hectares do you plan to replant in 2012?

It's more or less the same. We planted around 62,000 last year, so it's probably more or less the same.

Okay. And then just the third party cane that you source from, do you know how many hectares of that were replanted this past year?

That I don't know. (Multiple Speakers).

If I'm understanding your question, Ryan, the 50,000 or so for Bunge, our third party planted -- replanted about 13 of that.

Oh, so that's included in the 50,000?

No, that's included in the 63 million (Multiple Speakers). -- the 63,000 Alberto referred to.

Okay. So that included third party cane. Got it. Okay. I thought that was just Bunge.

50 Bunge, 13 third party.

Got it. Okay. Thank you.

Thank you.

You have no further questions in queue. I will now turn the call back over to Mark Haden for any closing remarks.

I want to thank you again for joining the call. And we will talk to you soon.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.