Bunge Global SA (BG) 2013 Q2 法說會逐字稿

Welcome to the Q2 2013 Bunge earnings conference call. My name is Dawn, and I will be your operator for today's call. (operator instructions). 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, Dawn. And thank you everyone for joining us this morning. 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 investors section of our website at Bunge.com under investor presentations.

Reconciliations of non-GAAP measures disclosed verbally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the investors section.

I'd 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 its 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 Soren Schroder, Chief Executive Officer; and Drew Burke, Chief Financial Officer. I'll now turn the call over to Soren.

Thank you Mark, and good morning to everybody. The first half of the year came in generally as we expected, and we are anticipating a strong second half. In the second quarter, our Brazilian agribusiness operations generated strong results, executing record volumes under challenging logistical conditions. We navigated the choppy agri markets well but faced some challenging structural conditions in North America, Europe, and Argentina due to the continued effects of last year's poor oilseed and grain crops.

In sugar and bioenergy, we can clearly see the positive impacts of our improvement efforts in the industrial operations but also in global risk and trade flow management. And food and ingredients delivered a record first half of the year due to improved volumes, margins, service levels, and close work with customers on procurement strategies. Good demand and big northern hemisphere crops should drive robust commercial activity, asset utilization, and growth in global trade and agribusiness during the remainder of the year. Sugar and bioenergy will enter the peak milling season. And in food and ingredients, we expect continuous strong performance in both milling and edible oils as we launch new consumer and B2B edible oils products, and continue to improve the total supply chain efficiency.

We are optimistic about the long term, as well. Our markets, while competitive, are growing steadily. Bunge has a solid foundation. We are leader in key markets. We have an excellent team and a strong financial position. We are excited about the future, but it's also clear that success has to be defined by stronger financial performance and consistent value creation for shareholders. Growth has to be balanced with compelling returns. Our improvement plan for sugar and bioenergy is an essential part of elevating overall returns to above our cost of capital, but we can do more in other segments as well.

We are enhancing our global performance management system, which will facilitate a more granular management of business unit performance and intensify our continuous improvement on operational excellence efforts. We're also adjusting our capital management investment approach, reducing our 2013 CapEx by $200 million and commencing a review of 2014 plans. We are prioritizing projects with shorter paybacks, many of them aimed at improving productivity. And we're postponing some growth projects, which will allow us to improve capacity utilization of our existing asset base. We're reviewing 2014 in the same spirit. We will, however, still look to fill important gaps in our global network where opportunities are strategic and returns compelling. Again, our intent is to balance growth opportunities with a requirement of improving our returns. We look forward to sharing more details with you in the coming months.

Now I will turn the call over to Drew, who will provide greater detail on the quarter and outlook.

Thank you, Soren. Let's turn to page 3 in the earnings highlights. Total segment EBIT in the quarter was $239 million versus $404 million in the prior year. The prior year included certain gains of $121 million related to the sale of our interest in the Solae joint venture and to the acquisition of a controlling interest in a Mexican wheat mill, where we previously held a minority interest. On a year-to-date basis, our adjusted EBITDA, $499 million, was 3% higher than the prior year of $483 million. The improved result was driven by improvements in our sugar and bioenergy and our food and ingredients businesses.

Our agribusiness year-to-date performance is below prior year, mainly due to the impact of past weather events on our businesses in North America, Europe, and Argentina. Our Brazilian business has performed well. In the quarter, agribusiness adjusted EBIT was $170 million versus $301 million in the prior year. Brazil was the primary driver of results in the quarter. European results were negatively impacted by tight sunflower and rapeseed supplies and the follow-on impact of poor grain crops in the Black Sea. Similarly, North America was negatively impacted by tight grain and oilseed crops. Our sugar business recorded a loss of $3 million in the second quarter, compared to a loss of $28 million in the prior year. This result exceeded our expectations, as all three businesses performed well.

As a reminder, the second quarter is seasonally weak for our milling business, as it marks the beginning of the sugar cane harvest, and ATR levels are at their lowest. We are beginning to see the results of our productivity improvement and planting programs. There is sufficient gain in the sales for us to produce at capacity. Our crush volumes were 25% above prior year, ATR levels are trending towards historical norms, and our production costs are lower. These lower production costs, combined with higher ethanol prices, more than offset the impact of lower sugar prices.

Our merchandising business performed well due to strong export volumes and margins, combined with strong risk management. Biofuel results were higher due to improved margins in our US joint venture. Food and ingredients adjusted EBIT was $63 million versus $10 million in the week prior-year quarter, as both edible oils and milling reported improved results. In edible oils, North America, Brazil, and India performed well, and Europe showed improvements as margins were better despite strong competition and high raw material prices in certain markets. In milling, our Brazil wheat milling and North American corn milling businesses performed well. Results in Mexico wheat milling were higher, reflecting our increased ownership.

Our net income per share from continuing operations, diluted and adjusted, was $0.74 versus $1.15 in the prior year. In calculating this quarter's net income available to common shareholders, $17 million, or approximately $0.12 a share, is allocated to the holders of our redeemable noncontrolling interests. This allocation is primarily related to an Eastern European oilseeds joint venture, where our partner has a put option with a fixed minimum price. The joint venture occurred a loss in the quarter primarily due to the poor oilseed crop last year, and our partners' share of this loss is assigned to our common holders. The business is expected to turn profitable with the new harvest later this year.

On a year-to-date basis, EPS, adjusted and diluted, was $1.89 versus $1.97 in the prior year.

Let's turn to page 4 and the cash flow. Our cash flow used for operating activities was $513 million. It is comprised of funds from operations of $664 million, which primarily represents net income of $270 million plus depreciation, depletion, and amortization of $270 million. We had an outflow in changes in assets and liabilities of $1.2 billion, primarily due to a seasonal increase in accounts receivable and prepayments to farmers. The seasonal increase in working capital is much lower than prior year, due to a significantly lower inventory build. Our liquidity situation remains strong. At June 30, we had $2.8 billion of credit available under committed lines.

Let's turn to page 5 and the outlook. We expect a strong second half. In agribusiness, we expect demand to be strong, and North American and European supplies to be replenished by large harvests. Customer inventories are lean following a period of high prices, tight supplies in the northern hemisphere, and logistical delays in South America. At the same time, meat economics are good, increasing demand for both grains and oilseeds. The combination of refilling pipelines and good underlying demand should result in increasing global trade volumes and higher oilseed processing utilization, especially in the northern hemisphere as the new crop supplies become available.

In sugar and bioenergy, we are entering the seasonally stronger second half of the year. Our cane planting and productivity programs are yielding positive results. We have adequate cane to run our plants at full capacity, and both cane yields and ATR are improving, resulting in lower unit production costs. Ethanol pricing has improved but has been offset by weaker sugar prices. We continue to expect to be solidly profitable this year.

Our foods business should continue to perform well, and we expect increased profitability in the second half. We will continue to focus on increasing our operational efficiency and customer service levels. The upcoming harvest should be supportive to margins in Europe.

In fertilizer, we continue to expect to close on the sale of our Brazilian business to Yara in the third quarter. As Soren indicated, we are reducing our 2013 capital expenditures by $200 million to $1 billion.

In summary, we expect a strong finish to the year. Agribusiness margins in the northern hemisphere should widen with the arrival of large crops. Sugar and bioenergy should continue to improve and begin to demonstrate its earning potentials. And food and ingredients should continue its upward trend in earnings. I will now turn the call back to the operator, and we will take your questions.

(operator instructions). Vincent Andrews, Morgan Stanley.

Two quick questions. First on the CapEx budget, can you speak specifically to what you are not going to do this year that you were otherwise going to do? And then secondly, I guess maybe this is the same question for 2014. What exactly are you looking at?

Okay. I don't want to get into specific project details, but it is a combination of postponing certain growth projects so that we time that better with what we believe will be a nice growth in demand and allows us to operate our existing capacities at higher rates. And then it is a re-prioritization of, what I'll say, projects had a shorter paybacks and are more related to productivity. And that will -- that is how we got to the reduction this year. Next year, we'll look at it in the same light. We'll come back with more detail. We haven't completed the analysis yet, but it will be in the same spirit.

Is there a target level of growth CapEx you are looking to get to?

I would say that what we are doing in general is reducing growth CapEx for the time being and focusing more on things that are related to direct productivity improvements. But I wouldn't, at this point, be in a position to give you a target on what the number is.

Okay. And then last question is just can you talk a little bit about how the mix of the second half should play out in terms of earnings contributions? I'm assuming 3Q will be smaller than 4Q potentially because you won't necessarily have the North American harvest until late in 3Q, early 4Q.

Yes, I think it will be loaded towards Q4. That is correct from a tendency point of view. But I think all segments should have very strong Q3s and Q4s. Agribusiness for sure. Sure, where we are entering the peak months Q3 and the beginning of Q4 will be the strongest months for sugar. And seasonally -- and I think also because we feel so comfortable about the improvement plans we have in our food and ingredient business should have a very strong finish to the year. So it's really across all three segments but heavily weighted towards Q4.

Okay. Thank you very much. I'll pass it on.

Ann Duignan, JPMorgan.

Good morning. I just thought on the two businesses -- sugar cane, ethanol. Are there opportunities in sugar cane, ethanol for exports to the US as we go forward?

Yes. There will be continuous flow to the US for Brazilian ethanol partly to meet the advanced fuel mandate in the US. And volumes remain to be determined. They are largely dependent upon the amount of biodiesel that's produced in the US, which is on a strong clip at the moment. So it will be a mix between those two that fill the majority of that advanced fuel mandate in the US this year and next year. So the flow will continue.

Okay, thank you. And then on the agribusiness margins, can you give us any help breaking out the contribution to the margins from Brazil versus the US or North America?

Well, from a tendency perspective, I'll say we had very good margins in Brazil. It was a very strong quarter. Good volume but also very good margins. And you know, in the northern hemisphere, particularly in soft seed crushed in Europe, margins were very poor. That's the only way to put it. Sun seed in particular but also rapeseed. In the US, margins in oilseed crushing were, on paper, probably better than you might've thought they would be. But capacity utilization was very low, so the fixed costs per ton were very high and the grain handling volumes were just bad because of last year's drought. So, Brazil outperformed, I would say, but Europe and North America wasn't able to compensate.

Okay. And when you say very good margins in Brazil, any chance you could define very good?

Well, better than last year. No, I can't put a number on it. But they were solidly good margins with good returns, good [ronas], and then obviously very good execution, which is a big piece of the equation in Brazil the last two quarters. We locked in good margins, and we executed them. That's really -- I think that's the good story in Q3 in Brazil. There were plenty of opportunities to lose a good margin and in logistical snags and we didn't feel good about the next quarter as well. So you know good margins and we kept them.

Okay very good. That's good color. Thank you. Appreciate it.

Christine McCracken, Cleveland Research.

Just to follow up on Ann's question, as you look at the Brazilian margins, is there any -- how are you competing for beings with demand around the world so strong for soybeans and exports up so much? How are your plants operating there on the crush side?

You mean in Brazil?

Yes.

All our plants were operating and crush margins have generally been good in the last quarter. Export pull of beans -- the force has always been very strong. Brazil has exported an all-time record amount of beans over the last four months. And in the case of Bunge, we've made sure that all the beans that we had for export were directed to our own plants across the world, whether it's in China or Europe. So because the crop was so good and, generally speaking, the farmer was a more willing seller as we got into the end of the quarter, we've been able to accommodate both our crush plants in Brazil with good margins and also feed our overseas in-house demand.

And as you look around the world at global demand for beans versus processed products, have there been any notable changes? You talked about how the pipeline had been drawn down, obviously. But curious how you're looking at demand, specifically for beans but also for meal as you look at your exports.

I think you can say that pipelines in both meal and beans have been extraordinarily tight. Very, very tight over the last several months. Oil has been a bit of a different story. But for protein, for soybean meal, and soybeans, pipelines at destinations have been very, very squeaky; very tight. Demand for both is still growing and will continue to accelerate in growth at the last half of the year as we now get into a different price -- expect to get into a different price level. But I'll say the been tightness and the meal tightness at destinations is probably about similar. In China, early on in the quarter, margins were good and soybean supplies very, very tight. That is now changing a little bit. Arrivals into China with beans out of Brazil -- you know, we had delays early on, but soybeans are now arriving in China at a steady clip. So that pipeline is being refilled. But there are still many parts of destinations, whether it's in Europe or Southeast Asia, where the meal supply pipeline is very, very tight and will probably remain that for that way for another few months.

Thanks, Soren.

Michael Cox, Piper Jaffray.

With the larger North American crop coming and now these port issues basically resolved in Brazil, can you talk a little bit about your volume expectations for the back half of the year in agribusiness, and frame it took for us if you could?

Yes. I mean, overall, agribusiness volumes should be up the last half of the year. Northern hemisphere, US in particular -- not Bunge, but in general should have a -- should experience a significant uptick in exports compared to last year for sure. You will have a very, very strong bean export program. And corn, although it will compete with both Brazilian and Ukrainian corn, should have a nice increase compared to last year as well. Wheat exports will be solid, led by both Chinese imports and also Brazilian imports. So overall, we expect volumes to improve the last half of the year, and a lot of it is shifting towards North America.

Okay, that's helpful. And then in terms of profitability in sugar and bioenergy, you commented just a couple of times about being solidly profitable there. And I was just wondering if you could comment or frame up your expectations relative to be $8 to $10 per ton level that you've talked about, considering where sugar prices are today.

When we look at the $8 to $10, we've talked about achieving that in the next year. So for 2014, when we look at the different variables that go into that equation, we are where we thought we would be as far as our productivity and our production costs, and we continue to make significant improvements along those lines. If we look at where the pricing levels are today, sugar is weakened below where we thought it would be. We've gotten some of that back because of the weakness in the real. So the real price of sugar versus our cost is a little bit more in line. So the impact isn't as big on the headline reduction in sugar as you might expect. You put all of that together, and I think we'd probably need a price increase of about 10% to 15% range to get us to a point we are at $8 to $10 next year.

All right. Great, thanks.

Ken Zaslow, BMO.

So, Soren, you're going to have, call it, an extra $200 million of CapEx -- you know, reduction in CapEx. You're going to have $750 million, and then you're probably going to have a downward curve in soybeans. So your working capital needs should be a lot less. Could you talk about what your priority for cash are, how they will change? And where will your shareholders stand in the priority in the pecking order here?

You outlined it very well. We will -- between the Yara proceeds, the CapEx reduction, and also the reduction in working capital level, come either as prices decline or as our cash cycle improves or both -- have some flexibility as we get into the last half of the year and as this deal closes. Our priority is to keep the balance sheet in good order, maintain our BBB credit rating; that's number one. But it's clear that we have room beyond that to consider, whether it's acquisitions or whether it's returning money to shareholders, all that is within the realms of possibility. We have the flexibility to approach both.

So what do you plan on doing with your flexibility, I guess is the question? Because you have a blank slate, right?

I think (multiple speakers). Yes, that's right. Let's close the Yara deal first. That's something we -- that's the first step. And as we gain confidence about the working capital levels and we see the reduction in CapEx over the next couple of months, it will become more concrete about how we pick the next steps. It's too early to call it now.

You talked about Argentina -- I mean, Brazil starting to release soybeans. Can you talk about the Argentine environment? Where do you (inaudible) on that, it's still a pretty big part of the South American presence.

Oh, it is. Absolutely. I'll say Argentina has -- it's a complicated market environment. On the grain side, the poor wheat crop and the cancellation of wheat export licenses earlier on this year was not an easy thing for the market to digest. But we've had a good export program in corn. And while farmer retention has been high on the bean side and most likely will continue to be, we've had decent crush margins but with low volumes. So it's a challenging environment. Margins are reasonable, but volumes are lower than we would like.

And my last question is just a clarification. You said that the food will be stronger in the second half. Is that relative to year-ago levels or the first half? I just didn't understand if you just put (multiple speakers).

That's relative to the first half.

I think it's actually both, Ken.

It probably is both. But I think but it is relative to the first; and I believe, if you go back and look at the numbers -- I don't have them in front of me -- but I'm sure it is relative to both.

Great. Thank you very much. Take care.

David Driscoll, Citi Research.

A couple of questions. The first one is maybe just -- and apologies, I'm not sure if you'd said this; I'm joining a little late. Your call overlapped with another one of our covered companies. But I wanted just to ask a little bit about kind of the quarterly performance. You wrote in the press release that this was kind of in line with your expectations. But yet, it's down quite considerably year on year from second-quarter 2012. So I suppose, and maybe it's my mistake for not understanding you guys on the last call, but it just was anything but clear that you would see this level of decline from the year-ago period. And then Soren, maybe as kind of a corollary to that particular issue, I suppose I just want to know philosophically, when the northern hemisphere has problems and given the absolute massive size that you have in South America, why does it seem that it just doesn't work that that business down there would see outsized profitability to more than offset difficulties in the northern hemisphere? Thank you.

Okay. Maybe I'll take the last one first. It's really a matter of balance. I think what we had this past year really was a problem not only in the US but also in Europe. So you've got our European crush business, particularly the soft seed business, but also the grain handling as well as North America running into a very well-advertised supply shortage. We've talked about that since last November, that at some point in time this spring, both of those regions would face structural problems. And combined, they are large. Brazil was -- Brazil, although it performed very, very well, simply wasn't able to compensate for that. That's the short story. I would also say, David, that we navigated markets well and we managed risk very well this past quarter. But it's a complicated market environment. So it was perhaps a more conservative approach than we would've taken last year at the same time, where the impacts of the evolving US drought were more clear. And you can see how choppy the markets are. So our approach has been a bit more conservative perhaps. But the balance is, you really -- is what you are referring to. And the combination of Europe as well as North America, the structural negative margins, particularly in crush, just couldn't be compensated by what was a really good quarter in Brazil.

David, I also might add we didn't have the normal balance coming out of South America because it was a complicated quarter in Argentina. You had slow farmers selling, so you had lower volumes. You had the wheat crop down there wasn't very good. So you didn't have the normal wheat coming out of Argentina. So is not as if all South America was hitting on all cylinders. While Brazil was, we didn't get the pick-up we normally would get from Argentina in that quarter.

That's a fair point. Yes that's a fair point.

And from my point of view, I think that probably is the key piece of it. And I would only say that from the outside, of course, as an analyst following the Company since it IPOd, it is difficult. When you -- if you really do have an expectation that it will be down materially within a three-month interval, I would just simply strongly encourage you to just be as clear as you can about these things. I understand your desire to not give guidance, but some very strong directional indications, especially on short-term stuff, is appreciated. But thank you so much.

Tim Tiberio, Miller Tabak.

Drew, just a quick question following up on your comment that we would need to see another 10% to 15% increase in prices to start getting to that $8 to $10 EBIT ton level. It seems like you've been talking about the need for this for several quarters. What do you think exactly does need to occur, either in Brazil or in the export markets, for us to finally start getting that 10% to 15% increase? We've the blend mandate go from 20% to 25%. People were talking about 600 million-plus gallons of exports out of Brazil. Just trying to get a sense of what type of sensitivity you're looking at in projecting out a 10% to 15% increase. Thank you.

Obviously, you talk about sugar and ethanol separately. So if we take a look at the sugar balance sheets, they -- or supply-demand, we refer to them as balance sheets here. If we take a look at the sugar supply-demand in pricing history, pricing hit a very high point in sugar, I don't know, maybe a year ago. My timing might be off a little bit, but for a couple of years prior to that. And that bought a lot of marginal production around the world into the market as a lot of nontraditional origins increase there. There production -- they typically work on a shorter cycle than you have in Brazil, as far as the planting cycle. So I would expect that a lower sugar price, you would see some of the supply come down. The second factor is, we do expect ethanol demand to continue to rise in Brazil. And as that rises, you will see product being reallocated or production being reallocated from sugar to ethanol, so it will be supportive of sugar prices. So we think sugar is just towards a low point in the cycle and will naturally come up, and we think that surplus in sugar will naturally be used up between those two factors. So we think there is a possibility that sugar prices will improve over the near- to mid-term. But markets are always hard to call, and we're answering what the situations are that would make it happen.

On the ethanol side, we have seen movement by the Brazilian government in the gasoline price. We've seen policies that are friendly towards ethanol in forms of taxation. But even when all of that is factored in, there's still a problem for the country of having a fuel deficit. They are a fairly large importer of gasoline, and they are incurring losses on those imports. So the situation still is not sustainable, and we expect at some time the government will have to address that. And if they would increase the gasoline price, it would add a follow-on impact on the ethanol price. So those are the factors that would lead you to believe that we are in a situation where prices are more likely headed up than down. But, as always, it's hard to call exactly when they will flow through to the markets. But those would be the reasons we would expect that it's reasonable to assume in the future that price movement will be upward.

Okay. And just shifting gears. Soren, I don't want to jump the gun since this is your first quarter. But we have seen some of your competitors being maybe more aggressive in outlining cost savings and CapEx improvement. Obviously, you've highlight some of the reduction for growth CapEx. But just framing this up, should we start to start thinking about some of these initiatives that maybe you'll start looking at over the next coming months? And what type of buckets, as you are reviewing the business, should we expect that you'll be focused on? Thanks.

Yes, that's a fair point. The headline is absolutely focused on returns. And so the CapEx is part of that. SG&A is part of that. The whole performance-management approach that we are now implementing at Bunge is aimed at improving returns. And within that approach, there are several buckets. There is an industrial bucket, there's an SG&A bucket. In fact, you can see some of those improvements already. They will accelerate throughout the year. There is a financial bucket, and there's a commercial bucket. And as we become a little bit more advanced in our implementation, we can perhaps start talking about some of those elements more specifically. But our performance-management program really covers all of those four buckets in quite some detail; and it focuses in on the business unit itself, which is the building block of Bunge's performance. It looks at performance gaps to best-in-class, whether it is within Bunge or whether it is externally. And it establishes targets based on those performance gaps and actions to get there, all aimed at improving returns. So as we roll this out in more detail, we've just started -- I think we'll be able to talk about it in some more detail in upcoming quarters.

Great. Well, we look forward to it.

Ryan Oksenhendler, Bank of America.

I guess just to follow up on the CapEx, if you talk about how that impacts your ability to grow over the longer term in terms of volumes and EPS targets. And even more specifically, as it relates to -- I think you guys had pointed to a target of doubling share capacity. How long should we expect CapEx to remain at a lower level?

Well, the discipline around CapEx will remain. I think the impact of what we just outlined is going to be very minimal. Really believe that we'll be able to bring our existing asset base and system up at a higher level of utilization. And I think that's, generally speaking, an industry issue. There is an overhang of capacity that needs to be consumed over the next couple of years as the markets grow. And then we'll schedule growth projects in an appropriate fashion so that we can maintain our market share and our presence in the important parts of the world beyond that. So I don't think that our reduction or our rescheduling of some of these CapEx growth projects will have negative impact on our results short term. We'll simply utilize what we have better. But don't misunderstand this either. We're still looking, and we're still able to pursue important strategic growth opportunities when they come about. We haven't stopped that. Our industry is growing, Bunge is still growing. But for the next while, we really believe that Bunge and the industry, maybe at large, has an opportunity to use better what already exists.

Thanks for that. And I guess does that mean that maybe there are some opportunities for acquisitions, given the overcapacity in certain areas? And would Bunge be interested in --?

Yes, I think that's a good point. I think we would be more interested in pursuing acquisitions, especially markets that have overcapacity, than adding capacity. That's clear. So we are looking at acquisitions as well.

Okay. And then I guess, and on the last quarter call you mentioned that you expected the business to earn above your cost of capital this year. Do you still feel like that is consistent?

Yes, we said that we will get to cost of capital this year and we believe that still the case.

Great. Thanks guys.

Robert Moskow, Credit Suisse.

You know, Soren, I wanted to ask you, like over the past several years, commodity prices have gone up quite a lot. Just -- and I think they are higher to stay. I had always thought that Bunge would earn higher returns in an environment like that, because I thought that your Company and other processor logistics providers would get a higher return for taking on the risk of taking on all of that inventory, and both from your customers and your suppliers. And it hasn't played out that way. And I'm wondering if what your point of view is as to why that is. Is it the farmers who have maybe gotten more negotiating power in that interaction? I doubt it would be your customers. So do you have a view on that?

I think the ability of farmers in key markets to hold crops is part of that. No doubt. But I think the overriding issue is that capacity utilization in most important markets has actually gone down. There's been more capacity addition than there's been demand growth in this period of high prices. So that's one part. And in reality, margins just haven't expanded in a proportional way to make up for the increased use of working capital. So it comes down to a capacity issue at the end of the day, and I think that is really the biggest challenge.

Okay. Thank you very much.

Thank you. I will now turn the call back to Mark Haden for closing comments.

Great. Thank you Dawn, and thank you everyone for joining us this morning.

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