Bunge Global SA (BG) 2013 Q4 法說會逐字稿

Welcome to the Q4 2013 Bunge earnings conference call. My name is Trish 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 would now like to turn the call over to Mark Haden. Mark, you may begin.

Great, thank you, Trish. 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 investor section of our website at bunge.com under Investor Presentation.

Reconciliations of non-GAAP measures disclosed verbally on this conference call to the most directly comparable GAAP financial measures are posted on our website in the investor section. I would like to direct you to slide two 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 risk 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 will now turn the call over to Soren.

Thank you, Mark, and good morning everyone. Bunge had a solid quarter and our core businesses performed very well. Combined the agribusiness edible oils and milling segments earned $422 million of EBIT and delivered a record annual result of approximately $1.3 billion with returns of up cost of capital.

Our agribusiness team performed well, effectively managing risks as markets transitioned from extreme tightness, especially North America, to large crops and strong demand with the arrival of the US new crop corn and soybeans. We capitalized on strong soy [crops] margins in the United States, Europe, and in China as well as in rate and canola crops in Europe and Canada.

Export demand for corn and soybeans increased significantly in North America and we enjoyed strong corn and wheat flows through the Black Sea ports. Global merchandising volumes and margins were up in Europe and the Middle East and in Asia and ocean freight moved higher throughout the quarter, supporting a higher value for our logistics network.

In food and ingredients, we achieved record quarterly and full-year results with all regions reporting higher year-on-year earnings. In milling in Brazil, Mexico and United States we are improving our cost structure by delivering high-quality and better margin products. In edible oils across Bunge, we had new product introductions in both bottled oils and margarines and we continue to innovate with our customers in the B2B segments to bring them better functionality and health profiles.

Our food team has really made big strides in its efforts to extract more value from operations while supporting the growth of our customers. Sugar and ethanol trading and merchandising operations performed well in the quarter and for the full year. We have a strong risk management and flow capability and we have established a global presence over the last couple of years which complements both agribusiness customers and capabilities.

Our Brazilian sugarcane milling operations continue to be impacted by the depressed global sugar prices, low sucrose cane content and capped ethanol prices in Brazil. As a consequence, we reported a loss for the quarter and for the year. Despite significantly lower sugar prices year on year we did increase segment performance by $84 million on a full-year basis.

Many improvements have been accomplished in our sugar milling operations over the last year and, despite the difficult market environment, our team is dedicated and focused on delivering more. We have a solid team that has grown stronger throughout the year and we are impressed with the progress they are making.

As mentioned during the third-quarter call, the volatility and capital-intensive nature of the milling business is making us review strategic options how to best maximize returns; and in that regard we have engaged a financial advisor to help us with the process. We'll keep you posted on progress as we make it.

Since the middle of last year, all of Bunge is focused on improving returns by managing working capital better and optimizing results. We have rolled out a performance management system that allows us to track performance in a more granular way and to quickly identify areas in needs of improvement. It is a team effort with clear accountability and direction. It extends globally and starts with the executive committee where we have had several changes and which is fully focused on delivering returns and growth to Bunge.

Objective is to grow smartly while delivering returns well above our WACC, which we did in 2013 in our agribusiness, food and fertilizer segments, and we expect 2014 will show growth from there.

Lastly, we believe our strong balance sheet and credit metrics provide us the opportunity to return capital to our shareholders as part of our balanced approach to capital allocation. As a result, commencing in the first quarter we intend to repurchase $200 million of our common shares.

Now I will turn the call over to Drew who will provide greater detail on the quarter, the year and the outlook and he will also walk you through a more detailed presentation of our capital allocation framework, which we introduced in our last quarterly earnings call. Drew?

Thank you, Soren. Let's turn to page 4 in the earnings highlights. We had a strong finish to the year with total segment EBIT adjusted of $404 million in the quarter versus the prior year result of $140 million. On a full-year basis total segment EBIT adjusted was $1.3 billion versus $1.1 billion in the prior year. The annual result of our combined agribusiness and foods businesses was a record.

Our earnings per share from continuing operations diluted was $0.75 in the quarter and $0.90 for the year. Adjusted earnings per share was $1.35 in the quarter and $4.78 for the year. These numbers were negatively impacted by high income tax expense. 2013 tax expense was $904 million. This includes $512 million related to valuation allowances on deferred tax assets where management has determined that utilization of the tax benefits related to net operating loss carryforwards is uncertain. The majority of this amount pertains to our sugar businesses.

There were also $78 million in charges related to the tax years 2008 to 2010 in Brazil.

Our tax rate for the full year excluding valuation allowances and discrete items was 30%. This rate is higher than previous projections due to the current year impact of losses and legal entities where we have established the valuation allowances. When these legal entities have losses, we do not provide a tax benefit. This means income before taxes is reduced while our tax expense is unchanged, increasing the tax rate.

In the fourth quarter, our tax rate was elevated due to this factor and our earnings mix as we had strong earnings in legal entities with higher tax rates.

Looking forward to 2014 we are forecasting a tax rate of approximately 23%. The reduction from the 2013 rate is due to an expected reduction of losses from the legal entities where we had valuation allowances, primarily our sugar entities, and the implementation of certain tax planning and capital structure initiatives.

Higher than forecast performance in our industrial sugar businesses will come with a very low tax expense and reduce the tax rate while below forecast performance will come without a tax benefit and increase the tax rate. A change in our earnings mix by legal entity can also cause our rate to vary.

Agribusiness adjusted EBIT in the quarter was $346 million versus $134 million in the prior year. Large Northern Hemisphere harvest led to stronger volumes in margins in both oilseed, processing and grains origination and distribution. Oilseed processing margins were strong in North America, Europe, and China due to the larger crop, strong demand and the absence of significant export volumes from South America.

Our merchandising business results benefited from strong export programs to Asia, the Middle East and Europe.

For the full year, agribusiness adjusted segment EBIT was $1 billion, slightly below last year's record. Our Brazilian business had a record year driven by our ability to handle and process a record crop. Our network of logistics and processing assets and a strong experienced team provided an advantage in managing our logistical and risk management challenges.

Our Northern Hemisphere businesses had a strong finish to the year with the arrival of the new crop. Our sugar and bioenergy business had a loss in the quarter of $35 million on an adjusted basis versus a loss of $49 million in the prior year. While improved from last year, the result was below our expectations due to the impact of lower ATR which is the sucrose content in the cane.

Our emphasis in the quarter was to continue to reduce our fixed industrial costs and increase our agricultural productivity. To reduce our fixed costs we have reduced headcount by about 10% between May 2013 and January 2014. Additionally, we have reduced our harvester fleet by 5% going into 2014, reflecting the productivity improvements we have made.

On a full-year basis, the sugar and bioenergy segment had a loss of $34 million versus a loss of $118 million in the prior year. This improvement reflects a strong performance by our sugar and ethanol trading and distribution businesses where we have continued to build a stronger global team, origination and distribution network and customer base.

Our foods (sic) and ingredients business had a record quarter and year. Adjusted quarterly EBIT was $84 million versus $49 million in the prior year. Results in both milling and edible oils were driven by higher gross margins and reflect our focus on margin management, achieving industrial efficiencies, and new product introductions. Both wheat and corn milling performed well in the quarter and above prior year levels. Wheat milling benefited from increased margins in Brazil and a strong performance of our Mexican wheat milling business. Edible oils had a strong quarter led by stronger volumes in margins in our European business.

On a full-year basis, food and ingredients adjusted EBIT was $280 million versus $166 million in the prior year. The improvement was broadly based across all our food businesses but was strongest in Brazil. Our fertilizer business had adjusted segment EBIT of $9 million in the quarter and $37 million year to date. The main contributors are our Brazilian port operation and Argentine fertilizer business.

Let's turn to page 5 and our return on invested capital. The chart shows three scenarios. The first column is our return on invested capital based on our results as reported including the charges for notable items. This yields a return on invested capital of 1.1%. The second column represents a return on invested capital adjusting for the notable items included in the press release tables. Making these adjustments you come to an effective tax rate of 30%. This results in a return on invested capital of 5.8% which is below our cost of capital of 7%.

The below cost of capital returns are primarily due to our industrial sugar businesses.

For illustrative purposes, we have calculated the return on invested capital excluding the notable items and the assets and results of our sugar and bioenergy segment. The effective tax rate in this calculation is also 30%. This results in a return of 7.5% which is above our cost of capital of 7%. We remain committed to achieving a return 2% above our cost of capital as we continue to improve returns in foods and agribusiness, complete our strategic review of sugar and bioenergy, and take the consequent actions, and our tax rates return to the expected long-term level.

Let's turn to page 6 and the cash flow highlights. Cash flow from operations in 2013 was $2.2 billion. Funds from operations were approximately $1.2 billion. This reflects our [net] income, depreciation and amortization and the fact that the notable tax charges were non-cash charges. We also had a cash inflow of approximately $1 billion, due to changes in our operating assets and liabilities. The inflow from operating assets reflects our continued focus on optimizing working capital levels and a decline in commodity prices.

Our liquidity position remains strong. At December 31, we had $4.3 billion of capacity available under committed credit facilities. Our capital expenditures for the year were approximately $1 billion and in line with our expectations.

Let's turn to page 7 and the outlook. As Soren said, our agribusiness and food and ingredients business entered 2014 with good momentum. Agribusiness markets are transitioning from tightness to emerging surpluses as large Northern Hemisphere crops are being followed by large South American crops. Demand for products is strong, supported by moderating prices and good livestock production economics.

The Northern Hemisphere will be the primary supplier to export markets in the first quarter. Oilseed processing margins are solid and there is still a sizable amount of corn to come to market in the United States. South American harvest will be large and will become the world's principal supplier during the second and third quarters. Brazil will once again be challenged by logistics, but this plays to our logistics goal and risk management strengths.

Please turn to page 8. And sugar and bioenergy [are] forecasting a break even result for the segment. We expect a continued solid performance in both our sugar and ethanol trading and merchandising operations.

The overall environment for the industrial sugar business is challenging. Gasoline prices in Brazil remain below international parity, putting a cap on ethanol pricing. Sugar pricing is depressed as the global market is in surplus. Our forecast for improved results is based on our productivity efforts continuing to reduce [cross], a higher [crush] volume and an improvement in the ATR.

We would also like to note that the early weather conditions have not been favorable and this may result in reduced sugar cane yields. If there is a small reduction in yields, the impact is not severe as we have a buffer supply of cane that would let us crush at or near anticipated levels. A drop in yields that require a reduction in our crush capacities would have a larger impact.

As a reminder, industrial sugar results are heavily weighted to the second half of the year following the normal seasonal pattern. The first quarter is likely to be weaker than usual, as we are carrying in relatively high cost inventories from the 2013 crop.

In foods and ingredients we expect to continue to grow our earnings as demand for our core products is strong in most geographies. We will continue to benefit from joint growth initiatives with our customers, product innovation and operational efficiencies. We will also have incremental profits from our acquisition of Grupo Altex wheat mills.

As a reminder, the fourth quarter is generally slower in our food business for seasonal reasons.

Overall we remain confident that our agribusiness and foods businesses will continue to grow and increase returns. In sugar and bioenergy we will remain focused on increasing productivity and lowering our cost structure to put us in a position to benefit when market conditions improve. We will also continue to work toward completion of our strategic review.

Now, I would like to spend a few minutes talking about our capital allocation priorities. If you would, please turn to slide 11.

Last quarter we introduced our capital allocation framework, indicating our priorities as shown in this chart. Now I want to go a little deeper into each of these four areas. First balance sheet strength, second reinvesting in the cap -- in the business our capital expenditures, third, M&A, and fourth, returning capital to shareholders. The key principle underlying our approach is that we will always choose the alternative that we believe maximizes value to our shareholders.

Turning to slide 12. As we have consistently stated our first priority is to have a strong balance sheet, as defined by a BBB credit rating. Due to the nature of our business where relatively sudden commodity price spikes can occur without much warning, we feel it is essential to have a strong and flexible balance sheet. When prices spike, markets are encouraging farmers around the world to sell not just their current inventories, but their future production as well.

This provides opportunities for us and the degree that we can take advantage of these opportunities requires readily available liquidity and access to capital. We view this as a competitive advantage in our industry. As you can see our core credit metrics all improved in 2013.

Moving to slide 13. We hit our targeted 2013 capital expenditure spend of $1 billion which was $200 million lower than we originally targeted at the beginning of the year. Looking at 2014, we are decreasing our capital expenditure further and are targeting about $900 million.

Our capital expenditure target is based on a bottoms up assessment which starts with maintenance, those investments needed to keep the operations running reliably and safely and producing the quality products that our customers expect from us.

Next we prioritize productivity, profit-enhancing projects. These projects tend to be low risk with short paybacks.

Lastly, our investments in growth projects. Each year we have a long list of projects submitted by our operating companies. The projects that are ultimately are approved are those with the most attractive returns that fit our strategy with consideration to payback periods.

The hurdle rate used to evaluate a specific project is unique to the particular business unit, reflecting the nature of the business and country of operation. In other words a crush plant in Canada will have a different hurdle rate than a similar crush plant in the Ukraine. The level of growth of capital -- of growth capital expenditure can vary each year will depend on the products, the market environment, and be assessed against alternatives such as returning to capital to shareholders that may have a more attractive risk-adjusted return.

Moving to slide 14. You can see the split of our capital expenditures by segment as well as by geography, indicating our balanced approach to investment. The diversification is an important aspect of how we manage risk. In comparing to 2012 the major differences are reduction in total investment of about $300 million with significant decrease in the amount invested in our sugarcane milling operations in Brazil, where we are now only investing in maintenance to support our plantation in industrial assets and select productivity projects that can enhance our cost structure.

Turning to slide 15. This shows a representation of the major projects that we will be bringing online during 2014 and also those projects in which we will begin construction during the year. Priorities are in logistical assets such as ports and crushing capacity in selected markets. To [build] a crush plant typically takes between 18 and 24 months.

Moving to slide 16. Mergers and acquisitions have been an important part of our strategy over the years and will continue to be. We tend to prefer acquisitions over greenfield investments as it helps maintain balance in industry supply and demand and immediately provides cash flow. Our current priorities are filling gaps in our agribusiness global network and expanding in food and ingredients.

Examples of this would be our recent investments in wheat milling assets in Mexico and our export terminal in Ukraine. Acquisitions are subject to strict hurdle rates and are assessed against the alternatives of reinvesting in organic growth or repurchasing shares.

Turning to slide 17. We recognize that dividends and share repurchases are an important overall component of value creation for shareholders and they are a part of our capital strategy. We have increased our dividend every year since our IPO in 2001, averaging 11% increase over that period. Looking forward, we intend to target maintaining increases in line with this historical average.

With respect to share repurchases we have an existing program of $950 million with approximately $500 million available. As Soren mentioned earlier in his comments, that commencing in the first quarter we intend to repurchase $200 million of our common shares under this authorization.

Turning to slide 18, and to summarize the capital allocation portion, first we will maintain a strong balance sheet as a top priority. Dividends and share repurchases will be an ongoing component of our overall value creation framework to maximize shareholder returns. M&A will continue to be a part of our growth strategy with agribusiness and foods being priorities. And CapEx is not set in stone at its specific level, it is a bottoms up approach starting with maintenance, then prioritizing shorter payback profit-enhancing projects. Growth projects will vary, depending on specific project opportunities, the market environment and alternative investments such as returning capital to shareholders.

That concludes my comments and now we will open the call for your questions.

(Operator Instructions). Vincent Andrews, Morgan Stanley.

Good morning, everyone. We have been hearing about another step-up in logistical costs in Brazil year over year, so it sounds like plus 20% this year over last year's big increases. The pressure if you sort of talk about the comp logistics with the larger record crop being sort of an opportunity. What has changed this year about the ability to deal with that higher trucking expense versus last year? It was really kind of a headwind.

Well, last year it was fully unexpected. That is the first thing. And secondly, keep in mind that roughly 60% are flows to the ports or by rail. So we have a little bit of a different exposure to truck freight than maybe many others.

So far, I would say that truck rates are absolutely in line with what we expected as we entered the crop. That doesn't mean it is going to stay that way. It could be that as we get into the peak sometime late April, early May that there will be some variations. But the early flows and the rates we are paying and have secured are absolutely in line with what we have been forecasting. So, so far we don't feel any particular pressure.

Okay. And then just as a follow-up. The Argentine farmers have been holding onto a lot of beans. Can you talk about how that impacted your fourth quarter and how you see that, what you expect them to -- when they are going to release those beans and how that might impact your first half?

Yes, it has had both good and bad impact so to speak. In Argentina, obviously we have been running our plants and our export facilities at lower than desired utilization and margins. The flip side of that is that it puts demand into the Northern Hemisphere, US in particular where we enjoy better margins. On balance, probably a small negative, but not significant.

What to expect? Well, that is a good question. I don't think anybody really knows. What we believe is that as we get into let's say the early part of March or middle march through May and maybe into early June, we will see a normal flow of new crop beans and corn into the marketplace from Argentina. The carryover is significant in soybeans and farmers do need to free up cash. Beyond that, I would say beyond June, it is really anybody's guess again and it will depend largely on the macroeconomic and political situation in Argentina.

Okay, thanks. I will pass it along.

Ann Duignan, JPMorgan.

Good morning. Two questions on your sugar business in Brazil. First one. They love to talk in the US that if the EPA lowers the mandate for US ethanol that suddenly the US will export more ethanol, competing with the Brazilian ethanol market. Can you just talk a little bit about that and the dynamics and whether Brazilian ethanol can be as competitive as US on the export market?

I think it is fair to say that US-based ethanol with corn prices that [are or will be on our lower] will compete more favorably into markets that don't distinguish between the sustainability angle of the origin of ethanol.

So for most destinations, US ethanol will be favored because of price. And Brazil will have a hard time competing in those markets. And that is why we believe that the long term solution to the Brazilian ethanol equation really is a domestic one and one that is pretty obvious and would be remedied at the moment that fuel prices in Brazil are equalized with global prices.

So, Brazil should become more of a domestic fuel market and the US is in the process of capturing a larger share of global ethanol trade.

Okay, that's helpful. Then, on the valuation of the sugar business, can you talk a little bit about directionally what the changes in the European caps, where they will not eventually be subsidizing their own domestic sugar industry. Does that enhance the value of your business or does it negatively impact the valuation?

No. I think -- on balance, I think it will be a positive. European sugar prices will eventually mean that cheaper [origin] sugars will make their way into Europe rather than expensive domestic ones.

Okay and when would you anticipate giving us the next update in terms of this strategic review that you are undergoing? Is that next quarter or do you think it will take six months? How long do think the review will take?

The process has started, as we've mentioned. It is very difficult to predict how long it will take. We will tell you when we know something.

Okay. I guess I will leave it there and get back in queue. Thanks.

Adam Samuelson, Goldman Sachs.

Good morning, everyone. Maybe first, excluding sugar, the Company earned a 7.5% return on invested capital in 2013. Clearly below your long-term targets. But I am just wondering how below your targets, relative to your expectations, did you actually come in? Because the operating environment is a very large crop in Brazil. You had pretty good crush margins in the second half of the year in the Northern Hemisphere. And I am just trying to understand the delta versus your own expectations on the return performance.

Yes, I think this -- Drew can comment in detail, but the 7.5% return is with a 30% tax rate. So I think you can normalize for our forward-looking tax rate of 22%, 23%. You would bump that by how much, Drew?

0.5 point, a little bit more.

So you get to 8%, which would have been well in line with our expectations. So I think we achieved more or less as we expected. And going forward getting from a normalized return based on that forward-looking tax rate of 8% to the 9% that we desire is absolutely within reach.

Okay. And maybe along those lines, the 4Q performance in agribusiness, or those actually in line with your expectations? I know you characterized them as solid, I am just trying to recognize -- I would have thought the margin performance in the Northern Hemisphere could have up -- could have made it a bit better.

I think overall, agribusiness in Q4 did very well across all regions. And don't forget it was the second to the best year we have ever had.

One area was -- I think there could have been upside was probably in the US grain handling where farmer retention particularly in corn meant that the carry income did not come, that we normally would have in the fourth quarter, did not materialize. And as you might know there was some significant logistics snags, particularly in the Western Corn Belt that impacted returns of the export pipeline there.

So that is probably the only area I will say that we could have expected more and didn't get it, but really beyond our control.

All right. Thanks very much.

Ryan Oksenhendler, Bank of America.

Good morning. Just a follow-up on that. Thinking about the outlook for agribusiness next year, you have another record harvest coming in Brazil. It sounds like -- seems like there is going to be some more grains moving in the US.

Why won't next year be a record year in profits? Seems like the first quarter should get off to a really good start in the Northern HEMISPHERE for crush margins and then you have got Brazil coming online in the second and third quarter.

Well, there is no reason it couldn't be a record year. That's for sure. And the conditions you mentioned are clearly favorable. Good margins starting out in the Northern Hemisphere. Canadian canola margins are excellent. You are in front of a record crop in South America with good margins. Rape margins in Europe are good and in all likelihood will produce another very large soft seed crop in Europe. Grain handling volumes should be up. So, yes, the conditions are there for a very good year in agribusiness.

Okay, thanks for that. Then thinking about the drought conditions going on in Brazil, I know you did mention it could impact sugar. Is it having any impact on the soybean crop at all? And how might it impact the safrina?

I think the overall soybean crop will be -- definitely be a record one. The northwestern part of Brazil is probably better than people expect and there are some parts of the South that are a little bit worse. But on average the soybean crop in total looks to be really just an excellent one.

Plantings of the summer corn crop in Mato Grosso is well underway and looks good. The areas in [Parda] where we do have dryness and but I also know that we expect rains over the next 10 days. So that is probably a little bit too early to call. But, overall, the bean crop, I think, is more or less secure and we should still under any circumstance have a very solid safrina corn crop.

Great. Then, last question, in terms of the share purchase obviously appreciate returning cash to shareholders, but why is $200 million the right number? How did you come up with that and if there is $500 million left on the authorization could it be higher than that if maybe [in native] and develop and can you talk about the timing?

The timing is we are going to commence the repurchase this quarter so pretty soon. To buy the $200 million. And we will do that over a reasonable a period of time. As to why $200 million it was the amount we were comfortable with at this point. We are going to go ahead and complete that program and then will use our capital allocation project and process and continually review whether we want to add to that are not. As you indicated we would still have $300 million of availability under our current authorization.

All right. Thanks. I will leave it there.

Diane Geissler, CLSA.

Good morning. First of all, I appreciate the detail on your thoughts on capital allocation, the list of projects and how you have bucketed the spending. I just am curious about -- so to the extent that you are looking at the sugar business and you have hired a financial advisor to help you assess that, can you first of all tell me what is the current Karen value of the sugar business? I know you have had some asset impairments, et cetera.

And then to the extent that you do sell that business, how should we think about the proceeds? Does it flow into your regular capital allocation profits that you've articulated this morning or are you more inclined to pay it back to shareholders? And the reason behind the question is because investors have held your stock for the last few years with the promise that sugar is going to get better. Bad this year because we had a drought, next year it will be better. And that has never really materialized for shareholders.

So I guess this -- what I am asking is kind of a philosophical question like how are you going to going to make that right with shareholders if you do in fact sell the business eventually?

Thanks, Dianne. I don't want to give a precise number on the sugar business because it obviously moves based on how much inventories we have at any point in time or that type of thing. But it is typically between $2 billion and $2.5 billion of book value in the sugar business. As to what we will do with the funds, we will go through our capital allocation process and we will allocate it to what brings the biggest return to the shareholders. So if what brings the biggest return to the shareholders is return of capital to shareholders, we will do that. If what brings the biggest return to shareholders is an investment somewhere in our businesses, we would do that. But we will go through that same process we described earlier and are open to all the options with the primary principle being to maximize value, return to shareholders.

Okay. And in light of that statement, can you just talk to me a little bit about how you -- you have elaborated on a number of projects here that you have going on globally. Can you give us a little bit more clarity on where you think the weaknesses are in your asset base? So is it we need more exposure in Asia and China in particular? Or we need to have more assets in the Baltic region?

Can you give us an idea about where you think your relative -- I guess where you are not very strong, where you would be looking to grow on a geographic basis? Or on feedstock basis if you think, well, we really need to be in palm for instance, et cetera? Could you just give us a little bit more color on that?

Sure. I would say that the agribusiness we really do have a nicely well-rounded global footprint. But with a couple of gaps. One is in Australia. And you see one project, I believe, in the schedule that talks about Bunbury, which is the first of our investments in Australia. We need to build that out more. So Australia is a work in progress.

Western Canada is another piece of the equation that we still have to fill in. So those will be the two areas that we are currently looking at that we are not represented in.

Other than that I would say it is about continuing to strengthen our network in Brazil. Brazil will remain the powerhouse and whilst we have a fantastic presence already, we still need to build infrastructures to support our new export terminals and activities in the northern part of Brazil. And in the Black Sea we will continue to look particularly to the Ukraine to solidify opposition.

But where we have blank spots I will say it is Canada and Australia and the rest of it, really, is a matter of tailoring additional timing additional capacity to when the market needs it and not to get too far ahead of the demand curve which is one of the reasons we have been able to reduce CapEx a bit delaying some additional capacity projects in markets we already established.

Okay, great. Thank you.

So, let me finish, though. That is on the agribusiness. I wanted to make just one comment on food and ingredients, which is an important piece of our business. You can see it from the results this past quarter and last year, and we really do believe that we have a role to play in milling, in particular. Whether it is wheat, whether it is corn, whether it is rice milling, but wheat milling is probably top of mind. And there we are looking to solidify our position in Brazil and Mexico and, obviously, in the Americas in general. And where we can bolt on acquisitions that make sense and fit in our network we will be doing that.

Thank you.

Tim Tiberio, Miller Tabak.

Good morning. A very quick question on the milling side of the business. I really like the fact that you are adding more cash flow stability into the overall operating model. But I think it would be helpful to give some perspective what the incremental EBIT contribution could be now that you have made quite a few acquisitions in the space during the second half of 2013.

Is there any color that you can provide there?

The Altex acquisition will give a run rate of about $35 million. So that is the addition from that acquisition. Across all of our milling activities, Brazil and the existing ones in Mexico, we also do expect a lift in earnings as we become more efficient and as we improve margins in general. How much that is remains to be seen, but it is another positive on top of the $35 million. Say $35 million plus, I can't really give much more guidance than that, but we believe that there is upside in our existing business as well.

Okay, great. Thanks for your time.

Ken Zaslow, Bank of Montreal.

Good morning, everyone. Just a very high level question. How do you frame 2014 agribusiness outlook relative to past years?

I would say it is favorable. It's -- I think we just had the comment it has the potential for being a record year. So --

(multiple speakers) margin structure. That's margin structure then you have overlaid capacity expansions on top of that. That is what I am trying to get to, two pieces together, right? There's one piece on the operating environment margin structure and then all that you have spent over the last three to four years.

Yes. There are a few very interesting projects that are coming onstream that are on the map or the slide that Drew showed you. One is the port in Brazil, Terfron up by [Berlin]. That will give us an additional 1 million to 1.5 million tons of export capacity in a region that really needs it, so that will be in addition to let's say whatever the baseline you want to use. We have got Altona which is a new crushing plant in Canada that is coming onstream with almost 3,000 tons of daily capacity in what should be a very favorable margin environment.

So those are a couple of big projects that are coming onstream in the first few months of this year. That should have positive impact on the underlying business.

In addition to that, I think the overall environment is just one where we will have a better margin structure in general throughout the world and not just in one region. And grain flows and grain trade in general should be improving.

Great. You mentioned in your prepared comments that you have put in systems to spot certain weaknesses across your portfolio. Can you talk about what it has found so far?

I think Ken, in a broad way, as we take a look across the portfolio, we have operations in a lot of different countries. As we go in and we compare their [opformation], metrics and returns, we find opportunities in two regions. One is to drive our best practices across the Company and to get all of our facilities, manufacturing facilities, ports, logistics networks performing at the same high level. So we take the lessons from our best performers to the weaker performers and try to close those gaps, which is very efficiently because when we get productivity improvement in operating efficiencies of that nature it comes right through to our profits.

The second thing we do and we have always done is we take a hard look at the underperforming businesses that we have. We always have some markets that are performing better than others and some businesses that are performing better, and we are trying to be quicker and more consequent in addressing the ones that are performing below target. So I would think in the early stage those are the two big things we have seen and we are going to continue to work that process and pull out as much of that value as we can.

And another question I have is, in your slide deck you put together your mix of maintenance CapEx and your productivity and your growth. And I was able to go back to past presentations where you, the other slides were -- I was able to compare, but I couldn't figure out find any [tax] slide that showed that relative to past.

So how much actually did that mix change, say, three years ago to today? Or because it sounds like you are making changes, I am just trying to document what the achievements have been and if there is any color that you could lead -- help us out with that. That would be helpful because it sounds like productivity has become a greater part and growth has been smaller or could you just talk to that? The changes there.

Yes, I can, Ken. The big fact of change over the last couple of years is we have introduced more spend and we are putting a cap on our spending relative to the amount of assets we have that was grown over the years. So we have seen the total decline and we have looked to take that decline in two main areas.

One is actually in our maintenance CapEx. We have got a major predictive maintenance program in place that we started a couple of years ago that is now starting to produce dividends, and the dividend that it should produce is that we get better at it and have to do less major capital projects in that arena and do more in advance.

So we are looking to bring down the maintenance [point at par] because while it is essential, it isn't always value added. So we would like to minimize that. And I think the other place you have seen us shrink a bit is in growth CapEx because at the beginning of last year, mid last year, we decided to pull down what we were investing to really go with the higher return things and make sure markets caught up for the need to new capacity.

So I think those are the two areas where it you are seeing the change in what is happening.

Great. My final question is what are your other options besides selling the sugar business? What are you exploring? Can you just give us call it a laundry list of thoughts that we could think about?

It is really a full range of options and don't want to get into any details at this point.

Okay. Thanks.

Michael Piken, Cleveland Research.

Good morning. I have look -- I just wanted to see, it sounded like you had closed a plant down in Brazil for some tax reasons, an oilseed crushing plant and I wanted to get a sense for the thought process behind that and if it is a short-term thing or a longer term decision.

The facility you are referring to is idle. It is not permanently closed.

There is a shift occurring in Brazilian tax laws with how we monetize tax credits that we earn when we produce -- when we crush beans and sell the end products. And the quickness on which we are paid obviously reflects the return on investment when we operate and that particular plant does not have as high margins as there are others, so payments are slower, would not have a good return and until we see that new Brazilian system work and the money come back at the pace that is supposed to [we are light on] that plant. I would also note it to the off season in Brazil so we are not at the peak of harvest as we [thought] at the facility.

Okay, terrific. And out over the next couple of years, I know logistics are always an issue in Brazil, but with the World Cup and the Olympics coming up, how do you think that is going to impact your business or the availability of access to ports, road congestion, that kind of thing?

The only impact that I can think of, really, is it might have some -- it will probably have a positive impact in food service and food processor demand for basic food ingredients. But that is probably it. In terms of agribusiness flows and logistics, I don't see it having an impact.

Okay, terrific. Flipping over here to the US. The crushing margins have obviously been really strong. There's been recent uptick in the [PEDD] and your thoughts on the sustainability of the crushing margins bearing in mind that there's PEDD and potentially more competition coming from South America relatively soon.

Yes. I think the US crushing business will be very seasonal just like it was this past year. But demand is strong. Protein demand is strong, despite the heart disease, poultry margins have been good and demand in that sector has been excellent.

So overall, the demand for protein will stay strong in the US well into the spring. Sometime, probably late March, the US will stop being an exporter and South America will replace -- we will replace it and it will become a domestic market exclusively as we saw last year. And with that margins will probably come off somewhat and we will be running the industry at significantly lower rates of capacity than we have for the last six.

So expect good margins through the first quarter then a transition into the summer and then, in all likelihood, a fairly good fourth quarter again. Maybe not as good as this past year, but still a solid Q4. But very seasonal and very similar to last year and we are, as it turns out, running a soybean stock scenario that is not dissimilar to last year which means it will be quite volatile as we get into the spring and summer.

Okay. Thank you very much.

Michael Cox, Piper.

My first question is on working capital, and I understand by virtue of your business model that there is going to be volatility. But if we were to assume that grain prices remain relatively stable, is it fair to assume that working capital is a bit of a push here in 2014? Are there certain elements that we should be aware of for working capital that, irrespective of grain prices, would move up or down?

I think the only -- I think, one, we have got a lot of emphasis on working capital. So I think we will either be as efficient as we were last year or more efficient.

The one thing that could cause a little bit of a working capital increase is if the markets go from an inverse to a carry. You may be in a situation where there is a return on investment that keeps some more inventories in storage and if that is being the case we -- if the return was there we would probably do so and would cause it to move up a little bit, but would come with a corresponding income. But other than that there's no fundamental reason we shouldn't be able to operate at the inventory levels we did last year.

No, I agree with that and we continue to show year-over-year improvements in our cash cycle and that is because of the particular emphasis we have on working capital across all our operating companies.

Okay. That is very helpful. Then looking at your agribusiness, total volumes grew at a pretty healthy double-digit rate and, given some of the tailwinds you have from a surplus of crop, is it fair to assume that we see that at least some level of double-digit growth in, say, the first half of 2014 as you begin to process North American crop?

I would say for the full year, you should expect agribusiness volume growth probably in the 5% to 10% range up.

Okay. One last quick one. Following up on the share repurchase questions that have been asked already. Is there -- could you perhaps talk longer term in terms of the thought on the buyback? Is this the start of a broader commitment to repurchasing shares each quarter? Or just how you think about this from a longer term perspective.

I think it is exactly as Drew laid that out. It is part of our capital allocation framework where we look at share buybacks, dividends, M&A and CapEx on an equal basis with an objective of maximizing shareholder value. So I wouldn't say that it is not new from that perspective; it is consistent with what we announced back in October and what we are now executing on. So on an ongoing basis this doesn't happen once a year, this happens all the time. [We look at the] value and find the best use of our cash inflows.

Okay. Thanks a lot. I appreciate it.

David Driscoll, Citi.

Good morning. First I would like to acknowledge the slide deck is vastly, vastly improved over prior decks and I really do hope that you keep putting in balance sheet information and return on invested capital. Drew, that was nicely done.

First like to start off on sugar for a moment. First question is, Soren, I believe you said that if [R bob] prices in Brazil, if they would equibrilate to international prices that is what you need to solve the problem over there for Brazilian ethanol. [USR bob] is like $2.75 a gallon. What is the discount within Brazil versus the US price that approximates world prices?

David, I am not adverse in the statistics to the exact points of reference you are giving, but fundamentally Brazil gasoline prices are about 25% below international parity at the moment. They don't use the R, they don't use the US refined prices as the measure. It is based on a delivered basis in Brazil.

Maybe another way to say it, David, if you take the $2.75 or $2.80 and you take the logistics transportation cost to Brazil and the discharge in tanking costs and you calculate what that is in reals per cubic meter and you compared to where retail gasoline is being priced so a gasoline you will come up with that 25% discount that we are talking about.

Okay. One other question on this one when I look at Brazilian ethanol prices and compare them to US ethanol prices, Brazilian ethanol prices, local prices are higher than US ethanol prices. US corn ethanol producers are making very good margins right now.

So, there's a little bit of a head scratcher because it's, I would say, a very unfavorable situation that, at substantially higher ethanol prices locally in Brazil, you can't make money.

I mean, how do you see your way clear kind of going forward in this operation? I have no great hope that the Brazilian government politically speaking is going to jack up local prices for gasoline. So if you can't make money at these substantially higher prices, what is the prognosis here for any real improvement over the flat numbers that you have guided to for 2014?

Well, first of all there is still room for us and for the industry to improve efficiencies and we are working on that. It takes time, we have come a long way. Drew mentioned some of the more dramatic measures we have taken and the industry has taken to get in a better spot. The weaker currency is helping on top of that. That has been a headwind for the industry for a few years up until recently.

But I would also say that the current prices of ethanol, the intra-crop prices that you are referring to, are quite good. In other words if we could project the year out with those prices, we would largely bridge the gap we are talking about. When we say that ethanol is challenged, it is because we believe as is seasonally typically the case that once you get into the peak crushing period in May, June, July, ethanol prices have to actually go through or below sugar equivalent to buy enough demanded of in the domestic market. And that is where this problem with the imbalance between the world price and domestic price of gasoline comes in.

So, just to be clear the current prices that you refer to as being good, they aren't being good. They are very good. We wish they would continue.

Final question on sugar for me is the cogen issue. When you bought this there was a critical expectation by adding cogen, these would be very, very high return projects. You've stipulated on prior calls that you want to reduce your capital investment within sugar and, hence, this comment about strategic review. Why aren't the cogen projects still very high return given the power problems in Brazil? Why wouldn't you add that particular capital to those sugar operations? It seems to me that that -- I don't see why that piece of logic fails.

David, we have done some cogen projects and we add -- and we are adding capacity at the Moema mill and a couple of the other mills. So we have not abandoned them in their entirety. We have not started new ones. I think they would calculate other return on investment, but we don't want to be committing to new investment in the sugar business until we get through this strategic review and understand where we are going.

But we do think long-term cogeneration does pay. But it is a long-term investment. It is not an investment for the short term. So we need to know what the long-term strategy is.

That being said, David, we are going to see growth in our cogen generating ability. Last year, we generated about 300 megawatts; 2014 we are about 550 and will get to 7 -- a little over 700 by 2015. So we are in a rapid ramp-up in cogen and it will have a positive impact on our bottom line.

All right, that's crucial. Two more questions for me.

On agribusiness just to be super clear I really like Ken's question on this one and I echo the comments about what the forecast is for 2014. 2013 had a lot of different challenges in it. I mean it seems to be that your statement, to me, should be super clear that profits will grow in agribusiness.

But I feel like you have hedged on the call a number of times. Do you think profits grow in agribusiness in 2014?

The potential is there for them to be excellent and for us to set another record year. But you know the nature of this business as well as I do. It is very difficult to predict this far out. We are only in the beginning of February, but the potential is there.

You are the big man in the hot seat so you get the question.

We know. (laughter)

Final question is on tax. Drew, I have got to say this tax is awfully tough. Explain to me in 2014 why I shouldn't be worried about further valuation allowance issues, why there isn't going to be other write-downs? It is disappointing to see such incredible volatility within the tax line and maybe no guidance that those events might be coming.

So notwithstanding what has happened in the past, looking forward to 2014, what is the opportunity here that this tax rate is greatly variant from 23% guidance?

I think, David, I don't want to answer too specifically. I will come to the 2014 rate, but I think to put it in perspective and to take it to one example, when we took the decision to take the valuation allowance on our sugar tax assets, that means in 2 -- that means that we took a valuation allowance and took a one-time charge for the balance at the end of last year.

When we have losses this year we do not take a tax benefit. The impact that has on the tax rate is sugar reduces the profit before tax by its loss, but it does not reduce change the amount of tax we [play]. There is not a reduction. So because sugar pulls it down mathematically your tax rate is moving up if there is a loss on that business or any other business with a valuation adjustment.

So part of it is that factor. The rate going into from 2013 to 2014 has two major impacts that bring it from the 30% down to the approximately 23%.

The first is we are projecting a nearer breakeven performance in our sugar industrial business and our other businesses where there were valuation allowances. And the second is that we are implementing certain tax planning and capital structure initiatives. The two of them combined will bring down the tax rate to that 23% level.

If sugar were in other business with losses has greater losses it won't increase our taxes, but it will increase our tax rate because you will have the same effect of pulling down the profit before tax. So that is the factor at play there and that will exist going into next year.

But if you look at the forecast profits we have by entity and you applied the tax rate by legal entity that we have, you come to the 23% rate at the moment. But it does vary, based on how each entity moves.

As to your question on the likelihood of future valuation allowances, obviously at the end of each year, we take a look across our business portfolio, across our asset portfolio and we record the necessary valuation allowances, the charges we think are necessary. We recorded everything that we are aware of at the end of this calendar year, and we do not at this moment expect anything else.

But I know you have read all of our filings. We do have active tax matters around the world including tax claims about us and governments that are in courts. In those situations we have external legal opinion that say we are more likely than not to prevail so we don't record any liabilities for those. But anything that is in the court system, there is an inherent amount of uncertainty around it.

We also have and that is some of -- we took this year, looked at some of those court cases and said we will probably have a liability. We may lose and have recorded the liability. So to the best of our judgment we have recorded everything we should and all of those valuation allowances are in place. But we will see how it plays out over the next years.

Thank you for all the comments.

Matthew Korn, Barclays.

Good morning, all. It is late and the call and the weather outside is offering some sense of urgency. So I am just going to ask one. (laughter)

Talked a lot about the cost side, all of your ongoing attempts to improve efficiency, optimizing assets, take out the cost structure, the whole platform. Could you describe a little bit more on how you are benchmarking your progress? Your footprint and assets have been so wide, integration costs upstream, downstream it is very substantial. So maybe when you are measuring yourself maybe against your peers in different businesses and different markets, where are you pleased, where are you most challenged, how are you doing that right now?

The benchmarks we are you using are partly internal and they are partly external. Within Bunge, we are measuring like business units against a best in class in Bunge. So like business units where it will be oilseed crushing, grain origination or whether it would be in food milling packaging plants, whatever, are being benchmarks against the best we have in Bunge and the best practices we have in Bunge.

In some cases it will be calibrated for age and location, but we believe that within the Bunge network we have some of the best in the world. But it may not be everywhere. So that is how starting -- to the extent that we have external data and we do have some, we will use that in its place. That is what we call the gap analysis and it is part of the performance management process that we started back this fall and built our current budget around.

It is work in progress so we will perfect it through the next business cycle. But it is really this exercise of measuring all our facilities and activities against the best we know. And this is an exercise that is now led by our global segments because they are the ones who have global visibility and also have access and knowledge of external benchmarks and believe it is a very strong process that will really come into full fruition as we roll out the program this year.

And as you have gone through this on particular regions or particular businesses you can see a substantial lag versus where you want them to be?

There are some that stand out, but I don't really want to comment on them right now.

All right. Be well and be safe. Thanks.

Robert Moskow, Credit Suisse.

I am trying to model first quarter to the extent that it is possible and I think I wanted a little more clarity on the corn export programs in the US. Do you think that those will ramp up again in first quarter as farmers sell? And what you -- the opportunity that you might have missed in fourth quarter spills over into first. How are you looking at first quarter right now?

I don't know whether corn exports out of the US in particular will make a significant difference to Bunge, but probably not. But I would say that the US has captured global market share in corn, maybe a little bit more than the market and people expected. It is competitively priced and you can see from the weekly export sales that continues.

So first quarter should be very strong in corn exports out at the US and we should benefit from that. I think the more important part is probably that the oilseed crushing environment for the first quarter in North America remains very favorable. That has a bigger impact on us.

But, Soren, when you mentioned what you missed in fourth quarter you did talk about the corn export program. Is that -- just to be clear -- is that because you were positioned to benefit from the carry and the trade or were you benefiting from the volume?

I was trying to refer to two separate things. One was the income that we and the industry in general makes by carrying corn out of the crop into the new year. So that is more about storage, okay? That was not the same as you would have expected in normal years, simply because of the retention of farmers and the market structure didn't really allow for that. So that is a source of revenue that I think, in general, the industry just didn't get.

The other thing I commented on was specifically the logistics, snags in the rail transportation that work to the West Coast where the industry in general really suffered from poor ton times and bad logistics and lag of power, frankly, by the railroads. And we hope that will not be repeating itself as we get into the first quarter here. So those are the two impacts that I talked about in the fourth quarter.

I think in the first quarter of this year things are looking a little bit better, although logistics are still challenged on the West Coast. But in general, US exports should be good for corn.

I think that is what people are struggling with is this year's US corn crop was really, really big and most of us were forecasting big results because of it, but the carry trade, the normal movement in prices, I guess, didn't happen the way people thought. And that is separate from the volume.

So I am guess I am trying -- Andersons had disappointing quarter and ADM had disappointing quarter in agribusiness and it sounds like some of it just isn't going to happen. Some of it will because the volume just has to move, but some of the potential benefit just didn't happen.

We have come out of two really tight years with poor crops. And so this was the first crop in three years where the system really had a chance to replenish pipelines and, in the meantime, farmers have built more storage. So the impact of this year's large crop probably wasn't felt the way that you would have normally expected it in terms of developing large carries that would have added storage income to the industry.

I think another large crop next year you will get back to something that is more normal. But this is really in many ways a transition year in the US, both for corn and soybeans.

All right. I got you. Thank you very much.

Giovana Araujo, Itau BBA.

Good morning. My first question is about base of commercialization of grains here in Brazil. Current expectations is for the grade crop in Brazil in 2013, 2015 that the growth will be more concentrated in soybeans than corn, second corn crop will probably be affected by the drought here in Brazil. And the base of commercialization of beans is behind last year.

So my question is, do you see a change in the seasonality of your commercialization in 2015 or the lack of that?

Well, it is correct that the industry in general has bought less beans, price beans this time compared to the last year, but the pace of buying are the pace of selling from the farmer is picking up. So with a weaker currency and in general better futures we have seen over the last couple of weeks a pick up in farmer selling and pricing. And we expect that will continue. So suspect that by the end of March it will be back to the same level as last year. So, a lot of fresh pricing is coming into the market right now, which is good.

And as regards to corn, we are buying some of the, let's say, the winter crop corn, very little of the new crop, if any of the new crop. Safrina corn has been commercialized so far. That is still ahead of us.

Okay. My second question is about the sugar and ethanol business. It seems there are more sellers and buyers (inaudible) and the prices are still depressive. And the situation might not change in the next year or two. So maybe the better time to make a divestment or a merger is not now. What do you think about that?

Well, I don't have any particular comment on that -- where it is going, the full range of options, so I don't want to get nailed down to one particular one. One thing we are doing and that is very important for everybody to know is that we are relentlessly going after cost and improvements in our existing business. That is really what we are spending day and night on putting ourselves in the best possible position for whatever comes.

Okay. Thank you.

We have no further questions at this time. I would now like to turn the call back over to Mark Haden for closing remarks.

Great. Thank you, and thank you everyone for joining us today on our fourth-quarter call.

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