Bunge Global SA (BG) 2014 Q2 法說會逐字稿

Welcome to the Q2 2014 Bunge earnings conference call. My name is Dawn, and I will be the 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. Sure, you may begin.

Great. 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 investor section of our website at Bunge.com and 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 investor 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; Drew Burke, Chief Financial Officer; and Gordon Hardie, Managing Director Food & Ingredients. Gordon will provide a detailed update on food and ingredients and discuss our strategies for growing and extracting more value from that part of our business. Gordon joined Bunge in mid-2011 and has deep experience in the food and beverage sector. Prior to joining Bunge, he led the fresh baking division of Goodman Fielder in Australia and New Zealand for seven years, and served in a number of leadership roles at companies including the Fosters Group and Pernod Ricard.

I'll now turn the call over to Soren.

Thank you, Mark. And good morning and welcome to everybody. We had a strong performance in the second quarter with all segments reporting higher year-over-year results, and we feel optimistic about the year.

Strong global oilseed processing margins driven by big crops and growing demand led to significantly better results in the Agribusiness. Improved operational in our commercial performance and the addition of our new wheat mills in Mexico contributed to a record result and quarter in Food & Ingredients. The results demonstrate the potential of the segment in the value of integrated oilseed and grain chains.

And Sugar & Bioenergy performed as expected to impart to our continued progress in containing costs and increasing productivity.

Overall, we are confident that on a combined basis Agribusiness and Food & Ingredients will generate a 2014 ROIC of at least 1.5% above our WACC of 7%.

Now let me review some specifics from the quarter starting with Agribusiness. Our performance was driven primarily by excellent results in oilseeds. Strong soy crush margins in Brazil, Argentina, and southern Europe and very high rates of utilization led to excellent results. The crushing environment in China, however, was poor.

We managed risks in oilseeds very well through the steep drop in futures, volatility in spreads, and very strong cash markets.

Our team executed our Brazil and export program flawlessly with vessels turning at record pace in all our ports. Additionally, our new ports Terfron located in Barcarena, Brazil started operations loading the first few cargoes of soybeans destined for Bunge Spain.

Grain origination volumes were lower than prior-year as farmers held back sales due to the significant drop in prices. However, our global grain distribution and trading operations for active with good margins. We managed risk in grains well as markets reverted to lower prices as suggested by our fundamental analysis earlier in the year.

The oilseeds and grain markets are beginning to reflect record crops in both the US and in Europe where we expect a strong restocking to take place. While producers selling will likely be restrained in South America for the balance of the year, we expect our operations in North America and the Black Sea to benefit from increased exports of grains, oilseeds, and oilseeds products driven by record crops and strong demand pool.

Global trade will remain active and capacity utilization of both oilseed crush and export infrastructure in the northern hemisphere will be very high from September onwards. We expect strong performances from our recent port investments in the Pacific Northwest, Black Sea, and Australia and from our new crush refinery in Altona, Canada.

Northern hemisphere soy margins should repeat last year's strong pattern and with record rapeseed and sunseed crops in Europe, we also expect very favorable conditions here. We have an experienced global agribusiness team which is prepared to execute in the second half of the year serving customers and managing global pipelines and risk.

Similar to foods, we're also focusing on performance improvement in our Agribusiness segment. In addition to risk and margin management, our focus is on logistics performance and best in class industrial operations. We will elaborate more details on our agribusiness initiatives that are investor day on December 10 in New York City.

In foods, we had a record quarter. We are sharply focused on our customers and positioning ourselves to grow with them while simultaneously making our operations and supply chains more efficient. Gordon will go into this more detail later in the call.

In combination with bolt-on M&A, this year Bunge's earnings from Food & Ingredients will grow from 22% to about 35% over the next few years. Better balance, more stable earnings, and higher returns are our objectives.

We had a positive quarter in Sugar & Bioenergy. Results in our global trading and merchandising businesses were positive but below last year's strong performance as the global sugar surplus temporarily pressured margins. We have approximately 10% global market share in sugar and trading and merchandising and we are committed to building an even stronger presence over time.

In sugarcane milling, results were above a year ago. We are making good progress managing costs and improving the efficiencies in our mills. The effects of our improvement and efforts will become more visible later in the year as we move into peak crushing periods. We continue to expect the Sugar & Bioenergy segment to be breakeven and free cash flow neutral for the year.

The strategic review of our sugarcane milling business is progressing. We remain committed to completing it and achieving the best results for our shareholders.

So overall, we had a strong second quarter. SG&A is tracking better than planned and our cash cycle is down. We feel optimistic about the year and the direction in which we are heading.

Now I'll turn it over to Drew for some additional insight to the quarter and our outlook.

Thank you, Soren. Let's turn to page 4 and the earnings highlights. Bunge had a strong second quarter with total segment EBIT of $418 million versus $239 million in the prior year. All segments performed above prior-year. Our food business continues on a strong trajectory and achieved record quarterly results. Gordon will talk in more detail about how they are achieving that later in the call.

Agribusiness EBIT was $311 million versus $170 million the prior year. The results are driven by strong results in our oilseed processing business. Processing results were strong throughout our network led by strong soybean processing results in South America and Europe and canola processing in Canada. Processing results in China remain weak but did show some improvement as we moved through the quarter.

Grain origination results were lower than prior-year due to reduced farmer selling in South America. Risk management results were in line with prior-year and our expectations.

On a year-to-date business, Agribusiness adjusted EBIT is above prior-year at $390 million versus $345 million in 2013. Our Brazilian business has performed very well throughout the year.

Our food business continues to perform well and had a record quarter with $90 million in EBIT versus $63 million in the prior year. Our wheat milling businesses have been particularly strong in both Brazil and Mexico. In Brazil, our focus on higher value-added business and on increasing the efficiency of our manufacturing and supply chain operations has resulted in higher margins. In Mexico, we have successfully integrated the acquired wheat mills into our existing business and are achieving our earnings and performance targets.

Edible oils also had a strong quarter led by our Brazilian business as the benefits of our increased customer focus and operation improvement programs flow through to the bottom line. Europe also performed above prior-year.

On a year-to-date basis, Food & Ingredients adjusted EBIT is $144 million versus $122 million in the prior year. The increase performance primarily reflects the strength of our wheat milling businesses.

Sugar & Bioenergy had a second quarter EBIT of $6 million versus a loss of $3 million the prior year. The improved performance is due to better results in our sugar milling and biofuels businesses as our trading and merchandising business results were below prior-year.

The second quarter's weakest quarter for the sugar milling industry due to the crop cycle, and earnings should increase as we move into the third and fourth quarters.

The milling results benefited from higher crush volumes, higher ethanol and energy prices, and the reversal of $10 million mark to market related to our sugar hedges.

On a year-to-date basis, Sugar & Bioenergy had an EBIT loss of $58 million versus a $20 million profit in 2013. The lower performance is primarily due to $20 million in mark-to-market losses on the sugar industrial hedges and a decline in the performance of our trading and merchandising business. Trading and merchandising had a strong first half in 2013 and a weak first half in 2014 as gross margins were lower.

Our Fertilizer segment EBIT improved from $9 million in 2013 to $11 million in 2014. Year-to-date earnings are also higher at $17 million versus $12 million in the prior year.

Net income available to common shareholders was $272 million in 2014 versus $110 million the prior year. The result in earnings per share from continuing operations also increased from $0.74 to $1.76 a share. On a year-to-date basis, earnings-per-share was $1.67 versus $1.89 in the prior year.

Our income tax rate for the first half of the year was approximately 36% and is influenced by earnings mix primarily related to losses in the sugar business for which we do not recognize the tax benefit. Our full-year tax rate is estimated at 23% as certain tax planning initiatives come to fruition and sugar results improve as we move into the seasonally stronger portion of the year.

Let's turn to page 5 and our return on invested capital. This continues to be our main focus and we are seeing sequential improvement. For the period ended June 30, Bunge Limited return on invested capital was 6.3% and below our WACC of 7%. The below WACC performance is due to the impact of our sugar business. If we look at a return on invested capital excluding our sugar business, it is 8.4%, 1.4% above our WACC and in line with achieving or exceeding our target of 1.5% above WACC for 2014 and two points above our cost of capital in 2015.

Let's turn to page 6 and the cash flow highlights. For the six months ended June 30, cash flow used by operations was $791 million. This cash outflow follows normal seasonal patterns related to the South American harvest. At June 30, 2014, our working capital employed was approximately $1 billion lower than 2013, reflecting our continuing focus on balance sheet management and declining commodity prices. At the end of the quarter, we had approximately $5 billion in committed credit lines of which $3.3 billion were unused and available.

We repurchased $108 million of shares in the quarter.

Our capital expenditures for the six months were $351 million in line with our plan for 2014.

Let's turn to page 7 and the outlook. We remain positive about our outlook for the rest of the year. Large crops are expected throughout the northern hemisphere, which should result in continued low crop prices and increased demand. Forward crush margins are strong in both North America and Europe. China processing margins remain weak, but there are signs of improvement. Grain merchandising volumes should be strong in North America with South American volumes dependent on farmer selling. On balance, it should be a good second half, weighted more to the fourth quarter as we work through the northern hemisphere harvest.

Turning to page 8, we expect Food & Ingredients to have another record year as they continue to build momentum and continue to realize results of their performance improvement efforts. Gordon will talk in more detail about our food business in a couple of minutes.

Our sugar industrial business is entering the seasonally stronger second half. We expect the business to be profitable given the current market prices, the impact of our productivity improvement efforts, and our cane supply. We have adequate cane to crush at or near capacity and expect to do so, but weather is an important variable. We expect the segment to be breakeven for the year and the business to be free cash neutral or positive.

I will now turn it back to Soren.

Thank you, Drew. As discussed, we have embarked on a significant effort in Bunge to grow and improve our performance. Today we would like to share some of the highlights of our work in our Food & Ingredients segment.

On slide 10, we show the six principles on which we base our overall performance management approach. First, a clear focus on value creation, granularity to drive improved execution, closing gaps to achieve best in class performance in key KPIs, driving major initiatives more effectively, and finally ensuring that accountability is clear and incentives appropriately aligned. We are applying all these in our Food & Ingredients efforts.

Of course our ultimate goal, as you can see on slide 11, is to generate returns 2% above our WACC. We expect get close to that this year. Now please turn to slide 12.

Part of our strategy to drive higher returns over the long-term is to achieve the right balance in our portfolio. We plan to expand this year our value-added businesses from 22% to 35%. That means a bigger Food & Ingredients segment with increased presence in higher-margin sectors like grain milling, processing, and in oils and fats.

We will accomplish this to both organic and bolt-on M&A with strong connectivity to our existing ag and food value chains. A bigger share of value-added businesses, each performing better and extracting greater value from operations, will have a material impact on our overall performance and value creation for shareholders. We have already seen positive impacts to the bottom line and expect much more in the coming years.

Now, I'll turn it over to Gordon who will provide more detail on our targets and our strategy. Gordon?

Thanks, Soren. Good morning, everyone. If you can now turn to slide 13. This slide shows how Bunge operates across the oils and grains value chains. In this model, Food & Ingredients works in an integrated fashion with our Agribusiness to capture more value down the chain through further processing, adding functionality, and wider applications to B2B and B2B product ranges at higher margins and returns than unprocessed commodity.

For us, these value-added businesses must be connected to the upstream agribusiness operations where we have supply, scale, and risk-management advantages. This approach leverages the privileged assets of agribusiness and gives Food & Ingredients advantages such as direct and certain access to high-quality and safe supplies of raw materials every region, cost efficiencies from scale and integration, supply chain capability to deliver consistently irrespective of market volatility and risk-management expertise. These advantages give us very strong value propositions to market-leading customers around the world.

This model is proving very effective for customers and for us. And has led Bunge to build a scaled business with strong market positions in attractive markets.

On slide 14, you can see how we have been extracting greater value from our food business with this approach over the last few years. Volumes have grown at 2.4% CAGR from 2009 to 2013, with EBIT growth up 13.6% over the same period.

2013 was a record EBIT year for Food & Ingredients and we are on track to deliver another record year in 2014. We now have a Food & Ingredients business with a coherent value-added strategy with differentiated capabilities and focus on the right product market mix to further enhance profitability and returns.

If you turn to slide 15, let me spend a few minutes outlining our view on how we believe the business can deliver by the end of 2016. When you add to the current base run rate of the business, the impact of our performance improvement program, and our recent acquisition in Mexico, we see a path to $425 million by the end of 2016 with a return on invested capital in the 11% to 12% range up from 9% in 2014.

We would expect to see about $100 million of incremental organic EBIT improvement from the program coming through at a level of about 20% in 2014 and 40% for each of 2015 and 2016.

Our Mexican milling acquisition integration has gone very well and is right on track. We are comfortable with how that business is performing and with the depth of talent and capability in milling it has brought to our business.

On slide 16, let me spend a few moments on the program of improvement that is underpinning our business performance. We see significant opportunities to lift performance by strengthening our operation and commercial capability. Today, I will talk about the operational side and give you more detail on the commercial element at the investor day in December.

To deliver top-quartile returns for food businesses, you need best-in-class operations. To close the gaps we have identified, we are focused on three strongly interlinked areas of optimization: assets, process, and supply chain.

Asset optimization is about lifting overall equipment effectiveness or OEE, a global standard measure for plant performance and capacity utilization to best-in-class levels. Process optimization is about increasing yields using state-of-the-art optimization methods, and supply chain is focused on achieving best total delivered costs in each of our businesses.

If you turn to slide 17, you will see we are linking both commercial and operational capabilities into a revitalized management operating system for the food and ingredients business. We kicked off in three of our largest business regions with initial focus on operations where we are making significant progress in efficiency, unit cost reduction, and customer service improvements. We will continue to rollout this approach in the second half of this year and in 2015.

If you turn to slide 18, I will take you to an example of asset optimization. This management operating system is now installed and running in 19 plants with all facilities showing initial productivity improvements approximately 4% on total industrial costs. In this particular example, in a large-scale plant, we have increased overall equipment effectiveness by 10 percentage points in wave one with another 10 percentage points of improvements to come in wave two. This improvement will put this plant at what is best-in-class level of operating efficiency. This approach is delivering sustainable and repeatable productivity improvements and strengthening the overall business.

On slide 19, let me share with you a supply chain example. In all of our key markets, we have introduced more disciplined supply chain management standards to reduce costs, reduce working capital, and increase service levels. In this example, in one of our larger businesses we have reduced our logistics cost by 6% in wave one since February with another 6% opportunity to come in wave two. These processes and tools are allowing us to reduce logistics and distribution costs, optimize our networks, simplify our distribution, and increase on-time deliveries in full.

So to summarize on slide 20, we aim to grow Food & Ingredients to 35% of total EBIT of the Company. We will deliver this goal through organic growth of the core business, a disciplined performance improvement program, and bolt-on acquisitions that have a strong linkage to the full oilseeds or grains value chains. We believe this approach will deliver higher returns and lower earnings volatility for Bunge and this is already evidenced in the results of 2013 and half-year results of 2014.

As Drew and Soren mentioned, we expect this performance to continue and are on track to deliver another record year in 2014. Thank you.

Dawn, that concludes our prepared remarks. And now we'd like to turn the call over for Q&A.

(Operator Instructions) Ann Duignan, JPMorgan.

Two quick questions. One, the risks in North America. Can't help but wonder what could go wrong as we move into a potential record harvest season. And two risks that we see out there -- one is the lack of railcar capacity to move crops out of the Midwest; and two, we're seeing a flood of DDGs in the US and what could that do to soy meal prices and margins. Could you address both of those tell us whether either of them could have a material impact on your second-half earnings?

Yes, I can do that, Ann. On the logistics front, I think similar to the year before this one in Brazil, the market, ourselves and other participants have had a year to prepare better. Last year was a surprise in terms of particularly railroad performance in the West. So I think we're in a more -- let's say we know what to expect now.

And we've had many discussions with the railroads. We're working very closely with them to make sure that we get turn times up, that we make the best of the available capacity that's out there. So I think we're walking into this with our eyes open; so is the market. And just like you saw in Brazil this year doing the same down there sort of made the whole transition a much smoother one.

So I think we are better placed, but that being said there's no doubt that will be a lot of pressure on transportation in North America and the US in particular both on the rivers and with rail. And of course all of that will be reflected in the price to the farmer. And we are able to price this in and manage risk accordingly.

In terms of DDGs and the impact of the -- to say the flow back of the export flow to China on the back of the GMO issue. It will have most likely a negative impact on soybean meal domestic consumption. We will probably feel it mostly in the total March period. But on the other side, the US is the cheapest origin for soybean meal exports in the world. And so I think you can see it from some of the USDA projections or also privates. We do expect a record October/March shipment program out of the US.

So whatever you might miss domestically in the US we will make up for in increased exports. And our footprint in oilseed and soybean crushing is one where we are nicely oriented towards exports. So we will benefit from that.

So I think for Bunge, it's not going to be a big impact or at least not material. And we will have a nice offset on the export front.

Okay, thank you and then just one quick follow-up on the improvements, the operating improvements. Just curious when you talk about world best in class as a benchmark, are we talking world best-in-class food processing or are we talking about best in class globally in terms of processing, food processing. I just worry that our benchmark is maybe not world class in the overall scheme of manufacturing or processing.

Hi, Ann, this is Gordon. We have external benchmarks both from the food industry and other industries in terms of planned performance. So if you take a measure like OEE, there would be global standards of best practice both in the food industry and outside. And that's what we aim to --- we have some plants there already and goal is to get the whole fleet of plants up to that level.

Okay, thank you. I'll get back in line. Appreciate it.

Adam Samuelson, Goldman Sachs.

Maybe first, Soren, a question in Agribusiness and the volume performance year to date. I think you were up 2% in the quarter and only 1% in the first six months despite some very large crops in South America and the back end of a very large crop in the US last fall. Just trying to get a sense -- has the volumes this year lived up to your expectations, and if it hasn't, where has that shortfall really been driven?

Well, Brazil certainly is the highlight. We have grown, in fact, market share in Brazil this past six months and where we haven't grown as much has been in North America. We were hampered like so many others by the export constraints, logistics, early in the year, the first quarter in particular. In Argentina, we have grown with the market. So I would say that the real highlight has been in Brazil and the less excitement has been in North America and in Argentina.

But I think as we get into the second half of the year now we will have significant improvements in both North America. We are prepared and ready for a strong export program off the West Coast in the US, in the Gulf as well. And in the Black Sea, we are fully up and ready to run our port in Nikolaev and also exports out of Russia at full speed. So the second half should show us an improvement in volumes that exceeds that of the first.

Okay, that's helpful. And then on the initial color on Food & Ingredients and the [medium-term] earnings growth was helpful. A couple of questions there. First, could you talk about the $100 million of organic earnings growth? How much of that is volume growth versus cost out?

And then more kind of philosophically you also talk about extracting the value from EBIT growth despite more limited volume growth there. How would that slide 14 look if you were to chart ROIC for Food & Ingredients?

In terms of the improvement program, I think it's weighted to --- we would expect volumes to grow at about 2% to 3% per year and then we would look to improve margins by mix shift and then cost out the combination. So I would say the majority of the $100 million would come from shifting margin mix and efficiency gains in manufacturing and supply chain.

Adam, I think the key issue here is we have really looked at how do we increase our returns in that business. So we have given as Gordon said, we've given up some volumes that came at pretty low returns and pretty large margin and focused on the higher-margin opportunities. So you're getting an organic stronger growth in high margin activities, but we are given back volumes in low margin activities.

So you're not seeing a whole lot that [prepares] the revenue growth because we made a conscious decision to shift the portfolio and at the same time you're getting the cost reductions rolling through.

That's helpful. Can you give an example of some business lines or product lines where you've actually exited? It's hard to really tell from the outside given the kind of different buckets in there.

Yes, I think we've gone through each of the channels B2C and B2B, and we've looked at where cost to serve might have exceeded the margin from that channel or that customer group and we have systematically cut back in that. We've done a lot of that work for example in Brazil. We've done quite a lot of that work in North America.

So really it is focusing the efforts on the business where we can achieve our target margins and not chase volume for volume's sake.

Okay, that's helpful. I'll pass it along.

Michael Cox, Piper Jaffray.

Thanks, guys, and congrats on a nice quarter. My first question is on all the headlines on Argentina. I was just wondering if you could comment on what that if anything means to Bunge either just from a currency standpoint or from business-related issue perspective.

We do not expect a big impact from the recent developments in Argentina. Argentina has always been a good market for us. It's a business we like. We're a major exporter and a major exporting industry for the country. So we expect that to continue to operate as normal as it affects our business. It may have some impact on domestic markets in Argentina but our activity in the domestic markets is relatively small.

Okay, and within the Agribusiness segment volumes were relatively flat in the first half compared to last year. I know there's a lot of moving parts here, but if you were to look at it in aggregate, should we see that growth accelerate the back half given the commentary around exports from North America?

Yes, you should expect to see a pickup in pace in the second half. One thing I should have mentioned earlier was that China --- our crush volumes and shipments to China were clearly down in the first half. So that's a contributing factor and some of the crush rates and export out of Canada were down as well because mostly of weather problems. So between China and Canada those were the negatives but we had nice offsets, as I mentioned, but particularly, Brazil where we gained market share. The second half of the year should show nice growth.

Okay and then one last quick one on the share buyback program. You've bought back 200 million, any thought on stepping up the buyback from here and does the strategic review of sugar prohibit you from doing anything from a buyback standpoint?

Well, as you mentioned, we bought back $108 million worth of shares in the second quarter and we intend to buy another $100 million worth of shares in the third quarter. This is all part of our capital allocation framework that we presented to you a couple of times where we will continuously evaluate how best to use funds from operations, where to deploy it with the best return.

So this is not something that we will announce once and then do. We will look at this every month and depending on our performance and our balance sheet, we will step it up or slow it down. The one thing we will not do is get ahead of ourselves. The most important thing for us is to make sure that our credit rating remains at the BBB and therefore to make big statements about what we might do later in the year just doesn't serve any purpose. We are committed to making a balanced allocation of capital from our operations and we will proceed with $100 million now in Q3 and then we'll see where we go from there.

Very good, thanks a lot guys.

David Driscoll, Citi Research.

This is Cornell in with a few questions for David. Congratulations on a nice quarter. Just want to get into a little bit about the pacing of earnings in the back half of the year. So basically I think the message that you are sending is that we should look for the fourth quarter to be stronger than the third quarter on an absolute basis.

And then just getting into the drivers of that, is it basically depending on the way farmer selling is heading down in South America so that you see a slow pace of selling in the third quarter but in the fourth quarter things just get a lot more robust in the environment because the big US crop?

Yes, in the fourth quarter we will have both North America and all of Europe running at full speed. We will be running at full speed in the Black Sea, Eastern Europe, Western Europe, Southern Europe with soy. And we'll be running full out in both Canada and the US. So that's really what skews the results towards the fourth quarter. The third quarter is more of a transition where we will still have nice contribution from South America.

Fourth-quarter in South America really is a matter of farmer selling particularly in Argentina. Brazil at that time will be mostly servicing a domestic market. And school is still out and what happens in Argentina in the fourth quarter, there will be retention most likely as we saw last year. The question is how much.

But the skew to the fourth quarter really is a northern hemisphere situation. And we will --- we might be up and running faster in September but certainly October, November, December will be full speed.

Okay and then in China know that the environment was still weak but you did say you saw some sequential improvements there. Can you just talk about the conditions on the ground there and what the outlook is for maybe the next couple of quarters?

Yes, I think we are clearly in improving situation from what was admittedly a very negative crush environment in the first half of the year. We are now moving into a better situation. Underlying fundamental demand for proteins in China is strong. Livestock profitability is back in positive territory and offtake approaching is very strong.

Clearly, the reduction in DDGS imports if that continues will be to the benefit of soybean meal. So that will be a positive element as well.

So demand is -- underlying demand is strong. And what we are doing at the moment and will do probably for the next quarter or so, is to digest this excess of soybeans that have been imported into China. The second quarter was an all-time record shipment of soybeans into China and we are now chewing through that inventory. And as we do that, margins will improve.

So I think Q3 will be a transition, Q4 should be good and in all likelihood we would have a good first quarter as well in China.

And just one question -- moving onto the sugar ethanol business. I know you guys mentioned that weather is kind of a key variable there and I believe it's been pretty dry down in key parts of Brazil. Going forward, if that continues, what type of impact would that have on your business and maybe the guidance that you have of flat profitability, breakeven profitability this year? And are there any offsets that you would see that are emerging?

It's volatile from a weather perspective, and you are right we've had reasonably dry weather the last week or so. We actually had a little bit of rain. But we're only 35% through harvest, so we've got 65% to go. The weather outlook for August is mostly dry, but we need dry weather through September and October to be comfortable that we hit our rates. We exceed them, it's possible. But at this point I think our forecast for the 20.4 million tons of crush for the year is about as good of a guess as we can make given the variability that you do have from rains on and off.

So I don't think we want to increase or decrease at the moment. We feel comfortable reaching that we also feel comfortable that the ATR, which is a very important variable in this is tracking according to plan. So at this stage, I think the breakeven forecast for the segment is a solid one.

Okay, thank you.

Christine Healy, Scotiabank.

Thanks, first I just want to add on to the Argentina question that you were asked. Just with the significant devaluation of the peso in the last year. We're coming up to another planting season, so farmers could be in a bit of a financial bind. Can you talk about what loan and barter programs you have with the farmers there? What kind of credit risks you have and how any of that could change in the upcoming season?

We do not have significant credit risks with farmers in Argentina. So it is not a major issue from our side.

Okay. So more of a barter situation than loans is kind of what you're saying?

Yes, or spot purchases.

Okay and then just as you get further into your strategic review on the sugar business, it's been several months now. Just curious -- how real a possibility is it that you could choose status quo? Just run the plants at breakeven until October elections potentially bring policy changes. Is that a serious option or do you guys feel under pressure to do something?

The process is ongoing and we are making progress. We are exploring different alternatives but timing as you suggest is difficult to predict. The state of the industry and the upcoming elections makes it very hard to give a date as to what to do.

We will do the right thing for shareholders. We don't feel the pressure to do anything with the timeline. So let's see how it goes in the next month. But the process is still ongoing and we are satisfied with the progress we've made.

Okay in just one last question, I just want to clarify something on the Food & Ingredients projects that Gordon was talking about. When you look at those bar charts the before and current and target, I just want to confirm. Is the before 2013 and then the target is it 2017 forecast?

Are you referring to the charts on the individual performance improvement measures?

Yes. I just want to confirm what the timing is for the before and the target. Is that 2013 the before and then the target is 2017?

Yes.

They would come through in 2015 and 2016.

2013 is a reasonable base to assume.

Yes, that's the base. And then we've obviously made progress this year and we would expect to make more progress again next year. So you could look at it over 2014 and 2015 and some will flow into 2016.

Okay, great. Thanks, guys.

Ken Zaslow, Bank of Montreal.

Soren, when you think about the process you underwent with taking the food ingredients to a new level, I know Gordon has taken care of it. But when you kind of implement the process, can you talk about what the process was that made you think that you could get there? And is there a process that you could overlay that onto the Agribusiness? And is there a synergy level that you'd expect to get over time from there as well?

Well, let me start with the last first. We are doing the same thing or similar things in the Agribusiness. It's a different business, obviously. So our focus in what areas to improve on are different. Logistics and operations, particularly crush operations globally are the two things that we have in focus but very much a similar approach to how we implement program along the lines of what Gordon has talked about. Taking the best of what we've got in Bunge or externally and making sure that we get it implemented quickly and all parts of Bunge.

That we will go through in some more detail at our investor day in December. It's a much larger undertaking, which is why we couldn't do it now but we will do it in December. So you will see more specifically what it is we're talking about.

But there are a lot of similarities the programs and the improvement effort; they feed off each other. We've made sure and we are making sure that the teams that are working and that people who are leading these efforts are connected both across Agribusiness and Food. So we're benefiting from the knowledge and experience on both sides.

In terms of what made us realize that we had a potential to grow our Food & Ingredients business, well, I think it's been a collaborative discussion amongst the executive team here. What we did know -- what we knew for sure was that we had grown a sizable global business over the last four or five years in terms of volume, presence, and market share. And we were all somewhat frustrated about how it wasn't returning more. It had the potential to do more.

So that's why we turned our focus on saying how can we get more out of this. We've got great market shares, we've got good positions. We've got an advantage link to agribusiness that should be an advantage pretty much everywhere in the world. And as we systematically went to the areas in which we could improve, we discovered that there really was indeed a significant opportunity. And we are now executing on that. So it wasn't one thing, it was just the potential and actually a good team effort by everybody across the business.

Okay, thank you. Is there any progress or update on the sugar sale or what you're doing with that asset? And can you just give us an update on that?

Well, I can just repeat what I just told earlier which is that the process is ongoing and we are pleased with the progress we've made and how we reduce our exposure to the segment. We're exploring various alternatives, so it's active, it's alive, but the timing is very difficult to predict.

The state of the industry and the politics in Brazil, the upcoming elections really makes it hard for me to give you any hard date as one should expect something but you can rest assured that we are working on it.

So the politics and the environment may actually delay the opportunity that you'd be able to monetize that [asset], is that kind of the update? I just want to make sure.

I think the point is just that how you put a value on something like this is influenced by so many factors and politics in the state of the industry are obviously a big pieces of that. And so we don't feel that we are under pressure to do something that is not in the interest of shareholders, so we're making sure that we make a measured and timely decision on this. And that's why, I don't want to get boxed into giving a date.

And my last question is do you foresee any dislocation opportunities arising over the next three to 12 months that may come about for you guys?

I think for the next six months, probably nothing major. There will be some dislocations most likely involving quality in wheat which is the only crop issue at the moment that is becoming pretty clear that we've got a global wheat crop which does not have a very good quality. So there may be some trade flows that are influenced by that.

There will be the dislocation opportunity, if you wish, coming out of probably in the fourth quarter, whatever happens in Argentina with farmer selling. That's something that we're all monitoring very, very closely. There is a significant potential for large carryout in Argentina again this year with soybeans, so one way or the other that will have impacts on margins of the other part of the world.

So I would say it's probably a matter of the combination of soybean retention in South America, Argentina in particular and wheat quality. Those are the two things that stand out. And then beyond that, we still have to grow next year's crop in South America. So, we're assuming that will have a long period of abundance, but that could change by the end of the year if things don't go well.

So the next thing we'll be looking at is planting progress and crop development and South America as we get into the fall here, and who knows how that turns out. You know how quickly things can flip.

And has there been any change, a big break in basis anywhere for you to capitalize on?

Well, the basis levels in general on an FOB level whether it's in the US or in South America, probably at an all-time record high. So it probably wouldn't be in buying it. But in the interior, depending on transportation costs there could be opportunities as we get into the fall harvest here. But it's a little bit too early to comment on that.

Great, thank you very much.

Tim Tiberio, Miller Tabak.

Thanks for taking my question. Going back to the sugar guidance for the full year. Drew, can you just remind us how much you expect to generate out of cogeneration this year? And when we look at the second-half sensitivity, how much dependency is there on your outlook for the ethanol versus cogeneration, and then raw sugar futures in the second half?

We have increased our co-gen capacity from last year, so we would expect revenues somewhere in the $30 million range. And as we have said before, that's a high margin business, so the profits may be somewhere in the low $20 millions.

So co-gen has developed very nicely in the energy market and Brazil is very strong. So that's a business has played out very well for us.

And I'm sorry I missed your question on the raw sugar?

Well, I'm just trying to get a sense when you are looking at the second half to hit the breakeven forecast, what is the most sensitive part from your perspective at this point? Is it on the ethanol side or the development and raw sugars futures for the second half?

I would think it's a couple of factors. The first is the production and cost side is essential as we move through the year because crushing volume is a huge variable. And while our facilities are running, we have all the cane. We need the crushing season to be long enough, which implies we don't get too many days of rain.

So we have budgeted in very normal weather conditions based on long-term forecasts. But weather doesn't always follow the long-term forecasts. And then secondly, the sugar content in the cane is an important variable. So I would say those are the two major things.

Then as you rightly say, pricing is important variable. I would say the ethanol price is probably more likely to very been the sugar price at this point. We can't hedge ethanol; we can hedge some of the sugar.

Okay and just one last question on your port utilization in the Pacific Northwest. Can you give us a sense of what utilization was in the first half? I know you were impacted by weather events this year. But looking towards the second half and a very ample crop development, where would you expect the port facility utilization to likely come in looking at current crop conditions?

Transportation allowing, meaning that we can get the goods to the port. There's enough demand and certainly enough grain supply to run the port at 90% plus. So whether we do that are not really is a matter of execution and transportation. As we talked about earlier, that is an area of risk for the industry, frankly -- in the Western corn belt is how efficiently the railroads can turn trains.

We think we are in a better spot than last year. We are better prepared; the dialogues with the railroads are constructive and good. They know what's at stake. So I would expect that we will have a very high level of utilization on the West Coast this year, and frankly, the market needs it.

And how does that compare to last season? Were you operating at least 50%, 60% at that port?

No, no it was higher than that but it was certainly not at 90%. But it wasn't because demand wasn't there it was because we had the bottlenecks in logistics. We couldn't get the grain to the port in time. So no, it wasn't that low. But my guess it was probably between 70% and 80%, but I don't have that number, I will have to get back to you on that.

Okay, all right, thanks for your time.

Vincent Andrews, Morgan Stanley.

I apologize if you answered this already but I am hopping between a few calls. Could you just talk about the -- you talked about wanting to do bolt-ons in Food & Ingredients and just from my perspective both inside and outside of agribusiness and food, it seems like this push into higher valued food and ingredients is quite popular and that's increased over the last several years. And the multiples for some of these more recent transactions have gotten pretty elevated. So what's your comfort level that they are actually bolt-ons that you're going to be able to do at multiples and returns that shareholders are going to be happy with?

I think the type of bolt-ons that we're talking about and the place in the value chain is very close to, let's say, our existing lines of business. So you're talking about basic milling, basic oils and fats. Not the extreme end of the value chain, so to speak. And in that space multiples have stayed from what I can tell reasonable. Our returns expectations should be somewhere around 1.5 times our WACC on those types of investments, and that should equate to somewhere between 8.5 times, 9 times EBITDA. If we can't get them and depending upon some synergies because each deal has the unique set of synergies for them, then we'll be disciplined.

We don't feel we have to do this at any price but we do believe that we have across the areas in which Bunge is active in agribusiness including ingredients, opportunities to strike some of those deals at fair valuations.

And just as a follow-up or sort of a question. Last year at this time, we were feeling like we had a big crop and the outlook was positive and then it turned out the operating environment became a little bit more challenging than people expected. Now, we're going to have an even bigger crop.

Why is this --- what are the risks to this larger crop from an execution perspective both in terms of -- there's clearly going to be a lot of supply globally; North America, South America. So will export margins hold up? And how should we think about the risks associated with this large crop?

Well, I think the starting point is probably that last year's agribusiness results for us in Q3 and Q4 were very, very good. I don't know if they were record, but they were very good, close to record.

So, we think we have an environment which is similar. And export capacity and elevation margins, certainly in the northern hemisphere for the period of October through March, should be very favorable. Crush margins, as we've talked about, should be very favorable.

So I think the operating environment is not so different than the last -- similar period last year, where our results were quite good. So we're optimistic that it will be maybe not a repeat but something close to that.

Okay, thanks very much.

Thank you. That was our last question. I will now turn the call back to Mark Haden for closing comments.

Great, Dawn, thank you. And thank you everyone for joining us today and again a reminder that our investor day will be on December 10 in New York City. Details to follow.

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