Bunge Global SA (BG) 2014 Q4 法說會逐字稿

Welcome to the quarter four 2014 Bunge earnings conference call. My name is Yolanda and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. It is now my pleasure to turn the call over to Mr. Mark Haden. You may begin.

Great. Thank you, Yolanda. 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 Presentations.

Reconciliations of non-GAAP measures disclosed verbally on this conference call to the most directly correctly 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; and Drew Burke, Chief Financial Officer. I'll now turn the call over to Soren.

Thank you Mark, and good morning and welcome to everybody.

Bunge finished 2014 with higher year-over-year returns and strong cash flows. During the year we focused on returns, [carry of] strategy and execution, and made substantial progress in improvement programs across all segments. We have generated strong momentum. We are excited for 2015. And we are confident in our ability to meet our overall growth and return targets. Fourth quarter results were about $50 million below our target after adjusting for charges in sugar milling and mark-to-market impacts in agribusiness and applying our normalized tax rate of 28%. So we did well, but we should have done better.

Let me offer a little more detail on the results in each of the segments. In agribusiness we managed margins and flows well for the quarter and our risk management approach was modest. Our North American and European operations performed exceptionally well, capitalizing on strong soy processing margins and executing large export programs. Grain origination had an excellent quarter in North America on the back of big crops and strong export demand. We have 60% less soy bought for new crop in Brazil compared to last year, and as we expect record crops we will see origination activity pick up sharply as harvests move into full swing during March and April. The transition from North America to South America this year should be smooth, with less tension in supply and demand compared to prior years and therefore lower execution cost.

The quarter was, however, negatively impacted by crop performance in China. While underlying demand for protein and oil continues to grow at a strong pace in China, industry capacity has grown just as quickly, leading to margin pressures that negatively impacted results throughout 2014. We did not realize the seasonal improvement in margins during Q4 and as the soybean basis delivered China moved sharply lower during the last part December, we adjusted downward the valuation of our inventory pipeline. This generated a loss of $30 million, which compounded an already-challenged margin situation.

Contrary to last year, the inverse in soybean prices delivered China is now minimal, and therefore margin risk profile is much reduced. Our ongoing approach to crops in China will emphasize smaller pipelines and increased commercial agility.

Part of our primary focus areas in agribusiness is working capital management. And we did well in optimizing margins around a smaller capital base, which is reflected in a cash cycle reduced by 10%. In some cases we passed on margin opportunities which did not have appropriate returns, and this discipline will continue. However, with larger crops, growth in trade, solid crush margins, $50 million for an improvement programs in crush and logistics, reversal of this $80 million in mark-to-market hedges, and new facilities on full stream in Brazil -- Terfron; North America -- Altona; and the Black Sea-- Nikolias, we are confident that we will grow both EBIT and returns during 2015.

Food and ingredients results were strong but not quite the record we expected. As many of our food activities are local currency-based, the extreme foreign exchange volatility towards the end of year created some headwinds. In Mexico we experienced a $5 million negative effect from inventory valuations which will reverse in 2015. And in the Ukraine we had a negative impact of $7 million as the local currency depreciated sharply towards the end of the year. Taking that into account the quarter was a good one, especially in Brazil oils, North American packaging, and our Indian fats and oils businesses. Wheat milling in both Mexico and Brazil performed very well, and we are pleased with the integration and growth prospects in Mexico.

Across both milling and oils our commercial and operational improvement programs are on track and we were able to offset most of the market headwinds during Q4. On top of volume growth of 3% in this year those programs will generate approximately $40 million in earnings in 2015, and we therefore expect earnings in food and ingredients to grow nicely.

While we continue to look for ways to reduce exposure in Brazilian sugar cane milling, our focus is to keep improving operations and to achieve our short-term financial targets. We made significant progress during 2014 in reducing fixed costs and improving harvesting and planting efficiencies. We have reduced replanting of cane to 35,000 hectares per annum, which will support an area of 175,000 hectares over time, down from 200,000 hectares. This level will still enable us to crush at full capacity with strong focus on yield improvement and ATR.

We have programs in place to improve both OEE and industrial yields at our mills. And our industrial team is focused and motivated. Combined with a better outlook for ethanol pricing in Brazil, strong power markets, and our sugar hedging program, we are confident that 2015 will be better than 2014. Sugar trading activities finished a positive year and we are happy with the prospects to grow this activity.

Overall, 2014 was a strong year for Bunge on many fronts. We substantially achieved our financial targets, especially the ROIC of our combined agri-food business, which ended up at 8.4%. Our sugar activities are stable and the outlook in Brazil is improved. We have a clear strategy and growth objectives for the next three to five years, clarity around capital allocation, and our improvement programs across all segments are on track.

As we look into 2015 we are confident that our earnings growth and an agri-food ROIC target of at least 9% with strong overall cash generation that will support both bolt-on acquisition and share repurchases. And we are confident about a nice growth trend towards our 2017 EPS and ROIC targets of $8.50 and 10% respectively.

Now I'll turn call over to Drew, who will take you through the financial performance and outlook.

Thanks Soren, and good morning everyone.

Let's turn to Slide 4 and our earnings highlights. Our total segment EBIT for the quarter was $271 million. This includes non-cash impairment charges of $133 million related to our industrial sugar business. The impairment charge reflects the write-down of $113 million related to machinery and equipment primarily at our Monteverde production facility; and $20 million of restructuring charges. Our total quarterly segment EBIT, adjusted for impairment and restructuring charges, was $409 million and slightly above the prior year. Our full-year EBIT was $1.2 billion, which was $73 million below the prior year. Both the quarterly and full year results were negatively impacted by $80 million in new mark-to-market charges caused by hedge crush margins in our North American oilseeds business and hedged bunker fuel positions related to our ocean freight contracts.

Agribusiness had an adjusted quarterly EBIT of $319 million versus $346 million in the prior year. The $80 million mark-to-market hedging effect was similar in size to what we experienced in the third quarter. As that effect was realized into earnings during the fourth quarter, new mark-to-market effects replaced it. These were reversed income during the first half of 2015, and therefore add to an already good outlook for the year.

Our North American oilseeds business had record earnings. Crush margins were strong throughout the quarter, supported by strong demand, a large harvest, and limited South American export competition. South America performance was slightly below prior year due to limited farmer selling; and Europe was weaker than a strong prior year, primarily due to reduced sunseed margins. Asia had a disappointing quarter as margins were weaker than prior year and we incurred a $30 million loss on the value of our soybean pipeline.

Our grains business performed above prior year, as North America benefited from excellent execution, large crops, and strong export demand. South America performed well on farmer selling of new crop corn, and European results were strong as we executed on our large program of shipments booked earlier in the year and realized the related margins.

In food and ingredients, adjusted EBIT was $83 million and in line with the prior year. Our edible oils business was slightly above prior year, as strong performance in India and in US package oils were offset by weaknesses in Europe, primarily due to the negative impact of currency and the economic situation in Ukraine. In the United States higher package oil results were driven by increased volumes and margins, and lower cost resulting from performance improvement initiatives to improve profitability, returns and our cost structure. Brazil performed in line with the prior year. Milling results were lower than the prior year as decline in corn milling more than offset the increase in wheat milling results. Corn milling reported both lower volumes and margins. Wheat milling benefited from the addition of the Mexican wheat mills, which continue to perform well and meet their synergy targets.

Our annual EBIT of $300 million is a new record for food and ingredients and reflects the results of our performance management initiatives and the acquisition of the Mexican wheat mills. Our improvement initiatives continue to achieve their targets on growing customer relationships, innovation, and cost reduction. Our adjusted EBIT for sugar and bioenergy is a loss of $9 million versus a loss of $35 million in the prior year. Industrial results were improved from prior year as cost reductions and higher margins and volumes in our cogeneration business offset the impact of lower sugar and ethanol prices.

We performed below our expectations as our crush volume was below projections. Our biofuels business in both United States and Argentina performed above prior year while merchandising results were below prior year.

A key goal for the year was to operate our sugar milling business on a cash-neutral basis. Adjusting for the impact of additional inventories carried into 2015 to enhance margins, and certain machinery produces pulled forward from 2015, we achieved that goal.

The 2015 capital expenditure budget has been reduced to reflect the impact of the earlier machinery purchases. Our adjusted earnings per share for the quarter and year are $1.20 and $4.19 respectively.

Let's turn to Slide 5 for a discussion of our tax rate. Our tax rate as reported is 32% and higher than the tax rate we forecasted earlier in the year of 23%. As stated previously, we do not recognize any tax benefits in our industrial sugar business. As a result, the impairment charges of $133 million had the effect of increasing our tax rate by 4 points. Our earnings mix increased the rate by an additional 5%. As we had stronger earnings in the United States, we have a high marginal tax rate, and lower earnings in certain tax entities where we either do not recognize a tax benefit on losses or a tax that is significantly lower rate.

These lower results occurred in the Brazil sugar entities, certain Asian businesses and some merchandising entities. These two items together bring us to our forecasted rate of 23%. While we continue to use 23% as our long-term effective rate, we are forecasting approximately 25% for 2015. The higher 2015 forecast reflects the strong earnings outlook for North America, particularly in the first half of year, where we have the most visibility. It also assumes our industrial sugar business operates at a modest profit.

In the earnings highlights and tax slides I have mentioned number of special items, specifically $133 million in impairment and restructuring charges in our sugar milling operations, $80 million in mark-to-market charges that were reversed in 2015, and our tax rate. If we calculate our earnings per share for the quarter and year adjusted for those impacts, and using a normalized tax rate of 28%, we come to a quarterly earnings per share of $2.18 a share, and a full-year earnings per share of $5.25 a share. We consider 28% to be normalized tax rate for the year as tax benefits recorded as notables arise from strategies that were implemented in 2014 that will continue to provide benefits going forward.

Let's turn to Slide 6 and return on invested capital. As Soren mentioned, this is a primary area of focus for us. We remain very disciplined on working capital management and CapEx spending. This focus has allowed us to significantly improve performance for 2013 and achieve results in line with our 2014 target despite the headwinds of the mark-to-market adjustment and the higher tax rate. Specifically, Bunge Limited's return on invested capital for 2014 is 6.6%, including the sugar and bioenergy segment but excluding the impairment charge. This compares to 5.8% in the prior year.

Excluding the sugar segment and focus on our core agri and food businesses, our return on invested capital is 8.4%, up from 7.5% in 2013 and in line with our target for the year of 8.5%. For 2015 we expect a return of invested capital of at least 9% for our combined agri and food businesses.

Let's turn to Slide 7 and our cash flow highlights. We generated $1.4 billion in cash from operating activities in 2014, comprising $1.1 billion of funds from operations and $266 million from changes in working capital. This is the second year in a row with strong cash generation. We continue to manage to obtain a strong balance sheet and liquidity position. At December 31 we had $4.5 billion of funding available under our committed credit lines.

Let's turn to Slide 8 and our capital allocation model. We continue to use our capital allocation model to allocate our funds. Our first goal is to maintain our investment grade credit rating, and we manage our balance sheet and cash flow accordingly. After that we allocate funds to dividends, share buybacks, capital expenditures, and acquisitions based on the alternative that provides the best long-term return to our shareholders. In 2014 we invested $839 million in capital expenditures, which was below our planned amount; purchased $300 million in shares; and paid dividends of $230 million. M&A activity was not significant in 2014, but bolt-on acquisitions remain a part of our growth strategy. We will continue to allocate capital following this model going forward.

Let's turn to Slide 9 and the 2015 outlook. Overall, agribusiness market conditions remain favorable as big supplies are met with solid underlying demand. Large crops in both hemispheres and lower prices have increased consumption and trade flows. In oilseeds the USDA is projecting 5% demand growth for soy meal and vegetable oil. The US supply position is good, and we are expecting large crops in South America. US and European soy crush margins remain strong and plant utilization should remain high until South American new crop comes to market.

The South American season will start soon, and given the anticipated size of the crops and expected pace of farmers selling, margins should be good. The China crush market should be less volatile, but over-capacity headwinds will remain. Our European soft seed margins may be pressured by farmer retention of sunseeds, but rapeseed margin should be steady.

Please turn to Slide 10. In grains, corn and wheat combined consumption is expected to grow about 2% year over year, which translate into 58 million metric tons. The US farmer is holding sizable corn inventories which should come to market in the first half of the year. The market will transition to South American supply in the March/April timeframe. The Brazilian farmer has sold less of new crop than typical at this point, so origination volume should be high. Our logistics are in place and we should be advantaged in our ability to execute. Argentine results will be dependent on farmer selling. Overall, our European distribution business should do well.

Our foods and ingredients business is expected to have another strong year as our performance improvement initiatives continue to drive volumes and margins. The appreciation of the dollar will bring margin pressure and translation impacts, but overall prospect for earnings growth remains strong.

Please turn to Slide 11. The market environment for ethanol in Brazil has improved. The institution of the [CIDE] tax and the increase in the blending rate from 25% to 27% both support margins.

Our cost reduction and productivity programs are showing results in both the agriculture and production areas. We have hedged most of our sugar sales at acceptable levels. As a result we expect the sugar business to be modestly profitable and cash flow positive in 2015. The trading and merchandising business should also contribute to results. Overall we expect to achieve a return on invested capital of 9% or better for our combined agri and food businesses on stronger earnings and continued discipline on working capital.

We will now turn the call back to Yolanda to take your questions.

(Operator Instructions)

Ann Duignan, JPMorgan.

Hi. Good morning, guys. It is Ann Duignan here.

Good morning, Ann.

Can you talk a little bit more about the fundamentals of ethanol in Brazil? I know their increased tax and the increased blending are a positive. What about the impact of lower oil prices and the real? Are there any other positives or negatives going into 2015?

Well, in reality probably not much to report in the sense that the price of gasoline in Brazil is fixed. So while the reduced overall crude oil price and global gasoline prices have come down thereby creating an import margin to Brazil at the moment, it is not likely that the government is going to change the fixed price of gasoline anytime soon.

That import margin, while it exists on the front end, it becomes significant less as you look over the curve with the weaker real over time. I think the gasoline price in Brazil for the foreseeable future is fixed. And the increase in ceded tax now gives probably about BRC150 to BRC175 per cubic meter boost to ethanol pricing, all else equal. And that really means that ethanol consumption should improve quite significantly as the pump ratio to the consumer is more favorable.

Okay, that's helpful. I appreciate that. Then can you talk about the strike on the West Coast, whether that's impacting your ability to get crops out of the United States?

No. We have not been impacted by that. We had a very good program through EGT at Longview this past quarter and it continues to run very smoothly. So we have not been impacted by that.

And you don't anticipate any impact going forward?

No, we don't.

Okay. I will get back in the queue and follow-up. Thanks.

Adam Samuelson, Goldman Sachs.

Yes, thanks. Good morning, everyone. A question in agribusiness and trying to think through the outlook and evaluate. How, if at all, has the outlook changed and some of the key business areas relative to the analysts meeting in December?

And how did the -- do the four key performance in agribusiness hit your expectations as you thought -- where you though you would be at the analyst meeting in December? Or does the ultimate of China inventory adjustment, the negative European sunseed farmer selling in Brazil, et cetera?

Let's maybe start with the last part first. I think relative to where we were in the early part of December we did as we expected with the exception of roughly $30 million or $50 million. As I mentioned, the Chinese inventory adjustment was something that happen towards the end of December that we couldn't have foreseen. So that's really the surprise, I would say, or the disappointing part from my perspective for the quarter.

If you add the $80 million of mark-to-market back in which flowed into 2015 you would have had a $400 million agribusiness quarter, which was reasonable. But again $30 million to $50 million short of what I would have expected at that time.

But in the quarter I would say that we did better than I thought we would have in North America. It went from being a very good quarter to a very, very good quarter, and probably a little bit less so in European soft seeds. But on balance we came out more or less as we expected, with the exception of the adjustment in China.

Looking into 2015, I think on balance everything is more or less as we expected. Maybe a little bit of an extension of the US crushing season. I think we are now looking -- you see exports sales week on week continue at a brisk pace. So maybe it would affect -- March is when things change and shift to South America.

Now we're talking probably more like April. So the US have might have bought itself another month of good run rates, of good margins. So that's an improvement.

But other than that I think everything else is as we outlined. Big crops in South America, good margins in Brazil. Argentina obviously will be a bit of a question mark until we get there, for the reasons of the financial volatility in that market.

But our belief is that farmers will sell a fair amount of beans at harvest. And in Europe we didn't really expect soft seed crush to be anything substantial in terms of contribution until we get into the new crop with rapeseed in May/June and sunseed in August/September.

So on balance I think it is more or less as we expected. Maybe the US has bought itself one more month of good run rates.

Maybe just on China on the crush side, I mean 2014 was a very tough year for yourselves and really the whole industry there. But the outlook commentary you did point to continued over-capacity in the industry there.

And has that made you rethink some of the investments that you made in the space there and the need to actually be in crush in China? And rather than stay an exporter our of Brazil and the US and keep the crushing in the Western Hemisphere?

Last year was an exceptional year in terms of volatility and complexity in China. Not only did you have the over-capacity situation that we described but you also had the impact of many of the financial players who got entangled in commodity flows which compounded all of this.

So 2014 is probably not a good reference point for what's coming. We do believe things will normalize. But that being said, margins in China are likely to be, I would say, fair, not bad but somewhere in the middle of the road, if I can put it that way.

But don't forget that China is, at the end of the day, the completion of a value chain that starts in Mato Grosso or someplace in the US. So when we look at the value of being in China it is not just the margin we own in a China, it is the ability to connect the flows from farm to crushing plant to destination plant logistics and secure outlets.

Within that context, knowing that last year was really a record year for us in overall oilseeds, China has a place that will continue to have. But that being said, we can do things and we are taking measures to be more agile, reduce some of the exposure we've had historically in the pipelines, smaller.

But China, we have a great footprint, we have a good team. It will continue to be a big feature for Bunge and a very important piece of, of course reading overall supply and demand in the world market with China representing, I don't know, 65%, 70% of world trade.

We're happy with what we've got. We can improve a few things which we are working on. But last year was -- I don't think will repeat.

Okay, that's helpful. And then maybe last from me on the capital allocation front looking ahead. I know the investment grade rating remains critical foundation for how you think about capital. But help us evaluate or think through incremental -- the opportunity to take on a little bit more leverage in the context of that rating and the appetite to do so for M&A versus repurchase looking into 2015?

I think as we look into 2015, while we don't give guidance, as you know Adam, I did mention we do expect an increase in earnings. So we do expect a result an increase in funds from operations as we move into next year.

When we do our planning at this time of the year we do it on it a -- mostly on a working capital neutral basis, maybe some increase is focused in there to represent the growth in the business. But as you know, commodity prices are not certain going out the future.

So it is not a big part of our planning, other than we keep the liquidity capacity available to insure sure we can fund whatever is necessary so we have the ability to move. As we've entered into this year, you assume the number for FFO would be a little bit bigger than last year's $1.1 billion-plus.

We would probably allocate a portion of that, again as we sit today to CapEx. The dividends are quite certain. And then the numbers that are a little bit more variable, although CapEx is continually updated and looked at so there's some variability.

But the numbers that are more variable, or what would be returned to shareholders vis-a-vis what we may do in the acquisition arena. We went through that process last year and allocated $300 million to purchase shares. And we did not allocate much to M&A because the opportunities weren't there.

We will follow that same process this year. So how much will go to shareholders versus M&A will depend on what opportunities are in the market and what we can realize.

From a rating agency standpoint, we think our ratios have gotten to a place where they are very good shape. We always want to see them improve and be better around the investment grade. So we will continue to stress that but if we stay disciplined on our capital management and continue to grow cash flow, I think the investment grade rating will take care of itself. The key is that we deliver on what we said we would do.

Okay, thanks very much.

David Driscoll, Citi Research.

Good morning. This is Cornell Burnette in with a few questions for David. Just wanted to talk a little bit about mark-to-market. I believe back in the first quarter there were about $50 million in mark-to-market losses related to ocean freight, which I believe weren't expected to reverse out until, I believe, the first half of 2015.

So want to know if I got that right. And then just in general, that inclusive of the $80 million mark-to-market loss in the fourth quarter would imply that there's something like $130 million of benefits from mark-to-market in the first half of 2015? Just want to see if that's correct.

The $80 million that we mentioned, which is a combination of bunker hedges and cross-margin expansion in the US will definitely reversed in 2015, and most of it in the first half. The $50 million from Q1, I don't think we can point that as will reverse because what happened in between then and now is overall freight rates have declined.

So that what at that time would have been a 2015 picture of what we had ocean freight inventory below the market now I would say is more or less at market. So I think you should calculate, or you should consider the $80 million as coming back as a matter of doing your models.

Okay, great. Then looking at your ROIC targets for agribusiness and food. Going to 9% return next year versus 8.4% last year seems to imply about a $100 million improvement combined from those two segments. And I wanted to know, given the fact that you will have an $80 million benefit from mark-to-market presumably next year, how much better can the number be versus that 9% figure that you gave out?

Cornell, we did phrase in terms of at least 9%. As you know, as we look forward we need to forecast earnings and what our balance sheet will be, which in a commodity business has a lot of volatility and can move. But I would say if your point is that the 9% feels conservative in the current environment, I would say that's fair.

But there's a lot of the year to get to. But I would say it is on the conservative side. To frame it a little bit, if we have had the $80 million mark-to-market [had stayed] in 2014 we would have come close to the 9% in 2014.

Right, right. Exactly. One more question is just obviously with the large crop expected in South America, I guess we will start to see better selling from farmers as we move closer to the harvest. Just wanted to get your take on how things are progressing out and what's your read on farmers selling during the first quarter?

Harvest so far is about 10% progressed. That's below last year space at the same time. So we are starting a little bit later in Brazil. And overall selling pace is well behind last year.

I think we figure about 25% so far has been priced versus probably closer to 40% in prior years. So there's a lots of pent-up farmers selling that should occur over the next really two months in Brazil.

We are beginning to see it. The weakness in the real over the last days and weeks is clearly creating more activity. So I'll say origination activity is, at the moment, is fairly brisk. And we expect that will continue over the next weeks.

Okay, thanks a lot. That's all for me.

Thank you.

Tim Tiberio, Miller Tabak.

Good morning. Thanks for taking my question. Soren, with regards to your comments on increased capacity in the oilseed space in China, can you frame up how much of the crush margin pressure is result of capacity building versus the fact that China really has been in a process of substantial hog herd contraction? I think sell herds are down 12% in the country. And looking at that backdrop, can you explain why you think, outside of obviously the edible oil space, why that would be necessarily more positive for 2015 versus 2014 if we are in a situation where you are not seeing as much hog expansion in China?

It is true the profitability in hogs particular has been challenged over the last year or so. But we still expect roughly a 4 million ton increase, 3 million to 4 million ton in soybean imports to China in this coming season.

And from what we can tell from our plants and our own marketing in China, meal is disappearing at roughly a 5% year-on-year increase. So is there is still growth in China in protein consumption, without a doubt, irrespective of the profitability and we believe that that will continue into the next year.

But it is not the same, let's say, rate of growth as we've experienced in the last years. So we are bit more cautious about how we, let's say, position ourselves relative to margins.

And we will take a more measured approach to how we manage margins. So China I will say is a bit of a flag for overall growth in soy trade. But it will still grow next year.

Great. And then my next question, looking at the expansion of port terminal capacity in the northern arc within Brazil, there's been, I guess, mixed commentary around the improvement of road conditions through the Amazon and the capacity to, I guess, get product to those terminals in relation to the capacity that has been built. Can you just give us a sense of how you are viewing the traffic congestion in the first half of 2015? And whether it may take a little bit longer to actually tap into that obviously latent demand that everyone is expecting because of the transportation benefit towards the northern arc of Brazil?

Yes, this will be the first full year that we operate from our new terminal in Barcarena. We put about 1 million tons through that last year. And this year we're up and running now just as harvest is starting.

So it will be an important, say, relief valve for us and will take the pressure off the flows that are going south. And we expect to run several million tons through there this year.

Don't forget that a big piece of the journey from Mato Grosso to the terminal is by barge. So the collection point is in Minitituba where we load grain onto barges and then transport the barge up to the terminal, no different than we do it on the Mississippi River in the United States.

So far I believe we will be able to do that without any major interruption. The key long term to this, though, is that we connect those barge loading facilities with rail. And that is in the planning stages.

It will take a few years before that's completed, I believe, but that is in the long-term planning. So ultimately the efficiency of this corridor has to become a combination of rail to barge to terminal, very much like you see in the US. That would be the most efficient way and that's the way things are moving.

Okay. But as far as the return profile it doesn't seem that you're concerned that potentially port terminal capacity could get out ahead of the ability of the transportation infrastructure to keep up?

No. I think actually this year is another year where the industry, and certainly Bunge, has been able to plan well ahead of time. And planning and predictability, and hopefully no -- well, it depends on whether you want rain or not, but the fact that it is rather dry at the moment creates no disruptions. And I really believe that we will be able to execute the first two months of the program in Brazil without any major hiccups. It looks like it is even more smooth than it was last year at the same time.

Great. Thanks for taking my questions.

Ken Zaslow, Bank of Montreal.

Good morning, everyone.

Good morning, Ken.

I have a couple questions. One is how much of your total capacity of ag business is in China? And what was the full impact of China in 2014?

Of our total crushing capacity, boy, I would say probably about -- hold on a second, let me do the math. Probably about between 10% and 15%.

So it is important but it is not overwhelming. And I don't really want to get into the specific P&Ls of any regions. But to tell you that we obviously feel we could have done better.

But within the context of our global oilseed franchise which includes the origin as well, we had very good year. In fact, it was a record in global oilseeds last year.

So that's good. You should see it within that context. But we could have done better, clearly. The $30 million we talked about at the end of December didn't have to be. We could have been better.

Ken, I think while we won't disclose the numbers, China was a drag on our earnings throughout the year as it was a drag on the industry. Margins were depressed there, partly because of the capacity.

Partly because the financial players moved a lot of soybeans from origins to China, and more that were necessary that then got forced through the crushing system and depressed margins. So if we look at how China performed in 2014 versus prior years, there was a reasonably significant decline in that performance.

So if I think about it, is $100 million a reasonable guess? I'm not asking for an exact number, but it sounds like the $30 million plus it sounds like $70 million of less than exciting margins seem to be the right answer. Is that a fair bet?

It is in the neighborhood.

Okay. Then how does this quarter's profit in agribusiness translate into a run rate going into 2015? If I add back the $80 million, is that -- is the ag business what it would be with that $80 million a run rate, a quarterly run rate? It sounds like what you're trying to tell us is, look, each quarter has a good predetermined flow of earnings that's associated with that. Is that a fair way of looking at it?

There will be some seasonality obviously throughout the year, but reality is that the last three quarters we've delivered EBITs in combined agri food in excess of $400 million. And I think if you look at that on an annualized rate, that's probably a correct measure or a fair measure of our current earnings power. And then we can grow from there.

But I don't know that you can say that $400 million or $380 million -- yes, $400 million if you add the $80 million in mark-to-market, that's not necessarily an ag run rate every quarter. But we will certainly have quarters like that next year or this year. But I think the $400 million for the last three quarters that we've delivered overall agri-food is a fair measure.

On your tax rate, just to make sure, you are not actually paying cash taxes of that 50% tax rate that you had today? That you reported today?

No.

You're not physically paying that? That is a non-cash tax number that you are actually putting out that hit your numbers. Is that a fair way of looking at it?

I don't know that I just want to say yes, Ken. The number that we reported is not the amount of cash we pay in tax. Certainly we do pay some cash taxes around the world, but in other places we have significant tax attributes available.

If you look at our disclosures in our quarterly and annual filings we have significant tax assets available in Brazil and tax credits, and we pay no or very little cash taxes in Brazil, as an example. So you thesis is correct, but it is not that we pay $0 cash taxes.

Okay. The last question on sugar is, given that the environment -- what is the quality to which that you are able to forecast this business? It seems like you're really not that good at that. And why this year (Multiple speakers).

In sugar?

Yes.

I'm sorry.

In sugar.

I think in sugar, and I assume you're asking the question because we missed in the fourth quarter. It depends whether you're talking about short-term forecast or long-term. So let me answer both a little bit.

In the short-term forecast we were off on the amount we were able to crush in the fourth quarter, not by a significant amount. But as we've said before, sugar is very leveraged to the crush rate.

A million tons of crush has got a big variable margin with it, in the area of $30 million, $40 million. So if you miss your crushing targets by a little bit, it moves, which makes forecasting that business difficult.

If you're talking about an annual forecast, as we stated earlier, it is a harder business to forecast because you're making a lot of assumptions around weather and crop yields and sugar yields, et cetera. So we try to make a reasonably conservative forecast factoring all of those factors in. But it is not the easiest business we have to make a forecast in.

What is the level of confidence you have in it this time? It almost sounds like you have more confidence, but I can't figure out exactly why.

I don't know that we would say that our forecast accuracy has improved because we still have to get through the weather and we still have the impacts of Brazilian policy, et cetera. I think why you hear a more -- what we are saying in a more positive commentary is policy in Brazil has turned much more positive. So the C-Jay tax increases is supportive through the industry, the increase in the blend rate is supportive through the industry, there have been a couple of state tax actions that are supportive.

So the environment is better. But we still have a lot of variables that you get through as you go through a year in sugar. That could be better or worse than we forecast, frankly. But it is very hard to forecast the Brazilian weather for us.

So there's always going to be, particularly in the early part of year, a range around where it will come out. And also a reminder, most of the money is made in a second part of year.

So when you are talking to us in February we don't know the exact crop size, we don't know the exact yields. As we get more into the crop, the variables decline.

The other key thing around our sugar business is our real focus as a management team is to make sure we are running it in a way that in most -- in almost all forecasted outcomes, clearly if you get to either tail it may not -- to a lower tail event it may not be the case, but in reasonable outcomes will be cash neutral or positive. That is the way we drive the business and think about it and spend a lot of time focusing on exactly how much we are investing and how we are going about running the business to keep it cash neutral or positive.

Great. Thank you very much.

(Operator Instructions)

Brett Wong, Piper Jaffray.

Hello, Brett?

Yes, I'm here. This is Tyler Etten on for Brett Wong. I was just -- I had a question about Brazil exports, what you guys' anticipation will be for the first quarter out of there, and if you expect the same strength out of Europe that you saw in 2014 out of the crushing business?

Brazil I would say February will be lower than a year ago by probably 1 million tons or so. And March forward it will be the same pace, maybe a little bit higher. First quarter Brazil in total is probably just a bit below last year's.

Last year a very strong pool. But don't forget it is a little bit of a different market environment this year than that last year. So very strong export programs, but not the frenzy we saw over the last two years.

In Europe, I will say our views on crash in general is that soy crush will remain favorable in Southern Europe, probably throughout the year. And soft seed crush, so rape and sunseed will be skewed towards the last half of year. We expect good margins there. So I think it general probably a similar environment as we had in 2014.

All right, thank you.

Robert Moskow, Credit Suisse.

Hi. Thank you. Soren, I was hoping to get some further color on Brazil and your expectations now. The farmers selling certainly seems like -- a slow farmer selling sounds short term like it always is. But regarding crash utilization and profitability and crush margins in Brazil, why should that get better? Is that just going to get better because there's more volume to crush, or is there also a good demand function in Brazil right now for livestock production and livestock producers?

I would say the domestic demand base in Brazil is very strong. And certainly the weak real will make Brazil an even more competitive origin for meat exports.

I think the domestic demand base is very favorable, and somewhat different from the last couple of years is that the export pool of beans is less. Like I just mentioned, February experts will be 1 million tons less than it was a year ago because the US is an a position to supply a longer period.

We're not running out of beans in the US this year as we did the last two. So that the export pool in soybeans in Brazil is a little bit less dramatic than we've seen it. And the farmer has still a lot of beans to sell.

So I think combination of those things it favorable to domestic crush margins and we haven't -- we have a fairly sizable year-over-year increase in soybean meal trade, actually. So soybean meal trade which stagnated for a few years has resumed again.

And at the moment it is mostly supplied out of US, which has been good for margins here. That will shift into Brazil as we get into March and April. So I think the overall environment for margins in Brazil is better than it was last year, or at least as good.

Kind of a follow-up to Ken's question, I think. If I look at 2014 there were ocean freight, kind of hedging issues and then the China basis miss in fourth quarter. But my understanding is that you have instituted policies and made people changes so that the Company's taking less risk, not more risk.

Can you talk a little bit about whether these hiccups this year, were they a function of gee, we had too much risk in our positions, or we were taking too much of a view in our positions. Or was it just that hey, the markets went the wrong way and that's just a course of doing business. We do our best but we cannot -- some things are just inherently unpredictable.

I don't think that it I -- it is not correct to say that I've instituted programs so that the Company is taking less risk. We continue to perfect and improve the way that we take risk, that we learn from, let's say, mistakes.

We have stronger risk controls in place today, as we have had. But it is a continuous process of improving how we look at risk. And over last year, 2014, risk management and trading results throughout Bunge were positive.

They were positive maybe not to the same extent as they had been in previous years, simply because margin opportunities or opportunities for dislocation were less, but we had positive contributions from our risk management activities throughout 2015. We perhaps become a little bit more selective.

Markets last year were a bit random, it was year of transition. First quarter was a good example of that. The early part of the fourth quarter was an example of that.

So we've been a bit more cautious just because it wasn't so clear exactly how the transition would take place from this extreme tightness to what now appears like a growing surplus. So we are just very aware of the risks that we are taking.

It is something that is discussed daily in Bunge. Both Drew, myself and all the other senior managers in Bunge have complete access and knew what risk we are taking on any given time. And obviously I'm happy with the outcome for this year. And it was a positive one, but not as big of a contributor as we have seen in previous years for the reasons that I just mentioned.

All right. Maybe I will follow up on that. But my last question is, with the $80 million mark-to-market charge potentially benefiting the first half of 2015, have you raised internal expectations for what 2015 can deliver? Have you factored that in?

Yes, we have.

Okay, great. Thank you.

We have no further questions at this time. I turn the call back over to you, Mark.

Great. Thank you Yolanda, and thank everyone for joining us today. And as a reminder, both Soren and Drew will be speaking at Cagney next Wednesday.

Thank you.

Thanks, everybody.

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