Filed
by Bunge Limited
Pursuant
to Rule 425 under the Securities Act of 1933
and
deemed filed pursuant to Rule 14a-12
under
the Securities Exchange Act of 1934
Subject
Company: Corn Products International, Inc.
Commission File No.: 001-13397
FORWARD-LOOKING
STATEMENTS
This
material contains forward-looking statements, including, among other
statements, statements regarding the proposed merger between Bunge and Corn
Products, and the anticipated consequences and benefits of the transaction.
Statements made in the future tense, and words such as anticipate, expect, project,
continue, believe, plan, estimate, intend, will, may and similar
expressions are intended to identify forward-looking statements. These
statements are based on current expectations, but are subject to certain risks
and uncertainties, many of which are difficult to predict and are beyond the
control of Bunge and Corn Products. Relevant risks and uncertainties include
those referenced in Bunges and Corn Products filings with the Securities and
Exchange Commission (the SEC) which can be obtained as described in Additional
Information below. Risks and uncertainties relating to the proposed merger
include: required regulatory approvals may not be obtained in a timely manner,
if at all; the proposed merger may not be consummated; the anticipated benefits
of the proposed merger, including synergies, may not be realized; and the
integration of Corn Products operations with those of Bunge may be materially
delayed or will be more costly or difficult than expected. These risks and
uncertainties could cause actual results to differ materially from those
expressed in or implied by the forward-looking statements, and therefore should
be carefully considered. Bunge assumes no obligation to update any
forward-looking statements as a result of new information or future events or
developments.
ADDITIONAL
INFORMATION
This
material is not a substitute for the joint proxy statement/prospectus and any
other documents Bunge and Corn Products intend to file with the SEC in
connection with the proposed merger. Investors and securityholders are urged to
carefully read the joint proxy statement/prospectus regarding the proposed
merger when it becomes available, because it will contain important
information. The joint proxy statement/prospectus will be, and other documents
filed or to be filed by Bunge and Corn Products with the SEC are or will be,
available free of charge at the SECs web site (www.sec.gov), by accessing
Bunges website at www.bunge.com under the tab About Bunge and then under the
heading Investor Information and from Bunge by directing a request to Bunge
Limited, 50 Main Street, White Plains, New York 10606, Attention: Investor
Relations, and by accessing Corn Products website at www.cornproducts.com
under the tab Investors and then under the heading Financial Reports and
then under the heading SEC Filings and from Corn Products by directing a
request to Corn Products International, Inc., 5 Westbrook Corporate Center,
Westchester, Illinois 60154, Attention: Investor Relations. Neither Bunge nor
Corn Products is currently engaged in a solicitation of proxies from the
securityholders of Bunge or Corn Products in connection with the proposed
merger. If a proxy solicitation commences, Bunge, Corn Products and their
respective directors, executive officers and other employees may be deemed to
be participants in such solicitation. Information about Bunges directors and
executive officers is available in Bunges proxy statement, dated April 16,
2008, for its 2008 annual meeting of shareholders and in Bunges most recent
filing on Form 10-K. Information about Corn Products directors and
executive officers is available in Corn Products proxy statement, dated April 4,
2008, for its 2008 annual meeting of stockholders and in Corn Products most
recent filing on Form 10-K. Additional information about the interests of
potential participants will be included in the joint proxy statement/prospectus
when it becomes available.
Event
ID:
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1904441
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Culture:
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en-US
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Event
Name:
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Q2
2008 Bunge Limited Earnings Conference Call
|
Event
Date:
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2008-07-24T14:00:00
UTC
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Notes:
Converted
From Text Transcript
Event
ID: 1904441
C:
Mark Haden; Bunge Limited; Director, IR
C:
Alberto Weisser; Bunge Limited; Chairman, CEO
C:
Jacqualyn Fouse; Bunge Limited; CFO
P:
Christina McGlone; Deutsche Bank; Analyst
P:
Christine McCracken; Cleveland Research; Analyst
P:
Robert Moskow; Credit Suisse; Analyst
P:
Ken Zaslow; BMO Capital Markets; Analyst
P:
David Driscoll; Citigroup; Analyst
P:
Vincent Andrews; Morgan Stanley; Analyst
P:
Diane Geissler; Merrill Lynch; Analyst
+++
presentation
Operator:
Good day, everyone, and welcome to the Bunge Limited Second Quarter Conference
Call. Todays call is being recorded. At this time for opening remarks and
introductions, I would like to turn the call over to Mr. Mark Haden.
Please, go ahead, sir.
Mark
Haden: Thank you, Steve, and thank you, everyone, for joining us this morning.
Welcome to Bunge Limiteds Second Quarter 2008 Earnings Conference Call.
Before
we get started, I wanted to inform those of you who may not have seen it in the
press release this morning that we have prepared a slide presentation to
accompany our discussion of the second quarter results. It can be found in the
Investor Information section of our website, www.Bunge.com, under Investor
Presentations.
Reconciliations
of non-GAAP measures disclosed orally on this conference call to the most
directly comparable GAAP financial measure are posted on our website in the
Investor Information section.
Id
like to direct you to slide two and remind you that todays presentation
includes forward-looking statements that reflect Bunges 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 with me this morning to discuss our second quarter results are
Alberto Weisser, Bunges Chairman and CEO, and Jackie Fouse, Bunges Chief Financial
Officer.
Lets
go to slide three. And now Ill turn the call over to Alberto.
Alberto
Weisser: Good morning, everyone. We are very pleased with our second quarter
results. Bunges strong performance is a reflection of our skilled team and the
value of our global and integrated network of operations. The last four
quarters have certainly been a unique and challenging time for participants in
the
food and agribusiness production chain. The market has been characterized by
volatility and high prices caused by increasing demand, tightening supply, high
energy prices, and temporary disruptions in some regions.
In
todays environment, Bunge requires significantly more working capital to serve
both farmers and customers and effective risk management is essential. The
agribusiness and food market is dynamic, because it is global and connected to
many fundamental elements of the world economy. We will always see shifts from
period to period as the market, through its normal functions, adjusts to prevailing
conditions; however, the long-term trends that drive demand growth in our
industry remains steady.
The
worlds population is increasing and living standards among the billions of
citizens in developing economies continues to improve. As demand increases, the
world will need larger supplies of crops and smooth global trade. Customers
will look for strong suppliers that can provide broad product portfolios and
flexible global service. Consumers will seek greater options and affordability
in their food purchases.
We
see Bunge playing an important role; one that generates value for shareholders
and benefits for all other stakeholders. We can manufacture fertilizer for
farmers, so they can produce larger crops on less land, act as a physical link
among regions that enables the effective distribution of commodities, and
process products efficiently and safely so food generally is less expensive for
the end consumer.
Over
the past eight years, as a public company, we have invested billions of dollars
so we can serve this role better and more profitably. We have created a more
global, integrated, and balanced business that can capitalize on opportunities
in numerous geographies, provide customers a broad range of basic and value
added products, and which has the diversity to perform well in a variety of
market conditions.
We
see the positive results of these long-term investments in our recent earnings.
Our planned combination with Corn Products is the next logical step. As slide
four shows, the combination with Corn Products will create a more global
company with greater opportunity. Building on corn products asset base, Bunge
will be able to expand its integrated operations into promising markets such as
Mexico, Columbia, Korea, and Pakistan where today we have either a small
presence or none at all.
Similarly,
Corn Products will be able to leverage Bunges business in places like India
and Europe where the company does not currently operate to build local
operations or to import higher value products. Of course, in North America,
Brazil, Argentina, and China, our combined operations will create a stronger
presence.
As
you can see on slide five, corn wet milling is a complementary value chain. It
fits very well with our existing business and by adding it to our operations,
we will be able to generate additional value from our supply chain and from
distribution among other areas. When we established our focus for synergies and
incremental profit prior to signing the merger agreement, we only included
operations in which we had good visibility, primarily in the US and Brazil. We
believe that as we integrate our two companies, additional opportunities should
emerge.
The
alliance we already have in Brazil supplying the bakery industry is a good
example of how we can generate incremental value. We have every reason to
believe that we pursue similar efforts in other places. We are really excited
about this combination and see it as another transformational step for Bunge,
adding another platform for growth.
Now
I would like to turn the call over to Jackie who will take you through the
second quarter results and outlook.
Jacqualyn
Fouse: Good morning, everyone. Thank you for joining us on the call today. As
Mark mentioned, you can follow us along with some slides on the webcast. So, Ill
start my comments with slide six.
Volume
growth for the quarter was a little bit more moderate versus the first quarter
of this year, but it remains quite solid. And I would remind you that we
compare to a very strong Q2 in 07 where the fertilizer growth rates were in
excess of 50%. So, the fertilizer growth was slightly negative in total for Q2
and well talk a little bit more about that in the segment results.
Profit
growth at both the EBIT and net income levels continues to be strong as margins
remain high and we performed well in all business units. Our effective tax rate
remains in the guidance range of 24% to 28%.
Looking
at the segment results for the quarter, agribusiness results were led by
oilseed processing, but grain and oilseed distribution and grain origination
also performed particularly well. Agribusiness results also benefited from the
$117 million of the transaction tax credit that was booked in the quarter in
that segment. Crush margins in almost all regions of the world remain good and
the fundamentals are very solid.
Fertilizer
posted strong retail volume for the quarter, driven by soybean and corn crop
demand, but these are offset by a reduction in wholesale volume versus 07 as a
result of inventory restocking last year. Food products overall performance
continues to improve versus last year. Edible oil volume growth was solid, but
was partially offset by lower volumes in wheat milling due to Argentinean flour
competition in Brazil.
Profit
growth was nevertheless good, driven by good margins in wheat milling and
edible oils in many geographies continue to benefit from price increases that
we were able to take last year, though certain parts of the world are feeling
some pressure there. And theres a bit of a lag with respect to that as we see
a continued high crude oil prices in that segment. So, the results in food
products also benefited from the Toronto land sale and the transactional tax
credit booked in the quarter.
With
respect to the balance sheet, we continue to be very focused on managing our
balance sheet and working capital as we continue to see a volatile price
environment. Though working capital is up over $2 billion since year end, all
of this is in readily marketable inventories. And debt is only up about $1.2
billion, as were generating stronger profits and stronger funds from
operations before working capital changes. Equity grew by $1.5 billion and our
cash cycle improved about five days versus the end of the year and about one
day versus the year end 07 cash cycle number.
Looking
back to the time the company went public, the growth in the business has been
managed with an ever strengthening balance sheet. So, you can see, the
shareholders equity has been growing faster than debt, faster than working
capital,
faster than sales, and our gross debt has been growing slower than operating
working capital and sales.
Looking
at the cash flows for the quarter and the six months ended June 30, as
already mentioned, strong funds from operations before working capital changes
has been driven by better profitability. So, were earning more money on the
capital that were required to commit to do that. Cash flow from operations was
negative for the quarter and for the year to date due to the change in working
capital, but less so than last year.
Given
the commodity price movements during Q2, we think our relative performance is
demonstrated by our cash cycle performance and our cash flow performance has
been good and we remain very focused on this issue.
You
saw in the quarter that we spent a little over $200 million in capex and some
of the major projects that we have going on there include sugar projects in
Santa Juliana, our plant in Russia, expansion in Tianjin and a number of
fertilizer mine projects. So, continuing to invest in our infrastructure and
our core industrial assets.
Looking
at financial liquidity, as of the end of the quarter and these, the numbers
that youll see on the slide and the webcast, slide number 11, show
availability only under committed facilities. We obviously have other sources
of liquid funds. But this ones a very straight forward one to look at.
So,
strong financial liquidity at the end of the quarter, about $1.9 billion. And
this is within a quarter in which soybean prices were up 34% from the end of Q1
to the end of Q2, corn up 30%, and wheat was down about 10%. So, even with the
price spikes of June, we ended the quarter with a strong liquidity position and
as weve seen prices come off somewhat, as you know, during the month of July,
so far that liquidity position has improved even since the end of the quarter.
Our
focus for the remainder of the year is to refinance a $1 billion revolving
credit facility and $500 million bond debt maturity that takes place later this
year.
With
respect to the outlook for the remainder of the year, as Alberto mentioned in
his comments, the market fundamentals remain quite solid. We expect good
harvest in both the US and Europe. We continue to see that given global demand
and the demand supply dynamics that acreage needs to expand in South America to
ensure supply.
So,
prices will have to support that acreage expansion. We expect fertilizer
fundamentals to continue to be strong and in our food products segment, we
expect to continue to show improvement there. There are some challenges still
ahead of us. They are the same ones that weve spoken with you about before.
The
Brazilian Real continues to be very strong so we have to be attentive to
managing our cost sites in Brazil. Its also the case with the strong Real and
the higher input costs for crops will pressure Brazilian farmer economics. We
also are seeing higher raw material costs in fertilizer and that could put
pressure on those margins and edible oils as well. Were managing that very
carefully.
As
you may have also seen, with respect to the latest USDA forecast, the high
agricultural commodity prices may start to put some pressure on demand growth.
The
latest forecast for the 08 09 cycle are up 4% for veg oil and up 1% for
meal. So, continued growth in demand, but at slightly slower rates than we saw
for the previous cycle. As weve also already seen this year, government policy
changes can disrupt trade flows.
So,
with that, we have increased our full-year guidance from $9.35 to $9.65 a share
to a new range of $11.60 to $11.90 a share. Thats a net income increase of
about $300 million. And we maintain the effective tax rate guidance range of
24% to 28%.
So,
with that, Ill open the call up for questions and answers.
+++
q-and-a
Operator:
Thank you. (OPERATOR INSTRUCTIONS) Well take our first question from Christina
McGlone from Deutsche Bank.
Christina
McGlone: Good morning.
Alberto
Weisser: Good morning, Christina.
Christina
McGlone: I guess first question, Jackie, following on your agribusiness outlook
and the volumes in the quarter, where should we think about volumes, demand,
versus crush margins, kind of in your major regions? How should we think about
that as the year progresses?
Jacqualyn
Fouse: Well, I think we continue to see very solid fundamentals for the
remainder of the year. If you go back and look at the same period of last year,
I think youll see that the growth rates in agribusiness for the quarter in 07
were pretty strong - around 10%. And I believe for the six months theyre
around 12%. So, the fact that theyre a bit more moderate in this quarter
compared to last year, I think the comp is a little bit tough. So I think we
would expect to see them closer to our stated long-term growth range for the
second half of the year. That being said, we are seeing a little bit of
pressure on demand so you could have a point or two of impact there. Alberto
may want to add something.
Alberto
Weisser: Yes. The crushing margins are solid, Christina. I think what we have
to always remember is that so much of the growth is around the world, so much
of the growth after the globalization really started in 1990. We have a significant additional demand from
the developing countries. And so, we see around the world the strong demand of,
I think, even 1% of the USDA, is amazing when you think about the high prices
that we have out there.
Christina
McGlone: And, so, basically, agribusiness has kind of shifted from being driven
by maybe that dislocation opportunity and the merchandising function to oilseed
processing. Is that correct? Is that what were seeing today?
Jacqualyn
Fouse: Well, in terms of the relative over performance, its probably been a
bit stronger in oilseed processing piece of agribusiness. But the distribution
results are also still very good, as are grain origination.
Alberto
Weisser: In fact, in this quarter, pretty much everything worked very fine.
With these dramatic increase in prices, the high volatility, this is exactly
the moment where companies like us are well positioned. We have to have
the
credit lines. We have to be ready to serve everybody. So, I was amazed. It was
obviously stronger than we expected, how well all the business units worked. It
was grain origination. It was grain, oilseed. I would not highlight one
specifically. It was everything that was working very well.
Christina
McGlone: Okay. Then shifting to fertilizer and farm economics in Brazil, would
you I think before you had guided to 5% to 7% fertilizer volume growth. Im
not sure if that was Bunge or the industry. Is that changing at all given where
farmer break even is and where soybean prices have fallen to very recently? I
think farmers would still plant at break even but Im not sure if thats
impacted by the fact that their ability to forward sell is more limited. Can
you maybe touch on that break even level and farm economics, please?
Alberto
Weisser: The farm economics are fine for the farmers. The industry expect it
still to grow 5% to 7% or 5% to 6%. Thats the figures from ANDA. And the farm
economics are good. We have to remember that for the expansion of the
agricultural new land which we expect to happen something like around 5%,
soybeans in Mato Grosso have to be at a level above $12.50 per bushel using
CBOT. So, thats where the prices are above that level. So, we see continued
very strong interest from the farmers to expand.
Christina
McGlone: Okay. Thank you. And then just last question, Alberto, can you take
about Argentina now that the tax was, I guess, unexpectedly repealed? Whats
going on with that government? Are we going to see an energy crisis? Is the
Peso going to devalue? And how are you preparing yourself for that?
Alberto
Weisser: We are very pleased that it was settled in Argentina, that the
situation was situation was settled for our global trade in a favorable way.
Obviously, we suffered in this quarter and during all this process in
Argentina. And I think it will, the markets adjust itself, issues like energy,
we have around the world in other countries. One way or the other, we always
found a way to adjust ourselves for that. Im hopeful and Im positive about
how it will evolve. So, it ended up at the moment being better than we even
hoped. Im happy that we see now the flow of Argentina also come to products
out of Argentina.
Christina
McGlone: Okay. Thank you.
Alberto
Weisser: Thank you.
Operator:
Our next question will come from Christine McCracken from Cleveland Research.
Christine
McCracken: Good morning.
Alberto
Weisser: Good morning, Christine.
Christine
McCracken: Just on your incremental increase in guidance here. Its only been a
couple of weeks since you raised it significantly already. What changed in that
period of time that gave you the confidence to raise it here?
Alberto
Weisser: I think what the difference is, first, we performed very well. So, in
the quarter, we had also some one time items and were getting closer to the
time where the Brazilian farmers are giving signs of how they will perform and
how they will buy. The commodity prices are staying high and also the
fertilizer prices stayed high.
You
might remember, we mentioned that there is upside if the conditions stay the
way they are. And the conditions are, they stayed positive. So, these are all,
if you add them all together, they give us the confidence that we will be able
to perform like were indicating.
In
addition, also, you know we are, especially in the corn crop in the US, we are
deeper into the season. So, we have a little bit more visibility and there is
less worry about the weather at the moment. Theres still a long way to go
until the end of August. But all of this gives us some more confidence that we
will perform so well until the end of the year.
Christine
McCracken: Youre saying that crop prices stayed high, but theyve sold off
pretty hard here in the last couple weeks. Is that affecting your outlook even
though its changed?
Alberto
Weisser: I think, probably, it is even positive, because they are at the level
where theyre fine for the fertilizer at these prices. And by coming off, there
is less pressure on working capital. There is also relief for the final
customers. To be very honest, Im happy that the prices came a little bit down
because it was tough out there.
Christine
McCracken: And just on your comments of sales, what looked to be shifting
forward in fertilizer, at least on the retail side, you know, typically it has
affected the timing a bit in that fertilizer business. Is it maybe weakening
your outlook at all for the second half? Or is it that that may even be
incremental to what your expectations are around fertilizer sales going
forward?
Alberto
Weisser: We are very confident about the second half and looking into the next
couple of years in this area. The fact that we had now two years in a row, 07
and 08, where so much was sold to the soybean farmers and at the beginning of
the year. Its probably more related with the fact that the farmers anticipated
that the prices are high for commodities and there was a risk that they would
come down, like what happened. Also, that the fertilizer prices would continue
to increase. So, I think the farmers took a very good decision by buying a
little bit earlier.
Now,
because the farm economics are positive, we will see a good second half. Now,
longer term, we would expect that the pattern, the purchasing power, the
purchasing pattern of the farmers would go back to a more normal situation like
40%, 60% in the second half or one-third, two-thirds. So, the last two years
has been a little bit different.
Christine
McCracken: Ill get back in the queue. Thank you.
Alberto
Weisser: Okay. Thank you.
Operator:
Moving on to our next question, Robert Moskow from Credit Suisse.
Robert
Moskow: Thanks. Good morning and congratulations.
Alberto
Weisser: Thanks. Hi, Rob.
Robert
Moskow: Hi. I had a question about the inventory that youre holding.
Obviously, the value of those inventories are a lot higher than they were a
year ago because commodity prices have risen. But, just in the last month,
commodity prices are falling. Maybe corn is falling a lot faster than soy. But
does that
have
any implications for your earnings power in the back half of the year? Is there
any risk that you bought soy at one price and then you have to sell at a lower
price later on? Thanks.
Alberto
Weisser: Not at all, Rob. Because, obviously, you know we always hedged. For us
it doesnt matter if it is going up or down. The positive of prices coming down
is theres more clearly, if it stays like this, were going to have a
positive cash flow. So, let me tell you, Im happy where it is. I dont see any
significant on the earnings side.
Robert
Moskow: Right. And, second question, there was a small news item saying you
were going to start distributing fertilizer in the US. Can you review a little
bit about the strategic rationale for that and how big you think you want to be
in fertilizer in the US?
Alberto
Weisser: Yes. This is initially going to be a very small venture. But we are,
because of our large operations in South America, we are one of the largest
buyer and logistic operators of all these raw materials. And as the US is
shifting to become more of an importer of fertilizer, we can use our
capabilities of doing that. So, this is much more like a commercial activity
using our global infrastructure of freight, of supply, and also with our
relationship inside the country to the different operators. So, we see an
opportunity to work in this arena, but we dont expect this to be anything
really large.
Robert
Moskow: Okay. Thank you very much. Thank you.
Alberto
Weisser: Thank you, Rob.
Operator:
Well move on to our next question from Ken Zaslow from BMO Capital Markets.
Ken
Zaslow: Good morning, everyone.
Alberto
Weisser: Good morning, Ken.
Ken
Zaslow: Did I just hear you say that you might have positive cash flow?
Alberto
Weisser: Yes. We have.
Ken
Zaslow: What would it take for you to get to positive cash flow? Are we in the
situation where soybean prices have gone down enough where we should start to
see that? Or would it be another leg down for soybean prices that we would need
to see?
Alberto
Weisser: The only thing we need is non-rising prices. The prices have been
rising for the last basically three years. So, the moment the prices stop
rising, we have positive cash flow.
Ken
Zaslow: Okay. And then, just on a totally different note, under what
circumstances would CPO be accretive to your earnings? Since you announced the
acquisition, I think corn prices have been down roughly 20%, 25%. You just I
think you said on the call that you didnt even look at synergies outside of US
and, I think, another market, you said. So, what circumstances could CPO
acquisition be accretive to earnings?
Alberto
Weisser: CPO will be accretive to earnings. On our call, I think we mentioned
that at the moment we are seeing 2010 and perhaps even late 2009, depending.
But I think we said 2010, depending on certain situations.
Now,
as we start under whatever is possible under law to work together and we are
getting to know each other better, we are quite excited about the opportunities
that are out there. So, we before we signed the agreement and the information
we gave you about the synergies are from that time, we had to go really on the
very safe side on things that are very obvious, like in Brazil and the US.
But
as we talk more in new areas, especially new growth areas and new opportunities
and logistics in origination and new countries, I think it is Mexico, Columbia,
Korea. So, starting selling corn products, products in Europe. So, I think it
will be very interesting. Later in the year, as we evolve and get closer to the
closing of the deal, well be able to give you much more color.
Jacqualyn
Fouse: Yes. I think, Ken, with respect to the synergies, where weve been
probably light, if I can call it that, is on the revenue side. And how we came
up with what we included in the range that we gave of $100 million to $120
million, of which about a third or so is revenue related, are really more what
I would almost call profit opportunities, that when we look at the existing
businesses, managing common customers, and some things that we just know we
should be able to do in the fairly short-term, those are the kinds of things
that weve included in that number.
So,
as Alberto said, incremental growth opportunities, even looking at Asia, which
we didnt really quantify. Some of those, all of that is not in there. So, its
probably pretty, pretty interesting in terms of upside.
The
other thing, with respect to accretion, dilution, is, obviously, when we did
the acquisition analysis and our forecast for Corn Products profits on a go
forward basis, we made certain assumptions about corn prices and profitability.
And so those will be baked into the analysis and ran different scenarios on
that to be able to come up with that as well.
Ken
Zaslow: Is there a corn level and a synergy level that would actually make the
CPO acquisition accretive in year one?
Alberto
Weisser: There are scenarios. There are scenarios. But, obviously, we need much
more time to analyze this. And we have seen scenarios and Im very pleased,
also, we have seen, two days ago, Sam announcing the earnings. Theyre doing
well. So, we are very excited about it.
Ken
Zaslow: Great. I appreciate it. Thank you.
Alberto
Weisser: Thank you.
Operator:
And well move to our next question. David Driscoll from Citi.
David
Driscoll: Good morning, everyone.
Alberto
Weisser: Good morning, Dave.
David
Driscoll: Congratulations on the great results.
Alberto
Weisser: Thank you.
David
Driscoll: Alberto, can you give us a little bit more color on your trading
operations? Really, my question here is kind of Id just like to hear a bit
more discussion on how youre generating the upside. I think by my
calculations, this business over the last two years has seen a total profit
change in all of agribusiness of just shy of $900 million. And I think that a
very substantial portion of it is coming from the trading operations. But Im
not clear exactly whats the genesis of that in the near-term here. And then,
sorry for the long question, but Im trying to drive to how do those of us on
the outside look at this thing in terms of sustainability?
Alberto
Weisser: I would say that in the last two years, the last four quarters, most
of the profitability has come from what we call more structural from physical
transactions. Now, when you talk about trading, I suspect you are talking about
proprietary trading. The proprietary trading, this is a very small component of
our business. Very, very small.
David
Driscoll: Alberto, I can tell you that thats absolutely not what Im looking
for. Im looking for the physical trading business that you guy are in right
now and the fact that theres been so much volatility as you described in your
comments. Thats the reason why weve seen a lot of upside. Its not the
proprietary piece that Im interested in.
Alberto
Weisser: Okay. The physical. That amount, as you can see from the volume, it
has continued increasing and in an environment the way we are in was rising
prices, volatility. It is very important to be global, integrated, and a lot of
good knowledge. So, the risk management component was very important.
I
would say that obviously in this quarter, it has been clearly above normal. And
it has been exceptional performance. But, as I look forward, the environment is
very positive, Dave. Im not so sure exactly if I understood your question.
Jacqualyn
Fouse: Dave, I think, as I mentioned earlier in response, I think, to a
question, the if you look at the relative over performance of the individual
categories within agribusiness, so far this year the relative over performance
is greater in oilseed processing. But the other categories are outperforming as
well.
So,
if youre trying to get to is oilseed processing performing normally and the
other ones, from a relative standpoint, doing much, much better, its not that.
Oilseed processing is the biggest relative outperformer and theyre all
outperforming so far this year.
David
Driscoll: Thats very helpful. If I then kind of try to skin the cat in a
different direction, when I look at first half results for Bunge, it looks to
be about $6.84 excluding the tax benefit. Now, if I look at the guidance, that
implies back half earnings of $4.34. How do you explain the slowdown,
especially in light of the fact that the third and fourth quarters historically
have been the most profitable?
Alberto
Weisser: I dont see it as a slowdown, Dave. Im sorry if I disagree. I think
the first half has been extremely powerful. We see the second half very strong.
Obviously, last year we had some it was also very strong last year when you
compare what we expect to do this year, last year, vis-a-vis all the past
years. It continues to be very strong.
Now,
obviously last year we had also some additional benefits like, remember the
mark to market issues that reversed in the second half? We had losses in the
first half. So, there were a couple of things that make it a little bit more
comparable. But I see the second half of this year quite strong. Now,
obviously, it is not as strong as the first, but the first has been
exceptional.
David
Driscoll: Thats really at the heart of what Im trying to get to. So, Jackie,
if youve said that agribusiness is really being driven by processing then I
really would not understand why anyone would expect to see the earnings in the
second half decline by $2.50 relative to the first half and in light of the fact
that you should be realizing substantially higher fertilizer prices. So, theres
an incongruity here that third and fourth quarters have always been your
strongest quarters. I mean, you go back a long history, Alberto. Youve said it
many times on these conference calls.
Alberto
Weisser: But, Dave, also you have to understand that some of these profits,
they also move between quarters. Thats why its so difficult to talk about
quarters. So, we do anticipated business. We do forward business. And then because
of the mark to market, we have to book the earnings at that time.
So,
that is why it makes it a little bit more difficult to talk on a quarter or
half year basis. And Im sure there is some shift from the second half into the
first half of the earnings. But youre right. There has been a little bit more
of a shift vis-a-vis previous years, a stronger first half.
But
when I look at the second half, if youre saying Is there more upside
potential?, its a little bit more difficult to say now that there is more
upside potential than we would see in the beginning of the year, because we
have much more visibility of how it will be. Look, the second half is above
at least two points above our RONA. So, it is very strong performance.
David
Driscoll: Alberto, can you make a comment in light of these earnings and the
guidance that youve given for 08, how we should think about 2009? I know you
probably dont want to give exact numbers here, but, again, Im trying to get
directional right on this. Is this something where you think that 09 can just
continue to build on 08? Is that a fair statement?
Alberto
Weisser: That is a very tough question and we are not ready to answer that in a
detailed way. We are just starting our business plan. So you remember that in January is
when we talk about 09. But let me give you a picture of how I see the overall
environment.
Starting
with fertilizer, I think fertilizer will continue strong. The demand is out
there. We see around the world the demand for food, for grains, increasing. I
always like to remember that we should think that or see the number that 80%
of the global population earns less than $5,000 a year.
So,
what we are seeing is that developing countries, the poorer countries are
growing, are becoming richer for the first time this year more than half of the
GDP is going to come from developing countries. That has never happened before.
So, as these economies shift a little bit away from just grains to meat, this
is an additional demand of four to eight times the demand of what they were
consuming before.
So,
there is a strong sustainable demand out there. And this means there is a
bigger need for fertilizer. Now, the supply chain or the increase in production
in fertilizer takes a little bit longer, because we have to open mines and
until
everything
comes up on stream. So, I think the environment into next year and the year
after is going to continue to be strong in fertilizer.
In
agribusiness, also, I think it will stay strong. But dont think about the
second quarter. I think it would be much more like it was in the second half
and as were expecting the second half of last year and the second half of this
year. So, the environments are positive.
And,
also, we have to remember, we have been investing a lot and many of our
projects are coming up in stream. Finally, we are starting to see, starting to
have our first tests with our plants in Russia and the Spanish plants. All
around the world we are expanding our operations. So, its a little bit early.
So, Im sorry if Im rambling but Im optimistic about Im relatively
optimistic about next year.
David
Driscoll: If I could get one more question in on a different topic altogether?
Alberto
Weisser: Sure, Dave.
David
Driscoll: Im just getting a tremendous number of questions on the Corn
Products deal. In particular, theres, Alberto, you certainly watch the stock.
Youve raised guidance $5.50. Yet the stock is down $15 from the time when you
announced the deal.
If
we make the presumption that you wanted to arbitrage an overvalued stock price,
Id just like to hear your thoughts on the idea that Bunge perhaps could have
monetized a piece of their fertilizer assets instead of buying Corn Products,
this wouldve reduced Bunges risk to high crop prices, brought cash in the
door, and highlighted the value of the remaining fertilizer operations. Can you
just give a little comment on that? I mean, this is truly just a shareholder
value question.
Alberto
Weisser: Look, we have to our role at Bunge is to maximize the net present
value of future cash flow. So, we see that this transaction is very
strategically, very interesting and it will add value to the company. Okay.
I
cannot react to if at the moment the prices are very high or fertilizer, this
or that. These are the kind of things we cannot react. But I have to, all the
time, think about how do I maximize the net present value to liquefy pieces of
the portfolio. That might be an interesting decision, but this does not
maximize the net present value of future cash flow of the existing
shareholders.
David
Driscoll: Thanks for all the comments.
Alberto
Weisser: Thank you.
Operator:
And well move on to our next question. Vincent Andrews from Morgan Stanley.
Vincent
Andrews: Hi. Good morning, everyone.
Alberto
Weisser: Good morning, Vincent.
Vincent
Andrews: A bunch of leftover questions here. Maybe Jackie, Ill just start with
you. If you could just help us understand what youre actually doing internally
to improve the working capital dynamics?
Jacqualyn
Fouse: We have got a very nice sort of, I guess, structure or system put into
place now where the commercial and finance people work very closely together to
analyze the business that were doing, the profitability on that business, the
amount of capital that has to be committed to it, and for how long. Were just
doing a more robust analysis than we have in the past. The team has come
together very nicely so that when you get that analysis right and people can
then see which pieces of the business are contributing the most, they obviously
start to focus on those more.
So,
weve trimmed off bits of business that at the margin were not that interesting
and where weve been able to redeploy the capital elsewhere or keep it for drop
out or so to speak.
Then
youve got thats one aspect of it just with respect to the business that were
doing, including the split between spot business and forward business. And then
youve got, obviously, each one of the processing facilities where people are
very focused on managing inventories as tightly as they can, both in
agribusiness and in food products particularly. So, thats basically what were
doing and its becoming part of our DNA, I would say. People are very focused
on it, pricing the business appropriately. If were taking on more risk than
the farmers taking, were trying to help price, price more appropriately.
Price the higher capital commitment and the length of the capital commitment.
Vincent
Andrews: What in the that kind of got into my next question. What in the kind
of agribusiness value chain, just tell us wheres the leverage thats allowing
you to, as you put more capital into the business, get a commensurate return on
that. Where is that leverage coming from?
Jacqualyn
Fouse: Well, I would say one of the things that is helping is certainly all the
major players in the industry are all kind of doing the same thing. So, youre
seeing comments about this in the public domain from some of our competition.
Youll see us at certain moments behaving more or less the same way with
respect to our appetite for forward business and then how far out well go with
it and things like that.
So,
when you have that degree of rationality being seen in the marketplace, then
that helps. But its also the case that because we have the industrial asset
base, because weve got the ability to be efficient with the logistics and
everything that we do, we just can look at the whole value chain and leverage
all of that.
Alberto
Weisser: I would add, Vincent, that in moments like this, obviously the farmers
would like to do much more forward business than they usually would do and its
very difficult to tell them No, because we have this limitation of working
capital.
So,
theres a real pressure there. At the same time, you have to earn the
additional remuneration for we are using not only working capital debt for
the working capital. In an environment like this, you also have to use equity.
So, we are also using our equity. So, the returns have to be higher in these
tremendous escalation of prices and volatility.
Vincent
Andrews: Okay. Then just to shift gears a little bit, Alberto, theres a lot of
talk about expansion of acreage in Brazil, how that will effect the fertilizer
industry or business and so forth. To a certain extent, dont shouldnt we be
focusing a little more on application rates on existing acreage
as
well? In other words, isnt Brazilian soil under-fertilized? Isnt there a huge
incentive, from a price perspective now, for the Brazilian farmer just to be
using more on his current acreage? Is that a reasonable thing to be thinking
about?
Alberto
Weisser: Yes. In fact, you are right. I do the same mistake. I talk about
acreage expansion and what we are working very close with local agencies,
government agencies, research institutes, and different organizations is to
convert pasture to agriculture. In fact, doing it, even combined, pasture and
agriculture in the same area. This is probably more where the expansion is
happening. We are incentivizing that because this is obviously also very
interesting. You dont have to open new land which is always more expensive.
And youre right.
One,
we should think more about the conversion of pasture. Second, more about
application rate. The application rate is going up as the commodity prices are
good. Farmers are using more fertilizer. But we should not forget the 05, 06
crisis. Its still in their bones. Not
everybody is completely out of the woods there. So, some of the farmers are
still struggling and theres still debt. It takes more time. It takes more
time. To be real honest, I prefer that it takes more time because its
therefore more solid.
Vincent
Andrews: Okay. I guess my point, or what I wanted to say was just when we think
about the break even price of $12.50 is for existing acreage I mean for new
acreage. But around $12.50 or below, the farmer would probably still be apt to
put more fertilizer on his existing land simply because theres leverage to the
yield response curve? Is that correct?
Alberto
Weisser: Absolutely. And I think its more the industry is limiting because of
credit concerns, that we are limiting how much we are selling. So, probably, if
there was less limitation on funding, the farmers would be buying more.
Vincent
Andrews: Okay. And speaking of funding, the Brazilian government, I think, has
announced over the last month or so that theyre going to get more involved in
the funding of the farmer. Can you just kind of quantify or somehow or
qualify the impact that will have on the industry in general and perhaps on
your credit?
Alberto
Weisser: Yes. The government is probably, they announced that they will do more
and but this probably covers mostly the increase only in prices. The very
positive development that we are seeing is that more and more banks are getting
involved.
In
the past, there were one, two years ago, one-third of the funding to the
farmers in Brazil was done by the government, one-third by banks, and one-third
by the agribusiness companies like us, Monsanto, Caterpillar, and so on. And
what were seeing is that the banks are stepping in, not only domestic banks,
but a couple of foreign banks. So, we dont need to expand.
In
fact, our need to fund really has, in fact, in relative terms diminished a
little bit. So, we are happy about this. We continue serving the farmers and we
continue working with the banks. So, we continue earning our fees. And I think
the combination of working directly with the banks is a positive new
development. But it is shifted more to the banks at the moment.
Jacqualyn
Fouse: Yes. You shouldnt expect this to make a dramatic shift from one day to
the next. But we are seeing that and we expect that to continue over time. You
should see that reflected in the details that you find in the Q with respect to
the amounts outstanding for the farmer credits.
Vincent
Andrews: Okay. And maybe Ill just take a last crack at the guidance. Were not
terribly surprised to see you come out with these numbers, given some of the
analysis that weve done. But, Alberto, typically, these guidance increases
come with caveats about where you feel like youre being conservative or what
youre worried about as we look through the back half of the year. So, could
you just remind us what those might be with this new set of guidance?
Alberto
Weisser: As we come deeper into the year, I think we become more we have more
visibility and the level of confidence grows. You know I have 15 years in this
industry and things go up and down. You have to give a realistic view. This one
was an exceptional I dont think we can repeat so often quarters like this.
So, I would say if Ive been accused of being conservative, but overall, we
have been more right than wrong in terms of where we have income out. And I
would consider that we are deeper in the year. We know more about it. So, we
are sharpening our pencil.
Vincent
Andrews: Okay. And then if we did kind of look a little bit beyond the year and
looked at the next 12 months, from a fertilizer perspective, supply and demand
of those nutrients is going to remain tight. And if we assume commodity prices
remain about where we are, that sort of implies that that piece of the business
is sustainable and can essentially even get better. Weve just seen the phosphate
rock price go to $400 to $500 a ton in the last month.
So,
when I think about agribusiness, then, I have to think about the crush margins,
which continue to get better. Why are they continuing to get better? I know its
demand driven. But can you tell us more than just that its demand orientation?
What in the chain is causing the leverage to get the margins wider? That may be
similar to the question we already talked about in the logistics piece.
And
then, also, how do you see the edible oil business recovering or is that just
going to be a collateral consequence of better results in agribusiness?
Alberto
Weisser: I agree with you on fertilizer. On agribusiness I would add that I dont
think there will be an expansion in crush margins. What were seeing is a more
normal crush margins for the second half and the second in the first half,
they were clearly above normal. So, the returns were higher than the average
returns. And we are anticipating that they come back more to a normal
environment. So, we dont see an expansion in crush margins. At a very good
level, very high level, but not expanding.
In
fact, probably getting a little bit more normal. And so, when I look at the
agribusiness in general, I would suspect that were going to see RONAS of 2%
points above cost of capital in the future like we have seen in the second half
of last year and were expecting in the second half of this year. So, solid,
but not as exceptional as in the first half.
The
demand is good. We see all the time, you know, with these very high prices,
that were anticipating that meal demand will grow at 1%. Normally we would
suspect that there would be demand destruction. You might see it in one area or
the other, a little bit softer, perhaps even a little bit of a retraction of
demand, but around the world it is positive. Same as with vegetable oil.
So,
I feel that the global picture in agribusiness of supply, demand, grain,
oilseeds, soft seeds, and soon also more, in our case, of sugar, is positive. I
see it positive, but not exceptional.
Now
on the edible oils side, and I would add, edible oils, we were, as Jackie said,
we suffered a little bit in the quarter when prices rised the way they did. We
have much more trouble in passing them on to the final customer. The time lag
is bigger. And Im much more optimistic about food products, edible oils, in
the future because we see that we are being able to pass it on.
So,
theres upside in which is included in one way or the other in our guidance.
Its obviously not so large a piece of our business, but the outlook is more
positive there.
Vincent
Andrews: One last thing then Ill pass it along. What do you consider your cost
of capital to be these days?
Alberto
Weisser: Its around 8%, if Im not mistaken. Is that right, Jackie?
Jacqualyn
Fouse: Right.
Alberto
Weisser: Around 8%. Yeah.
Vincent
Andrews: Its okay. Thank you so much, guys.
Alberto
Weisser: Thank you.
Operator:
Well move on to our next question. Diane Geissler with Merrill Lynch.
Diane
Geissler: Im sorry if I missed this, but just a quick question on your current
your new guidance. Does that that excludes the extraordinary item in the
second quarter? Correct?
Jacqualyn
Fouse: No. Its included.
Diane
Geissler: Okay. So, if we were to strip out the I guess its about $0.75, the
pro forma number would be $10.90 to $11.00 help me out here. $11.15?
Something around there?
Jacqualyn
Fouse: Its $0.72.
Diane
Geissler: Okay. So, it would be below the $11.60 to $11.90?
Jacqualyn
Fouse: Right.
Diane
Geissler: Okay. And then the other question I had really was on the you know,
just a commentary about youre happy with where current soybean prices are
and even if they moved down a little, that would be beneficial from a cash flow
perspective. But then when Jackie made the comment about oilseeds and trading
and that whole side of the business, which seems to do very well when crop
prices are high, I guess, between the two, would you rather have lower prices
and positive cash flow or higher prices and the benefits to earnings from
higher prices? Or where do you draw the optimal position, I guess, in terms of
where crop prices are?
Alberto
Weisser: Let me answer that because Jackie clearly prefers cash flow. But, joke
aside, but what I think we do like to see, the prices have to be high enough
that the farmers are happy, so that they buy fertilizer, so thats why we talk
so much about the break even and the expansion of Mato Grosso.
Now,
overall, what you have to think is that we are in the middle. We are so, when
prices are very high, we dont benefit. Its the farmer who benefits. When the
prices are very low, its the consumer who benefits. So, we are in the middle
and we make a margin.
And
a very good example is in 2004, when the prices came down very fast and we had
a very good year. So, it is not that we make money because prices are going up.
So, obviously, I think we have the skill to sail through well. The team is very
good at sailing through very volatile markets. But, overall, we dont depend on
the level of the prices. We dont correlate with that. So, the only thing is,
the caveat is the farmers need to make enough money so that they buy the
fertilizer.
Diane
Geissler: Yes, but presumably if we look at, you know, 2008 and we look at the
benefits fertilizer has had from sort of just as soybean prices have sort of
skyrockets and demand for fertilizer and expansion of acreage, et cetera, you
definitely benefited. I mean, if I look between 2008 and 2004, Id much rather
have 2008 with, you know, $11.00 in earnings than $4.20. So, I guess
Alberto
Weisser: Youre right in terms of fertilizer. But I understood your question in
terms of agribusiness, food and agribusiness, which presents 60% of our
business. In fertilizer, youre right. High prices benefit. The high prices do
benefit the fertilizer sector.
Diane
Geissler: Okay. So, when we think about it in aggregate, in the whole, Bunge
consolidated, where would we draw that optimal line between having prices be
low enough that we can stimulate demand versus prices that are high enough
where we get incremental acreage and trading opportunities because the market
is volatile?
Alberto
Weisser: The sweet point is high enough so that the farmers are happy, but not
too high that the customers continue increasing their demand. So I have a
feeling that where we are at the moment is probably healthier than where we
were, in the long-term, healthier than where we were in the first half.
Diane
Geissler: Okay, alright.
Alberto
Weisser: Because you also have to remember theres tremendous pressure on
funding. We had to expand our working capital by $4 billion or $5 billion over
the years. This has a tremendous pressure on the whole system.
Diane
Geissler: Okay. Alright. Thank you very much.
Alberto
Weisser: Thank you, Diane.
Operator:
And we have time for one more question. Our next question will be a follow-up
from Robert Moskow from Credit Suisse.
Robert
Moskow: Just very quickly, Alberto, youve said many times that you think
returns have to be higher in this type of environment because your cost of
carry is so much higher. Can you take a shot at trying to estimate processing
margins? How much higher do you think they should be? And then, also,
origination
margins,
logistics margins? Order of magnitude, do you think they need to be 10% higher?
15% higher?
Alberto
Weisser: We didnt do it like this. But the way Jackie was explaining how we
work together between finance and the commercial team, because it becomes
limited, the amount of funding we make available. Obviously, we could give much
more funds available. But we have to find the right balance, how much liquidity
reserve we have. How much we want to how much risk we want to take. So,
naturally what happens is if you limit this, theres pressure on the margins to
expand. So, we have not quantified this. We really have not done this is much
more a interactive way. Jackie?
Jacqualyn
Fouse: We havent looked at it exactly that way. What were trying to do though
is to price the business, to take into consideration the amount of capital that
has to be committed, how that can vary based on the fact that we hedge, and if
the prices mold the additional capital, you have to commit because of margin
calls on the hedge. And then for how long that capital is committed. Weve done
a better job of including considerations for those couple of things on the
forward business, I would say.
Robert
Moskow: And since you operate in a very consolidated market, it seems like your
competitors are doing the same thing. Perhaps everyone is requiring a higher
cost, a higher margin in order to do business. Maybe thats the advantage?
Jacqualyn
Fouse: Economic rationality would tell you, you should be doing that.
Alberto
Weisser: Were seeing a couple of players that went too far and you have seen
the troubles Selecta and Agrenco had. You know it is very, very tough, Vincent,
to limit the business. When you really look at it, the business is the same we
did last year. But the farmers want to do more than normal. And that is so
difficult to say No.
Robert
Moskow: Alright. Thank you very much.
Alberto
Weisser: Im sorry. Robert. I got your sorry.
Robert
Moskow: No problem.
Operator:
And that concludes the question and answer session. At this time Id like to
turn the call back over to Mr. Mark Haden. Please, go ahead.
Mark
Haden: Great. Thank you, Steve, and thank you everyone for joining us this
morning. Bye.
Operator:
And this concludes todays teleconference. We thank you for your participation.
Have a great day.
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