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 Number for
Registration Statement
on Form S-4: 333-152781
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
preliminary joint proxy statement/prospectus or any other documents that Bunge
and Corn Products have filed or will file with the SEC in connection with the
proposed merger. Investors and
securityholders are urged to carefully read the preliminary joint proxy
statement/prospectus and any other relevant documents filed or to be filed by
Bunge or Corn Products, including the definitive joint proxy
statement/prospectus when it becomes available, because they contain or will
contain important information. The
preliminary joint proxy statement/prospectus is, 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
from Corn Products by directing a request to Corn Products International, Inc.,
5 Westbrook Corporate Center, Westchester, Illinois 60154, Attention: Investor
Relations.
Bunge, Corn Products and their respective
directors, executive officers and other employees may be deemed to be
participants in a solicitation of proxies from the securityholders of Bunge or
Corn Products in connection with the proposed merger. 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 is included in the preliminary joint proxy
statement/prospectus referred to above.
Event ID: 1979883
Culture: en-US
Event Name: Q3 2008 Bunge Limited Earnings Conference Call
Event Date: 2008-10-23T14:00:00 UTC
******************************************************
Notes:
Converted From Text Transcript
Event ID: 1979883
C: Mark Haden;Bunge Limited;IR
C: Alberto Weisser;Bunge Limited;Chairman & CEO
C: Jackie Fouse;Bunge Limited;CFO
P: Christine McCracken;Cleveland Research Company;Analyst
P: Christina McGlone;Deutsche Bank;Analyst
P: Ken Zaslow;BMO Capital Markets;Analyst
P: Robert Moskow;Credit Suisse;Analyst
P: David Driscoll;Citi Investment Research;Analyst
P: Diane Geissler;Merrill Lynch;Analyst
P: Vincent Andrews;Morgan Stanley;Analyst
P: Chris Bledsoe;Barclays;Analyst
******************************************************
C: Mark Haden;Bunge Limited;IR
C: Alberto Weisser;Bunge Limited;Chairman & CEO
C: Jackie Fouse;Bunge Limited;CFO
P: Christine McCracken;Cleveland Research Company;Analyst
P: Christina McGlone;Deutsche Bank;Analyst
P: Ken Zaslow;BMO Capital Markets;Analyst
P: Robert Moskow;Credit Suisse;Analyst
P: David Driscoll;CitiInvestment Research;Analyst
P: Diane Geissler;Merrill Lynch;Analyst
P: Vincent Andrews;Morgan Stanley;Analyst
P: Chris Bledsoe;Barclays;Analyst
P: Operator;;
+++ presentation
Operator: Good day ladies and gentlemen and welcome to todays Bunge
Limited Third Quarter Conference call. (Operator Instructions) At this time for
opening remarks and introductions, Id like to turn the conference over to Mr. Mark
Haden. Please go ahead, sir.
Mark Haden: Thank you, Sara. And thank you everyone for joining us this
morning. Welcome to Bunge Limiteds Third 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 third 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 this morning to discuss our third quarter
results are Alberto Weisser, Bunges Chairman and CEO, and Jackie Fouse, Bunges
Chief Financial Officer. And now I will turn the call over to Alberto.
Alberto Weisser: Good morning everyone. The third quarter was a
volatile time in the global agribusiness and food markets, but the Bunge team
managed through the period with skill. We head toward the end of 2008 with a
solid liquidity position and continued expectations for strong full year
results. I am proud of our teams efforts and accomplishments in this record
year.
Current market conditions are clearly different than the extraordinary
ones experienced in the first half of the year. When compared to the first two
quarters, recent results have been pressured by softer demand for feed inputs
and slower farmer selling in certain regions as well as reduced fertilizer sales
in Brazil.
There is weaker overall demand from livestock companies in the U.S. and
the soy complex is feeling some pressure from the substitution of feed wheat
for soymeal in Europe. At the same time, however, soymeal demand is growing in
Asia and Brazil and USDA forecasts overall demand for soybean meal to grow by
2% next year. Larger wheat harvests in Eastern Europe have created export
opportunities for Ukraine and Russia.
As the first nine months of 2008 demonstrate, our industry is dynamic,
so its important to view todays weaker market environment in a broader
context. Conditions change and value shifts from region to region, product to
product and up and down the production chain as the market adjusts to new
conditions via its normal functions.
Underneath this change there are basic and steady fundamentals that
will continue to generate compelling growth. World population and living
standards in developing economies continue to rise and non-food uses for
agriculture commodities are expected to increase. These factors will contribute
to a rebound in overall demand.
At the same time, any stocks of agriculture commodities remain below
historic norms which will encourage the markets to maintain commodity prices at
levels that provide incentives to farmers to plant larger areas and buy the
nutrients necessary to generate higher crop yields.
What we believe is important is to be global and to have a global view
of the market, to have a broad product portfolio and to be integrated from farm
to consumer so as to capture efficiencies. These qualities provide a
competitive advantage over regional or single value chain companies and Bunge
has them.
We have two global strategies for growth. The first is to invest in our
core businesses. One example is our purchase of a 50% stake in the Phu My Port
in Vietnam. Since 2004, Bunge has had exclusive rights to ship agricultural
commodities through the Port and now we will be able to expand the Ports
capacity and accelerate the growth of our business in this attractive market.
Another example is our recent purchase of a wheat mill and distribution
centers in Brazil, which will enable us to better serve bakery customers in
that country.
Our second growth strategy is to invest in complementary value chains
such as sugar, which is a promising market in which we can leverage our
expertise. In September we purchased a majority stake in a second sugar
cane mill in Brazil, which we plan to expand.
We also entered into joint ventures with the Japanese firm Itochu, to develop
sugar and sugar-based ethanol opportunities in the country. Together we will
complete the expansion of the Santa Juliana mill and develop a new greenfield
mill. The three projects should reach full annual capacity of over 12 million
metric tons of sugar cane in the aggregate within four years.
Since the announcement of the merger, Corn Products and Bunge have been
engaged in preparations for the integration of our two companies. Bunge and
Corn Products currently anticipate that the special shareholders meeting of
both companies will be held in mid to late December rather than November as
previously anticipated. We are disappointed in the performance of the stock
prices of the two companies, but Bunges belief in the strategic rationale for
the merger is unchanged.
Now I would like to turn the call over to Jackie, who will take you
through the third quarter results and outlook.
Jackie Fouse: Good morning everyone. Thank you for being on the call.
We go to slide three of the webcast slides and look at some highlights from the
income statements. Overall, Bunge produced a solid Q3 result in a volatile
market environment.
With respect to the quarter, having come off a very strong Q2, we saw
the impact of a shift in profits, notably for fertilizer, into the first half
of the year and we are seeing some additional shifts into Q4 for both
fertilizer and agribusiness.
For fertilizer, under the uncertain environment with currency and
commodity price volatility as well as tight credit conditions, farmers are
being cautious and delaying purchases and we are managing our credit risk very
carefully.
For agribusiness, we see slower selling by farmers in the U.S. and
Brazil and some impact from the delayed harvest in the U.S. And well talk a
bit more about the segment results in just a moment. Q3 was also impacted by
about $215 million of negative currency impact on fertilizer, U.S. dollar
financing for inventories which will be recovered in future periods as the
inventory is sold.
All this being said, we see a solid quarter in Q4, weve posted record
profits for the nine months and well post record profits for the year. What weve
seen this year in terms of how the business has developed serves as an
excellent reminder of why we have to look at our results on an annual basis.
Now on the next slide I will talk about the effective tax rate.
Effective tax rate remains in our guidance range of 24% to 28% but has
moved to the lower end due primarily to a shift in taxable income from higher
tax jurisdictions to lower ones, partly impacted by the impact of the weaker
Brazilian real.
In the quarter we also had a $15 million Hungarian tax credit. Seems
like not a huge number, but it makes 5 percentage points on the net income or
on the pre-tax profit of the quarter.
Looking now at the segment results on slide five, with respect to
agribusiness, oilseed processing margins remain good but were offset by lower
volumes, especially in the soy complex. Softseeds in Europe and Canada
performed especially well.
Origination margins are somewhat off recent highs as the uncertain
environment is causing farmers to delay selling and distribution margins are
also a little off as customers are monitoring the evolution of prices before
making purchasing decisions.
For the effect of fertilizer, we saw lower volumes in the quarter than
previously expected. This comes about because of the accelerated purchases in
the first half of the year and, as already said, also related to farmers under
the current volatile environment waiting as they are making their fertilizer
purchasing decisions currently.
We are also continuing to keep credit tight and hold margins as we
manage the risks.
I already spoke about the impact of FX on fertilizer. When we look at
the most recent end numbers, volume now for the retail sector looks like it
will be flat for the year and we expect to be somewhat lower than that due to
our credit policies.
On the food products side, edible oils was impacted in the quarter by
higher priced crude oil inventory as prices in the market declined and we
expect this to work its way through over the coming months and to have some
recovery there in the future.
Looking at some balance sheet statistics on slide six, weve managed
through the current financial market turmoil well with a strengthening balance
sheet. We saw significant declines in the quarter especially versus the end of June in
operating working capital as commodity prices fell and we continue to manage
working capital efficiently.
Our cash cycle has come down about three days since the end of 2007 and
about six days in the year-over-year comparison since September of last
year. Shareholders equity is up $800 million since 12/31/07.
Turning to slide seven, this is just graphically depicted as we
continue to manage the growth of the business very prudently, our debt
continues to grow slower than working capital and shareholders equity
continues to grow faster than debt.
With respect to cash flow for the quarter and the nine months, on slide
eight, we have very strong funds from operations driven by the profit
performance both for the quarter and the year-to-date.
As I spoke about already, we have a significant decline in working
capital in the quarter and this leads us to strong cash flow from operations
generation both for the quarter and for the nine months year-to-date. In
addition, after CapEx and dividends our net retained cash flow is also
positive.
On slide nine, some information on liquidity that we think is important
to highlight especially in the current financial market environment. All of our
committed credit lines are undrawn as of the 30th of September. Total liquidity
from this source of funds is $3.7 billion. You can see the details of those on
the slide. We have cash of about $1.5 billion as of the end of the quarter of
which roughly half is Fosfertil.
During the quarter, again in a difficult environment, we raised new
facilities totaling about $570 million and we consider this to go towards
refinancing our December bonds maturity. These are term loan facilities.
With respect to other maturities, weve begun the marketing for our November revolving
credit facility roll-over. That marketing is going well and we expect a good
outcome on that transaction.
Looking at the remainder of the year and the 2008 full year outlook, we
have maintained our full year earnings guidance of $11.60 to $11.90 per share.
Agribusiness should benefit from the harvest in the northern hemisphere and we
expect them to produce a solid result for the quarter. Fertilizer fundamentals
also should remain strong though we are now anticipating some moderation in
volumes versus what we expected before as we are controlling credit and as
farmers are taking their time to make their buying decisions.
As I already mentioned, we expect a portion of the FX loss in
fertilizer that was reported in the third quarter to be recovered as those
inventories are sold over the coming months. We also anticipate that food
products results will improve due to lower raw material costs and as we work through
the crude oil inventory that we had in Q3.
On slide 11 we are giving you some information with respect to an
earnings baseline concept. In terms of how we look at our business model, we
thought it would be useful to give this reference point, a theoretical
framework related to return on invested capital which is independent of
earnings guidance but translatable into an EPS baseline number. We think its
particularly important to remember this way of looking at our business model,
especially when the environment is volatile.
As you have heard us say many times in the past, our annual return on
invested capital target is a minimum of 2 percentage points above the weighted
average cost of capital and this target is an important performance measure for
Bunge.
As you can see on slide 11, our ROIC has been quite stable every year
since our IPO and it has exceeded WACC. We currently estimate our WACC at about
8.5% which would give us an implied baseline target ROIC of 10.5% for 2008 and
that translates into an EPS baseline of about $7.50.
Because of the above average performance in both agribusiness and
fertilizer this year, our results are on track to produce record profits and
returns that are 5 to 6 percentage points above weighted average cost of capital
and clearly above the baseline target.
So when we think about our faded long-term target, constant annual
growth rate and EPS of 10% to 12% per year we think about it as growth in
baseline profits linked back to our return on invested capital target. And with
that, on slide 12, we remind you of that average EPS growth of 10% to 12% per
year range which we continue to see as very doable. Again, its an average. It
could be a little higher, a little lower, any given year, but we are holding
that range and we remind you of the average annual growth that we would expect
over the next five years in our business segment, volume of 6% to 8%
agribusiness, 5% to 7% in fertilizer and 3% to 5% in food products.
With that, we will open the call up to questions and answers. Thank you
very much.
+++ q-and-a
Operator: Thank you. (Operator Instructions) Christine McCracken,
Cleveland Research Company.
Christine McCracken: Alberto, can you talk about the current credit
situation in Brazil and what gives you the confidence at this point that the
farmers are going to come back in and buy fertilizer and plant crops? This
year, especially given the drop in commodity prices?
Alberto Weisser: The environment is there are two components that
show that the environment is different for the farmer. One is that the farmer
is a little bit unsure by so many moving parts. So on one side the real is
weakening which is extremely positive for the farmer, but also for us,
and at the same time that means that the input costs are also going up
and some commodity prices have come down in prices.
So as these movements have been quite strong, the farmer has been a
little bit unsure when to move so its delaying it to the last minute. But
net-net, this is positive for the farmer because the income line is dollarized
and this is going up and the inputs which are also dollarized but are in a
small amount are lower, so the farmer is in a better position to decide now to
buy and lock in the sales.
Now on the credit side, it is tougher. The input companies like us and
others are much more reluctant in giving credit but this has been picked up
first by banks and more recently also by money funded from the government
through the banks and especially Banco do Brasil. So the credit situation or
the liquidity is much less than it was before but its moving.
The fertilizer sales are, if Im not mistaken, based on ANDA something
like 4% up versus last year and the new expectation from ANDA is that it will
be flat vis-a-vis last year. So it is a sign that its moving not as fast as we
originally thought, but its moving.
Christine McCracken: But whats the risk, though, if you listen to some
of your competitors that have been really aggressive with expectations and theyve
recently kind of backed off the growth expectations for Brazil, why do you
believe that farmers wont cut back on input use dramatically at this point?
Alberto Weisser: Im more optimistic because you have to remember that
the break-even cost has come down for the farmer. The last number I saw was at
$9.80 per bushel for soybeans in Mato Grosso and for Parana, we always give only
gave Mato Grosso but in Parana which is closer to the coast is at $6.50. So
with this much weaker real, the profitability for the farmer is going really
up. So the farmers would like to plant much more if they would have more access
to credit.
So if you my view at this this is a very healthy environment. This
is going to be very positive also for next year. A weaker real and weaker
production there was going to be expansion theres room for expansion next
year. So I see the environment today quite positive. It might have been better
if we would have seen a higher volume, but I think it is a healthy environment.
The whole structure is much healthier and I like the fact that we are not going
to see a major expansion in production because it makes it better for 09,
better for 10.
You remember that we had this excessive expansion in 04 and that
created a problem in 05. So, personally, as a seller of inputs to the farmers
Im happy the way the situation is going at the moment.
Christine McCracken: Ill leave it there. Thank you.
Alberto Weisser: Thank you.
Operator: Christina McGlone, Deutsche Bank.
Christina McGlone: Alberto, just touching on agribusiness, part of the
weakness in volumes seem to be more on the supply side so farmers not giving up
beans and the delayed harvest and maybe the fact that the U.S. was sort of out
of beans because we had to make up for Argentina earlier in the year. Can you
talk about now that the harvest is nearing completion and you are able to get
the beans, how do you expect results to trend given the demand outlook?
Alberto Weisser: Its on both sides, Christina. Its both on the demand
side and also on the supply, so the supply has been a little bit delayed in the
U.S. Also, because the harvest has come in a little bit later and so thats why
our grain origination business didnt do the movement we normally do but it
will shift to the fourth quarter.
And from Brazil, the farmer just was sitting also the same way as he
was - or she - for the decision on inputs. It was also thinking about whats
the right movement to do on sales of grain. So its difficult to say how much
is from origination and how much is from demand.
On the demand side it was weaker in U.S. The livestock industry reduced
it. There was more sale in the first half of the year so there was over
production of livestock of meat and now they are pulling a little bit back so
lets call it there was a shift, also, from the second half to the first. And
we have to remember also we had two weak years in the past of wheat, and
therefore we picked up some feed wheat customers and sold soybean meal to them
and as the wheat production was good this year in the northern hemisphere, both
in Europe and in the United States, so we are giving some business back to the
feed wheat industry. Thats why both sides have been a little bit weaker. But
thats what we call short-lived or short-term. This for us is something like,
perhaps, maximum six months and then the demand should be picking up again and
thats also one of the reasons probably USDA is expecting that soybean meal
demand will be up next year by 2%.
Christina McGlone: And on the fertilizer side, can you talk about if
the pipeline, the amount of inventory in the whole industry and if import
parity is holding? And then also October is such a key month for sales.
How are October fertilizer volumes?
Alberto Weisser: The inventory is good. Its probably a little bit on
the high side and so by the end of the year we probably are going to have a
little bit more inventory than we planned but different than 2005. Nobody is
really discounting it and selling it, so I expect the volume to be in line with
what ANDA is saying flat vis-a-vis last year so it will flow, but slowly and
carefully.
We also have to remember that much of the soybean and corn fertilizer
was sold in the first half so its a little bit, from a volume point of view, a
little bit worse. Its early to say. You know they are always going up. I saw
it this morning, it was devalued again. So the farmers are trying to cut it
very, very close to the last moment because its all in their favor because the
weak real goes directly to their bottom line. Its all the income.
Christina McGlone: So it sounds like import parity is holding?
Alberto Weisser: Its holding very well. So that is why the hedge to
our funding, its perfect. We are being able to charge the prices we need so
the hedge is working perfectly and the international prices have come a little
bit down. But because of the devaluation so the impact is less there.
Christina McGlone: And last question, how should we think about the
safrina? My sense is that planted acreage would be down and fertilizer
intensity would be down in a big way. Can you give any color on that?
Alberto Weisser: Its a little bit early to say because it depends also
exactly how this planting goes, how the crop goes, what the intentions are in
the U.S. to plant corn. I think it is a little bit early.
Christina McGlone: Thank you.
Alberto Weisser: Thank you, Christine.
Operator: Ken Zaslow, BMO Capital Markets.
Ken Zaslow: Couple of questions, one is how much can a weaker real
offset or how much could it offset lower fertilizer prices in 2009? Can you
give us the sensitivity here?
Alberto Weisser: I dont know what you mean by offset.
Ken Zaslow: If fertilizer prices come down and the real weakens, whats
the relative sensitivity to each other?
Alberto Weisser: Let me answer, perhaps, in a different way. I would
say that all the income of the farmer is in dollars. So a 30% devaluation is a
30% increase in net sales. And 60% of the input cost of the farmer is in
dollars. The farmers margin is expanding very nicely. So the farmers are
smiling with this devaluation.
And its not much different also for Bunge. I think, probably, if you
add fertilizer and one-third of our agribusiness is in Brazil or, not
one-third, but around 20% lets say a little bit less than 20%, 45% of all
costs in Bunge are in Brazil. So this has a positive impact on us, as well.
Ken Zaslow: So a 10% move in, call it the Brazilian real, has what
impact to Bunges earnings in 2009?
Alberto Weisser: Its a little bit early to say but its clearly an
upside. When you remember 02, 03, there is a clear upside for that. We didnt
quantify it because these devaluations are too much and I dont know if they
are sustainable. So, when we do our budget we dont count on it because we have
to be very careful with the cost. We have seen how strong it has gotten but
there is upside. There is when you remember 02, 03, there is significant
upside.
Jackie Fouse: Well, Ken - its Jackie - its not a direct relationship
where you can do it exactly like that. It depends how the currency evolves over
the course of the year on an average basis. Obviously, any given quarter also
has some impact from the quarter end number in there. So the best thing to do
is just look at some of the numbers that Alberto just gave you with respect to
the percentage of our costs that are real denominated and what the benefit then
should be there under different exchange rate scenarios and in thinking through
the farmer economics the way that Alberto highlighted them as well.
Ken Zaslow: In terms of the CPO deal, whats happening with that? Do
you need to sweeten the offer? How do you see that plays out?
Alberto Weisser: We are working actively towards closing the deal. We
have a significant amount of integration work. Im excited about it. I think it
is we are seeing more and more opportunities. We are seeing this is clearly
transformational for both of us and there is more opportunities for growth than
I thought. I think the strategic rationale is logic. We are working towards it.
I am optimistic.
Ken Zaslow: You think the deal actually closes?
Alberto Weisser: I think so.
Ken Zaslow: And the CPO shareholders you think will be fine with it?
Alberto Weisser: I think so. This is a merger, Ken. I think the current
stock prices are completely disconnected with the reality. If I think about, we
are going to make close to $12 EPS this year and when I look at next year we
talked about the baseline, this is a baseline. So when I look at the next year,
we are not ready yet to make guidelines, but I see some good upside there and I
look at our stock price, this is a PE of 3 or 4, this is not realistic. Even
when we went public it was 10. No one knew us and it was 10.
So that is why I like the concept the way we structured the deal. Its
a merger. All the upside is for both shareholders. Corn Products shareholders are
going to own 21% of the new company so everything we will do is for the benefit
of them. So the current stock price obviously is irritating but does not give
any sign of the value of the two companies.
Ken Zaslow: And why dont you buy back stock and then Ill go back into
the queue. If youre so irritated by the stock price how come youre flush
with cash, why not just buy back your stock? Its a good investment.
Alberto Weisser: Im not irritated with the stock. I look at it Im
frustrated. Lets say it like that. But Jackie why dont you tell our thought
on buying back stock?
Jackie Fouse: Well, Ken, obviously we look at all of the investment
alternatives that we have at any point in time and whether its CapEx or
investing in working capital or M&A or potentially financially oriented
things like buying back shares. But I think one has to put into perspective the
fact that were managing this business for the long-term. Those investment
decisions need to be
long-term decisions based on the economic value added and the returns
that we expect to generate in perpetuity, basically.
In the current environment we just need to keep that in mind. We need
to keep in mind the need to balance liquidity concerns given the volatility
that weve seen and our expectation for how the credit markets are going to
function over the coming months and even year or so. So were looking at all of
that and well balance all those considerations as we take those kinds of
investment decisions.
Alberto Weisser: And you also have to remember, Ken, that we are seeing
that this we saw stress in the system as prices were going up and theres
probably even more stress as the prices are coming down. We have to keep our
powder dry for perhaps some opportunistic moves we could do.
Ken Zaslow: At $34 it seems like opportunistic would be buy your stock
back but Ill get back in the queue.
Alberto Weisser: Well think about it. Dont worry about that. So we
have to debate and compare it with all kind of other things.
Ken Zaslow: Okay. Ill get back in the queue.
Alberto Weisser: Thank you.
Operator: Robert Moskow, Credit Suisse.
Robert Moskow: Thank you. Another question on fertilizer. If your
guidance for fourth quarter implies that youll get some of that foreign exchange
loss back in the fourth quarter but not all of it. How much inventory are you
sitting on right now and is it your view that there will be enough of a rebound
here that you can get rid of or sell what you have or are you willing to sit on
it even longer into 2009? Thank you.
Jackie Fouse: Let me start, Robert, and Alberto might want to jump in.
As Alberto already spoke about, we do have a bit more inventory than we
normally would have. Part of the reason for that comes back to us managing
the credit exposure extremely carefully. So if its a question of trading off
and maintaining margins so if its a question of trading off the margin, wed
rather give up the volume right now to hold the margins and to make sure that
we end up with the credit profile that we want to have on a go-forward basis,
as well.
So with that in mind, we have maintained the guidance and are looking
at the quarter with a view that even with somewhat lower volumes than we might
have previously expected, we still expect to recover a significant amount of
that currency. We are seeing the ability to do that in the pricing and weve
seen that throughout the month of October. Its a very dynamic process but were
not counting on getting all of it back because we do have a bit more inventory
than normal and so we know its going to take a little bit longer to move that
inventory.
Alberto Weisser: I would add that this excess inventory is perhaps one
month more than usual. Instead of four months we might have five. But it doesnt
worry us because most of these products are important type of products and
anyway are for the season, for the corn, for the sugar cane, for coffee, so
this is good value we are sitting on, bought at good prices. So it is not too
much.
Jackie Fouse: The current inventory cost is a very important point. Its
quite good for us given where international prices are so were very
comfortable with that. If it takes us a little bit longer to move it and were
maintaining the margins, thats absolutely fine.
Robert Moskow: Can I ask one follow-up question? Alberto, you started
your remarks by saying that emerging markets are in better shape than they have
been historically and I guess what youre saying is that it can withstand these
economic crises better than they have in the past and protein consumption
remains high, I imagine, or grain consumption does.
We just did a little bit of work on financial crises in Asia and Russia
in the late 90s and we noticed one to two years of declines in protein
consumption in those countries and Im wondering what that clearly isnt your
view but could that be a scenario that could come around for the next couple of
years and, if so, what does it mean for demand for your oilseeds? Couldnt it
be much lower than 2%?
Alberto Weisser: I dont think so, Rob, because we have to also
remember that look at this year where we were and extremely high soft commodity
prices, very high freight costs, the freight costs are tremendous have a
tremendous impact in our selling the products around the world. You have to
remember that much of the grain and soy proteins have to be shipped around the
world so this has come down dramatically.
The freight cost, the Panamax is around $12,000 a day at the moment.
They used to be $100,000 a day. So the commodity prices came down 30%, 40% so
the products the end product is cheaper and it moved. Now, is there going to
be an impact on the global demand? Probably, yes. We have seen it in the U.S.
We have seen it a little bit in Europe. We are not seeing it in Asia. Our
estimates for growth in Asia continues to be in the 6%, 7% area of grain and
proteins.
We have seen, now, 28 years in a row of growth in oilseed consumption,
come crisis, go crisis, you know, this is very basic stuff. You might see a
little bit of reduction in protein in the meat area here and there but the
meal, I dont remember when we had - since Im with Bunge 15 years - we only
had one year where I remember where it was flat in 2003 where we had these
issues in Europe and with I dont know. It doesnt matter.
I am confident. We just traveled around South America, Asia and there
will be a little bit less growth. There will be some impact but I dont think
were going to see a negative number in meal and oil consumption next year, in
grain, meal and oil.
Jackie Fouse: Rob, you specifically mentioned Russia but I lived
through that late 90s crisis in the consumer packaged goods industry very
directly and the drivers for the crisis at that time were different, as well,
and the whole situation in that particular country was different. So I think
you have to sort of look at each crisis and what the elements were
driving it and the particular larger countries situations at the time when you
think about whats going on today, too.
Robert Moskow: I think thats true, but the current crisis could be
worse. We dont know.
Jackie Fouse: Yes. Maybe from a financial standpoint, but different
energy prices are still different today than they were in 1998 and even though
theyve come off their highs and so on and so forth, just something to think
through.
Alberto Weisser: You know, youre right. We have to think about it. But
thats the beauty of our business model. If theres going to be less demand so
how much is that - 1%, 2%? So we will adjust ourselves. When you think about
what we had to do, we probably cut 75% of our costs in Brazil over the last ten
years. We would be able to do that.
We have to remember at the same time that normally is down trading you
might have less consumption of the more expensive proteins and you have less
cattle, less beef, less lamb and so on but it ends up being more chicken and
chicken is a very high consumption of grain.
Also Im confident, Rob.
Robert Moskow: Very good. Thank you very much.
Alberto Weisser: Youre welcome.
Operator: David Driscoll, Citi Investment Research.
David Driscoll: I wanted to start off by asking you a little question
here about guidance. I really want to understand, Alberto, whats changed. So
you have, from the way I look at the guidance, a $0.30 reduction in your
ongoing EPS guidance meaning that you maintained guidance but the one-time
items were up $0.30 thus the ongoing number is down.
Can you talk about why that has happened and in particular which
division is really the culprit here?
Alberto Weisser: Dave, talking about the future is always difficult so
when I think about where we will end at $1.6 billion net income, which is a
dramatic increase over last year, I feel very good about it.
Now when we talk about estimates, $100 million in one or the other
direction I think that is I find it very hard to get it so precise.
Now what has changed, I think what is a little bit different than when
we had talked to you before, is we had some signs of a little bit slower demand
and so we had thought about it. We have perhaps built a little bit of a cushion
into our guidance and so but its probably a little bit more. And we see some
shift from third quarter. Some of them wasnt more in the second quarter
than we thought. It was also some shift into the fourth quarter. So I
would say, overall I would feel that the demand is a little bit weaker than we
thought.
Jackie Fouse: Dave, obviously your math is correct. So thats just
reflecting the things that Alberto has just spoken about and the fact that we
want to be a little bit careful with respect to Q4 even though I think if you
come back to what the implied Q4 EPS number is, its a very solid quarter that
we expect, but given the uncertainty with the timing of the recovery of
currency impact, and some things like that, and were just watching the
environment as the harvest plays out in the northern hemisphere and so and on
forth. Were being a little bit careful about the quarter but we think its
going to be a good quarter. And thats reflected in the maintenance of the
guidance where it is despite the $0.30 one timer in Q3.
David Driscoll: Jackie, in slide 12 of your presentation you talked
about the average EPS growth of 10% to 12%. I got the sense that you were
trying to suggest that 2009 would grow at that rate over your 08 numbers. Is
that what you were aiming to do and, if not, whats your comments on 09 right
now?
Jackie Fouse: I will give our 09 specific guidance with good
quantification around that and the assumptions behind it as usual when we have
the full year results announcement.
What I wanted to do is just highlight how the business model has
performed with respect to returns in the past, our expectation for that
baseline performance in the future, how that links to EPS and the fact that we
are maintaining a long-term view that we can produce average EPS growth of 10%
to 12% on that baseline. Thats what Im trying to highlight because it feels
like the current market environment has a little bit lost sight of the
fundamentals of the business model of what our long-term performance should
look like.
Alberto Weisser: And, Dave, let me give you a flavor. This idea of, in
Jackies presentation, about giving you the ROIC is in this market at the
moment where people are having some doubts about where the business is going.
This is another reference. And, obviously, this is a combination of we have
many businesses inside Bunge. We have officially four segments. But below this
there are many segments and each of these segments has their own baseline.
But if I look over the next in the mid-term future 09, 10, I
think we should be doing quite well because food milling, edible oils,
agribusiness should more or less be in their own baseline and fertilizer should
be doing better. The fundamentals continue to be positive for strong prices
both on potash and on phosphate. The demand is there. So, until the new mines
come up on stream, we are going to have a solid picture there.
And we have a new component that we have not factored in there in all
of this, which is the weaker currencies. Weve talked about the weaker real and
also it will help us, the weaker euro. You have to remember we have, by now
already, 25% of our business in agribusiness is already in Europe and softseed
and soybeans and sunflower with the new plants up and running theres going to
be some upside there.
David Driscoll: So at the sake of being completely repetitive here,
what youre saying is that your 08 baseline at $7.50, Alberto, you feel the
future is better than that, youre ongoing guidance is for 10% to 12%, thus
even though youre not giving 09 guidance you sort of are because you are
saying that the $7.50 times the 10% to 12% should be at least one thesis on why
these numbers should pencil out into something better than that in 2009
although you feel the general environment is better. Did I summarize your
comments right?
Alberto Weisser: I will leave it at that. The only thing I will say is
keep it as a flavor and we will give you in January we do this very,
very careful, very serious, we are in the final phase of our budget process.
The markets are moving all over the place but I give you a little bit of a
flavor of how we are feeling. And so there are different moving parts.
We have been accused of being conservative so thats why we introduced,
also, the concept of baseline. So I think this is important to see our business
model is based on nearly $15 billion of assets in 500 facilities with 25,000
employees working. We have to remind everybody, this is a sum of many, many
small parts that have to work together and we think about all the time return
on invested capital. So if there are years where we can perform very well, like
in 08, and we feel good about 09, thats good. But you will get the guidance
in January 09.
David Driscoll: Do I have time for one more question?
Alberto Weisser: Yes.
David Driscoll: Thank you, Alberto. Whats happening with current local
prices for wholesale phosphate in Brazil and, if you could frame that up both
sequentially last quarter and year-over-year, I think that would be helpful and
Im sure I want to have a follow-up right here on this particular point. But I
think its fairly critical.
Alberto Weisser: I will refer you to perhaps Mark can help you later.
The only thing I know exactly, Dave, is that what is important for us is, is
the input parity working? Are we being able to charge the international prices?
And the answer is yes. So even with the higher devaluation I think it is important.
But Mark, perhaps you can either add something or talk to Dave later?
Mark Haden: Yes. Ill catch up with him later.
Alberto Weisser: Yes.
David Driscoll: Alberto, so my follow-up on this would be kind of two
points. First off, youve made a strong argument here that the devaluation is
good for farmers. Then later in your comments you said that your own
expectations would not necessarily assume that the devaluation that has
happened recently would that the real/dollar exchange rate would be maintained
at these prices.
I would completely come with a totally different conclusion than you
come with that a devaluation at this point in the planting season at Brazil is
very bad. It raises the input costs to
the farmers and the farmer has no true expectation that theyll be able
to receive the theoretical value for soybeans come April of next year.
So if you, in fact, have an appreciation of the currency from now until
April, its the worst of all worlds. Your input costs went up as the farmer in
Brazil and then your bean price goes down when you look at the revenue
computation. So your break-even analysis, it is critical that it assumes that
the real/dollar exchange rate stays constant. But then later you said you didnt
think it would. So can you help me match up these comments and why do you think
that this is so positive for the farmer today?
Alberto Weisser: Because the most of the farmers when they buy the
inputs they are ready-sell, they are ready-fix the sale of the grain. So they
dont some of them do speculate but most lock in their margins by buying and
selling.
Now there is, obviously, the risks you are saying that some of the
farmers might be buying now the ingredients at these high prices and the real
will get stronger again next year and then they might be in trouble like they
had before. And thats probably one of the reasons the volume is down so some
farmers dont wont take the risk. So those who are moving are going to make
good money because they are locking in their margins and the margins have
expanded for them.
David Driscoll: Great. Thank you very much.
Alberto Weisser: Youre welcome.
Operator: Diane Geissler, Merrill Lynch.
Diane Geissler: Just to follow-up on the CPO, what is the contingency
plan if the CPO shareholders vote no? I appreciate your comments about as youve
worked through the transition process youve become more and more enthusiastic
about the opportunities that the transaction involves for you but you existed
for 100 years without a corn wet milling business. So can you just talk about
what would be the contingency there if you get a no vote from CPO?
Alberto Weisser: We have lived alone for 190 years, Diane, so we are
from 1818. Not me but the Company. Id feel very comfortable about it. I think
these markets are all over the place. It will work out fine right.
Now, having said that, Bunge is in the best position ever, I think,
when you take a look at our record earnings this year after already a good year
last year, the highest level of capitalization weve ever had, the highest
position in liquidity. I think we are in oilseeds and grains and fertilizer we
are very well positioned. I probably never felt so good about where we are. So
we are ready for we are prepared for any of the scenarios so we feel very
strong. But Im optimistic it will all come together.
Diane Geissler: And just on the point of your capitalization, Jackie, I
think I might have missed it. You said that you had successfully refinanced the
bonds that are due in December. Was that a term loan?
Jackie Fouse: What happened during the quarter is we raised a couple of
three-year term loan facilities. They add up to $570 million and were
considering that to basically go against the bond maturity in December. So thats
new money that we raised during the third quarter so that the bond maturity in December can
come from there and it doesnt have to come from someplace else.
Diane Geissler: Perfect. I appreciate that. And then just a question on
the sugar mill, you talked a little bit about it in your press release and in
your commentary, what youre doing there through your JVs. Can you talk about
how much have you invested in the various pieces? You may not want to talk
about it individually but can you give us an idea about the investment in that
business and then should I assume that your ROIC targets that youve given in
your presentation today would be applicable to that and thats how we should
think about what kind of returns that investment will have over the next two to
three years?
Alberto Weisser: I dont have the exact numbers here, Diane, but to
give you an idea, probably each of these mill once it is all up and running
with the $4 million Tom said, we want to have its something like $300
million to $350 million. Obviously, we have bought some of them on the early
stage, one of them is a greenfield and we have our agreement with Itochu
obviously is good for both. There is some entry payment they made but its at
the very beginning. It is much more about investing together.
So I think we are very excited to be working with Itochu because we
have been working with them in Asia and Japan and its a very important way
also to export ethanol into that market.
The returns, we see them positive. Obviously with the weaker real they
improve. And I dont know exactly how your question was in terms of return on
investments on sugar.
Diane Geissler: Well, Im presuming that the hurdle rate you used with
regard to investments in sugar-based ethanol or whatever else you are doing in
sugar, the commodity itself, would be similar to your consolidated return
targets. And I guess my question is really what is the timing on those? When
would you expect these assets to start generating?
Alberto Weisser: Well, hurdle rate is higher than our hurdle rates
normally are higher. These are more risky countries. There is also the hurdle
rates are higher. They are normally higher. But in terms of it takes us
probably four years until we have built it out completely and first the two brownfields
we have - we call it brownfield because we already bought something which is 1
million, 1.5 million tons.
First off its only ethanol but soon we will be building the
crystallization facilities also for sugar and the cogeneration turbines. Each
of these mills have a 70 megawatt cogeneration turbine to sell for eight months
electricity to the grid. So these are all mitigating factors, so there are
really three components of it. Its the sugar, the ethanol and the electricity
to it. So the returns because it takes four years until you completely build it
out, but I think the normal type of paybacks are some of our other businesses.
Diane Geissler: Great. Thank you.
Alberto Weisser: Thank you.
Operator: Vincent Andrews, Morgan Stanley.
Vincent Andrews: Im just going to ask you to clarify for me because Im
not clear. Youve thrown out that $7.50 is your baseline earnings and we all
know what guidance is for this year and at one point, Alberto, you said you saw
good growth going into next year. I just cant tell whether thats off whether
you mean thats off of - and Im not asking you for guidance or how much things
are going to go up or down next year - I just want to understand whether youre
talking about things looking good off of $7.50 or off of the guidance for 08?
Alberto Weisser: I was talking about the baseline, the $7.50, and I was
giving some flavor how we feel about the future for all the three segment
lines. I was talking off the $7.50 and we really dont know because we are finalizing
our budget for next year but I was giving - I know it is a little bit
frustrating for you but thats the way it is - but we are in the process, where
either Im optimistic about 09, 10 because its either baseline or up. But its
too early to tell you where exactly well be.
Vincent Andrews: That clears that up. And I just wanted to ask you on
fertilizer, weve seen sulfur which is obviously one of your key inputs. That
price has come down materially and I believe you contracted from October until
April and then April until October. Have you recontracted your sulfur
costs yet?
Jackie Fouse: We have done - its Jackie - we have done most of those
however weve shortened the terms of the contracts on a lot of it to three
months from six.
Vincent Andrews: Is that because you have an expectation the price is
going to go lower from where you were able to contract?
Jackie Fouse: Potentially.
Vincent Andrews: And so I guess my point would be that it seems like
with the real moving in your favor, your input costs coming down and youre
saying youre still getting the U.S. phosphate price, which has come down
somewhat, does that all net out to your margins in fertilizer being about the
same or potentially even better?
Alberto Weisser: Yes. It could.
Vincent Andrews: Great. And then obviously the offset would be that
your volumes going to be weaker in the fourth quarter and that we dont know
what volume will look like next year. Is that ?
Alberto Weisser: Exactly.
Jackie Fouse: Thats correct.
Alberto Weisser: We learned from 05, we are much more careful on
credit.
Vincent Andrews: And I think I had one other thing left here which was
no, thats it. Ill follow-up with Mark later if I have anything else.
Alberto Weisser: Thank you.
Vincent Andrews: Thanks, guys.
Operator: Chris Bledsoe, Barclays.
Chris Bledsoe: If I think about where the stock is trading here and try
to get into the markets head, if I can, and maybe kind of backing into what
the market is thinking right now for an ongoing earnings number for Bunge, if I
were to just kind of apply maybe a
historical 10 or 11 time multiple Id basically be backing into a
number that says the market thinks that your ongoing earnings is kind of in the
$3.50 range which would put you all the way back to 2003 earnings levels. To me
that seems pretty severe and clearly you agree.
Alberto Weisser: I think its nuts. Yes.
Chris Bledsoe: And I think if youre thinking about an ongoing earnings
number or a baseline EPS number closer to $7.50, I guess my question would
really be youre basically doubling what the market is implying. What type of
other investment projects could you envision giving you better than 100%
return?
Alberto Weisser: We think about that, also.
Jackie Fouse: I obviously have to agree with the math but that 100%
return would be
Alberto Weisser: One time.
Jackie Fouse: a one time or in some fairly short time horizon. I
mean, for me its I understand it. Which is why, as I said, we analyze all of
our investment opportunities and well balance all the considerations and Ill
leave it at that for right now.
But when were thinking about our core business and CapEx spending, for
that matter or core working capital volume growth and that being an investment,
how we look at M&A projects and Alberto mentioned in the current
environment, potential opportunities, also because of depressed evaluations to
maybe have some attractive things there. Liquidity given the current
But when we look at all the investment opportunities all those other
things have a very, very, very long time horizon and a share repurchase
decision is a different decision. Its partly related to capital structure but
its partly related to, especially right now the way people are looking at it,
a short-term return consideration. So were just thinking all of that
through. We dont want to make a decision for the wrong reason.
Alberto Weisser: And try to understand also could not anyway not do it
now before the special shareholder meeting of Bunge and Corn Products so we
could not do it now anyway.
Chris Bledsoe: And then just as a follow-up, the ROIC number that you
gave on slide 11 and then also some of the input you gave on slide seven, I
appreciate that and its all very helpful. What I have a more difficult time
with is the 2001 to 2007 period. For the most part during that period youre
generally talking about an era of inflation across the grain complex and youre
talking about an era of, until more recently, CapEx spending in the industry on
the decline. And so I guess I have a hard time understanding why if todays
environment is characterized by deflation and CapEx spending across the
ag-space is at peak levels in terms of expansionary spending why wouldnt there
be a risk to that 10% or so type of baseline ROIC?
Alberto Weisser: I would argue a little bit differently, Chris. If you
look at the past, 03, it was an inflationary environment and 04 was
deflationary. And just to see it, we made more money in 04 than 03. We
generally make money with prices up, down, flat. The high prices are good for
farmers, low prices are good for end customers. We are in the middle of it. Its
a little bit different for fertilizer where we need the farmers to have enough
high prices so that they can operate. So we are really looking at it in an
environment of - it doesnt matter how it is. Thats the way we build our
business model.
I would argue that over the years this industry has become more
rational, more disciplined, and the last time we had a little bit higher
expansion of CapEx, the [need it] was in the beginning of 06 and we saw that
in, before 06, so the beginning of 06 we had lower margins because of the
excess production in Argentina. That was the last time we had too much CapEx. Im
talking now about oilseed.
When I look around the world, the market is digesting the new plant we
have in Indiana, in Claypool, some of the expansions we have. And we have,
ourselves, adjusted it and had longer down time for maintenance. So I believe
that from the CapEx side in the area of oilseeds and fertilizer and grain, Im
very comfortable. It is less fragmented, more rational and there is not too
much excess capacity. So that is one area I am not worried.
Jackie Fouse: I think youve also noticed over the last few years us
growing our CapEx spend in the lesser developed markets relatively more than in
the developed markets. So you could even continue to see quite a focus on
maintaining the right level of capacity utilization and even some tweaks in the
network in developed countries to address capacity issues as well. But
continued expansion for sure and at higher rates outside in the emerging
markets. As youve seen this too, in Eastern Europe and Asia and those trends
will continue.
Chris Bledsoe: So I guess if investors concerns are that you are
building for a global sort of growth trend or off of a base youre building
capacity off of a base that represented sort of global demand, that is perhaps
at risk, if thats investors concern, its really I guess simply your
response would be that its not your view that global demand will slow
or will reverse. Is that fair?
Alberto Weisser: Absolutely. When you think about lets take this
USDA scenario for next year, 2% growth of soybean meal and 4% of oil. So there
is no new plant. All the plants that we need, they are existing now so there is
no new plant going to be up next year. So there is already going to be
additional demand so you will see capacity utilization going up next year.
If it goes back, as we expect it, to a 5% growth rate the year after
you need 10 million tons a year of oilseeds, so 10 million tons of oilseeds
means one or two additional crushing plants. So we are very comfortable with
that scenario.
Also, when you think about the expansions we are doing in the sugar
mills, if you just look at the domestic demands of Brazil and the growth in
sugar worldwide, the world will need between 250 and 300 additional sugar mills
over the next seven, eight years. And so there are only 80 that are either
being built or projected. So I also dont see an issue there.
On the milling side you have seen all the investments we have done is
to substitute the two Brazilian mills are we shut down five and expanded two.
So we rationalize efficiency movement.
Jackie Fouse: Upgrading.
Alberto Weisser: Upgrading. And we bought one from Cargill recently in
Brazil. So this is all about consolidation. We are very, very, very careful.
In our business, I completely agree with you, too much capacity is
problematic. So we are very, very focused on it.
Chris Bledsoe: And what you see across the industry doesnt concern you
at all either?
Alberto Weisser: Not at all.
Chris Bledsoe: Thank you very much.
Alberto Weisser: Thank you, Chris.
Operator: Christina McGlone.
Christina McGlone: Thanks for the follow-up question. Alberto, for a
while the industry backed off on contracting forward with farmers to buy these.
But now that commodity prices have come back, is that picking up again and back
to normal?
Alberto Weisser: Youre talking the advance to farmers?
Christina McGlone: No.
Jackie Fouse: Forward.
Christina McGlone: Right, Mark, forward purchasing.
Jackie Fouse: It has come back some, especially in the U.S. Were
probably still not back to the same levels that we saw a year ago but it is
coming back versus a very small forward book that weve had for the past few
months.
Alberto Weisser: Okay, you mean the U.S. In the U.S., lets say the
limitations of the bigger players from a liquidity point of view and worry
about margins call and that is much more today it is much more the farmer is
not so much interested than we not giving the opportunity.
Christina McGlone: And then what about Brazil? So you answered Driscoll
that farmers today would buy the fertilizer and then they forward sell their
beans to you. So is the industry willing to purchase those beans in Brazil?
Alberto Weisser: We are buying it from the farmers, right?
Christina McGlone: Okay.
Alberto Weisser: We are buying the beans from the farmers and we are
going out to every farmer at the moment see, whoever didnt sell it yet, sell
it to us because this is a very attractive moment. So we are making sure those
who have done locked into the margins that they are in good shape and those who
didnt do it, we are going after them to make sure that they do it now.
Christina McGlone: And then last question, your Russian plant is
supposed to open the end of the month and things are chaotic there. How is that
going? Whats the environment look like?
Alberto Weisser: I think I dont know what you mean with chaotic. I
think where we are, things are fine. People are eating and they need more. We
are going to inaugurate our plant at the end of the month in Voronezh. And I
think were excited about it. It took much longer. We are a little bit ashamed
but its our first plant in Russia so we learned. Its running well. Its in a
test phase. We are quite happy about it. Its in line with what we expected and
should have a positive contribution next year. The same is valid for Ilyichevsk
in Ukraine, as well.
Jackie Fouse: Yes. Its already running, Christina. We just have the
official ceremony on the 31st.
Christina McGlone: Thank you.
Alberto Weisser: Thank you.
Operator: David Driscoll.
David Driscoll: Thanks for taking the follow-up. Jackie, can you just
give us a little bit of guidance here on the fourth quarter tax rate? I think
you said you maintained the guidance but just given whats happening with the
real and the third quarter tax rate, I havent had a chance or enough time here
to do the math, but just seems conceptually to me that the fourth quarter tax
rate ought to be something similar to what the third quarter was.
Jackie Fouse: No. In fact, the let me just kind of start from
the beginning. So if you go back to June and think about the guidance that
we gave in July and then the June actuals, at that time, given the
mix of pre-tax profit that we had built in to the overall picture, that led to
an effective tax rate that was on the higher end of the range, so closer to
28%. That was the number for the six months and it was what we expected,
basically, for the full year, for the full year to come out to the higher end
of the range.
What has changed a little bit has been were seeing for all the reasons
that weve talked about throughout the call this morning with respect to the
real weakness and the impact that that has on the translation of the profits
and 1048 reserves and all that kind of thing, and some shift in the mix of
income from higher tax jurisdictions like Brazil partly because of the
fertilizer and largely because of that, I would say.
So we reevaluate that mix of income and we recalculate the numbers and
we get an estimate for the full year towards the lower end of the range, so
around the 24% and what happens is you make the adjustment to get to that
year-to-date number in your nine months. Obviously that has an impact on the
quarter because you have to make the adjustment in the quarter to get that full
that year-to-date number down and now its in line with what we would expect
the full year to be based on the pre-tax income mix.
And then the only reason I mentioned this $15 million of Hungarian tax
credit is not because $15 million is such a huge number but given the amount of
income that we had in the third quarter, that $15 million does pull just a
third quarter rate down several points when in the grand scheme of things for
the full year, $15 million in the tax line wouldnt mean very much. But it can
in a quarter, like the third quarter, so thats why I mentioned it.
Does that help?
David Driscoll: That was very helpful. Can you also give us your
updated number for interest expense for 08?
Jackie Fouse: Yes. We may need to follow-up with you on that because
youve seen the nine months number and obviously with the debt levels coming
down there is a positive impact of that although, as you know, spreads have
widened and so when we look at our all-in borrowing costs we have to kind of net
those two things out. So if you dont mind Mark and I coming back to you on
that well do that.
David Driscoll: Id really appreciate that. Last question, Alberto,
whats your expectation for Brazilian soy acreage just percentage wise? In the
last couple of calls youve commented on it but maybe I can get you to make a
comment right now given were so close to the planting time.
Alberto Weisser: We dont have any very good precise visibility because
this is all happening now but more anecdotal estimates is that acreage will not
expand but grain production, yes, because or lets say it differently. You
will not have new acreage but you have some conversion of pasture in parts of
the country closer to the coast.
So its lets say it differently. Acreage is between zero and 2%, 3%
expansion, less then we expected before.
David Driscoll: Great. Thank you.
Alberto Weisser: And the comment about fertilizer being flat means that
the implication is that perhaps there might be some issues on yield because
some farmers might be skimping a little bit on it, so you have a smaller
expansion of acreage but you might have a little bit less yield because some
farmers are not going to use all the technology.
David Driscoll: Thank you very much.
Alberto Weisser: Youre welcome.
Operator: Ken Zaslow.
Ken Zaslow: Just wanted to follow-up. Alberto, can you compare this
environment going forward to a historical time and how you operated in that
period of time?
Alberto Weisser: Thats an interesting question. I would say it is a
mixture of a couple of different moments. But let me say it in a little bit
different way. We have had some moments before when there was temporary slow
down on demand and that gives us the confidence that its a pause and so this
will be picking up again, the demand. So we anecdotally see traveling around
the world that the mood is much better than when you are in New York or when
you are in Western Europe so that is one experience.
The fertilizer experience, we never had before. Its a very solid
environment and I think all of us underestimated how the emerging markets, the
developing countries, the poor countries, had grown more and the diet has
shifted to more consumption of protein. Not only meats but also eggs and dairy
and things like that. So that is different.
I think what is similar is, and we went completely different approach
to the Brazilian farm environment, and much more careful than the beginning of 05.
And one way or the other, where Im feeling good is that the Company is well
structured and we are facing an environment of a weaker real and that is
positive.
So, overall I feel quite good, Ken, where we are. Well positioned and
some issues with the demand short-term but overall the fundamentals are very,
very strong. I dont think we have had a similar year like this. Also, we have
grown so much. When you think about it we are probably seven to eight times
bigger than we were when we went public, then we had many more countries and
many more regions so we didnt have experience in that.
Ken Zaslow: Would you say that over the last two to three years you
guys have had the real strengthening on you it created at least $300 million to
$400 million of incremental costs. Is that a fair guesstimate?
Alberto Weisser: It is massive. It is massive when you think about it.
I dont even know anymore. Our guys are tired of so much cost cutting and
adjustment. Id like to give you the analysis of one of the companies, Bunge
Alimentos, we have now 5,000 employees, we used to have 20,000 and we doubled
our production over the last seven, eight years. That gives you an idea what it
means.
So to finally have relief from the currency, its something important.
Ken Zaslow: Like $400 million or $500 million of importance or what is
massive?
Alberto Weisser: Look, we dont know exactly lets not get too
excited about it. Our budget is going to be based on a strong real because the
fundamentals of the country are good and the interest rate is high so we have
to be careful. But anything above 165 is perfect and I think today it was at
250 or something like that.
Ken Zaslow: Great. I appreciate it.
Alberto Weisser: Thank you, Ken.
Operator: Mr. Haden, Ill turn the conference back over to you for
any closing comments.
Mark Haden: Sara, thank you very much. And thank you everyone for
joining us today.
Operator: Ladies and gentlemen that does conclude todays conference.
We thank you for your participation. Have a great rest of your day.
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