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Edited Transcript of BG earnings conference call or presentation 8-May-19 12:00pm GMT

Q1 2019 Bunge Ltd Earnings Call

WHITE PLAINS May 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Bunge Ltd earnings conference call or presentation Wednesday, May 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory A. Heckman

Bunge Limited - CEO & Director

* Ruth Ann Wisener

Bunge Limited - VP of IR

* Thomas Michael Boehlert

Bunge Limited - Executive VP & CFO

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Conference Call Participants

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* Adam L. Samuelson

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Cornell R. Burnette

Citigroup Inc, Research Division - VP and Analyst

* Heather Lynn Jones

The Vertical Trading Group, LLC, Research Division - Research Analyst

* Kenneth Bryan Zaslow

BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst

* Robert Bain Moskow

Crédit Suisse AG, Research Division - Research Analyst

* Thomas Marc Alfred Simonitsch

JP Morgan Chase & Co, Research Division - Analyst

* Vincent Stephen Andrews

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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Good day and welcome to the Bunge Limited First Quarter 2019 Earnings Release and Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ruth Ann Wisener, Vice President, Investor Relations. Please go ahead.

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Ruth Ann Wisener, Bunge Limited - VP of IR [2]

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Thank you, operator, and thank you for joining us this morning. It's great to be here at Bunge.

Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found in the Investors section of our website at bunge.com under Investor Presentations.

Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to Slide 2 and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view 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 we encourage you to review these factors.

On the call this morning are Greg Heckman, Chief Executive Officer; and Thom Boehlert, Chief Financial Officer.

I'll now turn the call over to Greg.

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Gregory A. Heckman, Bunge Limited - CEO & Director [3]

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Thank you, Ruth Ann, and good morning. I'm honored to have the opportunity to serve as Bunge's new CEO, and we have a lot to discuss today.

But first, I'd like to welcome Ruth Ann Wisener, our new Head of Investor Relations. Ruth Ann joined Bunge in March and brings a wealth of experience in food and agricultural industries from Tyson Foods and ADM among others. Ruth Ann's relationships with analysts and investors will be a great asset for us, and I'm delighted to welcome her to the Bunge team.

We are aggressively moving forward on the priorities we discussed last quarter, and we continue to ramp up the important efforts already underway to improve our business and operations. This morning, I want to share with you why I'm excited about the company's prospects. I'll then cover some organizational changes that we announced today. We will review our strategic priorities, and then Thom will provide additional detail on our first quarter results. And then finally, we'll open it up for Q&A.

Over the past several months, I focused on getting to know Bunge better by visiting many of our locations and meeting with our people across the globe. In South America, Europe and the U.S., I've seen some of our operations up close and received valuable feedback from employees on their ideas to improve how we operate. I've also seen the depth of our employees' knowledge, passion and commitment to the success of our business going forward. I've gained new insights into how our business segments complement each other and how we can use those relationships to better leverage our assets. For example, as we had expected, integrating Loders Croklaan into our legacy portfolio is giving us opportunities to become a valued supplier of additional products and services to both new and existing customers. Bunge has a powerful global franchise in oilseeds and oils. We are the #1 crusher in the world with the largest South American footprint, strong positions in other key geographies and a new and evolving oils platform. Combined with our worldwide grains distribution network and regional milling footprint, this provides us with unmatched scale and expertise.

We can better execute on the opportunities generated by our scale when our internal structure, systems, processes and people are aligned. This requires a new level of speed and execution across the organization. To achieve this, we'll shift to a global operating model from our current regional structure as we've detailed in a separate announcement this morning. This new structure will simplify how we operate, drive greater transparency and accountability, reduce costs and support our renewed and deeper focus on customers and execution. As part of this reorganization, our commercial activities will be aligned around our handling and processing assets, management of physical product flows and the risk management optimization associated with our global business. In addition, Bunge Loders Croklaan will now report directly to me. I want to ensure this business is positioned appropriately and achieves its full potential.

Also, as you've seen, John Neppl will be joining us at the end of the month as our new Chief Financial Officer. I worked with John for many years. His expertise in the agribusiness, food and ingredients industries and a successful track record will enable him to make a significant contribution here. Thom Boehlert will stay on to ensure smooth transition with John. Thom's been a great contributor to Bunge, including his spearheading our successful Global Competitiveness Program, and we're fortunate to have a world-class financial team that he has assembled. I also want to express my personal gratitude to Thom for his key role in supporting Board Chair, Kathy Hyle, and me in our new roles over the past several months. We have a deep and talented bench within our key businesses, and I have full confidence in the team. Together, we're working aggressively against our 3 strategic priorities: driving operational performance, optimizing the portfolio and strengthening financial discipline.

Regarding operational performance. While we missed opportunities and did not operate our plants at the full utilization the market provided last year, our network and physical facilities are sound. Over the last 3 months, I've worked with the team to tighten up how we operate and better manage the inherent value at risk. Expectations are clear, and I'm very pleased with the level of engagement.

Through the process of portfolio optimization, we have identified specific assets and established dedicated teams of internal and external resources to rationalize the portfolio. We're making progress on these projects, which will ultimately improve Bunge's earnings and returns. We know you're eager to hear more, and we will share developments and additional information when we can.

We are also continuing to strengthen our financial discipline reemphasizing controls on working capital and capital spending. Any future investments will be carefully scrutinized and aligned with our strategic priorities. We will be reluctant to spend growth capital on any project that is not funded by improvements in business results or execution on portfolio changes.

On operating costs, I'm very pleased with what we've achieved through our Global Competitiveness Program. GCP has already gone a long way to reduce costs, simplify how we work and help us think differently. We will use this momentum, along with the changes to our operating model, to develop a cost structure for the cyclical nature of our industry. We still have work to do to get our processes and operations where they need to be, and that's a key focus over the coming weeks and months. However, I am encouraged by the energy and engagement of the team and the direction the company is heading.

Turning to Q1 results. They were largely in line with our expectations. Soy crush margins were better year-over-year in the U.S., Brazil and Europe, partly offsetting weaker results in Argentina and China. Higher results in Edible Oils were driven by a full quarter of Loders ownership and continued synergy benefits. In addition, I want to commend our North American team, which kept facilities operating at very good levels despite severe weather that disrupted operations and logistics in the U.S. Based on current market conditions, our view on the 2019 full year consolidated results has not changed from what we shared with you in February.

That said, there are a number of unprecedented factors in the market. First, African swine fever has caused the largest decline of animal protein supplies in recent memory. A decline equal to the entire U.S. swine herd. And the full impact of this disease remains to be seen. Second, the most recent USDA forecast suggests global soybean inventories will exceed 107 million metric tons as of September 1, a record high. Additionally, most of these inventories remain in the hands of producers, and we believe future producer marketing patterns will be affected by how the U.S.-China trade discussions evolve. While these dynamics should create positive catalysts for our globally diverse footprint, the timing and the magnitude of these potential benefits remain unclear.

I'll now turn the call over to Thom to go through the numbers in greater detail.

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Thomas Michael Boehlert, Bunge Limited - Executive VP & CFO [4]

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Thanks, Greg. Good morning, everybody.

Let's turn to the earnings highlights on Page 4. Reported first quarter earnings per share from continuing operations was $0.26 compared to a loss of $0.20 in the first quarter of 2018. Adjusted earnings per share was $0.36 in the first quarter versus a $0.06 loss in the prior year. Notable pretax charges totaled $15 million during the quarter primarily related to the Global Competitiveness Program and an impairment charge.

Total segment EBIT for the quarter was $151 million versus $61 million in the prior year. On an adjusted basis, total segment EBIT was $166 million versus $85 million in the prior year.

In Agribusiness, adjusted EBIT was $120 million compared to $52 million in the prior year. Starting with Oilseeds. Both quarters were negatively impacted by crush margin mark-to-market timing effects: in the first quarter of 2019, by mark-to-market gains taken in 2018 related to the first quarter production; and in the first quarter of 2018, by mark-to-market losses related to future production. Adjusting for these 2 effects, first quarter 2019 adjusted EBIT would have been approximately $146 million compared to $86 million in 2018, an increase of $60 million. Crush results adjusted for mark-to-market were the primary driver of the increase year-over-year. Both soy and soft crush volumes were slightly higher than last year. Soy crush margins were higher as we locked in a significant portion of our first quarter production last year before margins weakened.

Margins were higher in North America, Brazil and Europe but lower in China due to the effects of the African swine fever and in Argentina, which was negatively impacted by farmer retention of soybeans. And soft crush margins also rose as higher vegetable oil prices improved performance in Europe and Canada. This more than offset lower results in China. Oilseeds trading and distribution results were down as margins declined only partially offset by higher volumes. Risk management results were positive in both periods.

Moving to Grains. The segment generated EBIT of $22 million versus $86 million a year ago primarily on low origination volumes and margins in both North and South America. In North America, results were negatively impacted by weather-related disruptions, farmer retention and reduced export demand from China. In Brazil, farmer selling was limited amid a decrease in premiums related to crop size and lower export demand due to the African swine fever.

Results in grain trading and distribution were lower than last year, reflecting a decline in volumes and margins. Both origination and distribution were somewhat lackluster in the first quarter with the lack of U.S.-China trade news and the continued spread of ASF.

In total, we estimate that the challenging U.S. weather conditions during the quarter negatively impacted the Agribusiness segment results by approximately $20 million.

Food & Ingredients adjusted EBIT was $68 million compared to $54 million in the first quarter of 2018. Edible Oils adjusted EBIT was $51 million, up from $35 million last year primarily driven by a full quarter of Loders Croklaan ownership and higher margins in Brazil resulting from tight oil supplies and reduced industrial costs. Results in Asia were slightly lower. Milling EBIT was $17 million down from an adjusted $19 million last year. Improved results in Brazil were more than offset by lower margins and volumes in Mexico while U.S. results were similar to last year.

Sugar & Bioenergy had an adjusted EBIT loss of $23 million, similar to the $20 million loss last year. Results were due to lower ethanol and sugar prices largely offset by lower costs. As the first quarter is the intercrop period, our mills only began producing for the season toward the end of March. The sugar and ethanol we sold during the quarter was inventory from the previous harvest.

Fertilizer EBIT was $1 million compared to a loss of $1 million in the prior year. Higher results were driven by our Argentine operation. The lower costs more than offset lower margins.

Our tax expense for the quarter was $38 million. The effective tax rate of 43% was unusually high because we had losses in certain entities for which we cannot record a tax benefit.

Let's turn to Slide 5, the cash flow highlights. Cash used for operations for the first 3 months of the year was $402 million compared to cash used of approximately $1.8 billion in the same period last year. The year-over-year variance is primarily due to a decrease in inventories. Our trailing 12-month adjusted funds from operations were $1.2 billion.

On Slide 6, net debt of approximately $5.5 billion increased as compared to approximately $5 billion at the beginning of the quarter due to an increase in working capital. Our debt largely finances our inventories. As the slide shows, more than 80% of our net debt was used to finance readily marketable inventories during the quarter. In connection with the new accounting lease standard, we recorded approximately $1 billion of operating lease assets and offsetting liabilities in the first quarter.

Let's turn to Slide 7 and our capital allocation philosophy. We remain committed to our financial policy, targeting a BBB credit rating and maintaining access to committed liquidities sufficient to comfortably support our Agribusiness flows. We were rated BBB flat by S&P and the equivalent of BBB- by Moody's and Fitch.

We have committed credit facilities of approximately $5 billion, of which $4.3 billion was undrawn and available at the end of the quarter, and we had a cash balance of $464 million. Within our capital structure and liquidity framework, we allocate capital to CapEx, portfolio optimization and shareholders in a manner that we believe provides the most long-term value.

We've continued to maintain discipline in CapEx spending, investing $119 million in the first quarter compared to $105 million in the first quarter of 2018. Annual capital expenditures in this year and last are 35% below the prior 5-year annual average. We did not invest in acquisitions during the quarter, and we paid $79 million in dividends to shareholders.

Let's turn to Slide 8 and our return on invested capital. Our trailing 4-quarter average return on invested capital was 5.6% overall and 7.2% for our core Agribusiness and Food segments, above our cost of capital. Our goal is to earn 200 basis points above our 7% cost of capital on the Agribusiness and Foods segments.

Regarding the Global Competitiveness Program, when we announced the program in July 2017, our goal was to reduce SG&A costs by $250 million by 2020 compared to our 2017 addressable SG&A baseline of $1.35 billion. We expect to reach our $250 million savings target this year, a year ahead of plan. The $50 million in incremental savings that we expect in 2019 will be primarily driven by the continued standardization of processes and a move to shared services, IT rationalization and reductions in indirect spend. As we move into the asset optimization work and continue to streamline the organization, the company will apply the discipline we've developed to identify and capture additional savings.

Let's turn to the 2019 full year outlook on Slide 9. Given current market conditions, we continue to expect the full year 2019 results to be similar to 2018 but with a change in the mix. In Agribusiness, oilseeds results would be lower than in 2018 as forward soy crush margins are materially lower than last year and historical averages. Actual crush margins over the balance of the year are likely to evolve based on U.S.-China trade relations, the size of the North American crop, pace of farmer selling in North and South America, the evolution of ASF, among other factors. Based on the softseed crush margin environment, the outlook would be slightly improved compared to 2018. Actual margins will be impacted by the size of the softseed crops, which will be harvested later in the year.

Improvements in risk management and how we operate should support higher results in Grains versus last year. Again, the U.S.-China trade dynamic and the rate of farmer selling will affect the timing and the geographic location of origination margins.

In Food & Ingredients, full year results will benefit from 12 months of ownership of Loders Croklaan and increased synergies from the integration with our B2B business. In addition, favorable Milling operating environments in Brazil and the U.S. will be partially offset by more challenging conditions in Mexico.

Moving to Slide 10. In Sugar & Bioenergy, we expect results to be approximately breakeven, a significant improvement from last year and in Fertilizer, results to be slightly lower versus 2018. Also, we continue to expect CapEx of approximately $550 million, DD&A of approximately $650 million, net interest expense in the range of $290 million to $310 million and a full year effective tax rate in the range of 22% to 26% based on the anticipated mix of earnings.

Regarding second quarter, we would expect overall results to be slightly lower than the first quarter. The Agribusiness environment has not changed significantly since the first quarter. F&I results are expected to be lower as a result of the timing of spending and seasonal factors. And we expect similar seasonally driven losses in Sugar & Bioenergy and Fertilizer in the second quarter as we had in the first quarter. This outlook does not include any new crush mark-to-market or timing differences, which would be determined by market prices as of the end of the quarter.

I'll now turn the call back over to Greg.

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Gregory A. Heckman, Bunge Limited - CEO & Director [5]

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Thank you again for joining us today. The changes we have underway will help simplify our internal structure and processes, allowing us to leverage the depth of our expertise and increase accountability across Bunge. We're making progress against our strategic priorities, which will result in tangible benefits for our shareholders and customers.

And with that, operator, let's open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Robert Moskow of Crédit Suisse.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [2]

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Greg, Bunge, historically, was run on a very regional basis. There were regional presidents who had a lot of authority, and I think that probably limited the capability of the company to leverage its global footprint. So can you talk a little bit about the cultural change that this reorganization will require? And can you talk about the potential for execution risk as you shift to this new model? Are there are other ag business companies like -- well, peers of yours that have shifted to this model successfully that you're using as a comp also?

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Gregory A. Heckman, Bunge Limited - CEO & Director [3]

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Good morning, Rob. This is about performance. This is about simplification, accountability and speed. And we're looking to improve accountability and speed, and through simplification it's going to help a lot of that. We're going to organize around customers and markets, customers that we serve and the assets and people that operate and the markets that drive our margins.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [4]

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Okay. Can you talk about whether this is a big cultural change for the company?

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Gregory A. Heckman, Bunge Limited - CEO & Director [5]

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Well, eliminating the regional matrix is definitely a cultural change. But I think the journey the company has been on the last 2 years, if you look at the Global Competitiveness Program, the functions had moved to global. And the company has been transitioning there. And then if you look at the acquisition of Loders, so the Bunge Loders Croklaan, on our B2B Oils platform, the company positioned that as a global platform when they decided how that would best operate. So there's already been a couple of big shifts there with a lot of success behind them over the last 2 years. So I think the evolution was started and it was time to go all the way.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [6]

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Okay. Great. And one follow-up. You mentioned that Loders will now report directly to you, and it's shifted to a global platform. When you say that -- does that mean that it has now integrated with Bunge's heritage Edible Oils operations or a part of Bunge's heritage operations? Like is this a -- is this now operating like a global Edible Oils business? Or are there still kind of regional areas of Edible Oils that are separate from it?

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Gregory A. Heckman, Bunge Limited - CEO & Director [7]

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Yes. The team positioned it as a global platform. So the Bunge Loders Croklaan JV and our legacy business-to-business Oils platform now operates as one platform under Aaron. No change there. The only change is he'll be reporting to me.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [8]

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Okay. The reason I asked is because I guess it gets down to like -- doesn't it still get down to like the consumer level in Brazil like a retail bottled oils operation that even have some brands attached to it? Or is that part of this network or kind of separate or not?

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Gregory A. Heckman, Bunge Limited - CEO & Director [9]

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No. That's attached to our oilseed value chain. So those are attached to our value chains. In all of these business, they -- even in a global business, there are certain things that are always of course executed locally. And that's part of getting the business model right and being able to be very clear about who has the accountability and being able to make decisions at commercial speed for our customers and across our network for our shareholders.

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Operator [10]

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The next question comes from Adam Samuelson of Goldman Sachs.

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Adam L. Samuelson, Goldman Sachs Group Inc., Research Division - Equity Analyst [11]

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So I guess first, Greg, just wanted to dig a little bit more on some of the strategic actions and I -- there was an illusion in your remarks to portfolio optimization and not specifically identifying businesses, and I get that for sensitivity reasons. But any way to frame how big that bucket could be, whether it's in terms of how much invested capital it represents, what the multiyear average earnings of those businesses were, just framing kind of what in terms of portfolio changes, how big those -- that could be?

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Gregory A. Heckman, Bunge Limited - CEO & Director [12]

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Let me walk you through the work how we're moving that forward. So we've taken and prioritized into 3 buckets, if you will, between what we want to do and what we know we can do. And that first bucket are all our active projects and we've dedicated internal and external resources, and that work is well underway. And those will be the things in the first bucket that you'll hear about first when we're able to share it.

The second bucket are the things that are in late stage where we've made a decision about what we're going to do. And now, we're probably between 2 paths on how we do it in order to create the most shareholder value. And so those are late stage, and they'll be moving in the active stage and having additional resources applied to those. And then the things that are in the third stage are things that are maybe a little more complex and where we've got some analyses ongoing or whether may be a bigger strategic question. So that's to kind of frame where we are at right now.

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Adam L. Samuelson, Goldman Sachs Group Inc., Research Division - Equity Analyst [13]

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Okay. But not at a point where you'd really know at least -- especially that first group kind of frame how big of an op -- how big that is, just at a high level even if those (inaudible) businesses?

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Gregory A. Heckman, Bunge Limited - CEO & Director [14]

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No. Just can't do that right now.

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Adam L. Samuelson, Goldman Sachs Group Inc., Research Division - Equity Analyst [15]

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Okay. And then shifting gears on the macro, just obviously, a lot of moving pieces in the world today between the -- between U.S.-China trade and ASF and appreciating that the timing and exact outcomes of each is still unclear. But I was hoping you could just frame how the company is approaching both of those from an opportunity and risk perspective over the balance of the year and into 2020.

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Gregory A. Heckman, Bunge Limited - CEO & Director [16]

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Okay. Let's start with ASF. As we said, the timing and the magnitude of the eventual impact, really tough. And so we're not going to try to predict that. That being said, we are running a number of scenarios. And our teams are seeing everything you're seeing publicly and then, of course, looking across our portfolio with the information that we have. We believe the -- over the long term, that should provide us some tailwinds, but we're just not willing to say when that's going to be right now.

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Adam L. Samuelson, Goldman Sachs Group Inc., Research Division - Equity Analyst [17]

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Okay. And U.S.-China trade?

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Gregory A. Heckman, Bunge Limited - CEO & Director [18]

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U.S.-China trade, that's also a timing issue. Even if you knew the timing, you'd need to know the content of what the outcome is going to be, and we don't know either about a resolution. So again, I think our team has done a very good job in what's a difficult environment and ensuring that we continue to manage the earnings at risk in our portfolio and also protect the company from any of the stroke of pen risk that exists in this type of scenario. So we've got no specific call on that.

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Operator [19]

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The next question comes from Tom Simonitsch of JPMorgan.

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Thomas Marc Alfred Simonitsch, JP Morgan Chase & Co, Research Division - Analyst [20]

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You mentioned farmer retention of soybeans impacting Q1 results. Can you just provide some more color by region? How do you expect farmer selling to evolve from here? And how are you managing your supply of beans in South America?

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Gregory A. Heckman, Bunge Limited - CEO & Director [21]

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Okay. Our team -- we've got a great footprint in South America and a great team there who's doing a very good job of managing what we need. The Argentinian farmer has continued to retain the majority of his soybeans after marketing corn and wheat and using that as a hedge against the upcoming possible financial turmoil with an election in Q4.

In Brazil, I think we know he's well marketed. The farmer has well marketed early and then slowed things down. And he'll really be driven by price, we think, on a go forward. And then, of course, the American farmer's waiting to get in the field and hoping he'll get a little dry weather and be busy. And the historical pattern is he's probably we get into Q3, he'll have a good look at how his crops coming along and what he ended up planting and he'll have to make some choices.

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Thomas Marc Alfred Simonitsch, JP Morgan Chase & Co, Research Division - Analyst [22]

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That's helpful. And also, could you walk through the softseed crush fundamentals by region? And maybe outline where you see the most upside or downside rest of the margins through this year?

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Gregory A. Heckman, Bunge Limited - CEO & Director [23]

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Yes. I'd -- I'd say just overall, it looks a lot like last year right now. And then as crops come off later in the year, that'll be the key that -- and I'm not calling any big change to what we saw last quarter when we put the business plan together.

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Operator [24]

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The next question comes from David Driscoll of Citi.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [25]

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This is Cornell Burnette asking questions for David. Okay. Great. Just wanted to start off, it sounds like when you're building kind of the forecast here that in Agribusiness, the -- on the oilseed side, you're basically just looking at the current strip for crush margins and assuming that kind of holds. And then on the grain distribution side, it just sounds like you're -- I would assume that you're not really expecting a deal with China. Just wanted to know was that the case? And then if so, kind of how do you look at ASF and the potential for a China deal kind of really impacting the numbers? Does it give you a sense that perhaps kind of the forecast over time could have some upside related to it because of these events. And so maybe the bias is just a little bit higher than where it was perhaps 3 months ago.

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Gregory A. Heckman, Bunge Limited - CEO & Director [26]

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I mean let me start with the first 2, and then maybe you'll have to help me there and come back on the last 2. The first, I think you've got them right. We're continuing to look at what the market is telling us and providing with the forward [move] curves. So you're correct there. And then on the origination and distribution marketing business, again, we continue to look at the current marketplace and the outlook there. And that is tied, as you said, to U.S.-China trade. Because if you continue to have no resolution, we've got traditional trade flows interrupted and that they're distorted. It's very disruptive to the system and then not being able to put longer-term programs together while we're staying in a very close-in position until things are clear definitely changes the soybean seaborne trade with the share of that market that China is.

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Thomas Michael Boehlert, Bunge Limited - Executive VP & CFO [27]

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Let me just add to that on the margins. There has been a run-up a bit in board crush over the course of April. When you look at our portfolio, a little less than half is really kind of correlated very directly to board crush, so that's our U.S. production and our European production. But our Brazil and Argentine production as well as China are not really that correlated to the board crush. So -- and those margins are lower than board crush at the moment. So when we look at the outlook, we're really looking at the market overall across all of our regions. The increase in board crush recently has given us confidence in our outlook. But of course, based on the conditions and the factors that we've talked about globally, those market prices can change pretty quickly.

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Cornell R. Burnette, Citigroup Inc, Research Division - VP and Analyst [28]

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And then just kind of thinking about like Argentina and Brazil, I would assume kind of on a year-over-year basis with the outlook for Argentina, [it's not] like it has to be better with the new crop just given that you didn't really have much soy to work with on this year. And then in Brazil, equally I think kind of at certain points in the year, you had Brazilian soy price just trading at big premiums that perhaps what you saw in the U.S. market so maybe basis was a little bit difficult for Bunge in those regions. So just kind of putting those 2 factors together, understanding that South America is structurally going to have somewhat lower crush margins than the U.S. But just kind of on a year-over-year basis, are you a little bit more optimistic about the South American business relative to perhaps what transpired last year?

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Thomas Michael Boehlert, Bunge Limited - Executive VP & CFO [29]

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I mean crush margins are lower around the globe compared to last year. I mean last year was a historically high year. So that's our outlook. Our outlook incorporates, a crush margin environment, which reflects the current market much lower than last year.

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Gregory A. Heckman, Bunge Limited - CEO & Director [30]

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If you look at the marketplace while North America is a little better now, still below last year than South America. The market is telling us with the curve inverted, that it's not going to stay that way. And then in South America, which is well below last year at this time, the market is saying, they could get somewhat better. So it's a real mixed bag.

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Operator [31]

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The next question comes from Vincent Andrews of Morgan Stanley.

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Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [32]

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Greg, could you maybe talk a little bit about sort of your philosophy around sort of how you want to drive the company's earnings? And you could bring in risk management on that. And I guess what I'm asking is, are you openly going to aspire to some type of aspirational earnings per share target? And are you going to sort of encourage risk management that would sort of encourage really swinging for it when an opportunity is there and taking risk on it? Or are you going to encourage more of a tollbooth model where you're trying to take the volatility out of earnings and demonstrate sort of a sustainable level of earnings power that maybe would get a higher multiple? So maybe you could just touch on some of those thematics.

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Gregory A. Heckman, Bunge Limited - CEO & Director [33]

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Sure. Our short-term goal is to get Bunge positioned to reach the full potential of what is a fantastic portfolio and a really talented workforce. And that's #1. As far as risk management, we've got billions of dollars of assets invested -- investments. And it's our job through risk management to maximize the earnings that are available through that asset base but -- to ensure that the risk is appropriate for the environment that we're operating in, which, as we've kind of been talking about here the last half an hour, is quite dynamic right now. We want to use the phenomenal capabilities that this company's got, but we have to have a risk-adjusted approach for the earnings that this portfolio will make.

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Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [34]

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Okay. And maybe just as a follow-up on farmer selling, which has been an issue for the industry increasingly. And you noted in the USDA report how much of the beans were unfarmed, which was pretty remarkable. Is there anything structurally that you think the company can do to improve the flow of beans from the farmer? Maybe if the -- even if that means accepting a lower margin over time, than you might get if you just sort of waited around and hoped that the farmer sold it at an attractive time for both of you? I mean what can change about that farmer selling dynamic?

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Gregory A. Heckman, Bunge Limited - CEO & Director [35]

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Ultimately, the farmer is going to manage his business, but he is an important customer for us on that end of the supply chain. And so we're going to operate as we always do and try to be helpful, giving him insights and providing liquidity, providing logistics, if he needs it. And then using the balance of our system to find the best points of demand and then trying to get it from origin to destination as cheaply as possible. So we'll continue to try help that customer be successful. We need all our customers to be profitable and growing. That makes this industry a lot more fun.

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Operator [36]

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The next question comes from Heather Jones of Vertical Group.

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Heather Lynn Jones, The Vertical Trading Group, LLC, Research Division - Research Analyst [37]

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So I guess I wanted to start with your oil price outlook. So you've mentioned that your overall outlook for the company hasn't changed much. But -- so -- but I wanted to dive into oil specifically. There are some positive demand drivers this year. But at least one of them, the Brazilian increase in the biodiesel mandate, has been delayed. So I was just wondering if you -- overall, has your outlook for the -- for oil pricing for the year changed at all? Or do you think there are other things that can offset that Brazilian factor?

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Gregory A. Heckman, Bunge Limited - CEO & Director [38]

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You've called out one of the things that was helpful here in Q1 no doubt. But there are a number of puts and takes in the portfolio. So -- and we haven't called that out particularly. I think this again is part of what we're doing here with our operating model is to ensure in an environment that this dynamic that they are capturing all of the margin possible. And that's through managing the oil and the meal and the beans and that the team is focused on making those decisions at commercial speed.

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Heather Lynn Jones, The Vertical Trading Group, LLC, Research Division - Research Analyst [39]

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Okay. And my second question is on ASF. And I understand that you have been pretty clear that you won't talk to timing, you won't talk to magnitude, understandably. But one of the things we're discovering is that there are some doubt as to whether ASF can be a positive for companies like you and all when Chinese soybean meal demand is clearly down and going to be down considerably for an extended period. So could you help us understand how -- forget timing, magnitude, but just how ASF could play out as a positive for Bunge with its existing footprint even with lower demand in China? How would that look?

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Gregory A. Heckman, Bunge Limited - CEO & Director [40]

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Sure. Sure. And I might go back and just say one thing on timing that probably is important that ties into the answer is how we think about -- it's really our customers. The animal protein has to see the price signals and then choose to expand, so we're a second derivative of that demand. So that's the thing that makes timing tough. And that's why it's probably those tailwinds are farther out. Now about 15% of our crush is in China. So we really like being globally diversified with our footprint because we believe as the amount of beans slowing down -- slow down going to China because of the slow down meal demand there that the animal protein will expand at some point and that'll be outside of China where the majority of our crush is. That should be good for meal demand. As the amount of beans going there are pushed back to origins around the world, again, that's where the balance of our crushing exists. And again, that should be good for margins. So that's how we're kind of thinking about it.

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Operator [41]

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The next question comes from Ken Zaslow of Bank of Montreal.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [42]

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Just a couple of probably follow-ups more than anything else is, if you -- and following up on one of the questions, if you had reorganized in the way you are going to go in the future, how much do you think that would have contributed to your past performance over the last 5 years? How would that have made a difference in the earnings potential over the last 5 years? That's my first question.

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Gregory A. Heckman, Bunge Limited - CEO & Director [43]

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So Ken, you're starting with the easy ones. I've got to say, we've got to -- we've -- we're doing this because we believe it makes us better operators of our assets and to serve customers better. So the easiest thing to look at would be kind of self-inflicted mistakes that we would be able to avoid. That's the easiest thing to look at going backwards. That's why we've talked about the faster commercial decision-making and ultimately, about trying to unleash the full potential of this portfolio. So I don't have a number for you. It's more. And to be continued, I guess.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [44]

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Okay. The second easy question I have is, when you break up the portfolio into those 3 buckets, and I'm not asking which ones, but in the active, how -- what percentage are you there on the active that you're actually doing something? Or are you still in that third category where we are still analyzing? I guess what I'm trying to figure out is, what's the speed to which we'll start to see the actions, right? So if you're 90% in bucket 1 versus 10% in bucket 1, there's probably a difference in timing, right? Is that not a fair way of thinking of that? And can you give us some perspective on that?

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Gregory A. Heckman, Bunge Limited - CEO & Director [45]

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No. You got that right. The timing -- as we bucket -- you're going to hear about the things in bucket 1 first when I say active projects where we've got not only dedicated internal people working on it, we brought dedicated external people and resources to bear. And their conversations are ongoing. So we'll -- those are the ones you'll hear about first.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [46]

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Okay. So there's nothing in that bucket yet. Is that what you're saying? There's nothing in that bucket you're -- you're all in bucket 2 and 3 at this point, and then...

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Gregory A. Heckman, Bunge Limited - CEO & Director [47]

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No. No, no. We have a -- no. we have a number of active projects in bucket 1. We have a number of active projects with conversations going on way -- going on now, which are paving the way for change.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [48]

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Okay. And then just one clarification on the African swine fever, and correct me if I'm wrong. So China obviously does not buy soybean meal. So the decrease in soybean meal demand by China is not a one-for-one on the global market. But if there's an expansion outside of China as a one-for-one relationship to soybean meal demand on global prices, is that why there is a potential that African swine fever would actually be a net benefit over time to you? And is that the right way of thinking about it? And saying I'm wrong is fine, too. I'm just curious.

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Gregory A. Heckman, Bunge Limited - CEO & Director [49]

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No. No, I think that's the right way to think about it. Of course, you've got to make assumptions on which species the protein -- where does that protein demand get switched to by species and then by geographically. But yes, the soybean meal demand if it was like-for-like by species, it'd be one-for-one on the meal demand. And then of course, without the meal demand being in China, they don't need as many beans. So yes, I agree. You're right.

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Operator [50]

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And we have a follow-up from Robert Moskow of Crédit Suisse.

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Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [51]

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At the risk of stirring up trouble, one of your competitors had I think provided a much more bullish outlook for the back half of the year based on a thesis that the entire world will need to increase livestock supplies to make up for the depletion of the Chinese herd. And I think based on that, they thought that soybean meal prices would go higher, margins would go higher. And your tone today, Greg, I think is much more conservative than that. Is that -- and that sounds like a purposeful choice and maybe a reasonable choice. But can you see I guess a lot of upside to that thesis if it plays out for your business?

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Gregory A. Heckman, Bunge Limited - CEO & Director [52]

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Yes. Sure. You're correct. We probably are taking a measured approach from the analysis we've done, and it's basically thinking about the animal life cycle, right? So we've got to send the price signals to the market and then get the animals in place to create the demand, and we think that's beyond 2019.

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Operator [53]

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And we have a question I see from Vincent Andrews of Morgan Stanley.

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Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [54]

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Just to go back on the China and the ASF and the soybean meal, I guess my question is, if -- with the change to the herd there, in theory, they need to import fewer soybeans. And that means there's more soybeans available in the rest of the world. So I guess my question is, if crush margins do indeed increase because meal demand is higher, aren't there excess beans around to be crushed to chase after that higher meal price? And ultimately, wouldn't the market find an equilibrium perhaps at better margins than today but maybe not at sort of the fantastical crush margins that could be in place for a period of time?

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Gregory A. Heckman, Bunge Limited - CEO & Director [55]

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I think you've said it well, I think we agree with you. And that's why the outlook is what it is. Wonderful thing, the market works and it will adjust. So I think that's right.

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Operator [56]

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This concludes our question-and-answer session. I would like to turn the conference back over to Ruth Ann Wisener for any closing remarks.

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Ruth Ann Wisener, Bunge Limited - VP of IR [57]

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So thanks for your time today. And if you have follow-up questions, please feel free to reach out to me.

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Operator [58]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.