Bunge: Reports Q3/2013 Results

White Plains / NY. (bl) Bunge Limited announced its results for the third quarter 2013. The company reported an adjusted total segment Ebit of 404 million USD. Agribusiness and food + ingredients performed well; Bunge expects a strong close to the year. There were disappointing sugar-cane milling results; reducing capital investment in segment to maintenance level; exploring full range of options to optimize value creation. Net after-tax charges are 415 million USD, primarily related to deferred tax valuation allowances of 521 million USD in sugar + bioenergy segment and 132 million USD gain on sale of Brazilian fertilizer distribution business in discontinued operations.

Overview

Soren Schroder, Bunge´s Chief Executive Officer, stated, «Bunge leveraged its South American agribusiness network and skilled global team to serve customers and manage a complicated risk environment in the third quarter. Our food + ingredients business continued at a record pace with another quarter of good results».

«In sugar + bioenergy, our global trading and merchandising team is performing well and building a solid business. Our Brazilian milling operations, however, continued to face suboptimal weather and low global sugar prices, as well as the structural headwinds of domestic cost inflation and capped ethanol prices. These conditions make it difficult for the sector to generate consistent profit and appropriate returns. As a result, we have reduced our segment outlook for the fourth quarter and full year. While we expect the segment to be profitable in 2014, achieving our previously stated Ebit goal of eight to ten USD per metric ton during the year will be difficult without a change in Brazil fuel pricing policy».

«In 2014, we will manage our sugarcane milling business to be free cash flow positive, with reinvestment dedicated to agricultural and industrial maintenance and efficiency projects. These efforts are an essential part of continuing to improve our performance. Bunge´s overall success, however, has to be defined by consistent value creation for shareholders. Given the challenges facing the Brazilian industry, we have commenced a comprehensive process to explore all alternatives to optimize the value of this business».

«Yesterday, we announced the acquisition of Grupo Altex´s wheat mills in Mexico, which further expands our profitable North American milling business in a compelling growth market and complements our previous acquisition of La Espiga. The Altex mills provide a strong national market presence and customer base that we look forward to serving and expanding. This acquisition is another in a long line of strategic investments through which we have built strong global positions in agribusiness and food + ingredients».

«Looking forward, we expect a good fourth quarter supported by strong agribusiness and food performances. Both segments should produce returns above cost of capital in 2013. Global demand is strong, trade is expanding and our downstream businesses are growing. Our value chain approach to managing risk and margins and serving customers, along with our unique global footprint gives us confidence in our long-term ability to generate value for shareholders».

Third Quarter Results

Results in the quarter included after-tax net charges of 415 million USD that reduced net income from continuing operations by 547 million USD and increased net income from discontinued operations by 132 million USD.

• Lower than expected performance in our Brazilian sugar-cane milling business along with cumulative net operating losses resulted in a full valuation allowance of 521 million USD against deferred tax assets in our sugar-cane milling operations in Brazil.
• During the quarter we closed on the sale of our Brazilian fertilizer distribution business to Yara for 750 million USD resulting in an after-tax gain of 132 million USD, which was recorded in discontinued operations.

Overview

Soren Schroder, Bunge´s Chief Executive Officer, stated, «Bunge leveraged its South American agribusiness network and skilled global team to serve customers and manage a complicated risk environment in the third quarter. Our food + ingredients business continued at a record pace with another quarter of good results».

«In sugar + bioenergy, our global trading and merchandising team is performing well and building a solid business. Our Brazilian milling operations, however, continued to face suboptimal weather and low global sugar prices, as well as the structural headwinds of domestic cost inflation and capped ethanol prices. These conditions make it difficult for the sector to generate consistent profit and appropriate returns. As a result, we have reduced our segment outlook for the fourth quarter and full year. While we expect the segment to be profitable in 2014, achieving our previously stated Ebit goal of eight to ten USD per metric ton during the year will be difficult without a change in Brazil fuel pricing policy».

«In 2014, we will manage our sugar-cane milling business to be free cash flow positive, with reinvestment dedicated to agricultural and industrial maintenance and efficiency projects. These efforts are an essential part of continuing to improve our performance. Bunge´s overall success, however, has to be defined by consistent value creation for shareholders. Given the challenges facing the Brazilian industry, we have commenced a comprehensive process to explore all alternatives to optimize the value of this business».

«Yesterday, we announced the acquisition of Grupo Altex´s wheat mills in Mexico, which further expands our profitable North American milling business in a compelling growth market and complements our previous acquisition of La Espiga. The Altex mills provide a strong national market presence and customer base that we look forward to serving and expanding. This acquisition is another in a long line of strategic investments through which we have built strong global positions in agribusiness and food + ingredients».

«Looking forward, we expect a good fourth quarter supported by strong agribusiness and food performances. Both segments should produce returns above cost of capital in 2013. Global demand is strong, trade is expanding and our downstream businesses are growing. Our value chain approach to managing risk and margins and serving customers, along with our unique global footprint gives us confidence in our long-term ability to generate value for shareholders».

Third Quarter Results

Results in the quarter included after-tax net charges of 415 million USD that reduced net income from continuing operations by 547 million USD and increased net income from discontinued operations by 132 million USD.

• Lower than expected performance in our Brazilian sugar-cane milling business along with cumulative net operating losses resulted in a full valuation allowance of 521 million USD against deferred tax assets in our sugar-cane milling operations in Brazil.
• During the quarter we closed on the sale of our Brazilian fertilizer distribution business to Yara for 750 million USD resulting in an after-tax gain of 132 million USD, which was recorded in discontinued operations.

Agribusiness

Agribusiness performed well, though results were lower than the year-ago record third quarter. Strong margins and volumes in our Brazilian processing and merchandising operations were the primary driver of results in the quarter. In Argentina, oilseed processing results improved with a larger soybean crop and a pick-up in farmer selling, but did not fully offset lower earnings in grain merchandising, which was negatively impacted by the poor wheat crop. Results in Europe and Asia were similar to last year. Oilseed processing capacity utilization in North America was low for both soybeans and canola, impacted by last year´s drought, which reduced available raw material. U.S. grain exports were also low, reflecting the impact of last summer´s extreme drought on corn production and the delay to this year´s harvests caused by late planting. Our teams managed global supply lines and market volatility well in a challenging environment. Results in the third quarter included an eight million USD gain related to the sale of our investment in a U.S. biofuels company.

Sugar + Bioenergy

Lower results when compared to last year were driven by a loss in our Brazilian sugar-cane milling business. Lower unit costs from higher crushing volume and productivity improvements were more than offset by lower sugar prices, as well as costs related to land we will not harvest or plant this year due to wet weather. Compared to our earlier expectations, third quarter milling results were substantially below target, primarily due to lower sucrose content in the cane (ATR) across all of our mills resulting from wet weather and frost, lower sugar-cane crushing volume due to excessive rain and the impact of mark-to-market losses in forward sugar hedges as sugar futures rallied in late September. Our global trading + merchandising business performed well, continuing to grow in volume and market share. Results in U.S. biofuels were higher primarily due to improved margins in our ethanol joint venture. Results in the third quarter included provisions of approximately 18 million USD related to equipment and machinery held for sale. Results in the third quarter 2012 included an impairment charge of 39 million USD related to a North American corn ethanol joint venture.

Edible Oil Products

Higher results in the quarter were due to improved volumes and margins benefiting from our portfolio diversification across product mix and geographies. Lower results in Brazil and in the U.S. were more than offset by good performances in Europe, Canada and Asia, which were driven by continuing cost reduction programs, improved category innovation and pricing.

Milling Products

Improved performance in our Brazilian and Mexican wheat milling operations more than offset lower results in corn milling which, after a strong first half of the year, experienced softer volumes as some customers delayed purchases until the arrival of new crop. Contributing to the improved wheat milling results were a combination of lower industrial costs and higher margins. In Brazil, margins also benefited from good raw material procurement strategies in a market of tight wheat supplies and high flour prices. Rice milling results were similar to last year. Results in the third quarter included a seven million USD charge related to transactional taxes in Brazil.

Fertilizer

Higher results in our Brazilian fertilizer port operation more than offset lower results in Argentina which was impacted by lower volumes from reduced corn and wheat planting.

Cash Flow

Cash provided by operations in the nine months ended September 30, 2013 was 903 million USD compared to cash used of 2’872 million USD in the same period last year. The year-over-year variance primarily reflects lower inventories resulting from the decrease in crop prices and a continued focus on optimizing working capital.

Income Taxes

The effective tax rate for the nine months ended September 30, 2013, excluding our discontinued fertilizer business, valuation allowances incurred during the quarter and discrete tax charges, was approximately 19 percent.

Outlook

Drew Burke, Chief Financial Officer, stated, «Agribusiness should have a strong fourth quarter. Oilseed processing margins in North America, Europe and China are very good, driven by the combination of large oilseed harvests, lean customer inventories and improving livestock production margins. North America and the Black Sea should see strong grain exports, as the world restocks inventories after an extended period of tight supplies».

«Food + ingredient´s momentum is expected to continue into the fourth quarter. Edible oils should benefit from the seasonal growth in oils, margarines and bakery ingredients consumption. Tight wheat supplies in Brazil should continue to support high domestic flour prices and corn milling volumes and margins should increase with the arrival of new crop corn in the U.S.».

«Sugar-cane milling will continue to be challenged by low sugar-cane ATR for the rest of the crop. Last year´s average ATR was near historic lows and this year it is expected to be below that level. In 2013, we will have achieved our target of aligning cane supply with our industrial capacity through higher yields and the expansion of our cane area. However, due to the above average number of crushing days lost to rain, we are reducing our cane crushing expectations to 19 million metric tons versus our capacity of 21 million metric tons. The cane that we will not crush will remain in the fields to be crushed early next year. Considering the lower ATR and reduced crush volume, we expect fourth quarter Ebit in the segment to be a loss».

«As announced, we have reduced our 2013 capex to one billion USD from a previous target of 1,2 billion USD. We are planning a 2014 capex budget of 900 million USD with a focus on growth and productivity projects with shorter paybacks».