Bunge Global S.A. (BG) Q2 2014 Earnings Report, Transcript and Summary

Welcome to the Q2 2014 Bunge Earnings Conference Call. My name is Dawn and I will be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now to turn the call over to Mark Haden. Sir, you may begin.

Great. Thank you, Dawn. And thank you, everyone, for joining us this morning. Before we get started, I want to inform you that we have prepared a slide presentation to accompany our discussion. It can be found in the Investors section of our website at bunge.com and under Investor Presentations. Reconciliations of non-GAAP measures disclosed verbally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the Investors section. I'd like to direct you to Slide 2 and remind you that today's presentation includes forward-looking statements that reflect Bunge's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and encourages you to review these factors. Participating on the call this morning are Soren Schroder, Chief Executive Officer; Drew Burke, Chief Financial Officer; and Gordon Hardie, Managing Director, Food & Ingredients. Gordon will provide a detailed update on food & ingredients and discuss our strategies for growing and extracting more value from that part of our business. Gordon joined Bunge in mid-2011 and has deep experience in the food and beverage sector. Prior to joining Bunge, he led the Fresh Baking division of Goodman Fielder in Australia and New Zealand for 7 years and served at a number of leadership roles at companies, including the Foster's Group and Pernod Ricard. I'll now turn the call over to Soren.

Thank you, Mark. And good morning, and welcome to everybody. We had a strong performance in the second quarter, with all segments reporting higher year-over-year results, and we feel optimistic about the year. Strong global oilseed processing margins, driven by big crops and growing demand, led to significantly better results in agribusiness. Improved operational and a commercial performance and the addition of our new wheat mills in Mexico contributed to a record result and quarter in food & ingredients. The results demonstrate the potential of the segment and the value of integrated oilseed and grain chains. And sugar & bioenergy performed as expected, due in part to a continued progress in containing cost and increasing productivity. Overall, we are confident that on a combined basis, agribusiness and food & ingredients will generate a 2014 ROIC of at least 1.5 percentage points above our WACC of 7%. Now let me review some specifics from the quarter, starting with agribusiness. Our performance was driven primarily by excellent results in oilseeds. Strong soy crush margins in Brazil, Argentina and southern Europe and very high rates of utilization led to excellent results. The crushing environment in China, however, was poor. We managed risks in oilseeds very well through the steep drop futures, volatility in spreads and very strong cash markets. Our team executed our Brazilian export program flawlessly, with vessels turning at record pace in all our ports. Additionally, our new port, Tefron, [ph] Located in Barcarena, Brazil, started operations, loading the first few cargoes of soybeans destined for Bunge Spain. Grain origination volumes were lower than prior year, as farmers held back sales due to the significant drop in prices. However, our global grain distribution and trading operations were active with good margins. We managed risk in grains well, as markets reverted to lower prices, as suggested by our fundamental analysis earlier in the year. The oilseeds and grain markets are beginning to reflect record crops in both the U.S. and in Europe, where we expect a strong restocking to take place. While producer selling will likely be restrained in South America for the balance of the year, we expect our operations in North America and the Black Sea to benefit from increased exports of grains, oilseeds and oilseeds products, driven by record crops and strong demand pull. Global trade will remain active and capacity utilization of both oilseed crush and export infrastructure in the Northern Hemisphere will be very high from September onwards. We expect strong performances from our recent port investments in the Pacific Northwest, Black Sea and Australia and from our new crush refinery in Altona, Canada. Northern Hemisphere soy margins should repeat last year's strong pattern, and with record rapeseed and sunseed crops in Europe, we also expect very favorable conditions here. We have an experienced global agribusiness team, which is prepared to execute in the second half of the year, serving customers and managing global pipelines and risk. Similar to foods, we're also focusing on performance improvement in our agribusiness segment. In addition to risk and margin management, our focus is on logistics performance and best-in-class industrial operations. We will elaborate in more detail on our agribusiness initiatives at our Investor Day on December 10 in New York City. In food, we had a record quarter. We are sharply focused on our customers and positioning ourselves to grow with them by simultaneously making our operations and supply chains more efficient. Gordon will go into this in more detail later in the call. In combination with bolt-on M&A, this year, Bunge's earnings from food & ingredients will grow from 22% to about 35% over the next few years; better balanced, more stable earnings and higher returns on our objectives. We had a positive quarter in sugar & bioenergy. Results in our global trading & merchandising businesses were positive, but below last year's strong performance as the global sugar surplus temporarily pressured margins. We have approximately 10% global market share in sugar and trading & merchandising. And we are committed to building an even stronger presence over time. In sugarcane milling, results were above 1 year ago. We're making good progress managing costs and improving the efficiencies in our mills. The effects of our improvement and efforts will become more visible later in the year as we move into peak crushing periods. We continue to expect the sugar & bioenergy segment to be breakeven and free-cash-flow neutral for the year. The strategic review of our sugarcane milling business is progressing. We remain committed to completing it and achieving the best results for our shareholders. So overall, we had a strong second quarter, SG&A is tracking better than planned and our cash cycle is down. We feel optimistic about the year and the direction in which we're heading. Now I'll turn it over to Drew, for some additional insight to the quarter and our outlook.

Thank you, Soren. Let's turn to Page 4 in the earnings highlights. Bunge had a strong second quarter, with total segment EBIT of $418 million versus $239 million in the prior year. All segments performed above prior year. Our food business continues on a strong trajectory and achieved record quarterly results. Gordon will talk in more detail about how they're achieving that later in the call. Agribusiness EBIT was $311 million versus $170 million in the prior year. The results were driven by strong results in our oilseed processing business. Processing results were strong throughout our network, led by strong soybean processing results in South America and Europe and canola processing in Canada. Processing results in China remained weak, but did show some improvement as we moved through the quarter. Grain origination results were lower than prior year due to reduced farmer selling in South America. Risk management results were in line with prior year and our expectations. On a year-to-date basis, agribusiness adjusted EBIT is above prior year at $390 million versus $345 million in 2013. Our Brazilian business has performed very well throughout the year. Our food business continues to perform well, and had a record quarter with $90 million in EBIT versus $63 million in the prior year. Our wheat milling businesses have been particularly strong in both Brazil and Mexico. In Brazil, our focus on higher value-added business and on increasing the efficiency of our manufacturing and supply chain operations has resulted in higher margins. In Mexico, we have successfully integrated the acquired wheat mills into our existing business and are achieving our earnings and performance targets. Edible oils also had a strong quarter, led by our Brazilian business, as the benefits of our increased customer focus and operation improvement programs flow through to the bottom line. Europe also performed above prior year. On a year-to-date basis, food & ingredients' adjusted EBIT is $144 million versus $122 million in the prior year. The increased performance primarily reflects the strength of our wheat milling businesses. Sugar & bioenergy had a second quarter EBIT of $6 million versus a loss of $3 million in the prior year. The improved performance is due to better results in our sugar milling and biofuels businesses, as our trading & merchandising business results were below prior year. The second quarter is the weakest quarter for the sugar milling industry due to the crop cycle and earnings should increase as we move into the third and fourth quarters. The milling results benefited from higher crush volumes, higher ethanol and energy prices and a reversal of $10 million of mark-to-market related to our sugar hedges. On a year-to-date basis, sugar & bioenergy had an EBIT loss of $58 million versus a $20 million profit in 2013. The lower performance is primarily due to $20 million in mark-to-market losses on the sugar industrial hedges and a decline in the performance of our trading & merchandising business. Trading & merchandising had a strong first half in 2013, and a weak first half in 2014, as gross margins were lower. Our fertilizer segment EBIT improved from $9 million in 2013 to $11 million in 2014. Year-to-date earnings are also higher at $17 million versus $12 million in the prior year. Net income available to common shareholders was $272 million in 2014 versus $110 million in the prior year. The result in earnings per share from continuing operations also increased from $0.74 to $1.76 a share. On a year-to-date basis, earnings per share is $1.67 versus $1.89 in the prior year. Our income tax rate for the first half of the year was approximately 36% and is influenced by earnings mix primarily related to losses in the sugar business for which we do not recognize a tax benefit. Our full year tax rate is estimated at 23%, as certain tax planning initiatives come to fruition and sugar results improve as we move into the seasonally stronger portion of the year. Let's turn to Page 5 and our return on invested capital. This continues to be our main focus and we are seeing sequential improvement. For the period ended June 30, Bunge Limited return on invested capital was 6.3% and below our WACC of 7%. The below WACC performance is due to the impact of our sugar business. If we look at our return on invested capital excluding our sugar business, it is 8.4%, 1.4% above our WACC and in line with achieving or exceeding our target of 1.5% above WACC for 2014 and 2 points above our cost of capital in 2015. Let's turn to Page 6 in the cash flow highlights. For the 6 months ended June 30, cash flow used by operations was $791 million. This cash outflow follows normal seasonal patterns related to the South American harvest. At June 30, 2014, our working capital employed was approximately $1 billion lower than 2013, reflecting our continuing focus on balance sheet management and declining commodity prices. At the end of the quarter, we had approximately $5 billion in committed credit lines, of which $3.3 billion were unused and available. We repurchased $108 million of shares in the quarter. Our capital expenditures for the 6 months were $351 million and in line with our plan for 2014. Let's turn to Page 7 and the outlook. We remain positive about our outlook for the rest of the year. Large crops are expected throughout the Northern Hemisphere, which should result in continued low crop prices and increased demand. Forward crush margins are strong in both North America and Europe. China processing margins remain weak, but there are signs of improvement. Grain merchandising volume should be strong in North America, with South American volumes dependent on farmer selling. On balance, it should be a good second half, weighted more to the fourth quarter as we work through the Northern Hemisphere harvest. Turning to Page 8. We expect food & ingredients to have another record year as they continue to build momentum and continue to realize the results of their performance improvement efforts. Gordon will talk in more detail about our food business in a couple of minutes. Our sugar industrial business is entering the seasonally stronger second half. We expect the business to be profitable given current market prices, the impact of our productivity improvement efforts and our cane supply. We have adequate cane to crush at or near capacity, and expect to do so, but weather is an important variable. We expect this segment to be breakeven for the year and the business to be free cash neutral or positive. I will now turn it back to Soren.

Thank you, Drew. As discussed, we have embarked on a significant effort in Bunge to grow and improve our performance. Today, we would like to share some of the highlights of our work in our food & ingredients segment. On Slide 10, we show the 6 principles on which we base our overall performance management approach: first, a clear focus on value creation; granularity to drive improved execution; closing gaps to achieve best-in-class performance in key KPIs; driving major initiatives more effectively; and finally, ensuring that accountability is clear and incentives appropriately aligned. We are applying all these in our food & ingredients efforts. Of course, our ultimate goal, as you can see on Slide 11, is to generate returns 2% above our WACC. We expect to get close to that this year. Please turn to Slide 12. Part of our strategy to drive higher returns over the long term is to achieve the right balance in our portfolio. We plan to expand the share of value-added businesses from 22% to 35%. That means a bigger food & ingredients segment with increased presence in higher-margin sectors like grain milling, processing and in oils and fats. We will accomplish this through both organic and bolt-on M&A, with strong connectivity to our existing ag and food value chains. A bigger share of value-added businesses each performing better and extracting greater value from operations will have a material impact on our overall performance and value creation for shareholders. We have already seen positive impacts to the bottom line and expect much more in the coming years. Now I'll turn it over to Gordon, who will provide more detail on our targets and our strategy. Gordon?

Thanks, Soren. Good morning, everyone. If you can now turn to Slide 13. This slide shows how Bunge operates across the oils and grains value chains. In this model, food & ingredients works in an integrated fashion with our agribusiness to capture more value down the chain to further processing, adding functionality and wider application to B2B and B2B product ranges at higher margins and returns than on processed commodity. For us, these value-added businesses must be connected to the upstream agribusiness operations where we have supply, scale and risk management advantages. This approach leverages the privileged assets of agribusiness and gives food & ingredients advantages, such as direct and certain access to high-quality and safe supplies of raw materials in every region, cost efficiencies from scale and integration, supply chain capability to deliver consistently, irrespective of market volatility and risk management expertise. These advantages give us very strong value propositions to market-leading customers around the world. This model is proving very effective for our customers and for us and has allowed Bunge to build a scale business with strong market positions in attractive markets. On Slide 14, you can see how we've been extracting greater value from our food business with this approach over the last few years. Volumes have grown at 2.4% CAGR from 2009 to 2013, with EBIT growth up 13.6% over the same period. 2013 was a record EBIT year for food & ingredients, and we are on track to deliver another record year in 2014. We now have a food & ingredients business with a coherent value-added strategy, with differentiated capabilities and focus on the right product market mix to further enhance profitability and returns. If you turn to Slide 15, let me spend a few minutes outlining our view on how we believe the business can deliver by the end of 2016. When you add to the current base run rate of the business, the impact of our performance improvement program and our recent acquisition in Mexico, we see a path to $425 million by the end of 2016, with a return on invested capital in the 11% to 12% range, up from 9% in 2014. We would expect to see about $100 million of incremental organic EBIT improvement from the program, coming through at a level of about 20% in 2014, and 40% for each of 2015 and 2016. Our Mexican milling acquisition integration has gone very well and is right on track. We are comfortable with how that business is performing, and with the depth of talent and capability in milling it has brought to our business. On Slide 16, let me spend a few moments on the program of improvement that is underpinning our business performance. We see significant opportunities to lift performance by strengthening our operation and commercial capabilities. Today, I will talk about the operational side and give you more detail on the commercial elements at the Investor Day in December. To deliver top quartile returns for food businesses, you need best-in-class operations. To close the gaps we have identified, we are focused on 3 strongly interlinked areas of optimization: assets, process and supply chain. Asset optimization is about lifting overall equipment effectiveness, or OEE, a global standard measure for plant performance and capacity utilization to best-in-class levels. Process optimization is about increasing yields using state-of-the-art optimization methods, and supply chain is focused on achieving best total delivered cost in each of our businesses. If you turn to Slide 17, you will see we are linking both commercial and operational capabilities into a revitalized management operating system for the food & ingredients business. We kicked off in 3 of our largest business regions, with initial focus on operations where we are making significant progress in efficiency, unit cost reduction and customer service improvements. We will continue to roll out this approach in the second half of this year and in 2015. If you turn to Slide 18, I will take you through an example of asset optimization. This management operating system is now installed and running in 19 plants, with all facilities showing initial productivity improvements of approximately 4% on total industrial costs. In this particular example, in a large scale plant we have increased overall equipment effectiveness by 10 percentage points in wave 1, with another 10 percentage points of improvement to come in wave 2. This improvement will put this plant at Wara's [ph] best-in-class level of operating efficiency. This approach is delivering sustainable and repeatable productivity improvements and strengthening the overall business. On Slide 19, let me share with you a supply chain example. In all our key markets, we've introduced more disciplined supply chain management standards to reduce cost, reduce working capital and increase service levels. In this example, in one of our larger businesses, we have reduced our logistics costs by 6% in wave 1 since February, with another 6% opportunity to come in wave 2. These processes and tools are allowing us to reduce logistics and distribution costs, optimize our networks, simplify our distribution and increase on-time deliveries in full. So to summarize on Slide 20, we aim to grow food & ingredients to 35% of total EBIT of the company. We will deliver this goal through organic growth of the core business, a disciplined performance improvement program and bolt-on acquisitions that have a strong linkage to the full oilseeds or grains value chains. We believe this approach will deliver high returns and lower earnings volatility for Bunge, and this is already evident in the results of 2013 and half year results of 2014. As Drew and Soren mentioned, we expect this performance to continue and are on track to deliver another record year in 2014. Thank you.

Dawn, that concludes our prepared remarks, and now we'd like to turn the call over for Q&A.

[Operator Instructions] Our first question comes from Ann Duignan from JPMorgan. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Two key questions. One, the risks in North America, I can't help but wonder what could go wrong as we move into a potential record harvest season. And 2 risks that we see out there: one is the lack of railcar capacity to move crops out of the Midwest; and two, we're seeing a flood of DDGS in the U.S. What could that due to soy mill prices and margins? Could you address both of those and tell us whether either of them could have a material impact on your second half earnings?

Yes, I can do that, Ann. On the logistics front, I think similar to the year before this one in Brazil, the market, ourselves and other participants have had a year to prepare better. Last year was a surprise in terms of, particularly, railroad performance in the West. So I think we're in a more, let's say -- we know what to expect now, and we've had many discussions with the railroads. We're working very closely with them to make sure that we get turn times up, that we make the best of the available capacity that's out there. So I think we're walking into this with our eyes open, so is the market. And just like you saw in Brazil this year, doing the same down there sort of made the whole transition a much smoother one. So I think we're better placed. But that being said, there's no doubt there'll be a lot of pressure on transportation in the -- in North America, in the U.S. in particular, both on the rivers and with rail. And of course, all of that will be reflected in the price to the farmer. And we're able to price this in and manage risk accordingly. In terms of DDGS and the impact of the -- to say, the flowback of the export flow to China on the back of the GMO issue, it will have most likely a negative impact on soybean mill domestic consumption. We'll probably feel it mostly in the October, March period. But on the other side, the U.S. is the cheapest origin for soybean mill exports in the world. And so I think you can see it from some of the USDA projections or also privates. We do expect a record of October, March shipment program out of the U.S. Or whatever you might miss domestically in the U.S., we will make up for in increased exports. And our footprint in oilseeds and soybean crushing is one where we are nicely oriented towards exports, so we will benefit from that. So I think for Bunge, it's not going to be a big impact or at least not material, and we will have a nice offset on the export front. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay. And then just one quick follow-up on the improvements -- the operating improvements. Just curious when you talk about world best-in-class as a benchmark, are we talking world best-in-class food processing? Are we talking about best-in-class globally in terms of processing -- food processing? I just worry that our benchmark is maybe not world-class in the overall scheme of manufacturing or processing.

Ann, this is Gordon. We have external benchmarks both from the food industry and other industries in terms of plant performance. So if you take a measure like OEE, there would be global standards of best practice, both in the food industry and outside. And that's what we aim to -- we have some plants there already. And our goal is to get the whole fleet of plants up to that level.

Our next question comes from Adam Samuelson from Goldman Sachs.

Maybe, first, Soren, a question in agribusiness and the volume performance year-to-date. I think you're up 2% in the quarter and only 1% in the first 6 months, despite some very large crops in South America and the back end of a very large crop in the U.S. last fall. And just trying to get a sense, has the volumes this year lived up to your expectations? And if it hasn't, where has that shortfall really been driven?

Well, Brazil, certainly is a highlight. We have grown, in fact, market share in Brazil these past 6 months. And where we haven't grown as much has been in North America. We were hampered, like so many others, by the export constraints, logistics early in the year, the first quarter in particular. In Argentina, we have grown with the market. So I'll say that the real highlight has been in Brazil, and the -- sort of the less excitement has been in North America and Argentina. But I think as we get into the second half of the year now, we will have significant improvements in both North America. We are prepared and ready for a strong export program off the West Coast in the U.S., in the Gulf as well. And in the Black Sea, we are fully up and ready to run our port in Nikolayev, and also exports out of Russia at full speed. So the second half should show us an improvement in volumes that exceeds that of the first.

Okay, that's helpful. And then on the initial color on food & ingredients and the medium term earnings growth is helpful. A couple of questions there. First, could you talk about the $100 million of organic earnings growth, how much of that is volume growth versus cost out? And then more kind of philosophically, you also talk about extracting the value from EBIT growth despite more limited volume growth there. How would that Slide 14 look if you were to chart ROIC for food & ingredients?

In terms of the improvement program, I think it's weighted to -- we would expect volumes to grow at about 2% to 3% per year. And then we would look to improve margins by mix shift and then cost out combinations. So I would say the majority of the $100 million would come from shifting the margin mix and efficiency gains in manufacturing and supply chain.

Adam, it's -- I think the key issue here is we've really looked at how do we increase our returns in that business. So we have given -- as Gordon said, we've given up some volumes that came at pretty low returns and pretty large margin and focused on the higher margin opportunities. So you're getting an organic stronger growth in high-margin activities, but we're giving back volumes in low-margin activities. So you're not seeing a whole lot that prefears [ph] The revenue growth because we made a conscious decision to shift the portfolio, and at the same time you're getting the cost reductions rolling through.

That's helpful. Can you give an example of some business lines or product lines where you've actually exited? It's hard to really tell from the outside, given kind of all the different buckets in there.

Yes, I think we've gone through each of the channels, either B2C or B2B, and we've looked at where cost-to-serve might have exceeded the margin from that channel or that customer group. And we've systematically cut back in that. We've done a lot that work, for example, in Brazil. We've done a lot that work in North America. So really it is focusing the efforts on the business where we can achieve our target margins and not chase volume for volume's sake.

Our next question comes from Michael Cox from Piper Jaffray.

My first question is on all the headlines on Argentina. Just wondering if you could comment on what that, if anything, means to Bunge either just from a currency standpoint or from a business-related issue perspective?

We do not expect a big impact from the recent developments in Argentina. Argentina has always been a good market for us. It's a business we like. We're a major exporter and a major exporting industry for the country. So we expect that to continue to operate as normal as it affects our business. It may have some impact on domestic markets in Argentina, but our activity in the domestic markets is relatively small.

Okay. And within the agribusiness segment, volumes were relatively flat in the first half compared to last year. And I know there's a lot of moving parts here, but if you were to look at it in aggregate, should we see that growth accelerate in the back half, given the commentary around exports from North America?

Yes, I think you should expect to see a pickup in pace in the second half. One thing I should've mentioned earlier was that China, our crush volumes and shipments to China were clearly down in the first half. So that's a contributing factor. And some of the crush rates and export out of Canada were down as well because mostly of weather problems. So between China and Canada, those were the negatives. But we had nice offsets, as I mentioned, particularly Brazil where we gained market share. The second half of the year should be -- should show nice growth.

Okay. And then one last quick one on the share buyback program. You've bought back $200 million. Any thought on kind of stepping up the buyback from here? And does the strategic review of sugar prohibit you from doing anything from a buyback standpoint?

Well, as you mentioned, we bought back $108 million worth of shares in the second quarter, and we intend to buy another $100 million worth of shares in the third quarter. And this is all part of our capital allocation framework that we presented to you a couple of times, where we will continuously evaluate how best to use funds from operations, where to deploy it with the best return. So this is not something that we will announce once, and then do. We will look at this every month. And depending on our performance and our balance sheet, we will step it up or slow it down. The one thing we will not do is get ahead of ourselves. Most important thing for us is to make sure that our credit rating remains at BBB. And therefore, to make big statements about what we might do later in the year just doesn't serve any purpose. We will -- we're committed to making a balanced allocation of capital from our operations, and we will proceed with $100 million now in Q3, and then we will see where we go from there.

Our next question comes from David Driscoll from Citi Research.

This is Cornell in with a few questions for David. Just want to get into a little bit about the pacing of earnings in the back half of the year. So basically, I think the message that you're sending is that we should look for the fourth quarter to be stronger than the third quarter on an absolute basis. And then just getting into the drivers of that, is it basically dependent on kind of the way farmer selling is heading down in South America, and so that you see kind of a slow pace of selling in the third quarter, but in the fourth quarter, things just get a lot more robust in the environment because of the big U.S. crop?

Yes, I think in the fourth quarter, we will have both North America and all of Europe running at full speed. We will be running at full speed in the Black Sea, Eastern Europe, Western Europe, Southern Europe with soy, and we'll be running full out in both Canada and the U.S. So that's really what skews the results towards the fourth quarter. The third quarter is more of a transition, where we will still have nice contribution from South America. Fourth quarter in South America really is a matter of farmer selling, particularly in Argentina. In Brazil, at that time, we'll be mostly servicing the domestic market and -- school is still out and what happens in Argentina in the fourth quarter, there will be retention most likely, as we saw last year. The question is how much? But the skew to the fourth quarter really is a Northern Hemisphere situation. And we will -- we might be up and running faster in September, but certainly October, November, December, we will be at full speed.

Okay. And then in China, I know that the environment was still weak, but you did say that you saw some sequential improvements there. Can you just talk about the conditions on the ground there and kind of what the outlook is for maybe the next couple of quarters?

Yes, I think we are clearly in an improving situation from what was admittedly a very negative crush environment in the first half of the year. We're now moving into a better situation. Underlying fundamental demand for proteins in China is strong. Livestock profitability is back in positive territory, and offtake approaching is very strong. Clearly, the reduction in DDGS imports, if that is -- if that continues, will be to the benefit of soybean meal. So that will be a positive element as well. So demand is -- underlying demand is strong. And what we are doing at the moment and will do probably for the next quarter or so, is to digest this excess of soybeans that has been imported into China. The second quarter was an all-time record shipment of soybeans into China, and we are now chewing through that inventory. And as we do that, margins will improve. So I think Q3 will be a transition. Q4 should be good. And in all likelihood, we will have a good first quarter as well in China.

Okay. And just one last question, moving on to the sugar ethanol business. I know you guys mentioned that weather is kind of a key variable there. And I believe it's been pretty dry down in key parts of Brazil. Kind of going forward, if that continues, kind of what type of impact would that have on your business and maybe the guidance that you have of kind of flat profitability, kind of breakeven profitability this year? And are there kind of any offsets that you would see that are emerging?

Well, it's volatile from a weather perspective, and you're right, we've had reasonably dry weather last -- the last week or so, we actually had a little bit of rain. But we're only 35% through harvest, so we've got 65% to go. The weather outlook for August is mostly dry, but we need dry weather through September and October to be comfortable that we hit our rates. Could we exceed them? It's possible. But at this point, I think our forecast for the 20.4 million tons of crush for the year is about as good of a guess as we can make, given the variability that you do have from rains, on and off. So I don't think we would want to increase or decrease at the moment. We feel comfortable reaching that. And we also feel comfortable that the ATR, which is a very important variable and this is tracking according to plan. So at this stage, I think the breakeven forecast for the segment is a solid one.

Our next question comes from Christine Healy from Scotiabank.

First, I just want to add on to the Argentina question that you were asked. Just with the significant devaluation of the peso in the last year, we're coming up to another planning season. So farmers could be in a bit of a financial bind. Can you talk about what loan and barter programs you have with the farmers there? What kind of credit risk you have? And how any of that could change in the upcoming season?

We do not have significant credit risk with farmers in Argentina. So it is not a major issue from our side.

Okay. So more of a barter situation than loans is kind of what you're saying?

Yes, we're spot purchasers.

Okay. And then, I guess, just as you get further into your strategic review on the sugar business, it's been several months now. Just curious, how real a possibility is it that you could choose status quo, just run the plant at breakeven until October elections, potentially bringing policy change? Is that a serious option? Or do you guys feel under pressure to do something?

Well, the process is ongoing and we are making progress. We are exploring different alternatives. But timing, as you suggest, is difficult to predict. The state of the industry and the upcoming elections makes it very hard to give a date as to what to do. We will do the right thing for shareholders. We don't feel the pressure to do anything with the timeline. So let's see how it goes in 6 months. But the process is still ongoing and we're satisfied with the progress we've made.

Okay. And just one last question, I just want to clarify something on the food & ingredients projects that Gordon was talking about. When you look at those bar charts, the before and current and target, just want to confirm, is the before, 2013? And then the target is the 2017 forecast?

Are you referring to the charts on the individual performance improvement measures?

Yes. Just want to confirm what the timing is for the before and the target. Is that 2013 the before and then the target's 2017?

Yes, 2000 and -- they would come through in 2015 and '16.

I think 2013 is a reasonable base to assume.

Yes. That's the base, and then we've obviously made progress this year, and we would expect to make more progress again next year. So you could look at it over '14 and '15, and some will flow into '16.

Our next question comes from Ken Zaslow from Bank of Montréal.

Soren, when you think about the process that you underwent with taking the food & ingredients to a new level, I know Gordon's taking care of it. But when you kind of implement the process, can you talk about what the process was that made you think that you can get there? And is there a process that you can overlay that on to the agribusiness? And is there a synergy level that you'd expect to get over time from there as well?

Well, let me start with the last first. We are doing the same thing or similar thing or similar things in agribusiness. It's a different business obviously. So our focus in what areas to improve on are different. Logistics and operations, particularly crush operations globally, are the 2 things that we have in focus. But very much the similar approach to how we implement the program along the lines of what Gordon has talked about, taking the best of what we've got in Bunge or externally, and making sure that we get it implemented quickly in all parts of Bunge. That, we will go through in some more detail at our Investor Day in December. It's a much larger undertaking, which is why we couldn't do it now, but we will do it in December. So you'll see more specifically what it is we're talking about. But there are a lot of similarities in the programs and the improvement effort. They feed off each other, and we've made sure, and we are making sure that the teams that are working and the people who are leading these efforts are connected both across agribusiness and food. So we're benefiting from the knowledge and the experience on both sides. In terms of what made us realize that we had a potential to grow our food & ingredients business, well, I think it's been a collaborative discussion amongst the executive team here. What we did know -- what we knew for sure was that we have grown a sizable global business over the last 4 or 5 years in terms of volume presence and market share. And we were all somewhat frustrated about how it wasn't returning more. It had the potential to do more. So that's why we turned our focus on saying how can we get more out of this? We've got great market shares. We've got good positions. We've got an advantage linked to agribusiness that should be an advantage pretty much everywhere in the world. And as we systematically went through the areas in which we could improve, we discovered that there really was indeed a significant opportunity, and we are now executing on that. So it wasn't one thing. It was just the potential and actually a good team effort by everybody across the business.

Okay. Is there any progress or update on the sugar sale or what you're doing with that asset? And can you just give us an update on that?

Well, I can just repeat what I just told earlier, which is that the process is ongoing and we are pleased with the progress we've made and how we reduced our exposure to the segment. We're exploring various alternatives so it's active. It's alive, but the timing is very difficult to predict. The state of the industry and the politics in Brazil, the upcoming elections really makes it hard for me to give you any hard date as to when we should expect something. But you can rest assured that we're working on it.

So the politics and the environment may actually delay the opportunity that you'll be able to monetize that asset, is that kind of the update? I just want to make sure.

I think the point is just that the -- how you put a value on something like this is influenced by so many factors. And politics and the state of the industry are obviously big pieces of that. And so we don't feel that we are under pressure to do something that is not in the interest of shareholders. So we're making sure that we make a measured and timely decision on this. And that's why I don't want to get boxed into giving a date.

And my last question is, do you foresee any dislocation opportunities arising over the next 3 to 12 months that may come about for you guys?

I think for the next 6 months, probably nothing major. There will be some dislocations, most likely involving quality in wheat, which is sort of the only crop issue at the moment that is becoming pretty clear that we've got a global wheat crop which does not have a very good quality. So there may be some trade flows that are influenced by that. There will be the dislocation opportunity, if you wish, coming out of -- probably in the fourth quarter, of whatever happens in Argentina with farmer selling. That's something that we're all monitoring very, very closely. They're seeing significant potential for a large carrier out in Argentina again this year with soybeans. So one way or the other, that will have impacts on margins in the other part of the world. So I would say it's probably a matter of -- it's a combination of soybean retention in South America, Argentina, in particular, and wheat quality. Those are the 2 things that stand out. And then beyond that, we still have to grow next year's crop in South America. So we're assuming that we will have a long period of abundance, but that could change by the end of the year if things don't go well. So we will -- the next thing we'll be looking at is planting progress and crop development in South America as we get into the fall here. And who knows how that turns out? You know how quickly things can flip.

And has there been any change in any -- a big break in basis anywhere, for you to capitalize on?

Well, the basis levels, in general, on an FOB level, whether it's in the U.S. or in South America, are probably at an all-time record high. So it probably wouldn't be in buying it. But in the interior, depending on transportation cost, there could be opportunities as we get into the fall harvest year. So -- but it's a little bit too early to comment on that.

Our next question comes from Tim Tiberio from Miller Tabak. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: Going back to the sugar guidance for the full year, Drew, can you just remind us how much you expect to generate out of cogeneration this year? And when we look at the second half sensitivity, how much dependency is there on your outlook for the ethanol versus cogeneration, and then raw sugar futures in the second half?

Yes. We have increased our cogen capacity from last year, so we would expect revenues somewhere in the $30 million range. And as we've said before, that's a high-margin business so the profits may be somewhere in the low-20s. So cogen has developed very nicely in the energy market and Brazil is very strong. So that's a business that has played out very well for us. And I'm sorry, I missed your question on the raw sugar. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: Well, I'm just trying to get a sense when you're looking at the second half. To hit the breakeven forecast, what is the most sensitive part from your perspective at this point? Is it on the ethanol side or the development in raw sugar futures for the second half?

I would think it's a couple of factors. The first is, the production in cost side is essential as we move through the year because crushing volume is a huge variable. And while our facilities are running, we have all the cane, we need the crushing season to be long enough, which implies we don't get too many days of rain. So we have budgeted in very normal weather conditions based on long-term forecasts. But weather doesn't always follow the long-term forecast. And then secondly, the sugar content in the cane is an important variable. So I would say those are the 2 major things. Then as you rightly say, pricing is an important variable. I would say the ethanol price is probably more likely to vary than the sugar price at this point. We can't hedge ethanol. We can hedge some of the sugar. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: Okay. And just one last question on your, I guess, port utilization in the Pacific Northwest. Can you give us a sense of what utilization was in the first half? I know you were impacted by weather events this year. But looking towards the second half and a very ample crop development, where would you expect the port's facility utilization to likely come in looking at current crop conditions?

Transportation allowing, meaning that we can get the goods to the port, we have enough -- there's enough demand and certainly enough grain supply to run the port at 90%-plus. So whether we do that or not really is a matter of execution and transportation. And as we talked about earlier, that is an area of risk for the industry, frankly, in the Western Corn Belt, is how efficiently the railroads can turn trains. We think we are in a better spot than last year. We are better prepared to dialogue for the railroads who are constructed and good. They know what's at stake. So I would expect that we will have a very high level of utilization on the West Coast this year. And frankly, the market needs it. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: And how does that compare to last season? Were you operating at, at least 50%, 60% at that point?

No, no, it was higher than that, but it was certainly not at 90%. But it wasn't because demand wasn't there. It was because we had the bottlenecks and logistics couldn't get the grain to the port in time. So no, it wasn't that low. My guess, it was probably between 70% and 80%, but I don't have that number. I'll have to get back to you on that.

Our next question comes from Vincent Andrews from Morgan Stanley.

I apologize if you answered this already, but I was hopping between a few calls. Could you just talk about the -- you talked about wanting to do bolt-ons in food & ingredients. And just from my perspective, both inside and outside of agribusiness and food, it seems like this push into sort of higher-value food & ingredients is quite popular, and that's increased over the last several years. And the multiples for some of these more recent transactions have gotten pretty elevated. So what's your comfort level that there are actually bolt-ons that you're going to be able to do at multiples and returns that shareholders are going to be happy with?

I think the type of bolt-ons we are talking about and the place in the value chain is very close to, let's say, our existing lines of business. So you're talking about basic milling, basic oils and fats, not the extreme end of the value chain, so to speak. And in that space, multiples have stayed, from what I can tell, reasonable. Our returns expectation should be somewhere around 1.5x our WACC on those types of investments and that should equate to somewhere between 8.5x, 9x EBITDA. And if we can't get them and depending, of course, on synergies because each deal has a unique set of synergies with them, then we'll be disciplined. We don't feel we have to do this at any price. But we do believe that we have, across the areas in which Bunge is active in agribusiness, in food & ingredients, opportunities to strike some of those deals at fair valuations.

Okay. And just as a follow-up or a separate question. Last year ago, at this time, we were feeling like we had a big crop, and that outlook was positive. And then it turned out -- the operating environment became a little bit more challenging than people expected. Now we're going to have an even bigger crop. Why is this -- what are the risks to this larger crop from an execution perspective, both in terms of -- there's clearly going to be a lot of supply globally North America, South America. So will export margins hold up? And how should we think about the risks associated with this large crop?

Well, I think the starting point is probably that last year's agribusiness results for us in Q3 and Q4 were very, very good. I don't know if they were record, but they were very good. Close to record. So we think we have an environment which is similar, and export capacity and elevation margins, certainly in the Northern Hemisphere for the period of October through March, should be very favorable. Crush margins, as we've talked about, should be very favorable. So I think the operating environment is not so different than the last -- similar period last year where our results were quite good. So we are optimistic that it'll be, maybe not a repeat, but something close to that.

That was our last question. I will now turn the call back to Mark Haden for closing comments.

Great, Dawn. Thank you. And thank you, everyone, for joining us today. And again, a reminder, that our Investor Day will be on December 10 in New York City. Details to follow.