Bunge Global S.A. (BG) Q2 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the Bunge Limited Second Quarter 2019 Earnings Release and Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ruth Ann Wisener, Vice President of Investor Relations. Please go ahead.

Thank you, Andrew, and thank you for joining us this morning. 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 two 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, Bunge's Chief Executive Officer; and John Neppl, Chief Financial Officer. I will now turn the call over to Greg.

Thank you, Ruth Ann, and good morning, everyone. We have a lot to discuss today. So, let's turn to slide three. Before we dive in, I want to introduce John Neppl, our new Chief Financial Officer who joined Bunge in May. His perspective and leadership along with his industry experience will be a great benefit for us. And I’m delighted to welcome John to the Bunge team. I also want to welcome our new Chief Risk Officer, Robert Wagner, who joined us last month. I worked with both Robert and John for well over a decade at Gavilon and ConAgra, and they're already making sustainable contributions here at Bunge. Now, the other items on our agenda, shown on slide four. I'm going to provide a high level view of developments and results in quarter, progress against our strategic priorities, and our outlook for the balance of the year. Then, I'll hand it over to John for deeper dive into financials. And finally, we'll open up the line for your questions. Let's go ahead and get started turning the slide five. Second quarter 2019 results benefited from timing differences and the contribution from a venture investment. Core business results were generally in line with our outlook. Soy crush was helped by higher volumes, but also impacted by lower structural margins this year. In Grains, our South American results were higher while our North American team managed through extreme weather conditions, which impacted both our operations and farmer marketing patterns. Results in Edible Oils were better in North America and South America and essentially flat year-over-year in Europe and Asia. Sugar & Bioenergy benefited from lower costs, and better ethanol volumes and prices, while fertilizer results also improved in the quarter. The net unrealized gain related to our investment in Beyond Meat sits within Bunge Ventures, our venture capital unit. We haven't discussed Ventures often, but it's an important vehicle as the competitive landscape and consumer preferences drive change, and as technology continues to accelerate innovation and transparency in our industry. I continue to feel very good about our focus and our progress on the key priorities, including strengthening financial discipline and risk management, and our ability to optimize the performance of our physical flows. As we work towards our new global operation model announced last quarter, we're seeing an engaged and energized team, improved speed of execution, and risk management that better supports our commercial decision making. As we announced earlier this month, slide six lays out our agreement with BP to contribute our Sugar & Bioenergy business to a new 50-50 joint venture in Brazil. We will receive $75 million in cash at closing, and we'll transfer $700 million in debt to the JV on a non-recourse basis. Turning to slide seven. With this JV, we own 50% of an entity that will be number two in Brazil by actual crush volume, and operating with a conservative capital structure. On slide eight, we have a strong partner in BP, and we also retained flexibility for further monetization. So, we're very excited about this transaction. It meets all of our strategic criteria, enables us to reduce leverage. We expect closing before year-end, subject to regulatory approvals. Following the close, we will no longer consolidate this business. In addition, we anticipate an impairment charge of between $1.5 billion and $1.7 billion in Q3. And last, on the next slide, our view on 2019 full-year consolidated results has not changed from what we originally shared with you in February that result will be similar to last year, but with the change in the mix, given materially lower forward soy crush margins, plus a slight improvement in softseed crush. We also expect improvements in Grains and Food & Ingredients this year, while Fertilizer results will be flat. In addition, the macro factors that we called out last quarter remain a major source of uncertainty for all market participants. African swine fever continues to impact Chinese demand for soy meal combined with the unresolved U.S.-China trade, this has altered both typical trade flows and producer marketing patterns. We continue to monitor these factors and we'll leverage our global footprint as needed to ensure uninterrupted supply for our customers, while managing margins and physical flows to optimize our own results. We expect to finish the year as we projected, but given timing and cyclicality, second half results will be largely weighted to the fourth quarter. I'll now turn the call over to John to go through the numbers in greater detail.

Thanks, Greg. Good morning, everyone. It's great to be here at Bunge, and I look forward to working with all of you in my new role. Let's turn to the earnings highlights on slide 10. Our reported second quarter earnings per share from continuing operations was $1.43, compared to a loss of $0.20 in the second quarter of 2018. Adjusted EPS was $1.52 in Q2 versus $0.10 in the prior year. Our results include $135 million net unrealized gain on Bunge Ventures' stake in Beyond Meat. Total segment EBIT was $354 million in the quarter versus $71 million in the prior year. On adjusted basis, which excludes notables, total segment EBIT was $370 million in the quarter versus $117 million in the prior year. In Agribusiness, adjusted EBIT was $189 million, compared to $118 million in the prior year. In Oilseeds, structural soy crush margins were lower, as farmers retained soybeans in anticipation of higher prices and meal availability increased as Argentine supply returned to the market. Second quarter results benefited from approximately $70 million timing benefit as soy crush margins decreased in many markets toward the end of the quarter, creating mark-to-market profit in hedge contracts. As we execute on the physical business, these gains will effectively be offset by lower realized margins, mostly in the third quarter. Trading and distribution results were lower than last year. In Grains, origination improved in South America, benefiting from lower cost and better logistics. This more than offset lower results in North America, which were negatively impacted by the combination of extreme weather and low exports due to the poor river logistics and the ongoing U.S.-China trade dispute. While results in trading and distribution were not a contributor to the quarter, performance was higher than last year. The Grains segment generated EBIT of $25 million, improving from a loss of $22 million in the same quarter last year. Results for the quarter were largely driven by ports and origination. Food & Ingredients adjusted EBIT was $49 million, slightly better than $46 million generated in Q2 of 2018. Improved results in Edible Oils were primarily driven by higher margins in South America. In North America, stronger demand contributed to better results versus last year. Results in Europe and Asia were down slightly year-over-year on timing differences arising from FX hedges. Milling performance was lower than last year, mainly driven by Brazil, where results were impacted by lower volumes and margins as customers remained price-sensitive, particularly in the foodservice channel, making it difficult to pass along higher input costs. Adjusted EBIT losses in the Sugar & Bioenergy segment narrowed to $9 million in Q2 2019, an improvement of $31 million year-over-year, with higher sugarcane milling results, primarily driven by lower costs and increased ethanol volumes and prices, partially offset by lower sugar volume and margins. In 2018, results for this segment were impacted by a $26 million loss in sugar trading and distribution due to both unwinding activity in preparation for exiting the business, and a $14 million bad debt charge. Fertilizer adjusted EBIT for the quarter was $6 million, improving from a loss of $7 million a year ago. Higher results in the quarter were primarily driven by Argentine operation, which benefited from higher volumes and prices, and lower costs. Year ago results were impacted by foreign exchange losses. Our tax expense for the quarter was $60 million. The effective tax rate of 22% was on the low end of our expected range of 22% to 26%, impacted by the net unrealized gain from our stake in Beyond Meat, which was recorded with a 10.5% effective tax rate. We continue to expect the tax rate of 22% to 26% for the full year. Let's turn to slide 11, the cash flow highlights. Cash used for operations in the first six months of this year was $1.1 billion, compared to cash use of approximately $3.5 billion in the same period last year. The year-over-year variance is primarily due to a significant increase in inventory in the first half of 2018. You will note that our receivables securitization program was reflected in two components on our cash flow statement, one in operating and one in investing as required by GAAP. When netting these two related amounts, our adjusted cash used in operations was $0.5 billion versus $2.5 billion last year. Our trailing 12-month adjusted funds from operations was $1.4 billion. Our debt largely finances our inventories. The Slide 12 shows approximately 70% of our net debt was used to finance readily marketable inventories at the end of the quarter. Net debt of approximately $6.1 billion increased from $5.5 billion at the beginning of the quarter, due primarily to an increase in working capital that is in line with typical seasonal trends. Net debt was elevated in Q2 2018, due to unusually high inventory purchases in Brazil, as the Brazilian real weekend and the commodity price basis increased at the start of the trade war. Let's turn to slide 13 and our capital allocation philosophy. We remain committed to our financial policy to be good stewards of capital. We will continue to seek the right balance of investing in our existing assets, allocating capital to accretive growth opportunities and returning capital to shareholders. All of this we will do in a manner consistent with an investment grade rating with BBB being our long-term target. We are rated BBB flat by S&P and the equivalent BBB minus by Moody's and Fitch. We have committed credit facilities of approximately $5 billion of which $4.2 billion was undrawn and available at the end of the quarter, and we had a cash balance of $238 million. We had CapEx spending of $265 million in the first six months of 2019 compared to $220 million in the first six months of 2018. We continue to expect CapEx of about $550 million for this year. It should be noted that $86 million of our year-to-date and $115 million of our forecast cap spending for the year is related to the sugar business, which we’ll be contributing to the JV with BP. We paid $79 million in dividends to shareholders in Q2. Let's turn to slide 14 and our return on invested capital. Our trailing four-quarter average return on invested capital was 7.2% overall, and 8.9% for our core businesses. We will continue to use a benchmark of 200 basis points above our cost of capital as an important metric for ensuring we are creating value for our shareholders. With that, I will turn the call back over to Greg for some closing comments.

Thanks, John. Thank you all again for joining us today. I want to reiterate the seasonality and timing will place more weight on the fourth quarter to achieve our targets. We continue to evolve our operating model to increase accountability and the speed of commercial decision-making with the focus on getting closer to customers, reducing costs, and better leveraging our global platform. Our team is moving forward on the strategic priorities we laid out, driving operational performance, optimizing the portfolio, and strengthening financial discipline. Our new joint venture with BP in Brazil is just the first step as we increase focus, deploy capital more effectively, and seek to improve results for all of our stakeholders. And finally, thanks to our Sugar & Bioenergy team for their hard work to put us in position to create this JV, and to our entire team for the excellent work to get the JV to this point. And with that, operator, let's open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Heather Jones of Heather Jones Research. Please go ahead.

I have a couple of questions. I was pleased to see that you all maintained the 2019 outlook. But, if you look at the forward strip, soy crush margins have come down some, the outlook for softseed and Europe has softened some due to tighter rapeseed crops. So, I was just wondering if you could help us understand was it some internal initiatives or what that you were able to keep your outlook consistent with your Q1.

Thanks, Heather. The outlook for the business mix hasn't changed. We expect Food & Ingredients and sugar to be up the year. And then, if you look at the first half, even net of timing, was a little bit better than we expected on soy crush. No doubt, there are a lot of unknowns, and probably this time of the year is always tough on visibility, but it's even a little more typical than typically with the trade war. But, if you look at the forward curves from where we put things together, when we baked our outlook in Feb across our portfolio weighted, were really not that much different.

Okay. And then, I was wondering if you could update us on your thinking as far as ASF with the obvious caveat that it could evolve. But, when you are thinking about the magnitude of the issue, timing of it impacting your business or the industry, has your saying thinking changed at all versus Q1? And if so, could you elaborate?

No. Our thinking really hasn't changed. I think, everyone continues to try to get a handle on it. But, we didn't feel that there would be big puts or takes in ‘19. And we think any tailwinds would be out in the future, and those are probably in ‘20, maybe even second half ‘20 and ‘21 for any of those tailwinds. So, really, the same thoughts at this point, but I don't know that we have a better perspective than the market does on this.

The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Hi. Quickly, just a couple of clarifications on the guidance. First, I assume, it does not include any sort of resolution of trade; it’s sort of status quo on that. Is that correct?

Correct. We're not going to make any predictions. So, it's kind of -- what the forward curves and what they believe is going to happen.

Okay. Thank you. And then second on the half or the 4Q loaded, is it anything other than the timing differential in soy crush?

No. Just, if you look back historically, it's normal seasonality. And then, the fact of a lot of the timing issues that were pulled, that was primarily from crush, it was hedged in Q3. And as -- crush was roughly the same at the beginning and the end of the quarter, but of course path matters; it rallied during the quarter. And as we hedged off some of the Q3, and then it came down at the end of the quarter, of course that winning leg had to be mark to market, which moved profitability from Q3 into Q2, and that's what we were calling out.

Okay, fair enough. And just lastly, there’s an article out this morning talking about China going to Argentina to inspect plants to potentially open up their market to Argentine meal. I would assume, with your footprint, you would view that as a net positive for you, or how would you see that impacting meal flows?

We heard some noise about this in the market a few months ago, and then it had gone completely silent, until we saw that article this morning. So, not sure what to make of that. So, we'll continue to watch the development along with everyone else.

The next question comes from David Driscoll of Citi. Please go ahead.

Great, thanks, and good morning, guys. So, I wanted to follow up just a little bit more on ASF and just kind of have a walkthrough. So, I heard your answer to Heather’s question that your thinking hasn't changed. But, can we just kind of dive into a just a few of the details. I think many investors are confused by exactly what you do think and what you're seeing. The first question on ASF is, do you still think that the market expectations of minus 20% to minus 30% reduction to the Chinese hog herd, is that still correct, or do you think it's worsen where it's somewhat north of 30%? Can you give us some feel for the magnitude?

I think what we’ve picked up in the marketplace, I believe it’s publicly known that probably if you had to pick and over, under, you probably pick the over on 30% right now is what the belief is. And then, if you look at what has to happen, then as the demand for that missing pork is filled by pork from other areas of the world and other species. From a timing, I think we've said, any effect of that from a tailwind we thought would be ‘20 or ‘21. If you believe it's a little larger, maybe that's why I said maybe it’s second half ‘20 and ‘21 as you begin to see the recovery of that. I think, the other things we talked about is, if you believe that it comes back to more commercial operations, you probably see higher inclusions of soybean meal in the future. And the other thing, just as a reminder, there is only about 15% of our crush in China, including the Vietnam JV there in Asia. So, as bean’s back up in the rest of world and as there's more demand for meal in the rest of the world for the protein to fill that hole in the protein demand in China, we do like how our global footprint sits. And that's why we believe that we could see some tailwinds long-term, but none of that in ‘19, and maybe not even in the first half of 2020.

And then, Greg, just following up on that. So, I think the first thing that happens here is less hogs in China, less demand for soy meal within China. And that's the negative impact on the crushing operations, certainly the Chinese crushing operations for the entire industry. But, it's just been -- it makes everything a little sloppy right here in the near term. Maybe what I don't understand about your comments is once the Chinese go into international markets to replace that lost protein, why wouldn't there be a more -- or a more rapid tightness occurring within crushing operations outside of China? So, if they start buying lots of pigs from United States, lots of chickens from United States, why wouldn't we see crushing rates in the U.S., Brazil, Argentina, Europe start to ramp? And why wouldn't that be more towards the end of this year? It sounds like you think that's much farther out than I think what some others believe. But, just walk me through the physical flow, if you can, if you will, about why would it take so long before there would be some benefit as the Chinese undoubtedly have to replace this lost substantial protein?

Yes. And I don't know that we’re the expert on this. But I will tell you, I think, what the market is debating and what we're watching. You've got, one, the animal lifecycle; you've got, two, the investment to increase production, because we don't believe there's a lot of open capacity out there; and then, three, you've got all of the issues, even when you expand production on the animal side around getting the labor, getting the transportation, getting the permits. So, it's not just flipping a light switch.

The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

So, I guess, my first question is going to be just on the outlook for the balance of the year. And really just trying to get a sense of especially relative to where expectations would have been 3 and 6 months ago. I imagine your outlook for U.S. grains has gotten worse given the issues with the U.S. crop this summer. I just want to make sure I'm thinking about that right. And is it just the export opportunities out of Brazil with the safrinha corn and Argentina have improved enough to offset just thinking about that balance and kind of how farmer selling or retention has played into that as you look at the balance of the year?

Yes. As we look at the balance of the year, if you think about our U.S. grain footprint, grain handling, storage, distribution is definitely much smaller than the balance of the world. And there has been some benefit for the U.S. crushing. So, we're probably with our footprint not as exposed on that piece of it, while it does make the trade flows difficult and planning difficult in the rest of the footprint or not is directly exposed to that.

And farmer selling, in South America?

Yes. Farmer selling in South America continues -- Brazil has closed the gap a little bit on prior year; Argentina continues to be slower. Farmer continues to hold soybeans, ahead of the election, really as a hedge and uncertainty there. And then, also, the U.S., kind of as we settle out, not only what acres got planted, but how that crop develops, and the producer waiting to see a U.S.-China trade resolution. All things that give I think the producer a reason to wait to commercialize the crop in the U.S. So, we'll see that happening a little later.

Okay. And then, just Greg, you've been officially in the role now -- in the role since January, and I guess, trying to just get a sense, as you've kind of had time to more fully assess the operations and the portfolio, have you got any more updated or clearer thoughts on opportunities and size of whether it's kind of across just cost reductions, just improved risk activities, and what the contribution that could mean, or just size of kind of portfolio opportunities and just dimensionalize kind of some of the actions that you're looking at to improve the overall returns of the Company?

Sure. Look, I continue to repeat my early thoughts, this is a fantastic global footprint that this Company has, and we've got a very talented and experienced workforce. I mean, this is an exciting opportunity. As far as specifically around the portfolio optimization, let me give you a quick update there. We've kind of moved, I think I talked last time about three categories, or three buckets of work. And we’ve moved really into two major buckets right now. We've got those things that are active and underway where we've got dedicated internal and external resources working on the projects. And when they're complete, we’ll communicate what we've done, why we've done and what it means for us. An example of that of course was BP. It was in bucket one, got to the point where we got it done, and then we could share with you what we're doing. So, we've got things in bucket one. And then in the second category or bucket two, these are things that will go active when we free up capacity. The majority of those are more housekeeping items and big items, but they still matter. They still matter to simplifying our footprint, allowing us to take costs out, improving our focus, and improving our returns.

Okay. And just to clarify on the cost opportunity, do you think -- is the cost opportunity more closely linked with the portfolio or do you think that there's a sizable cost opportunity independent of the portfolio actions that you choose to make or not make?

Yes. We see two channels. One, they're definitely through the simplification of the portfolio, as we move those stranded costs from taking out the complexity. And the other, as we've talked about, the change of our global operating model where we're collapsing and eliminating the regional structure, where we're getting focused around the value chains or the assets and the employees that operate those assets, have served the customers, where prices establish, where innovation happens. As we do that, it not only gives us simplicity and accountability and speed to act, but the thing we love about it is the byproduct of that will be cost coming out of the system. So, it's not a cost savings project. It's a business optimization project and the byproduct is cost savings. So, that'll take some work as we rewire the organization, but we're excited about the benefits of that going forward.

The next question comes from Rob Moskow of Credit Suisse. Please go ahead.

I don't remember hearing you mention Loders for the quarter. Maybe you did. But, I think last quarter, you said that you were going to take more of a hands on approach and have it report directly to you for a while. How did that business perform in second quarter? And what have you learned over the past three months about how it integrates with Bunge?

Yes. I continue to feel good about the capabilities that Loders has given us. We were touch soft in Q2 kind of on customer timing, as well as a little bit light start-up on our Ghana and our China plants. But, we remain on track with the business case. We have integrated the Loders business into our legacy Bunge B2B business. We continue to focus on bottlenecking, bringing our industrial expertise to the combined platform and really optimizing that combined footprint in not only on the industrial side but on the go-to-market and the innovation with customers. And then, those are things that will pay off in ‘20 and ‘21. So, there's only one team together. There's only one team today, we're running the business together. And it continues to make progress.

Okay. And another question. Are there any synergies that you could help us quantify with BP in the sugar business now? If I'm -- because I'm trying to get to, could this become an accretive deal for you at some point? Right now, it looks around breakeven for 2020. Have you worked through EPS math for 2020 at all or what incremental benefits could be of the combination?

Sure. Let me put John to work.

I think, you nailed it in terms of year one is going to be largely a push for us, no meaningful change to our returns in terms of the first year. We do believe and expect years two and three to gain some synergy on this operation, both from a cost side obviously, which is probably the easier one to get at first as a combined operation getting at the cost side, but ultimately, the real key will be the operational optimization between the two platforms. We do expect year two and year three to realize some synergy. And I think that in terms of total dollars, I’m reluctant to give a solid number, but it will be meaningful enough that at least and how we've worked this with BP together, to create an opportunity for accretion on the transaction.

The next question comes from Tom Simonitsch of JP Morgan. Please go ahead.

Good morning. So, just going back to risk management, can you elaborate on what you're doing differently in terms of risk management compared to prior years?

Sure. Our thinking about managing what are the earnings at risk in these assets, right, that's the physical flows involved with all of our handling, processing, distribution assets. So, you think about it, it’s all the grains and oilseeds on the way in, and then all the products on the way out, as well as all the freight and logistics that surround that. So, there's not only the inherent risk that we're helping manage in our assets, but that, that we're helping our customers on both ends of the value chain, manage theirs as well. And then ultimately, just philosophically the net of those risks, right, is the risk that we have to -- the remainder risk that we have to manage. And that is -- we're keeping it -- the amount of risk we're taking appropriate, not only for our earnings power, but for the environment that we're operating in, which is fairly challenging. But, I'll tell you, Robert Wagner has only been here a month and of course, Brian Zachman since January. But couldn't be more pleased with how those two leaders and their teams are partnering across the control and the commercial functions. They are driving simplification and transparency, which helps us with our speed to act in managing the risks, inherent in our business. And at the end of the day, right, it's about the key focus on the right things. So, we're getting the right information to the right people at the right time, which helps maximizing earnings in our portfolio, but it also helps eliminate the unforced error. So, it was a good foundation of risk management here, but we're building on that making good progress already, and we've got some targets for some other improvements. So, excited about the team we're building.

Okay. Thank you for that. And can you discuss your expectations to soybean exports versus domestic crushing in Brazil, for the remainder of ‘19?

I don't think we see things any different from the market. And, with the uncertainty, the teams are continuing to analyze and look at managing through a number of different outcomes, the main thing we're working really hard to do is stay out of the way of any stroke of a pen risk, because things are just difficult enough.

The next question comes from Ken Zaslow of Bank of Montreal. Please go ahead.

Good morning, everyone. So, a couple of questions. One is, can you just estimate how much lost profit was due to the weather, just kind of scale that a little bit? Because I assuming it’ll come back next year, just trying to figure that out.

Yes. We can give a couple of highlights on that. John, do you want to take that?

Yes. I think, Ken, from our view, and nothing's exact obviously, but I think -- we think in terms of somewhere around $13 million in the quarter was probably weather related. As the team looked at the lost opportunities and the delays and things impacting not only -- the big driver is logistics, obviously at the river system and then farmer willingness around whether to hold off on soybeans, waiting to see what was going to happen with this year's crop, it created a lot of uncertainty as well. So, again, not an exact numbers, but we believe that somewhere in the neighborhood of $30 million is just kind of a guess from our guys.

The second question is, you alluded to it. But, can you talk a little bit about, anecdotally, operational improvements you're doing in either Greenfield or start-ups, anything like that you're seeing that -- you've been there for 6 months or so. Have you started to kind of wrap your hands around the operational improvements? And then, I just have one more question.

Yes. I think a lot of it has been purely execution. I think, the teams have done a great job. There's a lot of work done last year to create some additional transparency on how we're operating the assets from not only having them up and ready from the industrial side, but then making sure commercially that we are running those assets and getting the beans there in time or the corn or the wheat there in time and the products away to manage that. Some of that's around the planning process, and then a lot of it is around the execution. So, we're seeing metrics improve. And then, as we said, the others working together as a team to avoid the unforced errors, because this is definitely a tough environment. And there's just not a lot of extra to pave over any potholes.

And then, my final question is, a competitor of yours last quarter indicated that they had a return on invested capital of 11% to 12%. They seem to be in the similar business to you, their initial is obviously ADM. Do you think there is a structural reason why you would not be able to get a return on invested capital similar that? I know your target is 200 basis points WACC but why stop there, is there something that limits that? Is there any sort of impediment? Can you give some parameters there? It just seems like there's no reason that you shouldn't be able to get there, your business model is geographically different. But just any sort of color on that would be helpful.

Yes. I told our team and I'm not sure if I said on the call before. But look, we're chasing that 2 above WACC and when we get there, we're going to raise it again. So, that is not an end state, that is a way station on the journey here. And we're pulling every lever possible from how we operate to changing the footprint to improve those returns. So, we're not going to be happy at 2 over our WACC. That's the first target.

The next question is a follow up from Heather Jones of Heather Jones Research. Please go ahead.

With your JV with BP, you all are retaining fairly large exposure to the Brazilian sugar business. I was wondering, if you -- what your thoughts on, what the RenovaBio program? I know, it'd be just speculation, but what are your thoughts about what that could do for those assets over the next few years, like the earnings power?

Yes. How we thought about the JV is, we couldn't be more pleased to have a partner like BP, I mean, their global scale and fuels. They're absolutely committed to -- they’ve publicly said, they’re committed to growing this biofuels platform. We have very good offsetting skills, track records and expertise between the two teams. And this business is going to have the most conservative balance sheet, the most conservative capital structure, we believe from anyone in the marketplace. So, we think it puts us in the best position to operate in that marketplace, regardless of what everyone else does. And the other key thing is we have a clear path to monetization. So, we're aligned to see the business operate very well, as we're joint owner. And like I said before, we were going to run it like we were going to own it forever until the day we didn't. Now we only own 50% and will be great partners and run it like we're going to own that 50% forever until the day we don't.

But, do you think RenovaBio is going to be a meaningful tailwind for that business?

I'll probably wait until the deal is closed and let the new JV leadership kind of comment on their view of the competitive outlook.

Okay. My second question is on the economy in Brazil. You mentioned still weakness there in the milling side. Some companies have talked about early signs of improvement in that economy. I was just wondering what your thoughts are on the state of the economy there.

I don't know that we have particular insight other than what we're seeing publicly. It definitely feels like things might be getting a slightly better but I don't think anyone's declaring victory at this point.

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

Thanks for your time today and thanks for your interest in Bunge. If you have any follow-up questions, please feel free to reach out to me, later today.

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