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Bunge Reports
Fourth Quarter 2007 Net Income of $245 Million
White Plains, NY—Alberto Weisser, Bunge's
Chairman and Chief Executive Officer stated, "2007 was an outstanding
year.
"Bunge leveraged its integrated, global operations, leading positions
in key markets and good teamwork to produce record results."
"In 2007, the agribusiness and fertilizer markets were characterized
by improved structural conditions.
"Demand for Bunge's end products grew and farm economics in Brazil
strengthened.
"Our risk management strategies performed well in a dynamic market,
and we were well-positioned to serve customers during a period marked
by significant supply dislocations.
"The conditions that made 2007 compelling should continue in 2008.
"The USDA forecasts higher global protein meal and vegetable oil
demand, as well as strong demand for and trade in other agricultural
commodities.
"Crop prices should remain high, promoting input purchases by farmers.
"Not all market forces are working in Bunge's favor, however.
"For example, the strong real will increase local costs in our
Brazilian businesses, and higher input costs could pressure margins
in fertilizer and edible oils during the year.
"We plan to build on our success by continuing to follow our strategy
of investing for growth and efficiency in our core businesses and in
complementary value chains.
"In 2007, we expanded our oilseed processing footprint and launched
a regional consumer packaged oil brand in China.
"We also enhanced processing assets in the Americas and Europe,
purchased our first sugarcane mill and established a joint venture with
OCP, the Moroccan fertilizer manufacturer, which will provide our business
with a valuable supply of fertilizer raw materials and products.
"Construction on the venture's production facilities is well underway,
and we expect initial phosphoric acid capacity to come online later
this year.
"We are pleased with how our asset network is growing and becoming
more balanced across geography and products."
Fourth Quarter Results
Agribusiness Operating Profit
Results increased in most regions and areas of the business.
Improved performance in South America and North America were driven
by higher oilseed processing and grain origination margins and volumes.
Higher distribution results were due to strong global demand and improved
margins.
Risk management strategies performed well during a volatile quarter.
Fourth quarter results included $25 million of impairment and restructuring
charges relating to the closure of oilseed processing facilities in
Europe and the U.S.
The closure of the European processing plant is a continuation of our
strategy to improve the efficiency of our asset footprint in Eastern
Europe.
The U.S. processing facility was older and high cost.
The attached grain elevator will continue to operate.
Fertilizer Operating Profit
The strong performance in fertilizer was due to higher margins, which
benefited from higher international fertilizer prices.
Selling prices in South America are based on international prices and
include the cost of transportation and other import costs.
As expected, demand for fertilizer products slowed in the fourth quarter
after above trend-line volume growth in the first half of the year,
when farmers accelerated purchases because of favorable agricultural
commodity prices and concerns about increasing crop input costs.
Fourth quarter results included a $50 million increase in our value-added-
tax provision, resulting from a change in tax laws in several Brazilian
states that will take effect in 2008 and will make the recoverability
of these taxes uncertain.
Edible Oil Products Operating Profit
Improved margins were offset
by higher operating expenses, which included investments to grow the
business in Asia and Europe.
Fourth quarter results included $29 million of impairment and restructuring
charges.
These charges primarily relate to the closure of edible oil facilities
in Eastern Europe, as well as impairments to goodwill and other intangible
assets in India.
Milling Products Operating Profit
Higher raw material and operating costs in wheat milling more than offset
improved results in corn milling.
Fourth quarter results included a $13 million impairment charge related
to the closure of a wheat milling facility in Brazil.
This facility is being replaced by a newer, more efficient facility
that will come on-line in 2008.
Financial Costs
Interest expense increased due to higher average borrowings, mostly
resulting from the higher prices of agricultural commodity inventories
which drove higher average working capital levels.
Foreign exchange gains, incurred primarily on the net U.S. dollar- denominated
monetary liability positions of Bunge's Brazilian subsidiaries, were
$39 million in the fourth quarter of 2007.
These gains largely offset foreign exchange losses on inventories included
in gross profit.
Income Taxes
The effective tax rate for the year ended December 31, 2007 was 26%.
For the year ended December 31, 2006, Bunge had a tax benefit of $36
million.
The increase in the effective tax rate, excluding the one time items
which resulted in the tax benefit in 2006, was primarily due to increases
in operating earnings in higher tax jurisdictions.
Minority Interest
Minority interest increased when compared to the same quarter in 2006
due to higher earnings at Fosfertil.
Cash Flow
Cash provided by operations in the fourth quarter of 2007 was $254 million
compared to cash provided by operations in the fourth quarter of 2006
of $259 million.
For the year ended December 31, 2007, cash used by operations increased
to $388 million from $289 million in the same period last year, driven
by significant increases in commodity prices.
Outlook
Jacqualyn Fouse, Chief Financial Officer, stated, "Looking
forward, we expect the improved market fundamentals that we experienced
in 2007 to continue into 2008, though as previously mentioned, we do
see some headwinds.
"In consideration of this outlook, our 2008 full-year net income
guidance is $830 million to $870 million, or $6.01 to $6.30 per share.
"This fully diluted per share guidance is based on an estimated
weighted average of 138 million shares outstanding, which includes assumed
dilution relating to our convertible preference shares."
"Additionally, our 2008 guidance includes the following:
• Depreciation, Depletion and Amortization: $450 million to $470
million.
• Capital Expenditures (net of asset dispositions): $1 billion
to $1.1 billion, of which approximately 30% will be invested in sustaining,
maintenance, safety and environmental projects.
• Tax Rate: 24% to 28%."
Reconciliation of Non-GAAP Measures
This earnings release contains total segment operating profit, net financial
debt and net financial debt less readily marketable inventories, which
are "non-GAAP financial measures" as this term is defined
in Regulation G of the Securities Exchange Act of 1934.
In accordance with Regulation G, Bunge has reconciled these non-GAAP
financial measures to the most directly comparable U.S. GAAP measures.
Total Segment Operating Profit
Total segment operating profit, which is the consolidated segment operating
profit of all of Bunge's operating segments, is Bunge's consolidated
income from operations before income tax that includes interest income
of each segment and an allocated portion of the foreign exchange gains
and losses and of interest expense relating to debt financing operating
working capital, including readily marketable inventories.
Total segment operating profit is a non-GAAP financial measure and is
not intended to replace income from operations before income tax, the
most directly comparable GAAP financial measure.
Total segment operating profit is a key performance measurement used
by Bunge's management to evaluate whether operating activities cover
the financing costs of its business.
Bunge believes total segment operating profit is a more complete measure
of its operating profitability, since it allocates foreign exchange
gains and losses and the cost of debt financing working capital to the
appropriate operating segments.
Additionally, Bunge believes total segment operating profit assists
investors by allowing them to evaluate changes in the operating results
of its portfolio of businesses before non-operating factors that affect
net income.
Total segment operating profit is not a measure of consolidated operating
results under U.S. GAAP and should not be considered as an alternative
to income from operations before income tax or any other measure of
consolidated operating results under U.S. GAAP.
Net Financial Debt
Net financial debt is the sum of short-term debt, current maturities
of long-term debt and long-term debt, less cash and cash equivalents
and marketable securities.
Net financial debt is presented because management believes it represents
a meaningful measure of Bunge's leverage capacity and solvency.
Net financial debt is not a measure of solvency under U.S. GAAP and
should not be considered as an alternative to total debt as a measure
of solvency.
Net financial debt less readily marketable inventories (RMI), or net
financial debt less RMI, is the sum of short-term debt, current maturities
of long-term debt and long-term debt, less cash and cash equivalents,
marketable securities and readily marketable inventories.
Net financial debt less RMI is presented because management believes
it represents a more complete picture of Bunge's leverage capacity and
solvency since it adjusts for readily marketable inventories.
Readily marketable inventories are agricultural inventories that are
readily convertible to cash because of their commodity characteristics,
widely available markets and international pricing mechanisms.
Net financial debt less RMI is not a measure of leverage capacity and
solvency under U.S. GAAP and should not be considered as an alternative
to total debt as a measure of solvency.
For Bunge's complete financial
results, click here.
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