Bunge Limited (BG)

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Bunge Limited (BG)

Q2 2009 Earnings Call

July 23, 2009 10:00 am ET

Executives

Mark Haden – Investor Relations

Alberto Weisser – Chief Executive Officer and Chairman

Jacqualyn Fouse – Chief Financial Officer

Analysts

Christine Mccracken – Cleveland Research

Christina Mcglone – Deutsche Bank Securities

Robert Moskow – Credit Suisse

Kenneth Zaslow – BMO Capital Markets

Donald Carson – UBS

Vincent Andrews – Morgan Stanley

Presentation

Operator

Please standby. Good day everyone and welcome to Bunge Limited second quarter 2009 conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Mark Haden. Please go ahead sir.

Mark Haden

Great, thank you, James. And thank you everyone for joining us this morning. Welcome to Bunge Limited second quarter 2009 earnings conference call.

Before we get started, I wanted to inform those of you who may not have seen it in the press release this morning, that we have prepared a slide presentation to accompany our discussion on the second quarter results. It can be found in the Investor Information section of our website, www.bunge.com, under Investor Presentation.

Reconciliations of non-GAAP measures disclosed orally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the Investor Information 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 to discuss our second quarter results, are Alberto Weisser, Bunge's Chairman and CEO; and Jackie Fouse, Bunge's Chief Financial Officer.

And now, I will turn the call over to Alberto.

Alberto Weisser

Good morning everyone. While the second quarter was somewhat volatile, our skilled team leveraged our integrated global asset network to generate better than expected agribusiness returns, offsetting weak fertilizer results. Though some agribusiness results were pulled forward from the third quarter into the second, this is not uncommon and is why we look at earnings on a yearly rather than quarterly basis.

Looking ahead, we remain optimistic for a solid second half of the year. Lower soybean production in South America has limited oilseed processing utilization in Argentina, while challenging locally, this should continue to support crush margins on the global level. A large North American harvest, which according to early indicators is likely, should provide us with ample volumes for our agribusiness operations.

To rebuild global stocks, crop prices will need to stay at levels that encourage good planting and fertilizer use by South American farmers in the coming months. We continue to work through some remaining high-cost raw material inventory in our fertilizer sector, but good demand and improved international phosphate pricing should benefit our fertilizer margins.

We also continued to follow our strategy of investing in our core businesses. During the second quarter, we continued - we announced the creation of a joint venture to build and operate a state-of-the-art export grain terminal in U.S., Port of Longview in Washington State.

This investment will improve the balanced global asset network that is a key driver of value for our company. We also announced an agreement to acquire Raisio, a European margarine producer. The transaction encompasses margarine plants in Finland and Poland as well as several brands. This will expand our food and ingredients business and enhance our efficiencies.

I will now turn the call over to Jackie, who will discuss our second quarter results.

Jacqualyn Fouse

Good morning. Thank you for joining us on the call this morning. Starting with some highlights from the income statements. Overall volume growth for both the quarter and year-to-date was driven by agribusiness and came from sugar, expansion of our European grain origination and new plants that are now fully operational in Eastern Europe and Asia. These more than offset lower volumes in fertilizer.

Solid earnings before interest and taxes from agribusiness resulted from good margins, with grain origination and distribution benefiting from strong soybean demand from China, and oil seed processing supported by the soybean crop shortages in Argentina. Soy meal demand was also somewhat stronger in Q2 than we previously expected.

Fertilizers results remained weak. During the quarter, international prices fell more than did our inventory costs. These results include the impact of $183 million of foreign exchange gains on U.S. dollar denominated financing of working capital as the Brazilian real appreciated quarter-to-quarter.

Most of these gains were offset in gross margins during the quarter via both sales and inventory write-downs, so the carry forward foreign exchange balance is relatively small. The inventory write-down was $120 million in the quarter.

In our Foods and Ingredients business, total edible oils suffered from aggressive competition in Brazil. The results in Europe and North America improved, and wheat milling results were negatively impacted by margins though volumes were up.

SG&A expenses were well managed in all segments and fertilizer SG&A was favorably impacted by the $32 million transactional tax credit taken in the quarter.

Moving on to slide 4, in the balance sheet. Operating working capital balances at quarter end were higher than at the end of December of 2008, but are inline with seasonal patterns and were lower than June of 2008 mainly due to lower prices. Regarding the components in working capital, agribusiness inventories are seasonally up, but lower than June of 2008 and are driven by higher commodity prices this year.

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