Bunge Ltd. Q4 2009 Earnings Call Transcript

Feb. 4.10 | About: Bunge Limited (BG)

Bunge Ltd. (NYSE:BG)

Q4 2009 Earnings Call

February 4, 2010 10:00 am ET

Executive

Mark Haden - IR

Alberto Weisser - CEO & Chairman

Jacqualyn Fouse - CFO

Analyst

Diane Geissler - CSLA

Ken Zaslow - BMO Capital Markets

Christina McGlone - Deutsche Bank

Christine McCracken - Cleveland Research

Vincent Andrews - Morgan Stanley

David Driscoll - Citi Investment Research

Presentation

Operator

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

Mark Haden

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

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 investor information section of our website bunge.com under investor presentations.

Reconciliations for the 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 two and remind you that today's presentation includes forward-looking statements that reflect Bunge's current views with respect to future events and 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 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

Thank you, Mark, and good morning, everyone. 2009 was a tough year for Bunge and we are clearly not happy about the fourth quarter. For the year fertilizer generated significant losses which stem from a difficult market characterized by high cost inventory and a weak price environment. Our lessons learned have shown that the retail industries approach to managing inventories needs to be improved. We have made changes to our business in Brazil with an aim to significantly reduce risks associated with price and foreign exchange volatility. We have constantly dated responsibility raw material sourcing and end product sales and we are working to reduce lead times on purchases and adjust our cost structure.

Agribusiness results for the quarter were lower than expected. Our operations in the US and Europe performed well, but these results were largely offset by losses in our whole South American value chain. That said for the full year agribusiness showed a solid performance in a volatile market. In agri-oils we produced strong results in the quarter as well as the year. The steps we have taken to improve efficiency, product mix and cost structure of this business are paying off. 2009 and the first month of 2010 was also time of significant strategic actions that leaves us well positioned for growth and solid returns in the future. We decided to sell our fertilizer in Brazil. This transaction will enable us to realize the full value of these operations and to redeploy our resources into our core agribusiness and food ingredients businesses. It will also help us to expand further and to complement our value chains such as sugar and bio-energy. Late in 2009 we took a big step to establish a larger presence in this value chain when we entered into agreements to acquire Moema. This will increase our sugarcane milling capacity to approximately 20 million tons per year.

Investing in our core businesses and expanding into complementary value chains are two parts of our corporate strategy which also calls for improving our efficiency and leveraging our unique operating model. On slide four you can see the strategic plans we have for our core businesses. First agribusiness, we are a leading oilseed processor and have a strong position in grains and will continue to build share in growth markets. Part of our work will involve expanding and improving our asset network. The actions we took in 2009 included launching construction of a state of the art export grain terminal in the US that will enable us to export larger volumes of grains and oilseeds to customers in Asia. We also began construction of an integrated soybean processing plant at Fumi port, the first of its kind in Vietnam.

Second, food ingredients. We are strengthening our edible oil business by improving our positions in key markets and moving into new geographies. We'll also offer new value added oil products and will maintain strong positions in wheat and corn dry milling. In 2009 we acquired Raisio margarine business in Finland and Poland which facilitated our entry into new European markets and will improve our efficiency. Finally fertilizer, this business will continue to make a meaningful contribution to our overall results, although a smaller one, and will serve as a valuable compliment to our agribusiness operations. Still we will work to optimize our regional businesses, strengthen our relationships with farmers and establish beneficial raw material supply arrangements. Our JV in Morocco is a good example of this last point. Last month we took an important step of acquiring Petrobras fertilizer business in Argentina which expands our product portfolio in that country.

Now to slide five. Our strategy also entails moving into a complementary value chains where there are opportunities for growth. Sugar and bioenergy is one of our priorities. This is an important market in which Bunge can excel. The big move we made with Moema will position us well to supply global and domestic demand for sugar and ethanol. Long term global sugar demand is growing at 3% per year and ethanol demand in Brazil is growing at 9%. We expect our larger sugar and bioenergy business to contribute strongly to our top and bottom lines in 2010. As we see additional opportunity to expand our milling capacity. We also consider Palm an attractive value chain and we will be looking to strengthen our food and ingredients portfolio as well.

On slide six we outline our medium term growth targets. We continue to expect average EPS growth of 10 to 12% per year. For volume growth we are targeting 5 to 7% in agribusiness, 5 to 7% in fertilizer, 3 to 5% in food and ingredients and 8 to 10% in sugar and bioenergy. These growth rates are product of our expansion plans and also the underlying growth trends that drive our industry. United Nations estimates that the world will need to increase food production by 70% in the next four decades to meet the needs of a larger population with higher living standards and growing population in places like Asia, the Middle East and North Africa increasingly rely on farmers in the Americas and Eastern Europe which is driving increased trade. So we enter 2010 with the right strategy, strong businesses, a solid financial position and an excellent team. That's why I'm feeling very good about where we are and the year ahead. Now, Jackie, she will provide us with additional detail of our results.

Jacqualyn Fouse

Thank you, Alberto. Good morning, everyone. On slide seven we show some highlights from the income statement for the fourth quarter and full year 2009. Overall volumes for the quarter were down 6% driven by agribusiness for the reduced supply of soybeans in South America impacted origination, crush and destination distribution. This more than offset strong percentage volume growth in fertilizer as that demand returned to a more typical seasonal buying pattern in Brazil. Full year volume growth of 2% resulted from the continued expansion of our sugar and bioenergy business and the return of fertilizer demand growth. EBIT for the quarter was negatively impacted by lower fertilizer prices which kept margins under pressure, especially in potash. In addition, though better than a week fourth quarter of 2008, agribusiness results in the quarter were poor in South America due to a lack of soybeans and this largely offset very good performance in both the US and Europe where margins were strong.

Despite the soft quarter agribusiness had a very good year in 2009 in the midst of a weak demand environment. Our food and ingredients business recovered quite nicely in both the quarter and full year. For edible oils in particular we saw improved results in both the US and Europe from better pricing and product mix as well as significant efforts by our teams made to reduce our cost structure and in Europe the business benefited from acquisitions we have made in margarines and the consolidations we are achieving in that business. Results for the quarter were also favorably impacted by the sale of our minority stake in Sitel. The lower than previously anticipated fertilizer prices and the poor results in South American agribusiness for the quarter caused us to produce lower net income and EPS for the full year than the guidance we gave back in October.

On slide eight, we provide some detail regarding our effective tax rate. The continued losses in fertilizer as well as those in South American agribusiness during the quarter added to the benefit from taxes in the fourth quarter. The mix in 2009 of significant losses in Brazil where the tax rate is relatively high and income earned in lower tax jurisdictions drives a 76% effective tax rate benefit for the full year. We expect to return to a more normalize effective tax rate situation in 2010 and I will cover that in a moment in the outlook.

Turning to slide nine in the balance sheet, our balance sheet continues to be strong. Operating working capital was well managed in the quarter but finished the full year above the level of 12-31-08 due to lower accounts payable in fertilizer. Inventories were down partly driven by lower volumes in South American agribusiness, but also due to lower inventory in fertilizer as sales volumes picked up in Q4. Our cash agro base stayed flat at about 47 days in both 2009 and 2008. In 2009 we achieved improvements in the management of receivables in inventory, but these were offset by lower accounts payable in fertilizer. Our liquidity position remains very strong within excess of $3 billion of committed available borrowing capacity.

Moving on to slide 10 and cash flow, cash flow from operations was positive through the quarter driven by good working capital management. For the full year cash flow from operations was negative $368 million as a result of both higher working capital for the full year impacted by fertilizer accounts payable and weak profitability which caused funds from operations to be very low. CapEx spending came in as expected and roughly in line with the 2008 level.

With respect to the outlook for 2010, on slide 11 we highlight some of the high level trends we see today. We believe that these trends bode well for a solid year to come. The economic environment is improving for our product category and demand projections have recovered to 4% from mill growth and 5% for oil growth in 2010. This and the expectation for large crops around the world should be positive for volumes in all of our segments. Farmer economics remain good and retail fertilizer in Brazil should see growth with normalized margins. Sugar and ethanol pricing should be supported by tight supplies and the Moema acquisition will give us the scale to better capture opportunities in this segment.

With those trends in mind we present our numerical guidance for 2010 on slide 12. We expect earnings per share in the range of $5.75 to $6.25 assuming dilution from our convertible preference shares and shares issued in the context of the Moema transaction. Depreciation, depletion and amortization should be in the range of $450 million to $500 million and capital spending in the range of $750 to $850 million. Our effective tax rate should stabilize in a range of 18% to 22%. The above assumes we close on the Moema transaction in February and it excludes the fertilizer nutrients business we plan to sell to valley with a May closing date as well as the resulting gain on that sale.

Finally to give you a bit more color on our expectations for CapEx spending in 2010 on slide 13 we provide the breakdown of our planned spending by segment. In agribusiness we will prioritize projects related to logistics, optimizing our oilseeds footprint and expanding in Asia. In sugar and bioenergy we will focus on mill expansions and cogeneration projects. We have opportunities to continue to ramp up our existing projects as well as to pursue expansion projects in the Moema mills. Project in both fertilizer and food and ingredients are designed to make us ever more efficient in those segments.

The level of spending in our plan is supported by our projected cash flow generation and we will continue to remain disciplined with respect to project returns. Each project we invest in will contribute to successful execution of our overall strategies.

Now quickly before I open the call to Q and A let me just say a few words about segment reporting for 2010. We plan to break-out sugar and bioenergy as a separate segment starting with the first quarter. This business was previously included in agribusiness. We will continue to report fertilizer as a segment, though on a go forward basis it will consist only of the retail business in Brazil and the businesses in Argentina, the US and our Moroccan JV. Of course, we will have to report the results of the nutrients business being sold until we close that transaction. Edible oils and milling will continue to be reported as they are today. With that thank you for your attention and I would now like to open the call up to Q and A.

Question-and-Answer Session

Operator

Thank you. Today's question-and-answer session will be conducted electronically. (operator instruction). We'll pause for a moment. We'll take our first question from

Diane Geissler with CSLA

Diane Geissler - CSLA

Good morning. Just a question on your CapEx, if I look at the amount of capital you've spent over the last five years about 3.5 billion and if I assume D&A as a good proxy for the maintenance, that suggests you spent about a billion seven in kind of growth capital opportunities, however you want to term it. Can you tell me what is the return that you've seen on the growth piece of CapEx over the last five years?

Alberto Weisser

We have not done an exact audit, Diane, on the last five years, but we did the most recent one we did an audit of our last 30 projects that were an operation after two, three years and with the exception of one all 29 were above our hurdle rates. So which is higher than our lock. So I suspect that we should be in the same area. So they should be above our lock. Significantly above our lock.

Jacqualyn Fouse

Diane, another way to think about it is if you would take a weighted average cost of capital and then the two percentage points above that target that we have for each business and then gross that up by say 30% or so to get to a hurdle rate, that's more or less the kind of return that you would be looking at on average because we expect new -- the growth projects to earn returns that would compensate us for the fact that we have some mandatory spend and some maintenance spend and that really don't produce that same level of return.

Diane Geissler - CSLA

And what do you use internally for WAC?

Jacqualyn Fouse

It varies by geography and business unit because we have risk factors priced into take those different risk profiles into consideration. The number for Bunge Limited is somewhere between 9% and 10% right now.

Diane Geissler - CSLA

Okay. And then in terms of the guidance that you've given for 2010, given the year that you had in 2009 it seems optimistic. Can you maybe talk about what the components are? What are you assuming for the sugar business? What are you assuming for agribusiness, fertilizer even if you can just give a broad percentage breakdown?

Alberto Weisser

We feel that in terms of agribusiness '10 should be a good year and more or less in line with '09. We might have perhaps slightly smaller lower crush margins, but this will be picked up by more volume. The picture is quite positive in terms of volume demand. USDA is estimating an increase of 4% in soybean meal and 5% in oil and we see it similarly. I think there is some upside on the oil part of the component.

We believe that the large South American crop should give some opportunities. So we feel quite good in terms of agribusiness that it should be similar like it was in '09. Now food and ingredients as you have seen, we have been able to adjust and improve quite some of our businesses that were here they are underperforming and especially with more stable prices it is easier to operate in the food and ingredients areas.

So we are optimistic in this area that there should be some growth and in case of sugar and bioenergy obviously it is very early, very low, very early and our starting base is low when you think about last year. We only had one and a half mills operating, but I think we have taken a very conservative view of what is possible to do in terms of pricing and margin in the area of sugar and ethanol. You have to remember that we have a good visibility with especially in the case of sugar in terms of the future prices in the year. So we are looking in terms of pricing more or less what we see on New York 11 on the future's market and on fertilizer we obviously are being very careful. We think we have adjusted the retail business to the way we want it to be.

Obviously there might be some fine tuning. We think most of our, if not all, I think it is all of our higher cost inventory is sold. So we are not carrying anything into the new year. So we have significantly reduced our price risk and so we are taking a very careful approach in the area of retail. Our whole fertilizer business we will obviously see it as we perform during the year, but it should be a business that should be performing between $50 million and $80 million a year. So we have been very careful also how we assumed how we will invest the funds that we will receive from valley. So I feel very good about it. I think it is very realistic guidance.

Jacqualyn Fouse

Maybe just one additional point on the sugar, sorry, Diane, didn't mean to interrupt you, is that if you take incremental impact of Moema, our expectation is that it would be more or less a 5% or so accretive. So that's $0.30 or so.

Operator

Next we'll hear from Bryan Spillane with Banc of America.

Unidentified Analyst

Hi, guys. Actually it's Ryan (Oxhenmer) in place of Bryan. I just have question on the past call we had on the sale of the nutrients business. I forgot who it was but someone asked, what you thought of the divesture would be compared to consensus and you guys answered that you thought it would be the only way it would be dilutive is if you kind of had the cash sitting on the books and your guidance here basically in the guidance consensus S580 and your guidance is, you know, basically now it's neutral to accretive.

So I'm kind of wondering what has changed since then?

Jacqualyn Fouse

I don't think anything has changed necessarily. What we're assuming in the guidance just so everybody's clear about the base is that the transaction would close in the month of May and that we would in relatively short order pay down some components of our debt where the economics makes sense to do that and that can be on the order of, $1 billion up to a billion five. It just depends we have to go through them one-by-one and look at it and that the remainder of the money would sit in cash earning in money market return for the rest of the year. So that's the way that we have built the guidance. Obviously that will not be exactly the way that things play out, but we think at least it gives you a way to know we've looked at it.

Unidentified Analyst

Okay. So does the guidance include you owning that business for the first five months of the year or does that exclude?

Jacqualyn Fouse

We have excluded that from the guidance. Now remember that for that business the first few months of the year are normally not particularly impactful month anyway.

Unidentified Analyst

Okay. And then also I guess on the, you kind of sound like you feel you can get back to normalized margins for the year across in most of your segments. I mean with the stronger riyal? It sounds like you'd have a headwind there and the amount I think you said you've had about a billion dollars of fixed cost is. That going to change significantly with the sale of the nutrients business?

Alberto Weisser

Look at the, let's say we think we had a very good year both last year and the year before in agribusiness and in '09 we had a very good year in food and ingredients. So let's not forget it was a solid performance. What really hammered us was the problems in fertilizer. Now when we look forward in terms of the real, the biggest impact of the strong real was on our mining business and if I'm not mistaken it's probably our exposure, our cost exposure is now reduced to $500 million, something like that, which is 50% of what it was and so the headwinds from the real should be a little bit less.

Jacqualyn Fouse

When the deal settles, that's correct. The other thing that we have been doing is taking advantage of moves in the Real to put on some cost hedges. So we think that we've done a pretty decent job of protecting the down side risk of Real appreciation while leaving ourselves the upside to benefit from devaluation because we've put on option-based hedging strategies.

Operator

We'll move on to Ken Zaslow with BMO Capital Markets.

Ken Zaslow - BMO Capital Markets

In the quarter can you give us a little bit more detail what happened in the agribusiness? It's just not clear?

Alberto Weisser

The reduction in volume in South America was significant. So you probably saw that agribusiness was down in the quarter, but if you exclude sugar, which was up, our agribusiness volume in the quarter was something like 15% down. So we really did not have basically we did not have products to buy and to process and to move. So that was the most important component, plus margins were lower, but it also affected. That's why we see it the South American value chain. It obviously also affected our destination business into Europe and into Asia. So volume was down and margins basically.

Ken Zaslow - BMO Capital Markets

Okay. Maybe I'm misunderstanding this, but there's been like a lot of reports out there saying that there were no soybeans in South America. There was nothing, I wasn't that surprised that there were no soybeans and I'm not nearly as closes on you guys. Like what changed I guess is what I'm really trying to figure out?

Alberto Weisser

It's probably more on the margin side. We might have been a little bit optimistic on the margin side. It was tougher.

Ken Zaslow - BMO Capital Markets

I don't know. It's curious that your intelligence is no better than my intelligence which is just interesting that you guys were surprised that there were no soybeans in South America. In terms of the cash how much cash will you guys net, net when everything is done? How much cash will you have on the balance sheet that you can use?

Jacqualyn Fouse

You mean post the sales closing, Ken?

Ken Zaslow - BMO Capital Markets

Well, post what you have, if there's any, you know, cash that has to go, any restricted cash, anything like that. Like what is the net cash that you're going to have after this transaction?

Jacqualyn Fouse

Well, at the end of the year we had a little over $500 million some of that is cash that has to just sort of stay in the pipeline on a global basis for any given point in time. So two or $300 million is kind of always in the system and then maybe the rest is cash that we could access, but at year-end the cash balance is more significantly lower than they were before and the balance in was lower than it was before as well given the way everything played out during 2009. So if you just take that number, I don't view it as being that material, there's been material impact really is going to come post the sale of the nutrients business and fertilizer to valley.

I believe in previous press releases we have talked about expecting the net proceeds on that sale from a case basis to be more or less $3.5 billion. So you think about that, if you think about we will look at the components of debt, it will make sense for us to repay and I said a moment ago that that's 1 to $1.5 million probably but again these numbers are more or less numbers as we see them right now. Then you would be looking at post the sales closing a cash balance of a couple billion dollars or so.

Ken Zaslow - BMO Capital Markets

Okay. And then into next year when you're thinking about the crush margins and I'm assuming, then, in the US they're going to fall a little bit, how comfortable are you knowing that you guys will have the soybeans in South America and the outlook? I mean it's not exactly building a lot of confidence in agribusiness outlook given what happened in the quarter. Can you give a little way to think about the comfort and give us some confidence that you guys actually have a decent handle on the outlook for agribusiness?

Alberto Weisser

Look, I don't think nobody knows exactly how the future will be, but we feel that based on past experiences and the kind of forward businesses we are doing, we have a relatively good feeling about the way the year will be. So the crop is better. Demand is better. So there will be some weakness in the margins, but we are compensating them.

Jacqualyn Fouse

It looks like the cycle in South America for harvest is starting a little bit early. So we think that the activity will pick up there nicely here pretty soon and given our asset footprint, we should benefit relatively more from a solid environment in South America.

Alberto Weisser

And also, Ken, you have to be realistic about when you talk about our business, how difficult it is to get the quarter right. So when we look at the year and we look at the earnings of agribusiness in '09, I think there is always a chance that you have some movement into either the third quarter or the first quarter of next year. So we always like to remind that estimating things for the quarter are very difficult.

Ken Zaslow - BMO Capital Markets

I understand that. the fertilizer business I get that business, kind of stunk this year, but I'm just the agribusiness, I look at ADM and they put up a hell of a quarter and they're in to similar type of business as you guys are and there's a disconnect in my head. So I'll follow up offline. Thanks.

Operator

Next we have a question from Christina McGlone with Deutsche Bank.

Christina McGlone - Deutsche Bank

Just to follow up on what Ken was asking, Alberto, what was it about, I can understand utilization being low in South America. What was it that caused South American margins to be so poor? Was it on the buy? Is it that you just couldn't get any beans from farmers and it was just very, very tight basis? What was the problem there?

Alberto Weisser

It was many, Christina. It was on the origination. It was very difficult to get the beans. It was obviously many of the plants we could not operate. There was a very difficult harvest because the amount of rains and the movements. It was also in North America we had delayed harvest. So we had obviously issues with shipping. We had issues as commitments we had with northern hemisphere that we have to reroute. It's a accumulation of many, many little things that add up to a smaller margin environment. Obviously it is much more difficult. The volume we more or less expected the way it came, but it was much more difficult on the margin side. Volumes were also a little bit down.

Christina McGlone - Deutsche Bank

Okay. And then we're hearing that it's still hard to get soybeans from the farmers. I think only like 5% of the harvest is done, but farmers in South America are really resistant to let go. So does it look like the first quarter's going to be difficult, also?

Alberto Weisser

I will not talk about the quarter, I think that we are seeing as positive. Obviously the difficulty is more of the movement of all these harvests for the amount of rain, but we are not worried about that.

Christina McGlone - Deutsche Bank

Okay. And then you talked before about potential upside to soybean oil demand. Yesterday when we got the RF F-2 and we got the biodiesel carve out, is that going to really help soybean oil disappear an in the US? Can you talk about where your view on the upside comes from and what that carve-out means?

Alberto Weisser

On these biodiesel mandate I think it's too early to see because they are at the moment not really official rumors and we have to get it all approved and so on, but what we are seeing is that demand is good in oil around the world. It is increased mandate biodiesel in Europe, in Argentina and Brazil, the US. It could be an upside if it works out well, but it's also generally the demand in oil is good and inventories are coming down. So we feel it could probably be more demand than supply.

Christina McGlone - Deutsche Bank

Okay. And then just last question, the fertilizer volume guidance was lighter than I thought given what's happened the last few years. Is it because of what's happened to prices? I'm just curious why it's so modest, your volume assumption.

Jacqualyn Fouse

A little bit of impact in prices. Remember the range that we give you is always a, you know, longer term, a five year average range. So the 5% to 7%. Oh, the 2 to 4 year, It's a little bit more price related and being cautious about how quickly we recover?

Operator

Our next question comes from Christine McCracken with Cleveland Research.

Christine McCracken - Cleveland Research

Just on your fertilizer inventory situation, earlier in the year you'd written off some of your inventories and I think you even at the end of your third quarter you said you had worked through a majority of those inventories and I'm a little curious where you are now with the pipeline and what we could expect given some of the shifts in your portfolio going into next year.

Alberto Weisser

Basically the high inventories are sold. So either we adjusted it now. We are not carrying any high inventory into '10.

Christine McCracken - Cleveland Research

And could you give us any color around, any of the results in your retail business in a quarter relative nutrient businesses given how that mix is going to change going forward?

Jacqualyn Fouse

With respect to the quarter result roughly half of that was related to retail and then I believe on a go forward basis Alberto mentioned that we would expect the businesses that we are retaining, the retail in Brazil, Argentina, small business in the US, et cetera would generate pre-tax profit of a range of $50 million to $80 million.

Christine McCracken - Cleveland Research

And then just in terms of, your comment earlier around your plants not being able to run obviously in South America or not at the same level. I'm wondering can you give us any color on the utilization of those plants? Were they are operating at exceptionally low levels or maybe some utilization?

Alberto Weisser

Yes. They were exceptionally low levels. Many, many of them were not operating at all.

Christine McCracken - Cleveland Research

And then just in terms of, your agribusiness results, you didn't mention it, but Canada had been an issue earlier. I thought there was a competitive situation in Canola. I'm wondering was that an issue at all in those agribusiness results?

Alberto Weisser

Results initial. So the performance of Canada was below last year. The issues with Salmonella and so on, so additional competition, the margins were lower there.

Christine McCracken - Cleveland Research

Is that getting any better or…

Alberto Weisser

We have we think it will be more of the same for '10, but we expect that our issue with the two plants or the three plants that have the issue of salmonella, we expect it to be soft sometime in the beginning of this year.

Christine McCracken - Cleveland Research

Okay. And then just one last question on biodiesel I noted that you did write that business down in the quarter. Wondering, you know, with the situation as you laid it out was a little better maybe going into next year. Curious on the timing of that, what drove that impairment?

Jacqualyn Fouse

Well, what happened happens on these at any given point in time based on the current economics and your projections obviously you want to error a little bit on the conservative side as you run the impairment tests and if you need to take the impairment charge, you take the impairment charge. It's a fairly modest number frankly and we thought it better just to do that and move on.

Alberto Weisser

And it's early to talk about how the picture will be in the US, Christine. It is robust in Europe and Argentina and in Brazil, but in US it's still open. So we need some legislation there.

Jacqualyn Fouse

And this was on our US business if that wasn't clear.

Operator

Next we'll hear from Vincent Andrews with Morgan Stanley.

Vincent Andrews - Morgan Stanley

Alberto On the last call we went back and forth on the agribusiness and what 2010 was going to look like and you were fairly comfortable that at that point the '10 could look a lot like '09 and at that point your expectations for '9 were a lot better than they were and now at this point the '10 is going to look like the reduced '9. So I guess what's changed about '10 since we last chatted?

Alberto Weisser

This is now very complicated because we were seeing where we were already in '09. So you perhaps were assuming that '09 would be better than it ended being. So that's what we were expecting. So we feel it is very strong when you look at '09. Obviously had we come in at the higher number, it would have been exceptional. We would have the record, but this is the way our business is. There is some volatility in it.

Trying to hit the quarter is impossible. So it's already difficult to have a good estimate for the year, but you have seen how we have performed over the last couple of years in agribusiness. We feel good about '10. As usual, there are some ups. There are some downs, but we feel good. What is critical here is obviously that the demand is coming back. That really drives everything. And we don't have any major issues in terms of excess capacity. We have a little bit of a risk in the US, but I think the US competition has been rational. So we feel relatively comfortable about '10.

Vincent Andrews - Morgan Stanley

Okay. And, Jackie, maybe a couple questions for you. In this quarter last year you took a pretty healthy write-down, some of which was perspective into 2009. Maybe you could just update us on that and then also was there any sort of write-down in this quarter either during the quarter or prospective for '10?

Jacqualyn Fouse

You're referring to the counter-party provision?

Vincent Andrews - Morgan Stanley

Yeah. I guess so, yeah.

Jacqualyn Fouse

Yeah. I mean that's largely been worked through and we haven't seen anything over the course of 2009 that is out of the ordinary. Part of that as you'll remember was related to what was happening in the freight market in some over the counter contracts that we had with parties who obviously were suffering with the decline in freight rates. So that's all been sorted out for that business particularly. We are doing our hedges on exchange traded, with exchange traded instruments, so it's not an issue anymore, but just generally on counter-party provisions we're basically sort of a business as usual in that regard. We feel fine with where we are.

Alberto Weisser

But we did charge the obviously the fertilizer inventories.

Vincent Andrews - Morgan Stanley

Yes, yes. There was nothing in agribusiness.

Alberto Weisser

No. there is only the normal. Every year we have some amount which is priced into when we buy or sell. There is always some debt, but we don't highlight that because that's part of business.

Vincent Andrews - Morgan Stanley

Right. So nothing unusual.

Jacqualyn Fouse

You see it as it flows through the cash flow.

Vincent Andrews - Morgan Stanley

Can you remind us of the levers by which, what causes agribusiness volume or profitability to shift from one quarter to the other and can you remind us what are the things that are in your control in that regard and what are the things outside of your control in that regard?

Alberto Weisser

First of all, it's the harvest. The US harvest was delayed and so some things shift in terms of harvest, but also you have to remember there are some -- always some components in terms of all of our food business we do. We sell food. We buy food. So their components in terms of the hedges, how they are affected in the business. So I think these are the most important ones.

Vincent Andrews - Morgan Stanley

So I guess let me ask you is it conceivable that you had to mark some hedges to market at the end of the quarter that hurt the results in agribusiness but on a go forward basis you can look and see that, today that those would be in better condition than they were when you market them at the end of the quarter?

Alberto Weisser

I think it was in a normal way. There is always like that. So we have always a situation like that, but this is a normal part of business. That is why we say it could sometimes move into some of these possibilities represented better in the third quarter, some better in the first quarter. They are movements, but nothing significant. Otherwise we would highlight it here.

Vincent Andrews - Morgan Stanley

Okay. Thank you very much. I'll pass it along.

Operator

Our next question comes from David Driscoll with Citi Investment Research.

David Driscoll - Citi Investment Research

Thank you and good morning. I'd like to talk a little bit about the Moema acquisition. Jackie, could you just give us some ballpark figures here on there was no financials that were associated with the original release or the slides. You gave us some tonnage numbers on the cane crush. Would I be right in saying that the 13.7 million metric tons of crush at current ethanol and sugar prices would produce revenues of, somewhat close to $800 million on an annual basis? So I know you've got a fraction of a year here. Let's not even worry about that. If you just take current prices, I'm trying to get our models right and there was a lack of information on that because it wasn't publicly traded.

Jacqualyn Fouse

Yeah. I mean the reason why I hesitate to give you too many numbers today is what we would like to do is get the deal closed and then we plan to share much more information after that. The way that we've thought about it really well respect to feeling comfortable was how we included that deal in our guidance is more around EBITDA and pre-tax profits generation and so that's how we came up with the accretion and the fact that we think that that EPS is roughly where it's $0.30 to $0.35 a share.

David Driscoll - Citi Investment Research

But can you tell me if I'm in the ballpark of being right with that number? We've done a bunch of work over here, but..?

Alberto Weisser

From back of my envelope I think you could be in the ballpark, but let's be very careful. Let us close it and then we will in the next couple of weeks we will really we will give a more comprehensive presentation it could be the ballpark, could be there.

David Driscoll - Citi Investment Research

Okay. Alberto, another question on sugar for you is I've heard this from a lot of clients and I think it would be great for you to respond to it. With sugar at a 30 year high you're doing an acquisition here in a big one in sugar. Can you just explain with all of your knowledge on these markets why is it the right time to be doing an acquisition of a sugar asset with these incredibly high world sugar prices and people are frankly concerned that we're buying it at the peak. What's your thought process?

Alberto Weisser

Look, we just do not think about the $0.30 per pound at all. So when you look at the New York '11 sugar price, I think in July it's $0.24 and it's $0.20 cents per pound. So when we look at prices we look at it completely different. These are projects that are supposed to perform over 20, 30 years. So we have to consider the theoretically correct price and we work on a price which we believe that should be not lower than $0.15 to $0.16 cents per pound because below that the largest producer and exporter, which is Brazil, would not expand production.

So this is where the Farmer has to be break even like we discussed it on soybeans and we have a certain look at or we have a view on where prices could be, but it would never ever be above the futures price. So we think obviously this has to be the discounted cash flow has to be very solid and we have to look at replacement values. We don't look at the prices that are out there today. 30 cents per pound is not sustainable long term.

David Driscoll - Citi Investment Research

I would be very scared to assume that as well. Jackie, can you talk to us about, I need three items, three line items on the income statement, some help on 2010, interest expense, minority interest and affiliates. I know you were going to probably want to shy away from the interest expense because of the debt reduction, but if you just didn't even worry about that, right now what's the run rate of interest expense, you know, just given where the debt is today?

Jacqualyn Fouse

Let's say that the average borrowing rate is let's call it 7% or so of pre-tax and then if you take for the debt is today and multiply that out, you get a number and then you can make some assumptions around the repayment of the debt and all that and play with that as you want to.

David Driscoll - Citi Investment Research

Okay. How about minority interest and affiliates, those lines are going to change I think quite a bit?

Jacqualyn Fouse

Yeah. Those line items are going to change mostly because of the. So what will happen on a go forward basis when the sale is closed is that line item will become significantly less important. So we think the financial segment's become somewhat less complex because of that and I think that, you know you can make some assumptions about if you like, but you've also got the historical information on that. So it's just taking that out basically.

David Driscoll - Citi Investment Research

Minority interest goes basically to zero and then the affiliates, I think that the French bottled oil was in the affiliates I think.

Jacqualyn Fouse

Yes. So that one will change as well. So you've got both of those. In fact, if you look at the numbers that are in the tables attached to the press release, I mean you see obviously you can pick up, you know, what those are and those moved around a lot during 2009 given the fact that swung so much in terms of their results, but if you just go back to '07, '08, '09 you would then have those numbers.

David Driscoll - Citi Investment Research

But more or less in 2010 minority interest goes to zero and affiliates go to zero. I don't even know what you have in there?

Alberto Weisser

No It doesn't go to zero.

Jacqualyn Fouse

It doesn't go to zero because we've still got some other things in there, but it becomes a much smaller number. The minority interest will be flat low and the results from affiliates we'll still have a result, but it will be more modest and I think you've got in the detail disclosures all of the different companies for whom we have to report that way. So you can kind of go to that.

David Driscoll - Citi Investment Research

The two key ones were not there and France and it is, but we still have a couple of JVs.

Alberto Weisser

A few others.

David Driscoll - Citi Investment Research

Okay. Alberto, I want to make one more try at the agribusiness segment. I would agree with a number of other callers just on the concept of the first quarter results. If the thesis on the first quarter was at a significant lack of beans in South America presented significant difficulties to the Bunge origination network I do not see how that condition can physically change in the first quarter of 2010. So all I'm trying to say here is that you might not, I understand the quarterly stuff is really hard, but I think we all need a lifeline out here. I want to look at the first quarter and say the agribusiness results are going to be similarly challenged in the first quarter. You know, maybe it's off by some magnitude here, but directionally how can it not be that if the results were driven by a lack of beans?

Alberto Weisser

Well, we are starting to, the harvest already started December 24th in Mato Grosso. So we are starting to receive already products. So we think in South America obviously is the low season because it really starts , the northern hemisphere goes until the end of the first quarter and normally l it is. A weak quarter for South America but we do not think it will be as problematic as we had it in the fourth quarter.

David Driscoll - Citi Investment Research

Okay. So it improves sequentially but still presents some difficulties because harvest doesn't really, I mean it's ended the first quarter when you really have a lot of beans?

Alberto Weisser

Exactly. We think it is going to be like a normal year. So it is low, but it starts ramping up and very slowly in the northern part of South America, but we do not see at the moment anything exceptionally negative like we had in the fourth quarter.

David Driscoll - Citi Investment Research

And, Jackie, sorry, I got one more, but it's very important. The tax rate at 20%, I thought you guys had always talked about the tax rate being, you know, kind of normalized at 28% level. What's the story on the 2010 tax rate?

Jacqualyn Fouse

If I'm not mistaken when we gave a guidance range based on a more normal mix of business before we had all these fertilizer profits in 2009, I believe we had already given a range that was more like 22 to 26. So a bit lower than the 28% that you referenced. So just given how we saw the mix of business playing out and the various things that we try to be to be efficient from a tax planning standpoint we thought that it was going to trend a little bit down and be in that lower range. For 2010 we expect it to be at the lower range of 18 to 22. Again driven by the mix, but also coming out of a year where we've got some am net operating losses to carry forward and be able to use and some different things like that, so that's how we get to the 18 to 22.

Operator

Ken Zaslow with BMO Capital Markets has our next question.

Ken Zaslow - BMO Capital Markets

Hi. Have I another question. Thanks for -- I have another question. Thanks for the follow-up. Two questions. One of the questions was asked, are you running your facilities in Brazil now, in terms of soybeans or are they still pretty empty?

Alberto Weisser

They are pretty empty, but we will start running some of them soon.

Ken Zaslow - BMO Capital Markets

Okay. And then the second thing

Alberto Weisser

Ken, very important is this is like every year. So this is the moment where they're down for maintenance, but fourth quarter they stopped earlier than we expected, but first quarter should be more or less normal.

Ken Zaslow - BMO Capital Markets

Okay. And then the second question is when you're thinking about the sugar assets and you're making your assumptions and if you're not using the high sugar prices, you're using some other sugar price that you're thinking of, when you do that, first of all, are you doing that?

Alberto Weisser

This is for acquisition. First it was about acquisition and we have obviously many scenarios from different kind of analysis, but we clearly didn't use the 31.

Ken Zaslow - BMO Capital Markets

And assuming whatever sugar price you use which I'm assuming you're not going to tell us, is your return on invested capital, where would you have put your return on invested capital?

Alberto Weisser

It has to be above our rate. Otherwise we would not have done it.

Ken Zaslow - BMO Capital Markets

So if sugar stays at these levels for a period of time, your returns would be significantly higher and as they come down to maybe what you would expect, there would still be return on invested capital above your WAC. Is that the interpretation?

Alberto Weisser

Yes.

Operator

Next we hear from Ian Horowitz with Rafferty Capital Markets.

Ian Horowitz - Rafferty Capital Markets

Just a couple quick questions around Moema again. Jackie, we're expecting to bring in a little over $600 million in debt. Is that correct?

Jacqualyn Fouse

That's correct. Moema debt, yeah, that's correct.

Ian Horowitz - Rafferty Capital Markets

And how does that compare? You said I think Dave asked the question on the average borrowing rate of about 7% pre-tax. Where does this Moema debt fall into that?

Jacqualyn Fouse

Well, the some of that debt will have to be repaid upon the change of control and there are a lot of individual pieces of that debt. It's multiple lenders with relatively small amounts that make up the total. So we're working our way through all of those issues. So in the short term what you could see happen is a substantial amount that Moema debt getting repaid and then we'll be looking at the best way to refinance that and to capitalize that particular part of the business appropriately. So it's a little early for me to be able to tell you exactly what that's going to look like. But in the end in the overall mix of what we're able to end up doing with the post deal debt portfolio I wouldn't expect the impact of that to be huge on the blended rate that we should end up with.

Ian Horowitz - Rafferty Capital Markets

Okay. And then was I to understand that you're going to start breaking sugar out for the first quarter in terms of reporting?

Alberto Weisser

Yeah. Sugar and bioenergy, yes.

Ian Horowitz - Rafferty Capital Markets

Okay. So the sugar volume for [Intel] for the first two quarters will be significantly small, because smaller than they will for the second half of the lack Moema transaction correct?

Alberto Weisser

And also the harvest starts in April so you see most of the business is done larger to seven months is when you really see the most of the volume

Ian Horowitz - Rafferty Capital Markets

Okay and Alberto you talked about continuing interest in the sugar and bioenergy business we really expect to see more M&A activity from Bunge in this regards or would you be working more on your may even want to call them legacy assets, your previous assets in terms of getting that capacity?

Alberto Weisser

We will, our first priority is to do a smooth integration there is a huge team working on it and we are quiet excited about and we are seeing some interesting opportunities in coal generation and some, obviously looking at some expansion areas 20 million tons if I am not mistaken we can expand to have optimize size of the meals this can all expand to 35 million tons so we will look at this very carefully first and, make sure we are running smoothly we are integrating it very well so I would say most of our focus will be initially all internal but if something attractive, pops up we will have a look at it, but the buyers would be now to make it work well, optimize it and expand it internally we are seeing some very attractive things that we can do here.

Ian Horowitz - Rafferty Capital Markets

Okay and then last question, just on the fertilizer business going forward by getting rid of the back upstream asset how will this impact margins whether it be on a gross on an EBIT basis going forward in terms of expectation?

Alberto Weisser

Look we this is now business which is the retail business which we have some plans we have the mixing plans, we have some port logistic and so these some industrial expenses but the biggest focus is much more commercial and so what we believe is that we will run it in a little bit different way not so much integrated with upstream but completely focused on extracting a margin for ton with minimizing the risk and servicing the farmers.

So it will be a little bit different because we can also handle it differently if we tonight see the margin there, we don't need to buy it. So it is not something where the retail division has to sell the upstream portion of it. So the focus will be different and I think we are really working on it to have even more synergies with the agribusiness sector, but I think it should be less volatile, but I would probably not mention too much at the moment in terms of exact margins per tons or so on.

Let us go through the year and talk it through the year, but I think we gave already an indication of what we expect this business could be earning in terms of absolute EBIT and, but I'm optimistic about this. Obviously we have already now a couple of years is also a very successful operation in Argentina where it works without upstream. So we have the experience that this business can be very solid without the upstream part of it.

Operator

We have a question from David Driscoll with Citi Investment Research.

David Driscoll - Citi Investment Research

Thanks for the follow-up. I'll make it quick. Alberto, I wanted to hear your thought process on the kind of price outlook here in the corn market. We've seen a dramatic downturn in the price of corn here just in the last, basically one month. Phenomenal numbers out of the USDA on the 2009 corn crop. Is it your expectation that these, I mean just directionally I'm curious here on what your thought process is for the price of corn just directionally. Do you think we have considerable more downside and are these USDA numbers, do you guys believe them?

Alberto Weisser

Nice try, Dave. It's already a tough thing for us to give you guidance for the year. I will not talk about prices, so and for us anyway it's relatively irrelevant because we work on the margins. Nice try.

Operator

That will conclude our question-and-answer session. I'll turn the conference over to Mr. Haden for any additional closing remarks.

Mark Haden

Great. Thank you, everyone, for joining us. We'll see you soon. Bye.

Operator

This does conclude today's conference. Thank you for your participation.

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