Q1 2022 Bunge Ltd Earnings Call
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Good morning, and welcome to the Bunge limited first quarter 2022 earnings release and conference call all participants will be in listen only mode.
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Thank you operator, and thank you for joining us this morning for our first quarter earnings call before we get started I want to let.
You know that we have slides to accompany our discussion. This can be found in the investors section of our website at bogey dot com under events and presentations.
Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures 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 <unk> current views with respect to future events financial performance and industry conditions.
Forward looking statements are subject to various risks and uncertainties, but he 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 <unk> Chief Executive.
For sure and John <unk>, Chief Financial Officer, I'll, now turn the call over to Greg.
Thank you Ruth Ann and good morning, everyone.
I want to start by thanking our team for their continued dedication and strong execution as we navigate volatile commodity markets.
There have been further disrupted by the war in Ukraine.
The team's done a great job remaining focused on our highest priority the safety of our employees.
We are actively supporting our colleagues and their families to provide what resources, we can to help them through this terrible crisis.
Last year at this time, we were talking about a different shock to the markets the impact of Covid.
And here, we are a year later and the lingering effects of Covid are still with us.
And now we face the interrelated headwinds of continuing supply chain issues.
Challenging weather patterns that have reduced the production of palm canola soy.
And government policy reactions.
Oh, no further complicated by the war in Ukraine.
These market disruptions are rerouting, many traditional trade flows and contributing to crop price inflation.
Our team continues to manage through these challenges with great agility and a shared sense of purpose.
Connect farmers to consumers delivering a central commodities and food to communities around the world in a safe and sustainable way.
Our ability to improve our day to day execution, while also delivering on significant growth projects is a credit to the hard work of the team to transform bhangi into a more global integrated company.
Working together with a collaborative approach has improved our ability to use our extensive global platform and collective expertise to help customers on both ends of the supply chain effectively respond to the additional market pressures.
The increase their operating risk.
Turning to first quarter numbers.
We continue to build on our positive momentum.
Delivering year over year earnings growth for the 10th consecutive quarter with all segments of the business contributing to the strong performance.
While we incurred losses in our Black Sea operations.
Our team effectively responded to the situation when the industry margin spiked globally due to the combination of continued strong demand and an even tighter supply outlook.
In refining, especially oils strong results were largely driven by North America refining.
Our team is the Optionality of our complete portfolio of oils, our global network and our technical expertise to help customers solve their supply challenges.
Results in milling were also higher with our team having effectively manage the supply chain and input cost volatility.
Furthering our strategy this quarter, we made an important step in our effort to identify opportunities to reduce carbon in our value change through our recently announced commercial partnership with cover Chris.
Expanding the support for this new winter Oilseed crop is an ideal way to produce a lower carbon intensity feedstock that can help meet the growing demand for renewable fuels.
We believe rotational cover crops can play a key role in our joint venture with Chevron to supply inputs to the renewable fuels industry.
Along those same lines, we continue to make progress and simultaneously advancing our commercial and sustainability approach in South America.
We've expanded our soy origination network through minority investments and resellers the purchase from smaller farms.
This business strategy has also allowed you to accelerate traceability efforts to support our progress toward our commitment to be deforestation free in 2025.
Before handing the call over to John I want to spend a moment on our outlook for 'twenty to 'twenty two.
Back in January we said, we expected to deliver adjusted EPS of at least $9 50 for the full year.
Based on what we can see today, we're now expecting to deliver adjusted EPS of at least $11 50 for the full year 2022.
As usual this outlook is based upon our current visibility and the forward curves for the balance of the year.
I'll hand, the call over to John now to walk through our financial results in detail.
And then will close with some additional thoughts on 2022.
John .
Greg and good morning, everyone before I get started a few additional comments about the situation in Ukraine.
We have over 1000 employees, there and we're thankful that as of this date there had been no reported casualties or indeed injuries among our team.
Within the country, we have two oilseed processing facilities, our port several grain elevators and administrative office and keep.
As has been previously reported our port facility sustained damage.
However, based on initial visual inspections, the damage does not appear to be significant.
Beginning in late March we restarted certain commercial and operational activities, primarily export and green via rail and truck. However, these activities had been extremely limited.
While the region is an important part of our global footprint. The total value of the assets is about 2% of buggies consolidated asset base.
Now, let's turn to the earnings highlights on slide five.
Our reported first quarter earnings per share was $4.48 compared to $5.52 in the first quarter of 2021.
Our reported results included a positive mark to market timing difference of 40 <unk> per share and a negative impact of <unk> 18 per share related to one time items.
Adjusted EPS was $4.26 in the first quarter versus $3.13 in the prior year.
Adjusted core segment earnings before interest and taxes or EBIT was $858 million in the quarter versus $737 million last year, reflecting higher results in all segments.
Agribusiness started the year off strong and processing the U S Europe , and Brazil reported higher soy crush results benefiting from improved margins due to strong demand.
Those results were partially partially offset by lower results in soft seed crush in Europe , and China, which were negatively impacted by tight seed supplies and higher costs.
Merchandising had a good quarter, however results were down compared to a very strong prior year, reflecting lower results in our global grains and financial services operations.
And refine our specialty oils higher results in the quarter were largely driven by improved margins and volumes in North America, which benefited from strong food and fuel demand.
And results in the other regions were slightly lower compared to the prior year.
In milling higher results in the quarter were driven by South America, which benefited from higher milling in upstream origination margins, partially offset by increased industrial costs.
Higher margins and volumes in the U S. Also contributed to the improved performance.
The decrease in corporate expenses during the quarter was primarily related to the timing of performance based compensation accruals.
The loss in other was related to our Bunking ventures investment and Benson Hill.
Results in our noncore sugar and bioenergy joint venture were primarily driven by higher ethanol prices.
For the quarter income tax expense was 108 million compared to 192 million for the prior year.
The decrease in income tax expense was primarily due to lower unadjusted pretax income releases of valuation allowances in Europe , and Asia and tax benefits associated with equity compensation payments.
Excluding a $47 million one time expense related to the make whole on the early extinguishment of our 2024 bonds interest expense was $64 million down from last year, which primarily due to lower average debt levels.
Let's turn to slide six where you can see our positive EPS and EBIT trends adjusted for notable items and timing differences over the past five years.
Not only does this validate the resilience of our global platform, but also demonstrates continuing strong performance by our team that has successfully managed numerous transformation initiatives and different market environments over the past three years.
As shown on slide seven addressable SG&A was relatively flat year over year.
However, similar to other companies, we too are experiencing inflation and we are working to mitigate it where we can.
After two years of Covid related impact, we do expect higher addressable SG&A in 2022, reflecting increased travel investments in our people process and technology and in growth initiatives to strengthen our capability to drive future value.
While our investments in technology should bring productivity gains over time, we do expect net incremental spending in the near term.
Slide eight details our capital allocation of the nearly $700 million of adjusted funds from operations that we generated in the first quarter.
After allocating $49 million to sustaining Capex, which includes maintenance environmental health and safety and.
8 million in preferred dividends, we had approximately $639 million of discretionary cash flow available.
Of this amount, we paid $74 million in common dividends.
At $56 million in growth and productivity Capex, leaving approximately $510 million of retained cash flow, which was invested in an additional working capital.
In March due to the strong performance of our share price or four and seven 8% perpetual preferred shares converted to common shares.
Conversion simplified and strengthened our capital structure.
Leading up to our May shareholders meeting, we will again review, our common dividend, giving strong consideration for a higher baseline the success in strengthening our balance sheet and our improved earnings outlook.
With our strong balance sheet and cash flow generation, our credit metric stand at our target levels of Triple B with Fitch, and S&P and <unk> with Moody's.
Putting us in a position to allocate capital to the best opportunities.
And as we have demonstrated in the past we will continue to maintain a disciplined and balanced approach.
As you can see on slide nine at the quarter end readily marketable inventories or rmi exceeded our net debt by approximately $2 8 billion a significant change from a year ago.
This reflects the positive trend of our underlying cash flow that has allowed us to invest significantly in inventory with only a small increase in debt.
Yes.
Slide 10 highlights our liquidity position, which remained strong at quarter end, we had approximately $5 billion of our committed credit facilities unused and available.
It provides us ample flexibility to manage our ongoing working capital needs in this volatile volatile commodity price environment.
As shown on slide 11, our trailing 12 months adjusted ROIC was 21%.
<unk> thousand 14, four percentage points over our Rmi adjusted weighted average cost of capital of six 6%.
Our ROIC was 14, 4% or 8.4 percentage points over our weighted average cost of capital of 6%.
The spread between these return metrics reflects how we use rmi and our operations as a tool to generate incremental profit.
Slide 12.
For the trailing 12 months, we produce discretionary cash flow of approximately $1 $9 billion and a cash flow yield of 22%.
Please turn to slide 13, and our 2022 outlook.
As Greg mentioned in his remarks, taking into account the current margin environment in forward curves. We've increased our full year 2022, adjusted EPS outlook to at least $11 50 per share of $2 increase.
In agribusiness full year results are expected to be higher than our previous outlook, but still forecasted to be down from last year due to lower results in merchandising, which had a particularly strong prior year.
Well, we're not forecasting the same magnitude of margin enhancing opportunities that we captured in the past year, we do see potential upside to our outlook as strong demand and tight commodity supplies continue.
And refine our specialty oils full year results are expected to be up from our previous outlook and higher than last year, driven by strong demand from food and fuel in our North American and European businesses.
In milling full year results are expected to be up from our previous outlook are significantly higher than last year, primarily due to our better than expected first quarter results.
In corporate and other results are expected to be favorable compared to last year.
Additionally, we now expect the following for 2022.
And adjusted annual effective tax rate of 16% to 18%.
Net interest expense in the range of $250 million to $270 million.
Capital expenditures in the range of $650 to $750 million and depreciation and amortization of approximately $420 million.
In noncore full year results in the sugar and bioenergy joint venture are expected to be in line with last year.
With that I'll turn things back over to Greg for some closing comments.
Thanks, John .
So before turning to Q&A I, just want to offer a few thoughts.
I've said this many times, but I want to reiterate again, how incredibly proud I am of our team.
We often say that markets are dynamic, but the past three years have been unlike anything I've experienced in my career.
Our team has shown great resiliency discipline and a strong commitment to helping solve problems for our customers at both ends of the supply chain.
As we look ahead, we know that markets will continue to be volatile.
Questions around the war in Ukraine.
The eventual crop production levels.
Supply chain challenges.
Government policy reactions and Covid.
I'll have yet to be answered.
Regardless I'm confident that our bogey team is prepared to execute in the face of these and the other challenges that lie ahead.
So now let's open the line for questions.
We will now begin the question and answer session.
Just a question you May press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Adam Samuelson with Goldman Sachs.
You May now go ahead.
Yes. Thank you guys good morning, everyone.
Good morning, Adam.
So Greg John I guess my first question just thinking about the performance in the first quarter and really the last two years.
And.
No you're only introduced this last July with the $7 baseline it seems like were.
Operating pretty dramatically above that level right now it seemed like the market environment would suggest that can continue for quite some time and I'm just would love to hear you reflect about.
Some of the things that maybe.
And that related to the capital allocation related to maybe have the soy crush environment might have some structural tailwind to it.
Just how youre thinking about that $7 baseline today, given the demonstrated performance balance sheet, optionality and and the cyclical environment.
Okay.
Sure. Thanks, Adam Yeah, let's remember first of all that the $7 baseline was creating an earnings framework.
And as we spoke about last time they environment currently globally, we believe we're going to be well in excess of that for the next couple of years and I think what we've seen.
With the tightening tightening supply situation around the world continued strong demand.
And now what's developing in Ukraine, and the Black sea without being an important supply area, that's really an elongation of that trend.
We continue to have a well above what was in that earnings framework in crush margins for our soy operation for our soft operation.
We have seen of course, a refining and premiums refining premiums improve in a first in North America on the back of.
Renewable diesel demand, but we also have not seen a drop off here post COVID-19 , we're seeing food demand it at five year levels as well.
So we saw that improve in North America, and that gave us the confidence as we talked about a week.
We expect that to continue for at least a couple of years here and now with higher energy prices, which is also supportive for biofuels globally.
And with what has happened in with the war in Ukraine, We're seeing.
Now refining premiums improve in Europe , and really globally.
So really seeing good good participation everywhere and then of course, the merchandise segment, where we've talked about the hardest.
To predict but.
Really seeing benefit across the full chain as we're helping manage this volatility in helping solve problems I might let John put a finer point on some of the things that that arent in the model around capital.
Thanks, Greg.
Adam as we.
We've mentioned before.
The $7 baseline didn't include any growth.
Capex and and so obviously, we've got a pretty robust pipeline of opportunities today are.
In the range of $2 billion of projects that are in the pipeline.
Maybe not all of those will get done we'll see we may identify other opportunities as well but.
We're very confident that.
With prudent capital allocation over the next couple of years.
When if and when the environment.
Wanes a bit you know we will have improved the baseline of this company by investing capital in good projects. So we certainly feel like at some point here it will need to address the $7 baseline and give a better better update on what we think it what it should be.
Okay. That's that's all really helpful and if I could just follow up on the balance sheet and just how you think about it.
In the context of your committed credit capacity your credit rating.
We're kind of dry powder today, just didn't seem like it really seemed like opportunities presenting themselves on the M&A front that that might not have been there a couple of years ago, yeah, you're in a position to capitalize on that others might struggle with given liquidity constraints.
If there's any any context.
Where you think your capacity and dry powder is today.
Yeah.
I think we'd be pretty comfortable to say that we've got north of $2 billion of capacity today.
For the right opportunity, we'd be willing to weed real willing to stretch that.
Near term in the short term, we do feel like we're in a very strong position today with all of our metrics and our leverage ratio as low as low as it's been in a very very long time.
And I think we've probably as importantly, I think we've got the people and the processes in place to manage to manage.
Some pretty significant opportunities.
Okay, Great. That's all really helpful color I'll pass it on thank you.
Thank you.
Our next question will come from Ben.
I knew what Steven you May now go ahead.
Hey, Thanks, Good morning, everybody. Thanks for taking my questions.
You bet Ben.
So I wanted to.
Ask a little bit about the outlook I know you guys have historically guided.
With what you can see the curves not necessarily a sustaining of what we're currently experiencing.
But I guess, if I think about the environment as we move through the year.
What is there on the outlook just thinking conceptually through things that you think could potentially either further tighten or loosen.
The backdrop from where we are now.
And.
If you could rank order those both in terms of likelihood or magnitude that would be helpful for us to think about.
Alright.
Sure Let me let me start.
Yes, Youre correct why we always look at at the forward curves and what they're telling us in our outlook.
Rather than try to try to predict predict where they'll end up and as we get visibility that we've rolled it forward with you.
Let's talk about the supply side and whether of course, that's going to be real key is.
As tight as the marketplace is we need to get this crop in in the U S. Here in north.
Planted and we need to see good weather, we do need a large crop so that'll be.
That'll be a key indicator of how tight things stay will need to continue to.
Within there also watch the Canadian crop develop if you remember Canadian canola was and and wheat, but primarily canola was impaired by weather last year and so we're gonna be tight there until we get to new crop.
And then of course, the supply chain disruptions caused by the war and the reactions to that is we're kind of redrawing.
Origin destination pairings in the world to be able to continue to serve people.
And then on the other key on the supply side of course, as you know Brazil.
The farmers with the crop being trimmed back a little bit by weather on the on the sale of soybeans. It will continue to see how that.
That develops late in the year from a selling pattern of course FX is always a concern for the farmers and then we're in a political year election cycle and that also tends to keep them a little closer to home.
And then Argentina of course, we're a little tighter because again Paraguay and.
The Argentine crop trimmed back slightly so we expect the farmer to continue to be fairly tight there. So those are kind of the big drivers on the on the supply side with the U S being the probably the biggest the biggest magnitude on its own and then on the demand side.
You know things are extremely tight on oil meal and wheat, you definitely less so for corn.
So anything that the.
It affects that and so if we would get a big price and a price spike due to weather it would be any demand destruction now we're not seeing any any demand destruction of any magnitude to date, but that's one we continue to watch closely.
And that would be I think the biggest one on the on the demand side and then continue to watch the consumers reaction overall.
And then of course Covid is the last.
Big Big wildcard and what that could do to demand.
And you know China is always a huge a huge driver and of course, that's that's in the spotlight right now.
So I don't know John if there's anything.
However, it pretty well alright very helpful. Thank you Greg.
My second question is revisiting your comment on the U S crop I know, it's very early and you know I can think back to years, where even in having bad weather yields were largely on impacted 2019 comes to mind.
As you look at kind of the key milestones as we move through the summer.
<unk>.
What our dates in your mind for moments of visibility so kind of a plant by dates I know prevent plant dates are important and then kind of monitoring whether ones.
Crop is harvested thinking about what the ultimate impact of the yield is just kind of help us think through a critical path through the summer.
Yeah, I think you're correct.
Right that over time.
As the technology and the C has gotten better as farming practices have have gotten better and in practices around nutrients have all gotten better it seems like.
It doesn't mute the yields there.
Not the same volatility yields we saw in the past and that's a good thing right, but you know.
The first one is watching the weather and while Theres concern.
We're not concerned yet, but everyone's watching the weather patterns closely because we've got to get it you know.
Get it in the ground and then make sure that you know how the mix of what gets planted between corn and soy is kind of as predicted or if that changes in the weather can switch that a little but not a lot. So we'll watch the planted acres the dates that it gets in the ground and the and the crop mix.
And then based on when it gets in the ground and you start looking at the pollination and and the weather cycles for that time of year.
Washington, pollination, both crops and kind of those key developmental stages that affect yield.
And then from there we'll start.
Start watching harvest right and again, depending on when it got planted.
When it when a matured than where the the harvesting is in what we believe the weather cycles are and what that does to the the percent of harvested acres as well as the quality of the crop that we're bringing in so those are kind of the the drama that we live every year in in each region around the world and I don't think it'll be a lot different this year.
Yeah, Okay, great well stay tuned thanks.
Thanks, so much.
You bet. Thank you.
Our next question will come from Steve Byrne with Bank of America, You May now go ahead.
Yes. Thank you I have a couple of questions about the forward strip and soybean oil.
It looks to moderate a little bit over this next year, but then the kind of near 70 cents over the next couple of years.
Two questions on that.
One being.
Would you say theres more risk that that strip moves up or down from here.
And then secondly.
If it's up more even if it stays where it's at.
Do you have any concern about.
Basically the cost compatibility.
Competitiveness of using soybean oil as feedstock for renewable diesel.
Is that a concern.
For all of that capacity under construction in your view.
Yeah Yeah.
The first I'd say, it's kind of how I I'd say what the market.
The two biggest factors the market continues to to watch in the drivers out there right are going to be pom, which has been disappointing on production for the last couple of years and I think the market believes it now we'll start to see a little bit of a rebound on.
On on Palm production I think the market is reflecting that.
If that doesn't happen that would probably probably be friendly and right now there's a number of different scenarios I think that people are looking at for when you see the black Sea come.
Back online or not.
On the Sun oil and at what percent of that Sun oil production, which is really important to the global S. N D on oils and I think that's the other big flag.
To watch closely and you know.
The market is reflecting what people believe today and you know that's that's changing daily I think as far as competitiveness.
If you listen to the the energy companies and as we continue to watch them put their money where their mouth is with capital and this being a key part.
Of the of the Green transition of the de Carbonization is that we can do this at scale to help part of that transition to a lower carbon future.
We don't see any change in the commitment of that so I believe that will continue to be an important part of that transition vegetable oil and as a renewable feedstock as well as developing cover crops and some of the other technology in some of the other changes that will come and that's why we got a great partner like Chevron and we're working into and chart.
To innovate with them and really understand what changes we'll make.
In the areas, where we're expert in the AG part what errors changes all making the areas where their expert on the energy part.
As as it continues to move forward.
And I'd say the other is as we said higher energy cost I mean, they don't only.
Kind of work through everything in including food in that but higher energy prices.
It looked like they are here for the foreseeable future for the next few years and that also is supportive of.
Of course to what price the renewable feedstock.
Of the vegetable oils can be so we're pretty constructive on the set up right now for the next few years.
Some of the confidence that we've got and feel good about where we've got the company positioned.
And regarding your your agreement with cover Kras have you have you estimated.
The benefits to the economics of producing our R&D from cover crest derived oil, presumably the lower Ci score.
Would generate more credits.
And for your own participation in that do you intend to maybe get directly involved in in.
Directly funding for contract growers to start producing this this cover crops.
Starting this fall after the corn harvest.
Yeah.
Yes, we're really excited about the partnership with with cover Kras and <unk>.
And with Chevron and how that pulls together.
As we get closer to our plans in the future, we'll begin to roll those out but yeah. Yeah, I mean, you've hit on on the right things as great extra source of revenue for producers when we're able to activate it and.
You know it goes as planned it'll be a very low Ci score and a great.
Another great source of feedstock. So it's one of the things we're excited where we're invested there's more work to be done, but it's just one of the exciting things that I think is going on in the space and I think we're going to see a lot of change going forward and I really like where we're positioned is buggy to participate in these things in and be able to be able to maneuver and react to the changes.
Thank you.
Thank you. Thank you.
Our next question will come from Vincent Andrews with Morgan Stanley You May now go ahead.
Thanks, and good morning, everyone. Greg could you just talk a little bit about I know your guidance assumes what we see in the futures curves, but maybe you could talk about how far out you are able to book with those curves and how far out you've chosen to book with those curves at this point.
Yeah, it's as usual the.
The first 90 days is where the majority of the liquidity is.
And then it begins to.
Two to get less liquid in the second and third quarter as we look out.
We continue to.
You'll be prudent about locking in those those margins, where we believe they need to be and where we believe that our you know that they've got some some space to run.
Those would be the parts of it will.
Wait to hedge so I think overall, if you look at.
Continued strong oil demand and continued strong meal demand.
And what we see going forward, even where the curves aren't reflecting it and some of that as we talked about because uncertainty about when those seeds or you know or beans are going to come to market.
We believe that the market's going to do its work and its going to call for that crush.
To operate and it's going to have to do that with with higher margins and we're not sure how much or when so you know we're looking at the curves and say, we're not smarter than the market, but as we get there.
We believe this team will will capture every dollar that's that's possible and then as we get visibility into that we'll share it.
And then I just had a follow up on the comments before about the excess liquidity and I think I think Greg you said kind of $2 billion you'd be willing to that you'd be willing to allocate I just wanted to connect that with.
What you thought your GAAP cash flow would be based on the existing you know just take the low end of the of the full year guidance.
Or are we done with the working capital builds assuming.
Commodity prices stay where they are and what you know what.
Amount of cash would you expect to generate and then when you think about putting an incremental $2 billion to work.
What metrics are you thinking about in terms of ratios that gives you comfort that $2 billion is the right number and how would you frame it.
Yeah. Vincent this is John I can take that.
Look we.
In terms of working capital levels, it's obviously going to be driven primarily by price level and.
I would say typically for us seasonally Q1, and Q2 are usually the peak, depending on which quarter, but but quite often Q2 ends up being our highest quarter and that's driven by volume, but price certainly will have an impact on that.
And so we'll watch pricing I think working capital levels today are high historically at a high level, but but what we've always found is that in times of high volatility high prices and high volume so.
So when we when we have the opportunity to make the most money and so.
We've certainly positioned ourselves from a balance sheet perspective to be able to manage through this current environment. So we feel very good about that no matter what happens here over the next several quarters.
From a cash flow perspective, we generated nearly 3 billion of EBITDA last year.
And it just depends.
Turning on to forecast this year, obviously at $11 50, it's a little below that but still expect to generate a good strong amount of cash and.
As we look forward on capital allocation, and we talked about $2 billion pipeline, but but we've also got we're going to be generating cash as we go as well so we definitely feel like.
Driving this dry powder number today is.
Is driven by what we're comfortable with in terms of our leverage ratio were low we're just between low end of between one and one five on a leverage ratio perspective, and really to maintain a comfort of our rating would go for the highest two and a half.
And plus on top of that the cash flow that we're generating so we feel pretty good about where we are from a cash flow we've been lucky to be able to invest that in working capital and not have to increase that by a material amount, but certainly certainly as working capital goes down over time, and it will things or things are cyclical.
<unk> will come down at some point in working capital will go down you'll see a lot more cash generated back onto the balance sheet.
Okay. Thanks, very much kind of just buy but yeah I might just put one unfunded pointed out I'd just say overall one of the things that we are excited about it we've got the best pipeline of organic projects and the best pipeline of acquisitive targets.
That we've that we've had put together since we're here at the company. So we know what I'm going to do we're going to be disciplined about it and B b.
Careful how we execute but.
Excited to be in this position.
Okay. It sounds great. Thanks very much.
Yes.
Our next question will come from Thomas Palmer with Jpmorgan you May now go ahead.
Good morning, and thanks for the questions.
Good morning.
Maybe just to kind of circle back on the guidance and I know there've been a couple of questions about this I just want to make sure I understand what are the $2 boost to your outlook was really for I mean is the implication.
You came in as it played out stronger in the first quarter the.
In the second quarter is off to a strong start and that's largely what's reflected in the boost at this point and you're kind of leaving the back half unchanged, even though you outlined reasons why it could be better than you had assumed previously is that right or are you also looking at.
In the guidance itself, a stronger back half as well.
No you've got it right.
We're.
Okay.
Putting a you know we're definitely reflecting what we've seen from performance here in Q1, what we could see in Q2 and then the curves for for the back half things.
Things like if you look at our our refining specialty oils business. If you remember we talked earlier.
We thought that would be about 600 for the year and you know plus or minus 150, a quarter and it came in around 180 here in the first quarter and then when we look out forward.
We've got the highest bookings on for the balance of the year, So that gives us some visibility and confidence.
Into that end.
You know what's interesting as I said earlier, the food volumes arent down although the fuel customers actually have a higher percentage booked for the balance of the year the food customers have a higher percentage booked than normal.
But they are lagging a little bit so we expect that business to come.
And what we can see so some of that visibility gives us.
Confidence there and then what.
What we're seeing around the tightness on the on the Smbs.
And kind of the momentum not only in the crushing side of the business but.
In the distribution side I'd say, one thing as we.
Manage through the conflict and the challenges and we had to.
To you know to redraw the supply lines as we ran this business as a global company. The one thing that we haven't lost lost is our great <unk>.
Regional footprints are the amount of capillarity and granularity we have with our origination systems with their distribution systems with our knowledge of the Smbs and our ability to execute and I think that's.
A great Testament to even with the losses in the Black Sea area here in Q1, and all the changes that we had to make the.
The performance in Q1 of of the buggy machine and the outlook that we've given.
I would just add to that Greg.
But from a crush perspective.
First half year, we've seen probably better than better than expected.
Crush margins in North America versus our prior forecast and then they come down a bit in Asia, and South America, especially out on the curve, but that's where the most opportunity will lie as we go forward here and so when we say at least $11 50.
Our our upside.
There is some there will be.
And the forward curves as we progressed through the year and also in our merchandising business, where we have a pretty modest forecasting for the year because that one's always a little bit difficult to.
Predict but certainly when the opportunities are the team does a great job with it.
Thanks for that detail.
I appreciate that Youre not.
At this point ready to go into it maybe financial details uncover cross, but maybe just.
Is this a business that you can use your existing cros crush infrastructure.
It's a process or are there investments needed and then just any type of timeline I think this year is kind of its first commercial rollout. It if I had seen that correctly. So what's kind of the even rough timeline are we still a few years out for meaningful contribution.
Yeah.
Yeah, Yeah, it's out in into the future before any meaningful contribution, but yeah, we'd be involved of commercializing.
Commercializing it there would need to be some investment.
In the plants.
But it is incremental.
Yes, I would just add that we've got planned projects in place today that are that have been approved and underway to to be able to accommodate processing cover kras at selected facilities, especially those related to the Chevron JV. So it does take time for farmer adoption, obviously and we've been very active in working with cover.
Yes.
On on that and feel very comfortable with where we're headed and very optimistic that this is long term is going to be a great addition to the portfolio.
But anything anything new takes time for adoption and get to scale.
Understood. Thanks, guys.
You bet.
Our next question will come from Ben Theurer with Barclays. You May now go ahead.
Perfect. Thank you very much and Congress on the results.
Just two questions. One is a quick one on your increased guidance on the finance costs. That's really just a reflection of that 39 million redemption fee correct. It's not that you have higher capital needs for working capital and that's been discussed its just that fee correct.
Yes.
In terms of the higher interest cost yes.
Yeah, no well I think we're we've.
We've looked at what we expect for working capital levels.
For the year and in taking out that debt.
That cost.
It'll be driven by working capital being higher and so that's a little bit why we called it up okay.
Okay perfect. Thanks for clarifying and then my second question it almost gets by the minute less relevant but still want to ask it I mean, we saw over the last couple of weeks of relatively strong BRL and obviously farmers in Brazil are tend to be more reluctant selling with a stronger currency.
How have you seen over the last couple of weeks and we'll be impact here on the BRL strengths I mean, obviously just last few days it depreciated in my my turnaround quicker than potentially expected a week ago, but still how do you feel about the Brazilian farmer selling activity, which has seen a little behind the.
The curve, what they're usually doing so to understand how we should think about the supply out of Brazil, and how that plays a role within that global supply demand tightness, you've been talking about.
Sure I'm not sure how much weight to put on the unreality itself.
But definitely the curve reflects.
You know that the margins arent arent as good and in the second half.
With the curves there in Brazil and that is it's a you know.
Direct.
Concern about the farmer and their rate of Upselling the rate of marketing the balance of the crop in and as we said, it's it's kind of the FX volatility that's the concern about the election and you know their beliefs in what that whether that will be better for them.
And of course, a little bit smaller crop and then they're watching the U S crop right. They always wanted to see how the U S crop develops.
We'll probably try to to.
No it'll be too cold or will try to drown it and then it'll be too dry all before we ever get a planet so that could lead to some some market volatility and I think they've been pretty smart marketers are about being patient in this this time of the year and it looks like they've got a lot of reason to do that including the FX volatility.
I would add to that Greg maybe we spend our team in South America has spent a lot of time and effort over the last year's build out continue to build out origination footprint in South America and in particular in Brazil. So.
We're going to get our fair share.
When the farmers.
Ready to sell will be there and even when they are not ready to sell will be they're trying to get them to sell so.
We feel very good about our position down there and that we're going to get.
Equal to or more than our fair share down there.
Okay perfect. Thank you very much and congrats again.
Yeah.
Thank you.
Our next question will come from Robert Moskow with Credit Suisse.
Oh go ahead.
Hi, Thanks, two quick ones.
I just wanted to make sure.
I understand that the comment that you made and also your competitor made about how crush margins.
Need to move higher in order to encourage processors.
Assume that.
Margins are already high enough in the U S in the back half to.
Justify.
Crushing that really your comments are related to South America and Asia and then the second question is can you just remind us the hurdle rate on on the $2 billion of projects that.
That you have in the pipeline organically and.
10%, 15% like.
If we wanted to try to put an EPS number on it.
Yeah on the curves yeah, you are correct, we were speaking to.
You know the the curves in South America and Asia.
If you look at that it says, we're probably going to have to see some improvement if demand stays where it is for oil and meal, which we believe it will and that's where.
We think the market will have to do its work and call for that call for that volume and it's just not clear exactly when and where.
Youre correct on those comments and then I'll, let John take the second one yeah, Rob with respect to hurdle rate really we look at.
On large strategic projects, we will look at something has got to be 10% return and then above that as they get maybe into.
I'll say areas of the world, where it's a little more difficult to do business or they are a little bit further outside the core business itself will raise that hurdle rate higher depending but I think if you use 10, 10%, maybe plus a bit small amount. There is probably a good rule of thumb I think the one thing, though I would caution is.
There's a lot of these projects are two to three year builds and so as we look at it projects. There is not going to be return as we the first couple of years as we as we are building. These facilities for example, and so you're really looking at.
2025, before we see meaningful contribution from from some of these projects.
And just a follow up John is there any way to kind of tease out what percentage of that 2 billion is related to alternative proteins.
Are there already and they're already capital in the ground for that.
We've done some we've invested in a few.
Opportunities, we talked about merit earlier, I think sometime last year, when we announced that and we've got a few other investments in JV positions in some existing facilities, but.
The real Big capital projects, we have on the slate are still in development.
But we talked about somewhere between $500 million and $1 billion over the next few years, if if if all those get approved now I'm not suggesting all of them are going to get approved they all have to stand on their own as we take them through the process, but.
It could be a substantial amount of investment if the opportunities continue to look look good.
I'm sorry, the 500 to a $1 billion, that's within alternative protein or is that something else.
That would be within alternative protein alternative.
Hey, great. Thanks.
Thank you.
Thank you.
Okay.
Our next question will come from Ken Zaslow with Bank of Montreal, You May now go ahead.
Hey, good morning, guys.
Hi, Ken.
My first question is if I think about the Ukraine, Russia issue, and obviously devastating and something that you don't want to capitalize on.
But how long do you think.
This will create a void in the global supply and what is the process.
That we would recover.
And in the follow on to that is it would be.
Extends at long longer than the year or so is there extra cash or opportunities, where you can actually deploy quicker than you may have anticipated given the.
Unfortunate, but true windfall of extra money.
Yeah.
Yeah, it's a horrible situation and our thoughts and prayers continue to go with all the people in the region and we hope we'll get a we hope to get a quick resolution of course, we have no insight.
Into the outcome.
All I'll say.
As far as.
Now you know outcomes.
Even if something you know whatever timeline you want to pick.
That there could be a resolution whatever scenario you have any resolution.
There will be.
A long tail on this because there is infrastructure that has been damaged there are.
Seaborne logistics that have to be Untangled. There are you know.
Waters that need to be D mind, and and all that has a a long tail on it and we'll be a little you know in our.
Long period of time before you get back to exactly.
Where that was from a production and not only production, but being able to move that production into the markets of demand that that need it.
So based on that we are we are thoughtful about that on the money, we're putting to work and how quickly we're putting it to work in.
In our system right, we're always looking doing scenario analysis and building contingency plans.
And so.
No doubt.
<unk>.
You know global platform, and especially South America has got to play continue to play a bigger role in helping meet the need to help manage food security globally.
Loved the connection.
You know of our South American network to our global network and will continue to.
We'll continue to make those investments to drive things forward.
In that vein do you think that you know.
The last quarter in the last quarter before that you said, well, we're going to be well above our.
Algorithm or a mid cycle numbers for a couple of more years does it.
Either.
And then the duration to which you'll be able to be.
Would be above that number.
Or does it actually increase the magnitude to which you will be over and above that horrible and then I'll leave it there. Thank you.
Yes, both.
So we think it is.
Yes to both increases the.
The duration, how long and we believe it increases the magnitude.
Great I appreciate it guys.
Thank you Ken.
This concludes our question and answer session I would like to turn the conference back over to the management team for any closing remarks.
Thank you everyone for your interest and we look forward to speaking with you in the future.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.