Q3 2023 Bunge Ltd Earnings Call
Good day and welcome to the Bhangi Limited third quarter 2023 full earnings release and conference calls.
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I would now like to turn the conference over to Ruth Ann Weisman. Please.
Please go ahead.
Thank you operator, and thank you for joining us this morning for our third quarter earnings call before we get started I want to let you know that we have slides to accompany our discussion. These can be found in the investors section of our website at bunge 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 view with respect to future events financial performance and industry conditions. These 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.
On the call. This morning are Greg Heckman, Buggies, Chief Executive Officer, and John <unk>, Chief Financial Officer, I'll now turn the call over to Greg.
Thank you Ruth Ann and good morning, everyone.
Want to start by thanking the team for delivering another quarter of outstanding results by performing exceptionally well in this highly dynamic environment.
Our team remained focused on executing our day to day business effectively utilizing our global footprint.
And adapting to changing market conditions to meet the needs of our customers with farmers and end consumers.
At the same time the team continued to make good progress on our integration planning whereby Tara.
During this process our teams had the opportunity to work with the bioterror team.
Reinforcing how similar our cultures are in increasing our confidence in the combination and the value it will create.
We reached a significant milestone in October receiving overwhelming shareholder approval for the merger.
We continue to engage with the appropriate regulatory agencies and expect to close the transaction in mid 2024.
While we will continue to operate as two separate companies until we close.
Looking forward to bringing our teams and assets together to create a premier agribusiness solutions company.
Turning to the third quarter we.
We delivered a strong operating results driven by refined and specially oils and processing.
We also saw strong performance in our noncore sugar business.
John will cover our financial results in more detail.
In addition, since we reported second quarter results, we repurchased approximately $600 million buggy common shares.
Making meaningful progress against the repurchase plan, we outlined following the announcement of the <unk> transaction.
Looking ahead to the remainder of the year and based on what we see in the market and the forward curves today. We now expect full year 2023, adjusted EPS of at least $12 50, and depending on how market conditions continue to evolve we see the potential for upside.
I'll hand, the call over to Jon to walk through our financial results and outlook in more detail.
And we will then close with some additional thoughts.
John.
Thanks, Greg and good morning, everyone, let's turn to the earnings highlights on slide five.
Our reported third quarter earnings per share was $2 47.
<unk> to $2.49 in the third quarter of 2022.
Our reported results included a negative mark to market timing difference 14 cents per share and a negative impact of 38 cents per share primarily related to acquisition and integration costs associated with our announced business combination agreement with Vitaros.
Adjusted EPS was $2.99 in the third quarter versus $3.45 in the prior year.
Adjusted core segment earnings before interest and taxes or EBIT was $735 million in the quarter versus $740 million last year.
Agribusiness adjusted results of $472 million were down compared to last year. There was a slightly higher performance and processing it was more than offset by lower results in merchandising.
And processing high results and boy, Brazil's soy origination Asia, and North America were largely offset by drought impacted results in Argentina.
Results in Europe were in line with last year as improved performance in soft seeds was offset by lower results in soy crush.
And merchandising higher results in our global corn value chain, which benefited from the large Brazilian supreme to corn crop were more than offset by lower results in financial services.
Global we value chain.
Higher refining of specialty oils results were primarily driven by North America.
Higher results in Asia led by our India business also contributed to the improved performance.
Results in South America, and Europe were lower.
In milling higher results were primarily driven by our South American operations, reflecting improved margins due to the combination of lower wheat costs and more favorable channel mix.
Results in the U S were also higher.
Okay.
The increase in corporate expenses, primarily reflected investments in growth initiatives as well as performance related compensation accruals.
Lower other results were related to bhangi ventures in our captive insurance program.
Better results on our noncore sugar and bioenergy joint venture were primarily driven by higher sugar prices, which more than offset lower ethanol prices.
Net interest expense of $95 million in the quarter was higher compared to last year, primarily due to higher average variable interest rates.
The increase was primarily due to higher pretax income in 2023 as well as the change in geographic earnings mix.
Let's turn to slide six where you can see our adjusted EPS and EBIT trends over the past four years, along with the trailing 12 months, reflecting our team's continued excellent performance, while also delivering on a variety of growth and productivity initiatives.
Slide seven details our capital our capital allocation of the nearly $1.9 billion of adjusted funds from operations that we generated year to date.
After allocating $321 million to sustaining Capex, which includes maintenance environmental health and safety.
We had approximately $1 $6 billion of discretionary cash flow available.
Of this amount, we paid $287 million in common dividends.
Invested $484 million in growth and productivity related capex.
Which is up significantly from 168 million. This time last year and repurchased $466 million of buggy shares, leaving $377 million of retained cash flow.
In October we repurchased an additional $134 million of buggy shares, bringing the total amount of repurchases to $600 million. Since we reported Q2 earnings in early August.
Yeah.
This leaves us with approximately $1 $4 billion remaining on our existing $2 billion authorization.
We expect to complete about half of the authorization prior to the close of Bioterror Viterbo transaction with the remainder to be completed within 18 months of that date.
As Sean shown on slide eight at quarter end readily marketable inventories or rmi exceeded our net debt by approximately $3 $2 billion.
This reflects our use of retained cash flow to fund working capital while reducing debt.
Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted EBITDA was 0.3 times at the end of the third quarter.
Slide nine highlights our liquidity position at.
At quarter end, all $5 $7 billion of our committed credit facilities was unused and available providing us ample liquidity to manage our ongoing capital needs.
Please turn to slide 10.
For the trailing 12 months adjusted ROIC was 19% well above our Rmi adjusted weighted average cost of capital of seven 7%.
Our ROIC was 14, 4% also well above our weighted average cost of capital of 7%.
Moving to slide 11 for the trailing 12 months reproduce discretionary cash flow of approximately $2 $1 billion and a cash flow yield of 19, 2%.
Please turn to slide 12, and our 2023 outlook.
As Greg mentioned in his remarks, taking into account year to date results and the current margin environment in forward curves. We've increased our full year 2023 E. Adjusted EPS outlook to at least $12 50.
With potential upside depending on how market conditions evolve over the balance of the year.
In agribusiness full year results are forecasted to be up from the prior year outlook and in line with last year as higher results in processing are largely offset by lower results in merchandising.
And refine our specialty oils and full year results are expected to be up from our prior outlook and last year's record performance.
In milling full year results are expected to be in line with our prior outlook and significantly down from a strong prior year.
In corporate and other results are expected to be down from our prior forecast and last year.
Yeah.
And noncore full year results in our sugar and bioenergy joint venture are expected to be up from our prior outlook and higher than last year.
Additionally, the company expects the following for 2023.
And adjusted annual effective tax rate in the range of 21% to 23%.
Net interest expense in the range of $340 million to $360 million, which is down from our prior outlook of $350 million to $370 million.
Capital expenditures in the range of one to $1 $2 billion.
And depreciation and amortization of approximately $425 million, which is up $10 million from our prior outlook.
With that I'll turn things back over to Greg for some closing comments.
Okay.
Thanks, John.
Before turning to Q&A I want to offer a few thoughts.
So looking at the longer term the fundamental drivers of our business remain in place.
Global population continues to grow and the need for sustainable solutions to meet that demand.
The World will continue to look the bogey to supply essential products and services to the feed food and fuel industries.
Our strategic combination with by Terra will help us accelerate our long term growth.
With greater diversification across customers assets geographies and crops.
We're creating a platform with enhanced efficiencies connectivity and capabilities across value change.
This will provide us with more optionality and allow us to even better serve the needs of both farmers and in consumers regardless of market environment.
In addition, we're continuing to progress on our other important growth initiatives, including.
Enhancing our footprint with targeted greenfields and bolt on acquisitions deepening.
Deepening our relationships with customers at both ends of the value chain.
Strengthening our digital capabilities and investing in innovative and sustainability oriented programs and products.
In Brazil, we reached an agreement to acquire C. J select a leading manufacturer and exporter of soy protein concentrate in Brazil.
Construction is also progressing well on our soy protein concentrate plant in Morristown, Indiana.
And we're nearly ready to begin serving customers from our new highly efficient multi oil facility in India.
We continue to help our customers meet the demand for sustainability and low Ci crops, we're executing on regenerative agricultural projects with multiple customers in multiple countries.
Helping to build sustainable integrated supply chains, and expand global regenerative agricultural practices.
For instance, tomorrow buggy and C P food, leading Asian feed and food company.
<unk> announced a collaboration to develop a blockchain solution for the traceability of deforestation free soy from Brazil.
We're proud of the progress we're making.
But also know theres still much to do as we continue positioning bogey to deliver on our critical mission of connecting farmers to consumers to deliver a central food feed and fuel to the world.
I continue to be impressed by the energy collaboration innovation and commitment of the bhangi team as we work together and with key partners.
Find solutions to the world's most pressing food security issues.
And with that we'll turn to Q&A.
Thank you.
We will now begin the question and answer session.
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Yeah.
The first question comes from Andrew <unk> with BMO. Please go ahead.
Hey, good morning, Thanks for taking the questions.
So I guess my first one you know you alluded to some of the upside opportunities for the year.
And when you talked last quarter about some of them and I believe there was the thinking was that there's even more upside really was more in <unk> than in <unk>, you talked about merchandising opportunities dislocations potentially China can you talk about how those are shaping up relative to what you were thinking three months ago or or some of those opportunities have evolved at all where you see.
The upside potential.
Sure.
You know I'd, just start by saying that solid execution by the team has really been the key here continues to be really dynamic, but the ability to to deliver the strong Q3, and then give us the confidence to raise the year is just fantastic execution.
So we we've seen crush margins are improved recently and that's really been on the back of of soybean demand improving.
Oh, that's allowed US to go ahead and lock in a lot of Q4 on the crush side.
We're of course, not seeing that that same visibility into.
The Q1 and Q2.
We do expect that to kind of develop over the over the first quarter.
But you know.
Overall, we're still on the back of a really.
Tight situation globally, and we expected that to play out right as we got to the end of <unk>.
Argentina was a crop really are about less than half of last year.
And so we did have to call on crush.
For the rest of the globe to step in and provide that we've.
We've continue to also see strong oil demand in North America, and that's both from.
Food as.
As well as fuel.
And that has of course, driven the opportunities are not only well.
Hi, crush has been volatile, but crush margins have been volatile, but actually they have been.
<unk> been very strong and we've seen that pulling oil for re formulation and pulling imports. So I think that's those are going to kind of be the drivers that will continue to see here.
Q4.
Okay, Great. That's Super helpful. And then maybe as a follow up to that as we think out to next year and I'm certainly not asking for guidance, but I guess I'm. Just curious how you think about what's durable from this year and what's not certainly theres a lot of conversation in the market about U S. Crush margins given the curve refined oils has been kind of consistently stronger than you were.
Anticipated, Brazil is going to have another big crop. So how are you thinking about you know it could be similar or different in 24 versus 23. Thank you.
You bet I think what it will be similar as until we get another look at the South American crop and you know while the weather patterns look like you're setting up favorable.
For South American with an El Nino, that's really not how the planning is starting so we do need to see.
That weather happen and see a good crop, but if you can get.
Strong crops, you know we had a record in Brazil, if we see another record crop.
In Brazil, and then see the crop.
I think the USDA thinking we could see a crop in Argentina on soybeans even.
Back above 22 levels, but that'd be about twice what we saw for production this year.
That starts to make South America again very competitive.
Globally on soy exports as well as.
Exports to China, but it's on meal and oil so that'll be the one to watch, but remember we're not going to get that until April or later. So this tightness will continue through.
Through Q1, and so as we get more visibility. We will you know the first half we will see we'll be able to kind of lock that in and then see how weather plays out.
Here in the second half.
And the other is ultimately on China, where we look at soybean imports.
And probably to be flat in corn imports to be up.
But you know China is a very savvy buyer and we've seen it can really depend on prices when they'll they'll reload stocks. So I think any surprises there could be.
To the upside on volume and be supportive also on the on the Merck side.
Okay. I'll go ahead and pass it on thank you.
Thank you thanks, Andrew.
Thank you.
The next question is from Ben <unk> with Stephens, Inc. Please go ahead.
Hey, Thanks Duane.
Good morning, Ben.
So I want to ask about the buyback you've made good progress already.
More than $450 million in the quarter and then it looks like more kind of since the end of quarter close when you think about kind of your goal of 2 billion within.
Within 18 months of the <unk> closing.
Is that timeline getting pulled forward.
And how are you thinking about kind of balancing cash flow as it relates to deploying the cash versus the buyback.
Yeah, you know look I think you know as of now we're keeping the timeline fairly steady now that could certainly accelerate given the steps we've made already but when you look at 2024.
We've got a pretty robust pipeline of capex projects to execute we we had significant increase this year in capex and a lot of that relates to some big Greenfield projects that are underway and we will have.
Similar or maybe even slightly higher capex next year related to that we announce CJ selected that will close in 2024.
That's going to be a draw as well, we'll see how things shake out on the cash generation side as we go into the year and then we'll balance that obviously with with share buybacks and in other M&A opportunities that might come up but ultimately.
As we get near the close of the Vitaros transaction, we do want to try to target certain leverage ratio at close and so that might impact timing as well, but but whether we pull it forward or not we still remain committed to hitting the $2 billion.
Okay great.
And then Greg just to revisit Andrew's question around next year.
Could you just kind of stack on each side of the ledger the potential positives and negatives that you guys are paying attention to as of now so we can be mindful of them.
Yeah.
Sure.
I'd say in the first half that the tightness that you know that we expect that then we talked about the size of the South American crop of course.
Remember what we saw this year and that is kind of good for our global footprint and well being pretty balanced globally has helped us deliver.
Our most complete footprint is South America, and especially Brazil. So the record crop there was good for our export system as well as our crushing system.
It made South America more competitive versus North America.
On bean exports, which.
Kept some more beans at home in the U S, which actually you know our crush franchise is bigger than our export franchise in North America. So again that was a that was positive for a for a crush franchise. So if you see another record.
A record crop there in South America.
We will have that same benefit in Brazil, and then you know Argentina, which has been a drag this year would be it would be a bigger contributor next year. So those are.
We're we're watching the weather I think when you when you think about 'twenty four and the things that you know.
Create.
The uncertainty or less visibility in the second half right.
Right.
Geo politically.
Policies.
Conflicts that are going on I mean, those are the things that can create dislocations in the crops and in the oil flows what.
What I will say as I've got.
No absolute confidence in our team to execute by staying focused on the things that we can control.
Of course, you've got the government policies around Biofuels.
And that's you know Rd, and eventually Saf being.
<unk> develops but the one thing that we've seen it.
Definitely appears the regulators want these markets develop and as we show that we've got the supply there I think we will we believe that policies can even be adjusted to ramp up demand. So.
Exactly it's the channel was up until the right there'll be some volatility in the supply and demand as those markets sort themselves out but it is a it is new demand to this industry and it's firmly in place.
And then I know I touched on the weather right. We've got to watch you sell Nino should be good for South America, we're not seeing that right now and then what it does to river levels in the U S where dry and we've seen this year that was another thing that it didn't make the U S. As competitive on exports was the the low river levels.
Which again her her to export but benefited crushing and processing.
And then you don't China always it's always tough to predict but very important important customer for beans and corn.
Lastly on the on the merchandising piece it kind of ties into round.
Serving our crushing serving our third third party customers and then just.
Overall in corn, wheat, and our freight opportunities so.
This this dislocation there can be upside there, but a lot of confidence in the team.
Two.
To execute but it definitely gets a little less clear in the in the second half.
Okay fair enough great congratulations on the quarter.
Thank you very much.
Thank you.
The next question comes from Manav Gupta with UBS. Please go ahead.
Good morning, guys I wanted to ask you know I understand you're still negotiating your way through the <unk>, but have you had a chance to speak with their bigger shareholders and present, a proposition where they could become longtime shareholders bungie. So they can hold onto the stock even once the lockup period is over.
Yeah, let me start joining finish but look I think one of the things that we were really excited about the <unk> deal and what's great is they've got two great.
Shareholders that really know this business.
Glencore.
And the the Canadian pension funds.
And as you see P P and PCI so they are.
They wanted equity in fact, they wanted more equity than we ultimately gave them and they want the ability to buy more equity for the long term because they believe in the power of the combination they believe in the industry on the important and central role the industry plays.
And they want to be they want to be able to add on to that investment. So that is all.
Laid out in the agreement.
They are going to have two board seats. Each so they'll have four of our 12 aboard seats will be from our new shareholders. So we're really excited.
To be able to get not only the teams together and the asset bases together.
Once we are able to close this transaction, but we're excited to bring those new board members in and bring that experience.
And that knowledge to help drive this business. So just excited about really all expect aspects of the combination.
Perfect. My quick follow up here is I'm wondering if I understand a little better what do you see as the demand for refined buses unrefined soybean oil and the reason I'm asking. This question is some of these new units I'm coming up with BP use E. The BP was that not the demand that's struggling and be what we have heard from some of the producers is that.
The BP you would be more for tallow and some of the other very hard to process feedstocks.
Me not be running unrefined soybean oil to lag. So just trying to understand that even with the deals is there a possibility that we can clearly see some demand growth on the refining so it'd be noise right.
Yeah. This is John.
We have anticipated over the long run that that produce or Rd producers would shift ultimately to two crude soybean oil.
Away from refined but it has been slower than expected and I think that.
It's really more right now about there is new is the new Rd production comes on it may have pretreatment capability, but the existing units havent necessarily transition. So the demand we have today for our for our refined as we expect to be fairly steady for a while even if there is growth as the new production comes on and that has pre.
Treatment, but certainly we've heard some similar things in and we believe we can be a great solution either way, whether it's a refined or accrued soybean oil and and also as we've as we've said before we think we have a place in the supply chain around low Ci feedstocks as well and it will.
We continue to work on that so that we can provide our energy customers with with the with everything they need.
Thank you.
Yeah, and I would just add when you don't one thing we've said that that margin right it'll move around between our.
Our value chain, you may see some of that moved from refined.
Back into the crush with the demand for for crude oil and then I would just also say you hit on an important part, but yeah. It does take some time to get these units up.
Running and get the catalyst dialed in.
And what we hear from some of the folks as they handle some of these other oils that are more difficult part of that is using the refined oil for a dilution. So we play a role.
You know long term, even as they bring in other feedstocks.
Thank you.
Yeah.
Thank you.
Next question is from Ben Taylor with Barclays. Please go ahead.
Yeah, Good morning, Greg John Congrats on the results.
Thank you Ben.
So just quickly following up on that acquisition, you announced in Brazil, a sea change there like is there any more.
Detail you can provide I E like how much youre going to pay for that so that we can kind of factor that in within our capital allocation assumptions for next year could you disclose that number.
Yeah, it's about 600 million Ben.
Okay perfect. So obviously in light of that and thanks for that clarification, and then putting it into context from a from a capex perspective. So you said, 1% to $1 2 billion, maybe a bit more next year. If we get the 600 million that gets us maybe close to 2 billion add on a little bit of buyback. So if we think about the cash flow generation.
And your dividend policy, which in the past you've you've tried to increase that how should we think about that going forward just given the cash outlay, you're going to have for that see janssen like the acquisition plus capex plus the buybacks.
Fair to assume that dividend might not be on the right on the on the growth side next year.
Well I don't think we're ready to say that yet I think you know we are committed to our dividend as an important part of our return to shareholders.
And as we look forward, we'll assess out west with everything we have going on and with our outlook a timing of the share buyback we mentioned that.
Our goal is to get the other 400 million done by the time, we close the transaction, but that gives us some time to.
To take a hard look and historically, we we review that in Q1, and then we had generally adjust that when we get to toward May. So we will do the same thing. This year, we'll take a look you know, it's probably too early to tell but we certainly have a lot of good opportunities for capital allocation. So it's a good problem to have because we've got we've got a lot of great opportunities ahead of us.
But again.
Early but we are committed to our dividend as well we know that's important to shareholders.
Okay, perfect and then on Argentina, you've mentioned it a couple of times with the expectation of hopefully getting maybe better supply et cetera, but obviously there is also the political risk manger in with the upcoming elections and a little bit surprised that would come over the last weekend.
Can you help us understand.
The two extremes.
What potential impact could be for the industry as a whole and for <unk> in specific.
Yes.
Start by saying I'm not a great political.
Nadir.
We now forecast I will say we've been in we've been in Argentina, a very long time and so we have worked closely with the government agriculture is a very important industry.
We've worked with a lot of different regimes to help them accomplish their goals.
I think regardless.
Of who's in charge following the November election.
It's not a light switch that doesn't happen overnight it takes a while to effectuate change.
We want to be a good partner to the government and we will be there.
Okay, I guess, that's as much as you can say for now well. Thank you very much and congrats.
Thank you.
Thank you.
The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
Morning, Adam Good morning, maybe going back to the refining and specialty oils I mean this business.
Performance that you've raised the outlook again, it's been a pretty consistent source of upside for a couple of years.
At this juncture and as we look at the more recent kind of performance doesn't seem to imply.
The South America business operating in it.
At its peak potential, particularly in Brazil, and so I'm just trying to as you think about the medium term in refining and specialty oils and I understand that some of the refining premium in the U S. Mike go to crush over time, depending on how the pre treatment.
Works, but how are you taking a more constructive medium term view of the earnings potential here or what would hold you back from maybe kind of further.
Updating kind of the medium term.
Outlook, our profit contribution expectations from from this business unit.
And what one thing and I should I should probably.
Clarify or remind everyone of I mean, that's a that's a great global business and we have done a lot of work. The last few years to really improve everything how we're integrated with our value chains on the risk management, how we're working.
With customers and our customer segmentation.
We're working with customers on innovation and with the supply chain problems.
That the industries went through as well as.
A lot of switching on the oils now remember over 80% still goes to food, even though theres, 20% going to fuel ore to feed.
We're seeing some of that re formulation.
But the food industry is very strong there we added that Avondale refinery in Louisiana. This year, and we integrated that right into the network and that's allowing us to import additional seed.
Seed and tropical oils.
And serve our food customers here in North America.
So overall the energy demand is important but there is a great strong underlying business there that's executing very very well for our customers and thats both.
The brands that are the CPG brands some of the famous brands that you know well as well as.
In the foodservice space as well.
Okay. That's helpful. And then maybe just going over back to the CJ select our.
<unk>.
Can you just talk about how we.
We kind of we already having a relationship with and Copa who I believe is also one of the major soy protein.
Gentry producers in Brazil, So how does the select acquisition kind of fit with kind of relationships that you already have with one.
One of the other kind of major players in that market and guests more broadly how do you do you think about the long term growth of that.
That category of ingredient.
Longer term.
Yeah, I think it's a great fit right for us to run our programs, whether it's working with producers to add value on the running the non GMO programs.
<unk> already been on the on the GMO programs allows us select is a big.
Supplier to the feed.
Industry and the Aqua culture.
Continues to have nice growth.
So we see them definitely as complementary and then of course, as we bring Morristown up and what we.
I wanted to do strategically writers have a great footprint in North America, and South America with a low cost position with that direct connection to farmers.
To build those transparent verifiable supply chains for our customers and ultimately lower Ci products.
In and grow with that market because its going to grow.
All need has been soft, but the kind of traditional use of it.
Extending in traditional meat continues to be strong we're seeing growth in dairy and growth in pet and then as we said growth in the Aqua culture. So this is another one of those that just long term is a place we have a right to win its a natural adjacency.
It also adding selective that was kind of the last area in Brazil, we didn't have much of an origination footprint and we want to be able to serve all of our producers and then of course with our partner <unk> with the ratio will be able to bring some of those regenerative practices and other practices to our farmers. So really it's about.
Continuing to build out our footprint, where we've got those gaps and do what we're good at and stay really focused.
Okay.
I appreciate all that all of that color I'll pass it on thanks.
Thank you.
The next question comes from Salvator Tiano with Bank of America. Please go ahead.
Yes. Thank you.
So personally I wanted to also ask them about the <unk>.
If I heard correctly, you mentioned was 600 million and firstly I want to clarify a little bit because I think some reports from.
From Korea, and the price was under 400.
So what's the difference between what the seller said then perhaps you mentioned you've done that.
These are substantial acquisition can you discuss a little bit.
Some of the metrics perhaps.
Alright contribution to profitability the volumes that are being processed or anything else that's relevant.
First thing Salvator as the the.
The Korean owners that announced only owned 65% of the debt.
JV. So they were just reporting on their proceeds they were going to receive in the transaction.
With respect to the overall how to think about it you know we're expecting.
Early on low low teens return, but.
Getting to mid teen returns on that project and it will be accretive day one.
In terms of what we can do with it I mean, I think our goal is to grow that over time as Greg talked about the markets that we should be able to serve out of that asset. It's very complementary to what we do today, but also a growing European market. For example is it has been a destination for that for that plant in that operation and so on.
We're pretty optimistic about it but it will be we take day, one very good accretive project for us.
Perfect and I, just wanted to pull up a little bit.
And Thats come about international crush margins that haven't really it would be great.
And if you can just give us an update where things are today in your key non U S regions versus what they were on average for Q3.
Sure.
Look at China crush.
Crush margins have been volatile all year, there it's very spot.
But our team has done a fantastic job we've had a very good year in China better year than last year. In Q2, Q3, we actually are great coordination between our industrial and commercial logistics team ran record volumes for us and so animal numbers continue to hold.
In China, so while it continues to be very spot it looks like some of that will carry into into Q4.
We talked about Argentina and of course, you've got about zero farmer selling right now, they're so until we get to new crop Argentina continues to be.
On a non event very very tough situation.
And then we've seen.
Margins improve in Brazil, and that's really good global demand in the back end of what was at record crop now the farmer has been a little sporadic on an old crop selling no.
South American farmers were watching the weather situation developed in North America to ensure that that there was going to be a crop there, but then as.
You know as that crop kind of came home in North America. Then we saw some some better selling of new crop selling has been been pretty slow so that'll that'll be the keys to watch there as well.
In Brazil, I think long term, we switched in April from BP tend to be 12, and then each year, we will add 1% demand. So we're starting to feel that as well and then look North America Theres definitely.
<unk> been a lot of volatility in the crush margins and we've seen that in oil as we've added this.
Energy demand that oil pipeline is pretty sensitive right. We've seen a drawdown stocks you can get pretty tight and we've seen that loosen up when people had opportunities running and I think that that will continue to be that way, but there is strong oil demand and and now we're seeing the meal demand.
Start to start to return and that's really to serve the rest of the world with Neil might come in coming out of Argentina.
If you look at soft margins they've really remained.
Good globally, and that's a strong oil demand and it's also been good seat supply. If you look in Europe and some of Thats, you know, Ukraine, where you're seeing switch to <unk> at the expense of corn or if you look in Canada, where we seen the canola crop get a little bigger than anyone expected and production been better there. So that's been.
Supportive as well.
Thank you very much.
Okay. Thanks.
Thank you.
The next question comes from Thomas Palmer with Jpmorgan. Please go ahead.
Good morning, and thanks for the question.
Good morning.
Maybe I'll follow up.
Soybean oil and kind of what Youre seeing I know you just referenced yet, but we have seen.
Some pricing weakness as we look out over the past month or two in the U S. Do you think this is anything.
In terms of eroding demand is it more supply driven and kind of how do you see this playing out over the next.
A couple of quarters or so because it did sound like you're pretty positive on overall demand picture, but at least what we're seeing in pricing would suggest some degree of imbalance.
Yeah, as we said I think the long term fundamental drivers there of more <unk>.
Demand food has held in there and fuel we know that demand is going to grow as well.
We see already projects continue to come online.
It'll be a little choppy, depending on how things are running crushers running hard we've got some new crush coming online and the market will have to.
[noise] to do some some adjustment, but global stocks of oil or fairly balanced look palm.
Still from a production.
On on how is producing probably going to get tighter.
You know first half and tighten up the global oil situation.
And then the nearby softness some of that is driven around.
<unk> in that and then the meal demand stepped in and so that'll continue to be a bit of a battle on whether meal or oil is going to carry the crushed I don't think it's going to be a straight line to either one.
As we move forward.
Thanks for that.
And then just on the M&A side, you do have in your presentation. The reference to smaller scale M&A, just any update in terms of businesses or assets that might make sense areas of your business and then what are you seeing in terms of seller expectations, you think they appropriately reflect market conditions and the interest rate environment.
Well I'd, just say look we're going to stay really disciplined driving and we're sure not going to do anything that would create any slowdown or conflict to get the the vitaros.
The deal closed in and through.
Through the regulatory process. So that's number one but otherwise our targets continue to be in those areas, where we need to to fill in some strengths, where we see the long term growth and where we have a right to win and that's why you see J select there was.
A great example, its been you know it's been a target for four years and quite frankly, it's how we think about saying our team.
We're constantly updating and challenging our list and developing.
Those relationships.
So that when those right assets do come available at the right price.
Wanted to do those deals.
We've had a chance to do.
Deals along the way that Werent at the right price and we've stayed stay patient and we will continue to be disciplined.
And do them when they are available at the right price.
Okay. Thank you.
Yes.
Thank you.
The next question comes from Sam Margolin Wolfe Research. Please go ahead.
Good morning, Thank you for taking the question.
Good morning, said, Hey, Sam.
I want to go back to the tariff if I could to start in the grains market.
You said you mentioned that Theres some opportunities right now I think you're maybe referring to like market structure of corn it's.
Pretty significantly in contango and.
It seems like the tariff has an opportunity to generate a lot of cash between now and when the deal closes and it might be material to their capital structure at the time of the close and I Wonder if you can talk about weather.
<unk> operations within this dynamic are part of your conversations with them as you as you talk about the merger that you referenced.
Yeah Yeah.
Fortunately, we still have to operate separately until we can get the deal closed so we continue to be.
Competitors, but when we did talk about the combination as we think about the future when we get the opportunity.
To run these business together one of the things. We're most excited about right is that our assets are in different places and you know our strengths being processing and then theres being origination.
Origination.
Handling and storage and distribution.
It is a great offset and I think you've called out exactly right part of the diversification that comes in that combination is with all of their storage storage when you get into a carrier contango.
Yeah, it's definitely good for their system and that's part of the diversification and that that will get with that combination. So yeah. That's the big crops are definitely should should be good for their system looking outside in here.
Okay, sorry that was a little bit of a tough one and this one might be more straightforward you can probably sense that.
There's a lot of <unk>.
Tension and maybe even investor anxiety, just around board crush and the volatility I mean board crush is always volatile right.
Backwardation and now the crush curve is actually pretty stable and that seems like it might be kind of a better operating environment for you as opposed to kind of a really high front month crush and then and then lower out on the curve I mean can you talk about how market structure might be influencing your outlook for <unk> for.
For crush here in some of your earlier comments. Thanks.
Yes, probably.
Probably two things to think about one the egg markets in the.
The crush in the curve.
Liquidity is always in the first 90 days the first quarter and then the second quarter out some of that visibility and liquidity is there, but not as much and that's kind of historical.
With these market so yeah when when the market is such that we're getting more signals theres more liquidity and more visibility a little farther out that that's a better operating environment now the other I would say is the board the board crush is part of.
The calculation of course, the cash crush ultimately what how.
How we execute each of those legs in the cash market.
As ultimately the money that we bring to the bottom line for for all of our stakeholders and I think what you've seen in the execution.
Even after we get.
Ourselves hedged out.
The board ultimately its getting hedged out on the cash and how the teams execute right up until when we received the beans and ship the oil and ship the meal there is opportunity to continue to upgrade.
And maximize the what our ultimate realized crush value is and Thats, where I think the team has been doing a fantastic job. If there ends up being upside in Q4, the drivers will be what we have open and to see crush margins improve as we locked it and it would also be in the quality of the execution around the cash legs.
That are still open or as we see.
Some dislocation and changes in our global footprint.
Understood. Thank you so much.
You bet. Thanks, Dan Thanks.
Thank you.
The next question comes from Steven <unk> with.
Hey, good morning, Thanks for taking my question.
Good morning, I wanted to come.
Come back to maybe the soy oil part of the equation for a second and kind of some of the weakness before rents and.
Maybe if you could just provide some thoughts on why right now it seems like some of the weakness in the Rins market is kind of.
Flowing back into soybean oil rather than kind of compression by compressing Rd margins and then.
You also talked about the possibility of some policy.
Changes to maybe help some of this out I mean do you have a rough timeline for when you think that could.
Take shape and what kind of policy.
Policy adjustments with you.
Thank you.
Okay.
Yes. This is John.
I think I think related to D for rents.
Certainly some of it has to do with with the relatively low RVO that came out.
India biodiesel being imported into the U S. That's carrying runs with it and so the market feels a little heavier right now, but but ultimately I think the policy change.
That's coming in 2025, where we switch from a blenders credit to a producers credit will should have a positive impact for us and for RIN values at that point.
So we'll be watching that closely and then ultimately what is the what does EPA do with with RVO levels.
As California's implied that they'll take a harder look at what production capability is an adjust.
Their target blending requirements in California based on the industry's ability to produce Rd.
24 will be a bit of a transition year.
Here, we'll see we'll see how things shake out, but I think long term, we're still very positive on the direction.
Okay. Thank you.
Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to Greg Hackman for any closing remarks.
Alright, Thank you I'd like to thank everyone for joining us today and appreciate your interest and support of bogey again I'd like to thank the team for great execution and just the focus on the things that we can control and what continues to be.
A complicated world, but we continue to be confident in our ability to execute.
Look forward to seeing you again have a great day.
Thank you.
Conference has now concluded thank.
Thank you for attending today's presentation you may now disconnect.
Yeah.
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