Q2 2019 Earnings Call
Good morning, and welcome to the Bungay Limited second quarter 2019 earnings release and conference call.
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I would now like to turn the conference over to Ruth and Wise in her Vice President of Investor Relations. Please go ahead.
Thank you Andrew and thank you for joining us this morning.
Before we get started I want to let you know that we have slides to accompany our discussion.
These can be found in the Investor section of our website at Bundy Dot com under Investor presentation.
Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well.
I'd like to direct you to slide two and remind you that todays presentation includes forward looking statements that reflect bundy's current views with respect to future events financial performance and industry conditions.
These forward looking statements are subject to various risk and uncertainty.
But he has provided additional information in its reports on file with the FCC 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 Hackman, Bundy's, Chief Executive Officer, and John Apple Chief Financial Officer, I'll, now turn the call over to Greg.
Thank you revamp and good morning, everyone.
We have a lot to discuss today, so let's turn to slide three four we dive in on 100 years, John <unk>, Our new Chief Financial Officer, who joined bogey in May.
'cause perspective in leadership, along with his industry experience will be a great benefit for us and I'm delighted to welcome John to the buggy team.
I also want to welcome our new Chief Risk Officer, Robert Wagner, who joined US last month.
I worked with both Robert and John for well over a decade, the gavilon and conagra and they're already making substantial contributions here a bogey.
Now to the other items on our agenda shown on slide four.
I'm going to provide a high level view of developments and results in the quarter.
Progress progress against our strategic priorities.
And our outlook for the balance of the year.
Then I'll hand, it over to John for deeper dive into the financials.
And finally, we'll open up the line for your questions.
So let's go ahead and get started turning to slide five.
Second quarter 2019 results benefited from timing differences and the contribution from a venture investment.
Core business results were generally in line with our outlook.
So I crush was helped by higher volumes.
But also impacted by lower structural margins this year.
In grains, our South American results were higher while our north American team managed to extreme weather conditions.
Which impacted both our operations and former marketing patterns.
Results in edible oils were better in North America, and South America, and essentially flat year over year in Europe and Asia.
Sugar and bio energy benefited from lower costs, and better ethanol volumes and prices while fertilizer results also improved in the quarter.
The net unrealized gain related to our investment and beyond meat sits within buggy ventures, our venture capital unit.
We haven't discussed ventures, often but it's an important vehicle as the competitive landscape and consumer preferences drive change and as technology continues to accelerate innovation and transparency in our industry.
I continue to feel very good about our focus and our progress on the key priorities, including strengthening financial discipline and risk management.
And our ability to optimize the performance of our physical flows.
As we work towards our new global operating model announced last quarter.
We are seeing an engaged and energized team improved speed of execution and risk management, the better supports our commercial decision making.
As we announced earlier this month slide six lays out our agreement with BP to contribute our sugar and bio energy business to a new 50 50 joint venture in Brazil.
We will receive $75 million in cash at closing.
And we'll transfer 700 million in debt to the JV on a non recourse basis.
Turning to slide seven.
With this JV, we will own 50% of an entity.
That will be number two in Brazil by actual crush volume and operating with a conservative capital structure.
On slide eight.
We have a strong partner NBP and we also retain flexibility for further monetization.
So we're very excited about this transaction it meets all of our strategic criteria and enables us to reduce leverage.
We expect closing before year end subject to regulatory approvals.
Following the close we will no longer consolidate this business.
In addition, we anticipate an impairment charge of between 1.5 and $1.7 billion in Q3.
And last on the next slide.
Our view on 2019 full year consolidated results has not changed from what we originally shared with you in February .
That results will be similar to last year over the change in the mix given materially lower forward soy crush margins plus a slight improvement in softseed crush.
We also expect improvements in grains and food ingredients. This year, while fertilizer results will be flat.
In addition, the macro factors that we called out last quarter remained a major source of uncertainty for all market participants.
African swine fever continues to impact Chinese demand for soy meal.
Combined with the unresolved us China trade situation.
This is altered both typical trade flows and producer marketing patterns.
We continue to monitor these factors and will leverage our global footprint is needed to ensure uninterrupted and interrupted supply for our customers.
While managing margins and physical flows to optimize our own results.
We expect to finish the year as we had projected.
We've given timing and cyclicality second half results will be largely weighted to the fourth quarter.
I'll now turn the call over to John to go through the numbers in greater detail.
Thanks, Greg Good morning, everyone. It's great to be here, a bogey and I look forward to working with all of you in my new role.
Let's turn to the earnings highlights on slide 10.
Our reported second quarter earnings per share from continuing operations was 100 $1.43 cents compared to a loss of 20 cents in the second quarter of 2018.
Adjusted EPS was $1.52 in Q2 versus 10 cents in the prior year.
Our results include $135 million net unrealized gain on buggy venture stake in beyond meat.
Total segment EBIT was $354 million in the quarter versus $71 million in the prior year.
On an adjusted basis, which excludes notables total segment EBIT was $370 million in the quarter versus $117 million in the prior year.
In agribusiness, adjusted EBIT was $189 million compared to $118 million in the prior year.
In oilseeds structural soy crush margins were lower as farmers retained soybeans in anticipation of higher prices and meal availability increased as urgent time supply returned to the market.
Second quarter results benefited from approximately $70 million timing benefit as soy crush margins decreased in many markets towards the end of the quarter, creating more to market profit in hedge contracts.
As we execute on the physical business. These gains will effectively be offset by lower realized margins, mostly in the third quarter.
Trading and distribution results were lower than last year.
In grains origination improved due south America, benefiting from lower costs and better logistics.
This more than offset lower results in North America, which were negatively impacted by the combination of extreme weather and low exports due to the poor reverse logistics and the ongoing us China trade dispute.
Well results in trading and distribution, we're not a contributor to the quarter performance was higher than last year.
The Green segment generated EBITDA of $25 million, improving from a loss of $22 million in the same quarter last year.
Results for the quarter were largely driven by ports and origination.
Food and ingredients adjusted EBIT was $49 million slightly better than $46 million generated in Q2 of 2018.
Improved result in edible oils were primarily driven by higher margins in South America.
In North America stronger demand contributed to better results versus last year.
Results in Europe , and Asia were down slightly year over year on timing differences arising from FX hedges.
Milling performance was lower than last year, mainly driven by Brazil, where results were impacted by lower volumes and margins as customers remain price sensitive, particularly in the foodservice channel, making it difficult to pass along higher input costs.
Adjusted EBIT losses in the sugar and bio energy segment narrowed to $9 million in Q2, 2019 and improvement of $31 million year over year with higher sugarcane milling results, primarily driven by lower costs and increased ethanol volumes and prices, partially offset by lower sugar volume and margins.
In 2018 results for this segment were impacted by a $26 million losses, sugar trading and distribution due to both unwinding activity in preparation for exiting the business and a $14 million bad debt charge.
Fertilizer adjusted EBIT for the quarter was $6 million improving from a loss of $7 million a year ago.
Hi results in the quarter, primarily driven by our Argentine operation, which benefited from higher volumes and prices and lower costs year ago results were impacted by foreign exchange losses.
Our tax expense for the quarter was $60 million the effective tax rate of 22% was on the low end of our expected range of 22% to 26% impacted by the net unrealized gain from our stake in beyond meat, which was recorded with a 10.5% effective tax rate. We continue to expect a tax rate of 22% to 26% for the full year.
Let's turn to slide 11, the cash flow highlights.
Cash used for operations in the first six months of this year was $1.1 billion compared to cash use of approximately $3.5 billion in the same period last year.
The year over year variance is primarily due to a significant increase in inventory in the first half of 2018.
You will note that our receivable securitization program or is reflected in two components on our cash flow statement.
One in operating and one in investing as required by GAAP.
When netting these two related amounts are adjusted cash used in operations was point 5 billion versus $2.5 billion last year.
Our trailing 12 month adjusted funds from operations was $1.4 billion.
Our debt largely finances, our inventories as slide 12 shows approximately 70% of our net debt was used to finance readily marketable inventories at the end of the quarter.
Net debt of approximately $6.1 billion increased from $5.5 billion at the beginning of the quarter due primarily due primarily to an increase in working capital. It is in line with typical seasonal trends.
Net debt was elevated in Q2 2018 due to unusually high inventory purchases in Brazil, as a Brazilian ray I weekend in the commodity price basis increased at the start of the trade War.
Let's turn to slide 13, and our capital allocation philosophy.
We remain committed to our financial policy to be good stewards of capital. We will continue to seek the right balance of investing in our existing assets allocating capital to accretive growth opportunities and returning capital to shareholders. All of this we will do in a manner consistent with an investment grade rating with triple B being our long term target.
We are rated triple b flat by S&P, and the equivalent triple B minus by Moody's and Fitch.
We have committed credit facilities of approximately $5 billion of which $4.2 billion was undrawn and available at the end of the quarter and we had a cash balance of $238 million.
We had capex spending of $265 million in the first six months of 2019 compared to $220 million in the first six months of 2018.
We continue to expect Capex of about 500 $550 million for this year.
It should be noted that $86 million of our year to date and $115 million or forecast cap spending for the year is related to the sugar business, which will be contributing to the JV with BP.
We paid $79 million in dividends to shareholders in Q2.
Let's turn to slide 14, and our return on invested capital.
Our trailing four quarter average return on invested capital was 7.2% overall and 8.9% for our core businesses.
We will continue to use a benchmark of 200 basis points above our cost of capital as an important metric for ensuring we are creating value for our shareholders.
With that I will turn the call back over to Greg for some closing comments.
Thanks, John .
Thank you all again for joining us today.
I want to reiterate that seasonality and timing will place more weight on the fourth quarter to achieve our targets.
We continue to evolve our operating model to increase accountability and the speed of commercial decision making.
With a focus on getting closer to customers, reducing costs and better leveraging our global platform.
Our team is moving forward on the strategic priorities, we laid out.
Driving operational performance optimizing the portfolio and strengthening financial discipline.
Our new joint venture with BP in Brazil is just the first step as we increase focus deployed capital more effectively and seek to improve results for all of our stakeholders.
And finally, thanks to our sugar and bio energy team for their hard work to put us in position to create this JV.
And to our entire team for the excellent work to get the JV to this point.
And with that operator, let's open the line for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily.
To assemble our roster.
The first question comes from Heather Jones of Heather Jones Research. Please go ahead.
Good morning.
Morning.
I have a couple of questions.
I was pleased to see that you.
Maintain the 2019 outlook, but.
If you look at the forward strip.
Hi, crush margins have come down some.
Outlook for soft season.
In Europe will soften some due to tighter rapeseed.
Crop. So just wondering if you could help us understand.
With us from internal initiatives or was that you were able to keep your.
Your outlook.
Consistent with your Q1.
Thanks Heather.
The outlook for the business mix Hasnt changed we expect food ingredients and sugar to be up the year.
And then if you look at the first half even net of timing.
With a little bit better than we expected on soy crush.
No no doubt there are lot of unknowns and probably.
This time of year as always.
Tough on visibility, but it's even a little more typical than typically with the with the trade War.
But.
If you look at the forward curves from from where we put things together.
When we based our outlook in fab.
Across our portfolio weighted we're really not that much different.
Okay. Okay.
And then I was wondering if you could update us on your thinking as far as.
Hey, us ask what the obvious caveat that.
It could evolve.
When you're thinking about.
The magnitude.
Of the issue.
Timing.
Okay impacting your business or the industry.
Has your thinking changed at all versus Q1.
And if so could you elaborate.
No our thinking really hasn't changed.
I think.
Everyone continues to to try to get a handle on it.
But we didnt feel that there would be.
Big puts or takes in 19.
And we think any tailwinds will be out in the future and those are probably in 20, maybe even second half 2020 and in 21 for for any of those tailwinds. So really the same same thoughts at this point, but.
Don't know that we have a lot better perspective than the than the market does on this.
Okay perfect. Thank you so much thank you.
The next question comes from Vincent Andrews of Morgan Stanley . Please go ahead.
Hi, just a quickly just a couple of clarifications on the guidance.
First I assume it does not an implant include any sort of resolution of trade it sort of status quo on that is that correct.
Correct, we're not we're not going to make we're not going to make any predictions. So it's kind of what the what the forward curves what what they believe is going to happen.
Okay. Thank you and then second on the back half of the Fourq you loaded is it anything other than the timing differential in soy crush.
No just if you look back historically its normal seasonality and then the fact of.
A lot of the.
Timing issues that were pulled that was primarily from crusher was hedge in Q3.
And as you know crush was roughly the same to beginning in the end of the quarter, but of course pass matters. It rallied during the quarter and as we hedged off.
Some of the Q3 and then it came down at the end of the quarter of course that winning leg had to be mark to market, which which move profitability from Q3 into Q2 and Thats, what we were calling out.
Okay Fair enough and just lastly, there's an article out this morning talking about China going to Argentina to inspect plants to potentially open up their market to Argentine meal I would assume with your footprint you would view that as a as a net positive for you or how would you see that impacting meal flows.
We heard some noise about this in the market a few months ago and then it had gone completely silent until we until we saw that article this morning. So.
I'm not sure what to what to make of that so we'll we'll continue to watch the developments along with everyone else.
Okay. Thanks very much.
You bet.
The next question comes from David Driscoll of Citi. Please go ahead.
Great. Thanks, and good morning, guys.
And more NIM.
Yes, so I wanted to follow up just a little bit more on on X, Jeff Im just kind of have a walk through so.
I heard your answer to your to have this question, but you're thinking hasn't changed can you just give me just kind of dive into like just a few of the details I think many investors are confused by exactly what you do think and what you're seeing the first question on asset is do you still think that the market expectations.
A minus 20 to minus 30% reduction to the Chinese hog herd is that still correct or or do you think gets worse and where it's it's somewhat north of 30% can you give us some feel for the magnitude.
I think what Weve picked up in the marketplace. The blues publicly known that that probably if you had to pick an over under you probably picked the over on the 30% right now.
Is what the belief is.
And then if you look at.
What what has to happen.
Then as the demand for that that missing pork.
As Phil by Port from other areas of the World and.
Other species.
From a timing.
I think we had said any any effect of that from a tailwind we thought would be 20 or 21. If you believe it's alone larger maybe that's why I said, maybe it second half 20 and 21.
As you begin to see the recovery that I think the other.
Things we have talked about is if you believe that it comes back to a more commercial operations you'd probably see higher inclusions of soybean meal in the future.
And the other thing just.
As a reminder is only about 15% of our crush.
In in China, including the Vietnam JV there in Asia.
So as.
Beans backup in the rest of world and as there is more demand for meal in the rest of the world for the for the protein to fill that hole in the protein demand in China.
We do like how our global footprint sets and that's that's why we believe that we can see some some tailwinds long term, but none of that in 19, and maybe not even the first half a point.
And then Greg just following up on that so I think the first thing that happens here is less less hogs in China less demand for swing you know within China, and that's been negative impact or on the on the crushing operations certainly the Chinese crushing operations for the entire industry, but its Jeff Dan.
It makes everything a little sloppy right here in the in the near term maybe what I don't understand about your comment is once the Chinese go into international markets to replace that lost so team why wouldn't the why wouldn't there be a more or more rapid tightness occurring in crushing operations outside of China. So as they start buying lots of big from the United States lots of chickens from United States why wouldn't we see crushing rates in the U.S., Brazil, Argentina, Europe start to ramp and why wouldn't that be more towards the end of this year. It sounds like you think that's a much farther out.
Then I think what.
Some other sleep.
Just walk me through the physical flow. If you can if you will about why would take so long before that there would be some benefit as the Chinese undoubtedly have to replace.
Just lost substantial protein.
Yeah, and I know I don't know that we are the the expert on this but I will tell you I think what the market is debating in what we're watching you've got one the animal lifecycle, you've got to the investment to include increased production because what we don't believe there is a lot of open capacity out there.
And then three you've got all of the issues, even when you expand production on the animal side around.
Getting the labor getting the transportation getting the permits so it's not just flipping a light switch.
Okay, I'll leave it there and I'll pass it along.
Thank you.
The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Yes, thanks, good morning, everyone.
Hi, good morning.
So I guess my first question is going to be just on the outlook for the for the balance of the year.
Really just trying to get a sense of especially relative to where expectations would have been three and six months ago.
I I imagine the outlook for U.S. grains has has gotten worse given given the issues with the U.S. crop this summer.
I just want to make sure I'm thinking about that right and then just is it just that the export opportunities out of Brazil with the suffering your corn and Argentina have improved enough to offset just thinking about that balance and kind of how farmer selling or retention has has played into that as you as you look at the balance of the year.
Yes, we as we look at the balance of the year, if you think about our us.
Grain footprint grain handling storage distribution is definitely much smaller than than the balance of the world.
And there has been.
Some benefit for the for the U.S. crushing.
So were probably with our footprint not.
As exposed.
On that piece of it while it does make the trade flows difficult in planning.
Difficult in the rest of them.
Footprint.
We're not as directly exposed to that.
And farmer selling.
Just 10 minutes South America.
Yeah farmer selling in South America continues.
What.
Brazil has.
Closed the gap a little bit on on prior year, Argentina continues to be slower.
Farm continues to hold soybeans.
Head of the election really as as a hedge in uncertainty there.
And then also the U.S. the kinda as the settle out not only what.
What acres got planted but how that crop develops and the producer waiting to see a us China trade resolution.
All all things that give a.
I think the producer a reason to wait to commercialize the crop in the us So we'll see that happening a little later.
Okay, and then just Greg even been officially in the role now.
Said in their roles since January and I guess trying to just get a sense as you've kind of had time to more fully assess the operations and the portfolio. If you got any more updated our clear thoughts on.
On opportunities and size of whether it's kind of across just cost reductions just improve risk activities and what and what the contribution that could could you can mean.
Tom or.
Just size of kind of portfolio opportunities and just dimensionalize kind of some of the actions that you that you are looking at.
To improve the the overall returns to the company.
Sure look I continue to.
You know to repeat my early thoughts this is.
Fantastic Global footprint that this company has and we've got a.
Very talented experienced workforce I mean this is this is an exciting opportunity as far as specifically around the portfolio optimization. Let me give you a quick update there we've kind of moved I think I talked last time about three categories.
Three buckets of working.
We've we've moved really into into two major buckets right now we've got those things that are that are active in underway, where we've got dedicated an internal and external resources working on the projects.
And when they are you know when they are complete we'll communicate what weve done why be done at what it means for US. An example of that of course was BP. It was in bucket one got to the point, where we got it done and then we can share with you what we're doing.
So we've got things in bucket, one and then in the second category or bucket too. These are things that will go active when we free up capacity or the majority of those are or more housekeeping items than big items, but but they still matter and they still matter. It is simplifying our footprint, allowing us to take costs out improving our focus.
And improving our returns.
Okay, and just to clarify on the cost opportunity do you think.
Yes, the cost opportunity more closely linked with the portfolio or do you think that there's a sizable cost opportunity independent of the portfolio actions that you choose to make or not make.
Yes, we see two two channels one there there definitely through the simplification of the portfolio as we move those stranded costs from taking out the complexity and the other as we've talked about the change of our global operating model.
Where were collapsing the and eliminating the regional structure, where we're getting focused around the value chains or the assets and the employees that that operates as assets that serve the customers you know where prices established where innovation happens.
As we do that.
Not only gives us simplicity and accountability and speed to act, but the thing we love about it is the byproduct of that will be cost coming out of the system. So it's not a cost savings project, it's a business optimization project and the byproduct the cost savings so that'll that'll take some work as we re wire the organization, but but we're excited about the benefits of that.
Going forward.
All right really appreciate the color I'll pass it on thanks.
Thank you.
The next question comes from Rob Moskow of Credit Suisse. Please go ahead.
Hi, Greg excuse me warning.
Hi, Good morning, I don't remember hearing you mentioned loaders for the quarter.
Maybe you did.
But I think last quarter, you said that you were going to take more of a hands on approach and have it report directly to you for a while I how did the business performance second quarter and what have you learned over the past three months about how it integrates with bumpy.
Yes, it's.
I continue to feel good about the capabilities that that loaders has given us we were a touch soft.
In Q2 kind of on customer timing as well as a little bit late start up on or are gone and our China plants.
But we remain on track with the business case, we have integrated the loaders business.
Into our legacy a buggy b to B business.
We continue to focus on the de bottlenecking.
Bringing our industrial expertise.
To the combined platform and really optimizing that combined footprint and not only on the industrial side.
But on the on the go to market and the innovation with customers and then those are things that will pay off in 20 and 21. So there's only there's only one team together, there's only one team today, we're running the business.
Together and.
It continues to make progress.
Okay and another question are there any synergies that you could help us quantify with BP in the sugar business now if I, if I'm because I'm trying to get too could this become an accretive deal for you at some point.
Right now it looks around breakeven for 2020.
Have you have you worked through EPS mass for for 2020 at all or what incremental benefits could be of the combination.
Sure Let me, let me put John to work [laughter], Alright got me.
Yes, yes, I think you nailed it in terms of year, one is going to be largely a push for us.
No no meaningful change to our returns.
In terms of the first year, we do we do believe and expect.
Years, two and three to gain some synergy on this operation.
Both from a cost side, obviously, which is probably the easier one to get at first is a combined operations getting at the cost side, but ultimately the real key will be the operational optimization between the two the two platforms.
We do expect in Q or I'm, sorry in year two in year three to do to realize some synergy and I think that terms or total dollars I.
Reluctant to give a solid number but it will be meaningful enough that at least in how we work this with BP together to create an opportunity for accretion on the on the transaction.
Thank you.
The next question comes from Tom Simonitsch of JP Morgan. Please go ahead.
Good morning.
Hi, good morning, good morning.
So just going back to risk management can you elaborate on what you're doing differently in terms of risk management compared to prior years.
Sure.
How were.
Thinking about managing the what the or the earnings at risk in these assets right. That's the physical flows.
Involved with all of our handling processing distribution assets. So you think about it's all the grains and oilseeds.
On the way in and then all the products on the way out as well as all the freight and logistics.
That surround that.
So there is not only the inherent risk that we're helping manage in in our assets, but that that we're helping our customers on both ends of the value chain managed theirs as well.
And then ultimately just philosophically the net of those risks right is the risk that we have to the remainder risks that we have to manage and that is we're keeping it up the amount of risk, we're taking appropriate not only for our earnings power, but for the environment that we're operating in which is fairly challenging.
But I'll tell you Robert Whiting has only been here a month and of course, Brian's Ackman since January but.
Couldn't be more pleased with how how those two leaders and their teams are partnering.
Across the control and the commercial functions.
You're driving simplification, and transparency, which which helps us with our speed to act.
In managing the risks inherent in our business.
And at the end of the day right. It's about the key focus on the right things. So we're getting the right information to the right people at the right time.
Which helps maximize earnings in our portfolio, but it also helps eliminate the unforced error.
Hi, guys. Thank you for that and can you discuss your expectations soybean exports versus domestic crushing in Brazil for the reminder of 19.
We see things any different from the market and you know with the uncertainty the teams are continuing to analyze in.
Look at managing through a number of different outcomes. The main thing were working really hard to do is stay out of the way of any stroke of the pen risk.
Because things are just just difficult enough.
I'll pass it along thank you.
Thank you.
The next question comes from Ken Zaslow of Bank of Montreal. Please go ahead.
Hey, good morning, everyone.
And again.
So a couple of questions. One is can you just made how much lost profit was due to the weather just trying to.
Yes, we can give a couple of highlights on that.
John you want to take them, Yeah, I think you know Ken from from our view you know nothings exact obviously, but but I think we think in terms of somewhere around.
Was probably weather related.
As a team looked at lost opportunities and the delays and things impacting.
The big driver of logistics, obviously the river system and then then the former willingness around whether to hold off on soybeans waiting to see what's going to happen with this year's crop it create a lot of uncertainty as well so.
Again, not knowing the exact number but we believe that that is somewhere in the neighborhood of $13 million was kind of a guest from our guys.
The second question is.
Or start ups or anything that you're seeing that means you've been there for six months or so have you started any kind of wrap your hands are on the operational improvements and then I just have one more question.
Yes, I think a lot of it is been purely execution I think that the teams have done a great job. There is a lot of work done last year to create some.
Additional transparency on how we're operating the assets.
From not only having them up and ready from the industrial side, but then making sure commercially that we are.
Running running those assets and getting them the beans, there in time or the corner that we have there in time in the in the products away.
To manage that.
Some of that so.
Some of that's around the the planning process and then a lot of it is around the execution. So we're seeing we're seeing metrics improve and then as we said the others.
Working together as a team to avoid the unforced errors because this is definitely a tough environment and.
There's just not a lot of extra to pave over any portals.
Okay and then my final question is.
A competitor of yours last quarter.
Indicated that they can they had a return on invested capital of 11% to 12% they seem to be in the similar business to you.
Their initials, obviously ATM.
Do you think there is a structural reason.
Why you would not be able to get a return on invested capital similar to that.
I know your targets you know is 200 200 basis points above WACC, but why stop there is there something that limit that is there any sort of impediment.
Can you give us some parameters that just seems like there's no reason that you shouldn't be able to get there your business model geographically different but just any sort of color on that would be helpful.
Yeah, I told our team and I'm not sure if I said on the call before but look we're chasing that the two two above WACC and when we get there we're going to raise it again so that that is not an end state that is a way station on the journey here and we're pulling every lever possible.
From how we operate to changing the footprint.
To improve those returns so we're not going to be happy.
Add it to over our WACC, that's that's the first target.
Okay I really appreciate that thank you.
Brett.
The next question is a follow up from Heather Jones of Heather Jones Research. Please go ahead.
Hi, Thanks for taking the follow up.
What's your JV for B with BP you all are retaining.
Fairly large exposure to the Brazilian sugar business I was wondering if you.
What your thoughts on what the Renova bio program.
Just I know it would be just speculation on what are your thoughts about what that could do.
For those assets over the next few years like the earnings power.
Yeah, how we've thought about the JV is you know we couldn't be more pleased to have a partner like BP I mean, their global scale and fuels.
Track Records and expertise both between the two teams.
And this is this business is going to have the most conservative.
Balance sheet, but most conservative capital structure, Oh, we believe from anyone in the marketplace. So we think it puts us in the best position to operate in that marketplace.
Regardless of what everyone else does.
And the the other key thing is we have a clear path.
To monetization. So we're we're aligned to see the business operate very well.
As we are as we are joined owner and like I said before we were going to.
Run it like we were going to own forever till the day, we didnt now, we only own 50% and we will be great partners and run it like we are going on that 50% forever until the day, we don't.
What do you think renova bio is going to be a meaningful tailwind for that business.
I'll, probably wait until the deals close and let the new JV leadership kind of comment on their view of the competitive outlook.
Okay and less so the second question is on the economy in Brazil, you mentioned, so I'm still weakness there and the milling side.
Some companies have talked about early signs of improvement.
And that economy I was just wondering what.
What are your thoughts on on the state of the economy there.
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I don't I don't know that we have particular, you know insight other than what we are seeing publicly it indefinitely.
Feels like things might be getting a slight bit better, but I don't think anyone's to declaring victory at this point.
Okay. Thank you so much.
You bet.
Thanks for your time today and I. Thank you for your interest in Boggy. If you have any follow up questions. Please feel free to reach out to me later today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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