Bunge Ltd

Good day and welcome to the Bungie Limited fourth quarter 2021 earnings release and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. And I'd like to turn the conference over to Ruthann Weisner. Please go ahead.

Thank you, Operator, and thank you for joining us this morning for our fourth 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 investor section of our website at bungie.com under events and presentations. 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 today's presentation includes forward-looking statements that reflect Bungie's current view of the with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bungie 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, Bungie's Chief Executive Officer, and John Nepple, Chief Financial Officer. I'll now turn the call over to Greg.

Thank you, Ruthann, and good morning, everyone. Turning to the agenda on slide three, I'll start with some highlights of 2021 and accomplishments of the last few years, and then share a look into 2022. Then I'll hand it over to John, who will go into more detail on our performance. I'll then share some closing thoughts before opening the line for your questions. Let's start with an overview of the year, turning to slide four. I'm incredibly proud of our team and the outstanding results they achieved in 2021, allowing us to deliver adjusted EPS of $12.93. Our team's performance in a dynamic market environment is evidence that the way we've transformed the business over the last three years is creating the collaborative global culture that we believe would maximize the value of the company. When we began this transformation in 2019, One of our first changes was moving from a regional to a global operating model to improve visibility and speed to act. Creating end-to-end value chains enables our team to focus on serving our farmer and consuming customers rather than competing with ourselves. This approach also encourages the sharing of information and best practices, which allows us to work more efficiently and use our resources more effectively. Once we were all pulling in the same direction, the next steps became more clear. Bungie had an industry-leading portfolio with assets in some of the best locations around the globe. But we also had individual assets and businesses that did not fit the company's goal of growing our relevance with customers at both ends of the supply chain. And after a number of divestitures, we now have a footprint that's stronger than ever and a solid base on which to grow. One example is a successful plant-based lipids platform we're building through the combination of Lotus Croquin and the legacy Bungie Oils business. The Lotus Tropical Oils portfolio and innovation capabilities supported by Bungie's strength in supply chains and seed oils is a proposition that resonates with customers. While the entire oil segment delivered a record year, 2021 was also the best year for the former Lotus business. We use the same methodical approach in evaluating how we can improve financial discipline in the organization. We've rewired our systems so we have better visibility to our data, and we use that information in a structured way to make better commercial, risk management, and capital decisions. The team also embraced the spirit of continuous improvement throughout our operations. In the past year alone, the team set records in total crush volume, refining performance, and port volumes. We had over 100 CapEx projects, greater than 1 million each in 2021, and we delivered them safely with 95% of them on budget and on time. And the team accomplished all of this while doing it the right way, taking care of each other, and that's especially during COVID. We're also continuing to focus on fighting climate change with carbon-focused decisions, carbon-focused decision-making across our organizations. In 2021, we announced science-based targets to achieve absolute reduction in carbon emissions for our own operations and in our supply chains. Our industry-leading commitment to have deforestation-free supply chains in 2025 is a big part of our path to our Scope 3 targets. We also closed on the refinancing of a credit facility tied to sustainability targets. And we're actively engaging with other stakeholders to promote change at scale across the entire supply chain. While we certainly made tremendous progress, we know our work's not done. We'll focus on continuous improvement, finding ways to make Bungie stronger, and grow the business as we move forward. Let's turn to slide five. The team delivered an outstanding Q4 and full-year performance across all of Bungie's operations. Results in agribusiness were driven by strong execution throughout the value chains with refined and specialty oils posting record Q4 and full-year results. Thanks to their efforts, Bungie delivered a positive earnings trend for a ninth consecutive quarter. Before handing the call over to John, I want to spend a moment on our outlook for 2022. We expect favorable market conditions to continue in 2022. Based on what we see in the forward curves, we expect to deliver adjusted EPS of at least $9.50 for the full year, which would be the second highest earnings result in Bungie's history. With that, I'll hand the call over to John now to walk through the financial results in detail, and we'll then close with some additional thoughts on the year ahead. John?

Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on slide six. Our reported fourth quarter earnings per share was $1.52 compared to $3.74 in the fourth quarter of 2020. Our reported results included a negative market-to-market timing difference of $0.90 per share and $1.07 per share of impairment charges, primarily related to our Mexico wheat milling business, which is now classified as health for sale. Adjusted EPS was $3.49 in the fourth quarter versus $3.05 in the prior year. Full-year 2021 earnings per share was $13.64 versus $7.71 in 2020. Adjusted full-year EPS was $12.93 versus $8.30 in the prior year. Adjusted core segment earnings before interest and taxes, or EBIT, were $766 million in the fourth quarter versus $636 million last year, reflecting higher results in agribusiness and refined and specialty oils. Agribusiness completed an outstanding year with another strong quarter. In processing, results were higher in all value chains with notable strength in North American soy and European soft seed crushing, both of which benefited from large crops and strong oil and meal demand. Merchandising had a strong quarter driven by our global vegetable oil and grain value chains, as well as good execution in ocean freight. However, results were slightly lower than a strong prior year. Refining specialty oils finished off a record year with strong fourth quarter results of $154 million, up $42 million compared to last year. Results were primarily driven by improved margins in North America and Europe, which benefited from strong food and fuel demand. Results in South America and Asia were down due to lower margins and volumes. In milling, low results in the quarter were driven by Brazil, where higher volume was more than offset by lower margins. Results in North America were higher than last year, driven by improved margins. The increase in corporate expenses during the quarter was primarily driven by performance-based compensation accruals. Other was comparable to last year. Lower results in our non-core sugar and bioenergy joint venture were primarily driven by lower ethanol volume, which more than offset higher sugar and ethanol prices. For the quarter ended December 31st, 2021, GAAP basis income tax expense was $64 million compared to $97 million for the prior year. The decrease in income tax expense was due to lower GAAP pre-tax earnings. Adjusted for notable items, the effective tax rate for the full year was 16.5%, which was in line with the prior year. Net interest expense of $45 million in the quarter was below last year, primarily due to lower average debt levels. Let's turn to slide seven, where you can see our positive EPS and EBIT trends adjusted for notable items and timing differences over the past five years. This is an outstanding performance by our team, especially when considering numerous company initiatives and the challenge of navigating through the global pandemic over the past two years. Slide eight compares our full year SG&A to the prior year. We achieved underlying addressable SG&A savings of $32 million, of which approximately 65% was related to non-employee costs. Like other companies, we too are experiencing inflation, particularly related to energy and employee costs. We are working to mitigate the impact of inflation where we can. In 2022, we expect higher addressable SG&A versus 2021, reflecting increased travel, investment in our people, processes, and technology, and in growth initiatives to strengthen our capabilities to drive future value. Slide 9 details our capital allocation of approximately $2 billion of adjusted funds from operations that we generated in 2021. As we highlighted before, our first priority is managing our balance sheet leverage ratios and rating metrics. We enter 2022 with a very strong financial position as a result of our recent credit rating upgrades and our strong full-year 2021 performance. Our second priority is sustaining CapEx, where we allocated $226 million toward maintenance, environmental health, and safety. These investments will typically run around $275 million per year. Next, we allocated $34 million to preferred dividends, which left us with approximately $1.7 billion of discretionary cash flow available to allocate toward growth and productivity investments and returns to shareholders, which we view on a relatively balanced basis. Of the $1.7 billion, we invested $173 million in growth and productivity CapEx, paid $289 million in common dividends, and repurchased $100 million of common shares. For a total return to common shareholders of nearly $400 million, leaving approximately $1.1 billion of retained cash flow. With the increased flexibility and borrowing capacity that our balance sheet now provides, we are in a position to comfortably deploy excess cash toward areas that will provide longer-term growth benefits, such as greenfield investments, and toward areas which will have a more immediate impact, such as M&A opportunities and returning capital to shareholders. Slide 10 highlights our 2022 CAPEX forecast, along with the listing of some key projects. The primary focus is on de-bottlenecking capacity in both agribusiness and refined specialty oils, as well as greenfield investments in both segments to enhance our efficiency through more sustainable, modern, and flexible capabilities. Our CAPEX spend in both 2020 and 2021 was below our previous $450 million baseline level, primarily due to COVID-related resource and supply chain constraints. We expect our spend over the next three years to be well above our prior baseline levels as a result of these project delays, as well as execution on a robust pipeline of growth and productivity investments. Over time, as returns from our growth investments are realized, we will periodically update our earnings baseline model to reflect the increased earnings capability. Leading up to our May shareholders meeting, we will again review our common dividend, giving strong consideration for our higher baseline, the success in strengthening our balance sheet, and our earnings outlook. We also have the entirety of our recently replenished $500 million share repurchase program remaining. This will continue to be a tool for returning capital to shareholders. As we have communicated previously, we will maintain a prudent and stable dividend along with a balanced and disciplined approach to capital allocation through the cycle. As you can see on slide 11, at year end, readily marketable inventories, or RMI, exceeded our net debt by approximately $1.7 billion, a significant change from a year ago. This reflects our use of retained cash flow and proceeds from portfolio actions to fund working capital while reducing debt strengthening our balance sheet, and improving our credit metrics. Please turn to slide 12. For the trailing 12 months, adjusted ROIC was 19.9%. 13.3 percentage points over our RMI adjusted weighted average cost of capital of 6.6%. ROIC was 13.9%, or 7.9 percentage points over our weighted average cost of capital of 6%. The spread between these metrics reflects how we use RMI in our operations as a tool to generate incremental profit. Moving to slide 13. For the trailing 12 months, we produced discretionary cash flow of approximately $1.7 billion and a cash flow yield of 21.4%. The decline in cash flow yield from 2020 reflects a growth in discretionary cash flow, which was more than offset by the increase in book equity to companies. The moderate year-over-year growth in discretionary cash flow versus EPS growth reflects the impacts of significantly higher undistributed earnings from JVs, as well as deferred taxes related to mark-to-market. Please turn to slide 14 in our 2022 outlook. As Greg mentioned in his remarks, taking into account the current margin environment and forward curves, we expect full year 2022 adjusted EPS of at least $9.50 per share. In agribusiness, Full year results are forecasted to be down from a record 2021, primarily due to low results in merchandising and soft seed crushing, which had exceptionally strong year. While we are not forecasting the same magnitude of margin-enhancing opportunities that we captured in the past year, we do see potential upside to our outlook if strong demand and tight commodity supplies continue. In refined and specialty oils, full-year results are expected to be up from last year, delivering another record year, driven by strong demand from food and fuel customers in our North American and European businesses. In milling, full-year results are expected to be up from last year, primarily driven by improved market conditions in Brazil. In corporate and other, results are expected to be comparable to last year. Additionally, the company expects the following for 2022. an adjusted annual effective tax rate of 19 to 21 percent, net interest expense in the range of $210 to $230 million, capital expenditures in the range of $650 to $750 million, and depreciation and amortization of approximately $420 million. In non-core, 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. Before opening the call to Q&A, I want to offer a few closing thoughts. First, I want to thank our team. Not only have they continued to execute well and deliver for our customers, but they've done so against a volatile backdrop, including the continued impact of the COVID-19 pandemic and a highly dynamic market. The changes we began making three years ago have resulted in tangible improvements to our business and our earnings potential. We're excited about the additional opportunities we see to continue to grow the company while we do our part to lower carbon emission and encourage best practices across the entire supply chain. Beyond our continued work to capture the upside we see in our core oilseeds processing origination business, we've also increased our capabilities and focus on three additional areas of growth. Capitalizing on the increasing demand for renewable feedstocks, for plant-based lipids or especially fats and oils, and plant-based food proteins. With our global platform, our culture of innovation and oilseeds leadership, I believe we're especially well positioned to benefit from the long-term secular growth we're seeing in these areas. We're confident the investments we're making today will set us up for continued growth in the years ahead. And with that, we'll open the call for your questions.

We will now begin the question and answer session. To ask a question, You may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Our first question comes from Ben Bienvenu from Stevens. Please go ahead.

Hey, thanks. Good morning, everybody. Good morning, Ben. So I want to ask a two-part question about guidance. First, does it relate to the earnings guidance? And then second, does it relate to the CapEx commentary you provided? On the 950 in earnings or at least 950 of earnings for this year, I know your inclination is to be conservative historically. I'm asking the question from the context of looking at, as you said, the curves from here and perhaps what they looked like during the fourth quarter. It seems like the first quarter or even the first half should be pretty strong for 2022. And so the inference is that maybe the outlook for the back half of next year is a bit more draconian. Is that conservatism? Is there anything that underpins that beyond the commentary that you provided? Because it seems a little bit antithetical to just the sustained strong environment and kind of the tight S&D that exists in the value chain.

Yeah, let me start here, John. John, you can follow on if I missed something here. So, yeah, I think it's a little bit like, you know, when we sat here a year ago. We're definitely telling you what we can see going forward. You know, you're right. We're carrying some good momentum in from Q4. You know, the team did a fantastic job of executing there and carrying that momentum into Q1. While we don't see Q1 being quite as strong as last year, which was, you know, really extraordinary, we are off to a very good start. And as far as the calendarization, and Ben, it's kind of funny when we look at it, it's generally a stronger second half for our business when you look at it historically. And when we roll the forecast of what we can see now and looking at the forward curves, you know, in our outlook, the balance is roughly the same as it was the same time last year. So I guess the one thing that you can count on is that, you know, I think we've got the right global network, and we've absolutely got the team that can execute. And if the opportunities here, we'll deliver more. And, you know, we give you that view a quarter at a time as it rolls out.

Yeah, okay, that's fair enough and understood. The second part to the guidance question is related to CapEx. So you're spending substantially more growth capex over the next several years. You outlaid some of those projects that you intend to put long-lived capital on the ground for. I'm just thinking about kind of two things. One, the actual ability to deploy all of that capital beyond the projects you've stated over the next several years, just because it seems like you all will have so much discretionary cash flow that you'll generate. And then two, If I go back to your $7 of baseline earnings, if you guys deploy all of this discretionary growth capital into the business at your targeted returns versus your WAC, it seems like that number should continue to grind up pretty meaningfully. And so I'm wondering how we should think about the evolution of that baseline earnings number as we go through the next several years. And that's all I have. Thanks so much.

You bet. Yeah, so Ben, as we look forward, and I think we can expect capex of, you know, is like we said, 650 to 750 this year, and I think we'll see a higher number in 2023 and 2024. But a lot of that is a long term pride greenfield projects. And so we probably aren't going to see the the big impact and the big impact on our numbers until probably 2025 and beyond. given the pipeline that we have today and the major projects that we're investing in. We are excited about those projects. We also recognize that there's, you know, going to be potential opportunity to deploy capital in the near term as well, and that's important. You know, we want to balance between long-term growth opportunity that will certainly impact our baseline over time and near-term opportunities, you know, and so we'll look at, you know, shorter-term projects, whether it's bulletins or D bottlenecking projects that we have underway, things like that, as well as looking at, you know, if we don't have good returning immediate projects or things on the M&A front, you know, we'll look at returning capital shareholders in the near term as well, because we recognize that it's important to balance between the long term and near term opportunities and returns. But over time, certainly, we'll, we'll be updating the baseline as it makes sense. And, you know, we believe that, you know, three or four years down the road, if we do our job, it should be very positive to the baseline.

The next question comes from Thomas Palmer from JP Morgan. Please go ahead.

Good morning, and thanks for the question. Maybe I could follow up first off on Ben's question on CapEx. Is The elevated run rate over the next three years, is that mainly that these projects you've highlighted that are greenfield are going to be multi-year projects, and that's why their benefits are deferred to 2025? Or is kind of the list you outlined in the presentation mainly the list for kind of 2021, maybe into 2023, and then there's a second layer of greenfield projects to come?

Yeah, those are really projects that are either already underway or are in the final stages of approval. But you can think about it that this next year, here in 2022, probably about 30% of our CapEx spend will be on those large multi-year projects. But that will go to about 50% to 60% of our spend in 2023 and 2024. But it's the same projects. These are, you know, three-year builds. And so there's three to four major projects that make up a bulk of that spend. Okay. Thank you for that.

And then I just wanted to ask on the refined and specialty oils outlook. In North America cash markets, we have seen a narrower price spread between refined and crude oils down from mid-2021 highs. Just hoping for some clarity on what would drive segment profit higher year over year. Were cash markets just not a good indicator of your margin capture last year? Are you expecting refined crude oil to widen given the supply-demand environment? Just hoping for some clarity on the key driver there. Thank you.

Yeah, that's the timing of customer booking. So when we came into last year, we had a lot of the book already on with our food customers for the majority of the year, and we didn't start to see the benefit of those higher refining premiums until later in the year. And as we saw some of the refined, or some of the renewable diesel demand start to come on. Now, as we're coming into this year, of course, majority of that business has all been done at the at the higher refining overages. And so that's we had that visibility. And that's why we have the confidence in that call for this year.

Thank you. The next question. Sorry. The next question comes from Steve Byrne from Bank of America.

Please go ahead. Yes, thank you. I'm interested to hear your view on the likelihood that the US develops 5 billion gallons of renewable diesel capacity in the next few years. And if so, where do you think the feedstock comes from? And will that be a benefit to you, or is there a potential detriment to you if that leads to less exports?

Yeah, definitely a benefit, and it's a number of ways. So one, we like the fact that we're basic in all the oils and that we've got a global platform. So as we see this shift, and I think it's going to take kind of everything to supply that industry and the demand that is coming from that industry. So Everything from, you know, we'll see the US go from being an exporter to an importer of vegetable oils. We'll see expansion in capacity. We'll probably see technology around the percent of oil in the seed. You'll see cover crops be developed that will add to another supply of oil and even higher capacity utilization of the crushing footprint. And you'll probably, you know, continue to see a mix on what's applied on soy versus soft oils. So, you know, the one thing, the market is sending the signals, and the market will do its work here with innovation and with investment. So we think we're right in the bullseye of that. We've got, you know, our portfolio is focused on oil seed crushing and the origination and marketing of the products to support that. So we think we're in a great position for that. And it's also one of the reasons that we're in the process of the JV with Chevron is to have a great partner with visibility now from the farmer to the end fuel consumer. So where we make those investments and how we develop, we think we're as well positioned as anyone.

And you made a comment just now about seeds with higher oil content. Would you be interested in investing in that technology, essentially going upstream into crop genetics so that you could have some ownership over that technology? It could be higher oil content. It could be also the plant-based proteins and the specialty lipids you talked about. The question really is would you want to invest upstream to have more ownership there?

Look, we continue to work with our partners in the supply chain, and that can take on a number of different relationships from, you know, providing our expertise and partnering to joint venturing to us making direct investment. So that will be what we believe the return profile looks like versus our other alternatives on a risk-adjusted basis.

Thank you.

Thank you.

The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Yes, thank you. Good morning, everyone. Morning, Adam. So I guess first, as we think about how you're looking at 2022, can we maybe think, just get a little bit more color around the oil seed crushing environment and how you see soy and soft seed crush playing out in your key regions, certainly in the first half where I imagine you've got a little bit more visibility, and I guess specifically how some of the weather issues in South America right now are playing into that outlook, both positively or negatively?

Sure. We're definitely in a very, very good environment right now. We saw the, if you look from an overall, we'll expect year over year, structural margins to be better in soy. We had a real strong Q4 in the US, and of course, we're carrying that into 22. We've seen the weather make the South American crops a little bit smaller. And the US had a big crop, and we'll need another big crop. But with strong oil and meal demand, The curves, of course, are telling us that they're strong now. They'll get a little softer before new crop, and then new crop gets stronger again. So the U.S. looks very constructive. You know, China continues to be volatile, but we'll see lower wheat feeding this year versus last year. Margins are okay on the front end, and the customers over there are generally pretty spot, so that's pretty normal. We're enjoying very good margins in Brazil right now. And the question will be about the second half and how the farmer responds to smaller crops. And then, of course, we're in an election year, which if we get some FX volatility, we'll be watching that closely and how the farmer performs. And then Argentina, again, the weather impacted the crop a little bit. And then Argentina, of course, is affected by the fact that Paraguay, the crop's down about 50%, which feeds in there. And that'll keep you know, farmer retention probably pretty high in Argentina. But you remember that generally is pretty good for our global system with that scenario. And then the EU is kind of kind of feeds off the US of you Oh, you've got strong, strong oil and then reduced amount of Argentine soybean meal going in there. And so you've got higher energy costs in Europe is one of the things but that's priced in or is being reflected as we flex the rest of our global system. But, you know, overall, we'll see better year-over-year structural margins and see how it plays out. But our core – you know, the fundamentals are good, and our current outlook is what we can see forward.

Okay. That's all very helpful. And then I guess a follow-up on capital allocation. Obviously, there's been a lot of good work done on the balance sheet over the last couple years. You're stepping up growth investments on the CapEx side. You alluded to reevaluating kind of the dividend payout ahead of the annual meeting in May. Can you help us think about kind of how you think about your balance sheet capacity? The net leverage now on an EBITDA basis at least would seem to be pretty low for your business. How do you think about your balance sheet capacity today to deploy opportunistically into M&A versus cash return? Just trying to think about how much cash we could really be thinking about deploying here.

Yeah, I think, you know, we look at our balance sheet at the end of the year, we probably have, you know, a billion and a half or so of additional debt capacity available today, just given kind of where we see 2022 progressing in our credit metrics. I think we feel pretty good to stay within, you know, to stay well within our kind of our target metrics. On top of that, of course, we, you know, we expect to generate strong cash flow again in 2022. So I think we feel very confident that, you know, the capex forecast that we have in still leaves us, you know, some dry powder for opportunities, whether that ends up something on the M&A front or we, you know, allocate more to returning to shareholders or additional de-bottlenecking and nearer-term returning projects. I think everything's on the table, and I think we feel like we're in a very good position to deploy the capital. You know, we don't plan to just sit there and pile up cash. But we're going to be prudent about where we spend it and make sure that we hold ourselves to the same standard we have over the last few years in terms of where we allocate it.

You know, I might add on one quick comment. You know, I think it is one of the things we're proudest of with the changes we've made here. I think before we had to kind of talk about, you know, whether we were going to do this or this. And I think what feels good is that with the earnings profile that we've got and what we've done with the balance sheet, that really it's more of an and situation now for us, and we feel we can pull all levers and we are thoughtful about the tenor of those different things and the impact that they can have on earnings. So whether it's the stock repurchases or increasing the dividend or more near-term, of course, the capex we're spending on de-bottlenecking and productivity can come in quicker. You know, bolt-on M&A that doesn't have any regulatory complications can be quicker. And then, of course, more transformational M&A has a little longer tail as it has to go through regulatory. And then somewhere in between there, there's brownfields and then the longest, of course, of the greenfields that John was talking about. But I think what's exciting is being in position to be able to do kind of all of those and pull all the levers and being thoughtful about the returns on those and which ones have the greatest long-term earnings impact in our growth.

Okay, can I ask just a very quick follow-up then? Given that balance sheet capacity, and this is, again, a high-quality problem, just make sure we're clear, just no share repurchases in the fourth quarter, just how we think about kind of the timing and phasing of that, just given how much dry powder you seem to have.

Yeah, we're not going to predict when we'll do share repurchases, but I would say the key is we'll have the ability to do it. And I think even with a lot of the growth, projects that we have in the pipeline and the other things we're assessing that aren't even in the, you know, what I'd call in the pipeline yet, it's still going to be an option for us. And I think we will continue to do, like we always do, is look at it very hard every quarter. I don't necessarily look at it from, oh, we've got to do something this quarter. From a calendar standpoint, it's when we think it makes sense. But it will continue to be, as Greg pointed out, an important part of our allocation here going forward.

Okay, I appreciate all that, Connor. I'll pass it on. Thank you.

The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Hey, this is Steve Ames for Vincent. Thanks for taking my question. I just wanted to ask a question around SG&A. Thank you. Yeah, I just wanted to ask you a question around SG&A. I think there was a comment about it being up year on year. Can you just kind of remind us what level of cost savings, I guess, were baked into the baseline kind of cadence for this year? And if that's kind of changed at all, as it relates to the 950?

Yeah, the we don't expect a substantial increase in SG next year, you know, we're, we've been around the 1.2 billion level, in total, the last couple years, after, you know, a number of years of say, cutting costs, I think we're looking at somewhere, you know, less than $100 million in total increase across the business and probably half that. And it's going to be primarily in inflation and things like that. But all it's been baked into the 950 forecast. So, you know, we will, of course, manage it as best we can. But in some areas of the world, you know, inflation is a real thing. And we're not immune to it, unfortunately. But I think we feel pretty good that we can absorb that and inside our 950, at least 950 call.

Okay, thank you.

The next question comes from Ben Calo from Baird. Please go ahead.

Hey, thanks for taking my questions. Thanks for all the detail. Just going back to M&A, could you just talk about what you're seeing in current valuations and if that has you backing away from some deals or not? And then you called out plant-based food proteins, a question we get quite a bit. Just talk about the investment being made there. Thank you.

Sure. You know, valuation always matters, as John says. We don't have any hot money. We'll be thoughtful and we'll do the deals that make sense for Bungie for the long term. On the protein side, that continues to be what we see as an organic build. Any of the M&A that's been done on the plant protein side is very, very high multiples. We think where we create the most value there is working with our customers who we're already working with on the plant lipid side and especially fats and oils as part of part of those products and working with them and organically building our portfolio on the plant protein side. That's how we'll create the most value. We'll be thoughtful and methodical about it.

I would just add, Greg, that as you look at the pipeline of projects on the plant lipids and protein side, we've got projects identified in that pipeline of about $850 million over the next three years. We definitely find that an important area, and we will be investing, you know, meaningful dollars into that space.

Great. Thank you.

Thank you.

The next question comes from Robert Moscow from Credit Suisse. Please go ahead.

Hi. A couple questions. I might have missed it, Greg, but when you went down the list of how things are going in the crush environment regionally and by seed, I didn't quite get where the weaknesses or the tough comps are on soft seeds. So can you be a little more specific as to, you know, what region you're referring to in your guidance for having a tough comp? And then just to follow up on the CapEx guide, I mean, is it possible to just take this incremental CapEx in our numbers and say, hey, I'll put a, you know, mid-teens return on that spend and then assume that it's highly incremental so that in 2025, you know, that adds to the earnings base. And is that, you know, that's just basic math, but is that how you do your planning as well? Thanks.

Yeah, thanks, Rob. Yeah, you caught me there. I only talked to soy. I didn't talk to soft seed. So let me talk to that real quick. Of course, in North America with the canola crop 35% lower, This year, that'll be a tough comp until we get the new crop in. So that'll be challenged, which will make globally, I think soft seeds will be a little bit challenged on the canola side. We do continue to have strong oil demand, which is helpful, but we'll need that new crop in the second half of the year. And then in Europe, You know, we've had record sun crops. We continue to monitor the Ukrainian situation. But, you know, the farm economics are definitely good for everyone, and that should mean, you know, big crops. I think we'll see acres planted and net-net that should be positive. But year-over-year, soft will be down.

And, Rob, as I – yeah, and as I mentioned on the CapEx side, you know, the big, the big jump we do see is in 2025. But, but, you know, as those projects come online, and most of them are going to come online in early 2025, or in that range, you know, you usually have about a year of commissioning and, and working the bugs out. So the real benefits, you know, of run rate will be closer to beginning in 2026. But, but you're right how to think about it. I mean, the kind of mid teens return overall in the portfolio between The big growth projects, and I'll call the smaller debottlenecking and productivity projects in total, that's probably a fair assessment. With a little bit of, you know, lag in just from the standpoint of the first year or so, it takes time to get those things up and running as efficiently as they will in the long run.

Okay, great. And then just a follow-up. Your merchandising results really, really strong in 2021, and you're citing a tough comp in 22. Can you point to – like decisions that you made in 21 that drove the outperformance, you know, more evidence that your new global management team is working. And, you know, and then maybe explain, like, you know, why you wouldn't say, hey, that's repeatable in 2022. You know, what makes it unique?

Yeah, you know, I think, one, you're right. The system that we've got is definitely more resilient than it's been in the past. Those are the hardest margins, I think, to forecast, and they'll depend on the environment. We're definitely starting at higher flat prices this year than a year ago, so just kind of a slightly different environment. Even if you look from the freight markets, you had a disruption last year with the hurricane in North America that that created some challenges and opportunities. And just some of those things that in those kind of full chain margins through the distribution and merchandising business that are just more difficult to forecast, but really like the way the team executed last year. And I feel with the opportunities are there, we'll get them.

And I just say, Rob, the comment we made regarding, you know, if we see some tightness and supply and disruption, it should give us some upside that that really is going to show itself on the merchandising side. the business.

Got it. Thank you.

Thank you.

The next question comes from Ken Zaslow from Bank of Montreal. Please go ahead.

Hey, good morning, guys. Good morning, Ken. A couple questions. One is we haven't had, you know, many years in which the South American margin actually has been this strong, particularly in Brazil. So when you're thinking about the year, are you incorporating that type of strength? Are you waiting for it to kind of really kind of elongate to make sure that, you know, the real thing? And, you know, are you in position to be able to capitalize it by securing the soybeans? Just how are you thinking about that? Because it's somewhat of a new phenomenon I don't remember seeing for quite some years.

Yeah, I think we say that fundamentals are good overall. That That's definitely what we're looking at here with the start that we're getting. Now, the curves are reflecting, you know, some of the fact that the weather's taken the top off the crop a little bit. Of course, you know, it hurt it in Paraguay, took the top off a little bit in Brazil. And then we'll continue to watch how Argentina develops. It was hurt a little bit, but it looks like that's stabilized. So we've got to see how that plays out and how the farmer responds. And I think we talked about in Brazil, of course, you add in the fact that you've got an election, and that may create a situation with the FX volatility, and the farmer may be a little more reluctant to sell. But we'll see how that plays out. But we do like how the fundamentals look overall. We like the optionality. you know, that exists in this big global network. And we've seen, you know, we're able to take care of the opportunities when there is dislocation and as things develop.

But it's not fully included just because you're kind of more on a wait and see. Have you secured soybeans on it for it?

Yeah, you would be correct. We're more on a wait and see. And that's, you know, that's consistent with, you know, where we stood a year ago at this time. And And, you know, kind of how we talk to each quarter, it's what we can see in those.

So it would be another opportunity for upside to the numbers. You mentioned a couple of things throughout the call that there's reasons for upside if things develop the way they are. And I know you take a wisely, you know, thoughtful approach rather than just going all in. But is that a fair way of thinking about it? And then I have a second question.

Absolutely. Very fair. And probably the last nine quarters might prove that out. And then I hate to ask a short term question.

It's just everybody's asked such good questions. But the quarter over quarter in the first quarter, you know, it looks like things are setting up a little bit stronger year over year. Is that a fair way of looking at it? And then I'll leave it there. And I really appreciate your time.

You bet. Thanks, Ken. But no, Q1 was really extraordinary last year and why we're off to a very good start here in January and carried momentum out of Q4. We currently don't see Q1 being as strong as last year. Okay. Thank you guys very much.

You bet. Thanks, Ken.

This concludes our question and answer session. I'd like to turn the conference back over to Bungie for any closing remarks.

Thank you very much like to thank everyone for their interest. And I just overall like to wrap up by couldn't be more proud of the team for the execution. And it really feels good to be in this position focused on growth and having the capacity to really pull all the levers and so look forward to talking to you in the future. Thank you very much.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.