Bunge Ltd

Good day and welcome to the Bungie Limited third quarter 2023 earnings release and conference call. All participants will be in a 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. To ask a question, you may press star, then one. on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Ruth Ann Weisner. 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 discussions. These can be found in the investor section of our website at bungee.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 Bungee's current view with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Fungi 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, Fungi'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. I 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, both farmers and in-consumers. At the same time, the team continued to make good progress on our integration planning with Viterra. During this process, our teams had the opportunity to work with the Viterra team, reinforcing how similar our cultures are and 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, we're looking forward to bringing our teams and assets together to create a premier agribusiness solutions company. Turning to the third quarter, we delivered strong operating results driven by refined and specialty oils and processing. We also saw strong performance in our non-core sugar business. John will cover our financial results in more detail. In addition, since we reported second quarter results, we repurchased approximately $600 million of Bungie common shares, making meaningful progress against the repurchase plan we outlined following the announcement of the VITERA 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 John now to walk through our financial results and outlook in more detail, and we'll 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, compared to $2.49 in the third quarter of 2022. Our reported results included a negative mark-to-market timing difference of $0.14 per share and a negative impact of $0.38 per share, primarily related to acquisition and integration costs associated with our announced business combination agreement with Viterra. 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 as a slightly higher performance in processing was more than offset by lower results in merchandising. In processing, higher results in Brazil 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. In merchandising, higher results in our global corn value chain, which benefited from the large Brazilian safrinha corn crop, were more than offset by lower results in financial services and our global wheat value chain. Higher refined 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. The increase in corporate expenses primarily reflected investments and growth initiatives, as well as performance-related compensation accruals. Lower other results were related to Bungie Ventures and our captive insurance program. Better results in our non-core 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 a quarter was higher compared to last year, primarily due to higher average variable interest rates. For the first nine months of the year, income tax expense was $495 million compared to $257 million in the prior years. The increase was primarily due to higher pre-tax income in 2023, as well as a 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 allocation of 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 Bungie shares leaving $377 million of retained cash flow. In October, we repurchased an additional $134 million of Bungie shares, bringing the total amount of repurchases to $600 million since we reported Q2 earnings in early August. 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 the VITERA transaction, with the remainder to be completed within 18 months of that date. As 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 9 highlights our liquidity position. 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 7.7%. ROIC was 14.4%, also well above our weighted average cost of capital, 7%. Moving to slide 11. For the trailing 12 months, we produced discretionary cash flow of approximately $2.1 billion and a cash flow yield of 19.2%. Please turn to slide 12 in our 2023 outlook. As Greg mentioned in his remarks, taking into account year-to-date results in the current margin environment and forward curves, We've increased our full year 2023 adjusted EPS outlook to at least 1250, 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. In refined and specialty oils, 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. In non-core, 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 a following for 2023. an adjusted annual effective tax rate in the range of 21 to 23 percent, net interest expense in the range of $340 to $360 million, which is down from our prior outlook of $350 to $370 million, capital expenditures in the range of $1 to $1.2 billion, and depreciation 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.

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 means the world will continue to look to Bungie to supply essential products and services to the feed, food, and fuel industries. Our strategic combination with Viterra 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 chains. This will provide us with more optionality and allow us to even better serve the needs of both farmers and end 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 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 CJ Selecta, 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. To 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, Bungie and CP Food, a leading Asian feed and food company, will announce 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 there's still much to do as we continue positioning Bungie to deliver on our critical mission of connecting farmers to consumers to deliver essential food, feed, and fuel to the world. I continue to be impressed by the energy, collaboration, innovation, and commitment of the Bungie team as we work together and with key partners to 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. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Andrew Strulzik with BMO. Please go ahead.

Hey, good morning. Thanks for taking the questions. Morning, Andrew. Morning. 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, I believe the thinking was that there's even more upside, really was more in 4Q than in 3Q. 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 some of those opportunities have evolved at all where you're seeing the upside potential?

Sure. And, you know, I'd just start by saying That solid execution by the team has really been the key here. It continues to be really dynamic, but the ability to deliver the strong Q3 and then give us the confidence to raise the year is just fantastic execution. We've seen crush margins improve recently, and that's really been on the back of soybean demand improving. 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 same visibility into the Q1 and Q2. We do expect that to kind of develop over the first quarter. I'm sorry, to develop for the first quarter as we go through Q4. 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 Argentina with a crop really, you know, 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 continued to also see strong oil demand in North America, and that's both from food as well as fuel. And that has, of course, driven the opportunities not only while crush has been volatile, but crush market has been volatile, but actually been very strong, and we've seen it pulling oil for reformulation and pulling imports. So I think those are going to kind of be the drivers that we'll continue to see here in 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, there's 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 anticipated. Brazil's going to have another big crop. So, how are you thinking about, you know, what could be similar or different in 24 versus 23? Thank you.

You bet. I think what will be similar is until we get another look at the South American crop. And, you know, while the weather patterns look like they're setting up favorable for South America 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 is 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, you know, 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 we watch. But remember, we're not going to get that until, you know, April or later. So this tightness will continue through Q1. And so as we get more visibility, you know, the first half we'll see we'll be able to kind of lock that in and then see how weather plays out here in the second half. You know, and the others ultimately on China where we look at soybean imports, you know, probably to be flat and corn imports to be up. But, you know, China's a very savvy buyer and we've seen it can really depend on prices when they'll reload stocks. So I think any surprises there could be you know, to the upside on volume and be supportive also on the merch side.

Great. I'll go ahead and pass it on. Thank you. Thank you. Thanks, Andrew.

Thank you. Next question is from Ben B. Avenue with Stephens Inc. Please go ahead.

Hey, thanks. Good morning. Good morning, Ben. Good morning. I want to ask about the buyback. You've made good progress already, you know, more than $450 million in the quarter, and it looks like more kind of since the end of quarter close. When you think about kind of your goal of $2 billion within 18 months of the VITERA closing, is that timeline getting pulled forward? And how are you thinking about kind of balancing cash flow as it relates to, you know, deploying the cash for us to buy back?

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. You know, we had significant increases here in CapEx, and a lot of that relates to some big, you know, greenfield projects that are underway. And we'll have, you know, similar or maybe even slightly higher CapEx next year related to that. We announced CJ Selecta. That will close in 2024. That's going to be a draw as well. You know, 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 share buybacks and other M&A opportunities that might come up. But ultimately, you know, as we get near the close of the VITERA transaction, we do want to try to target, you know, a 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, you made a comment that you expect the crush curves to firm in the first half of next year or into one Q as we move through the fourth quarter. Could you talk about some of the drivers that you see at play there? And then I guess just panning out and thinking about 2024, you mentioned some of the positives there. or potential upside drivers to strengthen the 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?

Sure. I'd say in the first half that, you know, the tightness that, you know, that we expect, and then we talked about the size of the South American crop, of course, You know, remember what we saw this year and that it's kind of good for our global footprint. And while, you know, being pretty balanced globally has helped us deliver, you know, 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 positive for our crush franchise. So, if you see another record crop there in South America, we'll have that same benefit in Brazil. And then, you know, Argentina, which has been a drag this year, would be a bigger contributor next year. So, those are where we're watching the weather. I think when you think about 24 and the things that create the uncertainty or less visibility in the second half, geopolitically, policies, the conflicts that are going on, those are the things that can create dislocations in the crops and in the oil flows. What I will say is I've got you know, 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 developed. But the one thing that we've seen is, you know, it definitely appears the regulators want these markets to develop. And as we show that we've got the supply there, I think we'll, we believe that policies can even be adjusted to ramp up demand. So, you know, exactly. It's a, the channel is up and to the right, there'll be some volatility in the supply and demand as those markets sort themselves out. But it is, it is new demand to this industry and it's, it's firmly in place. And then I, you know, I touched on the weather, right? We've got to watch this El 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. when we're dry. And we've seen, you know, this year that was another thing that didn't make the U.S. as competitive on exports was the low river levels, which, again, hurt export but benefited crushing and processing. And then, you know, China, always tough to predict, but a very important customer for beans and corn. You know, and lastly, on the merchandising piece, it kind of ties in around, you know, serving our crushing, serving our third-party customers, and then just, you know, merch overall in corn, wheat, and our freight opportunities. So this location, you know, there can be upside there. But a lot of confidence in the team to execute, but it definitely gets a little less clear in the second half.

Okay. Fair enough. Great. Congratulations on the corn. Thank you very much.

Thank you. The next question comes from Emmanuel 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 White Area deal, but have you had a chance to speak with their bigger shareholders and present a proposition where they could become longtime shareholders of Bungie so they can hold on to the stock even once the lock-in period is over?

Yeah, let me start, John, and finish. But, look, I think one of the things that we were really excited about in the VITERA deal and what's great is they've got two great, you know, shareholders that really know this business in Glencore and the Canadian pension funds, CPP and BCI. So they wanted equity. In fact, they wanted more equity than we ultimately gave them, and they wanted the ability to buy more equity than for the long term because they believe in the power of the combination. They believe in the industry and the important essential role the industry plays. And 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 board 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 in and that knowledge to help drive this business. So just excited about really all aspects of the combination.

Perfect. My quick follow-up here is, I wanted to understand a little better what you see as a demand for refined versus unrefined soybean oil. And the reason I'm asking this question is some of these new units are coming up with PTUs. A, the PTUs are not up to the mark. They're struggling. And B, what we have heard from some of the producers is that the PTU would be more for tallow and some of the other very hard-to-process feedstocks. they may not be running unrefined soybean oil through it. So just trying to understand that even with the PTUs, is there a possibility that we continue to see some demand growth on the refined soybean oil side?

Yeah, this is John. I think, you know, we have anticipated over the long run that producers or deproducers would shift ultimately to crude soybean oil. away from refined, but it has been slower than expected. And I think that, you know, it's really more right now about there is new, as the new RD production comes on, it may have pretreatment capability, but the existing units haven't necessarily transitioned. So the demand we have today for our, for refined has, we expect to be fairly steady for a while, even if there's growth as the new production comes on and it has pretreatment, but certainly, you know, we've heard some similar things and, And, you know, we believe we can be a great solution either way, whether it's refined or crude soybean oil. And also, you know, as we've said before, we think we have a place in the supply chain around low CI feedstocks as well, and we'll continue to work on that so that we can provide our energy customers with everything they need.

Thank you so much, David.

Yeah, and just to add one of the things you said, that margin, right, it'll move around between our value chain. You may see some of that move from refined back into the crush with the demand for crude oil. And then I would just also say you hit on an important part that, 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, you know, part of that is using the refined oil for a dilution. So, you know, we play a role, you know, long-term even as they bring in other feedstocks.

Thank you.

Thank you. The next question is from Ben Thurer with Barclays. Please go ahead.

Good morning, Greg. John, congrats on the results.

Thank you, Ben.

So just quickly following up on that acquisition you announced in Brazil, CJ Select, is there any more detail you can provide, like how much you're going to pay for that so that we can kind of factor that in within our capital allocation assumptions for next year? I'm sure you disclosed that number.

Yeah, it's about $600 million, Ben.

Okay. Okay. Perfect. So obviously, in light of that, and thanks for that clarification, I'm putting it into context from a CapEx perspective. So you said $1 to $1.2 billion, maybe a bit more next year. We'll 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 tried to increase that, How should we think about that go forward, just given the cash outlay you're going to have for that CJS elect acquisition plus capex, plus the buybacks? Fair to assume that dividend might not be 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 that with everything we have going on and with our outlook. timing of the share buyback. You know, we mentioned that our goal was to get the other $400 million done by the time we close the transaction, but that gives us some time to take a hard look. And historically, we review that in Q1, and then we generally adjust that when we get toward May. So we'll 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 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 our shareholders.

Okay, perfect. And then on Argentina, you've mentioned it a couple of times with the expectation of, well, hopefully getting maybe better supply, et cetera. But obviously there's also the political risk lingering with the upcoming elections and a little bit of a surprise outcome over the last weekend. Can you help us understand in between the two extremes what potential impact could be for the industry as a whole and for Bungie in specific?

Yeah, I'd probably start by saying I'm not a great political procrastinator. So I will make any forecast. I will say 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. And I think regardless of who's in charge following the November election, it's not a light switch, right? It doesn't happen overnight. It takes a while to effectuate change. And we'll want to be a good partner to the government, and we'll 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.

Morning. Maybe going back to the refined and specialty oils, I mean, this business performance, you raised the outlook again. It's been a pretty consistent source of upside for a couple years at this juncture. As we look at the more recent kind of performance, it doesn't seem to imply the South America business operating at its peak potential, particularly in Brazil. As you think about the medium term in refined and specialty oils, I understand that some of the refining premium in the U.S. might go to crush over time depending on how the pretreatment works. But 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 or profit contribution expectations from this?

One thing, and I should probably, you know, 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, how 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 there's 20%, you know, going to fuel or to feed as we're seeing, you know, some of that reformulation. But the food industry is very strong there. You know, we added that Avondale Refinery in Louisiana this year, and we integrated that right into the network. That's allowing us to import additional seed and tropical oils from and serve our food customers here in North America. So overall, the energy demand is important, but there's a great, strong underlying business there that's executing very well for our customers, and that's both, you know, the brands that are the CPG brands, you know, some of the famous brands that you know well, as well as in the food service space as well.

Okay, that's helpful. And then maybe just going over back to the CJ Selecta acquisition, can you just talk about how you already have a relationship with Imcopa, who I believe is also one of the major soy protein concentrate producers in Brazil. So how does the Selecta acquisition kind of fit with kind of a relationship that you already have with one of the other kind of major players in that market and Guess more broadly, how do you think about the long-term growth of 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 running the non-GMO programs or even on the GMO programs. It allows us, you know, select as a big supplier to the feed industry and the aquaculture, you know, which continues to have nice growth. Um, so, you know, we see them definitely as complimentary. And then of course, as we bring Morristown up and what we, you know, want to do strategically, right. Is have, you know, a great footprint in North America and South America with a low cost position with that direct connection to farmers, uh, to build those transparent, verifiable supply chains for our customers and ultimately lower CI products. Um, and grow with that market because it's going to grow. You know, all meat's been soft, but the kind of traditional use of, you know, extending in traditional meat continues to be strong. We're seeing growth in dairy. We're seeing growth in pet. And then, as we said, growth in aquaculture. So this is another one of those that just long-term is a place we have a right to win. It's 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, UPL, with the RIGIO, we'll be able to bring some of those regenerative practices and other practices to our farmers. So really it's about, you know, 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 color. I'll pass it on. Thanks.

Thank you. The next question comes from Salvatore Tiano with Bank of America. Please go ahead.

Yes, thank you. So, firstly, I wanted to also ask about the CJ acquisition. If I heard correctly, you mentioned it was $600 million. And, firstly, I want to clarify a little bit because I think for some reports from – From Korea, the price was under 400 million, I think 350 or so. So what's the difference between what the seller said and the price you mentioned? And given that it is a substantial acquisition, can you discuss a little bit some of the metrics, perhaps the expected contribution to profitability, the volumes that are being processed, or anything else that's relevant?

Yeah, I... First thing, Salvatore, is the Korean owners that announced only own 65% of the JVs. So they were just reporting on the proceeds they were going to receive in the transaction. With respect to the overall how to think about it, you know, we're expecting, you know, early on low teens return, but, you know, getting to mid-teen returns on that project, and it will be accretive day one. You know, in terms of what we can do with it, I mean, I think our goal is to grow that over time. Greg kind of 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, you know, a growing European market, for example, has been a destination for that plant in that operation. And so we're pretty optimistic about it. But it will be, you know, we think day one, a very good accretive project for us.

Perfect. And I just want to follow up a little bit and ask about international crash margins that haven't really been great. And if you can just give us an update, where are things today in your key non-U.S. regions versus where they were on average for Q3? Sure.

If you look at China, you know, crash margins have been volatile all year there. It's very spot. But our team has done, you know, a fantastic job. We've had a very good year in China, better year than last year. And, you know, Q3, we actually, a great coordination between our industrial and commercial logistics team ran record volumes for us. And so, animal numbers continue to hold in China. So, you know, while it'll continue to be very spot, looks like some of that will carry into Q4. You know, we talked about Argentina. Of course, you've got about zero farmer selling right now there. So until we get to new crop, Argentina continues to be, you know, a non-event, very, very tough situation. And then we've seen, you know, margins improve in Brazil, and that's really good global demand and, you know, the back end of what was that record crop. Now, you know, the farmer's been a little sporadic on old crop selling, you know, and the South American farmers were watching and the weather situation developed in North America to ensure 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 better selling and new crop selling has been pretty slow. So that'll be the keys to watch there as well. You know, in Brazil, I think long-term, you know, we switched in April from B10 to B12 and then each year we'll add, you know, 1% demand. So, We're starting to feel that as well. And then look, North America, there's definitely been a lot of volatility in the crush margins. And, you know, we've seen that in oil as we've added this energy demand. That oil pipeline is pretty sensitive, right? We've seen it draw down stocks and get pretty tight. We've seen it loosen up when people had opportunities running. And I think that'll continue to be that way. But there is strong oil demand. And now we're seeing the meal demand increase. start to return, and that's really to serve, you know, the rest of the world with meal not coming out of Argentina. And then if you look at soft margins, they really remained good globally, and that's, you know, the strong oil demand, and it's also been good seed supply if you look in Europe, and some of that's, you know, Ukraine where you're seeing switch to sunseed at the expense of corn. Or if you look in Canada, where we've seen the canola crop get a little bigger than anyone expected, and production has been better there. So that's been supportive as well.

Thank you very much. Thanks.

Thank you. The next question comes from Thomas Palmer with J.P. Morgan. Please go ahead.

Good morning, and thanks for the question. Good morning. Maybe I'll follow up on soybean oil and kind of what you're seeing. I know you just referenced it, 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 couple of quarters or so? Because it did sound like you're pretty positive on overall demand picture. But, you know, at least what we're seeing in pricing would suggest some degree of imbalance.

Yeah, as we said, I think the long-term, you know, fundamental drivers are of more demand. Food has held in there. In fuel, we know that demand is going to grow as we see RD projects continue to come online. it'll be a little choppy depending on, on how things are running. Uh, crush is running hard. We've got some new crush, you know, coming online and the market will have to, to do some, some adjustment, but you know, global stocks of oil are, are, you know, fairly balanced. Uh, you look Palm, um, still, uh, from a production, uh, on, on how is producing probably going to get tighter in, in, you know, first half and tighten up the global oil situation. Um, And, you know, the nearby softness, you know, some of that is driven around RINs and that. And then the meal demand stepped in. And so there will continue to be a bit of a battle on whether meal or oil is going to carry the crush. 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? Do you think they appropriately reflect market conditions and the interest rate environments?

Well, I'd just say, look, we're going to stay really disciplined, right, and we're sure not going to do anything that would create any, you know, slowdown or conflict to get the VITERA deal closed and, you know, through the regulatory process. So that's number one. But otherwise, our targets continue to be in those areas where we need to fill in some strengths, where we see the long-term growth, and where we have a right to win. And that's why CJ Selecta was selected. you know, a great example. It's been, you know, it's been a target for years. And quite frankly, it's how we think about things. Our team, you know, 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, we want to do those deals. And, you know, we've had a chance to do deals along the way that weren't at the right price, and we've stayed patient, and we will continue to be disciplined and then do them when they're available at the right price. Okay.

Thanks, Kevin.

Thank you. The next question comes from Sam Margolin with Wolf Research. Please go ahead.

Good morning. Thank you for taking the question. Hey, Sam. I want to go back to the Tara, if I could to start and the grains market, you know, you said, you mentioned that there's 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 Tara 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 whether Viterra's operations within this dynamic are part of your conversations with them as you talk about the merger that you referenced. Thanks.

Yeah, yeah. Unfortunately, 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, you know, 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 theirs being origination and handling and storage and distribution 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 their storage, when you get into a carrier contango, that's definitely good for their system, and that's part of the diversification that we'll get with that combination. So, yeah, big crops definitely should be good for their system looking outside in here.

Okay. Sorry, that was a little bit of a tough one. This one might be more straightforward. You could probably sense that there's a lot of attention and maybe even investor anxiety just around board crush and the volatility of I mean, board crush is always volatile, right? Sometimes it's higher than it is now, but recently when it has been, it's sort of in a really deep 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 lower out on the curve. I mean, can you talk about how market structure might be influencing your outlook for for CRUSH here and some of your earlier comments? Thanks.

Yeah, Sam, there's probably two things to think about. You know, one, the ag markets and, you know, the CRUSH and the curve, you know, the most liquidity is always in the first, you know, 90 days, the first quarter, and then the second quarter out, some of that visibility in liquidity is there, but not as much. And that's kind of historical. with these markets. So, yeah, when the market is such that we're getting more signals, there's more liquidity and more visibility a little farther out. That's a better operating environment. Now, the other I would say is the board crush is part of the calculation, of course. The cash crush ultimately is how we execute each of those legs in the cash market and is ultimately the money that we bring to the bottom line for all of our stakeholders. And I think what you've seen in the execution, even after we get ourselves hedged out on the board, ultimately it's getting hedged out on the cash and how the teams execute right up until when we receive the beans and ship the oil and ship the meal, there's opportunity to continue to upgrade and maximize what our ultimate goal realized crush value is. And that's where I think the team's been doing, you know, 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 in, but it'll 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.

Thanks, Sam.

Thanks.

Thank you. The next question comes from Stephen Hyen with Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking my question. Morning. Morning. I wanted to just come back to maybe the soil oil part of the equation for a second and the kind of some of the weakness in the B4 RINs. 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, you know, RD margins. And then you also talked about, you know, the possibility of, you know, some policy changes to, you know, maybe help balance 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 adjustments would you expect? Thank you.

Yeah, this is John. Look, I think related to D4 RINs, certainly some of that has to do with the relatively low RVO that came out, and then you have biodiesel being imported into the U.S. that's carrying RINs with it. And so the market feels a little heavier right now, but ultimately I think the policy change that's coming in 2025, where we switch from a blender's credit to a producer's credit, should have a positive impact for us and for RIN values at that point. So we'll be watching that closely. And then, you know, ultimately, what does the EPA do with RVO levels? As California has implied that they'll take a harder look at what production capability is and adjust, you know, their target blending requirements in California based on the industry's ability to produce RD. You know, if the RVO, you know, if the EPA takes a similar stance, and maybe that'll be positive as well, that's to be seen, certainly. But we think the industry is certainly capable of producing a lot more than what the RVO would imply. And so we'll be watching that going forward as well. But ultimately, I think 2024 will be a bit of a transition year. Here we'll see how things shake out. But I think long term, we're still very positive on the direction.

Thank you.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks.

All right. Thank you. I'd like to thank everyone for joining us today and appreciate your interest and support of Bungie. Again, I'd like to thank the team for great execution and just the focus on the things that we can't 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. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.