Our intent is clear:
to unlock greater value today, while building a solid foundation for future growth and consistent high performance
Dear shareholders and employees:
2014 was the first full year in which we applied our new strategy throughout Bunge’s operations.
Our intent is clear: to unlock greater value today, while building a solid foundation for future growth and consistent high performance. We have applied a sharp focus on what we do best, grains and oilseeds; instituted a disciplined capital allocation framework; enhanced execution through global productivity and profit improvement programs; and moved further into value-added products.
The approach is generating positive results. Return on invested capital for 2014 was higher than in 2013, and on an adjusted basis reached 8.4 percent—1.4 percent above our weighted average cost of capital. Cash flow from operations totaled $1.4 billion, and we returned $530 million of capital to shareholders through dividends and share buybacks.
Outstanding performances in North America, Brazil and Europe anchored the year and demonstrated the power of Bunge’s core franchise. We capitalized on strong structural oilseed processing margins, leveraged our unmatched asset base to serve customers, generated strong results in milling with contributions from our 2013 acquisitions in Mexico and performed well in Fertilizer. Sugar & Bioenergy, while still unprofitable, stabilized and operated free cash flow neutral on an adjusted basis.
We see a clear and realistic path to our 2017 EPS and ROIC targets of $8.50 and 10 percent, respectively
2014 was not free of challenges, however. Persistent pressure on crushing margins in China was a primary cause of lower earnings in that market and a material drag on Bunge’s overall results. The Bunge China team is experienced and has built an impressive business over the past ten years. We have learned from the challenges of 2014, made adjustments and expect significantly better results in 2015.
The political environment in Brazil proved to be a headwind as well. A presidential election contributed to economic and policy uncertainty, both of which slowed progress in our efforts to reduce exposure to the sugarcane milling sector. This process has taken longer than we had hoped, but our intent is unchanged. Changes in government policies related to ethanol blend rates and fuel taxes point to a more promising environment in 2015.
ROIC for 2014 was higher than in 2013, and on an adjusted basis reached 8.4 percent—1.4 percent above our weighted average cost of capital
In fact, 2015 should bring a stronger performance for Bunge overall. Solid demand and ample crops should drive good margins and volumes in Agribusiness. Food & Ingredients should generate another year of record EBIT, and Sugar & Bioenergy should be modestly profitable. Overall, we are confident about achieving at least a 9 percent combined ROIC in Agribusiness and Food & Ingredients for the year, and see a clear and realistic path to our 2017 EPS and ROIC targets of $8.50 and 10 percent, respectively, through the following actions:
• Capitalizing on steady consumption and trade growth in our core businesses, which are strongest in regions where Bunge has outstanding positions. Global consumption of oilseeds and grains is expected to grow by 450 million tons, and global trade in oilseeds and grains by 175 million tons, by 2024.
• Achieving run-rate productivity gains of approximately $200 million in Agribusiness from operational improvements.
• Growing EBIT in Food & Ingredients by $175 million from productivity improvements, margin expansion and organic growth.
• Applying a disciplined capital allocation framework, with capex trending down to an ongoing level of roughly $600 million per year in Agribusiness and Food & Ingredients combined.
Upside in Agribusiness and Food & Ingredients is possible through acquisitions. Achieving our strategic objectives for the sugarcane milling business will also contribute additional shareholder value.
APPLYING OUR STRATEGY
We’re focused on eliminating or controlling five high- potential exposures: work at height, hazardous energy, mobile equipment, confined spaces and hoisted loads
These targets rest on four strategic pillars: standing for safety, applying best-in-class operational practices, adjusting our total portfolio to achieve the right balance between commodity and value-added businesses, and leveraging and improving our winning footprint. Of course, the devil is in the details. Success will result from consistent, great execution. The programs we have in place should ensure we achieve this.
Bunge’s most important metrics, including lost-time accidents and near misses, track the well-being of our employees. Our philosophy is clear—safety always comes before profit and production. Our goal is simple—a zero-incident culture.
We have expanded our emphasis on eliminating or controlling the five high-potential exposures that have accounted for the vast majority of serious injuries and fatalities at Bunge. During 2014, we launched a global awareness and education program that equips employees with new tools to help improve risk assessments, and equips supervisors with new ways to engage and train their workers.
We are enhancing our global safety standards by applying best-in-class analysis and improving proactive measures in high-incident areas, including construction sites. These efforts complement ongoing process improvement programs in our regional operating companies.
More than any other area, safety rests on a personal commitment. It requires the involvement of every worker and leadership from all managers. Ultimately, it requires everyone to step up when it counts: to intervene or stop work when they encounter unsafe conditions. I ask for this commitment from every employee I speak to, and demand it of our highest leaders. Improving safety is a distinct performance goal of mine and of each member of our global management team.
As our 2017 targets show, there are clear and compelling opportunities to generate more value from our current operations. Agribusiness and Food & Ingredients are following different strategies, but with common principles: closing performance gaps through rigorous benchmarking and the application of best-in-class approaches worldwide.
Bunge has pursued operational efficiency consistently and with notable success. Our asset reliability program, ARROP, which started in 2011 and is now applied in all industrial sites, has achieved bottom-line savings by decreasing downtime and reducing maintenance spend. In our European crush facilities, for example, unscheduled downtime has dropped by more than 30 percent, and maintenance cost as a share of replacement asset value has fallen by more than 20 percent.
Building on the success of ARROP, we have revitalized our focus on optimizing our crush facilities. The overall opportunity is big—crush represents nearly 40 percent of Bunge’s total industrial costs—and the near-term potential is clear. Through deep-dive analyses at 13 plants to date, specialist teams have identified more than $20 million in run-rate savings achievable through process improvements and short-payback, high-return capex investments.
Many of these changes are incremental, and they add up. For example, at a plant in Southern Brazil, equipment modifications have improved heat recovery in the meal drying process, and in a North American facility, process improvements have reduced white flake fats—essentially residual oil left in soybean meal—by 0.2 percent. These improvements each translate into half a million dollars of additional profit annually. Applied across our global footprint, improvements like these are a significant reason we expect to reach an ROIC of more than 9.5 percent in Agribusiness by 2017.
So are improvements in logistics, margin optimization and risk management. Optimizing flows, managing price risks and making the best decisions for Bunge’s global enterprise are a continual focus. We are committed to enhancing our proven economic analysis processes, integrating the data and information gleaned from daily interactions with farmers, customers and consumers around the world and applying best-in-class approaches to risk monitoring and oversight.
Our goal is for Food & Ingredients to account for roughly 35 percent of total EBIT in the coming years
Performance improvement will have similar beneficial effects on our results in Food & Ingredients. Through a combination of commercial and operational programs, we have made improvements in key metrics. So far:
• Asset optimization has increased average total operating effectiveness by 10 percent and reduced industrial unit costs by 3 percent at 24 plants.
• Process optimization has increased average yields by 50 basis points across 37 plants.
• Supply chain optimization, where applied, has reduced costs by 6 percent.
Some of these improvements stem from changes in our footprint or operations, while others are incremental enhancements to existing processes. As in Agribusiness, they add up. As the efforts continue, we expect additional improvements that—on top of those already achieved—will help drive a Food & Ingredients ROIC of between 12 and 13 percent in 2017.
Higher margins and greater consistency of earnings also stem from where we choose to play. Increasing the share of value-added businesses in Bunge’s portfolio will accomplish both. Our goal is for Food & Ingredients to account for roughly 35 percent of total EBIT in the coming years. One portion of this increase will come through market growth—key oils and grains categories are expanding by 3 to 5 percent annually, depending upon channel and region. Another will come through expanding our portfolio of higher-margin products. We are targeting five key value drivers—functional performance, healthier choices, natural origins, sensory experience and innovation for convenience—that can generate unit margins several times those of base commodity products. Reduced-saturate oil in North America, sustainable margarine packaging in Brazil, and clean labels and flavored oils in Europe are all examples of this strategy in action.
Global consumption of oilseeds and grains is expected to grow by 450 million tons, and global trade in oilseeds and grains by 175 million tons, by 2024
Additional EBIT growth will come through acquisitions. We are focusing on bolt-on targets that are accretive and deliver market growth, deepen our capabilities and ability to serve customers, and are tightly linked to our upstream agribusiness operations. Our recent milling acquisitions in North America are good examples.
Bunge’s business is shaped by geography. Our role is to link regions where oilseeds and grains grow to the rest of the world, so we must have the right assets in the right places and manage our total footprint with a sharp focus on customer service and capital returns. Today we do.
No company has a stronger position in South America, which over the coming decade will expand its share of the global grain and oilseed trade. Our footprint in North America is solid, with export terminals at four key ports and a strong position on the Mississippi River. In Europe, Bunge has strengthened both its crush and export footprint with key investments in the Black Sea region. And in Asia, we are newly reestablished in Australia and maintain a well-scaled presence in China, Southeast Asia and India.
It is a global reach that would be hard to replicate, and our focus moving forward is to make it even more so by closing key gaps. Four recent or ongoing projects illuminate our approach well and will play vital roles in our business moving forward:
• A new export terminal in Northern Brazil that will ultimately ship 4 million tons of product via an efficient multimodal logistics chain and relieve congestion in southern ports.
• An expanded port terminal and new crushing plant in Ukraine that will increase our presence in key grain and oilseed export flows from a critical origin.
• A second export terminal in Australia.
• A completely reinvented canola crushing plant in Altona that will capture a meaningful share of the fast-growing market for that healthy oil.
By connecting harvests to homes, we unlock the tremendous potential within each grain and oilseed category and improve the total efficiency of the global agrifood chain
UNLOCKING VALUE FOR ALL
As we deliver on our strategies, the benefits will accrue not only to our shareholders but to society as a whole. This is because what Bunge does is fundamental. By connecting harvests to homes—through every shipment, every trade, every process improvement and product innovation—we unlock the tremendous potential within each grain and oilseed category and improve the total efficiency of the global agrifood chain.
That potential cannot be underestimated; that efficiency cannot be discounted. A vibrant agrifood chain can be the economic lifeline for the poorest among us; it can be the driver of a better diet for developing societies, an engine of trade and a force for stability. Built on sustainable practices, it can also be a source for environmental efficiency and climate resilience.
We’re applying a disciplined capital allocation framework, with capex trending down to an ongoing level of roughly $600 million per year in Agribusiness and Food & Ingredients combined
For many years, Bunge has contributed to making the global agrifood chain more sustainable, and we took meaningful steps in the past year to advance our efforts. In 2014, we established a dedicated Sustainability and Corporate Responsibility Committee of our Board of Directors; increased our disclosure by participating in the Carbon Disclosure Project investor program; advanced our partnership with The Nature Conservancy in mapping landscapes and supporting better growing practices among Brazilian farmers; and established a new palm oil sourcing policy that commits our company to eliminating deforestation in our supply chain.
These are merely steps on the journey. Our customers want sustainable, transparent supply, our employees are committed to improving our operations and our values demand that we act. We consider these actions to be part of the foundation of our business.
2015 AND BEYOND
Bunge has been strengthening that foundation—through sweeping changes and steady progress—for two centuries. Today, we stand on the shoulders of many generations, and remain committed to the ideas of entrepreneurialism and ownership that have made our company a success.
This year, and the future, look bright, and we are confident in our ability to unlock value for shareholders, employees and all stakeholders.
Thank you for your commitment.
CEO, Bunge Limited