Bunge profits plunge after "difficult year"
sales this year, as the company emerges from a "difficult
year," which saw profits hit by a "weak operating
environment" in Brazil.
Net sales for the year ended December 31 2005 fell 4 percent to $24 billion, compared to last year's $25 billion.
"2005 was a difficult year for Bunge. We faced significant external challenges, and we made some mistakes. We have improved our operations however, and while we will not see a return to trend line growth in all areas, we believe that 2006 will be a better year," said Alberto Weisser, Bunge's chairman and chief executive officer.
The agricultural and food products company said its principal problems for the year included drought and lower soybean prices in Brazil, as well as a "steadily appreciating " Brazilian real.
Farmers reacted by withholding crop sales and delaying purchases of farm inputs, said the company, adding that the real appreciation affected Bunge by raising local costs and squeezing margins.
The company's operating profits plunged 106 percent in the fourth quarter, and 46 percent in the full financial year. The quarter saw an $11 million loss in operating profit, which contributed to bringing down the year's figure to $456 million, compared to last year's $850 million.
The company saw stronger agribusiness results in the Northern Hemisphere for the quarter, with higher international marketing sales and oilseed processing activity in Argentina resulting in higher overall volumes. However, this was "more than offset" by weak results in Brazil.
Strong demand in the North America for canola oil and trans fatty acid replacement products benefited the company's edible oil results, but performance was dragged down by weaker sales in Europe.
Wheat milling results benefited from higher volumes and improved product mix, but were offset by margin declines in corn milling.
"The global agribusiness market should experience good conditions in 2006, but will not be free of challenges. We see growing demand for our core products, soybean meal and vegetable oil, but continued weakness in Brazil and a tougher crushing environment in Argentina," said Bill Wells, the company's chief financial officer.
"Overall, we expect Bunge to produce better operational results in 2006 due to initiatives to improve margins, lower costs, and mitigate exposure to the real. Many of these initiatives are already in place and are beginning to produce results," he added.
The company said that in 2006 it will "stay focused on growth and efficiency." In the year, it expects to purchase a second soybean crushing and refining plant in China, and replace "less efficient assets" in Spain with two new crushing plants. The year should also see the start of operations at the company's new grain and fertilizer terminal in Santos, Brazil, as well as the completion of two new sunseed crushing plants in Eastern Europe.
"We are also leveraging the efficiencies of our existing infrastructure to initiate a small sugar origination and marketing business," said Bunge.
The company's net income guidance for 2006 is $520 to $$540 million.
"The fundamentals of our industry remain intact, with steady growth in agricultural production and food consumption. While we will always experience market fluctuations, these fundamentals should drive long-term growth in our business. We will continue to position Bunge to benefit from them," concluded Weisser.