Bunge details $250m competitiveness program

Program expected to provide modest benefits in 2017 earnings.

Bunge Ltd. announced this week a comprehensive global Competitiveness Program to improve its cost position and deliver increased value to shareholders. The program, which has been discussed over the past several quarters, will rationalize Bunge’s cost structure and re-engineer the way it operates, reducing overhead costs by approximately $250 million once fully implemented. These savings are in addition to the savings generated through the company’s existing industrial productivity program, Bunge said.

The cost savings will be achieved by aggressively adopting a zero-based budgeting process that will target costs in specific budget categories, simplifying the organizational structure, streamlining processes and consolidating back-office functions globally to improve efficiency and scalability. In addition, the company will be reducing its 2018 total capital expenditure spending from a previously announced $750 million to $650 million.

“We have a unique, irreplaceable footprint and a strong, growing customer base that relies on us for competitively priced, high-quality products under all market conditions,” Bunge chief executive officer Soren Schroder said. “Demand and margin trends are positive, and the Competitiveness Program is a transformational next step to re-engineer our organizational and cost structure, which will advance our growth agenda and create significant value for our shareholders.”

The company expects the Competitiveness Program to provide modest benefits to 2017 earnings. Approximately $100 million of the savings are anticipated to be realized in 2018 and $180 million in 2019. Full-run rate cost savings of $250 million are expected to be achieved by the end of 2019. Bunge expects total non-recurring charges associated with the program to be 0.8-1.2x of targeted savings, most of which are expected to be cash charges spread over the next two-and-a-half years.

“We started the process to launch this program in early 2017 and are now beginning implementation. I’m confident that these steps will improve our competitiveness and position us well as market conditions improve,” Bunge chief financial officer Thomas Boehlert said.

The company also announced that it expects second-quarter 2017 adjusted earnings to be modestly profitable but below the low end of the range of analysts' estimates, primarily driven by challenging global agribusiness market conditions.

“Market conditions during the second quarter were challenging, driven by unprecedented farmer retention in South America, which pressured margins throughout the chain,” Schroder said. “Increased farmer pricing early in July, as well as more dynamic markets and continued strong demand, lead us to expect much-improved agribusiness conditions in the second half of the year.”

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