Bunge competitiveness program seeks to trim $250m in spending
The company announced the new competitive program Wednesday and released additional details on a conference call Thursday.
One intended outcome of the impending changes will be to reduce overhead costs by about $250m by 2019, the company said.
The announcement was made outside of the upcoming second quarter earnings call because it is a big deal for the company and had already been announced internally, said Soren Schroder, Bunge’s CEO on a conference call.
However, Bunge said it remains committed to work in grains and oilseeds.
“In conjunction with today’s announcement, we also indicated that our second quarter preliminary results, which, while profitable, will fall short of the lower end of the range of analyst estimates, primarily driven by unprecedented farmer retention of crops in South America,” he said.
"Results in our food, sugar and fertilizer segments preformed as expected. We see signs that agri-business conditions are improving and we therefore expect much better fiscal performance in the second half of the year.”
Work to develop the plan started with considerations at the end of last year, he said. “We are now ready to implement significant changes,” he said.
“There’s nothing in this process which is off limits from the shape, size and location of our offices to how we execute control at the business unit level,” said Schroder.
“All areas of the business will be impacted and it’s an opportunity to refresh and find better ways to deliver more with less," he added.
Overarching goals of the plan include to be more efficient with administrative processes in support of local and global operations, said Schroder.
The company has established a strong, global agri-food business focused on grains and oilseed, a unique footprint and become a leader in soybean crush, he said. While these positions are expected to offer opportunities for earnings growth, there also is area of improvement in operating more efficiently.
Along with reducing costs, a goal it to improve the company’s competitiveness and move it range of other top tier commodity companies, Bunge reported.
The plan is based on the idea of reducing the company’s cost base and streamlining its organizational structure to improve efficiency, said Thomas Boehlert, Bunge’s chief financial officer on the earning call. “We plan to achieve an annual run rate cost of $250m by the end of 2019,” he added.
“We began the process to launch this program at the beginning of the year, and we’re now in the design and implementation phase,” he said. “The actions we are taking represent a very significant change in how we will operate and are designed to support our strategy and our growth.”
The cost saving efforts including reducing the company’s selling, general and administrative expenses (SG&A) and capital expenditure (Capex) spending, he said.
In addition to practices like simplifying operations with increased automation and standardization within the company, efforts will be made to reduce areas of indirect spending, he said.
“We expect the SG&A impact this year to be marginal this year, and that we will realize savings of approximately $100m in 2018 and $180m in 2019 and that we would achieve full run rate saving by the end of 2019,” he said. “The total cost of the program is estimated to be in the range of one full year of savings plus or minus 20%, and that includes any related capex.”
Capital expenditure targets for 2018 have been reduced to $500m from the $700m set for 2017, he said. “We’ve made some fairly significant capital investment in recent years and are now to scaling back capex across all categories as we look to realize the returns from those investments,” he added.