Ingredion Inc (INGR) 2002 Q3 法說會逐字稿

This is premier conferencing. Please standby we're about to begin. Good morning everyone and welcome to the Corn Products third quarter 2002 earnings release conference call.

This call is being recorded. At this time I will turn the call over to Vice President of Strategic Business Development and Investor Relations Mr. . Please go ahead sir.

Good morning and welcome to the Corn Products third quarter 2002 earnings conference call. This is an open conference call simultaneously broadcast on our web site www.cornproducts.com.

Today's charts can be viewed on our web site and downloaded for printing as well. Today Sam Scott our Chairman, President and Chief Executive Officer, Jim Ripley our Chief Financial Officer and I will conduct the call.

I've shifted to chart two - the forward looking statement chart, our comments within this presentation may contain forward-looking statements. Actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in today's press release can be found in the company's most recently filed annual report on form 10K and subsequent reports on forms 10Q or 8K.

Now on chart three financial results Jim Ripley will now discuss the financials relative to our third quarter Jim.

Thank you Dick. Dick will be reviewing the fundamentals of our business in a few moments.

I hope you have seen our financial statements attached to our press release. I will be reviewing those statements and pointing out a few key items in the quarter. I am now on chart four, which says summary income statement reconciliation.

Last years results included net non-recurring income of ten cents per share or 5.4 million dollars before tax - this represented a refund of previously assessed value added tax in Mexico partially offset by a one-time charge.

Operating income this year was down 14 percent if you include that special item in last years results and down three percent if you exclude it. Earnings per share was down 13 percent if you include the special item but up seven percent if you exclude it.

In the remaining slides I will exclude any comment about this special non-recurring item as it has been eliminated from last year's results. I am now on chart five the summary income statement.

Net sales of $480 million increased one percent. Without the loss of sales in Mexico however for most of the quarter net sales would have increased by approximately five percent. Gross margins declined almost one percent to 14.6, which is the same rate that we ran in second quarter this reduction in rate primarily reflects the loss 55 sales in Mexico.

Operating income at $40 million is 2 million this again reflects the situation in Mexico and a weak economic conditions in South America partially offsetting these problems is continued improvement in the United States and continued good results in Asia.

Our business in the United States is showing very good improvement over last year on increased volumes cost reduction and some help from higher 2002 annual contracted prices. The quarter also benefited from the change in accounting for good will approximately $3 million, which is no longer amortized under the current accounting rules.

Financing costs is down $6 million or 37 percent from last year this is associated with reduced borrowings about $2 million while an additional $2 million is due to lower interest rates and about £2 million from exchange gains. We have paid down our debt substantially over the last 18 months which was our high point about $804 million which occurred after several years of strategic investments.

Total debt is now $617 million versus 756 that year . This represents a $139 million reduction since year-end and $187 million reduction sense last years first quarter.

Since March of last year we have been focusing primarily on cash flow as we our capital expenditure program and began a major working capital project. Working capital has been reduced $44 million this year from the beginning of the year versus a 70 million increase for the first three quarters of last year.

This represents a $114 million swing in working capital between the two years. We have also refocused our strategic gross spending from acquisitions to alliances that do not require significant capital investments.

In July of 2002 we refinanced two million dollars of our revolving credit loans to a longer-term five-year bond and in October of this year we refinanced the remaining of our credit agreements that was expiring in December of this year.

We now have a new 125 million three-year revolving credit agreement in place. These actions have improved the liquidity of our debt, which is now approximately 80 percent long term, and our debt has an average maturity of about five years.

Let me get back to the financial statements. Minority interest increased 1.4 million to 2.8 million from last year. This represents better results in Korea and the Southern Cone of South America.

Our tax rate increased from 35 percent last year to 36 percent this year. This reflects higher US taxes primarily from the impact of US State and local taxes on the improved earnings coming from our domestic operations.

Earnings per share is up three cents per share to 48 cents per share. This improvement mainly comes from the lower financing costs about 10 cents and the cessation of good will amortization offsetting the reduced operating income and higher tax rate.

I'm now moving on to page - to chart six, which is the geographic segment sales analysis. North American sales increased four percent to 322 million as better volumes in our other product lines in the region offset the loss of HFCF sales in Mexico. Higher selling price helped offset currency declines.

In South America sales were down 11 percent. Weak economic conditions in Brazil and currency declines throughout the region could not be offset with price improvements during the quarter.

Asia/Africa sales were up 10 percent and higher volumes and currency gains throughout the region. This region continues to be our engine for growth.

I am now moving on to chart seven, which is the net sales analysis variance from last year. In North America the 3.7 percent improvement in sales comes from a 1.5- percent price improvement, while volumes were up 4.3 percent despite the loss of the HFCF sales in Mexico for most of the quarter.

The currency reduction is mainly due to a weakening of the Mexican peso, which occurred in the second and third quarter of this year from very high rates we had seen in the previous year.

In South America this regions 10.8 percent decrease in sales from last year follows a widening in the local currency versus dollar price gap. Although we are making progress in Argentina price increases continued to lag devaluation. Additionally the gap increased due to the recent decline in currencies in this region.

Volumes were flat due to weak economic conditions I would like to point out however that the between the exchange rate and price increase we have been able to get an average of 40 percent price increase offset or partially offset to 50 percent reduction in exchange rates.

In Asia Africa the 9.8 percent increase on sales is coming from two- percent volume growth and a 7.1 percent currency gain prices are relatively stable in the region.

I am now moving on to page six which is the geographic operating income analysis North American operating income is off four percent. The operating income is about the same as it was in the second quarter and significantly better than it was in the first quarter when the North American operations were off 55 percent.

Improvements in the U.S. and group results in Canada litigated the negative impact from the loss of sales once again in Mexico. South American operating income decreased 17 percent. Currency and the slow economic conditions impacted this region though in the third quarter which is the slowest seasonal period for this region business in Brazil weakened due to local - higher local costs that were difficult to pass on in the current economic environment in that country.

the Brazilian also weakened considerably during the quarter in the Southern which is Argentina and Chili primarily improvements in the domestic business in Argentina coupled with our significant export business produced a profit rebound in this area from what we saw following the year end devaluation in Argentina the region continues to do well despite currency and difficult economic conditions in that area.

Asia Africa operating income increased 27 percent this came from the higher exchange rates the of good will amortization in that area, higher volumes and some margins and improvements following better pricing.

The corporate expenses are higher than last year as last years results included a reduction in the bonus and now moving on to chart number nine - earnings per share analysis for the quarter.

Last year we earned 45 cents for the quarter this year the net is 48 cents per share or a three-cent per share improvement. Net changes in operations resulted in a two-cent per share decline the reduction in net volume or the change in that volumes cost us one cent per share. Mexico on negative side but there were improvements in other North American product lines and Asia.

Higher operating margins and local currencies added 14 cents per share this reflects the higher local currency pricing, cost reductions in the U.S. and Canada and better pricing.

Currency declines themselves cost 20 cents per share - this was primarily Argentina, Brazil, Columbia and Mexico. The of good will amortization added five cents per share to this years results.

In the non-operating area we saw a five-cent per share improvement - reduced financing costs added cents. The average debt for the quarter was down as I mentioned before and there were significantly lower interest rates than last year.

The increase in the tax rate added costing us one cent per share while higher minority interest cost four cents per share.

I am now moving on to which is a summary of the tax flow. We generated 164 million positive cash flow from operations during the first nine months of the year verses $82 million last year.

This improvement came from our working capital program where we are showing a 114 million net improvement over last year. Net income was constant at $47 million while depreciation and amortization was lower by $19 million.

On a use of our cash this was also reduced substantially. Capital expenditures was down $6 million. Our target for the year is still to be somewhere less than $80 million.

Total debt was reduced as I said before by $139 million from year-end and $145 million from last September. The final financial chart, which is chart 11, is key ratios.

We turn on sales as 3.6 percent versus 3.7 percent last year. 2001-year end we turn on sales with 2.8 percent. We turn on capital employ decrease from six percent to 5.8 percent. Our target is still to be in the eight to 10 percent range.

At the end of last year our retirement capital employed was 6.3 percent. Debt to capitalization ratio is 36.5 percent. Our target is to get down to 35 percent.

It increased as our net equity was eroded by currency translation adjustments. Last year, however, at the end of the year our debt to capitalization ratio was 38.8 percent.

Working capital to sales is at 14 percent versus 17 percent at last year's year-end and 18.1 percent in the period. We are working to drive working capital down to rate closer to 15 percent so we've actually gotten below that at this point.

Net debt that is total debt less cash and sure term investments are now at $563 million. At the end of last year it was $691 million. With that I will turn the meeting back to .

Thanks Jim. I'll review our third quarter from a qualitative standpoint and then we'll provide some comments about our outlook for the balance of 2002 followed by Q&A.

I'm now switching from chart 12 to chart 13. And chart 13 is the currency update and first I'll describe the chart. The first column is the country. I have listed the after that I have listed the average currency values for the third quarter of 2002.

The next column shows how the third quarter average for 2002 compares to the same quarter in 2001 and because currencies can often be a moving target and the fourth column I've listed last Fridays close versus the average for the just closed third quarter.

It's been another valuable quarter in South America for the two large countries in which our two major South American businesses operate. Summer to last quarter this can be clearly seen when comparing Brazils quarterly average drop in value versus what happened since the quarter ended, as indicated by last Friday's close.

The has been caught up in concerns about next Sundays run off election primarily as well as its debt. Much of the bad action with the is has occurred since March 30th of this year as the has tumbled from 2.3 to 3.9 to the dollar as of Friday a 70 percent drop.

Argentina's has been muddling along for hope in the lack of it for IMS assistance and somehow getting their economy restarted.

On the positive side the Asian currencies are doing well.

Now chart 14 this is the first of the third quarter summary charts. As Sam stated in today's press release it is particularly to deliver this quarters very positive result given the macro economic and political issues facing it.

In the quarter we achieved earnings of 48 cents a share having only 10 working days after having only 10 working days of HFCF sales in Mexico.

As you may recall the earnings power of Mexican HFCF is significant witness both this years second quarter earnings which included income from far less then capacity HFCF sales as well as the Mexican HFCF earnings impact statement we made back in January after the tax was levied.

In Brazil as already mentioned in the currency chart we witnessed a further currency decay along with the general slow down in the local economy. Equally publicized with the situation in Argentina where the currency is down over 70 percent since January 6th.

And yet our year over year southern cone South America quarterly earnings has improved.

And finally heading back north we delivered stronger earnings in the US helped by another year of better those still unsatisfactory product pricing.

Now for the details. Chart 15 the geographic sector review for North America. As we stated in the press release despite the short fall in Mexico caused by the value added tax on HFCF sweeten soft drinks we ended the quarter with a four percent volume increase in North America due to strong sales in the US and Canada.

While we did get the benefit of a slight from last year post 9-11 the volumes were strong through out the entire quarter and in Mexico volumes for our other products were good as well.

US earnings continue their upward trend as we concentrate on the controllable in our business. Our cost. While we are still not delivering returns that meet your or our target it was heartening to see the result the result in cost reduction driven margin gains in this quarter.

While we'll discuss the Mexican HFCF situation more in depth in a couple of charts. Just for facts the HFCF production stopped on July 12th after the Mexican Supreme Court restarted the vat tax on HFCF sweeten soft drinks.

Give the performance of northern latitudes of North America, the US and Canada third quarter North American operating income was consistent with last year.

A principal reason for our positive reaction to this quarter's performance. Move down to chart 16. Geographic sector of South America and also Asia Africa.

It's fairly easy to characterize the overall situation in South America economic unrest and uncertainty. However, once again our Southern cone business, especially Argentina, which is at an eye of one of the financial storms, performed very well, with timely price adjustments, exports and reduced costs including good will.

Given our management's teams performance the time delay for recovering dollar denominated operating income in the Southern cones, primarily Argentina, has been remarkably short and has occurred within an economy with a hugely devalued currency.

In Brazil the lag from devaluation to recovery is still underway, as the currency continues to drop per my earlier comments, and the Country's economy is certainly very slow.

On the other hand our Asia/Africa division continues to grow and build. Another quarter of volume and operating income growth. Operating income increased by 27 percent over the comparable period last year, testaments to a value of our strategic commitment to that part of the world.

As we stated in July our new efficient tapioca processing plant in Thailand, which we believe, are the worlds largest, did in fact start up, and is today producing glucose and starch.

Chart 17 is some dazzling color - photo of our plant in Thailand. This is just one section of the plant - a portion of our glucose refinery, which started up during the third quarter. Construction continues as we have additional phases that will be added over the next couple of years. We are very pleased with this project and wanted to share a bit of it with you.

I'm now on chart 18 - year to date cash flow. Jim, Sam and I have talked about working capital since like last year and our project continues to bear fruit as Jim has mentioned. Through the first nine months of this year we've generated double the cash flow for the same time frame last year, despite operating and difficult times.

As Jim has said we've used the cash to reduce debt and lower our interest expense. Examples I decided to some color with this information, examples of some of the improvements are shown on this chart. As you can see comparing this September 30, 2002 to the same date last year our days sales outstanding or DSO has improved by 25 percent.

Further you can see we had already made initial progress during the fourth quarter of last year as comparative DSO improved by 21 percent. When comparing our entire cash conversion cycle you can see we've reduced working capital by 35 percent versus the end of last years third quarter and 21 percent by the end of last year.

Total debt was reduced by $145 million from last year at this time and this year we have an additional $40 million in cash on hand. We set very aggressive internal targets for working capital and the good news is we exceeded them in all geographic sectors.

Chart 19 the Mexico HFCF update. As I mentioned earlier we discontinued production on July 12 because of the VAT tax being reinstated. However, we are as the old saying goes, cautiously optimistic that we may be headed out of this trying time.

During the conference call last week, with a high ranking official and the office of the US trade representative or USTR, we asked what we could say to our shareholders about the negotiations between the US and Mexico. The official said both sides are working hard and making progress in the negotiations advancing the ball. We therefore continue to believe there will be a solution regarding our largest issue - the VAT tax on HFCF in Mexico as well as the other trade issues concerning Mexican exports to the US and HFCF exports from the US into Mexico.

Chart 20 our outlook chart. This chart is the same chart from our July 23 conference call. Basically other than having finished another strong quarter, given the external environment we continue to project the 2002 earnings per share will be at or near last years earnings per share. That expectation is based on improving results in the US, based on costs reduction and gains in Canada as well.

Another strong quarter from our strategically important Asia/Africa sector, continuing improvement in the Southern cone of South America, principally Argentina, our largest business from that part of the world and increased cash flow from our working capital initiative and the resulting deduction in debt expense.

That's it we're now opening our conference call for questions of Sam, Jim and myself. .

Thank you gentlemen. Today's question and answer session will be conducted electronically. If you would like to ask a question please press the star key followed by the digit one on your touch tone telephone. Again that's star one if you would like to ask a question.

If you are on a speakerphone please remove your mute function to allow your signal to reach our equipment. Again that's star one on your touch tone telephone. We'll pause for just one moment.

And gentlemen our first question will come from of CS First Boston.

Good morning.

Good morning David.

Well done on the cash management. The first of all I would like to ask about on the cost side - in-put cost side - I presume you're covered on corn but it's hard to be covered on the by product values which have risen. Did you get benefit from that.

We saw some slight benefit from it David. Obviously you're right, we've said before we were covered on corn, we have seen the oil price move up a little bit throughout the year and certainly feed and meal are slightly better than last year and we've had some advantage from it.

So you'd call that slight.

That's right very ...

But on the energy cost side I remember prior times when oil was up at $30 a barrel, when natural gas was up high, that was a material issue for you guys, how much might it have effected you here.

As we mentioned before we had hedged our energy last year and thought we would see some benefits as we progressed through this year and that statement still holds we still we had them hedged, we had energy hedged for the most part for 2002 and fortunately it came down a little bit.

OK. You noted I guess not surprisingly that you're ending your relationship with MCP at the end of the year I guess what might that have added this year and therefore what might it hurt you next year not having that.

I don't know that it's going to hurt us at all going forward David, my expectation is that it will not. This year I think obviously it helped out in the industry as a result of some form of consolidation that took place. We believe going forward next year that will still have the same impact with MCP being bought by ADM. As we mentioned in the press release we're moving forward with our plans to go forward next year on our own and in fact the dissolution process is well under way.

And beyond that the acquisition by has further consolidated the industries so there are fewer players in total.

There are a number of things going forward looking to next year with demand still out there, the consolidation has taken place in the industry, better utilization this year in fact all setting the tone for a better price environment and then you impose upon that Mexico it's not necessary for Mexico to be resolved the better pricing environment certainly if it does it would make it much better.

OK lastly you had earlier in the year indicated that the Mexican situation was hurting you to the tune of five to six cents per share per month - is that still the case or might that now be moderated as there is no sugar input from the U.S. for Mexican sugar at the moment?

That number is based on last years results I think that if in fact the border would a opened and we had competition in Mexico it might be moderated to some extent but the number is significantly impact of fructose on our business in Mexico.

So to near that level?

It's close to that level currently and next year you know it might not be quiet as much because we may have a more competitive environment in Mexico but we still expect it to be very strong next year too.

Great thank you very much.

OK.

Thank you Mr. . Moving on to .

Good morning.

Good morning welcome back.

Thanks. I wonder you mentioned that you were targeting alliances not acquisitions in terms of cash usage - wondering if you made any inroads there if you had any plans in the near term to move forward on them?

We've made some inroads, , some in the U.S that we've talked about already you know in these paper encouraging area we have two in the U.S. now we have a couple in Latin America that have been moving forward I am not prepared to comment on any discussions we are having obviously.

But the intent was stated in the annual report this year as well as other presentations we've made that we believe going forward part of our strategy will include alliances and ventures because of the strength we have in where we located around the world and the fact that we provide an entry for people looking to get into Latin America or Asia or Africa because they want to partner with us.

So we plan on capitalizing on that and moving forward where we can with those that support the strategy we're laying forward - laying out.

Great and in terms of the termination wondering if you then expect to given the timing right in the middle of kind of negotiations I'm wondering if you expect to negotiate for pricing independently and how you expect that to impact your ability to negotiate for higher prices.

Definitely we'll be pricing negotiating independently there's no question about that as I said the disillusion process is well under way and as I said that was one of the major concerns we had.

We don't think it will have any negative impact on our ability to negotiate for higher prices in fact it could be positive depending upon how you look at it.

And then finally on your new plant in Thailand given the timing and start up of that did that have any impact of that did that have any impact on the volumes for Asia this quarter?

No not really it was we're on a shake out process as said and just actually with the start up of the glucose channel was right at the very end of the quarter so it had no impact.

We were running some starch through - the starch but had been running that on the old plant as well so it's about the same kind of number.

Isn't the majority of the increase ?

It was actually both Korea, Pakistan - the entire region.

OK.

Other than Thailand.

Thanks.

And I would like to remind today's telephone audience that if you do have a question please press star one on your touch-tone telephone.

Next we will hear from of Salomon Smith Barney.

Hi good morning.

Good morning .

Could you review for us where utilization is for capacity across the industry in the United States.

It's pretty high up there . We say in the upper 90s including the capability and you know whether it's 96, 7, 8, 9 or 100 you know our guess estimate is the higher into that range going forward with the demands for conventional quarter fine product and included.

Could you contrast that with the same rate last year.

Last year would have probably have been in the mid to low 90s.

Yes 93, 94 maybe something like that. That's by memory.

The demand has picked it up a little bit and demand for other products are stronger this year then they were last year as well. So the combination has pushed it up and I don't believe there's been any expanse and there's certainly none that we know of none of it' been announced on the side so you know we're believing that it's probably up a few percentage points from last year on the .

Is it a safe assumption then to believe if we have a stronger environment this year then last year and you did get a price increase last year in the United States that we should see a price increase in January well in excess of the increasing net quorn cost.

You asked me is that a fair assumption.

Yes.

yes we are we are looking for that. We expect with the market conditions as they exist today there is room for prize movement. I don't know that it's a fair assumption but I certainly know that that's the incentive to move prices forward this year as we go into the contracting period.

Unfortunately I've said that to you before and at times most of the time for the last three or four years we have not been able to deliver all of what we thought we could. Last year we were doing fairly well until the Mexican thing hit and as you remember we were moving along and up through and to the end of the year with fairly significant price movement and Mexico hit and we ended up running into a road block.

Our belief is going forward this time we should be able to get prices through exceeding the cost of corn.

And then on that corn issue do you have any corn do you have any corn positions in place in 2003 currently.

We have some.

A ball park percentage.

I don't go out with that .

OK, and then how about then I'd love to hear some of your thoughts on what the corn harvest is going to mean in terms of you know corn prices and or just availability of product. Do you see any problems there in North America.

From an availability point of view.

Well we have a tighter situation here and it looks like that we're finally starting to see global stocks you know come down fairly substantially. Stocks user you know down at what 7.9 percent which is the lowest second lowest it's been in since 1973.

It seems like a reasonably significant situation and I just like to hear your thoughts.

We don't expect to see any problem getting corn. We read the report that has been written on the increase in net corn cost and don't know where those numbers came from. Certainly the experts in the field are talking about a 10 to 15 percent cost in cost increase in net corn.

That does not include the impact of basis and that is a number that nobody can fully define but it is published you can find it and it'll vary. So the 46 percent number the USCA flew out is not something that we see as real at the moment.

As I said have talked significantly lower numbers than that and then you add basis to it. So there will be an increase in the cost of corn force of our raw material but we believe we'll be able to get it. Certainly we will cover it again going forward as we start booking our business. It's out there. We do expect to see some degree of strengthening in still on average for the year because oil should be higher. The other may along around where they are now depending but as the - sorry complex gets tighter we expect to see all of our benefit somewhat from that.

On the Mexican U.S. negotiation I'm hearing that the sticking points have a lot more to do with the future of the agreement in further out years i.e. not the 2003 year. that seems reasonably significant to me. You said earlier on the call that you felt I think confident that there would be a resolution. Can you give me some more color here I mean this - I'm just not clear as to why we should believe that there's actually going to be a resolution this year?

One thing that's different is that there actually talking for a change. And all of the other issues have been dealt with in challenges and challenges in that so this time we have both parties sitting down talking and as Dick stated moving the ball forward. We also know that not only the negotiating teams talking but secretary and secretary are talking personally on the issue. There are some concerns - a couple of concerns that are out there but they're committed to resolving them based on what they said to us so we believe that they will try to find a way. Both parties know that they need to do something on this one. In addition to that as we've said before were working in Mexico to protect ourselves there and believe we've made some head way in listing the farmers health in Mexico to support our efforts in being able to produce - domestically produce fructose in that country.

So I know that I said in September or in the first quarter conference call we thought that something would happen as a result of what had said to me. We still believe it will get fixed but there are still some negotiations in progress.

OK.

THe input we've gotten has been positive from our people.

Great. Thanks a lot. I appreciate it.

Thank you.

And moving on to of .

Good morning.

Hey John. How are you doing?

Morning John.

I got a kick out of criticising research instead of the government criticising Wall Street because ...

That's just our opinion.

Especially from where the last question came from. Just in terms of Mexico the fact that there's been no agreement by October 1st when the sugar quarter sets - you know it just delays - it's bothered my belief that there might be an agreement in Mexico. The fact that we're now - have they set the sugar quarter yet?

No. Not yet. They have - I believe they've held it back partially as a result of the negotiations to be able to not set it until such time as they have reached a resolve on the Mexican issue.

so that's got to be encouraging I guess?

That's one of the reasons we're thinking something may happen.

OK. And just to try to get my numbers right. The fact that you're saying at or near last years level you're talking about on a reported basis so you're saying earnings in this last quarter of somewhere a little north of 30 cents because it was you know there was tax refunds last year and there was a gain on this. You're talking about on a reported basis reported earnings.

Yeah.

Yeah.

Right we're talking on a reported basis but this year we're not talking any special .

OK. OK.

John. This is Jim Ripley. The specials that are in the year's results this year were about the same as last year. Last year we had the special non-recurring income in the third quarter, this year we had some special non-recurring income in the first quarter. And the difference between the two I think is just about two cents per share.

So whether you include or exclude, we're staying - we're near last year's results. At or near.

And just - can you talk a little bit more about the climate in Brazil and Argentina, just you know, I guess, you know, can - is it improving? And to what extent administrative change impact your business?

I think in Argentina, as I talk to our people there John is - I don't if it's improving, but I think the people are becoming more accustomed to it. So in that sense it's improving, because things are settling down a little bit, although it's an extremely tough environment.

They're looking forward to the election. I don't know who's going to run, but whoever it is will probably be voted in so at least some of the people will be behind that person, and they think that'll be positive.

So Argentina is settling down, but not as a result of improvement, as a result of people becoming understanding of what's going on.

Our business is picking up because we are exporting more. We've opened up the export channels, moved some of our people around to be in the right place to solicit - to find business and get it, they've been able to do that. As well as, as a result of the currency there has been more demand for products internally in Argentina, and we've seen that growth pick up as well.

And as you know we're going into their summer months right now, so demand for products for the next five - four or five months should be pretty strong.

Brazil is a different scenario right now because of the elections. And certainly there has been a fair amount of concern both here and there as a result of the election taking place.

I spent a couple of days down in Brazil, and spent one day at the listening to one of the top economists of the country talk about what he thought was positive about what's going on there, what should happen. And their expectation was that the currency would weaken from that point, not to the extent that it is now, but he had a number of the that would be beneficial for Brazil no matter who the President was.

I think what we're seeing now with almost a shoe-in is the concern for what he does. Our people are feeling that the things he's saying are all positive, if he lives by them. He's enlisted the business community, and the business community now is starting to support him, and I don't know if that's out of fear or just the decision that perhaps he's going to win and he is saying the right thing.

If he does the right things I think you'll see the economy down there start to turn and get stronger. If he doesn't I don't know what's going to happen.

Yeah well neither do I.

Yes I - you know the good thing is we've been through Brazil so many times in any kind of economic situation that we know how to run the business, we're making the moves already that have to be made, in expectation of things being a little bit worse.

But obviously we go forward with our price movements, we go forward with our cost reduction projects, we go forward with the new products coming out. And fortunately we have a team down there that has been through this 10 times, so it's not something we haven't experienced before.

Thanks a lot.

Thank you John.

And as a final reminder, if you do have a question it is star-one on your touch tone telephone. We'll pause for just one moment.

OK.

There appears to be no further questions at this time gentlemen. We'll turn the conference back over to you for any additional or closing remarks.

Very good. Thanks so much everybody. And I'll look forward to talking with again.

That does conclude today's teleconference. We thank you for your participation.

Bye, bye.