Ingredion Inc (INGR) 2003 Q1 法說會逐字稿

Good morning everyone and welcome to the Corn Products first quarter 2003 earnings release conference call. This call is being recorded. At this time, I will turn the call over to the Vice President of Strategic Business Development and Investor Relations Mr. Dick Vandervoort. . Please go ahead sir.

Thanks Shauna and good morning and welcome to the Corn Products first quarter conference call. This is an open conference call. Simultaneously broadcast on your web site www.cornproducts.com. The charts for our presentations can be viewed and down loaded from our website at WWW.cornproducts.com. They are available 60 minutes ahead of our conference call. Those using the website broad-cast for this conference call are in listen only mode. Today Sam Scott our Chairman President and our Chief Executive Officer; Jim Ripley our CFO and I will conduct the call. We will indicate as we move from chart to chart so you can follow along through this presentation. I have shifted to chart two the forward-looking statements. I our comments within this presentation may contain forward-looking statements. Actual results can differ materially from those projects in those forward-looking statements and Corn Products is under no obligations to update them on the future as or if circumstances change. Additional information concerning factor that could cause actual results to differ materially from those discussed today during the conference call or in today’s press release can be found on the company's most recently filled annual report on form 10K and subsequent report on 10-Q. On chart 3 on chart 3 now the agenda. Today after this introduction. Jim Ripley will present the financials relative to the first quarter. Following that I will present the business review and comment further on 2003 outlook. We will be available to answer questions after the prepared portion of the call. Jim.

Thank you Dick. I am now on chart four. As Dick said he will be reviewing the fundamentals of the business in a few moments. You have seen our financial statements attached to our press release I am going to review those statements and Dick will go in to more detail on the quarter afterwards. I am now on chart five which is the summary income statement. Net sales for the quarter are 479 million increased 11%. Gross profit improved 7 tenths of 1 percent to 14.4%. This reflects margin improvement in United States with the new annual contracts as well as recovery from last year's devaluations of the dollar pricing gap in south America. Operating income at $36 million is up $4 million on a gap basis or 8.6 million in excluding nonrecurring income from last year's results this reflects one in North America the continued improvement in the United States. Which is now benefiting from higher prices. Lower costs as well as increase volumes throughout the region. In South America, improving performance in Argentina is helping as well. In Asia, continuing growth is helping our business there. In Mexico, the cessation of HFC55 as well as the weakening of the PESO continues to hold back the continue to hold back total companies results last year's results including non-recurring income of 4.6 million from the sale of our enzyme business less summary structuring charges.

Financing cost is down $400,000 or 4% from last year. This is associated with reduced borrowings off set some what by higher interest rates. Our minority interest at 3.2 million is only slightly higher than last year's 2.8 million. This increase represents the minority interest in income and increased earning in Korea, Argentina, and Pakistan. Our effective tax rate remains at 36%. Earnings per share on a gap basis is up 7 cents per shares to 38 cents per share. Excluding the special income from last year's result earnings per share is up 65%. This improvement mainly comes from the improved operating margins as we experience price improvements throughout much of our business. I am now shifting to chart number 6. Which is our summary of net sales by geographic segment. North America sales are up 11%. South America sales are up 7%. While Asia-Africa is up 15%. Shifting to chart number 7. Which is our variance analysis of the sales for the quarter. For the total company, sales dollars increased by 11%. This improvement in sales comes primarily from higher volume 6.33% with higher prices 16.6% now overcoming currency changing of 11.9%. In North America sales were up 11.4% on a 6.4% volume gain. While improved prices in a better mix had a 9.2% of total sales. Some of the price changes were instituted to off set currency weakness in Mexico. However, there was somewhat of a lag in this area. The Mexican currency weakness which has been occurred since the second quarter last year partially reversed itself late in the third quarter. In the South American region we saw sales increase by 7.4% from last year. This reflects a 3.5% volume improvement and a net 3.9% price gain over currency devaluations. The volume gains reflect significant improvement in economic activity in Argentina and beginnings of improvement in Brazil. The currency price gap progress started in the second quarter of last year and we have now closed this gap in Argentina and have made very good progress in Brazil.

Asia Africa, in this region the 15.1% increase in sales is coming from 11% volume growth with the remainder coming from primarily currency gains with some minor reduction in price mix. I am now moving on to chart 8 which is the geographic operating income analysis for the quarter. Operating income in total is up 13% on a gap basis or 32% excluding the special net income from last year's results. North American operating income is up 78% from a very low base last year. Recognizing that the first quarter is historically the slowest season in North American, improvements from the U.S. pricing from new annual contract plus strong volumes particularly in Canada and to a lesser degree to U.S. more than off set the currency and HFCS problems in Mexico. As I said before in Mexico, we are making good progress and offsetting the impact of currency declines. South America operating income increased 19%. Here we are comparing our self to a very weak condition last year as the economies of Argentina and Brazil were struggling with severe currency devaluations-- and economic collapse in Argentina. The region is now on the right track to recovery. However, there are some lingering economic concerns in the Indian region where there is some impact on volumes from the political crisis in [Venezuela]. Asia-Africa operating income increase 13%. This came from more organic growth in Korea and in Pakistan. Our corporate expenses are higher than last year. Reflecting significant increases in insurance and general corporate governance cost. I am now moving on to chart 9 which is our earnings per share analysis for the quarter. Last year we earned 31 cents per share for quarter. This year the net is 38 cents per share or a 7 cent per share improvement non recurring income included in last years results was 8 cents per share.

Net changes in operations gave us 15% -- 15 cents per share improvement. Higher volumes added approximately 8 cents per share. Higher operating margins in local currencies added 19 cent cents per share. This reflects the higher local currency pricing and continued cost reductions. Currency declines cost 12 cents per share. These were from Argentina, Brazil, Columbia, and Mexico. Non-operating items in total did not impacted earnings per share. However, financing costs added 1 cent per share. Average debt out standing were lower but interest rates were higher. Higher minority interest cost one cent per share. I am now moving on to the cash flow chart which is chart number 10. For the quarter, the operations utilized $3 million. This compares to the cash generation of $27 million last year. Much of the change reflects higher corn costs which increased inventory values and higher corn costs plus importantly higher pricing which increased our receivables. The other impact is seasonality in North America where we built working capital in preparation for the summer soft drink season. Last year's much smaller increase in working capital resulted from our working capital program. Where we were able to make major reductions from process improvement. A situation which cannot be repeated every year. The process improvement in last year's first quarter from the world wide operations over came much of the normal seasonal increase in North America. Net income contributed $14 million versus $11 million last year. Depreciation is $25 million versus $26 million last year. A net of $55 million was invested in the business.

$10 was used for fixed asset investments to grow and product our production based $48 million was used to purchase minority interest primarily in the southern comb . $3 million was received from the sale and dissolution of assets no longer needed. We paid a $4 million dividend to our shareholders and minority partners. Finally, we borrowed an additional $64 million to cover our cash flow needs for the quarter. I am now moving on to chart 11 which are some key ratios. Return on sales is 3.5% versus 3.2% last year. Return on capital employed is 5.2% which is the same as it was last year. Our target in this area remains to get to the 8-10% range. Our debt to capitalization ratio is 37.7% versus 39.8% last year. Our target is to get this ratio in the 32-35% range. Working capital to sales on a rolling 12-month average is 14.4% versus 15.7% last year. Net debt that is total debt less cash in short term investments is at $625 million versus $680 million last year at this time. With this, I will now turn the presentation back to Dick Vandervoort.

Thank Jim. I will review our first quarter from a qualitative stands point and then provide some comments about outlook for 2003. I'm now switching from chart 12 to 13. Chart 13. is our currency update [Inaudible] explanation of the chart. I listed our countries in the first column. Second column I list the average currency value for the first quarter of 2003. The third column shows how the first quarter of 2003 average compares to the same quarter of last year and because currencies are often a moving target, the fourth column I listed last Thursday's close versus the final day of the fourth quarter to look at sequential changes. In Mexico the peso continued weakening through much of the quarter which had begun last year. Why the peso has been confirming, as we progress in to the second quarter it remains slightly off for the year-end level. Currencies in the two largest economies in South America are still significantly below last years Q1 average, as you can see from the fourth column have been doing very well continuing the improvement begin last year in the fourth quarter. The Asian currency strengthens in the first quarter especially the Korean [won] which was quiet soft in the last year. Although late in the quarter, the won was again under significant pressure because of concerns with North Korea. Closing the quarter at 1255 to the dollar.

Almost 4% worst than the average for the quarter. As can be seen by the comparison shown in the fourth column of the spread sheet, much of that has been reversed. Happily at this point the won is strengthen again, is now close to an average of first quarter. Chart 14 Q1 2003 and aggregate. We performed well in the first quarter. Meaning our targeted earnings per share generating operating income gains from all geographic sectors North America, South America and Asia. Sales were up by 11% or $47 million. . As we will discuss by strong pricing performance in cost reduction particularly both in the U.S. as well as demand growth. During last year's first quarter, we sold the underperforming non-strategic enzymes business assets which has enable us to slowly focus on our star for finding business- then again last year's stressed first quarter, this year we increased earnings per share by 65% after excluding the gain from the sale of that business less charges associated with it. As I mentioned on the prior chart, the stated differently, of our major business currencies we enjoyed sequential gains from the Argentina, Brazil, and Canada. Sequential currency decline occurred in Korea and Mexico with that, as I set up to the third sub bullet under currencies, we have delivered margin improves on a year over year basis in South America as anticipated and as typical successfully dealing with the operating income leg that occur after currency devaluations.

Shifting to chart 15, North America U.S. Canada comments. Now to the detail. First in North America operating income was up 23% including the one time gain from the sale of the enzyme business. And up 78% as Jim mentioned one when the one time gain is excluded. As announced earlier. We were well satisfied with our contracting this year as can be seen by region wide price product mix increase of over 9% for the quarter. And now a look at the U.S. Canadian portion. As mentioned in the press release we had strong volume growth in Canada and some what lesser degree with U.S. The piece of the volume growth had a timing component during last years first quarter our shipments to the joint marketing company were under targeted level and were made up throughout the rest of the year. Also now that all sales generated our directed customers versus to the marketing companying? Maybe some anomalies that continues throughout the year. However even with this adjustments volume was strong in Q1 in the U.S. We've already discussed the U.S. pricing story in our earlier releases this year.

Across all this sweeteners HFCF [deksdoas] and glucose as well as our family of starches we generated operating income growth as our corn cost increases were covered and we were very satisfied with the outcome. Of course, as we said on our press release of March 5, pricing still has some way to go, before we turns our reasonable in the U.S business but this year's performance was in fact is solid. We also saw more favorability by-product pricing which listed the entire region. Corn oil continues to be well prices versus recent history and is now closer to more historical values. Our plants are running well and cost reduction help to insure our success. Our sales management team which has been repatriated from the former joint marketing company performing their roles very well as we have concluded contracting in closeouts of the first quarter . Chart 16, Mexico, North America. Switching now to if southern most country of North American business Mexico. We generated the small increase in volume over last years quarter despite last years advantage of having the ability to ship some HFCS during the quarters concluding weeks. More on that in a moment. The big news as mentioned earlier was the decline in the peso until its recent recovery.

This occurred because of Mexico’s physical proximity to the U.S. and more importantly the American dollar which has fairly notably declined in value. Back to the HFCS situation as projected because of the tax on HFCS sweeten soft drinks we have that no business with that industry in Mexico. And as mentioned in January we filed our notice of intent for $250 million for lost profits and cost incurred the finding is following its legal and [Inaudible[ requirement track and our target continues to be a successful outcome and while the action continues, we are driving the balance of our business just under three and a half of our four plants forward. Chart 17, South America. As Jim mentioned operating increased by 19% while sales increased by 7% from the 3.5% volume improve. We believe those are strong fundaments for any business in that environment or else where. In Argentina as well as southern cone of South America. In the first quarter of last year we were recovering from the economic collapse in Argentina plus its currency devaluation. This year the situation is while not out of the woods has stabilized with some progress in the macro economy. In our case as we stated in third quarter 2002 press release we recovered operating income in dollars at that time and have continued that performance since then. Finally within the southern cone as has been announced in the number of business publications in both countries, HFCS tech supports are being restarted from Argentina in to Chilly. In Brazil as can be seen clearly on the currency slide.

There appearing to be building confidence for that economy. As to our businesses noted in our press release, we have regained the operating income in dollars for Brazil with good volume growth. As to the turmoil in the Indian area and particularly in Venezuela it has effected some of our and our customers exports into Venezuela. This has had some dampening effect. But again clearly we are well pleased with the results from our South American region overall. Sifting to chart 18, Asia-Africa. Another good start described our Q1 in Asia Africa. The vital signs were very good. Net sales growth of 15%. Volume growth of 11%. And a strong performance was well balanced delivering an operating income increase of 13%. As part of that, our plant landing Thailand now generating a more significant portion of the volume growth and before it went online. And just a quick reminder as we said in the past about this sector in our company, it is our strategic growth region. Through last year its net sales driven by both acquisition and organic growth were three and a half times what they were in our first year of being an independent company -- and operating income has increased by five fold during the same time frame. Now shifting to the outlook on earnings per share. In our press release we quantified our earlier earnings guidance for 2003, calling for an 8-10% increase over 2002 GAAP earnings.

This also represented a 17-22% over increase 2002 EPS excluding the sales of assets in the first quarter -- and fee paid to the corn products for dissolving corn products MCP in last quarter. In both cases, these were less associated costs. In North America, this guidance is based on delivering our third consecutive year of better results with a sharper slope to the curve then past as our improvement pace quicken. As we have stated in the past, we still have a long way to go, but we believe we're on if right track. In Mexico, clear clearly our requirement is to execute well with the balance of our business in that country. And infect justice at the stage for the upcoming quarters as far as comparisons are concerned we enjoyed the operating income from HFCS sales in to beverage sector to a small degree in the first quarter of last year to a greater degree throughout the entire second quarter and for a portion of the third quarter of last year. So as we look forward this year, the comparison will be more difficult particularly in Q2. And of course, we will work again in the situation in Mexico for a favorable solution. Looking in South America on chart 20 completing the outlook on earnings per share, we started a good year in Brazil. And we expected that to continue from what we know now from the economy doing better and business being off to excellent start.

Southern cone is as I mentioned earlier noticed their cuts and election is underway in Argentina and new President will be elected. However, our business has continued to perform well since the acquisition thru the recovery from, the last evaluation. We believe that it will continue to perform well going forward. Asia Africa is expected to deliver another consecutive year of fine earnings performance. With its continuance performing well as 2003 going forward contributions from Thailand our one final comment as noted in the release and some of my comments with in this presentation, we are expecting our earnings gain to deliverable later in this year. With that. Sam, Jim and I are now open for you questions. Shauna.

Thank you the question and answer session will be conducted electronically. If you would like to ask a question you may do so by pressing a star key followed by the digit one on your telephone keypad. We'll take your questions in the order you signal us. Once again that is star one if you do have a question. We'll go to Christine McCracken with Midwest Research

Good morning.

Good Morning.

Wondering if you could talk a little bit about the increase in shipping and handling costs I guess as a percentage of sales up pretty significantly in the quarter. Was that primarily fill cost related.

I'll pick that one up, Dick. That is effected by the fact that last year we were shipping threw the joint marketing company. And now we're shipping direct. So it impacts that comparison. That's really what's there.

Okay. And then if you could just on this acquisition complete late in the quarter, could you talk a little bit more about that. It looks like you paid quite a bit for it. Wondering if you could give us a little bit more color on that

Sure Kristeen this is Sam. When we did this acquisition originally. There was a provision in it where the partner can put remaining piece during two year window at the predetermined price. He elected to do that. We elected to accept the foot based on the fact it was accretive to us. So we decided to take it out in the first quarter this year and. And that's basically the reason for it. As I said, it's accretive to the business. It just ran for opposition in South America.

Any -- you want to put any parameters on how accretive.

No.

Can't blame a girl for trying.

Give it a shot.

And then on election you mentioned obviously it's coming up I guess in a week or so, you expect any disruption form that seems like its still not clear view on who is going to win.

Kristeen, we're not certain about what's happening there. There's no clear leader. It's been surprising to some extent that the currency strengthened as much as it has in the environment but it has. We're waiting for the outcome. Based on the signals we are seeing right now, it doesn't seem to be a major disruption coming. We have been to Argentina before as a view and we are not counting on anything to be certain.

Great. Thanks so much.

Thank you.

Once again that is star one if you have a question. Also if you are using a speaker phone please make sure you mute function is turned off to allow your signal to reach our commitment. We've now go to David Driscoll with Salomon Smith Barney.

Hey good morning everyone.

Good morning.

Wanted to ask you a little bit about your earnings guidance you indicated here that the improvement would be more loaded to the back end of the year. Could you give us a little bit more clarity here what you're saying for the second quarter. I'm assuming with no comment, you're saying you're going to be flat with last year in the second quarter. Then I would assume that what you're getting at here is well' really going to see the impact either late in the third quarter or predominately in the fourth quarter. Can you give us little bit of help here on the pattern.

David as you know we don't comment on quarterly guidance. What we’re trying to say here in the second quarter of last year Dick mentioned the prepared text . We did have substantial help from the Mexican fructose sales. We wanted to make sure everyone was not looking for another gain of the second quarter as we saw in the first. We do feel that the weighting of the improvements will come in the fourth quarter or later in the year as Dick said. And we wanted to make sure that everyone was not aware and not expecting phenomenal increases in second and third going forward. But I can't give you any specific guidance by quarter because we don't do that.

And the fourth quarter is all seasonal strongest quarter for the South America. Their summer down there.

Also on the guidance, when you look at last year, we had essentially a negative 30 cent impact. If you net out the foreign exchange effect of minus 82 cent and the positive operating margin impact of plus 52 cents. It would seem that in many of your comments here you indicated that Argentina and Brazil has to cover their taxes certainly there are going to be negative volume impact-- could you give me some idea as to what level of this 30 cents do you anticipate recovering. What's embedded in $91 to $98 number that you have given us as guidance. I'm trying to frame this up in the context of you're also seeing a local price increase in the United States and Canada following your contracting period. I'm trying to reconcile your guidance with some of the facts we have in hand.

Couple of things we're seeing right now. We mentioned early in the call and historically. We believe we can put price increases in South America and recoup our margins. We do recognize that sometime when we do that we take some small volume hit for the period of time so it's going to have an impact there. We commented about the growth in the U.S. business and improved earnings. But we also have as Dick said we are pleased where it is. We recognize and don’t want to miss lead anybody that its not close to where we think it needs to be. In our planning, we met with what we thought the target was. I think one of the conference calls we have talked about that we were not looking to recoup in one year. It had to be gradual [inaudible] period of time. So we are on track, but what we looked at it’s nothing close to where we need to be. So I don't want peopling thinking that the U.S. is back. The U.S. is just performing significantly better than we did before. We still see some basis hits in the U.S. The corn numbers have not broken yet basis goes. We're forecasting that. All of that is including in what we're looking at in our number and the range we gave on it, we feel its fairly accurate description of where the business right now with some of the uncertainties that exist in the rest of the world.

What kind of impact are you anticipating for energy? Is this a significant component for your projections or not?

For the most part as you know we had to energy particularly in North America and some possible world oil prices will have an impact where we don't have the opportunity to hedge. But and gas can also be there. But I mean typically it is more oil than it is gas because it’s a world [Inaudible] commodity. But in the U.S. Canada, and Mexico the majority of our energy costs are hitched.

In the last question, I would just like to ask if you could give us a little guidance here on expectations for net interest expense or just interest expense for the full year relative to '02. Where do you guys see that coming in.

I think the first quarter is kind of inductive of how we will be going through the year. But it will slowly with coming down as the debt is coming down as we go through the year.

Jim that first quarter is all the financing costs all together. The FX in imbedded in that one. Would you give us just straight up net income expense so that’s going to be pretty much --.

The net interest will be higher in the second quarter and the first since we did the acquisition right at the end of if first quarter and then it will gradually come down through the rest of the year.

Okay great.

At this time we have one question remain anything the queue. Once again if you would like to ask a question, or if you have a follow up question then please press star one to signal. We will now go to Bob Wettenhall with Leyhman Brothers.

Hey this is Razev from Leyhman Borhters. Just a couple of house keeping questions. You mention working capital was up for the first quarter because of higher corn costs. What do you expect working capital to be for the year as far as either a use of cash or source of cash

I'll pick that one up. By the end of the year we expect to have a reduction in working capital versus last years year end. So our working capital program is continuing to look for process improvements and we'll see those come through

Reduction of a modes magnitude or

I would say modes

Okay. And then CAPEX for the year you may have mentioned this, but I missed it

We actually mentioned that in conference call in January. It's going to be in the range of $80 million and just another comment for about working capital for the quarter. You can see from Jim's matrix carts even with the higher corn costs we still had improvement versus last year. We're still maintaining our track. But obviously much lower slope than it used to be because obviously the big chunk of improvements are done.

And another house keeping item. What's available on your revolver to draw on?

I don't have that number um. I believe it's in the 40 to 50 million range.

Yeah

Probably little more than half of it.

Half of it

Yea

Okay. I guess under volume trends, it certainly was pretty strong volume trends. Do you see any of the volume? trends that you saw in the first quarter as being, you knows stronger than the trend line or weaker than the trend line or is this really what you expect for the year. Is this the base case for you volume

I think in the U.S. and Canada was probably a bit stronger than the trend line. Partially as dick mentioned based on some of the abnormalities that existed from the joint venture. Also as you knew going forward whether it has a fairly significant impact on our volumes in the U.S depending upon what does happen. I don’t know about the whether where you are, but we certainly aren't seeing warm weather yet in Chicago right now. The build in the first quarter going in to second quarter is historic. And the second and third quarter. depended upon weather conditions through out the country for the most part. But we did see a little stronger, the normal trend line in the first quarter. Going in the rest of the world some of the volumes in Asia obviously came about because the Thailand plant started up that is incremental volume from the new facility. In Latin America the volumes are reflective of the economy there, being a nit stronger then it was last year pretty much in turmoil. And the fact that we had some reasonable seasonality the weather of the Latin America coming off the end of their summer was better than it was last year. I think we had some things going in our favor in some of the areas that we're in as well as the new plant coming up in Thailand

Thank you.

Thank you.

And we have a follow-up question from David Driscoll. .

Hi guys couple more questions. Mexico couple of issues here. You've got an important date that happens on Monday of next week. What's going to actually happen from a public stand point. Are we going to be able to read anything

Probably not, David. Basically all is required in this is timing of notifying the government, we prepare to talk with them, that would proceed further schedule. And then it's six months from the date in January that you're referring to. The either the U.S. government or Mexican government has to approve the lawsuit going forward. We're on track on following what we do there as well.

May be I had a misunderstanding. I thought it was three months from the date is during that first three months period where you were supposed to have a dialogue with the Mexican government and then after that three month is when the suit proceeds.

Three months from the date is open for the dialogue with the government as I said its proceeding as schedule but there will not be any formal notification of what's going on with the public. And other piece of it is within six months the Mexican government or the U.S. government has to approve the lawsuit to go forward.

So okay. So that sounds to me there's another three months window in there where not a lot happens from an outside perspective and then the suit proceeds after month six and is that how it should happen.

That is correct, yes.

In term of the second quarter, so clearly this is a complicated part from my seat. We have -- we knew what you said on the call that you had sales in the second quarter because of the temporary reprieve in the beverage tax last year. But the number could be anywhere from, you know, one cent per month to 5 to 6 cents per month which would could make huge volatility in the second quarter projections. Can you give us any help here on how big a number this thing really was last year

We didn’t qualify it last year but we did say that it was, excuse me, we did say there was important producer to the earnings and even though it was not running at full rate and far from it, it did have an impact. It was why we had the good quarter. More than that, we haven't said.

Okay then following up on the minority interest line. We got a fairly significant change that should happen on that particular line to the remaining portion of the year an you give us some indication as to what -- what was the interest that you bought, what was the remaining percentage of the Argentine business that you took out.

It Wisconsin 27% that was out standing David. And that's what we took in as we bought.

Okay. And then last question was that this is sort of a follow-up on the last callers question U.S volumes. You mentioned that the first quarter trends was a little bit stronger because of dissolution of the joint venture. Are we going to see any effects in the second quarter. Or it predominantly business as usual in Q2’ and beyond. .

There should be or probably would be some slight reversal. What we're saying we sold it to the venture, it was sold depending upon the ventures poll from the various plans. At the end of the first quarter last year we were a little under our poll and we made it up in the second and third quarter. So some of that will be reversed, but as we said, right now if business seems to be running fairly well as far as overall volumes go. It's going to be depending on the weather and what the weather conditions are going forward as much as any thing else David. Those are the numbers are not that significant. But they were -- and it will be spread over the rest of the year. The first quarter where we fell behind last year on the joint venture.

And let me just clarify one thing on that plan. That does impact the sales and volume numbers. But it doesn't impact the operating income, because we deferred operating income on any sales that were still in inventory in the joint marketing company. So just let me repeat that again. The sales were shown as sales of the joint marketing company, but we last year did not recognize the profit until the joint marketing company sold it to the final consumer.

Okay. And then for just a final question on the U.S. Are you still expecting overall U.S. HSCS consumption to increase by 2% in '03 is that a reasonable guesstimate?

Right now I can tell you we did just receive the numbers from the industry association. And it looks like as a whole, the industry grew at just shipments grew at just under 2%. However, soft drink was soft. I would think we would be deliriously happy with 1-2% growth in the soft drink sectors but the rest of the business is, we are just under that 2% kind of number.

Okay. And I do want to ask one other thing. Can you give us an update where U.S. utilization rates are front end grind and finishing capacity.

Front end grind David is probably on average for the year going to be approaching 100% or in the upper 90’s. The HFSC finishing capacity on an average for the year will probably be in the mid 80s or there about as we get in the second quarter and third quarter depending upon how much inventory is being built. It will l probably be running at significantly higher levels than that

So there really shouldn't be any reasons why we shouldn't expect continued prices increases in the U.S. in ’04 and beyond and the basic fundamentals here, you know they continue to improve. Will that be an accurate characterization.

It's certainly the way we characterize it, I hope that’s accurate. We're looking at just what you said. We see grinds utilization fairly strong. We see all the men pulling grind from the industry. We see [Inaudible] that with no new capacity coming on the [Inaudible]. And we study that on a regular basis.

And the competitive product sugar is still miles away.

And basically even though it's not significant growth. There is some growth in the industry of 2%. It's increasing the take way from the current capacity that exists. So yes we are still looking forward to further price increases. As I said, we set our target out for the three year kind of recovery on pricing. We got the first step of it accomplished in 2003 and our pricing there and we expecting to continue going forward.

Thanks a lot

It appears there are no further questions at this time. Mr. Vandervoort, I will turn the conference back over to you for additional or closing remarks.

Thanks Shauna and every have a good idea. I will be around the office today. Thanks so much.

That does conclude today's conference call. Once again, we thank you for your participation.