Ingredion Inc (INGR) 2004 Q1 法說會逐字稿

Good morning everybody and welcome to the Corn Products first quarter earnings release conference call. This call is being recorded. At this time, I'd like to turn things over to the Vice President of Strategic Business Development and investor relations, Mr. Dick Vandervoort.

Thank you, good morning and welcome to the Corn Products first quarter 2004 earnings conference call. It is an open conference call, simultaneously broadcast on our website -- www.cornproducts.com. The charts for our presentations can be both viewed and downloaded from our website. They're available 60 minutes ahead of our conference call. Those using the website broadcast of this conference call are in listen-only mode.

Today, Sam Scott, our Chairman, President and Chief Executive Officer; Cheryl Beebe, our Chief Financial Officer and I will conduct the call. For those who may have missed our press release announcing Cheryl's appointment as CFO, she is a more than 20-year veteran of the Company who has moved up from the Treasurer's slot to become the CFO as Jim Ripley has taken on new responsibilities as Senior Vice President for the Company. To complete that circuit, our Treasurer is now Kimberly Hunter, and we wish good luck to all three.

With that said, onto the call. We will indicate as we move from chart to chart so you can follow along this presentation. I shifted these charts (ph) to the forward-looking statements chart. Our comments within this presentation may contain forward-looking statements. Actual results could differ materially from those projected in those forward-looking statements and Corn Products is under no obligation to update them in the future or as circumstances change. 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 and can be found in the Company's most recently filed annual report on form 10-K and subsequent reports on forms 10-Q or 8-K.

Finally, statistical and financial information is available on our website --www.cornproducts.com. Slide three, the agenda. Today after this introduction, Cheryl Beebe will present the financials relative to the first quarter. Following that, I will present the business review and comment further on our 2004 outlook. We will be available to answer questions after the prepared portion of the call. Cheryl?

Good morning. I will be overviewing the financial results for the quarter and Dick will be providing the insider's (indiscernible) into this quarter's outstanding results.

Looking at page 5, summary income statement, net sales of $550 million for the quarter are up 15 percent from last year. Gross profit at 94 million is up 25 million, or 37 percent. The gross profit margin improved almost 2.7 points to 17.1 percent versus 14.4 percent last year. Operating expenses totaled approximately $40 million, up 16 percent from last year, or 35 million, reflecting the ongoing costs associated with the Company's stocks compliance and the strategic initiative startup costs. The operating expense margin at 7.3 percent is in-line with last year's 7.2 percent.

Operating income at 54 million is up 53 percent, or almost $19 million. The operating income margin improved by 2.4 points to 9.8 percent, as compared to 7.4 percent last year. Financing costs are up 3 percent but basically even with last year at roughly $9 million. The Company's tax rate for the quarter is 36 percent; no change from a year ago. Minority interest was roughly $3 million, slightly lower than last year, reflecting the Company's 100 percent ownership in its Southern cone (ph) business. Net income for the quarter was 25.7 million, up 12 million, or 89 percent from last year. Earnings-per-share at 70 cents are up 84 percent and this represents a 32 cent change from a year ago.

Turning to page 6 of the presentation is net sales by geographic segment. Net sales in North America are up 10 percent at $339 million. Net sales for South America are up 29 percent at 136 million and net sales in the Asia and African division are up 13 percent at 75 million. In total, net sales are up almost 15 percent to $550 million.

The next page 7 is the net sales variance. Starting with North America, volume is up 4.7 percent. Price product mix is up 2.8 percent and the change in exchange rate is 2.8 percent for a total change in net sales for North America of 10.3 percent. In South America, net sales were up 17.1 percent, price product mix was down 5 percent and the currency impact is 16.8, for a total change of 28.9. I said net sales -- that should have been -- volume was up 17.1 percent. In Asia Africa, volume was up 7.4 percent, price product mix was 3.4 percent and currencies contributed 2.6 percent for a total change of 13.4 percent. Selling summary volume for the total Company is up 7.8 percent, price product mix is 1.1 percent and currency has accounted for 5.9 for a total change of 14.8.

As we turn to page 8, operating income by geographic segment, we see North America at $24 million, double the same period last year. South America at 23 million is showing an improvement of 44 percent and Asia Africa at 17 million is up 23 percent. Corporate expenses are $10 million, as compared to $6 million last year for an increase of approximately $4 million. In summary, the Company's operating income grew 53 percent, or 18 million versus the same period last year.

On page 9 is the estimated source of diluted earnings-per-share. Changes from operations amounted to 33 cents per share with margins and volumes accounting for 13 cents and 12 cents per share, respectively. Changes in the exchange rate contributed 8 cents. Non-operating changes accounted for 1 cent. Financing costs were up a penny, offset by lower minority interest. An increase in the weighted average shares outstanding accounted for a negative 1 cent. The shares outstanding on a diluted basis are 36.7 million shares versus 35.9 million shares last year, reflecting an average stock price that grew this quarter to almost $37 versus close to $30 last year. Bottom-line, earnings-per-share at 70 cents is up 32 cents from 38 cents last year.

On page 10 is a high-level cash flow showing the major drivers. This chart does not foot to the top. Again, it is a high-level cash flow. Cash flow from operations was $75 million, as compared to a negative 3 million last year. Net income is almost doubled at 26 million. The major change is from working capital, which last year, was a negative 47 million versus a positive 15 million this quarter for a total change of $62 million. Almost half of that change is the result of the U.S. and Canadian margin account activity. Given our policy on hedging the domestic business, as corn futures rise, the value of the underlying futures contracts increases, resulting in positive cash flow for the quarter. Depreciation is constant at $25 million. We invested approximately $15 million in the business versus an investment of 55 million last year. This year's spending is driven exclusively by capital projects. Last year's spending level was $7 million for capital projects and 45 million to complete our 100 percent ownership in the Southern cone of business. Financing activities for the quarter reflected a $16 million reduction, as compared to a $60 million increase last year. Debt decreased this quarter by 16 million versus an increase last year of 64 million. The dividend payment to CPO's shareholders was roughly $4 million.

Turning to page 11, the Company's key ratios. Return on net sales was 5.2 percent versus 3.5 percent last year. The return on capital employed is up 1.4 points to 6.6 percent from 5.2 percent last year. Debt to total capital stands at 28.9 percent, down from 37.7 percent from last year. Last year's total debt at the end of March was $664 million and included the cost of acquiring the final piece of the Southern cone business. Total debt at March 31, 2004 is 539 million. Working capital as a percent of net sales, which excludes short-term debt but includes cash, is $326 million, up from $276 million last year. Working capital as a percent of net sales increased to 15 percent versus 14.4 last year. If we exclude cash, which is $115 million this year versus 39 million last year, and look at operational working capital operational, working capital as a percent of net sales would be 9.7 percent versus 12.4 percent last year.

Last but not least, net debt. Net debt was 424 million versus 625 million last year, reflecting a change of $201 million. With that, I will now turn the presentation over to Dick.

Thanks, Cheryl. I will review the first quarter of 2004 from a quantitative standpoint and then provide some comments about our outlook for the full year. I will also talk a bit about our recently announced acquisition and close with a comment about our upcoming analyst day.

I am now switching from chart 12 to chart 13. The currency update. First the chart. Listed are countries in the first column. In the second problem, I've listed the average currency values for the first quarter of 2004, the third column shows how the first quarter of 2004 compares to the same quarter last year. And because currencies can often be a moving target, in the fourth column, I have listed last Friday's close versus the average of the fourth quarter. Highlighted the countries I'll discuss to some depth.

Before talking about specific countries, it is interesting to see the small amount of change since the fourth quarter average, a fairly unusual occurrence over the last several years. Now as to specifics, the Canadian dollar firmed significantly against the U.S. dollar as did a number of other natural resource country currencies. It seems odd not to talk about the Mexican peso, but it has changed little. The currencies in the two largest economies in South America, as well as Chile, firmed as they have since the close of the first quarter in 2003. In Asia, with the exception of the gain in the Thai bot, currencies have been fairly stable versus the dollar over the past year.

Chart 14 -- first quarter in aggregate. Against any measure, our first quarter was exceptionally strong, especially since we've had the proverbial arm tied round our back with regard to our business in Mexico, which I will discuss in a moment. As we have said, in both North and South America, we are comparing our performance to our weakest quarters from last year as the quarters became sequentially better through, and including, this quarter. More good news. All divisions contributed to the success of the quarter with sales up by 15 percent, as Cheryl has said as we are finally seeing sales dollars moving more in sync with actual shipments. As we've said in the past, on a tonnage basis, our Company is more than 50 percent larger than when we first became a publicly traded company. It's just that now, our dollars and sales are getting closer to the growth in shipments, while during the same period, of course, our earnings-per-share has almost doubled from $1.19 per share in 1998 to $2.11 last year.

Getting back to the quarter, earnings-per-share -- the earnings-per-share gain for the quarter was 84 percent with excellent cash flow performance. Operating cash flow at $2 dollars per share, free cash flow was $1.63 per share and EBITDA at $2.15 per share, a very nice way to start the year.

Chart 15, North America, and now to the details, first in North America. Operating income more than doubled with increases from all three countries -- Mexico and Canada led the parade. We also enjoyed volume increases in both Mexico and the U.S.; the U.S. volumes increasing roughly in-line with the overall industry volumes per U.S. Corn Refiner's Association data. Raw material, as noted in our release, has been a very interesting story as for the first time in my 130-decade memory of this business, the January U.S. Department of Agricultural supply and demand report for corn had a bearing on something, on anything. And this time, it did. From the close at the trading day prior to the release that report, the December 2004 corn futures contract climbed by 26 percent through the end of the first quarter and by 84 cents per bushel, or 33 percent at the peak on April 8th, before settling back to yesterday's close 23 percent higher than the day prior to the USDA report. As Sam said in our press release, while gross corn was more expensive this quarter that last year’s first quarter, we believe that corn costs will go up from here. Though as hedgers, we have locked our position.

We continued to enjoy more favorable co-product pricing. Corn gluten meal and corn gluten feed prices are up significantly. Corn oil continues to be well priced and is now closer to its historical values. We have already discussed the U.S. pricing story in our earlier press release. We were disappointed that this year’s sweetener and starch pricing will not enable our U.S. business returns to cover our cost of capital. However, we continue to expect this year's results will be better than last year's, both in the U.S. and North America as a whole, even though corn prices were rising as U.S. contracting was underway. Clearly, with corn costs where they are now, next year's pricing will have to be better.

Our plants are running well and cost reduction continues its assist toward ensuring our success. While there is no resolution to the Mexican HFCS (ph) issue, talks are ongoing and we support them.

Chart 16 -- South America. The strong fundamentals of our South American business enabled us to deliver our fourth sequential quarter of major operating earnings gains, this time, a 44 percent increase. While it was against an easier comparable quarter last year, even then however, our earnings were up 19 percent ahead of the prior year. Our trendline has been strong for a considerable period. We enjoyed volume increases in all of our major South American businesses with Colombia and Argentina leading the pack. And as we have said, currencies again did their part. To compare another comparative note with the completion of Q1, as Cheryl has mentioned, we have now left the purchase of our Southern cone business in South America, purchasing the equity of our former partner.

Turning to the business -- while the economic environment is improving, in Argentina, we again outperformed the underlying macro situation. In Brazil, this vital franchise celebrating its 75th anniversary as Argentina did last year, performed very well in a country where the government is working diligently to boost the GDP and reduce unemployment and so forth. In our Indian region, it is still a tough place to do business but our volume recovered from its Q1 shortfall of last year as one of our major customers is now buying the product which they were not doing then when they were on strike. In sum, another very strong quarter for South America.

Chart 17, Asia-Africa. Another good start describes our Q1 in Asia-Africa. The vital signs were very good. Net sales growth of 13 percent, volume growth of 7 percent. Our performance was well balanced with our three largest businesses in this region generating gains, operating income gains and an overall operating income increase of 23 percent. As a quick reminder, we have said that this sector of our company is our strategic growth region and through last year, its net sales driven by both acquisition and organic growth were four times what they were in our first year of being an independent company. Operating income has increased by fivefold during the same time frame. To update you on that growth, we believe that the startup problems in our Thailand operations are behind us as we said in our Q4 release and our second planned impact (indiscernible) is expected to start up before the end of the third quarter.

Chart 18, the 2004 outlook. In our press release, we quantified our earlier non-numeric guidance for 2004, calling for a 12-17 increase over the $2.11 per share we earned in 2003. I will review the component pieces of that outlook. In North America, this guidance is based on delivering another consecutive year of improved results. To better frame that, we expect to have increased operating income in all three countries. This is after a two-year backdrop of dramatic improvement in our important and largest U.S. business. As we have said in the past, we still have a way to go, but we believe we're on the right track.

In Mexico after our good finish in the fourth quarter of last year we are already off to a running start this year. We expect to and need to execute well the balance of our business in that country since we're running those operations without our important HFCS for soft drink component. As we've been throughout the past year, we will of course continue to support the trade negotiations with regard to Mexico. And when appropriate, we will also work to gain government acceptance of any agreements that has worked out at the trade negotiating conference table.

Chart 19, 2004 outlook continued. In South America, we expect another growth year for that region with our very strong opening. However, we won't continue sustaining quarter after quarter operating increases north of 35 percent like we have for the most recent quarters. With our major positions in that region, we do expect ongoing growth and our profitable ingredients businesses that we've been nurturing for sometime will assist. All in all, we project a better year for South America.

Asia-Africa is expected to deliver another good year in this most important region for growing our company. The good news is that we believe there's still a lot more profitable growth to come in that part of the world for us and for our shareholders.

Final comment about our outlook. Because of increased corn costs and in some markets, sharply increased ocean freight for corn delivery, we expect that the strongest gains for 2004 will occur in the first half of the year.

Chart 20, the GTC announcement. We recently announced our acquisition of 75 percent of GTC Nutrition. I thought I would take a few minutes to discuss this small acquisition. This venture is down the middle of what we described in our annual report regarding our shift to becoming more of an ingredients provider. GTC is the marketing arm in most of our imported markets for (inaudible) shortchained fructo (indiscernible). These are what are termed prebiotic ingredients that support the growth of the helpful bacteria in the lower intestine. The result is a product that is soluble fiber, that is diabetic-safe, improves the obstruction of calcium, improves kidney function, cholesterol excretion, among a number of very worthwhile benefits. It is very pleasant to the taste, and unlike other prebiotics in the market, is 95 percent pure as opposed to competitive ingredients that are typically 55 percent pure. SCFOS is consumed by humans and animals. Some applications are listed on the slide -- diet supplements, nutraceuticals, baby formula, pet food -- but since it is fairly early in its lifecycle, we believe there will be further applications to talk to as time goes forward. We plan to commence construction of a production channel at one of our Canadian plants yet this year and we believe this is the right product, the right time.

Chart 21 -- 2004 analyst portfolio manager day. Finally, a commercial for our analyst portfolio manager day. We hope that many of you will join us at 10 AM May 12 at our headquarters building in Westchester, Illinois, a suburb of Chicago. Should be stopping snowing by that time. Sam, Cheryl our three division presidents and I will discuss our plans for this year and beyond. We have an optional plant tour of our Argo plant set for after lunch for those who would like to see the plant. We will arrange for all local transportation, including pickup at either O'Hare or Midway airports, return to the airport or downtown Chicago hotels for anyone staying over. We will also pick up anybody attending the ADM event in Decatur on May 11 and take them to a hotel near our headquarters, as well as provide transportation the following morning to our meeting. We've tried to think of any way we can to make the quick trip to Chicago as easy as possible. If you need more information, there are lots of ways to get hold of me. Now Cheryl, Sam and I are open for your questions.

(Operator Instructions). David Driscoll, Smith Barney.

Hey, good morning, everybody. First off, congratulations on a nice quarter. And interesting, very good news on the outlook for the year. If I am right, what you've said here is 12-17 percent above the $2.11 number that you earned last year. So that would give an earnings range between $2.36 cents to $2.46?

Correct.

Okay, very good. So what I kind of wanted to ask you guys was to take us through a little bit as to what is going on in the net corn costs and how should I think about the second quarter. So clearly, what I've seen so far was that in the fourth quarter of '03, net corn costs were extremely low, broadly speaking in the United States. I certainly suspect that what occurred was that you bought a lot of your corn for this quarter, and potentially the second quarter back in December prior to that USDA report that Dick was mentioning on the call. My first question is -- are the things that I'm saying correct? And then would it be logical to assume that your net corn costs would be similarly very low in the second quarter as they presumably are this quarter?

It will be going up throughout the year, David. We did buy, as we contracted. As we've said before, we hedge fully and you know that in the past. Obviously, we do some buying early in the period as an anticipatory hedge, but it's not a large quantity. The rest of it was bought throughout the contracting period. As Dick already mentioned, the pricing of the corn went up. So we can expect that our net corn costs will be going up by quarter through the rest of the year, assuming that the fourth quarter maintains its level where it is today. If it does not, if it comes off obviously, we have to make a change. But at the moment, we're projecting that that will be the case.

I know you guys don't do quarterly guidance, but could you at least talk about the fourth quarter comparison that we will face this year? Because I think, Sam, again, we should be facing a very difficult comparison there because of the net corn cost situation. Is it going to be -- can you give me any understanding as to how I should look at those numbers?

As we said, David, the first half will be our strongest first half. Last year’s fourth quarter was a very strong quarter. And you have said that -- as you've said, the corn numbers are expected to be up. So we are expecting, unlike last year, which was very weak in the first half and strong in the second half, we expect this year, be strongest half will be the first half of the year.

Super. Your balance sheet looks to be in very good shape and you guys look like you're in a state that you really have not been in. The Company look like it's in a position that it really hasn't been in for years. I think that is a -- and certainly, I don't want to steal the thunder from your upcoming analyst day, but I am very interested in trying to get some insight as to what the plan is for the cash flow that is going to be generated by the Company, and whether acquisition, share repurchase, dividend increases -- can you go through the hierarchy of these things and really talk to us about what you want to -- where you want to drive the company?

First, I have to tease Cheryl a little bit, because part of our written script had as her past job as treasurer, one of her most important functions was net debt and she skipped on it because she decided not to say that and I have to give her credit where credit is due. We've certainly driven that down. And thank you for the comment on the balance sheet and the performance on the part of all of us at Corn Products. I think everyone has worked hard on getting this business back in shape.

As to where we're going with it, David, you're right. We're going to be talking about that at analyst day. We've said in the annual report that we're moving to a pathway strategy. It will be identifying key growth segments and key growth areas. We're shifting more to an ingredients company. GTC was a very, very small acquisition but it's a start in that direction. We said we're looking at geographic expansion. We have identified Asia and Africa, but primarily Asia as our major growth arena. So that although we will not give specifics as to what we're doing, we will give a little bit more meat on that bone to tell you kind of how we see that shaking out. We raised the dividend last year. We will continue to look at that. Stock buyback has been something we've talked about. We have the capability of doing it; we'll do it if the right opportunity exists. But right now, we see the opportunity to grow the business as the one we're going to focus on mostly. This year, most of the money that we have identified for capital spending will be on capital projects around the world supporting that direction I just mentioned.

As a detailed question, did you actually say what your net price -- or your list price increase was in the U.S. market?

No, we did not.

Will you?

No we will not.

How about Mexico? Another important issue here -- I understand that we have some activity down there this month. Can you tell us a little bit about what is going on and what you expect or hear is happening?

The industries, both from the U.S. and Mexico, have been meeting over the last couple of months. They continue to meet this month. I know headway has been made, but there are a couple of fairly significant issues still in front of them. The meeting will continue, hopefully to resolve those issues, David, but I cannot comment any further on it.

Any news on your lawsuit?

It is moving forward. The tribunal is being set up and we're continuing to pursue it.

How about a timeframe, though? That might be helpful.

The best guess I've been given is it's going to take probably a couple of years to get through the full process. We are probably 6-8 months into right now.

Just the last question for Cheryl. Could you give us some guidance on interest expense or financing costs as you guys write it for the full year?

If we look at where the debt is sitting, 455 million of the Company's total debt is in fixed rate bonds of 8.25 and 845. We have a $200 million swap against the 209 bonds. So I am looking at, basically, we should be in-line, barring the U.S. taking an interest rate hike, and that would obviously affect the interest rate swap on that $200 million bond.

When you say in-line, you mean flat with last year?

Correct.

Thanks a lot everybody and congratulations.

John McMillin, Prudential Securities.

Good morning and my congratulations. When Dick said his 130-year-old memory, I thought he did not look a day over 100.

John, he said 130 decades.

Well, after a few years, you got this thing going. I thought what was most impressive about the quarter was the volume. If we could just kind of go through it in a little bit more detail. The 4.7 percent volume gain in North America -- can you give us an idea -- I don't have what the corn refiners -- how much of that is in the U.S.?

We don't break out by country, John, but it is fairly in-line with what is happening in the corn refiner's information. Obviously, the soft drink business is soft, but the rest of the industry is doing fine. We had growth last year as well. I don't think we've ever had a non-growth. It has been pretty slow obviously, but.

What are the corn refiners saying? I just don't have that in front of me?

It is not public, David, but it's in the 2 to 3 percent area.

It's in the low-single digit, John, and we have seen growth in Mexico last year. The first quarter is a little slow because of the economy down there and then the result of the U.S. economy, so we saw some growth there as well. So the numbers are reflective of somewhat of a turnaround in the economic situation in North America.

Canada must have been up 8 or 9 percent to get to this number.

No, Canada was pretty much in-line. It was up a little bit, but relatively flat. The U.S. and Mexico drove most of the growth.

And then to get 2.8 percent pricing, that basically is answering David's question right there, give or take -- I mean, you have other products in it, but it's basically dextrose, fructose.

Well, it's also co-products, John.

The feed and meal prices are up fairly dramatically from first quarter of last year, in the dozens of 10 percent. Meal prices are probably up 30 or 40 percent, I don't know, some number like that and feed prices are up fairly dramatically. Oil is not too much different. So there is a whole mix of things in that 2.8 percent. And of course, that is North America, which is also Mexico and Canada included.

Do you view this 8 percent volume gain that you saw this quarter -- and I know it is not a seasonally your biggest quarter, even though from an earnings standpoint it's getting to be more significant. Is that kind of a sustainable long-term trend?

I don't think 8 percent volume growth is going to be a long-term trend, John. As we pointed out, it was against a reasonably soft first quarter last year, by comparison to the other quarters. I think we've started to see some of the economies of the world start to kick in. We had some issues in the first quarter last year. As Dick mentioned, strike in one of our countries. Mexico was very slow, Thailand was not running right. So we've had some volume kick-ins this year that are compared to something that did not exist last year. But I think that as we have said before, our growth in tonnage has averaged almost 7 percent or slightly over 7 percent since we've spun out. So that as a result of either acquisition, organic growth, geographic expansion, we have been able to roll at decent numbers. So I don't know if it's long-term sustainable, because obviously, if the base gets bigger, it gets harder to grow at a percentage. But we do intend on continuing to grow volume over time.

Okay, thanks a lot.

Thank you, John.

Christine McCracken, Midwest Securities.

Good morning. Backing up to John's question on volumes -- in terms of capacity and where you are, in terms of being able to handle additional growth, do you anticipate making a significant expansion or adding significant capacity in any of these regions, or where are you? I know you have not historically broken out utilization, but if you could give us some idea of maybe capital needs going forward?

We have said this year that our capital expenditures will be in the $90 million range. We have said in the past that we will probably increase that over time. The U.S. business, North American business for that matter, as Dick mentioned, still is not returning the cost of capital. So we are going to get returns higher before we invest further in expansion in some of our businesses here. Certainly around the world, we're building a plant in Pakistan. We've built a plant in Thailand. We have always said that we will look at building before demand in Latin America. And we had gotten tight on utilization in Latin America before everything went upside-down a couple of years ago, and that's coming back up. So we will have to look at continuing that. We have an expansion coming on our new plant is running now in Columbia. So we think we're in pretty good shape and we will continue to monitor that going forward, Christine. But right now, I think we can handle some increasing growth around the world fairly well.

In terms of some of the comments out of the larger soft drink manufacturers in the U.S. relative to kind of this new -- the move toward alternative sweeteners, we've heard this before. But do you think that in fact this new effort will produce more competition, or I guess replace some of a high fructose use here in the U.S.?

I think you hit the nail on the head, Christine. We've heard it before. I don't know if it will happen with this new entry on the part of the soft drink companies. They are introducing it outside of the U.S. first and we will see what happens. There are some products like that already outside the U.S. that have not come back into this country as yet. With all of the focus on obesity, they may -- they say they will -- I assume they will bring them into this country. We'll just have to see how they go. I guess part of my thinking is that the new diet phase is -- I don't know if it has created any new dieters, it's just shifted some people who were on diets to a new diet. So we will see what happens with it and see how it materializes. The other possibility as that it could cannibalize some of the diet soft drink, because it will be a better product if in fact it does come out. So we're not worried about it. We will continue to work with the soft drink companies as they develop in and try to take advantage of the opportunities for growth.

Finally, in terms of your move toward I guess what you described as ingredient technology, some would say that you have been in the ingredient technology for quite some time. And I don't want to take away from the analysts day, but if you could just specify -- are you planning to stick with kind of corn-based or starch-based products in your core competency, or is this kind of a new area for you?

Christine, our business is corn refining and that will be the base of it for a long time going forward. What we believe we can do is because of our strength around the world, we can take products that are tangential to synergistic with what we currently sell to our food and industrial and pharmaceutical customers, and build on those relationships with new products. So the ventures, the acquisitions that we would look fall in-line there. They would not necessarily have to be corn-based. They could be, but they could also be based on other areas of other raw materials that would be synergistically what it is we're currently doing. We think that model has worked for us. You're right, we have been an ingredients company for awhile in certain parts of our world. It has not been primarily the focus in North America and we recognize how large our business is in what has been classified historically as the commodity business. We cannot lose focus there, but we can grow the other side of it.

Well, congratulations.

Karen Lamark, Merrill Lynch.

Good morning. Question about North America, just going back to the strength there and the sustainability. Can you comment on how much perhaps of what you are seeing might be related to high soybean prices and the shortage of soybeans? And then maybe, if you do think that that is part of the strength, how much you can sell forward, some of your own production? Thanks, and I have a follow-up.

Okay, basically, the soybean complex affects our co-products, as does the whole commodity complex as a feed ingredient, an oil ingredient. So from that, we have gotten some benefits. As far as going forward on it, there is not a huge market to go forward in the co-products side, so we capture what we can of it. But we do expect that while the commodity prices are high, we will get the benefit of the co-products side.

Okay. Then is it true that you're going to spell out your uses of cash or your priorities of cash at the analyst meeting? Are you going to give us some more color on that, even besides what you gave today?

We'll give some direction. We're not going to say specifically what we're going to do, but it will be a little bit more meat over what I said today without divulging exactly what we're going to do so our competitors know where to block us. But we do went to give an idea as to what it is we're going to do with some of this money we have on the balance sheet and the cash we continue to generate.

Cash is terrific. Thank you.

Riza Vahazivida (ph), Lehman Brothers.

The question has been asked and answered. Thank you.

Thank you.

(Operator Instructions). David Driscoll, Smith Barney.

Hey, Sam, this is David again. I wanted to try to go at this U.S. thing from maybe a slightly different perspective. If I have done my calculations right, margins in North America were 7.1 percent in the quarter. That would compare to South America at 17.2 and Asia-Africa at 22 percent. So it would look like North America is just -- this is of course the same story that we have known all along -- that that business is just under terrible conditions and remains so. I think what a lot of people are trying to grasp is the ability of the industry to get price increases. And what we have seen so far is we were doing pretty well and then we kind of the went into this season and did not really get a big price increase. The margins in this operation -- and I know I'm looking at North America and it does include Mexico. So, hopefully, it is not going to throw us off too much. Nonetheless, what I'm trying to get at here is that this business does not look like it is doing very well, and yet we kind of did not get as much of a price increase as I think some people thought we probably should be getting. Can you give us some thoughts about where you see the whole industry going? We have seen a lot of consolidation. Is it enough? Structurally, do we have the right kind of dynamic with the four big players in order to keep making significant progress in their and U.S. and Canadian pricing fronts?

The answer to that question, David, is that I was as disappointed as were you and others on the phone that we did not get the pricing that we thought we could get as a result of the consolidation. We have talked before about that consolidation and what it has meant with respect to investments on the part of some of our competitors and the kind of returns they needed to make those investments valuable and profitable. A couple of things have happened. Number one, the prices where they are today are not horrendously bad, if in fact the costs were in-line. But we have higher energy cost, higher corn cost. And as a result, the prices are not reflecting the kind of margins that we could be seeing if we had historical norms in those areas.

Given that, I think that there has to be more price strengthening in the U.S. market. Historically, we have said that our margins in North America, and that included -- did not include Mexico at the time, were in the low teens. And we think that we can get back someplace close to that level over time, which is a significant change from where we are today. Some of that is going to be on the cost side and some of it is going to be on the pricing side. As you said, Mexico has a bearing, because obviously, we do not have the high fructose sales in Mexico but. We have always had the weakest part of our business in North America with positions in Latin America, South America and Asia-Africa stronger because of the positions we have in those countries and the volatility in those countries. Our capital costs are higher and we justify it based on running the businesses in those fashion. But we are still pushing for higher prices in the U.S. We hope that we get them next year. We thought we would have gotten something this year, particularly as corn went up, but it did not happen. The consolidation should support it, the returns to our competitors require it and certainly, we are out there at Dick mentioned, we're not returning our cost of capital, capital in the U.S. business yet and we're going to push for better pricing.

If we switch over and look at Pakistan and Thailand, you guys mentioned that we have a new plant coming online I think in Pakistan in the third quarter and your glucose channel is what the big change I think this year in the Thailand plant. First, am I right about those points?

Yes. The new plant in Pakistan is due to come on in third quarter and the Thai plant is up and running. And, yes, the glucose channel is one of the big pieces of that facility.

That is the question I'm really trying to get at, is how significant are these types of events for your Asia-Africa segments? What kind of the volume growth will that precipitate throughout 2004? Is any more color you can give on it, because I think it is hard to grasp, what some of the stuff really means?

David, they're not huge and Thailand will overlap itself, even though we had start-up problems on the cost side, the volumes to some extent were going out last year. So you will see some incremental volume, not huge. The Pakistani plant is a new plant. It is going to come up in stages, meaning that this is the first phase of it and we will grow it as required. They are not huge numbers, but based on the margins that you quoted earlier, it does not require huge volumes to get reasonably decent returns. So what we're looking at are opportunities where we can grow in advance of demand and protect market segments that we have strong positions in. And we will continue to invest that way, trying to provide you with as much actual data as we can without divulging details that we just cannot go into. So they are not huge, but they're good returns. They're required as a result of the growth in those regions. And obviously, the Pakistan plant will be completely new volume coming on the second half. Thailand will be incrementally new as we go along from here, but the first quarter was in fact pretty much all incremental volume.

Super, thanks a lot everybody.

Thank you David.

Alan Seymour, Columbia Management Group.

It seems to me that at one point, you mentioned spending on boilers. Where does that stand?

We had the public hearings just this month or a couple of weeks ago. We're expecting the responses back. We did not see any big problems, so we're expecting to start spending on that within the next few months, Alan.

Does the higher energy cost change the ROI?

Excuse me?

Does the higher energy costs change your anticipated ROI on that?

No. Those are going to be cold boilers, and we will expect the coal over the long haul will be pretty much in the area we expected it to be when we put the project together.

Thanks.

Eric Katzman, Deutsche Bank.

Good morning. Sam, who screwed up the negotiations? There's only four of you. Now, we know ADM said that they want better results on pricing, you said you want better results (multiple speakers) a few others.

I expect all four of us wanted better results.

Okay, so somebody broke. Who broke?

Well, Eric, as much as I'd like to answer that question, I might even have my own idea as to who it is, but I could very easily be wrong. So I cannot comment on that, but obviously somebody did. Some of it might have been positioning, some of it may have been a lot of things. But I believe that over a period of time as people position themselves where they need to be, that would supply the foundation for further movement on pricing once that has happened.

Is there an industry publication that is available that can tell us -- let's say, who in the industry, because obviously whoever broke was going for volume. And to show us some kind of material market share change, so we will know, I don't know, either a quarter or a half a year as to who broke?

Not that I am aware of. I would guess that I would probably be aware of it if it existed. No, I don't believe there is one, no.

Okay, thank you.

Thanks, Eric.

(Operator Instructions). It appears that we have no further questions. Mr. Vandervoort, I'll turn it back to you for any additional or closing remarks.

Thanks so much, and hopefully, we will see you all here May 12. Have a good today.

That concludes today's conference.