Ingredion Inc (INGR) 2005 Q4 法說會逐字稿

Good morning, everyone. Welcome to the Corn Products 2005 fourth-quarter and full-year earnings call. This call is being recorded. At this time, I would like to turn the conference over to the Director of Investor Relations, Mr. David Prichard.

Thank you, operator, and a good Monday morning to everyone. Welcome to Corn Products International's 2005 fourth-quarter and full-year earnings and cash flow conference call. I'm Dave Prichard, Director of Investor Relations for Corn Products International. Joining me today to lead the call are Sam Scott, our Chairman, President, and Chief Executive Officer; and Cheryl Beebe, our Vice President and Chief Financial Officer.

This is an open conference call simultaneously broadcast on our website at www.CornProducts.com. The charts for our presentation this morning can be viewed and downloaded from our website and they are always available about 60 minutes ahead of our conference call. Those of you using the website cast broadcast mode for this conference call are in listen-only mode.

Sam Scott and Cheryl Beebe will be making the presentation and will indicate as they move from chart to chart so that those of you using our slides from the website can easily follow along through the presentation. Now I have shifted to chart two, which is our agenda for this morning. Cheryl Beebe will present the financials for the fourth quarter and the full year with appropriate analysis. Following that, Sam Scott will discuss our 2006 outlook and general trends before we move to the question-and-answer period.

I have now shifted to chart three, our forward-looking statement. Our comments within this presentation may contain forward-looking statements. Actual results could differ materially from those presented or predicted in those forward-looking statements and Corn Products International is under no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in this morning's earnings press release can be found in the Company's most recently filed annual report on Form 10-K and fiscal reports on Form 10-Q and 8-K.

Finally statistical and financial information and reconciliations of non-GAAP numbers from this presentation are also available on our website at www.CornProducts.com, and as you will see are included as an appendix to our slide presentation.

With that, I am pleased to turn the conference call over now to our Vice President and Chief Financial Officer, Cheryl Beebe.

Thank you, Dave. Good morning, everyone. I am starting on page five, summary income statement for the quarter ended December 31, 2005. The financial highlights for the quarter are net sales rose 2% to $586 million. Operating income is $44 million, up 74% from last year. Please note last year's fourth-quarter operating income included the restructuring charge of $21 million for plant closures. The quarter's tax rate is 34.4%. The full-year effective tax rate for 2005 is 37.5%, down from the estimated effective annual tax rate of 38.5 used for the nine months ended September 30, 2005. And the fourth quarter therefore reflects the adjustment to bring the full year to the effective tax rate of 37.5%.

Last year's fourth quarter tax rate of 7.1% reflected the benefit from changes in foreign tax rates and the adjustment necessary to bring the 2004 tax rate from 33% for the nine months ended September 30, 2004 to the full year effective tax rate of 30% for 2004.

Dropping down to net income, we see $23 million, up 9 million from last year. Diluted earnings per share for the quarter was $0.31 versus $0.19, up 63% on a GAAP basis.

Turning to page six, net sales by geographic regions, net sales for North America are 340 million, down 2%; South America is up 10% to 165 million or an increase of $15 million for the quarter; and the Asian/Africa region was up 5% to 81 million.

Turning to page seven, net sales variance analysis, North America's net sales changed as a result of a slight volume increase of 0.4%, driven by HFCS-55 sales in Mexico. Price and product mix was down 3% primarily on lower coproduct values and we achieved 0.7% from the stronger Canadian dollar. South America had a 0.3% volume increase. The -4.5% in price and product is primarily from coproduct values and the 14.2% in currencies is from the stronger Brazilian real and other South American currency appreciation.

Asia/Africa's net sales growth 4.6% was led by 4.4% volume increase. The volume contribution is primarily from China and Korea. Price in mix was negative by 3% from lower pricing in Korea and a positive 3.2% in exchange rate, which is mainly reflective of the stronger Korea won.

Turning to page eight, operating income by geographic segment, North American operating income was 13 million, down 5 million from last year. We continued to experience higher costs for energy and operational issues at Argo that resulted in a loss for the U.S. business in the quarter. Both Canada and Mexico were favorable versus last year. South America's operating income increased 3 million to $29 million and Asia/Africa was up slightly at 10 million. Corporate expenses were basically unchanged at $8 million. Again the $21 million in 2004 is for the two plant closures.

Page nine, estimated source of diluted earnings per share for the quarter, changes from operations contributed $0.22 in the quarter with margins accounting for $0.16, volume for $0.01 and currency values contributing $0.05. Change from non-operations is a -$0.10. The change in the effective tax rate to 34.4% versus 7.1% last year amounted to a -$0.13. Lower financing costs and a decrease in minority interest accounts for $0.02 and $0.01 respectively. Total change in EPS for the quarter is $0.12.

Moving from the quarter to the year, I am now on page 11, summary of income statement for the year ended December 31, 2005. Net sales are up 3% or $77 million to $2.360 billion. Gross profit margins dropped 140 basis points to 14.1% as the Company experienced higher costs in 2005 with energy leading the way. Operating expenses were basically unchanged at $158 million. Last year's operating income again includes the restructuring charge of $21 million. Other income is up roughly $5 million and includes the land sale in Malaysia and third-party licensing fees. Operating income was up 2% or $4 million.

Financing costs for the year were up 2% or $700,000. This year's effective tax rate is 37.5%, versus 30% last year and as previously discussed reflects the change in income mix and rates from year-to-year. Minority interest dropped to 3 million from 8 million last year and is the result of our 100% ownership position in South Korea. Net income is $90 million, down 4% from last year and diluted earnings per share is $1.19, down 5% from last year.

Turning to page 12, net sales by geographic segment, we see net sales for North America are basically flat at roughly $1.4 billion. South America's net sales reached 603 million, a record high. Net sales for Asia/Africa rose 9%.

On page 13, net sales variance, we see a 3.4% increase in net sales was driven by volume growth of 1.6% and currency appreciation of 4.8%. Price mix declined 3%.

Page 14, operating income by geographic segment, North America's operating income was $59 million, down 32% from last year on lower coproduct values, higher energy, and Argo related costs including the coal boilers. South America's operating income at $101 million set a record for the second year in a row. Asia/Africa's operating income was 12%, up 12%, as expected, on lower corn and freight costs.

Page 15, estimated source of diluted earnings per share, we see $0.04 from operations offset by a -$0.10 from non operations with the higher effective tax rate having the biggest impact.

Page 16, cash flow highlights, this was an excellent year with respect to cash flow from operations as the Company generated $245 million versus 166 million last year. Working capital improved year-over-year due to receivable collections, inventory swings, and higher payables related to inventory purchases. We invested $136 million in capital expenditures, down from our projection of 170 million due to the timing of the Argo coal boiler expenditures. We expect 2006 capital expenditures to be in the range of $150 million, which includes the spending for the Argo coal boiler. Dividend grew by 4 million and the Company spent 25 million on share repurchases net of proceeds received from stock option exercises.

The last financial chart on page 17 represents the key metrics. Return on capital employed was 5.9%, versus 6.6% last year, and reflects the increase in the tax rate. Debt to total cap is 27.6% versus 30.3% last year and reflects the pay down of debt and the increase in stockholders equity and is lower than our targeted range of 32 to 35%. Debt to EBITDA improved to 1.8 times versus 2 times last year and again is below our target of 2.25 times.

Operating working capital as a percentage of net sales at 8.1% is also within our targeted range of 8 to 10%. Net debt was 412 million versus 467 million last year.

I am now going to turn the call over to Sam to discuss the 2006 outlook.

Thanks, Cheryl, and good morning to all. Before we move to your questions, let me comment in general terms on our outlook in focused areas 2006.

Turning to slide 18, we are committed on a global basis in 2006 to accelerate the execution of our multiyear pathway strategy that we unveiled to you a couple of years ago that will move our Company to be larger, stronger, and more geographically diverse and more of an ingredient Company by the end of 2008. As you have seen from Cheryl's review, we have the balance sheet and the cash flow to make this happen along with a number of opportunities on our plate to consider.

This strategy includes accelerating our base business more specifically returning profitability to our U.S. operations and expanding our value-added product portfolio through multi-geographic alliances and acquisitions. It also includes expanding our defensible businesses in newer, high-growth regions, notably Asia and specifically China, where population and GDP growth rates are the highest along with better per capita income growth. I would note that we also plan to open up an office in India this year, part of the broader strategy for the Indian subcontinent region where we already have a strong business in place in Pakistan.

Finally this means pushing for more specialization in value and ingredient businesses including product service differentiation, line extension, and external sourcing.

Turning more specifically to our three regional businesses in 2006, first, North America. We have a two-pronged opportunity for a major profitability turnaround in our U.S. business whose performance obviously suffered in 2005. First we have achieved higher contract pricing for 2006 in the U.S. and in Canada for our sweetener businesses. All in, it is a price increase percentage in the low teens including all customers and all types of contracts. Obviously this is a very significant positive in 2006.

And as the earning release mentions, we are focused on resolving the operating issues that arose throughout the year in Argo, our largest plant, and improving its performance in 2006. We have made significant organizational changes at Argo and we remain on track for the startup of the new coal-fired boiler in late third quarter this year.

In Canada, like the U.S., we will benefit from the increased contract pricing I mentioned but are going to feel the ongoing affect of high-energy costs, specifically natural gas, as all three of our plants in Canada are natural gas facilities. We are very disappointed with the preliminary duty on imported U.S. corn of $1.65 per bushel imposed by the Canadian border services agencies on December 15, 2005. With the federal elections now over in Canada, we have a full court press on to mitigate or eliminate the impact of the duty. A decision on the final duty level is expected early in second quarter. We are prepared to take any and all necessary steps in Canada with our plants and in reconfiguring our North American business depending on the outcome of the duty issue.

Mexico, whose operating income nearly doubled in 2005 from 2004 primarily from HFCS results should continue its strong performance in 2006 as the high fructose business remains strong along with the rest of our operations there.

In South America, another bright spot, we are looking for another solid year. Led by Brazil, this region has posted two consecutive record years, 2005 and 2004 in operating income and in 2005 reached 101 million in operating income. More progress should be made in implementing our specialty and basic ingredient market diversification strategy in this important region in 2006.

Finally in our smallest but fastest-growing region, Asia/Africa, we look for our growth path to continue in 2006 after a solid recovery in 2005 in sales and in operating income. With a full year of our Chinese joint venture in place, we will continue to make expansion in China one of our top priorities.

Turning to our last slide, number 19, when you add it all up we are cautiously optimistic about prospects for meaningful earnings growth in 2006 for Corn Products based on the factors that I have outlined in my comments on our three regions. As we did last year, we expect to quantify our 2006 earnings per share guidance when we release our first-quarter results in late April after there is more clarity on our Argo operating improvement program and a final resolution for the Canadian corn duty issues is expected to be in place.

With that, let me open the call up for your questions. Regina, we can begin questions and answers now.

(OPERATOR INSTRUCTIONS) David Driscoll, Citigroup.

First off, congratulations on the contract pricing. Low teens certainly sounds like the best year that I think you've had in a decade. It that about right, Sam?

That's about right. It might be longer than that, David.

What do you expect utilization rates to be at industrywide in 2006 in the U.S.?

They are probably -- well the grind, David, as you know because of ethanol and fructose shifting around is probably as tight as it can get. It up in the, I'll say, above 95 and nominally 100%. The finishing channels are moving up now. With the plant closures that took place we're probably in the mid to upper 80s on fructose easily. And the other product lines are pretty much where they were before, in the mid to upper 80s as well.

You mentioned that the sweetener prices were up low teens. Did you get a similar increase across the rest of your business?

It was pretty much along the same lines. We commented only on sweeteners because that's typically what we've said before. But the industrial side was about the same kind of increase.

And on your comment in the press release, you indicated meaningful earnings growth is what your expectation was for 2006. Given the fact that the 2005 base was so depressed, can you make the same statements on your 2004 EPS base? But I want to be specific here -- there was charges backed in and when we look at the number, the First Call number in '04 is like $1.46. So can we say that in '06 we will see meaningful growth off of that base?

David, we will give more clarity around the guidance at the end of the first quarter. We do have a couple of things in front of us right now that I want a little bit more clarity on before we go forward with guidance. But what we do know that 2005 was depressed and our answer was that it will be significant from that number.

On the volume side, are we going to see significant volume growth in 2006 in South America and Asia/Africa? I think these numbers here are -- I am truly looking for something a little bit stronger than I think what we've seen in 2005 and would like your thoughts on that.

We're looking at volume growth in Asia for sure. In Latin America the numbers should be up somewhat. As we expand the breadth of our business in South America, we expect to see the volume growth. In addition with sugar prices, world sugar prices where they are, the opportunity for the (indiscernible) into some of the sugar markets throughout the world is an opportunity for us and with it happening over the last couple of months, we're going to see what we can do to take advantage of that.

Again in the press release, you indicated that you needed some more information as to the timing of the boiler coming on stream next year and in your prepared comments, I believe you just said late third quarter. Is this happening according to the timeline or are you trying to give us a little guidance here that the boiler is going to come on line "late"?

No, no, no. That was the timeframe that we have right along, David. The comment was clarity around Argo as well as the startup of the boiler, because we did have some issues in Argo last year and as I said, we put a new management team in there. And we're straightening that out. That is our top priority for the Company. The boiler situation is moving per the schedule we announced the last conference call I guess it was -- we're expecting it to come on in late third quarter.

Okay, two final questions here. Related to that boiler, on the natural gas everyone wants to know have you locked in your natural gas prices or are you currently buying on spot?

We have as always, we have hedged our natural gas and this has been hedged -- I wish we were buying on spot at the price today. Unfortunately we are not, but we hedged it before the end of last year and it is locked.

So more than likely, you've hedged at significantly higher prices than where the spot market is?

They are higher than today's price, yes.

Just a last question here. In the press release it says that product and the price mix is actually negative in the quarter. And I think that, Cheryl, you made this point in your prepared comments that it was coproducts but I just want to be really clear about this one. The business itself, your starch businesses and all the starch related businesses are seeing price increases and it is the coproduct values that are seeing declines, which has negatively affected the line that you guys call price and product mix in the press release. Is that an accurate statement?

No, actually if you're looking at in North America, the net sales variance price mix is primarily or chiefly coproduct values. But when you take into account the logistic costs, we were down slightly on the sweetener and starch pricing in the fourth quarter and (multiple speakers) full year.

David, we've commented all along that the freight costs were impacting us on net sales and obviously going into the new year, we have made adjustments for that but we got hit on that throughout the course of the year when the energy prices started going up.

Okay, and it’s because those freight costs are a part of net sales, they show up in the place line in your disclosure here?

That's correct. If you look at the financials to the press release, shipping and handling costs in the quarter were up 8% for the total Company and 12% for the entire year. So that had an impact on the net sales.

Great, thanks a lot. I will pass it on. Thank you, everyone.

Dave, I just want to go back and clarify one point with regards to your question to Sam on meaningful earnings growth. Keep in mind the 2004 number had a tax rate of 30% as opposed to this year's at 37.5%. And in 2006 we like everybody else will have to expense options, which we're looking at to be $0.04 or $0.05 for the year.

Great. Thanks a lot, Cheryl.

Christine McCracken, FTN Midwest.

Sam, you talked about the Canadian situation to some extent and I am wondering it doesn't seem like it had a severe -- as much of an impact this quarter maybe as I had expected. Obviously it did happen very late in the quarter. Can you give us some indication as how you have adjusted for that or how you plan to operate now in the interim until we get a final ruling?

Sure. It really didn't have any impact at all in the fourth quarter, Christine. We got our corn in place prior to the duty going into effect. Unfortunately the timing for the government in Canada to change was not beneficial because we have lost some time to work through the issue but with the new government coming in place last Monday, we were up in Canada all of last week. Our focus this year in the first quarter is to eliminate or minimize the impact of the duty. The second focus obviously is if in fact we are not able to do that is to minimize the impact of the corn cost on our business in Canada by reducing the basis as much as we possibly can on the Canadian bought corn.

Our intention will be to bring corn in for that business that we can reexport, getting the duty drawback if in fact the duty is in place and for locally shipped product we will be buying local corn. It probably will have a higher basis but we're working to try to bring that down. We and a number of users of corn in Canada are currently as I said though working with the government to try to either minimize -- the ideal would be to eliminate that tax.

That's fair enough. It sounds like you're spending a lot of time on this issue, a lot of management resources. Is there -- it seems like this is -- it's kind of one thing after another on a policy stand in terms of taking your time away from the business. Can you talk about how you have adjusted I guess your time and how you might -- things that might have gotten less attention as a result?

I have not really adjusted my time. We have the strategy that we're following and we are continuing to pursue that as I mentioned in my comments. Certainly there are people in the U.S./Canadian business that are working this issue. But as I said, for the last two months there has really been no one to talk to in Canada. So we have not certainly been spending our time over that period. We have been looking at how we source the corn and how we structure the business if in fact we have to going forward. But my time is spent doing what I need to do, and that is making sure that we keep the business on track and making sure we spend the moneys we earn the right way and making sure the strategy moves forward and we grow this business.

Fair enough. Just on -- you've got very low debt levels still and you've mentioned a few I guess targets in Asia specifically China. I am wondering what affects the timing of that? Is it really just a function of finding the right opportunity or are you going to continue to kind just work debt levels down?

No, no, no, no, no. The right opportunities have to come along, Christine. As we have said in calls before, we're not just going to buy for the sake of buying. It has to make sense and be on strategy. And as you would guess in China and some other smaller acquisitions, they don't go through as quickly as I would like to see them, but we have a number of things on our plate right now we're looking at and we will continue to pursue them.

Okay. Would you expect this to be an '06 event at this point or --?

Some of them should definitely be '06 events and hopefully we will identify some new ones in '06 that will roll into '07.

Great. Sounds good. Thank you.

(OPERATOR INSTRUCTIONS) John McMillin, Prudential.

Cheryl, I'm sorry if I missed it. Did you quantify the currency impact for the quarter and the year?

Yes, I did.

Could you give it again? I'm sorry.

Sure. Let me just go to the chart. The currency for the quarter in total was 4.6% positive.

4.6%. Is that to sales or to earnings?

That's on a net sales basis.

I meant to earnings.

On the EPS? On the quarter the currency was $0.04 -- $0.05, excuse me. $0.05 out of the $0.22 and for the full year on an EPS basis, it was $0.17.

What would you -- if you froze things now, wouldn't you expect currency to be a drag, Sam? You didn't really mention it that much in your '06 outlook, but shouldn't it have a -- no one really knows which way it's going to go but shouldn't it have a meaningful impact and kind of be a bit of a headwind?

John, as we've mentioned before obviously currency it helps us in the earnings when the currency is stronger. The flip of that is when it weakens, it allows for exports out of the countries in which we operate, so we get volume push which tends to offset the currency. Certainly in Brazil and in Korea, the strength of those currencies has limited many of our customers from exporting as well as us. So we don't see it as a headwind. In some instances I'd like to see it a -- the Brazilian currency we would like to see a little bit weaker than it is right now.

You're not alone.

I know that.

Now when the Canadian duty issues hit, Sam, I think you said it would -- you would have no long-term impact on Corn Products. Are you sticking with that statement?

Yes, we are. That statement was made based on the fact that we expected that if we had to we could reconfigure both the business in Canada and the shipping lanes and the businesses in the North American businesses in the total and that still holds true.

Okay. As you kind of look at these acquisitions, joint ventures expanding your list of ingredients, what is your tolerance for upfront dilution or --?

We're not looking for dilution, John, obviously. The measure we have that we have put in from of the street, and our Board of Directors, and ourselves, is return on capital employed. We have to hit the cost of our capital and we get bonused on that. So the intent would be to make sure that we find things that do at least in the very short term return the cost of capital. If something is very strategic obviously we would deviate somewhat from that, but we're not looking to do a deal that is going to be dilutive to the organization in any magnitude at all and if it is, it will be very short lived.

All right. Cheryl, what caused the fourth quarter tax rate to go down? I guess just to adjust the year? And did you give a tax rate guidance for '06?

I did not give for '06. Basically '06 I would expect all things being equal to be back at the historical range of around 36%, John. What happened in the fourth quarter in the annual effective tax rate is the shift in income and tax rates.

Okay. Thanks a lot.

Christina McGlone, Deutsche Bank.

Going back to Christine McCracken's question, can you quantify or give a sense of how much of your business in Canada is exports and how much is local?

We have not given that before, Christina, and it obviously would change depending upon what happens with the duty. We would work to reshift our sourcing locations if in fact this duty stays in place and we are impacted by it and we can bring a significant amount of corn into Canada if we need to. But we have not given out what it is. We have said however in the past that our plant in Port Colborne is pretty much our northeastern U.S. supply point.

Okay. Going to South America, can you give an outlook on the corn crop in Argentina? It seemed to be damaged from the heat down there, but then you talked about having the ability to price through because of higher sugar prices. So should we look for margin pressure down there or is that not the case?

Obviously we have always said we can price through cost increases in our Latin American business and that is still the case. You are right, the crop is under stress right at the moment and we know that. We are looking to adjust our pricing to reflect that and all I can go is based on history. We've been successful in the past.

Okay, and then can you give a sense of the size of China now? I guess it seems like it contributed this year and I assume it is smaller than Korea but is it the same size as Pakistan and Thailand now?

No, it is still a very small business, Christina. We wanted to get into China and get a foothold. It was on strategy for us. It still is. We have expanded it and we're growing it. It has been profitable. We expect it to continue as such and we have staffed our China operations so as to able to look at new opportunities in that country.

Okay. And then in terms of the Indian operation, would that be any source of margin pressure next year or is it really too small to have an impact on the segment?

It will have no impact next year. We are opening up an office there to really investigate and pick and choose where we want to go and perhaps bring some product in but it's going to be very, very small.

Last question, Cheryl, the quarter reallocation of the options expense, is it fairly even or is it skewed to one quarter?

In 2006? IT will probably be across the year. I believe that's correct there. Yes. Okay.

Yes.

Thank you.

Ann Gurkin, Davenport.

I've got to start out with ethanol. I'm sure you get asked this all the time. It's on the front page of our Richmond paper -- Bush to address alternative fuels in his speech tomorrow night. Can we just talk about this?

Sure. You want me to talk about it? Okay. Ann, we have said in the past that ethanol is not on strategy for us. It would be an opportunistic, tactical kind of a thing. We believe we have enough opportunities on strategy that we can move forward with. However we have investigated, have plans in place for it if in fact we wanted to move on ethanol to be able to very rapidly on it. But at this point in time we have not made comment nor committed to doing an ethanol expansion.

Thanks. The situation looks pretty good, pretty opportunistic right now. Where prices are, where corn costs are. How long would it take you to get a plant up and running?

We could do it in less than a year if we decided to do it.

Okay. What else do you need to know before you make your decisions?

We are weighing that against all of the other opportunities we have for the strategy of the business. Ethanol has been an interesting business and is very, very attractive for the last 1.5 years. If you go back three or four years it was a disaster. So we will look at what we can do to grow this business long term, and that is how we're going to stay on our strategy.

Okay. Cheryl, can you give me what energy and Argo boiler issues cost in the fourth quarter?

We did not quantify it, Ann.

It was estimated to be 10 to 20 million. Did it fall in that range?

I can't comment.

Okay. Finally just a little more explanation. In the release you talked about expanding the business geographically. What is the timing of that kind of movement?

The China thing obviously we have a foothold but we would like to grow China and as I said it's one of our top priorities. So we're looking to do something in 2006. The Indian move, the move into India, is the first step in going into that country. We do want to look at India and be careful. It is in an under corn refined country by far but also the existing operations in there most of them require some work. So we have to be careful as to how we move in on the Indian business. But it is something we will be looking at in 2006 as well.

Okay, so those would be the top two, China and India?

Those are the top two for this year, yes.

Great, thank you.

Kenneth Zaslow, Harris Nesbitt.

A couple questions. First, Sam, I know you said that the Canadian corn duty will not change your EPS outlook for 2006/2007. Is that fair?

No, I said it will not have a long-term impact on the business.

So then in 2006 there could be an adjustment downward just for that? That could cause somewhat of a negative EPS?

Well, I don't know if it will be an adjustment downward or upward, Ken. We haven't given guidance yet so I can't say where it would be. But what I am saying is that the business this year we still have to sort our way through what the impact will be if any. Obviously there's some already because we bought some local corn at higher basis numbers than would be normally the case but we are working our way through that. If in fact the duty stays exceptionally high, we will make a decision as to how we move forward with the Canadian business and line up our North American business accordingly.

Great. The other issue is sequentially in North America your operating profit came down pretty significantly. I understand that energy costs were higher. Were there additional operational issues that maybe came out that you may not have known about? Is there any besides energy, is that the sequential decline?

Fourth quarter we had the energy issue and we also had a hurricane-related issue on feed. We had a significant number of barges down in New Orleans at the time of the hurricane. The feed was completely damaged and sold for -- actually we had to pay to have it taken away and it was a reasonably substantial amount of money. We have a claim in for it. It was over $4 million. We have a claim with the insurance company. I would imagine everybody in the world has a claim with the insurance company after the hurricane. So we will see what happens with it. But that was an unfortunate occurrence that happened in the fourth quarter that is impacted in Argo's operation because it was Argo's feed.

But that will be gone going into '06?

Yes, that's done.

Can you talk a little bit about Mexico? The capacity and utilization rates and what exactly -- I would assume you're getting the pricing increases down there also?

We have not said that nor am I going to say that. The business is strong in Mexico. As we have said before we are back running fructose at levels that we had prior to the tax being imposed. The rest of the business is growing solidly. If you remember, we shut down one of our smallest Mexican plants in the end of 2004. So that helped us both from a cost point of view and a utilization point of view. So the utilization in Mexico is good.

Will you start that plant again if things get stronger?

No, that plant is shut down and it is gone.

Any plans on expansion?

We will always look at that.

Any time in the near future that we could expect?

We will be looking at it in the near future. We will have to determine when it is appropriate to do it but right at the present time, I'm not going to comment on anything going forward.

What I'm trying to get at, is there another step function in the Mexican operation that might happen in '06 or '07 now that you are back on stream or is it at this point, we're just growing at growth rates -- at typical high growth rates?

After what has happened in Mexico, we would not be prepared to go and put a large expansion in Mexico on fructose or anything else. We would be a little bit on the crazy side. I think that we can back it up from here as long as the border is open. If the border is not open we have the exclusive producing facility for 55 in Mexico. But that's the way we're going to go.

Getting back to your question on the U.S., obviously we had the issues of the hurricane. But energy, we talked about, logistics costs were up and supply costs resulting from the hurricane were up as well in the U.S. In fact the supplies cost in fourth quarter not only impacted us, it impacted many industries but we got hit by that in the fourth quarter throughout the U.S.

Great. I appreciate it.

(OPERATOR INSTRUCTIONS) A follow up from David Driscoll, Citigroup.

Thanks a lot. Sam, can you tell us right now what the current price is for corn up in Canada? And has that price changed materially since the imposition of the duty?

The corn price in Canada, David, on a basis is reflective of the U.S. price but the basis has always been somewhat higher than the U.S. because of the local nature of the corn. That basis number is up somewhat at the present time. We and everyone else up there are trying to minimize the basis impact in Canada that would be delta to what it would normally be obviously because it is impacting our earnings. And we are doing -- as I said, there's a two-pronged approach on this thing. One of them is to eliminate or minimize the duty on corn coming in. The second one is to minimize the impact of basis in Canada. So we are currently working both paths today, but there has been somewhat of an increase.

Certainly. Can you tell us is approximately the corn that you purchase from the United States, historically that has been what, 25% of the requirement for those three plants? Is that roughly accurate?

I don't know we've commented that number, David, but it will range from zero to about 30% in any given year.

All right, fair enough. Then when you talk about energy costs being up, certainly I think everyone is very clear that you're buying that gas as fairly high rates. However, corn prices have declined and net corn costs on a spot basis look very, very attractive right now. Can you talk to us a little bit about your views on 2006 on the raw materials side, the balance between lower net corn costs and higher energy costs? Which one here is the more dominant factor for your business in the U.S.?

In the U.S., the net corn cost will help us. Obviously -- I shouldn't say obviously, we bought our gross corn numbers as we hedged the business throughout the contracting period, which as you know was before the end of the year for the most part. Coproduct credits are under pressure right now with the lower corn numbers. We are feeling an impact on corn gluten meal and corn oil and corn gluten feed to some extent. So the net corn number although lower than last year is not as significantly lower as you would look at in particularly if in fact the coproduct credits continue dropping based on the fact that we bought corn about one month or so ago. So it has a positive impact in the U.S.

Gas numbers are up. We still have the boiler issues at Argo, so we have hedged our gas as best we can based on what we think we're going to use. In the Canadian marketplace, natural gas is the energy and it is up substantially from last year.

Then maybe finally if -- we have all been asking very specific questions here but if we take a step back, can you give us your characterization as to where you see the U.S. business in the long-term structural issues that have plagued this business? It looks like this is a very material event here with a positive low teens price increase, but I would really like to hear your thoughts about where this business will go over time and your ideas on margins I think are fairly critical for investors.

David, you hit it when you asked the first question that basically this is the first meaningful price increase we've had in over 10 years. And the industry since we have spun out and even before that has not returned the cost of capital. We've said that a number of times. We've heard some of our competitors say it and I think the industry has to get back to the cost of capital and exceeding it. I think we can.

I think the structural change that took place in the industry over the last couple of years of the shutting down of plants that provided for the overcapacity in what had been the conventional corn refined products, fructose, dextrose, corn syrup and starches, those overcapacity situations have been mitigated to some extent. There have been product shifts from the basic product lines to ethanol, to other products on our case. We have in fact closed a plant in Mexico as we mentioned before that took some capacity out of North America so that the structural change now is set for improved returns. And as I said, we have to get, we want to get to the return on capital employed.

Then if I could also probe one question, Cheryl, you mentioned CapEx expected in 2006 of $150 million. You also mentioned in your prepared comments about Argo being a part of that. Is it really all of it or is some of the capital embedded in that 150 expansions in China and other places that you have not outlined for us? How do we interpret it?

You should interpret it that a large part is the Argo boiler but we continue to spend in South America specifically Brazil as we announced last year, there's a number of growth projects that we have going on and we have growth projects in Asia/Africa as well.

And in Mexico.

So the net -- this is really going back to that volume question I asked. These capitals are going into place and we will see volume expansion because you're adding capacity.

In some cases yes but it is not necessarily that it will impact the first several quarters of 2006. You are looking at impact for 2007.

The Brazilian expansion, David, are grind increases which take a little longer and they will be coming on stream late 2006. But the spending is there to grow those businesses.

Great. That's really what we needed. Thanks a lot, everyone.

Robert Moskow, Credit Suisse.

Did I hear that you're calling the price increase for HFCS low teens for this year?

We said for all of our sweetener businesses low teens, yes.

Okay, thank you very much.

There are no further questions at this time. Mr. Prichard, I'll turn the call to you for closing remarks.

Okay, operator. It does appear as we are finished with all of your questions for now and as a result, we will conclude our conference call and our webcast. As a reminder, a replay of this webcast can be accessed at www.CornProducts.com and we do have a replay of this audio conference call that is available through Friday, February 10. And that number is 719-457-0820; and pass code 9417484.

With that, we want to thank all of you for participating on our call this morning and we will talk to you again in late April with our 2006 first-quarter results. Have a good day.

Again, that does conclude today's conference call. We appreciate your participation and we hope you have a great day.