Ingredion Inc (INGR) 2007 Q4 法說會逐字稿

Good morning, everyone and welcome to the Corn Products 2007 fourth quarter earrings call. As a reminder, this call is being recorded.

At this time it would be my pleasure to turn the call over to the Director of Investor Relations, Mr. David Prichard. Please go ahead, sir.

Thank you, operator, and good morning to everyone. Welcome to Corn Products International's conference call to discuss our 2007 fourth quarter and full year financial results and our 2008 earnings guidance and outlook, both of which were announced in press releases issued earlier today. I'm Dave Prichard, Vice President of Investor Relations for Corn Products. Joining me today to lead the call, as usual, 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're always available about 60 minutes ahead of each conference call. Those of you who are using the website broadcast mode for this conference call are in listen-only mode. Sam, Scott and Cheryl Beebe will deliver this morning's presentations, and they will indicate as they move from chart to chart, so those using our slides from the website can easily follow along through their presentations. Now I've just shifted to chart two which is our agenda. Cheryl Beebe will present the financials for the fourth quarter and the full year with appropriate analysis and flavor. Following that, Sam Scott will comment on our company's overall performance and key developments in 2007, take a brief look back at our 10-year results, and then discuss our 2008 earnings guidance and outlook before we move to your questions.

I've now shifted to chart three, which is our forward-looking statement. Our comments within this presentation may contain forward-looking statements. Actual results could differ materially from those 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 and guidance press releases can be found in the company's most recently filed annual report on Form 10K and reports on Form 10Q and 8K. Finally statistical and financial information and reconciliations of nonGAAP numbers from this presentation are also available on our website at cornproducts.com, and as you will see are included as an appendix to this morning's slide presentation. With that, I am now pleased to turn the conference call over to our Vice President and Chief Financial Officer, Cheryl Beebe. Cheryl?

Thank you, Dave. Good morning, everyone. We're pleased to report another solid quarter of earnings growth and another record full year of results for 2007. I'll start with a review of the fourth quarter and then move on to our full year performance. I'm starting with chart five the summer income statement for the quarter ended December 31, 2007. Net sales grew to $895 million, up 30% or $208 million versus the same period last year. This is the eighth consecutive quarter of net sales growth. As we will see on the next chart, all three regional businesses contributed to the increase with double digit gains. About $29 million of the net sales growth is from DEMSA, Getec and the SPI Polyols acquisitions.

Gross profit dollars are up 34% or $36 million to $143 million versus last year. The gross profit margin increased to 16% compared with 15.5% last year. As we saw in prior quarters in 2007, strong pricing actions across the three regions more than offset the major increase in corn cost and the slight increase in total energy cost versus last year's fourth quarter. On a quarter-over-quarter basis, North and South America results reflected margin recovery. Operating expenses increased 18% or about $10 million. The increase resulted from higher compensation-related costs, driven by the company's strong earrings and the impact from stronger foreign currencies. Operating expenses as a percent of net sales in the fourth quarter were 7.2% down from last year's 8%, and essentially unchanged sequentially from the third quarter of this year. Once again, we are in line with our forecast earlier in the year of $60 million to $65 million per quarter.

Operating income increased 43% to $81 million versus $57 million last year. The fourth quarter operating income margin climbed to 9% compared to 8.3% a year ago. Net financings costs for the quarter were $9 million versus $6.7 million last year. The $2.5 million change in net financing costs was the result of an unfavorable impact of lower capitalized interest and swings in foreign exchange. The fourth quarter tax rate was 34.1% versus 31.5% last year. Net income rose 40% to $46 million versus $33 million a year ago with diluted earnings per share of $0.61 versus $0.43, a 42% improvement. Weighted average diluted common shares in the quarter were unchanged at about 76 million shares.

During the quarter, the Board of Directors authorized a new five million share repurchase authorization expiring in 2010. Given that the previous four million share buyback authorization was nearly complete. In the quarter, we repurchased about 1.19 million shares at an average price of $37.69. Turning to chart six, we can see double digit net sales growth for all three regions led by South America with a strong 42% increase or $82 million, North America, up 26% or $105 million, Asia/Africa at 23% or $21 million for the strongest quarterly sales gain in 2007.

Looking now at chart seven, the net sales variance analysis, we see the strong price product mix increases drove the company's net sales growth. Price product mix accounts for about 81% of the net sales increase in the quarter. In dollar terms, this represents about $168 million. The increase in net sales from translation of our foreign operations contributed about $48 million or 23% of the net sales increase in the quarter. Volume fell slightly at about [1.3 %] or $8.5 million. Regionally, North America's net sales growth of 26% consists of a 27% increase in price product mix followed by a slightly favorable change in the exchange rate of 3%. However, volumes were off about 4%.

South America's growth of 42% includes a 22% improvement in price product mix, 17% from stronger currencies, and volume growth of about 3%. Asia/Africa's 23% net sales growth was led by a nearly 20% increase in price product mix and a 3% favorable change in currencies. Volumes were essentially unchanged. Now let's move to chart eight or operating income by geographic segment. North and South America operating income percentage gains are nearly identical. North America was up 46% or $15 million for an operating margin of 9% versus 7.8% last year. South America's operating income rose 47% or $12 million for an operating margin of 13.6% compared with 13.2% a year ago. Asia/Africa's operation income dropped 10% or $2 million which was sequentially less than the third quarter decline of 42% or almost $5 million.

Improvements in China, Kenya and Thailand, while each by itself quite small, collectively helped to partially offset lower South Korean profits, a trend we said on the third quarter call would continue into the fourth quarter. Excluding the South Korean business, the division's operating income was up slightly. Compared with last year's fourth quarter and a continuation from the third quarter of this year, the South Korean results were impacted by significantly higher corn and ocean freight costs as well as lower volumes. This will continue into 2008 as Sam will discuss in the 2008 outlook.

The final chart for the quarterly review, chart nine, is the estimated source of diluted earnings per share. Changes from operations contributed $0.22, $0.15 for margins, and $0.07 from currencies. Nonoperating changes provided a negative $0.04. Both financing costs and the effective tax rate each were a negative $0.02.

Now let's review the full year 2007. A record year across key performance measures. On chart 11, the summer income statement for 2007, net sales were a record $3.39 billion, the first week -- the first year we have exceeded $3 billion and a 29% increase where $770 million from last year's $2.62 billion. Gross profits rose 41% to $586 million, an increase of $170 million. Gross profit margins improved to 17.3% from 15.9% last year. Corn costs rose significantly for the year, but the energy costs increase were slight. Operating expenses were higher by 23% or about $47 million, again, from higher compensation-related costs. Operating expenses of acquired companies and stronger foreign currencies impacting translations were the drivers. Operating expenses as a percent of net sales declined slightly to 7.3% in 2007 versus 7.7% in 2006. Net financing costs were up 53% from last year or $15 million.

The effective tax rate of 33.5% for 2007 was favorable versus 35.3% in 2006, primarily reflecting the effect of the change in the company's income mix for 2007 versus 2006 and the recognition of tax benefits during the year. Bottom line net income improved 60% to a record $198 million or about $74 million higher than in 2006. And diluted earnings per share reached a record 259 -- $2.59, up 59% from $1.63 in the prior year. Included in our EPS of $2.59, was a $0.05 gain in the third quarter from the company's CME Group shares following its merger with the CBOT in July. Diluted weighted average shares for the year were up slightly. Chart 12 and 13 present the net sales growth for the company of 29% and by region. All three regions delivered double digit net sales growth led on a percentage basis by South America at 38% and on a dollar basis by North America with an increase of $464 million. By category, price product mix contributed about 24% of the improvement or $632 million, followed by stronger currencies at about 4% or $106 million and volumes at 1.3% or nearly $32 million.

On a regional basis, North America's 29% increase was driven almost totally by price product mix at 28.5% followed by a slight favorable currency at 1.2%. Volumes were off only 1/2%. In South America, the 38% net sales gain was across the board with favorable price product mix, currencies and volumes. Asia/Africa's net sales growth of 14% was led by price product mix and favorable currencies with volumes essentially flat.

Turning to chart 14, operating income by geographic segment, we can see the significant growth in North America, $234 million versus $130 million in 2006 or a very strong 80% increase. Operating margins grew to 11.4% from 8.2% in 2006 and only 4.1% in 2005, demonstrating the major profitability recovery in the region. South America completing strong rebound from lower operating profits in 2006 at a 37% increase in operating income or $31 million to record $115 million. This was led by Brazil as well as solid performance in the Andean region and positive impacts from the DEMSA and Getec acquisitions.

Finally Asia/Africa had a disappointing 15% decline in operating income of $45 million from $53 million in 2006 or about $8 million, due to the previously-mentioned cost and volume pressures faced by our South Korean business who's results weakened in the third quarter of 2007. Pakistan enjoyed yet another year of solid growth. Corporate expenses were $47 million for the year, up $4 million from 2006 as a result of increases in compensation-related costs. Overall, the company's operating income was up 55% to a record $347 million from $224 million a year ago.

The next chart, chart 15, shows the estimated sources of diluted earnings per share for the year. Not surprisingly, the year's EPS improvement was driven by change in operations which accounted for $1.05 per share. The improvement in operations is $0.93 for margins, $0.12 from stronger currencies. The $0.09 decline from nonoperating items consisted of $0.12 from higher net financing costs declines of $0.02 each from minority interest and shares outstanding, partially offset from a positive $0.07 from the lower effective tax rate.

Chart 16 is the cash flow highlights for 2007. We are pleased the cash provided by operations reached a record $258 million versus $230 million in 2006, driven essentially by the higher net income. Cash invested in the business includes $174 million for capital expenditures and $59 million for acquisitions, $33 million was used for dividends, and $39 million for share repurchases.

Let's conclude the financial review with the key metrics as of December 31st, 2007, which is chart 17. This chart reflects the company's strong balance sheet and excellent liquidity. But the most gratifying component is the return on invested capital of 11.4%, which is up significantly from 7.5% in 2006 and 6% in 2005, and marks the first time we have exceeded our cost of capital. Debt-to-total capital remains solid at 26.6%, basically unchanged from year-end 2006, while debt to EBITDA is 1.4 times against 1.6 times last year. Operating working capital as a percent of net sales was 11.6% versus 10% in 2006, reflecting investments made to support the growth of our business. Lastly net debt, which is total debt less cash, $474 million at year-end compared with $423 million a year ago. All in all, 2000 was an impressive year on all fronts. Now to recap 2007 highlights and discuss our guidance and outlook for 2008, I will turn the call over to Sam.

Thanks, Cheryl, and good morning to all. I'll comment first on 2007 and then review our 2008 outlook before I take your questions. Turning to slide 18, our record year in 2007 for net sales, operating income, net income, earnings per share and operating cash flow was essentially gratifying for all of us for several reasons. First, 2007 was our 10th year as a public company. And second, because we have now reached or exceeded our five -- key five year strategic and financial targets that we plan to meet by the end of 2008 when they were announced to the street in '04.

Our earnings per share has compounded 25% over the last four years versus our goal of low double digits. We also exceeded $3 billion in sales for the first time along with operating income of over $300 million. Perhaps the most satisfying result in 2007 was a record return on capital employed of 11.4% which Cheryl already mentioned. Given our strong earnings growth and cash flow we also raised our quarterly dividend to 22% in September of '07, and put in place a new five million share repurchase authorization in November. In February of 2007, we completed our acquisitions of SPI Polyols in the U.S. and remaining 60% of Polyols joint venture in Brazil in a move to broaden our sweetener platform. Our strong results demonstrated that our businesses performed well and obviously was and continues to be a unprecedented (inferiate) of high and more volatile commodity prices around the world.

Looking at slide number 19. Regional highlights for 2007, our record results in North America in 2007 were very strong on the heels of a solid 2006 increase in the region. Net sales surpassed $2 billion for the first time and operating income jumped 80% to a new record level. And our new SPI Polyols business was successfully integrated. Our South American business clearly rebounded strongly in 2006 with record sales and operating income led by a strong Brazil and improvements in the Andean region. The Southern Cone successfully managed through rising corn and energy costs and our acquisition of DEMSA in Peru and the rest of Getec Polyols in Brazil were successfully integrated. Unfortunately our Asia/Africa region reported lower profitability from the decline in South Korea, even though regional sales were up 14%. I will discuss South Korea in detail during my 2008 outlook comments. We saw another record year in Pakistan and we are investing for new grind capacity in that country.

Turning to slide 20, 2007 is a milestone year for the company. As I mentioned earlier it marked our 10th anniversary as a publicly traded company following the spin-off from CPC International. During the past decade, our company's net sales increased from $1.4 billion in '98 to $3.4 billion in 2007. And operating income grew from $84 million to $347 million. Cash flow from operations increased from $90 million at end of 2 -- 1998 to $258 million at the end of 2007. And finally our market cap grew from $1.1 billion to approximately $2.7 billion -- $2.75 billion by the end of 2007.

Let's now turn to 2008, the outlook, which is slide 21. We announced in a separate press release this morning that we expect recorded diluted earnings per share in 2008 in the range of $2.65 to $2.85 per share versus an EPS in 2007 of $2.59, which included a $0.05 gain in the third quarter from our CME Group shares. Like last year, we were able to provide annual earnings per share guidance at this time rather than after the first quarter in April because the U.S. and Canadian strong contracting season was completed by the end of the year 2007. We also expect net sales to reach $3.7 billion versus $3.39 billion in 2007, and our return on capital employed to continue to exceed our [OC] minimum of 8.5%. Finally we estimate capital expenditures in 2008 of about $200 million largely reflecting continued spending begun in 2007 on attractive growth projects including Polyols investments in the America and new modified starch capacity in Mexico. Product channel expansion also continues in such countries as: Argentina, Columbia, Mexico, Pakistan and Thailand to support local demand growth in those countries.

Turning to slide 22, our outlook for higher 2008 earnings is due to expectation for continuing growth in North and South America. Our U.S. and Canadian businesses have again achieved higher contract pricing in 2008 across their starch and sweetener book of business. When coupled with our grain related, our fee-based business and multi-year contracts overall 2008 for an entire book of business has increased in the low double digit range in the U.S. and Canada. We continue to manage commodity risks by balancing our portfolio of firm price and fee based contracts and by balancing the appropriate mix of annual and multi-year contracts in our U.S. and our Canadian businesses.

Regarding Mexico, open trade with the U.S. for sugar and high fructose took effect enter NAFTA on January 1, 2008 as expected. We expect our sales volume in Mexico in 2008 to exceed our 2007 volumes. We also expect our sales of high fructose in Mexico -- in 2008 to exceed 2007, sales and we expect our three plants in Mexico will operate essentially at full capacity this year. The additional amount -- the amount of additional high fructose volumes exported to Mexico from the U.S. with open borders is still difficult to predict at this early stage, but we do expect an increase over 2007 levels of exports. We are pleased that the borders have opened up and have long supported free trade between the two countries. We see improved results for South America in 2008 as a result of more growth in Brazil and better performance in the Southern Cone. We saw in 2007, we believe that our South American business model should allow for the pass through of increased corn costs this year as much of the business is spot or shorter term in nature.

Finally, profitability in Asia/Africa -- in the Asia/Africa region is expected to decline in 2008. This is due to what we believe will be lower operating income in South Korea. This downward trend in South Korea accelerated in the third and fourth quarters of 2007 and is expected to continue into 2008. As a result, South Korea's first half in 2008 is probably going to be lower than the same period in 2007. While we expect to aggressively raise prices in that area, we are forecasting a hit on the volume side. We have started a number of initiatives to try to lessen the impact of rising corn and freight costs.

As I mentioned on the last quarterly call, we are pursuing other ways of lowering our cost of corn shipments versus the traditional bulk shipments and evaluating new sources of corn supply. We also will continue to look at our cost structure in the business. It's not clear if import competition from China will ease in the months ahead, given China's announcement concern about retaining corn supplies and corn-base products within its own country. In addition to the price and supply chain initiatives, we will begin introducing new products developed in South Korea as well as products from North and South America. We do believe our South Korean business will again become a strong contributor to our company's business portfolio. I would note that South Korea's lower performance is masking improved results in other parts of the region both Pakistan and Thailand should post improved results in 2008.

Turning to our final slide, number 23, we continue to focus on successful execution of our five-step pathway strategy in 2008, our global and improvement initiatives we launched some four years ago. This includes achieving excellence in operating our base businesses, selectively growing the base business, expanding our product portfolio through alliances, joint ventures, and acquisitions, expanding into new high-growth geography -- geographic regions such as China and India, and become more of a valued ingredient supplier. We have the balance sheet and liquidity to continue to make good strides in all of these areas. We are investing in the business with our $200 million capital expansion budget this year, and we continue to evaluate a number of possibilities on the acquisition and alliance front, as well as new ingredient opportunities, all of which are consistent with the elements of our pathway strategy. As is the case in any year, we see both opportunities and risks ahead of us in 2008. But all-in-all we continue to enjoy a very healthy balance sheet and we are optimistic about another year of solid earrings and sales growth, good returns and strong cash flow.

Finally, I announced a week ago my intention to retire from the company as Chairman, CEO and President, following the identification of my successor and the completion of a smooth transition period. As some of you know I've been with Corn Products International for nearly 35 years. The bylaws of our company require that an officer retire at the age of 65. This is the start of what I'm confident will be an orderly, smooth and thoughtful transition process. For the company and for myself personally, I think it's the right time to begin the process. Our business is strong, we're well positioned for years ahead and with the strong balance sheet and the right strategy in place. I look forward to working with our Board in the months ahead to accomplish an efficient transition. And with that, I'm prepared to take your questions.

The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) We'll pause for a moment. And we'll take our first question from David Driscoll with Citi.

Great. Good morning, everyone.

Good morning, David,.

First off, congratulations on a good strong finish to 2007 and on a good solid outlook for '08. Also, Sam, I would like to say that I certainly think there's a whole lot of us out here that are sad to hear that you're retiring. We certainly wish you the best and we think you've done an excellent job.

Well, David, thank you so much for all of those issues.

A couple of issues, just wanted to go over. First off, Cheryl, this has been a long held discussion between you and I on uses for cash, so I have to say I'm thrilled to be seeing what is going on with the share repurchase. Can you talk to us really about what is going on internally here? Was this more of an opportunity with the share price down as much as it was during the fourth quarter? Would that be the principal catalyst for why we saw such a large share repurchase during the quarter? And then can you comment on what we could expect for 2008?

I think there's two things that we saw in the fourth quarter. One was definitely the share price undervalued from our point of view. And the second is cash generation of the business continues to throw off. And so in terms of timing of acquisitions and new business opportunities, barring something out there we'll continue to buy back shares.

Sam, can you talk about your confidence in South America? Have you raised priced yet to account for the higher corn prices? I don't think you mentioned that within your prepared comments.

Yes, David, we continue to raise prices throughout South America. We've been able to push them through as you can see from the results last year going forward, the intent is to do the same thing, and the team down there is doing it as we speak. Corn is all over the place around the world on the price side of it, and we will just move prices as best as can as soon as we can to accomplish bringing it back to the bottom line.

Yes. Let me go after this one more time though to make sure. Can you say right now that $5 corn we see out there on the CBOT, is that level of corn priced in -- have those price increases already flowed through on those product lines or is there still a lot of work yet to do in that South American -- in your markets there?

The current levels are for the most part priced in. Obviously if corn were to move we would have to move again, but the guidance we've given has taken into account the current market we have outside -- in South America and around the world right now.

And I just have a couple of other quick questions. Volume growth. This is the one thing that I would imagine you guys probably want to see pick up from the pace that it was in 2007. Sam, you've been investing reasonably well within the business, but yet we're not seeing it on the volume side. I think collectively volumes were up, what, just 1% or there abouts for all of '07? Can you talk us to about what is the algorithm? What should volume growth be, not just in '08 but beyond in '09 and '10? What is the reasonable type of metric to look for for corn products?

David, certainly as we have said in the prepared text, we are investing the demand grows around the world, and we see substantial growth in South America and in Asia. The North American business environment, U.S. and Canada has been impacted by a couple things, some of which is the slowdown of growth in high fructose, some of which is the outlook and perhaps even the current state of the economy right now, but it's definitely slowed and we've seen that. But we do believe that we're seeing growth every place else including Mexico as part of our business. Some of the investments that we've made or a reasonable amount of them has been to shift the grind from one product to another, however, as to be able to accommodate any slowdown we might see in the base sweetener business we have and transfer that grind to higher return products for you our overall business performance going forward.

So, we definitely see growth in South America. We definitely see growth in Asia/Africa, on volume I'm talking about, and we see growth in Mexico. We do expect U.S. and Canadian businesses to remain relatively flat going forward. And we'll be shifting the grind away from fructose to higher valued products.

Would that all blend out to like a 1% to 2% type rate in '08 and '09?

I would say that or above. I think we're certainly going to see with the kind of growth we're looking at volume wise I think we're going to see it more in the 3% to 4%, maybe 3% to 5% range. That's assuming, David, the world doesn't fall apart. Obviously if the world goes into recession that could change. But right now we're looking at those kind of numbers.

Final question, Cheryl. Interest expense guidance for '08? and I'll pass it on.

I think it's around the same level that we saw this year.

Super, thanks a lot everyone.

Thanks, David.

And we'll take our next question from Vincent Andrews with Morgan Stanley.

Hi, good morning.

Vincent, how are you?

Good. Thank you. Sam, again, congratulations on your retirement.

Thank you.

Can you just -- you're going to spend -- you are going to spend about $200 million on CapEx this year. Can you just kind of remind us again of what the key projects are within that spend?

Yes, with spending a reasonable amount on the Polyols business that we got into with the acquisitions last year we already had some business in Polyols but see that as a good opportunity in the Americas. We believe we're the leader in Polyols in the Americas today and we want to reinforce that position both with the crystalline as well as the specialty Polyols that we're dealing with. We announced we were investing in a specialty starch channel in Mexico. That investment continues and it will continue to grow, and then we're seeing, and back to David's we question we're seeing pretty good growth throughout South America right now. So we're putting new capacity in, in Columbia, in Argentina. We're doing some work in Brazil. We're looking at Mexico, Pakistan, Thailand, all of which are expanding because we see volume growth in those areas, and in the U.S. and Canada, as I said before able to accomplish the shift of grind where needed.

Okay, and would you say that there are projects that you want to do that you're not doing from a capital perspective or from -- I mean from a gross capital perspective, or are there things you're not doing because you're worried that the returns wouldn't be acceptable?

Well, we won't do things if the returns aren't acceptable.

A real question is could you be spending more on CapEx on high return projects than you are?

I I think that we try to prioritize them so what you see are the highest return projects that we can have and it goes on down the line. However, if something new pops up and they always do we will reevaluate. My -- the EOC and I meet on a regular basis and look at where we're spending our money. That's not to say we would cut a project off midstream because something better came along but it is to say that we would reprioritize how we spend. I think we have substantial opportunities. As we look forward we see opportunities for both new growth in the base as well as opportunity for growth in some other areas, and it's just lining those up and punching -- hitting the punch list to get them in place.

Okay. And, Cheryl, do you anticipate -- you're obviously in year five of your pathway strategy. When do you think we're going to get the next evolution of the pathway strategy?

I think that as Sam said with his retirement and a new CEO, I would imagine that by either the end of this year or beginning of next year we'd see the next evolution. I don't anybody sees a change in the strategic direction, it's just where do we expect the growth to come from?

And how do we accelerate it? I think that's going to be -- those two things, Cheryl's point of where does it come from and how do we accelerate the movement along the ingredient strategy, are key challenges in front of the organization going forward.

And then my last question is, you put new management in place in Korea and is there anything else you want to tell us about what they're doing down there differently relative to before?

I think they're really cranking through all of the alternatives and options we have to get that business back to track and I'm very pleased on what I'm seeing them do right now, both from John all the way through the senior management in Korea itself, we're starting to push some things that hopefully we see traction on shortly.

Okay, thank you very much.

Thank you.

And we'll take our next question from Ann Gurkin with Davenport & Company.

Good morning.

Morning. How are you?

Continuing with the discussion on South Korea, can you talk about what you have modeled for the economic outlook for South Korea for '08, and then just taking that economic outlook globally, have you tempered expectation for weaker economies? Can you talk about that?

Certainly within the guidance we've given our assessment of where we think the economic growth -- growth or lack thereof will be. Specific to South Korea, we don't see anything improving dramatically over there although we do see the possibility in our business of China moving back out of South Korea. We're evaluating that very closely, Ann, to see if in fact some of what -- the Chinese government has said they do because that would be beneficial for us. But what we've planned going into this year as I've said in the prepared text, we will because of corn have to raise prices aggressively and we suspect that could raise volume in the business. So we're not looking at strong volume growth in Korea both impacted by the commodity situation as it exists today as well as what could be a slowdown just in the world of economic situation. But, again, that's all in the numbers and certainly pushing to see if we can either [forestall] the loss of volume due to price increases or other things to improve the overall business performance of that country. But in general, we believe that there will be some form of a slowdown. Most of it will impact the industrial side of the business. We tend not to to see even in recessionary times the food side doesn't get hit too badly, because people continue to eat, drink and be merry or be sad, whichever. But certainly on the industrial side of it we do see paper and corrugated slowing down somewhat.

Okay. And then is it still possible to reach high teens operating profit in South America? Is that still a fair target?

I think certainly we look to higher numbers, but I think, again, as I try to explain our margin situation as we see commodity prices continue to escalate, our focus is on better profitability and better operating income moreso then the margins and we've been able to drive through that. Those numbers as they get higher and higher back to David's questions, can we keep passing through costs. The cost pass-through and some improvement in overall operating income is what we're trying for down there.

Right. And, Sam, thanks for all of your help. I've enjoyed working with you.

So have I, Ann. Thank you very much.

Thank you.

And we'll take our next question from Kenneth Zaslow with BMO Capital Markets.

Hi, good morning, everyone. Good. First of all, again, we wish you a great retirement and we will clearly miss you as well. So thanks for the years of helping us out.

Well, Kenny, thank you. And I have to say, I don't know that I will not be on this next call, I suspect -- This is not the farewell. I'm going to be here for -- Ken, before you ask the question, when Cheryl asked -- Cheryl made comments about the new CEO getting the strategy, I'm busting my rear end right now to make sure we get the movement forward in this company will continue to do so until the day I walk out of here, and there's no day assigned to that, so you may hear from me again come April and I hope you do and you'll probably hear beyond that.

Well, we hope you're going to be raising numbers and delivering on expectations.

I can't imagine you ask me for that, Kenny.

Cheryl, just a quick question. Your outlook in terms of you being with the company and your comfort level there, I'm assuming, Sam's transition is not going to change your future there. You still consider yourself part of the organization. Is there anything we should be thinking about in terms of your potential retirement or anything?

Not that I'm aware of.

That's a good thing. I just want to make sure -- we want to make sure that the rest of the management sticks by.

If you could have seen Cheryl's face when you asked that question, she's not going anywhere.

I will answer that I believe the Board has tremendous confidence in me, and I have tremendous confidence in the Board and the organization.

And let me go further on that. The Board has expressed confidence in the entire management team, the senior team, I have as well, and certainly have said to them that we have a team in place to move this company forward, and I'm very, very comfort with that. If I were not, I would not be considering retirement right now.

Okay. Sam it sounds like you were -- maybe I'm reading a little bit more into it maybe a little more optimistic about South Korea than you have been. In terms of there seems to be more a game plan. What is it you're gaining confidence in South Korea, or is it just we'll see how it plays out, but it sounds like you had more of an action plan there.

I think two things, Ken, we have the team in place now that's starting to execute more effectively than it was before and that in and of itself makes me feel more confident. They -- the new folks out there joined, I guess the General Manager came in the late spring, something -- early to late spring, the CFO came in after that, around May, because he joined when we had our world team meeting. They're learning the business and doing things they need to do, and they're pushing for more specific accomplishments, and doing some of the things evaluating corn options, freight options, movement of different products. The price increase that I mentioned, pushing before, and are prepared to take some risks on volumes where perhaps before we weren't quite ready to do it as much as we can now. So I feel more comfortable. I know John has jumped into that one full tilt. He's back and forth to Asia on a regular basis these days bringing the team together and making sure they execute. So there's some degree of confidence that we can start turning this thing around. I don't mean to imply it's fixed nor do I mean to imply that it's going to be back to where it was before this year, but I think we can start working it forward.

And you said you're looking at the cost structure. Does that mean that there's restructuring to be done? What does that mean?

It just means we have to look at all of our costs in the business. I'm not saying anything we're going to do, but certainly if there's any factors we can take out of the business we want to do it.

Okay. And in Mexico, you said that we're going to be running at full capacity. Volumes should be up. Does that also imply that profitability should be up in Mexico?

No, it just means -- I'm not going to say profitability was not going to be up but that was not the implication. I said that because there were rumors out there that we lost position in Mexico. And I want to make sure that everybody understands that our Mexico business is solid if not more solid then ever before. If the market doubles in size, which it could, we will probably not have the same market share we had before, but we're running our plants in Mexico basically full up, and we're shipping product to Mexico from both the U.S. and Canada that we want to, and I want to make sure that folks understand that because that was the intent of those comments.

But at this point you're not comfortable saying -- can you say that profit in Mexico should be strong, solid, up, anything?

It's going to be strong and solid. As far as directionally, we tend not to comment on that except for the region and the region will be up.

Okay. So, okay, good. And then the other question that I have is in terms of the spread between sugar and high fructose corn syrup in the U.S., where do we stand and how do you see that playing out over the next couple years? That's a big question I get from investors repeatedly.

I think certainly we're getting closer to it with the price move we've had, but there's still some room in the U.S., and I guess the big thing is, Ken, and I think I've said this on the call before, as the ag complex goes higher, up until recently sugar had not followed. It will. And I think most people are saying and starting to come to reality now and has moved up. I don't know what price is today, but has moved up 32% in the last month or two, and I think you're going to continue to see that which will almost by definition bring up the U.S. price even though we have price support already. If it gets tighter as we saw a couple of years ago the spot market on sugar in the U.S. was in the $0.40 range. So I think you're going to see it move which gives headway, also as you know in Canada we're up against [raw] sugar with the movement that's taking place, so we benefit by it. And we also benefit by higher sugar prices all around the world. So, I think we'll continue to see that. We obviously operated in '07 at good levels with lower sugar prices, but I think as it moves up, it will benefit.

Great, I appreciate it. Thanks.

Thank you, Ken.

You're welcome.

And we'll take our next question from Christine McCracken. Please go ahead.

Good morning, Sam.

How are you this morning?

Well. Sam, since you're going to be around a while I'll wait to --

Thank you.

Just on corn, there's been a couple of countries here that have put some policies in place to what appears to be hoard corn. Is that a big deal for you when you look around the world and I don't know if there's specific instances where you're seeing that impact your business, but maybe you could just talk to that?

No, it really doesn't impact our business at all. I think China's is the only one -- not the only one, but one of the ones that are hoarding it. And that's not bad for us, even though we were -- we would every now and then bring corn in from Korea but flip side is the fact if they're hoarding it, it means that they're not going to be exporting it all over the world. And since you know we're selling product everywhere in the world. We saw China coming in at times to some of our countries and this is going to be beneficial to us from that point of view. Wherever else it's being hoarded, if in fact we're operating there that means we get cheaper corn in country because they're not exporting it, but where we need to get corn into places where the export capabilities are there, we generally are importing from places like Argentina, the U.S., and Brazil, and those countries have not put any policies in place to stop the exports.

And just in terms of the U.S., when you look -- and now that we're getting a little closer to planting time, do you agree with, I guess, the current outlook for a swing into soybeans, or do you think that some of these other factors, higher fertilizer costs and the like, are going to have an impact on the shift for this year? What are your expectations now that we're -- it's still early, but what are you forecasting in terms of U.S. acreage of corn?

I think there will just be a very slight reduction in acreage of corn. I think it's perhaps overemphasized as to what's been stated up to this point, but the big question markers will be weather, and if in fact we have a reasonable weather going through the season and farmers can get the corn into the field, that's fine. If in fact we have a rainy season and they miss it, then they'll have to shift it to someone else. But the last few years the weather has been accommodating to all of the crops and all things being equal I think that maybe a slightly shift away from corn, but not much at these current prices.

Just when you look at now we're in a pretty tight global corn situation, does that change how you look at how you manage that exposure at all, or are you kind of sticking to your kind of historic, I guess risk management partner when you look at corn?

Well as far as the risk management program goes and how we hedge it, we won't change that at all, and certainly where we have the market positions that we have around the world, we think the model works well for us. And particularly if we're not up against sugar in a fructose environment as is the case in most of South America and most of Asia for that matter. I did mention in the prepared text that in North America we have shifted more of our business to either grain related or grain related with multi-year contracts or fee related, or something of that nature, which takes the risk away from us on the movement of corn. And because of the tightness in the overall market the customers have wanted to move in that direction and they believe they can cover their own corn as they want, which has been something that we are fine with.

But one of the clarifications around that because there was some confusion at mid-year, in so doing, we also pass either the co-product credits not -- the co-product credits to the customer and if they're good or bad the customer gets the return on the co-products on that portion of the business we do as grain related, but that's been the shift that we made to move more of our North America and U.S. Canadian business to grain-related or fee-related contracting.

Thanks for that clarification. And then just one last question, when you look at -- you don't just process corn, you look at some other starch sources too. And we've heard some commentary lately that some acreage might be coming out of these other crops as corn prices and some other commodity prices are more attractive, so that's shifting some acreage in other parts of the world. Is that affecting -- aside from your corn-based basis -- is that affecting other commodities that might impact your margins outside of the U.S.?

We have not seen shifting -- it's primarily tapioca that you're talking about, Christine, and we have not seen the shifting away from the planting. What we have seen which is a positive and a negative is that the need for starch in general worldwide is growing dramatically. So we're seeing tapioca being shipped from some of the places that we have it, so our prices on the tapioca, whereby it might have been a lower price, because it couldn't go any place, is now going into prices higher. The good news behind that is that since the starch prices are -- the market is that tight, starch prices are going up so (inaudible) as well. So, I think certainly the tapioca business in Thailand is still solid, strong, and we're looking to capitalize on the environment in southeast Asia as the rest of the world as a result of it.

Great, I'll leave it there. Thanks.

Thank you very much.

And we'll take our next question from Christina McGlone with Deutsche Bank.

Good morning.

Good morning.

Sam, you talked about higher volumes in Mexico. Could you also talk about the pricing environment, and also the fact that corn can now go freely, I believe between the U.S. and Mexico, does that help you on the cost side?

We didn't have problem before with corn going into Mexico. We always had the allocation and price on it was not impacted as a result of that. I certainly don't know that we'll see anything beneficial on it. As far at the pricing goes, I think the pricing in Mexico as we had said last year as a result of the market opening up, folks are coming into that marketplace. It will be a little more competitive than it has been in the past, but I think the flip of that is we gain in the North American market in the entire context because we're seeing tighter utilization in the overall. Other, secondly, because of our position in Mexico, we have strong positions down there on all of our product lines, particularly high fructose corn syrup, and the market is relatively tight. So we've not been impacted much at all on the pricing side.

Okay. And then when were answering David Driscoll's question about investing swing capacity into new channels, what other areas are you going into? Are they new or existing areas that you're expanding?

Where -- well, it depends where we're speaking specifically.

In the U.S. and Canada.

In the U.S. and Canada, we would be looking at specialty starch channels where we can and other operations where I don't particularly want to go into on the call because I would be identifying where we're moving, but certainly there are opportunities that we see in our U.S. Canadian plants that we can shift grind to other product lines or across the ventures or other things you might want to evaluate, which we've talked about in the past that all of which we're looking at and right ones we will capitalize on.

Okay. And then you had talked about improvement in the southern cone for '08. And that -- the results were pretty mixed in '07. What gives you the confidence that they will improve in '08?

Well, first off, they've got a better corn crop coming down there. So our raw material costs will go down a little bit. There's been some investments, not enough, but some investments in infrastructure so that the energy complex is more reliable, which is important to us. And then thirdly, with the world's sugar prices going up, we're seeing, even though there's cap on sugar down in Argentina, that world price goes up that cap goes higher, and we see an advantage to that. So, you put all of those things together and we see the southern cone opening up a little bit for us going into '08,

Okay. And then I guess last question. Cheryl, do you have any guidance for tax rate in '08?

I would say 35% to 36%.

Okay. Thank you.

And we'll take our next question from Heather Jones with BB&T Capital Markets.

Good morning.

Hi, Heather.

Congratulations on the quarter. Have a couple of questions. I was wondering on South Korea, I was wondering if you were able to break down the shortfall there, like roughly how much of it was due to higher freight corn and how much was volume just just as freight has come down recently? Just trying to get an idea so we could track that area.

Heather, we have not said specifically what the break down was. Obviously corn is up -- the delivered in price of corn is up substantially. Part of that is the premium for GMO free. The actual price of corn itself and part was freight. And you're right, the freight numbers, the index has broken. The actual freight numbers always take a while to break behind that. So we've not necessarily seen a substantial break if any at all on the freight side. Volumes have been impactful for an extended period of time.

We've talked about that. And as the business prior to the runup in corn had started to deteriorate, we talked for a couple of years on the fact that volumes were going down because we saw very little, if any, economic growth in the country. We're forecasting a bigger hit on that going forward because we are going to aggressively move prices to recoup the corn numbers, but we've not given a split of how much each one was. The freight complex, you can almost look at it and see what it is. We'll talked about it going up 30% and then 50%, and those numbers are real and you know what that is and you know what the corn number has gone up. So it's something that you can probably back into without us telling you specifically what it is.

Yes. When you say you're going to be more aggressive on pricing, are you going to be doing this alone, or do you sense that your competitors are also going to become more aggressive on price?

Well, if we do it alone I don't have to worry about the volume going down, it will go down like a rock. Hopefully people follow us. We will be moving price into the marketplace. We've attempted price moves already. We've gotten one through. We have to get another one through. We'll follow it on the first, but I think it be is almost plain business. If your corn has more than doubled and your prices haven't gone up, none of us will survive in that marketplace. So I think, basically, it's going to be almost -- price for survival kind of scenario. And you hope your customers take it through. The reason for the volume hit is because in some instances the customers may shift. They may try to do something else. But certainly, as I mentioned early, the world conflicts on starch, if starch goes up, that will be -- that will impact imports coming into the country as well as if China does what it says it's going to do that will import -- that will impact us. So we see an environment where we think we can move on price, and we're going to push it and see what we can do.

Okay. Now as far as your '08 guidance, what does that -- does that assume current by-product pricing? I understand a number of your contracts are tolling where you don't get the benefit of by-product, but for the remainder that you do get the benefit, does your guidance assume current prices, or are you assuming some easing there?

We have taken into account the best information we've been able to get on co-product and by-product pricing, which says that we're trying to get from any and all of the experts where they think it's going to go, and obviously the top side of the guidance would take into account volume and pricing of co-products and pricing of raising the price that everybody's start through. The bottom side of it would be it goes in the opposite direction, all of those things go to what we would think would be a bad case scenario. If it blows out of the those ranges, obviously we'll be back at you and give you some different guidance on it. But I think right now, we have forecast a slight moderation in the overall co-product prices.

What you're saying, you anticipate just a slight reduction in corn acreage, then potential corn prices could come down and by-products could come down. So is that --

If you are right in that, yes, I think that we could see corn prices come off because I think right now you're seeing a competition amongst the commodities for acreage, and once that's decide as long as the crop is looking reasonably good, we could conceivably -- and particularly if we go into the world -- where the world slows down on the economic front, you could see prices of corn come off and as a result co-products would come down. And again, that's why we, in North America where we have our corn fixed, we have taken a position on grain and fee-related businesses to be able to moderate that risk.

Okay. And the volume reduction you saw in Q4 in North America, I think you already stated this but I missed it. Did you say that was larger due to the sweetener side?

Some of it was due to the sweetener side. I think some of the volume mix in fourth quarter had to do with where the holidays fell. It was a unusual holiday period and we saw a slowdown of volume towards the back of December that was quite substantial, and it was not inherit in the business, because obviously things came back -- I shouldn't say obviously, they came back in January, so we ran very well up until a certain point, then it slowed down. We also, and this is a guess on my part and I have to qualify it as such, but I think there may have been inventory adjustment on the part of our customers. We can't say for sure, but it sure looked like that to us. So those things would be volume hits in North America that would just be temporary in nature.

So based on what you're seeing in January, it looks like Dec -- it looks like Q4 results shouldn't carry toward into Q1?

Well, Q4 was also pretty good.

I meant volumes for North America.

Volumes. I think that in North America the volumes are coming back reasonably well. I wouldn't say we're looking for a boom here by any stretch of the imagination, and I just meant to put a wrap around in the back of December with what I said, but I think certainly it was not a situation where we saw just a fall-off that we believe is in the business. Now having said that, I think I commented earlier, we are seeing a slow down on the industrial side of the business as the economy slows down. And that we will feel in the first quarter and going forward into this year. We're working to accommodate that on the other side of he business and moving product out of the country, but that's a real situation.

Okay. And finally, you are talking about taking capacity out of the sweetener side, is that something you've already begun or something you're planning to do?

Both, in some instances we've done it already. In some instances we're looking at opportunities to move it in different directions. But at the same time, our volumes on sweeteners are very solid right now, and we have to supply and will supply the customer's needs to make sure that those folks are being taken care of because that's the biggest part of our business right now. So we will not -- we are not going to be aggressively moving away from sweeteners, trying to make changes as we speak in '08. There's still a very strong business out there on the sweetener side.

Okay. Thank you very much. And congratulations again.

Thank you very much.

And we have one final question from Mr. Driscoll with Citi.

Great. Thanks a lot. Just a quick follow-up. Cheryl, is there anything -- I know you don't give the quarterly guidance but is there anything funny with the quarterly pattern that you would expect for '08 that you would want to make us aware of right now?

No, I think at this point it looks fairly consistent throughout the year.

Okay, super. Thank you.

You're welcome.

Thank you. Operator, we have time maybe for one more question if there is one.

Pablo Zuanic with JPMorgan. Please go ahead. Good morning, everyone.

Hi, Pablo

Sam, maybe I missed this comment, but did you tell us what happened with the price contracts on the fixed price side now that you've closed and it was [shaky] season? Was it 10%, 15%? Can you comment on that?

Pablo, we did not say what that was and we tend not give specifics only based on the fact that we have customers that are above it and customers that are below it, so we tried to avoid saying exactly what it was. We tried to accommodate that question in saying the entire book of business that we have in North America was up low double digits. We've said in the past that the price increases in the marketplace were up in the low 20% range, and we said that we felt good in the accomplishment of contracting that we did, but we've never -- we have not this year nor last year gave specifics as to what we actually ended up with the annual contracting.

Okay. Thanks. And just a couple of follow-ups. One follow-up on the last question. Maybe I should know this by now. But in the co-products, is that something that you can sell using futures? Or is that all going to be sold just using spot prices? I.e. could you be making use of corn futures right now to sell some co-products forward?

It's very difficult to do, Pablo. What we end up doing -- Where we can, if in fact we have customers that want to go out for a month or two or three, we will contract with them on a contractual basis -- business contract basis, but there is no market that we can go forward on futures with co-products.

Okay, and just on Mexico. Just give us a sense of the flexibility you have and the capacity on the utilization side in your U.S. and Canadian facilities, because on the one hand we hear you are running at full capacity right, and that the industry has been able to rationalize capacity. And that's good for your negotiating power in terms of pricing, but then if Mexico demand materialized on the high end of expectations where is capacity going to come from? How are you going to respond to that?

I think certainly the issue on Mexico for us would be, we would have to evaluate at least, probably not, but evaluate the expansion or the bottle-necking down there, which we could do if we needed to do and we could put money behind it. Certainly in the regional businesses around the world, there are ways if we wanted to and if the prices were right to be able to get more production out of our current facilities. When you run a facility today, you optimize your costs and that's how we're running right now at the rates you've mentioned. If we decided to throw more enzyme at the product or run at different temperatures, which would cost us more money, we can get more production out. So the balance would have to be that the incremental volume would afford us better profitability in the overall to do it, and that's how we would get more product down there if we needed to.

Okay. But just a follow-up there. I guess I'm trying to think, relative to competitors, if your capacity and utilization in the U.S. and Canada let's say are similar across the industry, and you have a little idle capacity in Mexico, you will have an advantage, but would that be the case that you have idle capacity in Mexico?

No, our Mexican business is running very strongly and I think I commented it's running close to capacity utilization right now with all three plants running well. And if in fact we were to see further conversion in the Mexican market that would further tighten up the North American market which would benefit us, and then we would figure out how we got more capacity out.

Okay. And for me, one last one. Are you compared to say three months ago, are you more or less optimistic in terms of the demand outlook for Mexico. And the reason I ask, I think [PPG] in their last conference call, they said they were not switching to [HFCS], so I'm just trying to get a feel for that on your side.

We have not -- we've seen a number of customers in Mexico switch and we are very comfortable with our volumes in Mexico right now as I said with selling more down there then ever before. So I think there will be a conversion over time because I -- some of the customers were waiting to make sure the border opened up and product was available. So I think you're going to see during the course of '08 more and more customers look for fructose if they can get it. And as we see that happen, as we see people calling up saying we want it, then we will figure out how we get more and I think then we'll see product coming from the U.S. also.

Alright. Thank you.

Thank you very much.

Operator, with that, I think we're going to close down the call. And therefore on the basis there are probably no more questions and so we will go ahead and conclude our conference call and our webcast this morning. I do want to remind everyone that a replay of the webcast can be accessed at our website, cornproducts.com, and there's an audio replay of the call through Friday, February 22nd, and you can call for that at 719-457-0820, 719-457-0820, and a pass code of 3581410, that's pass code 3581410. So, on behalf of Sam Scott and Cheryl Beebe, I want to thank you for participating in our call this morning. And we'll talk to you again in late April with our 2008 first quarter results. Have a good day.

We thank you for your participation, and have a wonderful day.