Ingredion Inc (INGR) 2009 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Corn Products 2009 end of the year fourth quarter earnings call. Today's call is being recorded.

At this time, I will turn the call over to Mr. John Barry. Please go ahead.

Thank you, operator, and good morning to everyone. Welcome to Corn Products International's conference call to discuss our 2009 fourth quarter financial results and guidance that we announced earlier today. I am John Barry, Vice President of Investor Relations for Corn Products International. Joining me today to lead the call are Ilene Gordon, our Chairman, President and Chief Executive Officer, and Cheryl Beebe, our 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 are downloadable from our website, and they are always available about 60 minutes ahead of our conference calls. Those of you using the website broadcast mode for this conference call are in listen-only mode. Ilene Gordon and Cheryl Beebe will deliver this morning's presentation.

Moving on to the agenda, Ilene will provide a 2009 overview. Cheryl will present the financials for the fourth quarter and full year with appropriate analysis and flavor, and Ilene will then provide an overview of the business outlook and guidance for 2010 and general strategy update. Following that, we will move on to your questions. As a reminder, our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties. Actual results could differ materially from those predicted in the forward-looking statements, and Corn Products International is under no obligation to update them in the future, or as or if circumstances change. Additional information concerning factors that could cause the actual results to differ materially from those discussed today or on this morning's press release can be found in the Company's most recently filed annual report on Form 10-K and subsequent reports on forms 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 this morning's slide presentation. I will now turn the call over to Ilene.

Thank you, John. I want to start by saying that I am very proud of how our team and business performed in 2009 in the midst of unprecedented challenges -- the global recession, our worldwide credit crisis, volatility in currencies and commodity prices, and uncertainty over volume and pricing strength. While we had no control over market conditions, we remained focus on those elements that we could manage -- We took advantage of our unique NAFTA position in North America to gain plant efficiency, and our operations around the world took numerous steps to reduce or avoid costs. In this challenging environment, we did not neglect the balance sheet. We managed our working capital, reduced our average days sales outstanding, days inventory outstanding, and speeding up the cash conversion cycle; and while we controlled our capital spending, giving priority to projects in support of our future growth.

Our proven business model and prudent management risk policies allowed us to maintain a strong cash position and lower our debt by $322 million. We maintained our dividend and protected our BBB investment rating. We weathered the storm in the first half of 2009 and, excluding the aftertax impact of impairment and restructuring charges taken in the second quarter, remained profitable. In the second half, we benefited from lower corn costs, strengthening foreign currencies, improved co-product values, and volume growth in South America and Asia. In fact, we experienced full year over year volume growth in South America, which is a testament to the strength of our business in that region, and we also saw the rebound of our south Korean business.

As a result, in the second half of 2009, we delivered the fourth and fifth best quarterly EPS numbers in our history as a public Company. I will now turn the call over to Cheryl for a review of the financial results for the fourth quarter and full year.

Thank you, Ilene. The fourth quarter continued the sequential improvement we saw throughout the year. I would like to point out a few things. First, this is the first quarter we have seen positive volume growth in all three regions since the third quarter of 2008. The volume performance was led by strong sales to the beverage, brewing and paper and corrugating industries in all three regions. Second, we saw the major currencies revalue; i.e., the Brazilian Real, Canadian dollar, and Korean Won. Corn oil, feed and meal prices have rebounded a bit from the first nine months. And last but not least, our South Korean business turned profitable.

With that said, let's go to the summary income statement. Fourth quarter 2009 net sales increased 7% over the same period last year on improved volumes and favorable foreign currency translation. Despite an 8% increase in net corn costs per ton, gross profit increased 15% to $163 million from $141 million last year, reflecting the improved volumes and lower manufacturing cost per unit. Operating expenses for the quarter were $66 million, down 1% or 1 million from the same period last year. The operating income for the quarter was up 55% to $99 million compared to 64 million last year. 2008 Q4 operating income included $11 million related to expenses associated with the terminated merger with Bunge. Net financing costs were 6 million, up 1 million from last year. The $6 million reduction in interest expense was offset by a $7 million unfavorable swing in foreign exchange gains and losses. The fourth quarter tax rate was 38.2% versus 17.2% last year.

Changes in the effective annual tax rate are the result of changes in the worldwide tax mix and recording of certain discrete items. Net income for the quarter was up 21% to $56 million or $0.74 per diluted common share compared to $46 million or $0.61 per share last year. Included in the 2008 fourth quarter results was a negative $0.09 per share impact from expenses related to the terminated merger with Bunge. Looking at net sales by geographic segment, we see North America's net sales declined about 2% or $8 million against the same quarter last year, while South America increased 21% or $52 million, and Asia/Africa increased 16% or 15 million, for a total Company increase of 7% or $59 million. The decline in North America's Q4 net sales resulted from negative price product mix of about 4.4%, largely due to lower co-product values, as volumes improved almost 1%, reflecting strong HFCS 55 sales for the beverage industry in Mexico, and the stronger Canadian dollar added 2.2%. South America's 21% sales improvement resulted from stronger currencies, which added about 17%, and 12% better volume, which is grew in every country and was led by the strength in the brewing market. Price mix was a negative 7.8%.

Asia/Africa sales increase of 16.1% resulted from a 15.9% improvement in volume, reflecting improved HFCS 55 sales to the Korean beverage industry and strong start sales to the Chinese paper industry. Favorable foreign currencies were largely offset by lower price mix. Fourth quarter 2009 operating income improved 55% to 99 million from 64 million last year. The 2008 operating income included the negative 11 million impact of costs associated with the terminated merger with Bunge. Operating income improved in every region and was led by a $14 million or 31% improvement in North America. The North American results were largely driven by improved gross profit margin and lower operating expenses. South America's operating income was up 22% or 8 million from Q4 '08 due to better volumes and favorable currency translation. Asia/Africa's operating income doubled to 6 million from 3 million in the fourth quarter of 2008, and reflects the improvement in our South Korean business.

Moving on to our estimated sources of diluted earnings per share, the $0.13 EPS improvement in the fourth quarter of 2009 resulted from solid performance from operations which added $0.39, partially offset by a negative $0.26 from the change in the effective tax rate. Price mix contributed $0.27, offset by a negative $0.13 from co-product prices. Foreign currencies added $0.09 and volume contributed $0.08. Other income/expenses added $0.08, reflecting again the impact of the costs associated with the terminated merger. I will now move on to the full year results. Net sales for 2009 were 3.7 billion, down 7% from 3.9 billion last year, reflecting unfavorable currency translations, lower volumes, and lower co-product prices. Gross profit margin declined to 14.2 from 17.9% last year.

Operating expenses were down 27 million or 10% from last year, declining to 6.7% of net sales from 7% in 2008. Operating income before impairment and restructuring charges was 278 million, down 38% from last year. Financing costs increased 28% to 38 million from 29 million last year. The increase in financing costs was attributable to an unfavorable swing in foreign exchange gains and losses of $15 million, as net interest expense was down 6 million or 16% from last year. Full year net income and diluted earnings per share were down 85% to 41 million and $0.54, respectively, from 267 million or $3.52 per share last year.

Turning to net sales by geographic segment, we can see that the sales were down in every region, reflecting the impact of unfavorable currency translation, lower volumes, and lower co-product values. Unfavorable foreign currencies accounted for 4.7% of the change in net sales. The 2.7% volume growth in South America was offset by lower volumes in North America and Asia Africa, resulting in a 2% decline in net sales. Price mix was marginally down from last year, as 134 million decline in co-product prices offset improved head product price mix in North America. 85% of the co-product decline was in our North American operations.

Moving to operating income by geographic segment, we see that the biggest decline in OI came from North America and reflects the impact of lower co-product prices and weaker volumes. The decline in South America's operating income resulted primarily from unfavorable currency translation. Asia/Africa's operating income declined 56%, reflecting lower gross profit margins, unfavorable currency translation, and lower volume. Looking at the estimated sources of changes in EPS from $3.52 last year to $0.54 this year, we can see that the operational changes accounted for $1.39 of the reduction, $1.11 of which related to lower price mix largely attributable to lower co-product recovery, $0.22 to unfavorable foreign currencies, $0.08 to lower volumes. Non-operational changes accounted for a 12% reduction in EPS, mostly due to a higher effective tax rate and higher financing costs. As I previously stated, the higher financing cost was due to an unfavorable swing in FX gains and losses, as 2009 net interest expenses were down from 2008.

Finally, the negative impact of impairment and restructuring charges taken in the second quarter of 2009 was $1.47. Turning to the cash flow highlights for 2009, we can see the excellent performance. We generated $586 million from operations, reflecting the improvement in working capital and the noncash nature of the $124 million write off of impaired assets taken in the second quarter. We saw a positive swing in our working capital number of $257 million. As we fulfill the business contracts for firm price business, we recovered 242 million of our margin accounts. Our net investment in fixed assets was $141 million. Cash used for financing activities reflects the $332 million applied to debt repayment and $45 million in dividend payments.

Our key metrics show that our return on capital employed in 2009 was 7.1%, down from 13.1% last year. Debt to capitalization improved to 22.8%, down from 36.1% last year, reflecting the strong cash flow and debt reduction. The debt to EBITDA on an adjusted basis for the trailing 12 months was 1.3 times versus 1.5 times last year. Operating working capital as a percent of net sales was 11.6% versus 11.1% last year. On a dollar basis, operating working capital was 427 million, down from $438 million last year. Net debt was 369 million versus $750 million(Sic-see presentation slides) last year. I will now turn to call over to Ilene for our 2010 outlook and a strategy update.

Thank you, Cheryl. As we announced this morning, we expect 2010 diluted earnings per share to be in the range of $2.25 per share to $2.60 per share, an increase of 12% to 29% over the $2.01 earnings per share we earned in 2009, excluding the aftertax impact of restructuring and impairment charges. We expect to invest between $175 million and $200 million in capital projects in 2010.

Approximately one-third of the 2010 investment will be in projects carried over from 2009, including our high intensity sweetener project and expansion projects in Pakistan and Argentina. Major new investments will include growth and cost savings projects. As we look to each of our regions, we expect the North America environment to remain challenging. We largely completed contracting by the end of 2009. We expect higher gross profits and operating income, resulting from better volumes and manufacturing efficiencies. We anticipate lower net sales, reflecting lower corn costs, and a low single digit decline in spread. We expect volumes to improve, largely due to sales of HFCS to Mexico. Our outlook for South America remains positive, and we expect continued growth in the region, led by Brazil.

As economies within the region improve, we expect volume growth, particularly in the brewing market, and price mix improvement with a shift to more specialty products, and we expect currencies to remain stronger than in 2009. We also anticipate higher energy costs due to the increased demand as these economies recover. We also expect improvement in Asia/Africa, driven by volume growth as the region's economies recover. We should see continued HFCS volume recovery in South Korea, and the economics of HFCS 55 versus sugar remain positive. We anticipate an easing of the energy shortage in Pakistan in the second half of 2010. Overall, profitability should improve on lower corn costs and improved plant utilization rates and stronger currencies.

Finally, before moving on to your questions, I want to give you a brief preview of our updated strategy, which we will expand on at our March 23rd Investor Day. As I mentioned on previous occasions, during 2009, we undertook a detailed review of our business. We looked at where we generate our economic profit, the efficiency of our employed capital and our opportunities for growth, and we challenged and tested long held assumptions. While we suffered some volatility based on changing commodity prices, and with 70% of our business outside the US, fluctuating foreign currencies as well, this business consistently generates strong cash flow. Bottom line, we believe we have a good winning business model. Our updated strategy, therefore, will build on our existing business model. We plan to add more focus to product innovation and development activities within specific markets. We will invest to expand our ingredient portfolio and extend our solutions provider position.

Lastly, we recognize that we have some underperforming assets. We will address those underperforming assets, getting them to generate an acceptable level of profit within a reasonable period, or we will redeploy the assets and resources to areas where we can achieve an acceptable return. Thank you. Cheryl and I will now take your questions.

(Operator Instructions). Our first question today will come from David Driscoll with Citi.

Good morning, everyone. This is actually [Cornell Bernett] calling in for David Driscoll.

Good morning.

Good morning.

Okay, great. Just wanted to know, it seems like in your prepared comments that obviously volumes in North America showed a nice improvement from the first few quarters, but it seems like most of the delta there was driven by improved results from Mexico. Just wanted to know, what was your outlook for 2010 in term of the US, in terms demand from both the beverage and the industrial side? And also, what would be your outlook for the direction that utilization rates would be headed in 2010?

Well, I think that in general, we expect a little improvement in North America, the US, more in the second half than the first half. We are not seeing any major signs of growth at the moment. So our forecast is based on some improvement in the second half. And I think that the utilization rates will also be similar to where we are now, as the ability to ship high fructose corn ship down to Mexico is offsetting any volume weakness in the US.

Okay. Thank you.

Our next question will come from Heather Jones, BB&T Capital Markets. And Ms. Jones, your line is open.

Can't hear her.

Ms. Jones, if you are on a speaker phone, please pick up your handset or depress the mute function.

Can you hear me now?

Yes, we can. Good morning.

Okay. For a while you were breaking out and all, I couldn't hear you. So I apologize about that. Just wanted to go back to the US volume question. So just wanted to make sure I understood that currently you are not seeing much improvement in US volumes, but you anticipate some growth in the back half of 2010?

I think the -- what Ilene was saying, Heather, is that for North America, we expect to see volume growth, and that's being driven by the beverage industry. However, in the US, we would expect to see basically flat to down a couple of percentage points in the HFCS market.

Okay. What about overall, including the industrial side in the US? And you're saying expected flat to down a couple of percentage -- is that consistent with what you are seeing right now in the US on the beverage side?

Yes.

Okay. So that's a full year expectation?

Correct.

Okay. And what about the industrial side?

I would say on the industrial side, we also aren't seeing much growth. I mean, it is interesting, if you look at the corrugated shipment data, November and December were rather positive versus earlier in the year. But I think the expectations are for not a lot of growth during the year. So we would expect the -- our sales to the industrial segment not to be growing very much in the US during 2010.

Okay. And going to South America, that volume growth for the quarter was very impressive, and I understand it was driven by -- it sounded like that was broadbased strength on corrugated, brewing, et cetera. Was it -- I mean, is that a fair statement?

It was across the board.

Okay. And finally, on the North American pricing -- the contract pricing -- so the commentary regarding the spreads down slightly -- so essentially, your net corn costs were down, but pricing was down a little more than your net corn costs were?

Correct. Our net corn costs came down, as well as our selling prices.

Okay. All right. Thank you.

And next we will hear from Christina McGlone, Deutsche Bank.

Good morning. Can you hear me?

Yes, we can. Good morning.

My question, on Mexico. Volumes really started to pick up and the outlook for 2010 looks very good. And I remember -- I recall when you had lost that business a while ago with the tax, that that volume has carried a rather high margin. And I was wondering -- I don't know if you can comment on that -- how the margin is on the Mexican business relative to the US and Canada? And then second to that, how much of that is sustainable? Because I think some of the bottlers actually invested in CapEx to (inaudible), so I would think some of that business could maybe last even when sugar prices come down. I wanted to get your view on that.

Christina, I don't think I can answer your question with regards to what's the margin of our Mexican business versus our US. But what I will comment on is that we do concur with the fact they have made investment and can blend at higher rates, and we do believe that over time it is sustainable.

Okay. And -- but Cheryl, would you say if there is still a differential, or could we use back in '02 as a reference, or has it normalized since then?

It is almost impossible to give you the reference back to 2002. The business has changed -- the amount of production, the exchange rate, the price of corn. I don't think I can answer the question for you.

Okay. And then just turning to South Korea, you had the big write off and now it seems like it is recovering. And I am curious, is it just the differential between sugar and fructose that's driving the recovery? Is it short-term, or is there something else going on there that could carry forward?

What we did was we wrote off the goodwill, we did not write off our fixed assets. And you're absolutely spot on, that it is the differential between sugar and corn. We have seen sugar prices, as you know, up at unbelievable levels -- 29 year high. And we have also seen corn abate from where it was back in 2007, 2008. So the economics around importing corn into Korea have improved, and the pricing relative to sugar has turned favorable.

Okay. And then I guess this last question -- thank you for that. The -- in terms of the quarter, when you had given us guidance in the third quarter, what was better in the fourth quarter than you expected in terms of co-product FX volumes, fixed costs absorption? If you could kind of go through, like you normally do, in terms of the swing factors.

Sure. The swing factors we performed better than what we anticipated. It was driven by volume across all three regions; we had slightly better foreign exchange, and we saw a slight improvement in the co-product values. But the big driver there was the volume.

Okay. Great. Thank you.

You're welcome.

Our next question will come from Ann Gurkin with Davenport.

Good morning.

Good morning.

Morning.

Ilene, I wondered if I could start with one of your strategies in terms of product innovation, if you can give us any more detail on which area you are most focused on, or is it across the portfolio?

Well, I think obviously we want to be market focused, and we will talk more about that in March. But we are seeing opportunities in the health and nutrition area just like our customers are. So that would l be a range of products -- sweeteners and starches -- that really address those types of consumers who are looking for a certain profile of sweeteners, calories, and texture. And we obviously have a few products like that now with our GTC area, but we are all going to be looking to expand in those different products. But we will talk more about that in March.

Okay. Great.

(Inaudible) it's a big opportunity.

Okay. And then several times in you all's comments, you have referenced improved manufacturing efficiencies. Can I just get some more details on that, and is that going to be part of the component in 2010?

Well, I think -- one thing I would say is you see the volume up in the fourth quarter. Obviously, more volume helps our efficiencies at our factories, and we run North America as a North American system. So that obviously gives us opportunities to be more efficient. I think as we look at 2010, it is important we have cost efficiency all the time. And so I think both as a function of cost investments that we have made for cost reduction, as well as more volume and throughput, should allow us to have cost efficiencies on the order of 2 to 3%.

Great. That's great. Thank you.

You're welcome.

Christine McCracken with Cleveland Research is next.

Good morning.

Good morning.

Good morning.

You had commented that you had seen an improvement, I guess, in the industrial starch market -- specifically, I guess, in South America. That's a little better than I think we were looking for, and some of your competitors have commented they really hadn't seen that kind of improvement. Just wondering, is there anything unique about that business --

Well, in South America and Asia/Africa, we don't typically see the normal competitors that we would see in the United States. I think it is just the fact that if with we take Brazil, the economic activity is pretty robust, and that helps to drive paper and corrugating; and then in China, it is the opportunity in the paper industry.

On a relative scale, I would say -- Brazil is the bulk of that, I guess, or it's kind of becoming a bigger piece?

On an absolute or on a percentage change? I think on a percentage change, the biggest one came out of China. But on an absolute, because China is so small, it would be Brazil.

Fair enough. And then, you also commented in the slides that you had renegotiated some of your supply costs. I am wondering, could you provide any more color on that? Maybe I have missed that in the past, but that seemed new to me.

I don't think we will break it down into the specific chemicals or supplies. But if you think about coming into 2009, contracts would have been negotiated perhaps 2007, 2008, and just the high price of energy, that would have impacted chemicals and supply costs. And so we have been able to renegotiate those to lower levels in 2010.

So they are annual contracts, I assume, in --

In some cases, they're annual, and in some cases we had multiyear.

And as energy prices go back up, is that a risk, or have you locked them in, then, for 2010?

Well, as we have talked about in the past, in our international operations -- because we do more spot or monthly type of business -- we expect the business model to be able to price to recover that. In North America, which is more of the firm priced orientation, we lock in our energy costs on a year to year basis, and the recovery then depends upon what the dynamics in the market are. We are looking at higher energy costs in North America -- excuse me, in South America and Asia,/Africa in 2010, but lower in North America.

That's great. Thanks.

(Operator Instructions). Our next question will come from Ian Horowitz with Rafferty Capital Markets.

Hi, good morning.

Good morning.

Good morning.

Can you just talk to me a little bit about the US HFCS demand and the continued decline in volumes, when it seems like the rest of the world is looking at this from a sugar to fructose price spread? Are you seeing -- is this a decline primarily because of end products switching from soft drinks into water products or something like that, or is this more a switch from HFCS to sugar? And how much do you think this sugar -- this switch from HFCS to sugar that we have heard about over the last couple of weeks is long-lasting?

We look at the same data that you do, and the data that I have head is that certainly the younger generation has a desire to focus more on water or energy or fruit drinks as opposed to soft drinks. So I think there is some of that going on right now. And then of course, I know that our brands -- the brands from our customers, they're all trying to compete and gain market share, and people use different methods to do that. And so I think, of course, we can't deny the trend that people want to take their calories in different ways and be more healthy. So I think you are going to have a combination of both trends to deal with in that. But when I talk with our customers -- I went to a meeting, and you listen to Coke, they believe they have consumers that -- there are different groups that want their calories and their sweetness in different textures and tastes, and that they want to serve each group. And so therefore, the demand for high fructose will continue to be there, as will demand for other sweeteners, especially those derived, let's say, from the Stevia plant, or those that have other sweeteners profiles. So I think it's a combination, but right now I think it is the younger generation looking for more water and energy drinks.

And when you talk to your customers, and they -- you talked about this switch from HFCS to sugar in the current price environment -- do you understand it that their expectation is that they're going to move that price through to the end market, or they're going to absorb the spread in their own cost of goods and lower their margin?

I would not have that discussion with my customers. So I would not know their intent. I just know they're trying to grow brands. And so I think it depends on the company and the brand and the strategy.

Okay. Ilene, you mentioned Stevia. Can you give us an update on how that's going with you guys?

Yes, well, as we announced, we are building a factory in Brazil to produce the product, which should be online at the end of the year. At the same time, we do have products and samples that we are testing with customers to commercialize. So we are working with many customers to formulate products that will work in their product profile. And so we're excited about what we see in terms of consumers' acceptance and some of the trials that are going on in different food and beverage products.

Okay. Great. Thank you.

Okay. Thank you.

(Operator Instructions). And we will take a follow-up question from Heather Jones, BB&T Capital Markets.

Thanks, a couple of questions. First on the CapEx side, could you give us an idea of what a normalized annualize CapEx rate will be going forward?

I would say -- you're probably looking at $150 million, Heather, assuming that there's continued economic growth. As you can see in South America, we have over the past several years invested -- everybody's expecting Brazil and Argentina and Columbia to have good economic growth, so we will continue to invest in that part of the world. We have talked about we see opportunities in Asia. And there's our North American business, that where there's opportunity for product line expansions, we would invest there.

Okay.

(Inaudible) CapEx is typically around $50 million, $60 million.

And the Cadbury/Kraft combination, are they both customers of CPO's?

Yes, they are. They are both customers, and depending on the region, different variance of strength.

Do you anticipate any meaningful impact from that combination to your results?

No. I mean, we expect to continue to be a supplier to both and help them formulate new products and grow.

Okay. My other question is, this switch from HFCS to sugar that we have been seeing, just wondering if you have a sense of how much of that is being driven by the customers such as Pepsi, et cetera, and how much could be driven by the retailer? And the reason I ask is we have heard that Wal-Mart had had -- that HFCS was something that quote/unquote it wanted to do something about, that the public perception wasn't necessarily positive, and so it was something that it wanted to address and wanted it customers to address, and has since pulled pack from that stance; that it has changed its view on HFCS. So I'm just wondering if you have a sense of how much of this has been driven mainly by your customer's customer as opposed to them, and -- just if you can speak to that?

I would say certainly the FDA has stood by high fructose corn syrup as a natural product. And therefore, I have not heard anything that you've mentioned in terms of the retailers. I do know from what I read that Pepsi obviously wants to position their brand to gain market share versus competitors' offerings in that energy space, and therefore they've made a decision to formulate it in a way to try to beat the competition. But to me, it is all been the image of the brand and the end users that they're trying to attract, and nothing to do with any of the retailers.

Okay. And then my final question is just, we have read recently about Mexico proposing tax increases on beverages and food just to combat obesity, but also as a revenue generator. I'm just wondering, how serious do you view those (inaudible)? Is it just talk, or just wondering your thoughts on that?

Well, of course, we are watching changes in legislation very carefully, but there's nothing that we have seen that we think would have a material effect on us or largely effect our business. So we -- of course, we stay focused on all of this, and NAFTA -- obviously changes are important to us, and we focus on our own NAFTA case, but there's nothing that we have seen that has been alarming.

Okay. Thank you very much.

And next we will take a question from Ken Zaslow, BMO Capital Markets.

Hey, good morning, everyone.

Good morning.

Good morning.

If I look at your 2010 guidance, how much of the improvement is related to the $500 million of gross CapEx spent over the last four years? And in terms of that, how would you -- what type of return on investment capital are you going to get?

Well, as you know, Ken, we are focused on exceeding our cost to capital, which we believe is 8.5%. Dialed into some of the South American numbers are the investments coming online in the latter part of the year. A lot of the return has to do with how robust the economic growth is. We have made investments for Enlighten that doesn't come up -- that's our products in the high intensity sweetener line. That doesn't come up until the fourth quarter. We have the investments we have made over the last several years in modified starches, which go both to the packaged food as well as to the industrial side. And so as economic activity picks up we will get some of that in there.

Okay. Then in terms of the allocation of capital going forward, is there different risk metrics -- are there different return metrics that you are thinking about now, in terms of -- would the new CapEx that you are spending be higher return or lower return?

No. I think they're still in line with our long-term expectations. I think that as we go through the strategy in March, is that there will be the emphasis on a portion going to the organic growth and a portion going to support the product innovation, product expansions, and acquisitions.

Ilene, is this a new era in terms of how much CapEx you are going to be spending for the Company? Or is this a step-up in terms of the introduction of your new strategy of saying, "Hey, we used to be spending a certain amount, now we're going to be moving up to this new amount"? Is that a fair thing to say, or is this just a one step-up and there's nothing to read into the capital spending?

No. We are not going to be portraying a step-up in capital spending. Our capital spending has been similar to depreciation in the past. But I think what you will see is we want to focus on markets, so that we are going to focus our capital on growing markets and growing segments. So of course, you have seen our investments in South America. We expect to continue to do that. We have made investments in Mexico. So we would expect to continue to grow with Mexico. And then, we are look at certain market segments, as I mentioned earlier, in the health and nutrition area, that we would like to be investing both organically and acquisitively in those market segments that will grow above the average.

And then the volume side of it for both South America and Asia? Obviously, they were very strong. Is that -- particularly for South America, is that a sustainable number, or is that just a make up from last year and we are going to see more of a 3 to 5% growth? Or is there something in there that you're seeing structurally improved to get to the double digit levels?

I think that you have got a combination of both, Ken. We have had the impact of the decline starting in fourth quarter of 2008, so call it an easier comp, and we also see continued growth. We have spent a lot of money on our specialty business in Brazil, and so the growth rate should deliver at least a GDP of 3 to 5%, perhaps a little bit stronger over time. Okay.

Great. And then -- my last question, if I may ask the question, I think clients out there would actually get a little -- would ask me. So there's obviously been rumors that the high fructose corn syrup negotiations were down 15%. Obviously, you are indicating that it is not. Can you just give us a number that -- what the negotiations actually were so we can kind of check that off, t hat we can just tell investors?

Well, we don't really state the number. What I said in my speech was that our spreads decline for 2010 was low single digits. So we were able to offset some of the declines.

And when you look at the commentary, we are saying North America we are going to see our operating income up.

No, I agree with you. I just -- I will get the question of, what will high fructose corn syrup prices -- negotiations. And I thought -- normally you tend to give a high single digit, low single digit, something like that, and I figured you would just say mid single digit or high single digit, not the 15% that was rumored out there and we would be done with those rumors. But okay.

I think at the end of day, Ken, part of the challenge is that what we have seen in 2010 is the correlation between corn costs changes and the changes in the selling price. And so it is really more appropriate to talk about spread than it is to say, "All right, my pricing went down and 15%". And I don't know what the basis of the 15%, is because as you well know, nobody knows what customers contract at. What you see in the marketplace is rumors of spot prices opposed to the actual contracted prices that any of the major customers would have.

Great. I appreciate it, and I agree. Thank you very much.

You're welcome.

Christina McGlone with Deutsche Bank has a follow-up question.

Hi, just a follow-up to Ken's questioning. Why did fructose pricing negotiations deteriorate as they progressed if Mexico shipments picked up? And I can understand it happening after [WASD], but it seemed like it happened even before the WASD.

I think, Christine, you have to look at what was happening in the corn market. If you think about the third quarter, prices were down, and then the fourth quarter, prices started to firm up on the corn side, and there was a lot of uncertainty about what was going to happen with this corn crop. Was it going to get out of the the field? Was it going to be too moist? Was it going to have Vomitoxin issues? And so I think that there was just so much uncertainty; and as we have said in the past, when you start to go into tail end of the fourth quarter, even potentially into the first quarter of the following year, pricing tends to get sloppy.

Okay. Thank you.

And Vincent Andrews with Morgan Stanley has a question.

And I apologize if you addressed this earlier, but Cheryl, you just mentioned the quality of the crop. And on the last call, we began to address it. I am just wondering if you have any further insight into how the quality of the crop will affect your operations, if there's going to be any incremental corn needed to make the same amount of sweetener year-over-year, or any commentary you can give on that would be helpful?

I think we're going to be fine. It is a bumper crop, prices are -- have stabilized, and so I think we are fine.

Okay. And then maybe lastly I will sneak in, how are things looking from an M&A perspective? If my memory is correct, there hasn't been an acquisition in a long time. So how are you thinking about that these days?

Well, I have spent a lot of time with the team looking at where we would want to grow and what the opportunities are, and there are many opportunities. I think what's exciting to us is that we have a strong balance sheet, we have paid down debt this year and we are positioned to make investments. And I think you are going to start to see people looking at different deals and making them happen, and really we want to make sure that they are the right things to create the right shareholder value in the right geography and in the right market segment. So when we are together in March, we will talk more about that. But let's just say that we feel that we are in a great position to bring some on and add value and create a lot of shareholder value.

Okay, terrific. I look forward to that conversation in March. Thanks very much.

You're welcome.

And currently there are no questions in queue. I will turn the call over to our hosts for any additional remarks.

Okay, operator. If there are no more questions, we are going to close down the conference call and our webcast this morning. As a reminder, there's a replay of the webcast at www.cornproducts.com, and also an audio conference call replay is available through Friday, February 12th. The number for audio replay is 719-457-0820, and you will need pass code 4656128. Thank you for your participation this morning. Good-bye.

And that does conclude our conference call. Thank you for your participation today.