Ingredion Inc (INGR) 2012 Q4 法說會逐字稿

Good morning, and welcome to Ingredion Incorporated fourth-quarter 2012 earnings conference call. All participants will be on a listen-only mode until the question-and-answer session of today's call. This call is being recorded. If you have any objections, please disconnect at this time.

I would now like to turn the call over to Mr. Aaron Hoffman, Vice President of Investor Relations and Corporate Communications for Ingredion Incorporated. Sir, you may begin.

Great. Thanks, Sue. And good morning and welcome to Ingredion's fourth-quarter 2012 earnings call. Joining me on the call this morning are Ilene Gordon, our Chairman and CEO; and Cheryl Beebe, our Chief Financial Officer.

Our results were issued this morning in a press release that can be found on our website, ingredion.com. The slides accompanying this presentation can also be found on the website, and were posted about an hour ago for your convenience.

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 Ingredion 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 press release, can be found in the Company's most recently filed annual report on Form 10-K and subsequent reports on Form 10-Q and 8-K.

Now I'm pleased to turn the call over to Ilene.

Thanks, Aaron. And let me add my welcome to everyone joining us today. We appreciate your time and interest. Ingredion concluded 2012 with another very good quarter, capping an outstanding year. I'm particularly pleased with our performance in the face of headwinds that included rising corn costs, foreign exchange devaluations, and challenging macroeconomic conditions in a number of markets.

As we stressed on previous calls, and recently at our Analyst Day, the Ingredion business model provides for significant resiliency to these disruptions. Over the past two years, we have realized about $1.2 billion in pricing to account for the rapid rise of our input costs. In 2013, we anticipate the need to achieve an additional $500 million in pricing.

With North American contracting essentially complete, we now have visibility on pricing in our largest region. We believe that these actions appropriately reflect the increase in raw materials that we've seen. At the same time, as a result of operating efficiencies and mix improvements, we expect our dollar spread to increase.

Turning that to the business model, I'll remind you that our products are largely used in key consumer markets like food, beverage, brewing, and even in personal care and pharmaceuticals. Said another way, we sell to industries that are generally stable or growing and are important to consumers.

In addition to serving these staple markets, we thoughtfully mitigate risk at the same time. Those risks include foreign exchange fluctuations and input cost volatility. As our results in our outlook indicate today, we have managed through these headwinds admirably. From an operational perspective, we saw particularly strong results in North America and Asia-Pacific in the quarter and the full year; which, combined, represent about two-thirds of our total business.

In South America this year, we held our ground in the face of a weaker Brazilian economy and meaningful currency headwinds. While we are never entirely satisfied with being relatively flat in a region, I can tell you that the business model and local management did an exceptional job, and performed as we would expect in light of the challenges.

And in the EMEA, as we have communicated to you since the beginning of the year, results were generally down for the year, though we saw some positive signs in the fourth quarter. Let's now take a quick look at each of the regions and their performance in the quarter.

Starting with North America, continuing the trend of strong performance we saw the first nine months, this region delivered another good quarter, highlighted by further volume growth to a variety of industries, including beverage and brewing. Importantly, we covered escalating input costs in 2012, and expect to do so again in 2013. Operating income grew by 46% as result of the good volume trends, improved product mix, and operational efficiencies carried to the bottom line.

It's worth noting that our business in Mexico continues to show good performance, as we are well-positioned to participate in the economic and population growth there.

Our South American business continues to face some challenges. In the face of slower economic activity, rising costs, and currencies devaluing, we continue to price and adjust volume accordingly. In spite of these challenges, we effectively managed through the volatility. For the fourth quarter sequentially, or quarter-over-quarter, the operating income trend improved, giving us confidence as we enter 2013.

Turning to Asia-Pacific, we delivered further volume growth and grew operating income by 31% in the quarter. The results were driven by increased revenues in the food and beverage industries, as well as volume growth, incremental pricing, and lower raw material costs. We've remained well situated to participate in the expected growth in this large, diverse region.

And finally, our Europe/Middle East/Africa region continues to face a variety of challenges that we've highlighted since we first provided 2012 guidance in February. However, volumes were up, and we were able to achieve sufficient pricing to offset higher input costs and foreign exchange headwinds. This all resulted in a 14% increase in operating income.

As I turn the call over to Cheryl for a review of the results, I will reiterate that we remain confident in our business model over the long-term, and are pleased that we've delivered good results this year and are positioned for further growth earnings in 2013.

Cheryl?

Good morning. And let me add my welcome to everyone joining us. I will start with a fourth-quarter financial review, then move on to a brief synopsis of 2012; and last, but not least, the 2013 guidance.

As we discussed on the third-quarter call, we expected North America and APAC businesses to be up year-over-year on pricing and volume, and they were. South America continued to be challenged with slower economic activity in Brazil. Sales were about 4% below last year, primarily due to the weaker real. Despite the lower sales, South America did show improvement in operating income.

EMEA performed better on improved volume and pricing, while the euro and the Pakistan rupee declined. All in all, we met our expectations. We had several items in the quarter that I will point out. We realized the benefit from the continuation of our benefits harmonization plan, and from a land sale in Chile. The impacts on operating income were $4.8 million and $2.3 million, respectively. And on an EPS basis, the impacts were positive $0.04 and $0.02.

We also concluded our restructuring efforts in Kenya and China. The operating impact of these items was negative $8.6 million, and the EPS impact is a negative $0.11, net of tax benefits. The net impact of these items is $0.05. So the reported earnings per share for the fourth quarter were $1.42, excluding these items. The adjusted earnings per share were $1.47.

Net sales were $1.644 billion, up 6% or $96 million versus the same quarter last year. Gross profit increased 19% or $53 million, and gross profit margin expanded 220 basis points, from 18.1% to 20.3%. As I've mentioned before, the quarterly comparisons can be skewed based on how our raw material costs are laid out over the year. For example, in 2011, our lowest raw material costs were in the first quarter; versus 2012, where the lowest were in the fourth quarter. The more meaningful comparison is the year-to-year.

Moving back to the quarter, raw material costs were up versus last year. Other manufacturing costs were up in several areas -- energy, chemicals, and packaging. Operating expenses were mainly up on higher employee costs as a percent of sales. Operating expenses are 9.2%, comparable to last year's fourth quarter.

Reported operating income was up 12% or $19 million. And adjusted operating income was up $36 million. Again, the adjusted numbers excluded the items previously mentioned. Last year's fourth quarter excluded the gain on benefit planned of $29.4 million, and the $10.5 million in integration costs, along with the $3.8 million in restructuring and impairment costs.

Turning to the net sales for the quarter, the pattern of strong price/mix and volume growth continued, as did the stronger dollar impact from foreign exchange. In terms of numbers, price/mix contributed $97 million; volume was positive by $32 million; and weaker foreign currencies were a negative $33 million.

North America's net sales increased 11% or $89 million, on a combination of strong price/mix contributing 8% or $64 million. Volume was positive 2% or $21 million. And foreign exchange was a positive 1%, or worth $4 million in revenues.

South America's net sales declined 4% or $17 million. Price/mix was positive 6% and contributed $24 million. Volume was negative 2% or $7 million. And the foreign exchange impact was a negative 8% or $34 million, with about 80% of the impact in the currencies coming from a weaker real.

Asia Pacific's net sales grew by $17 million or 9%, with volume up 6% or $11 million. Foreign exchange was a positive 2%, worth $4 million, primarily from the Korean won. And price/mix was positive $2 million.

EMEA's net sales were up 6% or $8 million. Volume was positive for 6% or $8 million. Price/mix was up 5% or $7 million. And the weaker currencies had a negative $7 million impact, primarily from the Pakistan rupee.

Operating income on a reported basis grew 12%, from $166 million to $185 million. On an adjusted basis, operating income was $187 million versus $151 million last year, up $36 million or 24%. Raw material costs were up about 2% versus last year, and manufacturing expenses were up in energy and chemicals.

North America's operating income grew 46%, from $74 million to $108 million, increasing by $34 million. Operating margins were 11.7% versus 8.9% last year. Volume, pricing, and high utilization more than covered the increased corn cost. The stronger pricing on animal feed helped mitigate the higher corn costs as well. It's important to point out that the raw material cost layout impacts the quarterly operating income and margins.

Moving to South America, operating income was up $1 million. Operating margins were 15.4% versus 14.5% last year. Pricing actions were enough to cover higher raw material costs, manufacturing, and foreign exchange. This is the only time in 2012 that we exceeded last year's operating income on a quarterly comparison.

Asia-Pacific's operating income grew 31% or $5 million on a combination of good volume, lower costs and manufacturing efficiencies. Operating margins were 11.3% versus 9.4% last year. EMEA's operating income grew $3 million or 14% on better volume, pricing, and lower manufacturing costs. Operating margins were 15.8% versus 14.7% last year. Similar to South America, this is the only quarter in 2012 for EMEA where the operating income comparison to last year was favorable.

Corporate expenses were up $7 million, primarily on higher compensation, legal costs, and charitable contributions. Operating expenses as a percentage of sales were comparable to last year's, at 9.2%.

Looking at the results on an EPS basis, $0.31 is from above the line, and $0.05 below. Margin contributed $0.30; volume, $0.06; and $0.01 from other income; while currencies had a negative impact of $0.06. Below the line, financing costs were favorable by $0.04, on a combination of lower interest expense and higher interest income.

The effective tax rate for the quarter was 33.7% versus the fourth quarter of last year's effective tax rate of 34.2%. Again, the fourth quarter tax rate is a function of what the full year's effective tax rate is. The tax rate used for the adjusted earnings per share calculation is 32.2% versus 33.1% last year. The weighted average shares outstanding on a diluted basis were 78.5 million for the fourth quarter, versus 77.6 million last year.

I will quickly through run through the highlights for the full year. Net sales, at $6.5 billion, are up 5% or $313 million versus last year. Gross profit increased 10% or about $112 million. Gross profit margin increased 80 basis points to 18.9% versus 18.1% last year, primarily reflecting the combination of pricing, cost reductions, high utilization rates, and the North American market.

Reported operating income, at $668 million, is down $3 million from last year. On an adjusted basis, the operating income is up $77 million. Earnings per share on a reported basis increased $0.15 or 3%, and on an adjusted basis, EPS is up 19% to $5.57. The increase in revenues was driven by another year of strong pricing, which on a total Company basis, delivered approximately $377 million in additional revenues.

All four regions maintained strong pricing to cover rising costs. Volume contributions came from North America and Asia Pacific, and in total contributed $136 million. The major currency devaluations were the Brazilian real, worth $122 million; the Argentine peso, $36 million; and the Pakistan rupee, at $17 million; and, finally, the euro at $15 million. In total, the devaluations negatively impacted sales by almost $200 million.

Moving to operating income, clearly the leader was North America. The combination of strong pricing to cover rising raw material costs; volume growth; and a continued focus on driving costs down through operating efficiencies delivered these outstanding results. While operating income in South America was down $5 million, the team was able to minimize the impact of rising costs, devaluing currencies, and the weaknesses in economic activity in Brazil.

Asia-Pacific delivered an increase of $16 million in operating income, or 20% growth. Volume, improved price/mix, and the continued focus on lower costs were the key drivers to the local team's success. Last, but not least, EMEA saw a year-over-year decline of $6 million. Our original outlook a year ago was that given the European economic crisis, the devaluing euro, combined with energy issues in Pakistan, we could have been down significantly more. Again, the local team minimized the negative impact.

Corporate expenses rose by $14 million, reflecting the investment in people, processes and systems to run a substantially larger global business. From an earnings per share perspective, the changes from operations contributed $0.67, or about three-fourths of the improvement. Margin accounted for $0.69; volume added $0.19; which, combined, were more than sufficient to offset the negative $0.26 from foreign exchange.

Other income, which was mostly comprised of insurance settlements, was a positive $0.05. Lower financing costs contributed $0.09, and a lower tax rate accounted for $0.11. The effective tax rate for 2012 was 27.8%, versus 28.7% in 2011. When calculating the adjusted EPS, the tax rate was 30.4% versus 31.7% in 2011. The noncontrolling interest was positive $0.02. Shares outstanding were 78.2 million for both years, resulting in no impact.

When you think about the headwinds in 2012, foreign exchange devaluations -- the real down 17%; the peso down 10%; the euro and the rupee were both down 8% -- economic declines, and rising input costs, the accomplishments of our local teams highlights one of our competitive strengths.

Another one of the Company's strengths is its cash flow. Cash flow from operations delivered $732 million, up $432 million from last year. The major swing is the positive impact from working capital. Last year's working capital increased by $256 million, to support the increase in sales and inventory. The margin account last year was up by $78 million. Compared to last year, we decreased working capital by $33 million, and had no margin account increase.

Capital expenditures, net of proceeds from disposals, for the year were in line with our expectations at $304 million. The dividend payout was $69 million, which is up $19 million from a year ago. Cash and short-term investments on the balance sheet at year-end increased to $628 million versus $401 million last year. Total debt declined to $1.8 billion versus $1.95 billion last year.

And wrapping up 2012, it was another outstanding year, with revenue and earnings growth combined with strong cash flow generation, leaving us in a strong position.

Turning to our outlook for 2013, we expect sales to grow approximately 8% to $7 billion, driven by pricing actions to recover higher input costs -- primarily corn -- and improved volumes. Barring a major devaluation in Argentina, we estimate the currency headwinds in South America and EMEA -- namely Pakistan -- will have a smaller impact on sales than in 2012.

Despite the record high corn prices resulting from the US drought, we expect that our business model will continue to serve us well. We are forecasting modest operating income growth, resulting from strong pricing actions, volume gains, and continuous cost improvement efforts, partially offset by the US drought's impact on specialty corn. We are forecasting 2013 diluted earnings per share to be between $5.60 and $6.00.

We anticipate that our financing costs will remain in line with 2012, and that the effective tax rate will be between 28% and 30%. We are forecasting another year of strong cash flow from operations, assuming minimal impact from margin accounts. We expect to generate $700 million in cash from operations. We anticipate investing between $350 million and $400 million in capital projects.

Looking to our regional businesses, we expect North America to cover the higher corn costs resulting from last year's extraordinary drought. We are forecasting a modest decline in volumes, reflecting the mix improvement initiative which resulted in us shedding some lower value business. We also foresee relatively stable HFCS volumes and expect lower animal feed volume. As a result, we anticipate holding operating income in line with our record 2012.

As in 2012, the quarterly operating income will reflect the layout and hedging of our corn costs. We estimate that the first half will have higher corn costs than the second half. In South America, we expect our business model to hold, and that we will be able to pass through the impact of currency devaluations and higher input costs. We are forecasting volume recovery driven by GDP growth across the region. We are expecting operating income to grow with volume.

In the Asia-Pacific region, we expect to take pricing actions to recover higher input costs. We are forecasting of modest volume growth, as the comparison to 2012 will be impacted by the exit from our Chinese joint venture. The net sales for the joint venture amounted to $23 million last year. We expect operating income growth on improved volume and spreads. We also expect pricing actions in our EMEA region to cover higher input costs.

We are forecasting a single-digit volume increase, despite the ongoing energy challenges faced by our customers in Pakistan. The negative foreign exchange impact is expected to be the result of a devaluing Pakistani rupee. Thus we expect operating income to grow in line with volume and pricing.

All in all, despite the high corn costs -- resulting, again, from last year's extraordinary US drought -- we expect to deliver another year of good results.

I will now turn the call back to Ilene for closing remarks.

Thanks, Cheryl. As I said on previous calls, I'll conclude with our strategic blueprint, which continues to guide our decision-making and strategic choices, with an emphasis on value-added ingredients for our customers.

The blueprint is a good reflection of our successful business model, which enables the delivery of good results in an often volatile world. With a broad portfolio of ingredients sold to many industries across a diverse geographic footprint, we have an enviable position. As you've heard this morning, we were able to achieve necessary pricing to cover input costs in 2012, and expect to do the same in 2013.

At the same time, we are growing volumes. This has resulted in a very robust earnings growth over the past several years, and we believe that growth will continue in 2013 and beyond. At the same time, investors can be assured that we have prudent, thoughtful risk management practices.

In sum, I believe that we are well-positioned to deliver another good year, while always keeping an eye on our future growth opportunities.

And now, we're glad to take your questions.

(Operator Instructions). Ken Zaslow. Please state your company name.

Bank of Montreal. Good morning, everyone. Let me start off, how much cost savings and how much expansion do you expect to add to 2013 from your outlook? Can you give us a little color on that?

Ken, it's Ilene. We don't give those numbers specifically, but I would say that you know that our cost reductions are focused on the capital investments that we've made over the past few years, as well as the process improvements that we are engaged in right now. And it really varies by region.

We've talked about, as an example, in Europe we've added some specialty capacity which will also help us be more efficient there. North America, we talked about our optimization project, and where we moved around some specs during 2012. And so we would be getting some of that impact from obviously those in 2013, and similar in the other regions. But we don't specifically give those numbers.

Okay. And do you have share repurchases in your guidance as well?

I'll let Cheryl answer that.

We have a combination of buying back some of the dilution. As you know, we have an outstanding authorization for our share repurchase program. And we will begin to modestly employ the share repurchase program.

But I would say -- this is Ilene -- that, again, Ken, I always say, as they did at the Analyst Day, that our priority is first to fund our capital project opportunities around the world. We are still looking into the process of evaluating M&A opportunities that create shareholder value. We also, of course, look at our dividend; and as we said at the Analyst Day, we're targeting a 20% to 25% payout in our dividend. And then, of course, share repurchase is an option if we don't find the right M&A opportunities.

Then, my final question really -- I'm sure everybody is going to be thinking about this, too. The guidance, obviously you could drive a truck through it in terms of the size of it. And if I look at the low end of it, what would get you there? Because it seems preposterously low, given that the amount of activity that you have going on in the Company. It seems like there is a lot in your control. So what would go there?

And then on the flip side -- I guess more likely, more relevant -- is given that you beat the last guidance by 9 percentage points which is more than the growth you're actually assuming here, what would it take for you to -- what assumptions would you say are beatable throughout the year that you would expect that $6.00 number to come in much more likely?

To get us to the lower end of the range, we would have to be off on our expectations with the growth in volume; which as I said, Ken, we expect North America to be -- I'm going to call it relatively stable. On a net sales variance analysis, when I take into account the shedding program, which what we've talked about over the last six quarters; the manufacturing optimization and the mix improvement. So there is a bit lower volume coming from that.

And then we had pretty robust animal feed sales, which we don't expect to have in 2013. So the growth is coming from the international arena. So we have to see the economic activity in Brazil pick up. We did better when I look at the quarterly layouts. And, while we don't really get into the country-level specifics, I will say that Brazil picked up as we came through the fourth quarter compared to the previous three quarters.

Clearly not putting a major devaluation into these numbers for Argentina. We are expecting a devaluation, but looking at the 10% to 15% devaluation, not looking for a 50% or more. So, to get us at the lower end of the range, it usually has to be that we could come up short on the volume.

And it's the same thing, year in and year out. If we have been too conservative in forecasting the volume around the world, then we'll get up to the higher end of it.

It is fair to say though, when you say animals going down, the feed -- chickens are actually expanding, hawks are probably going to expand. Are you just saying that guys had extra sales somewhere along there? Or is that -- are you guys forecasting production cuts in the industry there?

No, we're not forecasting production cuts in the industry. If you think about, we are doing a little bit less on the grind relative to some of our shedding programs. And we're not looking for as the same rate of growth that we had last year. It's basically just as we optimize our operations.

Great. I appreciate it.

Okay, this is Ilene. I would also add that we've dialed in some of the growth that's expected in Brazil, and the GDP there getting back to more of a 3% range than it being closer to the 1%. We expect that to be happening; and economic activity in terms of anticipation of the sporting events, so we think that that's all in process. But if for some reason the country had policies that slowed it down, that's something else that might contribute to a lower volume.

Great. I appreciate it.

Heather Jones. Please state your company name.

BB&T Capital Markets. Really quickly, I want to go on your EBIT guidance. Cheryl, in your prepared comments, you talked about EBIT roughly flat year-on-year. But then as we go through the regional outlook, each of the geographies -- you are either saying flat or up. And so, wondering what causes consolidated EBIT to be flat year-on-year?

I didn't say it was flat. I'd say we'd see modest improvement in the operating income. And so, basically, we're looking at holding roughly flat in North America, and everybody else being up.

Not to get too detail-ish, but when you say slight, does slight mean 1%, 2%? Could you give us a range that you are thinking about when you use slight or modest?

When you think about modest growth, I think about modest growth being the 2% to 5%, 6%.

Perfect. That's very helpful.

If everything goes our way, you get on the higher side. And if everything doesn't go our way, you get on the lower side.

Okay. Does your outlook for North America assume meaningful incremental synergies from the National Starch combination?

No, it actually -- we are fully integrated with the National Starch. What we do have is a mix improvement in the North American operations. But we also have the North American operations -- remember, we do a lot of our specialty grain processing here that we ship out to the rest of the world. And so North America is feeling the burden, relative to those specialty grain types. And so the costs associated with growing them are typically higher than the yellow dent number two. And the specialty corn is grown for us in the Indiana region.

And so it has the same issues that the yellow dent number two, so while we got pricing, we still have to be able to move this in the international market. And that's where some of the squeeze is occurring, which is more of a one-year issue.

But we are continuing to employ the cost reduction actions that we took during 2012, and getting the annualization of that in 2013, as I said a little earlier.

We have not given back the synergies.

Right. Not to over-analyze, but would it be fair to say that on the specialty starch side, are you assuming maybe some decline there because of these costs associated with the specialty corn, but actually growth and more of the legacy business? So, net-net, a flattish outlook for North America?

No, that growth is there. It's the issue around the cost side of it, Heather. All right, while we priced for the raw material costs in general, when we get down to the really specifics by a product line -- which is really not the way it that we necessarily report out the business -- the logistics costs, the issues around who you can sell your feed to; and the prices are rounded, because you've got the higher aflatoxin issues (technical difficulty) challenging a piece of the specialty business. And that's why I said it's, for us, more of a one-year issue than anything else.

Okay. And my final question is on North America again. And there's been a lot of concern and talk regarding the gap between corn sugar and regular sugar narrowing, and the potential impact on volumes. Some of your competitors have struck a fairly benign tone on that. And it was sounding like, given what you we were talking about for the volume outlook, that you are not expecting much switching. So I was wondering if you could give a little more color there.

Yes, this is Ilene. Certainly, the gap has narrowed between sugar and high fructose, when you look at some of the area of Mexico. And true, there are some spot prices that seem to have come down. On the other hand, our business has been contracted, and we feel that we could do cover our corn costs and will be able to maintain our volume there. So, we are not overly concerned about any kind of squeeze or volume decline.

I think that North America, as a region, is well-balanced. And that should continue to provide similar results in North America that we've been able to provide before, as Cheryl just said.

I don't know, Cheryl, is there anything you want to add to that?

No, I think -- I kind of like the word benign, but on the other hand I think it really is, again -- compliments to our North American team -- is that they are very focused. They understand that, given the nature of the business, which is a basic ingredient -- and obviously we do have our specialties -- that they have to be able to get pricing. And every year is another nail-biter. I've never had a year where it was not a challenge, and that there weren't headwinds, whether it be in North America or the rest of the world. And the team just does a really solid job of being able to manage that business. So I would say we're looking at a stable market and stable results as we come into 2013.

Okay. Perfect. Thank you.

Tim Ramey. Please state your company name.

Good morning, it's D.A. Davidson. Couple of questions-- I think I heard you mention feed two or three times, and aflatoxin as well. Is that the source of the expected shortfall in revenues from feed, i.e., what volume is appropriate for it? Or is it the higher cost byproduct?

It's primarily the first. There is a piece of the second, but it's mostly the first.

Okay. The outlook on Brazil is pretty important to the 2013. And I wonder how you are thinking about that. It seems to me, over the years that the 3% growth forecast is almost always wrong. It is either 0 or 8, something like that. (Multiple speakers). Are you thinking that there is more volatility there in your forecast than perhaps 3% would suggest?

Tim, this is Ilene. No; I think that when you look at our business in South America and Brazil, again, we are a global ingredient company. And we're serving regional customers and global customers, as an example, in Brazil. And we're serving a variety of industries. So of course the brewing industry is important to us, as is soft drinks in Argentina.

But the processed food industry is growing with the population and the growth of the middle class in Brazil. Bakery and dairy -- these segments all require ingredient solutions. And we take our capabilities from R&D and product development around the world, and we apply them to the local tastes. We continue to be excited about the long-term opportunities, or even medium-term, in Brazil and Argentina and Colombia, the rest of the continent. So we feel good about that.

Okay. And then quickly on the CapEx forecast, can you remind me if there is any lumpy projects in that? Or if that is primarily, as you suggested, cost reduction, maintenance-type items?

No. It's Ilene again. We started some projects in the last year, but we've completed our Pakistan third plant, so that large one is done that we've called that before. We continue to invest in Brazil for all the future growth that we are anticipating, so that is a three-year plan that we announced maybe two years ago. Europe, we're completing some projects.

It's nothing -- no big, large, projects; but the continued investment in capacity in growing areas of the world, as well as cost reduction opportunities. So it's a combination.

Thanks so much.

Farha Aslam. Please state your company name.

Hi, good morning. Stephens, Inc. I want to delve down more into your country-specific comments. And first of all, starting with Brazil, because it is so important to next year. You're looking for roughly 3% growth. Can you tell us how you are thinking of the energy issues that might emerge because of the low river levels in Brazil versus all the sports events that are going to start up, starting in 2013 and going into 2014?

We are not looking at a major issue with energy for us in Brazil. Our facilities are mostly run on co-generation, with long-term gas contracts.

Yes, but I'm just wondering -- because there's concerns that all of Brazil might have energy issues this fall. So it would be similar to what you're experiencing in Pakistan, where it's not an Ingredion-specific issue, but the whole country might have issues with energy.

I can say that I haven't had discussions with the operating team that they were particularly concerned with the energy issue in Brazil. We talk about what's the economic activity? Will people be consuming more beverages? What's the impact coming from the brewing industry? With the real significantly weaker, and has devalued over the last couple of years, will their export business pick up? I think, really, it's been more focused on the economic outlook as opposed to being energy specific.

And we also have five different facilities around the country. So we're not concentrated in any one particular region. So, sure, if there was a regional issue, we are not focused on that. On the same time, we do cover the north, the south, the middle; so we feel like we cover the population.

Okay. And then in terms of sporting events, I think the World Cup is coming up. When we think of your volume growth in light of sports events, should we think it starts up a quarter ahead of time? And is volume up 10% during that sports period? Or is it up more of a 5%, a more moderate rise? We want to try and gauge as we look at longer-term into your earnings.

This is Ilene. When we had our Analyst Day, I know that our head of South America, Julio dos Reis, talked about the big parties in the winter for South America that are coming up. And of course, that will attract a number of people, and I don't really have a percent for that. But the way I think about it is getting ready for the event. And the people that are working in the country, on infrastructure and roads and hotels, and getting ready so that they can accommodate all the different visitors.

And so there is a ramp-up there. And so I don't think that you have to think about it as, oh, suddenly there are so many more people, and you get a 10% spike in one month. But rather I think it's part of the anticipated growth in getting the country ready for the future, and those events. And that's what that 3% is forecasted on for the next few years.

Okay, thank you. And one final question on Asia. It was particularly strong in this last quarter. Could you highlight by country which countries really performed well for you, and what were the drivers there?

The countries performed well; the drivers were, as we indicated in the third quarter call -- and that's one, it was volume and pricing. And the volume came from beverage, food, and a bit of paper -- the industrial side.

(Multiple speakers) And we are enjoying -- obviously, there's opportunities in Korea. And, again, we have a good business there. China is important to us, and there is some growth coming back there. And as Cheryl said, the Thailand -- where we had three facilities, so there has been some opportunity there. So, I think it's generally in the region, it's not in one particular country.

Okay. Thank you very much.

David Driscoll. Please state your company name.

Citigroup. And good morning, everyone. First off, congratulations on a terrific 2012, and the long-term execution of a solid strategic plan. I'd like to ask a little bit more on the guidance for 2013. And, again, you've answered this a bit; but I'd like to try, make sure I understand the low end. Maybe there is a wide range. When you look at the $5.60, that would effectively say, no growth versus what you did in 2012. I think you've been pretty clear that your expectations are that the international side is where you are supposed to get your profit growth in 2013, if it happens.

But on the North American operations, I'd like you to talk a little bit more about the sugar prices and the fructose prices. The USDA has quotations for 2013 HFCS at something like $0.38 a pound, maybe $0.40 a pound on an equivalent basis to sugar prices. And they also quote the Mexican sugar prices at about $0.34 a pound. So it would look like fructose has gone on -- and, again, purely equivalent basis, not wet quotes -- has gone to premium versus sugar. Do you agree with that?

And then why wouldn't you be a little bit more concerned? Maybe the final point, if you work this in on Mexico -- on January 21, there was a major protest amongst the sugar millers, demanding that the government do something. And Ilene, Cheryl and I lived this over the years, of the debacles in Mexico because of the sugar industry down there, and how much power they wield. Are you worried about that at all?

I'll start out and then I'm going to turn it to Cheryl. Look, I think we have very good relations. Our countries and NAFTA has been a very successful opportunity for everybody. And so, sure, you get emotions in different parts of the regions. But we feel confident that it will continue to remain a well-run NAFTA organization in the way our business has operated.

So, again, I think that most of the contracting has really been done. So that is what gives us the confidence that I mentioned earlier, that we believe that we'll have a similar opportunity to ship our volume throughout the region.

Cheryl?

Dave, relative to the USDA numbers, and the percentages and premiums and discounts you were quoting, I would just remind everyone that we don't talk about what we price to our customers at a specific level. And as we've said on multiple calls, and we've said on various Analyst Days, that basically there is annual contracting, which can be firm price; it can be grain-related formulas. And that our customers, depending upon their size and their nature of risk, will determine how they want to enter into contracts with us.

Is the spot price of sugar below -- has it deteriorated the premium that we had talked about, the 20% to 30% that corn sweetener is traded below sugar? Yes. Obviously, that margin has narrowed and come in quite close. Do I think that, based on the contracting outcome, that it actually is trading at a -- sugar is trading significantly better? The answer is no.

And the last component is, there is very little spot business that is done in the North American market. Most of the volume for the product that you are talking about is done under annual contracts.

The second thing is that these are long-term relationships that exist with us and our customers. And while nothing is impossible, the probability of our customers reneging on their contracts is pretty slim.

And last but not least, the beauty of having done the acquisitions, doing the trade-up strategy among product portfolio, is that HFCS as a total percentage of the Company is relatively small, 14%. And granted, it is a larger percent into North America, as we pointed out in the Analyst Day back in November. But, again, the Company's fortunes don't rise and fall strictly on HFCS.

The thing that I find fascinating about the Ingredion business model --and whether it's in the North American market or the rest of the world, is the ability to maintain the spread. And then the additional profitability when there are squeezes like this have to come from the team's relentless focus on driving costs down.

Thank you for all the color. I'll pass it along.

(Operator Instructions). There are no further questions at this time. I'll turn the call back over to the speakers for any closing remarks.

Okay. It's Ilene again and again thank you for your questions. And before we sign off, my few final comments. The Ingredion business model is performing very well and delivering strong results. We believe that our model allows us to consistently deliver shareholder value, which is our clear focus. So, again, that brings our fourth-quarter 2012 earnings call to a close. We'd like to thank you again for your time today. Thank you.

Thank you. That concludes today's conference. All lines may disconnect. Thank you for your participation.