StoneX Group Inc (SNEX) 2007 Q4 法說會逐字稿

(call in progress) Executive Vice President and Treasurer. Please go ahead, sir.

Great. Thank you, Josh. Good morning, everyone. I would like to welcome you to FCStone's fiscal fourth quarter and year end 2007 earnings conference call. Shortly before the market opened today, FCStone issued a press release reporting its earnings for the fiscal fourth quarter and year end 2007. The press release is available on our Web site at www.FCStone.com.

Additionally we are conducting a live webcast of this call which will also be available on our Web site after the call's conclusion.

During today's call Pete Anderson, our President and CEO, will first provide an overview of our results and commentary on our business. Bob Johnson, FCStone's Executive Vice President and CFO, will then provide details on our financial performance for the fourth quarter. Pete will then conclude our presentation with some closing remarks before we open the call up for some Q&A.

Please note that today's conference call is copyrighted material of FCStone and cannot rebroadcast without the Company's express written consent.

I would also like to remind you that during the course of this call management will make projections or other forward-looking remarks regarding future events or the future financial performance of the Company. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.

It is important to note that such statements about FCStone's estimated or anticipated future results, prospects or other nonhistorical facts or forward-looking statements can reflect FCStone's current perspective of existing trends and information as of today's date. FCStone disclaims any intent or obligation to update these forward-looking statements except as expressly required by law.

Actual results can be affected by inaccurate assumptions including the risk, uncertainties and assumptions described in the Company's filings with the Securities and Exchange Commission. In light of these risks, uncertainties and assumptions, the forward-looking statements in this earnings call may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements you should keep in mind these risks factors and other cautionary statements on this call.

I would now like to turn the call over to Pete Anderson, our President and CEO.

Thank you, Bill. I'd first like to welcome and thank everyone for joining our call this morning. I'm happy to be representing FCStone for its fiscal 2007 fourth quarter and year end results conference call which marks our first year-end as a public company.

As you can see from this morning's release, our fourth quarter and full year numbers continue to show strong revenue and earnings results. Revenue for the fourth quarter of fiscal 2007, net of the cost of commodities sold, is $75.6 million which is up 43% from $52.7 million in fiscal 2006.

For the fiscal year 2007, revenues net of the cost of commodities sold are $257.4 million, a 42% increase from $181.9 million in the year-ago period. Net income for the fourth quarter of fiscal 2007 is $12 million or $0.42 per diluted share, which represents a significant increase over the net income in the prior year quarter of $3.9 million or $0.18 per diluted share. For fiscal year 2007, net income is $33.3 million or $1.30 per diluted share, a 114% increase over the $15.3 million or $0.70 per diluted share recorded during fiscal 2006.

Bob Johnson, FCStone's CFO, will provide additional detail on the Company's financial results in his portion of the call.

At the time of our initial public offering back in March of this year, we outlined a strategy that would be the foundation for the long-term growth of the Company that we have continued to execute on throughout the year. We believe that the success of applying FCStone's philosophy and commitment to new customer segments, industries and commodities that have been identified and developed in recent years is reflected in the significant growth and profitability experienced this past quarter and year. It was a year of both record revenue and earnings with these achievements being driven by the rapid expansion of the renewable industry energy industry in both ethanol and bio diesel.

With FCStone's expertise in agricultural commodities and the energy industry, we believe we are well positioned to assist ethanol and bio diesel producers in managing their commodity input and production risk. Other areas of growth and expansion include natural gas and energy producers and consumers, fuel surcharge risk, weather derivatives, forest products, food products and carbon emissions.

Of course all of this growth and expansion is spearheaded by FCStone's risk management consultant, whose ability to continually react to the changing needs of the customer allows him to identify new products, structures and solutions to manage commodity risks.

With the continued volatility in demand for commodities on a worldwide scale, we have experienced significant growth in virtually all regions internationally. The Company currently has four international offices including those located in Campenos, Brazil; Beijing China; Winnipeg, Canada and representation in Dublin, Ireland.

One of the fastest-growing segments in FCStone is the Campenos, Brazil office where the focus is on the Company's core competency of production agriculture. The other commodities that have demonstrated significant growth in Brazil include sugar, ethanol, coffee, foreign exchange and consulting. While Brazil represents a production side of agricultural and energy commodities, China represents a consumption side of world demand. It is this demand in all industry commodities in regions that has accelerated the need for commodity risk management services and products that FCStone provides.

As I alluded to earlier, FCStone's risk management consultants are the cornerstone of our business. They are responsible for developing customer relationships, analyzing the commodity risk of our customers, developing strategies to mitigate this risk and executing these strategies at the direction of the customers.

Furthering our growth avenues we continue to reassess and develop our training program to address new and developing product in industries that have growth potential with several new industries coming into focus during 2007 alone. To give you an example of how we intend to continue properly servicing these new growth opportunities, we point you directly to the success of our training program.

In fiscal 2005, we hired 10 new commodity risk management consultants to develop their knowledge base of the business and how to consult on mitigation techniques through a two-year training program. Today nine of those trainees have become respected consultants working in various industries and market segments throughout the Company.

In fiscal 2007 we hired and placed in the training program additional 14 trainees and are excited about the opportunity to help bring them to the next level. In the past fiscal year our total number of consultants and trainees increased from 102 at the end of fiscal 2006 to 118 at the end of fiscal 2007.

In the two fastest-growing segments of the Company, the Renewable Energy division added four new consultants to their group and the Brazilian division added six consultants. As the Company continues to grow we will increase the number of consultants in order to service the various market segments around the world. Through the addition of acquisitions, new hires, and our training program we expect to add an additional 20 consultants in fiscal 2008.

The growth of the various industry and commodities initiatives this past year has been driven by the unprecedented volatile market environment we are operating in. The demand generated by the growth and expansion of the renewable energy industry has resulted in both the largest increase as well as the largest crop of corn production in U.S. history at an estimated 13.2 billion bushels which compares to a previous high of 11.8 billion in 2004.

This record supply of corn is also being met with record demand from not all we the renewable energy industry, but also from worldwide demand and consumption. This is driving the extreme volatility that the entire grain complex is experiencing and the increase volume that FCStone benefits from.

In the Energy complex, the crude market has established new record highs with unprecedented premiums relating to political risk. Driven by this increased volatility and the strategic markets and segments that FCStone has targeted, we anticipate continued growth in demand for the Risk Management Services products and platforms that the Company provides.

Other areas of interest to our shareholders that occurred during the fourth quarter would include the loss of funds and the collapse of the Sentinel organization which were recognized in our fourth quarter of fiscal 2007. As a result a comprehensive review of all investments within the FCStone portfolio was concluded after incurring the Sentinel loss, and we are confident in saying that all investments are currently being made in AA or better rated instruments. While the collapse of Sentinel due to the credit crisis back in August was unfortunate, we remain confidant that we are protected and hedged against any similar situation occurring at some point down the road.

Interest rates have softened recently, but that weakness should be offset by growth in customer funds and direct hedging of interest rates.

Moving to another area of the business, the green diesel bio diesel plant is going through an equipment upgrade to increase production to design capacity. This upgrade should be completed in the next four to six months. [FCO2], which is our carbon platform, has concluded the due diligence process on our first carbon credit transaction and we will withdraw funds from escrow on that transaction in the near future. Several of the technology initiatives in the carbon space are being rolled out to our clientele as well.

Before I turn the discussion over to Bob to review the financial metrics, I would like to make a comment about our growth and financial goals. FCStone's growth initiatives continue to be implemented and accelerated due to the added financial capacity the Company now has following our successful IPO. The continued expansion of areas such as renewable energy, international markets, food service, weather, livestock, forest products, carbon credits and foreign exchange is being accelerated with the addition of experienced consultants, trainees and intern participants.

We are currently involved in talks with a few companies in the consulting and clearing space regarding potential acquisitions. These acquisitions would be small in nature and would be complementary towards our current business model. Should these come to fruition it will happen over the next six months. We are always looking for smart controlled additions to our Company and business, and we will continue to remain optimistic if we identify any acquisitions that make sense strategically and fit into our overall business goals.

Many of the initiatives of the Company implemented over the previous six to seven years are just hitting their stride. In particular, the International effort has experienced the fastest growth in the Company while the Renewable Energy group manages a large segment of the independent producers in the ethanol and bio diesel industry. Our Clearing and Execution business also continues to benefit from the consolidation of the industry and the other targeted area that is a process of education in customer development. We see that education process accelerating in food and dairy services, weather fuel surcharge, carbon and foreign exchange.

The Company has gone through a spectacular pace of growth over the last few years with the momentum seeing carrythrough into our fiscal 2007 results. Utilizing our network of risk management consultants focused on delivering relationship-oriented, independent consulting risk management services to our clientele will enable FCStone to maintain an aggressive pace of growth. That growth will come from our mature client base as well as the underserved markets that we have identified both domestically and internationally. The Company will continue to leverage its agricultural and energy experience into renewable energy, food service, manufacturing and processing, commodity consumers, transportation, weather and international market participants.

With that I would like to turn the call over to Bob Johnson for a financial review of the quarter and the year. Bob?

Thanks Pete. As Pete mentioned, we are pleased to report another quarter of strong growth, which is reflected in our fourth quarter results.

Just to reiterate, our fourth quarter revenue, net of commodities sold was $75.6 million compared to $52.7 million in the prior year, which was an increase of 43%. Our pretax income was $19.2 million for the quarter compared to $6.4 million for the same period last year. Without the several onetime or special items noted of $1.2 million, our pretax income would have been $18. million for the quarter compared to $6.4 million in the same period last year. Furthermore, our net income was $12 million for the fourth quarter this year or $11.2 million without the special item, compared to $3.9 million last year.

Now let me take a few minutes to talk you through the main components of this quarter's results, starting with the $23 million net revenue increase.

First, commissions and clearing fees are up 12.4 -- $12.5 million or 40% with approximately $7.6 million of this increase coming from exchange trades, and the other $4.9 million of this increase coming from our [Forex] commissions and clearing fees.

Next our service consulting and brokerage fees, which are primarily our over-the-counter product brokerage fees, were up about $9.7 million for the quarter over last year approximately 43%. The bulk of the increase this year was in our renewable fuels, weather and Brazilian operations. Our interest income was $11.8 million, up $3.9 million from last year of which $3.3 million came from our C&RM and clearing execution segments with the balance mostly from our Financial Services Repurchase program.

Of course most of that program's interest income is offset by interest expense in the program.

The big increase in the C&RM and clearing execution segment interest was related primarily to much higher customer [seg] funds and over-the-counter customer margin deposits that we are caring. Our total balance sheet assets were over $1.4 billion at August 31st, '07 whereas last year on August 31st they were just over $1.0 billion.

Also as we no longer consolidate our grain merchandising business, such fourth quarter net revenues for '07 from that segment were $5 million lower than last year.

As we look at total expenses, our expenses net of cost of commodities sold increased approximately $10.4 million for the quarter over the same period last year. Of that increase revenue volume-related variable expenses of broker commissions and benefits, fit brokerage and clearing fees and [IB] commissions accounted for approximately $11.7 million of that. Interest expense was lower by $500,000, primarily due to the sale of our majority interest in our Grain Merchandising segment that we now no longer consolidate.

Such Grain Merchandising segment also had about $3.9 million of noninterest expenses in the prior quarter and none in this quarter since we no longer consolidate it. Professional fees this year were higher due to the Sarbanes Oxley compliance efforts and work in the carbon credit area.

As we noted we had several onetime or special items in the fourth quarter. First we sold part of our ownership in FGDI, our Grain Merchandising segment, and realized a previously announced onetime pretax gain on that sale of approximately $2.6 million. Next we had the previously announced Sentinel loss, pre-tax loss of $5.6 million. Then as a result of the Chicago Board of Trade CME merger this summer we had a 3.7 million pretax gain on the sale of CME stock we owned in excess of our required holdings.

Finally we had a $500,000 pretax gain from the onetime dividend received from our CBOE trade stock prior to the merger with the CME. The effect of these items netted to a pretax amount of $1.2 million and an after-tax net income of $0.8 million.

Additional excess CME stock and CBOE trading rights were sold in the first quarter of fiscal '08 at a pretax gain of approximately $2.8 million. It is our intent to sell any significant excess exchange stock above our required amounts needed for clearing.

We'll next look at our two main business segments, our C and RM Full Service segment and our Clearing and Execution segment. The C and RM Full Service segment generate operating income of $19.1 million before the special items and $14.9 million after the special items for the quarter, compared to $6.2 million last year. This segment benefited from increased commissions and clearing fees with that increase coming from our Forex commissions business. Our over-the-counter revenues were also up significantly as we noted earlier.

Net interest income was up $2.7 million primarily as a result of much higher customer funds and over-the-counter customer margin deposits as interest rates were pretty comparable this year to last year. You can also see the segments income margins continue to be very favorable.

Our Clearing and Execution segment had an operating loss of $1.2 million but an operating income of $4.4 million before the onetime Sentinel loss, compared to 2.5 million in the prior year. This segment had a 44% increase in commissions and clearing fee revenues and also higher interest income as a result of the higher customer seg fund balances.

Reviewing our balance sheet our total assets were $1.42 billion at August 31st, 2007, up from $1.06 billion at August 31st, 2006. This $360 million increase was primarily due to several things. But we had approximately $235 million in additional customer seg funds. We had $100 million from additional OTC customer margin and accounts, approximately $25 million from our Financial Services Repurchase program, and approximately $53 million from our IPO after the related stock redemption and debt repayment.

As we no longer consolidate FGDI, our Grain Merchandising segment, this has reduced assets by about $75 million from the prior year. The primary reason for most of these increases was a significant current year grain and energy market rally, continued commodity volatility, and the resulting increased trading volume of our customers this year, especially in renewable fuels, energy and Brazilian area.

Moving onto several additional items in the fourth quarter. On July 10th, the Board of the Directors approved a 3 for 2 stock split that was distributed in the form of a 50% stock dividend in September '07. The split increased the number of shares of [SE] common stock from approximately 18.3 million to approximately 27.4 million.

On August 8th, we announced the pricing of our secondary offering of approximately 2.8 million post-split shares of common stock at a $33.50 per share post-split price. All of the shares were sold by pre-IPO stockholders of FCStone and none by current members of the management team.

Also in the fourth quarter the Board authorized the establishment of SEC Rule 10b5-1 stock trading plans for officers and directors of the Company. Depending on the stock prices these plans will allow the sale of from zero to approximately 20% of such individual officers and directors holdings and options over the next year.

Finally as you may have seen in a separate release this morning after 20 rewarding years at FCStone I am retiring as Chief Financial Officer effective with our annual meeting in January 2008. I've greatly enjoyed my experiences here at FCStone as well as the opportunity to work with Pete and our many fine employees and Board members. I have worked closely with Bill for the past seven plus years and I know he will do an excellent job.

While I no longer will serve in the capacity as CFO, I very much look forward to continuing my involvement with the Company on an advisory basis.

With that I will turn it back to Pete for some concluding remarks.

Thank you Bob.

FCStone looks forward to building upon the momentum generated over the previous year and we intend to leverage the industry dynamics that are in place to drive our volumes and the growth of the Company in the future. While we are still very early in our tenure as a public company, we are excited about the possibilities that we see in our target markets and reiterate that the best is yet to come.

We continue to demonstrate our value to our clients service and products provided by our network, risk management consultants and their ability to utilize the various platforms available to them. This in turn facilitates the development of long-term partnerships with our clientele in managing their commodity risk.

Finally we are excited about the fact that the initiatives that have been implemented over the past several years in renewable energy, the international effort, food service, livestock, forest products, foreign exchange and the fuel surcharge are beginning to hit their stride and have allowed us to offer expanded product services and instruments to both our current and new clientele. We believe that this is clearly reflected in our sales profit and volume growth.

As a result of our key growth initiative the Company is well positioned for long-term success and to increase shareholder value.

Finally, I would like to thank Bob Johnson for his contributions to the success of FCStone over the years. I've greatly enjoyed working with Bob as we have watched the business grow and that said I'm glad he is sticking around the Company for a while in an advisory capacity and I look forward to engaging him in the future.

This concludes our prepared remarks. We would now like to open up the call for questions. Operator.

(OPERATOR INSTRUCTIONS) Mike Vinciquerra. BMO Capital Markets.

Congratulations Bob. We're going to miss you and certainly good luck. Bill, you certainly deserve the opportunity.

Wanted to just ask, dig into the volumes a little bit. The volumes were incredibly strong during the quarter and when we compare you guys to the various markets that we think that you operate most frequently in -- the [BOT], NYMEX in particular, you certainly outpace the volume growth we saw there through August. So can you give us any more detail on what clients you are seeing trading more? What percentage did Brazil make up in terms of the growth in the quarter?

Then maybe, Bob, if you can dig into that $4.9 million Forex just to give us a sense for how that compared to last quarter?

The exchange -- the one item on the one Clearing and Execution segment, you know we picked up a couple of very large kind of lower rate customers that have added to that volume. So I think you'll see our average rate there dropped just a little bit. But that's certainly helped our volumes considerably. I think that looks pretty promising for going forward.

The Forex trade, I think I noted were -- .

$4.9 million. I wasn't sure if that was all incremental or if that was year-over-year.

Yes, that was year-over-year increase.

And this is really just your (multiple speakers)

Sorry, quarter-over-quarter increase.

Quarter-over-quarter. So I just -- that was your U.S. clients hedging their Forex risk or was it the Brazilian clients who are trading on U.S. exchanges hedging the risk there? I'm not sure where that's coming from.

That's not really our full-service risk management customer so much as more of an arbitrage on more speculated customers trading in Forex business.

And is there any reason to think it that portion of the business may fall off and that this was just an exceptional quarter?

I wouldn't doubt it might drop off a little this quarter, but it's been pretty good business for us. And we continue to try to play it into more aspects of our Company. But it probably fluctuates more than our other business.

Very good. Just one other question and I'll jump back in queue. On the margins looked like about 24% pretax margin if I'm calculating it right. How much of that related purely to the FGDI coming out and are we still kind of expecting -- and, obviously, the volumes help -- but how much should we be looking for going forward? Still shooting for 19, 20% type of pretax margin or is that the bar now being raised?

I can't look at it (inaudible). I look at it by segment. On our commodity and risk management side, I think for the year, we were probably 33%. I think we probably anticipate that can probably move up a little bit with the over-the-counter business growing so significantly. It'll probably be hurt a little bit if interest income drops off, but I think that's going to be kind of mitigated a little bit as we anticipate getting higher open positions.

And then on the Clearing and Execution segment, you know, that's a lot more direct to the floor and electronic type business. And I think that was around 14% for the year and that I don't -- I think we are going to see some nice volume growth in that area, but I don't think the margins are going to quite change, change too much in that segment.

So with about two-thirds of our business on the full service higher margin business, I think we could see a little increase there.

Great. That's helpful. Congratulations, guys.

Mark Lane with William Blair.

Good luck, Bob, and congratulations, Bill.

First question is on the interest income line, the -- are all the gains in that line, so that they net 1.2 million? On a consolidated basis when you look at that -- the total $11.8 million.? 11785?

No. The $1.2 is in other.

What is in the net 1.2 million as in other?

That was the $2.6 million gain on the FGDI stock sale. The $5.6 million loss on Sentinel. A $[37] million gain on the sale of CME stock and a $500,000 dividend on -- from the Chicago Board of Trade part of their merger.

It's all in Other?

All in Other.

So the Grain Merchandising business that was sold, was that in the consolidated numbers at all anywhere? So that wasn't an interest income at all?

Not for the fourth quarter. We consolidated it in for the nine months we owned it through May. We sold it -- well, we sold our majority interest of -- we had 70% and we now have 25%. And so starting June 1 for the fourth quarter we didn't consolidate any. We just picked up 25% of their earnings and for our year-to-date numbers the revenues, the gross revenues and expenses for the nine months are included in the year -- the full year but like I say that -- .

So nothing onetime in interest income? That (multiple speakers) million.

Yes, right.

Pete, can you talk about what sort of impact some of the pricing pressure on the ethanol industry has had in terms of signing up new clients or how some of your current clients are reacting to that? Is that -- do you see that as an obstacle to growing new clients in that business as we go through a little bit of a shakeout there?

No. I think with the compression of margins there's been a real slowdown, and I think plants that were intended are trying to access funding and there's been a number of those that have really been put on the shelf. Those plants that are under construction and are funded will be completed, and we will capture a significant piece of that this is going forward.

Then I think that those have been in business over the last few years continue to ramp up there. There are understanding and utilization on the various instruments and structures that are available to lock in as much margin as possible. So we will see. I think will see continued growth just organically within the customer base that we have. And we have a substantial number of clients that have committed to working with us both in ethanol as well as in bio diesel, as those plants are completed construction and start processing.

So at least in that near-term maybe that's -- has it actually increased demand for your services? Given -- .

I think to some degree. The risk is substantial and there are a number of alternatives to really manage that risk. But it's really a matter of having working capital and the wherewithal to take advantage of the structures that can be put in place, and really an educational process of developing the expertise of that client or that specific plant so they are comparable with putting that position or that strategy in place. And we continue to do that on an ongoing basis.

Okay, and last -- two quick last ones. First of all we're pretty far through the fiscal first quarter. At least, qualitatively, can you comment about the tone of business or the momentum in business in the first quarter so far? Has it slowed meaningfully or is some of the same trend continuing? And second, on the hiring of the 20 new consultants for '08. What is the goal on the timing there?

First fourth quarter was a spectacular quarter. We were hitting on all cylinders from all regions and product lines, and we anticipate this first quarter will be good. But it's following a pretty spectacular quarter.

As far as really the volumes going forward, I think we said before if you really look at just the supply and demand in the fundamentals that most of the industries that we deal in, I think that really shows to some degree what potential there is in this coming year, specifically in grain as we talked about corn with a record harvest of 13.2 billion bushels of corn. We anticipate that will be traded over the next 12 months.

We have seen though I think and the industry has seen to some degree a slowing of some volume in the ag product from the standpoint, and we see this traditionally through our history as -- as you see higher prices, higher volumes and producers or farmers taking advantage of those. There's a slowdown in selling, based on really tax issues, those candidates.

But the seasonality to some degree is still the same. High volumes in the fall and liquidation throughout the year. We continue to see substantial volatility in the energy markets and, really, almost all the markets that we deal in and continued volumes. Volumes have been good.

As far as the addition of consultants, it's really a matter of identifying experienced individuals that we think fit our philosophy and model, and bring those on, really, as we find them. And we are in the process, we're talking to a number of those individuals even now. We will ramp up our training program again this next spring and bring on somewhere between probably 10 to 15 trainees as we go through the year. And then through I think through acquisition of groups of risk management expertise that we think really fits our philosophy and model, and we'll also look at acquiring that as we go through the year.

So it is going to the process I think really through the entire fiscal year as we move forward.

Christopher Allen with Banc of America Securities.

Congrats, Bob, and good luck.

I just wanted to ask Pete, you mentioned that there's a substantial number of clients to come on from the new production in ethanol coming on. Came you just give us a sense in terms of what your penetration into the current ethanol industry is? And then what the potential impact might be for the new clients?

I think, you know we've estimated that traditionally over the last two or three years we have something approaching 40, 50% of the independent producers in the ethanol industry work through us. And as substantial or new capacity comes onboard or starts production, our hope is that we maintain at least that percentage or approximation of that, and we think if anything, that might even increase as long as there's new production comes on what will come on.

In the bio fuels area, we think we've got a pretty large percentage of that market as well, and especially those plants that are coming -- will be coming onstream and under construction right now. We anticipate that percentage or greater as we move forward.

Then, just turning to Brazil. If I remember correctly in the last conference call you said you had about 22 consultants down there and about 11 were actively producing. Obviously it contributed to your growth this quarter.

Was that driven more just by the new contributions from the consultants coming on, or just the existing consultants producing more as businesses continues to pick up there?

A little bit of both. The experience we've had down there is, really, as the consultants really are educated and they are qualified really go out and develop the business. The business really comes on pretty quickly and we are -- overall, I think we are up to about 25, 26 total employees with consultants basically, I think, approaching close to 20, counting trainees and full-service consultants. And we really see that ramping up pretty significantly.

Faster in Brazil probably than here domestically as far as the trainees and the new consultants, just because of the significant demand down there for our expertise and education process.

And then just -- where is Brazil as an agricultural economy in terms of utilization of risk management products at this point in your estimate?

I think as mature as the U.S. market is in agriculture, I think to some degree it's stepping back significantly as far as expertise across the industry in general, especially at the production and the commercial handling level. I think that's why we have been really successful down there is really to a large extent going back to our roots and developing that business. So there's a significant opportunities for growth. In fact, I think we are really just scratching the surface as far as the commercial side of the ag industry and grain in particular.

Then I think even beyond that, the real opportunities have been and to some degree of surprise, has been the other soft commodities. Sugar, coffee, those commodities. To some degree I think that is just the philosophical approach that we take, where it is really looking to manage risk and maximize the margin as far as the process of those commodities. And we are getting pretty substantial traction in those commodities as well.

One final question. You guys talked before about managing your (inaudible) potentially there going farther out into curve or utilizing swap products, for example. Have you take any actions to offset the kind of the current rate levels or should we kind of just expect the yields so to speak to mirror where rates are currently? Looking forward?

We've taken some action. Hindsight is worth 20/20. You always wish you did more than what you had, but we have taken some action. I think between that and really just the growth in seg funds we should hopefully hold our own to a large extent.

Great. Thanks a lot guys. Congrats again, Bob.

Chris Donat with Sander O'Neill.

Just on the foreign exchange side. I think in the past couple quarters, if I have this right, the revenues from those foreign exchange commissions were about $3.5 million and this quarter up $4.9 million. Have you seen new customers participate in foreign exchange or is that current customers becoming more active?

It's really two segments. Part of the growth has been on what we term, probably, retail side of the business and that has been new customers. And I think you'll see that those volumes increase and fluctuate to some degree. Then on the other side on the commercial side which is, really, in the CRM side, we have seen a pretty substantial growth in FX as well, there in Brazil and other international markets. So that side, I think, will be to some degree more predictable where from the retail perspective that's not as predictable.

Are these roughly 50-50 right now? Or is it tilted toward one as far as who is contributing more in terms of revenue?

At this point significantly greater in retail.

So we can expect it to continue to be a pretty volatile number there?

Right.

Okay and then one thing you had said in your filings when you came public was typically your seasonality, typically your best quarter in terms of the sequential growth is in the November quarter. Given the growth we've seen in August do you think we can expect seasonal -- the seasonal trend we saw a year ago to continue? Or do you think we are just in a different world now?

I think to some degree we are like I said earlier, Chris, the fourth quarter was such a "perfect storm" for us in basically all the commodities and all the industries and regions really around the world that we are dealing in, that it was a pretty spectacular quarter for us. So to match that, so much of it is going to be dependent on volatility in the markets and we've got a huge corn crop coming on and a pretty substantial demand for that going forward. But it -- to a large extent, it's going to be dictated really by volatility in the markets as we move forward.

I guess just the last question. Given your exposure, growing presence in Brazil do foreign currency risks become a bigger issue for you on a corporate level? Not just commissions, but that's something you are going to have to start hedging here or (multiple speakers) ?

For all practical purposes most of the business has really done here in the U.S. and is dollar-based. So there is some risk but it's pretty minimal.

Thanks for answering the questions and congratulations, there.

James [Ree] with KBW.

I think we'd be much covered much of the bases here. Just wanted to ask about some of the traction you are seeing in, let's say like the IRMP accounts. Some of these recurring revenues that you might be seeing, and is there -- ? I don't know if you ever spoke on this before, but is there any kind of translation to how much volume these accounts are doing and what they're doing and what kind of demographics we are seeing from these guys?

The IRMP program, the real I think advantage for our client as well as us as an organization is it's really an educational program that ramps up the expertise of the client, utilizing the development of that risk management strategic plan, initiating that and then really accounting for it and providing that accountability. We do almost by account see that it does accelerate the transactional side of the business, because you are educating that customer or that client. And to some extent depending on the volatility of the industry, that's either accelerated or it slows down depending on, really, the need or the demand to manage that risk.

And to some degree by product line we see it ramp up quicker, but -- and a good example of that is to a large extent virtually all the -- to a large extent, the bulk of our accounts in Brazil are on our -- are on the IRMP program. And that's one of the reasons I think that they ramp up significantly faster.

Just (inaudible) your OTC derivatives volume. I mean, you guys had really great quarter this quarter, and I was just curious is there any seasonality in that? To my understanding, I think a lot of what is OTC is agricultural?

No, not necessarily. It's pretty evenly split across ag products as well as the energy side of the business. The only real seasonality I think you see to it is maybe the seasonality of energy products and/or maybe harvest, that kind of thing. But even that has flattened out considerably where you've got the consumption side as well as the production side of most of the markets that we deal in.

As for the quarter, great, guys.

[Brian Gibson] with [Eber Jones].

With your growth rate hiring these consultants is there any talk of a future dividend that Stone would pay on its common stock?

We just had that discussion last week at our Board meeting and after discussions with our investment bankers and what not I think currently we are kind of going to forego a dividend as we are more of a growth company and not pay any for the time being. Just use it for increased shareholder value.

If these consultants are really the cornerstone of the Company, how difficult is it to hire and train these people? Is it difficult to find them?

The key to it is finding individuals that really have the temperament and I think the talent to really build relationships and communicate with the client base. We can develop their expertise from a risk management standpoint. But they have to have the personality and really the fire to go out and build the relationship and [the deck] of business.

So that's really the talent in finding that kind of personality. Our expectation is that as we move forward, the more seniors consultants we have and those that are willing to mentor the trainees will accelerate that pace or that growth in, really, the total universe of consultants. And it really comes down to identifying the personality and as we see those, we will try and acquire them as a consultant.

Who is your biggest competitor?

I think to a -- if you look at the transactional side of the business there's a number of competitors out there in the market. When it comes to the consulting side of the business, I think most of the firms that we compete with on a transactional basis on a day-to-day scale have one or two people with that kind of experience or the ability to really look at risk and quantify and manage it. But from the standpoint of the capacity that we bring to the table, I don't know that we have someone out there that has that kind of capability or capacity.

With that said, then, you talk about acquisitions. It sounds like you are in a niche market. You just compete -- you're just talking to people. The more people you talk to and educate the business grows from there. Would -- is there somebody looking to maybe -- trying to acquire FCStone?

That I don't know.

Has anybody approached you or can you say?

No one's approached us.

What happens if the ag and energy comes to what might be considered more normalized -- a more normalized environment? What would be your engine for growth if prices adjusted to more or normalized? I don't think I answered that question right but I mean we've got extreme volatility and it's certainly to your advantage but what happens if the ethanol plants dry up or energy goes or oil goes back down to $40 a barrel?

I think over time, like I said earlier, it's really an educational process of developing that client or that customer's expertise in managing risk. Once they recognize that they're really utilizing these instruments to capture a margin or capture a price specifically, then you're really managing the supply and the demand or the -- really, the production on an annual basis. So the volume continues to be experience.

It's when you really see significant volatility in the market that you'll see where people go out and price one, two, three years of either production or consumption and trade in and out and around that from an arbitrage standpoint. But the normal cyclical utilization of these instruments would continue year after year.

Mike Vinciquerra.

I just wanted to follow up on something, Bob, you had mentioned about the growth in volume. You said that several new large clients came on at lower rates. Is there any other detail you can provide us there? Two things. Number one, is it only on the Clearing and Execution side? And are these more along the lines of professional trading groups which is an area you've had some strength on that, on the Execution side before?

Yes it's a -- those couple of larger ones, higher volume ones are entirely in the Clearing and Execution business. They are kind of former FCMs. Or non FCMs now. For whatever reason, I'm sure with all the other compliance capital aspects but doing -- just started up here in the fourth quarter and doing some fairly significant volumes.

Is there a particular thing you can point to us to why they chose you because, obviously, as you just mentioned and I think Pete mentioned there's dozens of major competitors out there. What -- do you have an idea what drew them to you? Was it just previous relationships?

Yes, I think to a large extent it's previous relationships and even from the standpoint of from a clearing perspective we are kind of the arm's length independent third party. We are not out there in their market segment competing with them where a number of other clearing operations might be.

That makes sense. Then a follow-up on the (inaudible) . FGDI, can we assume there was no pretax income and no net income in that? Because there's a question that (inaudible) and minority interest was a zero, I think, this quarter. Is that how we should interpret that?

Well we -- what we -- in our Corporate segment, we picked up our 25% share of their income from the last three months, and I think that was approximately $180,000. That shows up in the Corporate segment and we'll just be picking up our 25% share their -- their earnings from now on.

But on a consolidated basis shouldn't that show up on your income statement under Minority Interest?

No, because when we consolidate it, we pick up the whole thing even though we own 70%. And the minority interest was the 30% we didn't own.

So that was the expense. So this just showed up in Other Income, essentially, or Investment Income?

Yes, in Other Income.

That makes sense. One thing for Pete. You had talked a bit about the carbon credit market a bit on last call and you mention it now and it sounds like -- my thought process was that the big transaction that you had recorded was actually in the May quarter but it sounded like you are still kind of completing your first big carbon transaction this quarter?

It's basically still in the same transaction and we are finally getting the due diligence and the validation I think completed. We anticipated we'd have it done last quarter, but I think it will get done this quarter.

And Net right now is all OTC, correct? We are hearing all of the exchanges talk about getting into the carbon market which, obviously, should be very good for your position in that business, having a broader market to deal with. Is that the way you look at it?

Yes, I think both are from an over-the-counter standpoint as well as the exchange utilization. And I think the streamlining and really the creation of a better process of validation verification will help us as well as the industry in general for carbon.

Mark Lane.

Yes, Pete, regarding green diesel I think you made some comment about some sort of technology upgrade. And I may have missed some of the more detail, but where exactly are we at with green diesel in terms of production and -- ?

The plant basically produced bio diesel and -- but part of the problem was I think with the technology that was being utilized, the plant just couldn't get to capacity. So it's basically retrofitting with what I guess you would put in terms of traditional reactors. And it won't be a huge additional investment for [grain] diesel but it will take some time to basically retrofit. Then it will be up to basically up to full production and move forward in the next few months.

So it's not operating right now or --?

No, not at this point. It is going through a retrofit and should be here in the next few months.

And Bob, or Bill, the -- in comp and broker commission in that particular expense line item, what sort of contribution did the grain merchandising business make over the last couple quarters or for the first nine months of the fiscal year on an absolute dollar basis? Do you have that?

On expense wise?

Yes, on the Comp line.

We probably have a little under $4 million a quarter in expenses on FGDI, and I think the comp probably -- looking around here, some papers -- is probably may be a third of that per quarter. So say $1.3 million per quarter something like that.

But that's $4 million per quarter. That doesn't include -- that's -- that doesn't include any interest expense, right? That's -- .

That's non-interest. I was just looking at our segment information here. For this year we were $[11 million 4] for the first nine months and I would estimate the salary portion of that is probably $4 million for the nine-month period.

But if the rest is in Other expenses? Where else would it be other -- if it wasn't any comp payroll taxes (inaudible)?

We've got a lot of utility costs with the export elevator and some depreciation. It's spread throughout. Actually on the P&L statement you have the bulk of it would probably be down in Other.

Christopher Allen.

Just to clarify on the carbon transaction. Were there revenues recorded last quarter or did the revenues get recorded in future quarters? I thought that -- .

We picked up $90,000 in the fourth quarter which was kind of the nonrefundable portion of it and then when we delivered the tons we will pick up the option premium at that point.

What was the size of the option premium? Was it like $2 million?

It's closer -- it's basically $1 million and like Bob said, we booked about $90,000 so it will be around close to $900,000.

Gentlemen, there are no further questions. Please continue.

I guess in conclusion, we want to thank everybody for joining the call this morning and fiscal 2007 was a great year. It was a substantial growth and profitability for the organization and we anticipate, based on a lot of the initiatives that have been put in place over the last few years, that that growth and profitability will increase.

Then, finally, I want to say thanks to Bob for the hard work and effort he's put in for the last 20 years, especially the last four or five years with the conversion from cooperative to a stock company and then, finally, the IPO and the success of the organization as a public company. He deserves a substantial amount of credit for leading and helping us get here along with him and his staff. They've done a great job. And we will miss him, but we tell them that will we will drag him off the golf course when we need him in an advisory role.

And we also want to congratulate Bill Dunaway in his new position as Bob retires. So thank you, both.

Thank you.

Thank you.

Thank you everyone. Goodbye. Thanks, Josh.

Ladies and gentlemen, this concludes the FCStone Group fiscal fourth quarter and full year earnings conference call. If you would like to listen to a replay of today's conference, please dial 303 590-3000 or 1 800-405-2236. The pass code is 11101780 pound. Once again the pass code is 11101780 pound. ACT would like to thank you for your participation. Have a pleasant day. You may now disconnect.