Sunopta Inc (STKL) 2004 Q1 法說會逐字稿

Good day everyone and welcome to the SunOpta Inc. 1st quarter 2004 earnings conference call. Today's call is being recorded. At this time I'd to turn the conference over to Mr. Jeremy Kendall, Chairman and CEO. Please go ahead.

Thank you. Good morning ladies and gentlemen, and welcome to the 1st quarter 2004 investor call for SunOpta Inc. I'm joined on this call today by Steve Bromley, our Executive Vice President and CEO, and John Dietrich, Vice President and CFO.

Before we begin, I just want to remind listeners that except for the historical information, the matters discussed during the conference call, may include forward-looking statements, including statements relating to 2004 operating results, that may involve a number of risks and uncertainties that could cause actual results to differ materially. These risks factors are detailed in the company's filings with the SEC. Please note that effective this quarter, we are now reporting our financial results pursuant to U.S Generally Accepted Accounting Principals commonly referred to as U.S. GAAP. Consistent with fiscal 2003 all financial results are reported in U.S dollars. It should be noted that the change to U.S GAAP has not had a material impact on our financial statements presentation. Our reconciliation to Canadian GAAP is included in note 15 to our financial statements included with our 10-Q, which will be filed no later than the end of business tomorrow.

We are very pleased to report record revenues and profits for the 1st quarter of 2004. This represents our 26th consecutive record quarter of revenue growth, compared to the same quarter in the previous year, and is a trend that we expect will continue going forward. Revenue for the quarter grew 51% to $62.5 million, compared to the same quarter in 2003. Revenues of $62.5 million represent the highest quarterly revenues in the history of our company.

We're particularly pleased with this growth, recognizing that our 2004 guidance, calls for a 37.5% increase. The 1st quarter is traditionally our lowest revenue quarter, and this quarter does not include any significant revenue from the 2004 acquisitions completed to date. As I will detail later, we've had several contracts, which were anticipated to commence in the 1st quarter that have been delayed into the 2nd and 3rd quarters. Had these been realized they would have added further to our record results. We do expect to realize these contracts in the coming months, and have those benefits at that time. Our internal growth rate for the quarter was 16%, spurred by strong growth in our oat fiber, food ingredients, and natural organic distribution businesses.

Our acquisitions over the past year also contributed positively to our record revenue growth. We did experience some softness in the aseptic packaged products, as a number of new contracts were delayed, and key customers balanced inventories and introduced new products in the quarter. All indications point to solid growth in this sector over the balance of the year. Earnings for the quarter were $1.87 million, or 4 cents per basic common share, a 66% increase over the 1st quarter in 2003, where we earned $1.1 million, or 3 cents per share.

I would like to point out that the 2003 earnings include a $341,000 currency gain, while the 1st quarter in 2004 includes a $141,000 currency loss, so while sales increased by 51%, operating earnings for the 1st quarter increased 82%, versus the same quarter in 2003. If we were to normalize our financial results for the unfavorable impact of foreign exchange in 2004 versus 2003, net earnings would have increased 122%. So if we continue this progress for the rest of the year we are confident that we will meet or exceed consensus analyst's profit projections for the year. Our results for the quarter also include one-time pretax costs of $186,000, related to the closure and rationalization of the SunOpta ingredients, St. Thomas brands, and term germ (ph) facility, and the transfer of that facility to Cambridge Minnesota. As well as the closure of the Opta Mineral Hamilton specialty mineral facility and the transfer of that to 2 of our other plants.

We have completed 3 acquisitions in our Food Operations year to date. All in support of our stated mission. The acquisition of the [Stribune D] Fruits And Legumes Biologique, and Supreme Food Ltd. are key acquisitions for our Canadian distribution model. The purchase of the General Mills Cedar Rapids Iowa Oat Fiber facility is fundamental to our continued growth in this rapidly expanding category. Today I'm happy to announce that we have agreed in principal on the terms for a 4th acquisition in a natural and organic distribution company. This acquisition is expected to be completed, and details provided by the end of this month, and will serve to further enhance our Canadian natural organic distribution network. All of the operations acquired in 2004 are profitable, and should add approximately $45 million in revenue on an annualized basis. In effect, all of our divisions are profitable. With these new acquisitions, we continue to invest our surplus cash, which has been a drag on earnings, with the current low interest rates.

In hand with this, we've commenced renegotiating our bank lines, including both our long-term debt and working capital lines with our current lenders, in order to position the company with the resources required for continued growth. When completed, this will provide us with approximately $50 million of available capital for investment in internal expansion projects and acquisitions. Investment of these funds into profitable internal growth projects, and further acquisitions will serve to accelerate earnings further.

Of note in the quarter is that gross profit for the quarter rose to a record level of 19.6%, an improving trend, which began in 2002. It should also be noted that we have separated the warehouse and distribution costs related to our natural and organic distribution business from our SG&A. SG&A costs for the quarter were 12.8% of revenues, compared to 12.6% in Q1 2003. The increase in costs as a percentage of sales reflects the company's investment in infrastructure required to support anticipated future growth. These additions will be detailed later. The company will continue to focus on leveraging these costs as the business grows, reducing the costs of SG&A as a percentage of sales. There has been some concern in recent months from investors over the shortage of soybeans due to the drought conditions in parts of the U.S. last year, and the resulting price increases of soybeans. I wish to confirm that SunOpta has secured its soybean requirements for 2004, for all of its U.S. and Canadian ingredient requirements. This is a credit to the relationships that SunOpta has developed with some 1,500 organic farmers in the U.S., and our ability to locate further sources of supply.

We did project a decline in 2004 sales with food use soybeans to international customers. However, this reduction was not -- was minimal, and anticipated in our initial guidance. We continue to work with our customers to ensure supply, and to minimize the impact on margins for all parties. Our results for the 1st quarter were somewhat affected by delays in the issuance of contracts in the State Tech Steam Explosion Group and also in the previously mentioned packaging of soymilk.

I'm happy to say that the Steam Explosion contracts related to the use of the technology and the production of ethanol are expected to be signed in the next couple of days, and a formal announcement is expected to be made by our partner at the biotechnology conference in Chatanooga, Tennessee, on May the 10th, 2004. We're also pleased to note that we're the final stages of preparation for a contract with a major new customer for the production of soy concentrate and for aseptic packaging. This contract will commence in the 3rd quarter and will add a minimum of $6 million in incremental annualized revenues.

We have recently completed the installation and commissioning of a 2nd half-gallon tetra pack filler at our aseptic packaging facility. The first of its kind in the world. When combined with a number of plant processing modifications, we are confident that we will be able to produce the required incremental volume at our Alexandria production facility. The A&P (ph) contract for private-label refrigerated soymilk was delayed versus initial expectation, but is now commencing next week, adding further to our soy concentrate production. We have a number of private label contracts for our healthy convenience food product offerings, which are also expected to be realized in the coming quarters. Commencement of certain contracts related to natural fruit bars were delayed, pending pass up certification for these facilities, which is now in the process of completion. Once this is done, we will be in the position to move forward with these contracts.

I would now like to introduce you to Steve Bromley our Executive Vice-President and COO, who is going to review key business activities, our recent acquisition and expansion and the underlying strategies behind these activities.

Thanks very much Jeremy. I would like to start with the oat fiber story. This was a very interesting one for our company. Oat fiber is added to a wide range of products to increase fiber content for intestinal and general dietary purposes. Oat fiber also fills certain functional needs such as adding strength to various food products as a result of inherent length of the fiber. In addition, the ability of the fiber to absorb up to 7 times its weight in water within a given product also presents interesting functional characteristics for food manufacturers.

When we acquired the former Opta Food Ingredients business in December 2002, we did 4 operating facilities, 2 of which were producing oat fiber and operating at approximately 65% capacity. We were confident at the time that the beneficial attributes of oat fiber both from a dietary and functional perspective, would prove positive over time. What we did not anticipate was the dramatic rise in the interest of these products, due to various low carb diets such as the Atkins, South Beach and Hampton diets and the impact that that would have on the demand for the fiber. Much of this growing interest in low carb diet has been a result of the increasing public concern surrounding the rise and cost of obesity in the United States. Obesity is becoming a major medical issue, soon to pass heart disease in significance, as well as being a major contributor to the rise in obesity-related diseases, such as diabetes. These concerns have resulted in numerous initiatives to lower harmful carbs in products from breads to cookies to pastries, tacos, et cetera.

Oat fiber, which contains some soluble carbohydrates, has become a favorite substitute for starches and sugars. By the end of 2003, both our existing facilities were oversold with demand continuing to increase. In order to address these demands, we implemented expansions in December 2003, and March 2004, at our Cambridge, Minnesota facility, increasing capacity by approximately 65%.

We are also currently assessing expansion opportunities at our Louisville, Kentucky oat fiber processing facility. Still unable to meet market demand, we recently announced the purchase a fiber processing facility in Cedar Rapids, Iowa from General Mills Bakery And Food Servicing, the only other known oat fiber plant in North America. Historically this facility was operated part-time to meet primarily internal demands, and then shut down. We are now operating this facility around the clock at current capacity and are planning a further expansion at this location by year-end. As a result of this acquisition, we have increased our oat fiber processing capacity by over 90%, versus 1 year ago.

In the end, oat fiber has found a new home in many new food products both because it has no soluble carbohydrates and because of it's high fiber content, so important to the digestive tract. Currently approximately 9% of Americans are said to be on the Atkins diet with 20% more increasing their consumption of low carb products. Fully 60% of those who have completed, or halted their low carb diet, state that they will be back on the diet within 2 years. There are some 23 medical research reports published confirming the efficiency of the low carb diet, and also confirming that low carb diet lowers cholesterol and the risk of heart disease. The market is continuing to grow, and as one U.S. food analyst stated, "this is not a fad but a long term trend." Our fiber business has grown from about $20 million in 2002, when we acquired Opta Food Ingredients, to approximately $45 million in revenues today.

This represents significant growth to date, and we believe that this could again double over the next 3 years. At the end of April this year, we officially closed our brands in germ processing facility located in St. Thomas Ontario, and transferred the operations to a new expanded operation located within our Cambridge Minnesota facility. This process went very well, and we anticipate $600,000 in annual benefits with the expanded facility. Approximately 18 months ago, we set out to create the first truly natural organic food distributor in Canada, integrated from products, produce to groceries to dairy, dairy alternatives and specialty foods. Our strategy was as follows. To become the distributor of choice for manufacturers of natural and organic foods, to expand the availability and price effectiveness of natural and organic products to consumers, driving consumer awareness and education. To offer national distribution with a national sales force, and be able to secure an increasing number of exclusive supply arrangements. To have a window into the natural and organic foods market, in order to identify product trends, and have the opportunity to integrate backwards, where appropriate, through acquisition or joint venture. To be able to offer our customers one-stop shopping for a full range of natural and organic food products, as well as wide spread geographic customers -- geographic coverage, sorry, and finally to become a major customer in Canada for our key ingredients and processing customers.

For example, we made products for Hain Celestial (ph) in the U.S., and in turn we sell many of these products for them in Canada. We believe this is an important part of a win-win relationship. We set out on this objective in October of 2002, and with our recent acquisitions are now the largest natural and organic food distributor in Canada with a revenue run rate of approximately $110 million Canadian. We've established the foundation of our national platform, and can now offer an integrated product line from warehouse operations in Vancouver, Toronto, and Montreal to both the natural foods and mass markets. We have achieved our initial target of $100 million Canadian in revenue, and now feel this group can grow to in excess of $200 million within the next 2 years. We continue to work hard at integrating these operations to maximize effectiveness, and in support of this, will be consolidating our Montreal refrigerated warehouses effective May 15th, 2004. We also intend to construct or lease a new state of the art facility in Toronto this year, consolidating our Toronto operations as appropriate.

In hand with the continued growth and activity in our fiber ingredients and distribution businesses, we continue to dedicate significant resources over the past quarter to a number of exciting internal expansion projects.

The company's organic sweetener capacity expansion is nearing completion and should be fully on-line by the end of May. The sweeteners produced are made from oats, corn and rice and are added to soymilk and other natural and organic food products. [Un]Fortunately, the installation of this equipment necessitated that the existing operation be out of service for a period of time during the 1st quarter, negatively impacting our operating results. The company has completed the 1st phase of our soy yield enhancement initiatives, and continues to work on improving yields while at the same time improving product quality.

We have recently approved the project to install equipment to process to Ocarea (ph) a by-product of soy processing. Currently this byproduct is either land applied or delivered to local farms for feed purposes, at the expense of the company. This investment will allow for the production of a valuable organic food grade byproduct turning a cost into a profit generating activity. This investment should be on-line during the 1st quarter of this year. The 1st quarter was a busy one for only Opta Minerals group as well. The group realized a 26% increase versus sales in the same quarter of 2003. These results reflect increased activity levels in the U.S. versus the prior year when business was very slow due to U.S. Navy activities in the Middle East, plus the impact of a number of new product initiatives which have now come to fruition.

The group successfully completed the previously announced sale and subsequent rationalization of its Hamilton Ontario Specialty Minerals facility in the quarter. All designated equipment and applicable personnel have been relocated to other operating centers within the organization. The group has also finalized build out plans for completion of its Baltimore and Maryland specialty and abrasives processing facility, and expects to have this operation fully commissioned during the 3rd quarter of 2004. Build out of this facility have been delayed pending resolution of a number of business and regulatory issues, which have now been cleared. In addition the group further expanded it's geographic positioning with the expansion of a gross abrasive processing capability of Hardeeville, South Carolina. The addition of these capabilities strengthens the group's abilities in servicing the North American shipbuilding and bridge cleaning industries.

At the end of the quarter, the group further expanded its marketing expertise with the acquisition of distribution A&L (ph), a Quebec based distributor of specialty abrasives and related products. This company focuses on smaller markets not currently serviced by the group by its network of selling professionals specializing in the industrial automotive repair and pool filtration industries. The skills contained within this operation are key as the group continues to strategically expand products and sales capabilities. While we acknowledge that the environmental business is not core to our primary purpose, it is a consistently profitable business with a strong management team. Given the high liquidity on our balance sheet, the sale of this division would be dilutive to our earnings, and we are not contemplating such a sale at this time.

We are however considering a number of alternatives for the division, which could leave us with a significant position in the business, while at the same time provide a pool of capital for acquisitions and expansions within the group. As we have noted in the past, we are in the process of implementing an Oracle ERP System company wide, which will improve access to timely information, and facilitate the addition of new acquisitions on to our integrated platform. The first plants are expected to go on line at the end of May, and the program is proceeding close to schedule. We are also in the process of documenting all of our internal controls as required by the ever-growing Sarbanes-Oxley requirements.

This is an expensive and resource consuming process but one to which we are fully committed. To that end we have established an internal audit group who report directly to the Chairman of the Audit Committee. In addition we have hired internal counsel, helping to reduce outside legal spending and provide timely agreements and a continued focus on regulatory compliance. We have also recently hired a Vice-President of Marketing and Strategic Analysis within our food operations, focused on market and product development opportunities, which are a critical area, as we continue to grow our company.

We have made significant process during the quarter within our centralized purchasing initiatives, and have recently hired a corporate purchasing agent to continue to drive this process forward. Jeremy?

Thank you, Steve. I must admit that I am very pleased with the caliber of our expanded management team, and am very confident that we have the team and resources in place to manage our high growth company. We continue to review many acquisition opportunities and have developed a thorough and sophisticated approach to due diligence in subsequent integrator processors. We remain focused on integrating the acquisitions to date with an eye on efficiency and shareholder value.

Finally, based on our 1st quarter results and the acquisitions completed to date, I am pleased to advise that we are raising our fiscal 2004 revenue guidance to $300 million from the $275 million previously announced. We would now be very pleased to answer any questions that you might have.

Thank you gentlemen. The Q&A session will be conducted electronically. If you would like to ask a question, please press the * key followed by the digit 1 on your telephone. Remember that if you are using a speakerphone, to turn off your mute function, in order to allow your signal to reach our equipment. Once again, that's * 1 to ask a question. First question coming from Scott Van Winkle, Adams, Harkness.

Hi guys a few questions with you. First Steve, you were talking about the oat fiber. You've said the capacity's at 90% in the last year, and, when you bought Opta it was at -- running at 65% capacity. Does that mean that you've tripled that business in 18 months?

Yes.

Ok. So does that mean it's a $50 million business now, U.S.?

Yeah, $45 to $50 million now, Scott.

Ok, and the new tetra pack filler that you talked about, you saying that's already on line?

It's in the facility, and it's being commissioned last week.

How long does its take to get that out? I know that often it's tough to get those packaging lines running

Well, the packaging line was running, and last week in the FDA were running their final tests, so it's ready.

Ok, and Jeremy, the upcoming acquisition, can you give us an idea of size?

Yes, it's approximately $8 million U.S.

Ok. And regarding the steam explosion, how far along are you on testing and development? Are you sure that this is going to be an appropriate method for producing ethanol?

Yeah, part of the contract that we're receiving include a $1.3 million contract within our labs, for some testing and optimization, but the process that we're applying here is one that we have applied before, in other applications, so there is, you know, very low risk, as far as our part of the equation is concerned.

Ok. And the final question. A lot of activity going on. You mentioned an expanded management team. How are you managing this -- all of this growth and all the activity that has been going on from a corporate level? Sure. You're right; Steve has mentioned that we've hired internal counsel, which has been extremely helpful in the acquisition programs, and also just in coordinating the whole of our legal activities, and reducing our costs.

We've hired an internal auditor now who is spending a great deal of time now in the documentation of Sarbanes-Oxley 404, which is a very, very key part that has to now be audited by the end of this year. So those activities are going well. We have a whole team of people that are focused entirely on the Oracle program and implementing that. We are in the process of rationalizing, if that's the right word, or restructuring the management group within the distribution group, so we're integrating those under a management team there.

The addition of the oat fiber facility from General Mills was one that we were able to absorb, because we have an extremely competent team running our 2 existing oat fiber plants, and so we transferred a number of operators from General Mills on to our payroll, we've had no problem in adding the required people in maintenance. We're in the process of hiring a production manager. There are excellent people in Cedar Rapids because it's a town that's got a lot of food experience. So that team is coming together very well, and we're hitting production levels at that plant now which are extremely pleasing to us. And so we will, of course, also, as Steve mentioned, you know, look to expand that facility by the end of the year, by another third, and so the integration program is going very well, and there's always -- I think the main thing right now is we've sort of grown now -- the company has now grown to the size where it can now support these extra people.

And I didn't mention of course, our new Vice-President of marketing who came us to from Nutrine Nova (ph), which is a big distribution company that also markets some of our products. So he was already familiar with the markets that we were working in. And you know, we have numbers of labs, kitchens, and so forth, where we undertake product development, so we're going to be coordinating those, so that you know, we really optimize the dollars that we're spending on product and market development.

Would you characterize your management changes as being, moving more towards centralization, or are you still letting the operating businesses kind of run? I think that we -- the companies that we acquire are managed by entrepreneurial people, and we do expect and ask them to manage their companies. We do, of course, as we've talked about before, generally repay their debts, and have them focus their bank lines, and so we have them focus on their budgets and the business itself.

But at same time we are certainly moving now towards a more centralized approach within the groups of our company, like the distribution business for example. Great. Thank you very much.

You're welcome.

You're welcome.

Next (inaudible).

Good morning. Could you talk a little bit, give some more color on the update on the snack business, in particular the fruit snacks, talk about the school food service opportunities and again the private label opportunity that you alluded to earlier in the call?

Yeah, we have -- the business divides into, I guess, into 3 areas. We have a school program, which we have consolidated, actually at Dakota Gourmet in North Dakota.

So they are marketing both the fruit bar product line from the Kettle Valley, as well as snack food product lines from North Dakota Gourmet. And that represents a substantial component as far as the nutritional requirements for the school. So that program is centralized there, and it's run primarily with an inside sales force, and I think there is something like 15,000 school districts that we -- to deal with in the U.S. The second part of the business is on the branded side, so where we sell branded products, out on our own, and that business is going well, and it's handled now largely by the branded division within Sunrich. The third part, which is the most -- the largest part of the business now is in the private label side, and we do a number of private labels now, you know, for example, Amway, which started a few months ago, and now is expanding, and I gather now going in to China, but we've got a number of new private label contracts starting, including new vitamin enriched bars, and various other types of fruit and veggie bar combinations, and a couple of these just have been really key to get passive approval.

That should be completed here within the -- by the end of this month. And so we expect substantial growth in -- in this business in the 2nd half. And expect them to -- and of course these are high margin businesses, so they're -- you know, it has quite an effect on our overall results.

Can you also talk a little bit about pricing on 2 fronts? One the soy prices being passed along to customers, who have illusions (ph) of increased prices and soymilk, as well as with oat fiber in such high demand. Is there any kind of increase in prices there?

Yeah Philip (ph) I can answer that. In terms of soybeans, first of all understand it's the soybean that's gone up in prices, not the processing part of the company equation. So the soybean itself is a relatively small part of the overall, ultimate retail price of the soymilk, but nevertheless though we - our contracts do allow us to pass on costs as they are incurred, and those costs are passed on.

As far as oat fiber is concerned, we have just begun implementing a significant price increase in the oat fiber market, and customers are in the process of being contacted now, and so that will be effective June 1st, and will be -- should be quite favorable I think to our results.

Ok and would you then comment -- you said that EPS for the year, you expect to meet or exceed the consensus?

I would be happy to repeat that statement.

Ok. Thank you.

Next up we have Charles Krueger with MJSK.

Here, MJSK. Good morning. A couple of questions have been answered, but the 4th acquisition you said probably you'd provide details by the end of the month, I think you stated it's about $8 million. Is that included in the updated guidance?

No.

Ok.

And this will be on asset purchase, and you'll get the details very shortly on that.

Ok. Your environmental sales group, I don't know if you stated the number, but what was the growth rate for that environmental group.

Chris, it was 26% quarter over quarter versus same quarter last year.

Ok. Has that rate continued into the early part of this quarter? Yeah, it has.

April is very good, yes.

The group felt that they could achieve the 20% range, so they're on schedule.

Ok. Very good. With all of these acquisitions that have occurred in the last month or 2, do you expect any kind of one-time expenses or anything like that in the 2nd quarter, just to be aware of?

I'll ask John Dietrich to answer that question.

Yeah. On the Hamilton side we've primarily taken all our onetime costs but with St. Thomas that rationalization, will be some one time costs, related to the 2nd quarter. On acquisitions right now, I can't see any. Nothing significant that's going to hit the quarter.

How much would that St. Thomas be roughly?

It will be around 350,000 to 400, 000. Not sure all of that with the 2nd quarter, though.

Ok. Last, I guess, can you provide any SG&A guidance for the 2nd quarter?

I don't know that we could provide guidance. Our SG&A was essentially flat from the 4th quarter to the 1st quarter. And that was after building in some additional corporate overhead, as we've discussed. It also includes, if we compare it with the 1st quarter of the last year, an increase in amortization in the, you know, non-cash items, such a, you know, sometimes in these acquisitions the goodwill gets apportioned partly to goodwill, and partly to customer lists and things like that.

And the customer list type of thing gets amortized on a fixed term, whereas goodwill doesn't. So we have an increase, I guess, of about $180,000 of amortization costs in the 1st quarter. We expect to see a continuing reduction in SG&A as a percentage of total revenue.

Very good. That's all I've got. Thanks.

Thanks Chris.

Thanks Chris.

And next up with BMO Nesbitt Burns is Kathleen Kent.

Hi, just few quick questions left. I notice that you sold about $1 million of assets held for resale. Was there a gain on these assets?

Very nominal.

Less than $10,000 or so.

And, also, can you give us the segmented breakdown on net earnings from the divisions?

Did we provide that in the --

Yeah, it'll be out with the Q Kathleen.

But that won't be out till Friday?

Friday, afternoon correct,

You can't give it to us a little earlier?

Why don't we come back to that? (Inaudible).

Ok. And justto confirm on the General Mills, you said it was operating currently already at full capacity.

Yes, 24/7.

We assume that we'll run it around the clock.

And annual sales is around $10, $10.5 million?

Yeah, currently.

Currently that's the annualized rate?

11 to 12 before.

Before the expansion.

Before the expansion.

And also just, with respect to the food group, what percentage of the grain and soy product group, what percentage did that represent, of overall food sales? You normally break it down into the 3 -- your new 3 subgroups. Just wondering what that group contributed.

Food sales were 89% of our revenues in the quarter.

Uh-huh.

And bear with me for just one minute.

Just back on the breakout by segment Kathleen on net earnings before interest expense and income taxes, the food group was $3.2 million, Opta Minerals was $500,000 and then we combined steam explosion with corporate was a negative $850,000 approximately, for a total of approximately $2.9 million before interest expense and taxes.

Ok. Great.

Kathleen, back to your question, food sales were 89% of our total revenues.

Uh-huh.

The breakdown on the 89%. Grains and soy products 28%.

Ok.

Ingredients 25%.

Uh-huh.

Packaged and distributed products, 36%. And if I'm lucky that will add to 89.

Ok. Great. Thank you.

You're welcome.

Next up is Joe Vedensec (ph) as a private investor.

Good morning.

Good morning.

Good morning.

Sun acquired quite a few companies in the past. Has any company showed interest in acquiring Sun?

Not at this point in time. We certainly haven't been soliciting any interest, and we have not been approached.

Thank you.

Next up with Kansas City Capital, John Beck (ph).

Good morning Jeremy.

Good morning, John.

On the -- well, interestingly enough last night Mid-West Grain Products a company here in Kansas reported their earnings, and they were very good, and they're participating in the Atkins diet craze, with a wheat-based product.

What's the difference between -- for a food company, who is considering some Atkins products to use wheat versus oat? I mean, can you clarify what the advantages, or disadvantages one might have over the other.

I'd have to go back over to our technical to be able to get you a really detailed answer and I'd be happy to do that. The main fibers that are in use are oat fiber.

Soy fiber, which from a marketing point of view is actually at least 50 or 60% larger than oat fiber. Wheat fiber, which is actually less than oat fibers each of them have -- there's pea fiber, there's tomato fiber, there's cottonseed fiber. So there are a variety of different fibers and each of them has particular product features that go. One may be whiter than the other in terms of color, one has a different type of taste, or shorter or longer fiber, and so they're specific, and to some extent they are substitutable, and -- but not always. And within the oat fiber, of course, there -- as an example in our own product line there's a range of products, which again are specific to different applications. So you might have the 700 series that goes -- adds strength into a taco shell.

Or because of its water holding capacity is very good to add into mashed potatoes, whereas the lower end, you know, for dietary fiber, in the 100 or 200 series that may have a different application. So what I'm really saying is these products are specific to applications.

Ok. Jeremy, the Opta Mineral sales were up 26% in the quarter, and your internal growth was 16%, which implies that the food group was less than 16%.

Yeah, remember that the minerals group is a very small part of the overall.

Right, I understand. In terms of bulk sales of soybean products, was there any significant decline in that area that might account for some of the weakness? I don't know if I should characterize it as weakness, but some of the - reason for part of the decline

Basically flat.

Ok.

You're right; it does contribute to percentage growth.

Ok, and then finally, the $181,000 charge in the quarter for the restructuring. Where is that in the income statement? Where do you put that number?

That's down on the other expense line.

And that's where the 2nd quarter charge would go?

Yeah.

Ok. Thank you.

You're welcome.

Next up is Jim Guard with Rainey (ph) Investment Management.

My question has already been answered. Thank you.

Thank you.

We'll move on to Keith Howlett.

Yes, just wanted an update on the tax rate. Is 30% a good number to use for the --?

Yes, it is, Keith, 30% is what we've used here. What it was in the 1st quarter last year, and what is we expect it to be for the year.

And just on the soymilk, I wonder if you could maybe break this down into two parts. One on the aseptic package side, if you could speak to what the market trends are generally, and what's happening within - inside your business there. And then perhaps if you can speak to the relationship with Dean Foods, and what -- how you see that evolving going forward.

Well, I think it's well known that the aseptic side of the soymilk market has not been growing in recent months. Our business is growing in that area because we are increasing our market share, and taking on production of additional people, and so we're actually going to be experiencing some fairly significant growth in that area. The -- on the major growth in the soymilk market is taking place in the refrigerated side, so there we participated, of course, partially through the supply of soy concentrates to Dean Foods, but also through the supply of concentrate milk and packaging of private labels.

I mentioned for example that A&P was starting with, I think a thousand stores here in the next week, and we're of course producing for Publics and a variety of other chains. So if in you go into a store of Publics now you will see the self product lines, and you'll see the Publics line, so we are contributing to the self ones and we're supplying all of the Publics ones, so we are participating very much in that area. So our business today with Dean Foods is -- we are have a contract, a three-year contract, which requires them to purchase minimum numbers of loads, and those loads increase on a quarterly basis, and at this point in time, and for very just -- you know, for last year, they've been ordering at a rate that's significantly above the -- their minimum requirements.

So all in, how is the growth in your soymilk business, broadly defined as aseptic and concentrate. What sort of growth are you achieving in that business.

Our businesses was to hang and was up a little bit in the 1st quarter over last year's 1st quarter. I think, to me -- we have an actual comparison of the soy business. Soy in total? No.

I have to ask -- because it's in a couple of different categories, I'm going to go back and add up the total soy business, so as we said, we do expect to have a reduction in terms of our shipments to -- to Japan, but we had programmed in, or forecast that into our guidance. We do expect to see a significant -- a good increase in our aseptic packaging. We expect to be running at capacity, you know, through the last half of this year, and our soy concentrate business is continuing, you know, quite well.

And do you anticipate any capacity additions either on the packaging or on the soy extraction side?

We've announced - we've put in an additional half gallon line, and that line actually replaced a very small line that was not used very often, and so that does give us incremental capacity. At the same time you -- we have the -- we have some expansions going a little bit upstream from the packaging, as well, so that's why I think Steve made the statement that we expect that we will be able to meet all of the increased requirements of our customers this year.

Perhaps, could you just update us on the sunflower business?

Yeah, I can. The sunflower business is doing very, very well, and the major suppliers of sunflowers in the world are the U.S., China, and Argentina. There is a lot of pressure in China now because of increased food requirements to switch sunflower production into, you know, into basic grain production for food.

The result of that is that they have not been able to meet a numbers of their contracts in China, particularly in Europe, where they were shipping from China. The result is that we are experiencing -- the industry is experiencing, I think, a shortage of product today. Prices are improving, and our timing, in terms of our acquisition of SIGCO is turning out to be fortuitous. We are running around the clock today.

Around the clock on the --?

-- around the clock in our plants, in our 3 plants, 5 days a week, in our 3 plants.

Great, thanks very much.

You're welcome.

Next up with Stadium Capital Management, Andrew Dansig.

Hi guys.

Hi Andrew.

Hey, Andrew.

Had a question about the 10-K actually. In the note to the 10-K in the proforma section. It has 4 acquisitions that it says were included in 2003 that would have not been included in 2002. Is that note correct?

Let me see, yes, that would be Kettle Valley that was purchased in May, Pro Organic, Dakota Gourmet and SIGCO, those would be the 4. The last 2 being acquired in October, November -- were the last 3, I'm sorry.

Right, so in the proforma note, then, those 4 are not included in that 2002 number of $214 million?

They would not be in the 2002 number, yes.

John, I don't have the (inaudible). Can I look at that and get back with you on that?

Well, I think on the proforma ...

Well, I --

They would be on the 2000 proforma, you would include those. They would definitely be included in the 2004 number.

Is that just a misprint on the note.

Does it say they're not included?

Yes, it says that they are included in 2003 -- it says they are included in the 2003 number, but not included in the 2002 number.

Ok. We've just got the 10. Do you have any other questions while we're just looking at the 10-K?

Well, I guess it sort of the relates to that question, so, you know, assuming that I guess, you know, they are in the 2002 number, that implies an 11.8% proforma organic growth rate. I was wondering how that footed with the 26% internal growth rate that was quoted in the Q4 press release. All of our businesses of course are growing, and those businesses are growing. John have you got the figure?

Yeah.

I think that we -- I think we need to look at that.

I'll have to look at that, John. Can we get your telephone number and we'll call you?

Sure, but I mean, I'm still wondering, though, even if they're the 2002 number how the 11.8% growth that's implied in the proforma numbers compares to the 26% internal growth that was quoted in the year-end press release.

I suspect, we'll have to look at these calculations in this proforma number, because I know that 26% is correct.

Andrew, we do the workup on the 26% by operating units year/year, you know, we take the -- when we do the calculations, you know, all of these businesses that we acquire are growth businesses. We take the base revenues that they had for the year prior, when we acquired the business, so, you know, we can assure you that the rates are calculated by operating group. We may need to do a reconciliation here back to that note, and ensure that -- how we do that for GAAP is consistent with how we report, and we can certainly get back to you.

Ok. Well, I guess with the Opta business, you said that is the Opta Food Ingredients was a $45 -$50 million business?

Today? Today, yeah.

And, when you bought that that was about a $28 million business correct?

Yeah, but that also - it included the St. Thomas plant and the Galesburg Starch plant was in the $28 million.

Right so the figure that Steve quoted was approximately $20 million in the 2 oat fiber plants going to $45 to $50 million. On top of that within Opta is still the operations that we have in Galesburg with the organically certified starch plant, as well as the operations for the St. Thomas plant, which has now been moved to Cambridge.

Ok, I guess, going along with the proforma question, if the Opta business is now $45 to $50 million dollar business, that would imply that the rest of the business is basically a, you know, a flat to 5% business right now.

Andrew, the $45 million is an annualized number. We acquired the General Mills facility on April 19th. Plus the running rate that we have would be $45 million; we have none of the General Mills results in the 1st quarter numbers.

Ok, so it's a $45 million then capacity business right now?

Well we're running right now, and the same goes for the expansion that we put in the Cambridge at the end of March. That's not in the 1st quarter either. So you know, you're looking at the current run rate.

So it's not actually then $45 to $50 million in current revenues, but the current --

The current -- if you take the business today, it's running at that, but there's a lot that has happened between March 31 and May 2nd.

Ok, thank you very much guys.

Thank you.

You're Welcome.

And next up also with Stadium Capital is Alex Sever.

Good morning. Steve you were talking about the ERP implementation, and you may have talked about this before, but can you help us understand what the sort of, total direct and indirect cost of that implementation will be. I know this is not trivial.

So there's a capital component and then an ongoing cost. The capital component would be in a range of is $1.3 to $1.5 million over the course of the project. On an operating cost basis, the impact is approximately $400,000 to $500,000 a year, to our operating overheads, and obviously we're looking to drive a number of synergies and performance improvements off of that, which, over time, will more than offset the incremental operating costs that we have.

And are there any other, sort of, indirect costs. I have seen this done many times; I know there are a lot of indirect sort of organizational costs associated with the actual capital implementation, so above the 1.3 to 1.5 would there be incremental, sort of, indirect costs?

Yeah, no, that's all in.

That's all in. Ok. Thanks.

Ok, you're welcome.

The other question I had was, am asking for a simple answer. I happened to notice in the proxy that was filed I guess, a couple of days ago, that there's a difference in how the Claridge investment, I guess it's one of your major investors. Is listed -- It was listed as Claridge in the prior proxy, and in this proxy it was divided into 2 equal parts.

Ok so Claridge was a company that was owned by the Bronfman (ph) the Charles Bronfman and family. Charles Bronfman had 2 children, Stephen Bronfman, who is on our Board, and his sister. At the end of last year, they decided that they would split up -- they have investments in many, many companies, it's an extremely well known family. And at the end of last year, they decided that they would split up their investments so that Steven could manage his along with his staff, and his sister could manage hers with her staff. And so there was no sale of securities here at all. It was simply a matter that each one now is managing their own portfolios.

So there is no Claridge anymore?

I don't know that Claridge exists as a company, but for sure they've moved most of the assets out into the respective parties.

So not just the SunOpta shares, but a whole range of things.

Oh, yeah, exactly. Exactly.

I see. Ok. Thank you.

We have one question remaining in our queue coming from Ron Emmerman with RMC Group.

Hi Jeremy, Steve. You know, as I listen to this conference call, 3 words come to mind, busy, busy, busy, especially with these acquisitions. When every company typically makes an acquisition, typically it's a step backwards hopefully to gain many steps forward; it seems in your situation of all the acquisitions you made, you come out of the gate running full steam ahead.

Is that impression correct, and is there anything you can amplify? Because every time you buy a company, I sit back and I say I wonder you know, how -- what kind of a step backward you'll have to take, and I don't see you taking any.

Well I think for -- we do take quite a bit of time, and while it appears that you know, we're acquiring these companies, we've actually been talking and working with them for quite a long period of time, so that we've gotten to know these people, and you know, very, very key part of the what we're acquiring are the people involved here, and that's really the key, number 1.

Number 2, we are acquiring profitable businesses, businesses that have, you know, successful track records, management in place, and the management stay, and, and as you know they must stay, or we don't get involved because we don't have people to put into these businesses. So they stay, they run successful businesses, and in general, we also provide them with some degree of earn out. So there's incentive to continue to grow that business. The values that we lay out in our annual report and as a company, I have to emphasize, are extremely important in the dealings that we have with these companies.

You know, the -- there's a very significant passion that exists in this industry for the products that they produce, for the environment and how they do business, and so it's very important to them that they associate themselves with a company that has similar values. So, so far, the acquisitions have worked out extremely well for us, and we're -- you know, we are just delighted with the people that have come on board as a result of that.

I notice that most of your acquisitions, almost all, are accretive in nature. Is that is correct?

We don't do anything that's not accretive. And you know, we're -- we are not in the venture capital business. We will not finance our purchase start-up companies. We don't even think we'd do that well. We are only interested in acquiring growth companies that are profitable.

As SunOpta continues to be profitable and raises their own earnings per share, do you anticipate that being a problem in the future with future acquisitions?

I'm not sure I follow the question.

As your earnings per share increase and you make acquisitions, do you think there will be greater pressure to find companies in an accretive -- that you could acquire on an accretive basis?

So far Ron -- I mean, there's no question -- that so far we've been able to acquire companies in the price ranges that are accretive and make sense to us. There are some examples out there in recent, you know, months of companies that have been bought at astronomical multiples. Generally they tend to be in the branded area, and they're at levels that I cannot contemplate how anybody can ever actually recover their investment or make any money. We won't do that. And we do bid periodically on things, but you know, if it's not within our price range, then we happily smile and walk away.

I noticed also that historically, you've acquired companies for the most part that were considerably smaller than SunOpta, Stake SunOpta, whatever time that was. Is that part of your game plan?

You know, we certainly would look at and do look at larger companies, and we will continue to look at larger companies. I think the general trend for us, now, will be to go into larger companies than we've historically been purchasing. But you know, we're -- because we're obviously taking as much work to do a $50 million company as it does to do a $10 million company. We will certainly look at larger things as we go on, and -- but, you know, we'll see.

I see. As I've said many times with these conference calls, applause, applause to both you and Steve and the entire group. You've done a great job.

Thank you, Ron. It's certainly not me. It's just a fabulous team that have come together here, and it's just great fun to wake up each morning and go to work, and I went on a holiday recently, and I just couldn't wait to get back.

Continued good luck.

Thanks Ron.

Bye bye.

Gentlemen, we do have a follow-up question from Alex Sever.

Hi, guys, just follow-up question, and I guess maybe it's partly in the form of a request. Echoing the last gentleman's comments, you guys are very busy. There are a lot of moving pieces to this situation. You are doing lot of acquisitions, a lot of integrations. There are foreign currency translations, there are sort of temporarily low tax rates, and we do the best we can to try to normalize all of these things and figure out what the steady state trajectory of the company might be.

In the context of a largely acquisition-driven strategy, at least to date, I know it would beextremely helpful to us, and perhaps other investors to have more complete proforma disclosure about what the businesses are actually doing, in terms of revenue growth, earnings growth, and so on. Steve, you had mentioned earlier that the 26% internal growth figure that was quoted in the press release, and in your filings was based on a, sort of, bottoms up operating company by operating company basis, but we have been unable to -- to verify any of those numbers through the disclosures a at least that we have.

The only disclosure that we could find of course, is the footnote, which actually either shows the business was shrinking, if it was worded correctly, or if it's worded incorrectly and the numbers are correct, growing at 11 or 12% on a proforma basis, And I think it would be extremely helpful, given the nature of your strategy, to help us with that so we can arrive at some of these same figures, the same way, you, as a company do. And so I think, you know, that's just a request we would have, and I think others might have, to be consistent with the transparency that you, I think, believe is pretty important, as well.

Yes we do. Yeah, we will certainly put that together.

That would be very helpful thank you.

You're welcome.

And gentlemen, we have no further questions in our queue at this time. I'd like to turn over the conference back over to you for additional, or closing remarks.

Well, again I'd like to thank all of you for attending our conference call, and as always please feel free to contact us if you have any further questions. And as I say each time, we also welcome visits to our facilities, and look forward to your advice, and thank you for your support. Thanks very much.

Once again that does conclude today's conference call. Thank you everyone for your participation.