Sunopta Inc (STKL) 2005 Q1 法說會逐字稿

Good day everyone and welcome to the SunOpta Incorporated first quarter 2005 earnings results conference call. Today's call is being recorded. At this time I would like to turn the call over to Mr. Jeremy Kendall, Chairman and Chief Executive Officer. Please go ahead sir.

Thank you very much. And good morning, ladies and gentlemen, and welcome to be first quarter 2005 investor call for SunOpta Inc. I'm joined on this call today by Steve Bromley the Company's President and Chief Operating Officer; John Dietrich, the Company's Vice President and Chief Financial Officer; Sergio Varela, Vice President of Operations and Business Development; and Ben Chhiba, Vice President and Corporate Counsel.

Before I begin I would like to remind listeners that except for the historical information, the matters discussed during this call may include forward-looking statements, including statements relating to 2005 operating results that may involve a number of risk and uncertainties that could cause actual results to differ materially. These risk factors are detailed in the Company's filings with the Securities and Exchange Commission.

Please note that our financial results are reported in U.S. dollars and in accordance with the U.S. GAAP. A reconciliation to Canadian GAAP will be available in the notes to the Consolidated Financial Statement which will be filed with our 10-Q for the period ending March 31, 2005, on May 9, 2005.

We are pleased to report record revenue and earnings for the first quarter of 2005. Revenues grew by 38% to 86.2 million in the first quarter of 2005, when compared to the same period a year earlier. The first quarter revenues represent the Company's 30th consecutive quarter of record revenue growth versus the same quarter in the previous year. This represents over seven years of consistent growth in our business, and we're confident that this trend will continue in future periods.

These first quarter results reflect consolidated internal growth rates of 12.8% as measured by revenue growth year-over-year. Our internal growth rate is calculated on a consistent basis and includes growth in revenues (ph) of acquired businesses integrated with SunOpta from the date of transaction, as compared to the same period 12 months earlier.

The Food Group's revenue rose by 41% in the quarter, and included an internal growth rate of 13.2%. This growth was driven by a 19% increase in Grains and Soy products, and a 41% increase in Packaged Products, offset by lower growth rates in ingredients and distribution. Please note that the first quarter is traditionally a lower quarter as a result of seasonal impacts in our grains and mineral businesses.

We are on track to achieve our revenue guidance for 2005 of 385 million. This number excludes potential acquisitions that may be consummated throughout the year. As is our practice, we will review our revenue guidance midyear.

Net earnings for the first quarter, after minority interest, were $6,605,000, representing a 253% increase over the same quarter in 2004. Diluted earnings per share in the first quarter of 2005 were $0.12 per share, compared to $0.03 per share in the same quarter in 2004.

Pretax earnings of 7 million include a net 4 million unusual gain resulting primarily from the Opta Minerals initial public offering, which took place on February 2005, reflecting the inherent increase in the value of this business under SunOpta's management. We're very proud of this accomplishment, and want to acknowledge the management and staff of Opta Minerals for their dedication and contribution.

Of the $0.12 earned in the first quarter, $0.04 are attributable to ongoing operations and $0.08 are attributable to the net unusual gain. The results from operations improved versus the fourth quarter of 2004, and we remain optimistic that earnings will continue to grow as we realize the benefits of a number of new initiatives and continue to leverage the platforms that we have now put in place.

Gross profit increased by $3,365,000 or 27.4% in the quarter, although gross profit as a percentage of revenues declined by 1.5% to 18.1% for the quarter. This decrease was largely due to reduced margins in our oat fiber business resulting from an increase in competitive pressures and lower demand for oat fiber due to the decline in the low-carb market.

In addition the Canadian Food Distribution Group experienced a shortage of fresh products supply due to the unusually cold and excessive rain weather pattern that affected California in the first quarter. Supply has now been significantly improved.

Earnings before income taxes and minority interest increased by 174% compared to the first quarter of last year. Our tax rate for the quarter was 3.4%. This low rate is a direct result of the nontaxable treatment of the gross dilution gain compounded by certain costs associated with this transaction being tax-deductible. Our normalized tax rate will be in the range of 26 to 31% on an ongoing basis, depending upon business mix and the impact of our tax planning strategies.

Our balance sheet at March 31, 2005 remained strong, with 10.6 million in cash, and networking capital of 71.9 million. Total assets were 234 million, with a book value of 150.7 million. And a book value per share of $2.67 per share, up from $2.56 at December 31st, 2004.

Long-term debt declined to 34.7 million, with a debt to equity ratio of 0.23 to 1. As you are aware, we received a clean opinion from our auditors, PricewaterhouseCoopers, on our internal controls and related processes as required under Sarbanes-Oxley. This was a huge achievement for 2004, but also a costly process. These costs are expected to fall significantly in 2005, and we are very proud of this accomplishment.

I would now like to introduce Steve Bromley, President and Chief Operating Officer of SunOpta, who will discuss operational results.

Thanks a lot, Jeremy. I'm pleased to provide further details around our activities within our businesses. The Grains and Soy Products Group results were strong in the first quarter. Soy prices and supply were stable throughout the quarter, and are expected to remain stable for the rest of the 2005 crop year. At this time we do not believe that the soybean rust will be a major issue this year and are confident that actions taken by growers to reduce this risk were successful.

The sunflower market was particularly buoyant in the first quarter with strong margins and record sales. This market is expected to be strong for the remainder of this year. Although we have significant sunflower accounts in the United States, including Fisher, ConAgra and Frito-Lay, our primary market remains in Europe where we export over 60% of our sunflower volume. We anticipate an increase in our contracted sunflower acreage in the U.S. in 2005 of approximately 20%, and 200% in our contracted acreage in our sunflower joint venture in Hungary in 2005.

Our sunflower results have benefited greatly from our proprietary position in sunflower genetics, which includes a high-oleic product with a longer shelf life, primarily sold for baking products and nutritional bars, and our large sunflower variety which are preferred in European markets.

We have continued to develop a number of new accounts for our vertically integrated soy ingredients business. New developing accounts for soy powder ingredients include the non-expanding soy yogurt products into Europe, KaBoom!, the largest soymilk company in Japan developing a soymilk, and a major Spanish beverage account. Soy powder, a product produced from dried soymilk is a further value-added product that we're able to bring to these markets.

Be private-label refrigerated soymilk market continues to expand for us as new accounts this quarter, including Cub Stores, part of the SUPERVALU chain; DeMueller's (ph), an Eastern U.S. food chain, and a joint product with a with HP Hood, who package refrigerated soy.

We continue to supply the A&T and Public's private-label soy brands, along with a number of smaller regional accounts, and are working at growing this market further. We have just had confirmation of a contract to supply private-label soymilk to another major U.S. retailer in the coming months.

In the SunOpta Ingredients Group, the dairy blends market has remained stable, and endenta fiber (ph) production has been strong, generating good results. As previously mentioned, the decline in the low-carb market, combined with an increase in competitive pressures, impacted the demand for in growth (ph) margin in our oat fiber products. Even with these factors, internal growth within the Ingredients Group was 7%.

As a result of changing fiber market conditions, we have taken the following actions. We have hired an international sales manager to aggressively expand sales in Europe, South America, Australia and Asia. Our competitiveness in this market continues to be assisted by the weak U.S. dollar.

We have refocused our research development and applications teams to broaden our fiber portfolio, including adding organic fibers. We expect to launch these new fibers in the second half of this year. We have focused our marketing efforts and trained our sales and applications teams on new markets, including the development of oat fiber applications for the pet food business. We have expanded sales efforts to the growing markets for fiber enriched and whole-grain products.

During the quarter we have continued our program to improve soy processing yields and dry the ocare (ph) byproducts derived from the soymilk process. Both of these programs are on schedule and should come online late in the second quarter.

In April 2005 we acquired the remaining 49.9% of Organic Ingredients Inc. of Aptos, California. Organic Ingredients' revenues have doubled over the past year as several new contracts are sourced and produced lines of organic private label fruit juices for a major distributor, and for a major retailer have come online, as well as numerous other ingredient supply contracts which have been secured.

Organic Ingredients is an important part of a planned expanded organic and natural fruit business within SunOpta, consistent with our healthy product focus and responding to the USDA's recommendation for an increased consumption of fruits and the vegetables, as per the recently revised dietary guidelines.

Within the Packaged Products Group we began to realize the benefits of the expansion in process improvements implemented over the past year at our aseptic packaging facility. During the quarter we successfully completed our warehouse expansion, along with the installation of robotic palletizing equipment, which reduced our workforce at this facility by approximately 12 full-time equivalents.

Aseptic product revenues increased significantly versus the first quarter of 2004 as a result of increased demand from our existing customers, the Vitasoy contract that was realized in the third quarter of 2004, and a number of new accounts, including soymilk for a national coffee chain, and Blue Diamond where we are aseptically packaging a portion of their almond beverage.

We are also experiencing growth in the ascetic kiwis (ph) that we package for Casual (ph). Our Healthy Convenience Food operations performed as expected. Our sales of private-label fruit bars to LaBla's Hamway Jamma Juice (ph) (indiscernible) and into the UK, China, Sweden and Australia continue to expand.

This business will continue to grow further as a number of new marketing programs take effect, including updated packaging for our organic fruit bar lines, the addition of three new organic flavors, the addition of increased dietary fiber and other nutrients to our Photogram (ph) bar offerings, and the formulation of a multifunctional high-fiber 50 gram fruit bar.

Our sunflower, soy and corn healthy snacks business also grew as new customers were identified, and the recently installed copper technology was introduced to the market.

The Canadian Food Distribution Group had a profitable quarter, however gross profits suffered from the lack of supply of fresh products in California due to weather issues. And there were local competitive pressures in the fresh products market. Fresh product supplied from California has been improved in the second quarter as new crops are harvested.

In addition, a number of new organic and natural grocery product lines have been secured, including many under exclusive supplier arrangements for the Canadian market. During the quarter two or three Central Canada grocery operations were consolidated under the new Toronto distribution facility. This transition went well, and the distribution facility is now fully operational. Kofman-Barenholtz, which had an excellent first quarter is scheduled to move into the distribution center during the third quarter. This will complete the consolidation of Central Canadian grocery operations into our state-of-the-art distribution center in Toronto.

We have entered into an agreement to operate a produce distribution outlet at the Ontario Food Terminal in Toronto starting next week. Thousands of qualified commercial customers shop at the terminal every morning for their daily supply needs, including mass-market retailers, small change, and individual operators. Operating under our wholly-owned subsidiary Pro Organics (ph), we will be the first supplier of organic produce in this conventional food center.

As previously mentioned, we had a number of integration issues at our Montreal Food Distribution facilitates in the last half of 2004. We were pleased to note that this location achieved record results in the first quarter of 2005, and is operating to expectations. We expect the Canadian Food Distribution Group to show continued improvement over the year as their supply and competitive issues affecting the first quarter are addressed, and we continue to gain new business and drive efficiencies from our new distribution facilities.

The first quarter was an extremely busy one for Opta Minerals with the completion of the initial public offering and the listing of the Company shares on the TSX under the trading symbol OPM. The initial public offering raised C$19.8 million for Opta Minerals, with SunOpta retaining approximately 70% of the outstanding common shares. SunOpta the also received C$5 million of the proceeds by way of debt repayment. These funds were raised by Opta Minerals to expand their current business and acquire compatible operations.

Opta Minerals is currently working on the acquisition of complementary business units, which are expected to rapidly expand revenues and profits in the near future. There are number of such opportunities currently under discussion.

Opta Minerals had a strong first quarter in 2005, with revenues up 13% to 7.7 million, and earnings before interest, taxes and other items of $837,000, up 23.6% over the same quarter in 2004. We expect this business will continue to grow as new plants in Baltimore and Hardeeville are now fully operational, and a number of new raw materials supply agreements have been signed.

The Steam Explosion Group was very busy in the quarter working on the ethanol process development contracts with Abengoa. Financing and detailed final engineering are nearing completion, and the Company has been authorized by Abengoa to purchase long leadtime items for the York Nebraska ethanol project. This first equipment contract is expected to be in place in the second quarter.

The group has also provided engineering services for potential ethanol facilities in Spain, and has also quoted on an equipment contract for this location. The group is in the process of completing an engineering contract for another U.S. firm employing an entirely different process to produce ethanol, and has fielded other inquiries related to ethanol.

The high price of oil is promoting the development of alternate fuels, and the steam technology is an important part of this future trend. In addition, the group continues to work with both external and internal groups on a number of food-based applications. Now I would like to turn you back to Jeremy.

Thank you Steve. As you can see the business is accelerating by a combination of new products, new customers and an increased international focus all in growing markets. SunOpta continues to review a number of interesting acquisition opportunities focused in the organic and natural food markets that fit within our vertically integrated business model. We should be in a position to publicly discuss these in the near future.

On April 12, we announced that the Toronto Stock Exchange had accepted notice of our intention to purchase up to 5% of our issued and outstanding common shares for cancellation through the facilities of the Toronto Stock Exchange and NASDAQ. The purpose of this program is to provide a degree of stability to our share price. We have purchased shares to date, and will continue to purchase as we deem appropriate. We will report the number purchased as required within our -- at the same time as our second quarter results are released.

We are very pleased with our financial results for the quarter, and particularly pleased with the momentum that is evident throughout our business. We would now be very pleased to answer any questions that you may have. Please keep in mind that we may be limited in certain answers for confidentiality reasons.

(OPERATOR INSTRUCTIONS). Scott Van Winkle, Adams Harkness.

A couple of questions. But first talk about the private-label soymilk sales. You have been in the business now with Publix, and I forget the account (ph) part, pardon me -- for quite some time -- A&P. What are you seeing on success of private-label soy? I guess this has always been a product that was brands that tasted very well did better. I am wondering how private-label acceptance has been?

Well, I guess I can comment on Publix, in that our business with Publix in the refrigerated private-label products is running at about 25% of their sales. That is what they are reporting to us. So they are very pleased with the program. And as other chains -- because many other chains are looking at taking on private-label products -- it takes a little while to build that obviously. Refrigerated space is obviously expansive, so that you're going to have one or two brands in there and a private-label product. It is unlike the aseptic side where you may have multiple brands.

So we are quite pleased with the progress that is coming. And we see -- we mentioned a number of new accounts that I can also say that we are working with quite a number of other chains in the development of products.

Thanks. And Steve, you mentioned -- you were talking about the European sales of sunflower, how are those priced? Are you getting a benefit here from the currency?

All of the products that we sell into those European markets are primarily sold in U.S. dollars, Scott. So I would say that the U.S. dollar being weaker certainly is is not hurting at all.

We have two primary advantages, Scott, in Europe. The first of course is reduced distribution cost. So the cost of shipping sunflowers from the U.S. over to Europe, that is a significant advantage. The second one is that to get genetics approved in the common market is a long process. And so we have gone through approximately three years to get our existing genetics approved. Again, I want to emphasize this is not genetically modified, these are genetics.

So that provides us with a significant advantage over other people. And so now we have those genetics improved, as Steve has said, we are expanding our plantings this year by 200%, and we will probably do that again in the following year.

Okay and on the Food Group, can I get a little more detail by division? You gave us the revenue growth, which we can certainly back into the actual numbers. What about EBIT by division? EBIT was down year-over-year in the business in total. I'm wondering where was weakest. Was it in the ingredients business?

Well, Scott, there were two major drivers. The Grains and Soy Product Group and the Package Group were both significantly upwards since the prior year. The Ingredients Group was down approximately -- you know it was down -- (multiple speakers) -- down about one-third versus last year. And all due to fiber and pricing versus last year where we could not produce enough and couldn't sell it fast enough.

You were talking about EBIT, right?

Yes. And on the distribution side, we were down as well due to the supply issues that we mentioned year-over-year. Down about a third again versus the prior year.

Those were the areas of weakness, and it is also important to recognize in distribution that our gross margin was still 26.3%, which for a distribution company is really quite quite, quite, quite good.

And was that mostly affecting the Montreal business, which was --?

No, it was mostly affective in Toronto and a bit in Vancouver. It was produce, and it was only produce related, not grocery related. The grocery business grew very strongly, and it has normalized today.

And the inventories were up a little more than I expected on a sequential basis.

Yes, essentially there were some strategies that were in place there, Scott, with some of -- primarily grains oriented. And with the grains market to where they were, we bought a lot of inventory now rather than bring it in over the course of the year, given the market. Primarily on the sunflower side and a bit on soy. That will start -- that will normalized itself. Normally we would not have bought this as early, but given some of the supply situations, we went ahead and bought. So that will normalize itself over the course of this year.

The situation in sunflowers is that you can sell absolutely everything that you have got. So we buy whatever we can, along with our own production. And this year we have also planted 10.5 thousand acres of sunflowers in Texas for the first time. And those crops will begin coming off in June. That's about two months earlier than you would normally get them in the Northern region. So this is going be, I think, a big plus. And so far the crop looks pretty darn good in Texas.

You did not really mention any kind of earnings hit from the consolidation of the Toronto DCs. I would assume there was some extra overhead or an extra lease or something in there. It did not really have much of an impact?

Well, you know, it did impact our cost, Scott, but it was not a huge amount of money. We are clearly -- we have not moved the Kofman-Barenholtz Group in yet, so we are carrying their facility plus extra space in our Didgo (ph) facility. During the quarter we clearly had extra cost related to moving. We would not put it at more than 100,000 in total, and it is a cost of doing business.

Okay. And the Abengoa relationship, do you know how many different technologies they are still testing at this point?

I'm not aware of any other technologies that they are testing.

All right, thanks.

Mark Chekanow, Sidoti & Co.

Actually you know on yesterday's -- on Haines (ph) conference call they mentioned that they just got a price increase from their tectra (ph) packer just this week. Can we assume that was you guys, and what is happening exactly in pricing on tectra packs?

Will first off, we never disclose pricing and relationships with our customers. I can tell you that the customers that we do have, we have contracts with at this time. We have relatively new contracts with some of the customers. But to comment specifically on pricing is -- (multiple speakers).

We have recently signed a new contract with Haines on the supply and production of soymilk, but as Steve said, we don't disclose any of those details. Those contracts are confidential.

Okay, and could you go into a little bit more detail separating by region kind of where you're with the consolidation? You mentioned it all before. You went through it quickly. Can you go back began and say the status of where you are and what -- as to you you got the benefit of in the quarter and what is still to come across the various regions in Canada?

You're talking distribution?

Yes.

Okay. So let's start on the East Coast. We consolidated our Montreal operations. And I would say that that is complete. I think as we noted, Mark, both midway through last year we had some significant transition issues. They were addressed over the balance of last year. And we had -- the business performed to expectations in the quarter. So I am very, very pleased with what has happened there.

In Toronto we are in the process of consolidating three grocery business into our new 135,000 square foot facility, which has both frozen, refrigerated and -- sorry frozen, refrigerated and dry storage. Two of the three operations are in, that being Supreme Foods and Snapdragon Natural Foods, so they have been consolidated.

The third facility to come in -- I'm sorry, the third group to come in is a company called Kofman-Barenholtz. Their primary focus is our kosher products, with also some natural and organic. They are scheduled to move later this year. And that will probably occur during the third quarter. We're actually contemplating moving it up. But we did learn from the Montreal experience about going too quickly.

So we have realized a large portion of the benefits in doing so thus far. The former owners of Snapdragon are providing us with transition services for a period of time. We have been able to unbundle those, and the business is now totally running on our system. The last obviously comes when we move in Kofman-Barenholtz.

And let me add that one of the reasons that we did not move Kofman-Barenholtz as well is that it is primarily focused in kosher, as said. And of course we just went through Passover. And that is a time of year where they have a significant portion of their business. It was an excellent quarter. And that of course has continued into the April when Passover occurred. So we did not want to disrupt that process until the wholesales of Passover had been completed.

And then on the West Coast, all of our grocery operations are consolidated at Wild West for Western Canada and Richmond, British Columbia. So the bulk of the grocery warehouse consolidation is behind us. And then on the produce side we have one facility in Western Canada, in Toronto that has been consolidated, and that is where we are at. So we're well down the road.

And again just if you could follow-up a little bit the competitive environment in '05, or is it at all easing or do you continue to face the same kind of pricing pressure, and you expect it to continue?

Well we have faced a lot of pressure over the last three months. We have tough here and perfected our business. It still is aggressive. But I think we're seeing some headway. We're not losing business, but the pricing certainly is coming out. Our activities in Europe will, I believe, have some impact on that, but it has been aggressive and --.

I guess to summarize also, Mark, to say our Louisville plant is running pretty well at 100% capacity in oat fiber. Our Cambridge plant is probably running a little over 70% today. And our Cedar Rapids facility is probably in the 50% range. So there is some capacity available. And Steve sort of outlined some of the actions that we are taking. And we're going to be particularly aggressive now on the international side. And we have secured some increased business down in Mexico and places like that. I think that, with the new products that we're doing, and the new modifications, I think we will see a steady improvement now.

Chris Krueger, Miller Johnson Steichen.

You noted that the produce in California had some issues with the weather there, but that it is back up to more normal.

It is getting closer to normal, yes.

Closer to normal? Is it possible to get kind of a rough dollar amount in the first quarter where had it been more normal -- what you think you have missed out on? Was it 1 million or a couple of million dollars or whatever it may be?

Our revenues would have been probably 1.5 to 2 million, and margins around 25.

As far as the '05 comparisons, would you say as far as the strength in '05 was it the second and third -- the second quarter of last year, that was maybe the peak, or --?

Second quarter and a little bit into the third.

Okay so one more tougher quarter. Based on that when we look in our gross margin expectation, would we still look for a little bit of a decline year-over-year in the second quarter, but maybe an improvement from the first quarter of this year?

Yes, I think that is a fair assumption.

(OPERATOR INSTRUCTIONS). Russell Stanley (ph), LOM (ph).

I just wanted to ask a question, first of all about the effect of tax rate. You mentioned that once you exclude the Opta Minerals gain, it was still quite low. Or at least my calculation is still around 8% excluding the gain. Is that right, and can you tell us what contributed to that?

Well actually, Russell, some of the expenses related to the gain are actually tax deductible.

Okay. First of all on the housekeeping side, can you tell us what the basic and diluted shares outstanding were for the quarter?

You bet. The diluted shares, 56 million. The diluted shares are 56 million 928. And the basic is 56 239.

Great. And you mentioned it earlier that growers are taking some measures against soybean rust. Can you tell us what they have done exactly?

Sure. Well essentially when rust was detected last year, many of the -- it was detected -- in the areas where it was detected there was a lot of spraying that took place on the genetically modified crops, which in those locales was about 90% for the heavy spraying and land remediation processes that were undertaken.

In the Northern climes where possible there was spraying done on the organic crop, there were natural applications provided that were used. But there was nothing -- there was no formal process there was known to correct the problem. The real treatment over the winter in the North was freezing cold weather. At this stage of the game we are informed that Rust overwintered in Southern Florida. And so they will be working hard in those areas to treat that.

There are committees that are working on the natural and organic side to develop applications and natural remedies as far as any potential outbreaks that there could be this year. But at this stage of the game, the winter weather took care of the North, and it appears that is very little overwinter in the South. And in the area where there is, I know that there is treatment being -- you know, it is being addressed.

And we will watch very closely, but at this stage of the game, we're pretty confident.

As you know our soybeans are sourced in 13 different states basically in the North, and so there was not any Rust the crop in that area. And we don't really expect there to be any there. And most of the organic soybeans are grown in the North region, not the Southern regions.

Great. And just one final question. Can you tell us at this point what percentage of the oat fiber sales are from the low-carb specific market?

Now?

Yes, at this point? Has that declined any?

You know, I don't have that number now that is changed so much. But I would suggest that it is less than 10% of our overall fiber business.

Probably significantly less.

But the increased competition, are you facing it primarily in the low-carb area or are you seeing it in the rest of --?

No, it is sort of across the fiber business.

Across the board? Okay.

I think you need to look at it -- there was a double whammy here. The first was the decline in the low-carb, the second was because of the dramatic rise in low-carb last year people over inventoried in order to try to ensure that they had supply. Then when it fall off the consumption declined of course, so it has taken awhile to work those inventories down.

So you have both the inventories being worked down and a decline in that particular segment of the market. The inventories now are pretty well worked through, and so that should begin to help the situation a bit.

Keith Howlett, Desjardins Securities.

I just had a couple of housekeeping questions first. Can you give what the tax rate is on the operating business? You know, I've sort of tried to do that same calculation one of the other questioners had.

Yes, based on the first quarter, 27%.

27% in the first quarter?

Yes.

So the deductible expenses, do they show up in the income statement or do they just show up as a reduction in tax, or are they in the Opta Minerals numbers?

They show up netted against the gross (inaudible).

I see. They are netted against the gain?

Yes.

And then they are deductible for the tax? I see. Okay great. And maybe this is the same question over again, but on the income statement in the other income line is it just showing -- that is just under the segment earnings -- the 4 million and 35,000. So that reflect that net out of the gain, less the deductible expenses, are is there anything else in that other income in the income statement?

That is primarily it.

That is primarily it. Okay. And just a couple of questions on the business, just in terms of -- I have not got any reason information on whether Retinmyer (ph) is going ahead with their plant. It would not sound like it is particularly likely at this stage of it, but what information do you have there?

Well, I can tell you that they have started to build something. And that could be a number of things from a warehouse to a microcrystalline cellulose plant which they already have a facility in Cedar Rapids, to potentially including an oat fiber line. And to be quite honest, we don't know.

And then just a question on the snack business. Is there any sort of new product launches there, or what does sort of the future hold there?

As I mentioned we go to the fruit bar side of the business first. We have had a good first quarter, and we've continued to work on a number of new projects that I mentioned. We have also repositioned our lines on the organic side of our 20 gram lineup we have put new packaging in place, plus three new flavors, which the market was looking for. With some of the major customers that we have, we have reformulated our 40 gram bar to differentiate it and add some value. We have significantly increased the dietary fiber content in that bar, so it is really a fruit and fiber offering.

And we're launching a 50 gram bar under the Granola brand, which is a brand that we've had around for some time, which is a really multifunctional high fiber bar. So we are in the process of doing a number of things with that lineup.

On the snack side on the salty, I will call them salty for lack of a better description, being soy, corn and sunflower. During the quarter we brought our copper line up, which is the technology that we have acquired and built to coat these products with a natural coating that allows us to have a number of different -- on number of different food applications, both as a snack and as a food ingredient. So we brought that up during the quarter.

And just is there any new information on the soy concentrate business with Dean (ph). Are you on -- it is take-or-pay, are you producing, or you taking the pay, or what is happening there?

We're in the take-or-pay portion of the contract. The contract extends through til the end of this year. We're not currently producing for them, because they have gone on their last -- maybe producing a tiny bit, but a very small amount. But we are in the -- receiving payment under the take-or-pay.

We are on the pay side right now.

On the pay side. And then just finally on this the rice stream, how is that going? I know there was some issues on the stickiness of the product and the packaging equipment or whatever. Is everything running well there now on the rice stream side?

We have made good progress. There are still some issues that we need to address, but we are making good progress.

(OPERATOR INSTRUCTIONS). Guy Gordon, Tolcross Security (ph).

I just wondered if you could break down the margins for each segment? I know there was one mention of one segment -- I think distribution. But could you break down the margins for each segment?

Gross margins?

Yes.

(indiscernible) gain is about 12%, ingredients was about 17.5, and distribution, as Jeremy said, is 26 23, and (inaudible).

10%, okay. And --.

(inaudible)

Okay. And just in consolidated gross margin in the first quarter was 18.1 versus the fourth quarter last year of 17.4. The trend is in the right direction. And I assume you expect that trend to continue. Do you have some sort of normalized level you would like to see it get to for the end of the year, or where can we --?

We would like to see it move up, you know, to the 20% range.

Okay, so you are on the right track then, that is good. Okay, thank you.

(OPERATOR INSTRUCTIONS). There are no further questions. I will turn the conference over to Mr. Kendall for any additional or closing remarks.

Again I would like to thank you then for tuning in to listen to our conference. And, as always, you're welcome to get in touch with me here at the Company. And we're very focused this year on our bottom-line, and we do expect to continue to grow our topline. And I guess if we don't grow our topline, we won't see the bottom-line continue to grow.

But we're very much focused on that and so we are excited about this year. I think things are going really well. And I'm really very pleased with the new products and the new business that is coming in. Thank you very much for listening in, and we will talk with you soon.

And that concludes today's conference call. We thank you for your participation, and have a nice day.