Sunopta Inc (STKL) 2006 Q1 法說會逐字稿

Good day, everyone, and welcome to the SunOpta, Incorporated first quarter 2006 earnings results conference call. Today's call is being recorded. At this time, I would like to turn the call over Mr. Jeremy Kendall, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good morning, ladies and gentlemen, and welcome to the first quarter 2006 investor call for SunOpta, Inc. I'm joined on this call today by Steve Bromley, the Company's President and Chief Operating Officer; and John Dietrich, the Company's Vice President and Chief Financial Officer. We are making this call from our Fruit Group offices located in Buena Park, California where we've held our quarterly Board meeting.

Before I begin, I would like to remind listeners that, except for the historical information, the matters discussed during this conference call may include forward-looking statements, including statements relating to our 2006 and future operating results that may involve a number of risks 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 U.S. GAAP. Our 10-Q for the period ending March 31st, 2006, will be filed by no later than the close of business on Friday, May 5th, 2006.

So we're very pleased to report record quarterly revenues of 133.3 million for the quarter ending March 31st, 2006, representing a 54.6% increase over the 2005 quarterly revenues of 86.2 million. These revenues of 133.3 million represent the highest revenue of any quarter in our Company's history and the 34th consecutive quarter of increased revenue growth versus the same quarter in the previous years, over 8 years of continued growth. The Company's revenue growth in the quarter includes an internal growth rate of 18.1% and growth via acquisition of 35.5% for a total of 54.6%. Revenues within the SunOpta Food Group increased 52.5% to 119.3 million, representing approximately 90% of our total revenues and reflecting continued strength within the Company's vertically integrated natural and organic food operation. We have provided our revenue guidance of 540 to 550 million for fiscal year 2006, representing an increase of between 27% and 29% over 2005, excluding any potential acquisitions. We will update our revenue guidance midyear as we have traditionally done, but at this time we can certainly confirm that we are comfortable with this guidance.

We continue to target a revenue run rate of $1 billion by the end of 2007. We believe that this level of revenues will enable the Company to benefit from economies of scale, leverage the impact of costs related to the Company's public status, and allow the Company to cost effectively compete in the core segments within which we participate. We expect to be able to reach this target through continued expansion within our existing operating segments via a combination of internal growth and accretive acquisitions. As our core businesses continue to grow each year, acquisitions will become an increasingly smaller percentage of our total annual growth. We do not expect to enter into any new business segments but intend to stay focused within the categories where we currently operate. Each of our operating segments are focused on key components of today's healthy eating trends and the USDA's dietary guidelines which recommend increased consumption of fruits; vegetables; fiber; whole grain; and plant oils, including soy, corn, and sunflower.

Operating earnings increased by 83.9% in the quarter to $6,031,000, or 4.5% of revenues. That's compared to 3.28 million or 3.8% of net revenues in the previous year, driven by a 104% increase in operating earnings within the SunOpta Fruit Group. Net earnings in the quarter were 3,012,000 or $0.053 per diluted common share, as compared to $0.116 per diluted common share in the previous year. It's important to realize that the first quarter of 2005 included a one-time gain relating to the initial public offering of Opta Minerals, Inc. Net earnings per diluted common share before this one-time gain increased 47.2% from $0.036 per diluted common share in the same quarter in 2005.

2006 results include a $120,000 of pre-tax cost for stock compensation expense not recorded in 2005 and approximately $300,000 of pre-tax one-time costs relating to the implementation of tax strategies in Opta Minerals, development and marketing costs related to our new soy fiber launched later in the quarter, and listing fees related to our move to the NASDAQ national market from the NASDAQ capital market. Most of these costs are included in the selling and general expense. Gross margin as a percentage of revenues increased to 17.7% in the quarter versus 15.6% in the fourth quarter of 2005. This increase of 2.1% reflects the impact of improved product mix and operating efficiencies, combined with the benefit of ongoing cost reduction initiatives. Gross margin in the quarter Q1 of 2005 was 18.1% but was prior to the acquisitions of Cleugh’s Frozen Fruit, Pacific Fruit Processors, and Earthwise Processors which in total have lower inherent gross margins.

Selling, general, and administrative expenses as a percentage of revenue decreased to 10.5% of revenues versus 10.9% in the fourth quarter of 2005 and 11.4% in the first quarter of 2005. This reduction reflects the benefit of leveraging these costs as the Company continues to grow, plus lower inherent SG&A costs in the acquired companies as noted above. We recorded a $208,000 foreign exchange loss in the quarter. This is not a realized loss, but simply a point in time, and this loss was recovered in the first week of April with the rebound of the Canadian dollar. Our effective tax rate in the quarter was 31%, which is within our expected range for the year of 30 to 34%. Based on our first quarter results, we're pleased to reconfirm or our earnings guidance for the year at $0.26 to $0.30 per diluted common share. As with our revenue guidance, we will review our earnings guidance at the end of the second quarter.

All operating segments within the SunOpta Food Group reported increased revenues and increased operating earnings versus 2005. Revenues increased 52.5% while operating earnings increased 104.3%. These strong results were driven by record aseptic soy milk revenues, the strong rebound in sales of oat fiber, growth in private label fruit-based products, and continued momentum and cost improvement in the Canadian food distribution operations. The Company's balance sheet remains strong as of March 31st, 2006, with 5.1 million in cash and sufficient financial resources to continue to fund growth in operations and invest in capital projects. Shareholders' equity increased to 163.9 million, representing a book value of $2.88 per common share, up from $2.68 as at March 31st, 2005. Diluted weighted average outstanding common shares for the quarter were 57,243,221 shares versus 56,928,173 in 2005. Long-term debt increased to 66.7 million in the quarter primarily as a result of debt utilized to fund the acquisition of Magnesium Technologies Corp. Our long term debt to equity ratio is 0.4121 as of the end of the quarter, still well below our maximum targeted operating threshold. At the end of the quarter, we have approximately 28 million in available financing facilities to support future growth initiatives.

As we look back at the first quarter, we can summarize the key events as follows. The strong recovery of the oat fiber business due to the increasing utilization of fiber in food products both for human and pet consumption, our focus on developing this business internationally, and our efforts to bring new products to market such as organic oat fiber, organic soy fiber, and organic okara. This quarter, we also launched our new soy fiber which has been very well accepted in the marketplace. Second, the start-up of our new three-year 60 million aseptic soy milk contract with a major U.S. retailer in early January of 2006. This contract positively impacts every level of our vertically integrated soy model, from seed through to packaged product. As a result, we continue to invest in expanding production to support our customers and have increased production from approximately 115,000 cases of soy milk per week in December, '05 to a high of approximately 180,000 cases per week in March, 2006, or in excess of 2.1 million quarts of finished product in a single week. We're continuing to pursue opportunities to further expand capacity at this facility.

Third, during the quarter we implemented a capital improvement project at our Fruit Group plant based in Buena Park, California, designed to increase processing and packaging capacity, improve process efficiencies, and automate product flow. This investment is being completed just in time for the beginning of the strawberry processing season. In fact we saw it running yesterday. In addition, we also completed a plant upgrade at the Salinas, California plant in order to improve quality control and processing capacity. The SunOpta Fruit Group has signed a number of new contracts recently, including the previously announced extension of the Jamba Juice strategic supply contract relationship. Four, we commenced construction of a plant expansion at Dakota Gourmet where the Company produces organic and natural snack products made from soy, corn, and sunflower. After a very successful year in 2005, the existing facility is operating near capacity.

Five, the acquisition by Opta Minerals of Mag Tech Technologies Corporation of Walkerton, Indiana. This profitable company has revenues of approximately 30 million and nearly doubles the operations of Opta Minerals. Mag Tech supplies magnesium-based products to the steel industry in the U.S. for the purpose of desulfurizing steel and opens up cross-selling opportunities between Opta Minerals and Mag Tech's customer base. Sixth, and finally, we move from the NASDAQ capital market to the NASDAQ national market and officially opened the NASDAQ market on March 21st, 2006. After 25 years on the capital markets, the move to the national market reflects SunOpta's maturity and leadership in the growing natural, organic, and specialty food industry; and allows many more institutions to participation in our Company than we had previously -- could afford.

At discussed on our previous conference call, our key priority in 2006 is to improve earnings while continuing to grow our healthy products portfolio, in addition to positioning the Company for long-term sustainable growth and profitability within the key product categories. We are satisfied that the first quarter of 2006 is indicative of our efforts over the past years and are confident the Company's poised for future exciting growth.

Steve Bromley will now provide some additional operational details.

Thanks very much, Jeremy.

The first quarter was yet another busy period for the Company where we continued our efforts to position each of our operating segments for continued growth and improved profits throughout 2006 and beyond. Numerous initiatives were identified and implemented during the quarter, and we are clearly realizing the results of these activities. In the first quarter, the Grains and Food Group had revenues of 39.2 million versus 31.2 million in the same quarter of 2005, an increase of 25.6%. Internal growth was 19.5% in the quarter, with the balance coming from the roll-over of the acquisition of Earthwise Processors in early May, 2005. Segment operating earnings for the quarter were $1.793 million versus $1.612 million in 2005. Gross margins in the group increased from 11% in 2005 to 11.5% in 2006. Results in the quarter were driven by strong performance of the Company's vertically integrated aseptic soy milk and dry roasting and packaging facilities, offset somewhat by weaker than planned grain markets due in most part to strong worldwide crop yields in 2005, causing oversupply conditions in certain markets.

During the quarter, the aseptic packaging operations realized record weekly volumes and produced over 180,000 cases in a single week. We are continuing our plant expansion initiatives in order to meet continuing customer demand. We are also working on a number of new soy-based opportunities with existing and new customers which would further expand utilization of our vertically integrated soy milk model. As Jeremy noted, we have commenced an expansion at our dry roasting and packaging operation in Wahpeton, North Dakota, as this facility has reached its productive capacity. We are experiencing strong demand for dry roasted products serving the baking and nutrition bar industries.

Volumes of soy and corn products during the quarter improved modestly versus 2005, but were less than planned for the quarter due to oversupplies or result of the strong crops of 2005. As a result of large stocks, certain customers delayed shipment on contracted amounts to later in this year. The bulk of the oversupply situation appears to be behind us now, and we expect the balance of the year to meet expectation. Volumes and operating earnings within the group's sunflower operations were less than expectation in the quarter and down versus 2005 as a result of low margins in key categories, including bakery kernel and certain by-products such as bird seed. The bakery kernel market has been saturated with exports from China and Bulgaria, and the heavy crop of 2005 has reduced margins in by-products. We are repositioning our product mix and processing strategy for this business for 2007 in order to address areas of vulnerability created by crop performance and international competition. This will include introduction of varied crop genetics and a shift in growing regions. In spite of the weakness in sunflowers, the Grains and Foods Group still recorded impressive growth versus 2005, reflecting the strength in the group's product diversity and market segments.

The SunOpta Ingredients Group also posted an impressive quarter, increasing operating earnings by over 150%. Revenues were 18.1 million for the first quarter versus 15.1 million in 2005. Segment earnings were 1,706,000 versus 676,000 in 2005, an increase of 152% reflecting the progress made over the last year in the group's fiber operations. Internal growth was a solid 19.5% in the quarter versus a negative 3.7% in fiscal 2005. The increase in the quarter is attributable to a 32% increase in fiber revenues as compared to the same quarter of the previous year. The increase in due to a number of new customers and applications for oat fiber as well as initial shipments of our recently launched soy fiber. You will recall that in early 200,5 we were struggling with the decline in the low carb product market and had developed a detailed plan to revive our fiber business. These initiatives included entry into new markets, cost reduction, development of new products, and international expansion. Clearly these have been a true success.

As Jeremy mentioned, we have launched a new soy fiber, and it has been well received to date by a number of customers. Our soy fiber utilizes a proprietary process developed internally over the past 18 months by applications and development staff within the Ingredients Group. The process utilizes much of the same equipment used to produce oat fiber and is being produced at one of our existing fiber operations. The quarter was extremely active for soy fiber as the Company -- as the Company has completed a number of plant trials with good customer response. This is a significant opportunity as the North American soy fiber market currently appears to be in short supply and there is demand internationally as well.

In the quarter, the gross margin rate in the Ingredients Group increased by 2.4% to 19.4%. This rate increase can be attributed to better plant utilization and the impact of cost reduction initiatives partially offset by higher energy costs. In addition to the launch of the soy, organic soy, and organic oat fibers, the Ingredients Group have also launched Grade A Acid Whey and organic okara, expanding the group's product portfolio and addressing specific market needs. The Ingredients Group continues to focus on international markets for oat and soy fiber, while strong domestic volumes are forecast to continue throughout the remainder of the year. The Company is actively expanding its process and research and development efforts to expand its line of fiber offerings, including the development of both soluble fibers and insoluble fibers derived from alternate sources for new applications such as pet food. The group has recently entered into a processing agreement with Ocean Nutrition, a privately owned Halifax, Nova Scotia, based supplier of omega-3 fatty acids from fish oil. During April, we agreed to provide processing and drying services to them through the end of 2007. We are extremely pleased to be working with Ocean Nutrition as they develop their business in the very hot omega-3 market. Ocean Nutrition's current product sales are primarily in nutritional supplements, however their intent to is to grow into sales into maintain fresh -- mainstream food products.

We have recently received indications from a key customer that one of their customers is expected to reformulate their specialty fiber product to an alternative lower cost product. As a result, we expect a drop in volume in this product over the last three quarters while the customer in question develops new markets and customer relationships. All in all, the SunOpta Ingredients Group is off to a great start in 2006, with solid results and room for future growth as the group continues to bring exciting new products to market.

During 2005, we formed the SunOpta Fruit Group comprising the operations of Organic Ingredients, Cleugh's Frozen Foods, Pacific Fruit Processors, and Kettle Valley Dried Fruit. The integration of these businesses has enabled SunOpta to become an important player in the natural and organic North American frozen fruit and fruit ingredients market, a large and rapidly growing market driven by customers dedicated to making nutritional choices that will improve their health and quality of life. During the first quarter, the group realized revenues of 31.1 million, representing 26.1% of total Food Group revenues. Segment earnings were 1.5 million versus 365,000 in 2005, representing 22% of total Food Group contribution. This represents an increase in segment earnings versus 2005 of 311%. We are extremely pleased with the Fruit Group's performance to date and the outlook for the future. A great deal of progress has been made to integrate operations and execute a $4 million cost reduction and profit improvement plan, including consolidating purchasing benefits across the group, reduced workers' compensation insurance and employee benefit costs, and a number of specific operating efficiencies. As Jeremy has mentioned, the Fruit Group has and continues to implement a number of facility improvements, including automation and capability expansion projects.

The Fruit Group has won a number of new contracts in both food service and with major retailer in private label projects. The group continues to expand its domestic and international sourcing expertise, in hands with upgrades to processing and product development with strong upside potential in organic products. The group is currently sourcing fruits and fruit-based ingredients from over 40 countries around the world, and the need to continue expanding our global supply cannot be understated. Today the Company is the largest U.S. producer of organic citrus juices, the largest producer of organic IQF polybag fruit, and the second largest producer of frozen strawberries in the United States. During the quarter, the group extended its strategic sourcing relationship with Jamba Juice for the processing of a number of fruit-based ingredients with an expected increase in volume of 20%. We are extremely pleased to partner with Jamba to provide quality products for this exciting, fast-growing company, and believe this relationship is indicative of our increased presence in the global fruit industry.

Over the past six months, we have seen a rapid increase in the demand for healthy convenience snacks, particularly within our line-up of natural and organic fruit bars produced in both private label and under the Kettle Valley brand. Over the balance of the year, we will be working with a number of branded and private label companies for the production of healthy fruit bars. Our new contracts will bring our facilities to near capacity. Thus, we are assessing new processing technologies to meet growing demand and develop new and innovative products. It has become obvious to us that the time has come for the healthy convenience snack category as the consumer demands healthier alternatives.

The SunOpta Canadian Food Distribution Group realized revenues in the quarter of $30.9 million versus 25.5 million in 2005, an increase of 21.2%. This growth represents an internal growth rate of 13.7% with the balance resulting from the acquisition of Les Importations Cacheres Hahamovitch Inc. at the end of 2005. Segment earnings were $1,830,000 versus $690,000 in 2005, an increase of 165.2%. As mentioned in previous quarters, the Distribution Group had been dealing with a number of integration- and supply-related issues with the bulk of these now behind the group. These improved results are reflective of the business building and cost reduction initiatives implemented over the past year. During the quarter, the group focused on further leveraging its national distribution capabilities and, in doing so, has added a number of national listings to its product offerings. At the same time, the group continues to focus on driving efficiencies across its national platform with a focus on improved freight and logistics costs combined with improved customer service. As the group's national distribution capabilities continue to grow, we will expand our healthy product offerings to include natural and organic health and beauty aids and nutraceuticals. These products fit well with our existing product and customer base and fill a void in the services currently provided to our customers. The first quarter was certainly a turnaround for the Canadian Food Distribution Group with the balance of 2006 and beyond looking very positive.

We are working hard in our BioProcess Group on our initial equipment contract with Abengoa, and we are confident that this project will be delivered as planned. All revenues in the quarter from this group were from the Spanish contract. There is a growing interest in our technology from North America, Europe, and China, fueled by the high price of oil and announced commitments by the U.S., European, and Chinese governments for the development of ethanol from biomass. We are increasing our marketing efforts now that the Spanish contract is well underway, and we're very excited by the opportunities that lie ahead. In addition, we have commenced studying utilization of the group's technology in the treatment of by-product streams from our manufacturing facilities for ultimate production of ethanol. While in the early stages, we are optimistic about the potential in this regard. Jeremy will comment further on the BioProcess Group in a few moments. The combined SunOpta BioProcess and corporate operations costs of 1,796,000 compared to 900,000 in 2005, and include the one-time costs of listing on NASDAQ national market in 2006, amortization, hosting and other IT infrastructure costs related to the commissioning of Oracle in late 2005, and the appreciation of the Canadian dollar as compared to the U.S. dollar as many of our corporate SG&A costs are paid in Canadian dollars.

Opta Minerals realized revenues in the first quarter of 13.1 million versus 7.7 million in 2005, an increase of 69% - 14.6% from internal growth and the balance due to the acquisition of Magnesium Technologies Corporation. During the quarter, the Company's U.S.-based abrasives facilities in Baltimore, Maryland, and Hardeeville, South Carolina, set revenue and production records. Unfortunately we were not able to restore power to our New Orleans facility during the quarter but hope to do so within the next few weeks. The area surrounding our plant was devastated by Hurricane Katrina, thus the slow return to operations. This is a very small facility employing 2 people, and sales have continued from a leased warehouse site. Operating earnings within Opta Minerals were $998,000 versus $837,000 in 2005. Demand for roofing, shingle, granules, and silica-free blasting abrasives are very strong, and when combined with the recent acquisition of Magnesium Technologies, we expect 2006 will be a good year for this business.

Thank you, Steve.

So in looking forward to the remainder of 2006, some of the key trends that we see are, one, a very strong market for both soy milk and soy powders, both domestically and internationally. We continue to expand our packaging operations and will need to subcontract or further expand these operations in order to meet future customer requirements. Continued growth in both oat and soy fiber, driven by the strong trend to add fiber to many food products, including breads, bagels, tortillas, tacos, cookies, drinks, yogurts, pet foods, all sorts of beverages, bars, and so forth.

Three, continued growth in the organic and natural food market. The demand for organic products is beginning to exceed domestic supply as more and more mass market retailers introduce new organic products to their stores. It must be remembered that it takes three years to certify an organic producer. Therefore SunOpta's global sourcing capability has become a critical component in ensuring year-round quality and supply for these retailers. Wal-Mart's announcement that it will stock 400 organic products is a clear sign of the growing acceptance of organic products in the mass market. At the Natural Products Expo West Show recently held in Anaheim, California, where we had two booths, over 43,000 people attended the show, an amazing attendance and another sign of the growth in this organic market. The breadth of SunOpta's organic and natural product lines and our ability to ensure the supply of quality products is becoming increasingly important to our customers. As we move forward, we expect to significantly expand our international sourcing capabilities, with the intention of investing in local processing to further add value to the products that we source. We currently bring products from approximately 40 countries and are particularly interested in South America, Eastern Europe, and China. At the same time, we intend to invest in further private label packaging facilities in North America to expand our vertical integration capabilities.

Four, with the enormous interest in cellulosic ethanol, particularly after President Bush's State of the Union Address, the SunOpta BioProcess Group is actively quoting on projects in Europe, China, and North America. It is the intention of management to find ways to participate through its technology in projects which will provide a future recurring income base. We've had a huge interest in our technology which may provide a key piece of the solution to producing ethanol from biomass. Clearly, it's not possible to use conventional feedstocks of corn, wheat, and barley to meet anywhere near the volume objectives of the U.S., China or Europe in the production of ethanol. We are seeing significant new government initiatives for the production of ethanol all over the world, stimulated by the current high price of oil, the desire to limit dependency on foreign energy sources, and the desire to develop environmentally-friendly energy solutions. For example, the Chinese government has recently announced a $5 billion program to develop ethanol projects from lignocellulosic materials. The private sector is also investing in the development of new enzymes, new yeasts and new processes to both lower costs and improve efficiencies in the production of ethanol from biomass.

In view of the interest in this technology, we thought it worthwhile to restate the role of our technology in the production of ethanol from lignocellulosics. Lignocellulosics are materials such as cereal straws, sugar cane bagasse, corn stover, certain grasses, and fast-growing hardwoods such as aspen. These raw materials all contain varying degrees of lignin, which is a polymer; cellulose and hemicellulose, which are sugars. In nature, the lignin creates a physical and chemical bond which ties the three components together and restricts enzymes from converting the cellulose and hemicellulose into sugar for subsequent fermentation to ethanol. Our patented process is a continuous pretreatment process which effectively separates these materials so that enzymatic conversion to sugar and subsequently to ethanol can then take place. SunOpta's goal is to own and operation the cellulosic ethanol plants by leveraging the BioProcess Group's proprietary position and experience in biomass preparation, biomass pretreatment, enzymatic hydrolysis, and fermentation, all gained over the past 30 years.

SunOpta will use three strategies to implement cellulosic ethanol production, plant ownership, and operation. First, we will be prepared and are prepared to invest, own, and manage, with strategic partners, ethanol facilities. Second, we will license our technology or sell or lease this technology and equipment to third parties as appropriate. And, third, we look to increase cellulose ethanol production at existing starch plants by bolting on equipment to existing facilities. We will announce contracts as they are signed, and we'll also keep you informed of the progress in developing our own ethanol projects.

In summary, the first quarter showed a significant improvement in revenues and a significant improvement in operating earnings versus the last quarter of 2005. We are reconfirming our guidance for 2006 of revenues between 540 and 550 million and earnings of $0.26 to $0.30 per diluted common share. As we look forward, approximately 50% of our food business is in the organic market, and the remaining 50% in the healthy eating category. The organic market continues to grow in the 15 to 20% range per year, estimated to reach 30.7 billion by 2007. We see that the growing awareness of the benefits of organic food are manifested in a greater commitment by the retail sector to offer a complete line of organic products, many of which now carry their own private label. Approximately a third of our business is now in the production of private label products, and we expect to see this figure reach 50% over the next several years. As one of the largest organic food manufacturers, we are well-positioned to participate in this trend, and particularly in product categories such as frozen fruits and vegetables, fruit juices, non-dairy beverages, soy products, fruit bars, and healthy snack foods. This was certainly a busy quarter, and 2006 is shaping up to be a very solid year, focused on continuing our growth and improving our earnings.

With that summary then, we'd like to open up for questions. Thank you.

[OPERATOR INSTRUCTIONS]. Sara O'Brien, RBC Capital Markets.

His, guys. You just finished off, Jeremy, by talking with the Wal-Mart interest in beefing up its organic offering. What do you think that could translate into for -- for SunOpta? I mean, are you actively bidding on material contracts, or how do you think this will pan out?

We sell a substantial number of products to date to Wal-Mart, but of course, under other people's brands. So, for example, we make Hain Celestial’s Westsoy brands of soy milk. And that is sold -- in fact, we do an actual special package for Wal-Mart. And so that's a significant volume for us. Today, at the moment, Wal-Mart doesn't have a private label soy milk. We have many, many of our ingredients going into products into Wal-Mart. We will be doing a major capability presentation to Wal-Mart in the next month, approximately. And this is something that we've been doing quite extensively with major retailers over the last -- oh, gosh, 90 days, I think particularly since we completed our corporate branding program and brought all of our companies under the SunOpta umbrella. And suddenly a lot of retailers realized that they were buying significant amounts of organic products from SunOpta, and we began to be invited in to meet with these retailers who said, Please come in and help us expand our organic product lines, because we can see you are -- have a lot of experience in this area. So while I'm not sure that all of Wal-Mart's customers are going to be organic buyers or that Wal-Mart is going to have organic food products in every one of their stores, I think the significance of Wal-Mart's entry is just simply the reflection of the growth of awareness of organic products. And so we are seeing an amazing expansion of this awareness, and amazing expansion of all retailers adding more and more organic products.

Okay. So it sounds like maybe this would be the kind of thing that's sort of a gradual ramp up with particular contracts possibly to do copacking for them. Is that sort of fair to say that it would be a number of contracts going forward versus maybe one large contract coming up?

Yes. I would say that we would like to be participating in a number of different products with Wal-Mart.

Okay. Great. And I just wondered -- you talked about possibly investing or co-investing in ethanol plant owner -- or running an owning an ethanol plant. I mean, how -- how much capital would you dedicate to that kind of a project?

Well, of course it's going to vary tremendously depending on the size of the project, so we're looking at it in a couple of different ways. We do have some waste streams that Steve mentioned that come from existing facilities that are very high in what we call the hemicellulose fraction, and so these waste streams which of course are also a cost factor for the Company, represent an opportunity to turn those waste streams into ethanol and into a money-making or profit-making venture. So we are currently studying those waste streams in our labs. I would expect that we will be able to have produced ethanol in our labs by the end of this month. Having said that, there are still issues that we have to determine about yields and yeasts and so on and so forth. We're testing about -- yeast or enzymes from about five different companies around the world in this production. So -- so that's one way that we think that we will potentially participate in this market. The other way, as we've indicated, is either through sale, lease or direct participation with our technology, taking equity positions in projects. We have probably had 90 different groups approach us within the last four or five months for ethanol projects in Europe, China, and particularly in North America. And so we are working with a number of these people and would hope that they have some things to say in the relative near future.

Okay. And can you just remind us how big is your engineering team working in Stake Tech right now?

We have 10 people in this group. They're all primarily engineers.

Okay. Great. And can you just give us an idea of your CapEx budget for the year?

Yes. Our total Cap Ex budget this year is $15 million, which includes $3 million in a contingency fund not presently allocated, but available, should interesting projects develop over that period of time. In addition, in that 15 million is a $2.4 million fee to buy a plant in Opta Minerals which we have an option on. We will probably exercise that option and then do a sale and lease-back, so meaning that, in the end, that 2.4 million will not come out of our CapEx budget.

Okay. Fair enough.

First quarter we spent approximately 2.7 million, 2.8 million compared to 4.8 million in the previous quarter.

Okay. And I think the only segment that I saw where you had gross margin pressure was in the Grains Group.

Yes.

Is that because of pricing that's -- I mean, what's driving that?

Well, I think, as Steve said, there were two issues there. There were excellent crops last year in the soy area, and -- and so for the first quarter -- you have a number of small companies that don't have large storage facilities, and so they need to move their product out very quickly. And so in the first quarter there was a bit of a glut of soybeans, and a lot of these products end up in Japan. And so for the first quarter, Japan had to absorb this glut. That is now past, and we see, as Steve said, a reversion to our plan for the rest of the year. The second part, again as Steve mentioned, was in sunflowers where there has been an increase in competition, particularly from China. And China comes into these markets on a kind of a sporadic basis. Sometimes they're there, and sometimes they're not. Over the long-term, we don't expect them to be a major force because of the demand for their home consumption. But at least at this point -- this year, they did come into the market, and so we're having some effect. Steve, you want to add to that?

Sara, I just want to confirm, margins in the group were up from 11% to 11.5% on the gross margin level.

Okay. I'm looking at the EBIT level.

Sorry. Yes, okay. I just thought you were talking -- yes.

Okay. Great. Thanks a lot.

Okay. Thank you.

Scott van Winkle, Canaccord Adams.

Hey, following up on that last question, if the gross margins were up 50 basis points, why was the EBIT down?

We had a number of SG&A costs related to some of the new projects, Scott.

So like kind of start-up costs or --

Yes. Startup and putting new -- putting new people into place to manage some of the -- some of the activities that we have.

Okay. And the EBIT margin improvement and -- well, margin improvement across the board in Ingredients, how much of that was the comparison on oat fiber and how much was kind of everything else?

You may have stumped us here.

Oat fiber was up, Scott, about 32% in revenue in the last year.

I think you could comfortably say that the bulk of the increase in the quarter -- the increases were really driven by improved -- the improved fiber business and cost reduction. So there was probably 3 to $400,000 in costs that came out, and the balance would be -- that's probably a little high. $250,000 in cost savings and then the balance would be incremental through put and fiber sales.

Okay. And did you say you lost a fiber customer in your prepared remarks?

Yes. No, one of the comments that I made there, Scott, is we have been producing a fiber-based product for a major customer of ours, and they had a -- they have lost one of their major customers. And so, in the meantime, we're expecting a drop in that -- in that volume while they find other customers, but the timing will be such that we're probably going to have six months of reduced sales which will be somewhat -- almost all -- somewhat offset by the new Ocean Nutrition business.

Okay. How large is that customer? I don't want to put you in a situation where you have to say the name or something. Is it a soluble fiber, is it an oat fiber customer?

It's a soluble fiber customer.

Okay. Okay. Thanks. That explains it.

[inaudible] fiber customer.

And the -- moving on now, keeping on the margins, in the Opta Minerals business, were the margins on the Magnesium acquisition, were they much lower?

No. Actually, they're about the same as the existing business. Yes.

Okay. So the 300 basis point decline EBIT margins in the Minerals Group -- I'm sorry. If you said it, I must not have caught it. Why it was down so much?

The -- it's just down due to the product mix and market factors. It wasn't driven by Mag Tech. The foundry side of the business is very competitive, Scott, and at times, there are competitive forces that drive those margins down a bit.

Okay. Okay. And skipping back to the fiber business, there was a disruption to a competitor in the soy fiber that seemed to aid you right at launch. Has that disruption been corrected?

No. It's -- there continues to be significant opportunities for us at the moment. We had, of course, expected to enter this market, and we've entered it, what, six weeks ago, I guess. And we had expected to have to enter that market at a bit of a discount as a second supplier there. And in fact, with the disruptions that they had at their facility, we were actually able to go into the market equal or even at a premium. That also -- to achieve volumes that were far, far greater than we anticipated. So -- and we certainly expect that to continue through the year. It's been -- it was a very fortuitous product entry for us.

Okay. Good timing.

Yes. Very lucky.

And I want to kind of talk about the private label options you have. You mentioned Wal-Mart. Everybody is adding natural, organic. And those that seem to have a lot of natural and organic products already are pushing pretty hard on private label. Are you beefing up your private label solutions? You mentioned investment in private label packaging and things of that nature. Are you going a little more aggressively? Do you see the big opportunity kind of sitting right in front of your face and you want to jump on it in North America?

Absolutely. We -- private label, as I mentioned, was a third of our business heading I think to a half very quickly. We are certainly, also as I mentioned, going to be investing in further facilities. We've been expanding, for example, in our fruit business substantially our private label and our capacity to produce those products. So private label is a major part of our business. I think the other thing that we think is very important in this whole process is our ability to source. As I mentioned, we think that -- we know that the supply domestically of organic products is limited because of the time it takes to certify, and major retailers want to deal with a company that has the ability to provide significant volumes of product that's consistently -- of a consistent quality, and who can absolutely assure them that the certification is complete. We've seen over the last few years a number of times when there have been shortages of product. Just last year as an example, it was a shortage of strawberries in the U.S. But because of our offshore capacity to source, we were able to bring an additional 6 million pounds of strawberries in and satisfy all the demands of our customers. That's just one little example, so. In addition to that, I think we've been able to bring in a lot of new products through our offshore sourcing like processing like Asahi. We have an exclusive agreement with Sambazon earlier, a couple years ago, with pomegranate juice and so forth. So our knowledge now of international markets is becoming a really important part of that whole private label chain.

And how do you ensure that those products are organic? I mean, are they inspected internationally by QAI or something like that?

Yes, they are. Absolutely. And in a number of cases, we actually own the certification. But, yes. We work with large international certifiers. That's a key part of our business. And, of course, as you know, right from the beginning, all of our U.S. organic farmers are certified and recertified every year. We have 2500 organic soy farmers, as an example. So we're very, very familiar with certification. It's just a -- it's a key part of our business. And so we can absolutely ensure retailers and suppliers buying ingredients that our products are certified organic.

Okay. And I just -- one last question. You talked about the strength in soy and the aseptic packaging and soy powder. Can you give us -- refresh as to what percentage or maybe the business mix within that Grains and Fruit Group so we know how important soy is in that segment?

Soy is probably running --

Well, soy and soy-based products would be probably two-thirds of that. About a hundred and -- just right off the top, about a hundred --

$120 million. Yes. I mean, our aseptic plant alone is probably running over 70 million now.

About two-thirds of that group.

I mean, I mentioned we're going to 180,000 cases. We did in March. We may get two hundred and -- over 200,000 this week. It's an extraordinary increase in volume, and very largely, it's achieved by the fact that our major contract with a major retailer at this point is one SKU, and so amount of downtime that's required on the production line whenever you change over a SKU is eliminated, so you don't have to wash the equipment out. You're just running 24/7 on that product.

And this is all in Alexandria?

This is all in Alexandria. And we are studying the possibility of a second aseptic plant. That's -- that would likely be on the West Coast, and that is just currently under study today.

Thank you very much.

You're welcome, Scott.

Russell Stanley, LOM.

Good morning, guys.

Good morning, Russell.

Firstly, just going back to the Wal-Mart opportunity there, I believe you mentioned that you're currently supplying them indirectly through Hain. If you were to approach them directly, I mean, is there any risk of you coming into direct competition with Hain? I think that's something you've generally tried to avoid.

Yes. We absolutely do try to avoid that. We will never have our own brand in soy milk. We produce other people's brands, and we want to be the high-quality, low-cost producer in North America. That's what we are. And we are totally conscious and totally loyal to our customers.

And, I'm sorry, I think I missed it earlier, but can you break out the gross margins on the Fruits Group and the Distribution Group again for me?

Gross margins?

Yes. Gross margins, yes.

The Fruit Group was 13.9 this year and the Distribution Group was 27.2.

27.2 for Distribution, 13.9 for Fruit.

Great. And just looking at the warehouse expenses as a percentage of distribution sales, do you expect that to remain kind of constant at that level? I think it's trended in the neighborhood of about 11% of that division's revenue for at least a couple quarters now. Do you think that's fairly constant, or do you see that kind of coming down over time?

We see that continuing to improve, Russell, as the year goes along. A lot of the changes that we made drove some of the costs out, but there's still costs to come out of the system, so we do expect it to come down. Well, we have seen the -- and you would have seen a little bit more improvement, but our customer base has expanded beyond the major regional centers of Vancouver, Toronto, and Montreal. In order to service those markets as we develop them, there's a period of time where the freight and logistics costs which are included in there are higher, and as we develop those markets we become more efficient getting into them. But -- so there is a big bit of a lag that happens as we grow the business, but we do expect it to come back.

Okay. And just going back to the tax rate, what did you say that you expect it to be on an ongoing basis?

Well, we had a range of 31 to 34.

30 to 34%.

30 to 34. Yes.

Is that up a little bit from last year? I think the number I remember was in the high 20s.

Yes. That's up from about 20 -- well, we have a -- we had the dilution gain in there last year that was not taxable, but the base rate was about 29% last year.

Russell, as the business grows, some of the tax strategies that you employ are in whole dollars, so they give you less of a benefit as you grow.

Great. Just one last question. Understanding that included in the BioProcess group are all those corporate costs, how much would -- how much of that amount do you think that's in there is directly related to the BioProcess Group?

Because we have one major customer at this time, we combine all of the costs and revenues and profit margins and so on for BioProcess within the cost of running our corporate group, which is our head office and our IR function and our public company costs, and so on. We do that for confidentiality reasons. We don't want to disclose to our customer what margins that we're making in this business. And I'm not suggesting that we're making exorbitant profit margins, but I think it's just not -- it's not -- for competitive reasons, it doesn't make a lot of sense to do that, so they're combined. And hopefully, as that division grows, we may well spin it out into a separate segment.

Great. Perfect. Thank you very much.

You're welcome.

Chris Krueger, Miller Johnson.

Hi. Good morning, guys. Excellent quarter.

Thank you.

A lot of my questions are answered, but can you describe a little bit -- in a little bit more detail your international opportunity for oat fiber, whether it's market size or the types of products or whatever you can get into?

In the oat fiber market, there is -- are basically ourselves and a company called Rettenmaier out of Germany. And the way the world divides up at the moment, Rettenmaier tends to dominate the European market because this is quite a light product. And so transportation costs come into the equation. We tend to dominate the North American market. I suspect we probably have 90% of the U.S. market. We tend to be very strong in Mexico and Central America. And we generally kind of split the rest of the world. And so -- it also has to do a little bit with currencies. As the U.S. dollar has declined, it's made us more competitive on international basis. And so we're -- we have been putting a big push now in our international markets, and we've got some major accounts that we've signed in Mexico, for example, and very recently quite a number of new accounts in places like Brazil and Argentina and Peru, Australia, and those sorts of things, so.

The actual fibers are similar to -- as far as the end product in the tortillas and the [inaudible] [regulated] stuff?

Absolutely. I mean, one of the big new accounts you've probably seen is Wonder Bread, which has brought out a product called Wonder Bread Plus which is essentially the Wonder Bread plus oat fiber. And we have two major accounts in Canada and the U.S. using oat fiber in this product so that's a new market this year.

Chris, also when we move into international markets, we may not be competing with another oat fiber, but rather exposing oat fiber to replace products such as wheat fiber or cellulose or cottonseed fiber or bamboo, whatever the case might be. So a lot of international opportunity. If you just took a look at the numbers on what the oat fiber market was, it would be misleading because you can break into other fiber markets.

And the Wonder Bread contract, that began rolling out during the first quarter?

Yes, it did.

Both countries.

In both Canada and the United States, but interestingly enough with different --

People.

Different people.

In your fruit bar business, it sounds like some things have led to you getting much closer to capacity. Can you go into any detail as to what types of customers or products?

Sure. There are three people that make fruit bars. There's ourselves; Sunripe out of Vancouver basically promote their own brand; and a company called Stretch Island, which is in Washington state. Stretch Island was recently bought by Kellogg's. And so are really sort of going -- pushing the -- going to be pushing the Kellogg's brand, and they are sort of moving out of the private label side. We do have our own brand, which is Kettle Valley and which is marketed in the U.S. and Canada, but the major part of our business is private label. And so our private label business is expanding dramatically. I don't know any other word to say it. As Steve has said, we're moving close to capacity by the end of the year. There is a huge push today in trying to add healthier products in the snack food category, and our Kettle Valley products are absolutely on target for that. We have signed, all I can say, is numerous contracts, a lot of which are just starting or starting in the second half, in the U.S. and Canada, in the UK, and I -- it's just beginning. And we're going next week into Germany and England to look at some really exciting new equipment that can produce some new products but all again based out of -- with our apple-based products. And so it's a -- it's a very exciting growth area for us at this point.

Okay. And one last question on the ethanol-related stuff. Just to be clear, one area that you're lease testing and looking into and using you are labs to look into is the potential to add some equipment to existing -- I don't know if it's your old -- your fiber plants like Cambridge or Iowa or whatever --

Correct.

-- to potentially add some systems there to turn the waste products from what you produce already into ethanol.

That's correct.

That's correct?

Yes.

Okay. And then I guess one add-on to that is who -- who would you -- who do you sell the ethanol then to? I'm a little new to this part of the equation. Would that be the major fuel companies or other ethanol companies? Or I'm just curious if you know that yet.

Yes. It'd probably go -- it could go to -- probably to refiners who are going to -- and blenders that are going to blend in the ethanol. As you know, they're dropping out MTBE. What's it's called? Anyway, this additive and replacing it with ethanol in all fuel and gasoline in North America. So there's a tremendous demand today for ethanol.

Okay. Great. That's all I've got. Thanks.

You're welcome.

[OPERATOR INSTRUCTIONS]. Scott Blumenthal, Emerald Advisors.

Good morning. Nice quarter. Thank you, gentlemen.

Thank you.

Jeremy, I believe you were right. It is MTBE.

MTB. Right. Thank you.

I'm curious on the -- it looks like you had about a 56% production increase in the last quarter on the soy milk. You were saying that you're going to get that to about 200 cases per week.

Yes.

What capacity do you have? I mean, what's your max capacity in that product before you're going to have to start thinking about maybe going outside to a third party packager or significant plant expansions then?

At this -- at this point, we did increase capacity at the end of the year, so we did make some CapEx there. We're continuing to make some further improvements which add to the capacity of the facility. So today we still have some capacity in the facility to meet expanded production. And these could include additional SKUs from the major retailer that we've done, plus some other potential clients. And so I think -- we're okay at this point in time, and so -- and.

Scott, I think the bigger -- we could continue to expand that facility, but there comes a point in time where geographically you want to move some production to another -- another region, so that's where --

We're studying that right now.

And that was the West Coast?

Yes, yes.

And if you did at such a facility, you would probably do some additional products beyond just soy milk. It would include things like rice milk, it could include broths and certain soups, again, which are all packaged aseptically. So we would have a broader product line there. Aseptic soups is a very strong growth market in the organic sector today as they are perceived to be fresher and taste better than canned soups.

Sure. Sure. Can you expand a little bit on the health and beauty aids and nutraceuticals. I think that's the first that we've really heard of that. And I imagine that that's kind of a play on your new contract with Ocean Nutrition.

If UNFI will pardon me, we have set ourselves up to be the sort of the UNFI of Canada. And if you look at the United food -- Natural Food product line, you'll see that they include health and beauty aids in organic versions as well as nutraceuticals. So these products are going to the same customers. We have 5000 customers in Canada that include everybody from major retailers to box stores to grocery stores to health and -- health food stores. And so the addition of these products into -- onto our trucks is really a relatively easy process. We already distribute in parts of the system nutraceuticals for example in Vancouver to Wal-Mart. We do a lot of products there. Of course, through all of these different customers. So it's a pretty -- well, a natural progression, and so I would hope you'll see some development in this area this year.

Okay. And -- thank you. And my guess I have two more questions if I may. Can you talk a little bit about energy costs in the last quarter and what you're doing to try and work around some of the headwinds that you have there?

Sure. On the energy side, clearly costs are up, especially versus this same period in the last year. We have an energy task team that is working across all of our operating groups. We have completed audits of specific facilities where opportunities to reduce out energy utilization have been identified. We've also implemented a number of less costly process improvements to reduce energy. We are hedging a certain portion of our primarily natural gas utilization and doing the best we can. It's clear that we don't want to expose the Company to excessive risk with rising energy prices, so we're covering ourselves and understanding the markets. But really, at the same time, the bigger issue is to be as efficient at possible across the entire organization, and we're spending a great deal of time on that. We did a facility review and -- an audit at one of the facilities, and there was $300,000 in potential savings all with less than two-year pay back. So we're very anxious to reduce the utilization of energy because I'm not so sure it's going to get cheaper any time soon.

A large part of our shipments are actually picked up at our plants by our customers. So obviously we're very conscious of that. So we try as much as possible to negotiate contracts in that fashion. Incoming freight, of course, is generally covered. In our distribution business, we issue a catalog every 3 months which incorporates any energy costs or transportation changes. So we've got reasonable pricing power in that respect. And so you do have a three-month lag there, but it's not too much of a serious problem. We have recently hired a gentleman for the first time as our vice president of supply chain management who did this function for Dell. And Dell, as you know, are extremely good in this area. So we are -- we believe that we can achieve significant savings now just by virtue of our size in both logistics as well as in consolidated purchasing right across the board and energy. So he's very much focused in this area now. He's just been with us now for a month, but we're delighted with the prospects.

And do -- have you any figures on the percentage of the distribution costs that energy represents with the quarter to this year's compared to last year?

Frankly, I don't have that with me today, no. I could look that up if you want to call me at some point in the next week, so.

Okay. And how's the Oracle implementation looking?

The Oracle implementation went well. We brought some more facilities on to the platform on April 1st. Our target at this stage of the game is to have all of the Grains and Foods operations and all of the Ingredient operations on before the end of this year, including our corporate consolidation. We're sort of as we speak, evaluating the schedule for the fourth quarter. As you know, it's very difficult to do implementations in the fourth quarter given our Sox compliance requirements.

Steve, it's very difficult to do them, period.

Could you please -- would you please tell Jeremy that? But --

Hey, we sailed through Sox this year.

So anyways, we would -- and then our goal is to try and get the Fruit Group on as early as possible in 2007. There's a chance we may get some of the operations on in 2006, but with this Sox timing it's not likely at this stage.

Very good. I really appreciate it. Thank you.

You're welcome.

Ed Irving, Wachovia.

Good morning. Good quarter.

Thank you very much, Ed.

I was trying -- everybody's talking about ethanol and I'm to figure out, if you just sell the equipment, will this turn out to be a big part of your business in the future or will this just be a small segment?

It's really early days. At this point in time, it's -- I mean, corn to ethanol is a known technology, and so building those plants is absolutely straightforward. Ethanol from biomass is an entirely new business, and it involves the development of enzymes, bringing those costs down, the development of new yeast, the simultaneous conversion from cellulose to glucose to ethanol. All sorts of work is being done by major companies all over the world. And I mean, Europe is probably quite advanced in this area. So I'm not trying to avoid your question. I'm just saying that probably we're not looking to major commercial facilities here before the next couple of years. But at the same time, we're going to see lots of smaller facilities being built, people testing out and developing and so forth. So I think it'll depend a lot on the -- whether we end up participating in these projects or we just sell the equipment. But just for the sale of equipment, there is a substantial market. I mean, we have -- projects could run anywhere from 2 to 20 or $30 million, and it will depend on the number of lines and obviously the capacity of those facilities as it could even be higher, so.

Do you have patents on this?

Yes, we do.

Okay. So it's protected?

Yes, it is, sir.

Now, you -- from my understanding, you can take a waste product, or say, wheat straw or corn stalks --

Right.

-- and convert them into usable -- you don't make it into ethanol from your equipment, but you just sort of preprocess it?

That's right. It's a pretreatment process that renders these materials into a condition where you can then treat them with enzymes to convert the cellulose, hemicellulose to glucose and then using traditional yeasts, ferment into ethanol.

Have you all looked into doing the enzymes?

We're not an enzyme producer. We are working with -- as I said I think earlier, we've probably got five different enzyme companies working in our labs at the moment.

Okay. Thanks a lot.

You're welcome.

[OPERATOR INSTRUCTIONS]. Ron [Emmerman], RMC Group.

Hi, Jeremy.

Hello, Ron. How are you?

Good. Jeremy, actually the previous caller touched base upon where my interest was. Looking into your crystal ball, with 1 billion in revenues, say, in 2007 or '08, what percentage would you think the biomass group would contribute to the revenues and profits? It's somewhat a similar question to the previous owner.

It is. Very difficult question to answer. I mean, the rate -- the rate of growth in the interest in this market is so substantial. But, as I've said before, there are technological developments required and ongoing in a major way in enzymes, yeasts and process. It depends, I think, upon the rate of success of those subsequent steps. We're ready. We're commercial. We're scaled up. We have built these plants around the world for different applications. Our part of the process is done. So bring it on. And I don't even want to make an estimate right now, because it's so much dependent on downstream people.

Fair enough.

But we're pursuing it, Ron.

Okay. Nice quarter, Jeremy.

Sarah O'Brien, RBC.

Hi. Just a follow up question on that last one. If -- for the $1 billion in revenue as a run rate for 2008, but how would you break down to get there? What kind of organic growth are you looking at and what kind of acquisition growth do you expect over the next couple of years?

We're basically looking at -- I mean, this year we've indicated the organic growth is going to be approximately 20%. And so if you assume a minimum of 15% organic growth over the next two to three years, our acquisition program last year I think we bought about $125 million of profitable revenue. This year we've purchased just Mag Tech with in our -- so at this point only 30 million. However, we are actively looking and discussing numbers of acquisition opportunities, as I said, within our existing group. So we -- we would anticipate continuing to add somewhere between 100 and 150 million in revenue over the next 2 years to bring us to that exit rate of $1 billion in '07.

Okay. And 100 to 150. Are we talking primarily in SunOpta Food Groups or would you be looking at Opta Minerals as --

No. I think we're primarily -- very, very primarily talking in the Food Group.

Okay. And can you be more specific? Is -- I mean, is it beefing up frozen fruit and vegetables?

I think it could be in the area of additional distribution. I think it will definitely be in the area of fruit. I think it could be both within the U.S., as I mentioned, with different copacking facilities adding equipment, expanding our snack food business significantly. It could also be in local processing offshore, in places like Chile or Argentina where we could add value to the products that we are importing. I think it could be in the Ingredient side, which is one of our profitable sides. Certainly we're looking at expanding our fiber line as we've talked about in the soluble area. So I think it could be in the area of an additional aseptic soy milk plant. We're doing a lot of new products in organic dairy, organic dairy whey, and so forth, that are very high supply. So I see it right across the board in our Food Group.

Okay. That's helpful. Thank you.

You're welcome.

And at this time it appears we have no further questions. Gentlemen, I'll hand the conference back to you for any closing or further comments you have.

Great. Well, as always, I invite you to call us should you have any further questions. We try hard to answer shareholders' questions. We also try hard to visit you on a reasonably regular basis in the U.S. And we also periodically do tours around our facilities. So if you are interested, please don't hesitate to call, and we look forward to talking with you all again in the next quarter. Thank you very much.

And that does conclude our conference again. Thank you all for your participation. We hope you enjoy the rest of your day.