Sunopta Inc (STKL) 2006 Q2 法說會逐字稿

Good day everyone and welcome to the SunOpta, Inc. Second Quarter 2006 Earnings Results Conference Call. [Operator Instructions] 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, good morning ladies and gentlemen and welcome to the second 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, John Dietrich, the Company's Vice President and Chief Financial Officer, and Ben Chhiba, Vice President and General Counsel.

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 ended June 30th, 2006 will be filed by no later than the close of business on August 4th, 2006.

We are very pleased to report record quarterly revenues of $155.7 million for the quarter ending June 30th, 2006, representing a 51.4% increase over 2005 second quarter revenues of $102.9 million. The revenues of $155.7 million represent the highest revenues of any quarter in our Company's history and the 35th consecutive quarter of increased revenue growth versus the same quarter in the previous year.

The Company's revenue growth in the second quarter included an internal growth rate of 19.3% and growth via acquisition of 32.1% for the total of 51.4%.

Revenue for the six months was $289.1 million representing a 52.9% increase over the first six months of 2005, when revenues were $289.1 million.

Revenues within the SunOpta Food Group increased 48.3% in the quarter to $137.3 million, versus $92.6 million in the second quarter of 2005, representing approximately 88% of total revenues and demonstrating continued strength within the Company's vertically integrated natural and foods operation.

Revenues within the Food Group were driven by internal growth of 21.5% in the second quarter and 19.8% on a year-to-date basis.

Revenues in the quarter from the Company's 70.6% owned subsidiary, Opta Minerals Inc, jumped 85.6%, largely as a result of its February 2006 acquisition of Magnesium Technologies Corporation.

Only minor revenues were realized in the SunOpta BioProcess Group during the second quarter due to timing of equipment and technology revenues which are scheduled for the third quarter and related to the completion of the Abener, Spain contract, the CRAC contract in China plus others which we will discuss later.

At the beginning of the year we provided revenue guidance of $540 to $550 million for the fiscal year 2006. Today we are raising our revenue guidance for 2006 to $585 to $600 million, which will represent an approximate 40% increase over 2005 revenues of $426 million.

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 segment but intend to stay focused within the categories where we currently operate.

Each of our operating groups are well positioned in their markets, are profitable and growing. The Food Group is focused on the key food trends of organic and natural foods, fiber addition to food, improved nutrient content in food products, increased consumption of fruit and vegetables and the healthy attributes of soy, corn and sunflower.

The BioProcess Group is at the forefront of exciting developments in cellulosic ethanol, and Opta Minerals is enjoying strong growth in silica free abrasives and particularly in roofing shingle granules as the demand for shingles is very high as a result of the hurricane and the growing housing market particularly coming from the roof replacement of market.

Operating earnings increased by 54.1% in the second quarter to $8.77 million or 5.6% of revenue as compared to $5.69 million or 5.5% of revenue in the second quarter of 2005 and 4.5% of net revenue in the first quarter of 2006.

The increase in operating earnings during the quarter was driven by a 61.6% increase within the SunOpta Food Group, reflecting continued leverage and improved operating performance with this Group.

Net earnings in the quarter were $4.34 million or $0.08 per diluted common share, as compared to $3.31 million or $0.06 per diluted common share in the previous year.

Net earnings for the first half of 2006 are $7.36 million or $0.13 per common share, a 35.8% increase over 2005 earnings after deducting the net unusual gain in 2005 of $4.5 million which was realized from the Opta Mineral IPO.

2006 second quarter results include approximately $91,000 of pre-tax costs for stock compensation expense that was not recorded in 2005, and approximately $200,000 of pre-tax one-time costs related to acquisition activity.

Gross margins, as a percentage of revenue, was 17.6% in the second quarter -- approximately the same as the first quarter and significantly improved compared to 15.6% in the fourth quarter of '05.

Gross margin in Q2 of 2005 was 18%, but was prior to the acquisitions of Cleugh's Frozen Food and Earthwise Processors, which operate with inherently lower gross margin.

As the mix of food-based businesses grows, the impact of inherently lower gross margins is being offset for the most part by improved operating efficiencies, product mix, and cost reduction programs.

Margins during 2006 have been impacted by crop issues within our sunflower operations, which have had a year-over-year impact on margins of approximately 0.5%.

Selling, general and administration expenses as a percentage of revenue continued to fall in the second quarter to 9.8% of revenue, versus 10.5% in the first quarter of 2006, and 10.8% in fiscal 2005, and 12.2% in fiscal 2004. 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.

As we suggested in our last investor call, we've recovered the foreign exchange loss of the first quarter realizing a gain of $389,000 for the first half.

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 half results, we are pleased to reconfirm our earnings guidance for the year of $0.26 to $0.30 per diluted common share.

In the second quarter and on a year-to-date basis the SunOpta Food Group reported increased revenues and operating earnings when compared to 2005. In the second quarter, revenues increased 48.3% while operating earnings increased 61.6%.

On a year-to-date basis, revenues increased to 50.2% and operating earnings increased 78.6%. The improved operating earnings for the second quarter and first half were driven by strong aseptic packaged beverage revenues, the rebound in sales of oat fiber and the addition of soy fiber, growth in organic private label fruit and tomato-based products, and revenue and cost improvements in the Canadian distribution operations.

Within the Food Group the SunOpta Grains and Food Group experienced lower operating earnings for the quarter and on a year-to-date basis due to a significant decline in earnings within the Group's sunflower business, where product margins were affected by crop quality issues from the 2005 crop and excess supply in domestic international markets.

The sunflower business is expected to rebound in Q4 with the delivery of new crop, changes in planted seed varieties, and an increase in irrigated production.

The Company's balance sheet remains strong, as of June 30th, 2006, with $4.7 million in cash and sufficient financial resources to continue to fund growth in operations and invest in capital projects.

Shareholders' equity increased to $172.3 million, representing a book value of $3.00 per common share, up from $2.80 at March 31st, 2006, and $2.73 at June 30th, 2005. Diluted weighted average outstanding common shares for the quarter were 57,828,945 shares.

Long-term debt declined to $66.2 million during the quarter and our long-term debt to equity ratio is now 0.38 to 1 at the end of the quarter -- still well below our maximum targeted operating threshold.

At the end of the quarter the Company had over $30 million in available financing facilities to support future growth initiative.

So as we look back at the second quarter, we can summarize the key events as follows. First, the strong recovery of the oak 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 where we have now established many new distributors, and our efforts to bring new products to market such as organic oat fiber, organic soy fiber, organic ocara, and acid whey.

This quarter was our first full quarter for our new soy fiber, which has been a great success with approximately $5 million in annual orders placed already with many further prospects in the testing phase.

Second, the startup of our new three-year $60 million aseptic soymilk contract with a major U.S. retailer in early January of 2006.

We're pleased to report that we have added a number of new opportunities through our Private Label soymilk business for the third and fourth quarters of 2006. And that by the end of the third quarter we will have considerable Private Label, store brand, shelf stable and refrigerated soymilk business that should generate an additional $30 million in annualized sales in domestic and international markets.

There are also a number of other opportunities for juice, soy concentrates, broth products and alternative beverages which are being actively pursued. As a result, we're continuing to invest in expanding our aseptic beverage production capabilities to support these customers and we're able to produce 180,000 cases per week on average.

During the second quarter we completed a capital improvement project at our Fruit Group plant in Buena Park, California designed to increase processing and packaging capacity, improve process efficiencies, and automate product load. This investment was completed just in time for the beginning of the strawberry processing season.

In addition, we also completed a plant upgrade at the Salinas, California plant to improve quality control and processing capacity.

The SunOpta Food Group continues to sign new contracts and has had revenue of $39.5 million for the quarter, a 286% increase over the same quarter last year. Operating income jumped 474% over the same period. In the Food Group our revenues have grown from $10 million in 2004, to $75 million in 2005, and will likely reach $140 million in 2006, with an exit rate of over $150 million.

Four, the SunOpta Food Group now sources approximately 225 million pounds of raw fruits, vegetables, and juices through its vertically integrated operations. With the 21% annual growth in organic and the three-year timeline to certify organic farm production, there is a shortage of organic products in North America thus stressing the importance of our ability to globally source. The Food Group now sources from over 40 countries worldwide.

Fifth, we have completed the plant expansion at the Dakota Gourmet, Wahpeton, North Dakota plant where the Company produces organic and natural snack products made from soy, corn, and sunflower. After a very successful year in 2005, this expanded facility will allow the Company to continue its strong growth.

Our other healthy snack food company, Kettle Valley, is growing very fast. We've moved private label and store brand contracts, which will require us to expand capacity as both our [Onac] and Summerland plants.

During the quarter the SunOpta BioProcess Group signed a contract with China Resources Alcohol Corporation, known as CRAC, the second largest ethanol producer in China. And the contract was to supply SunOpta's existing pilot plant through a facility in ZhaoDong City, Heilongjiang province.

This equipment is scheduled to ship in the third quarter of this year and be installed and operating in the last quarter of this year. This contract places SunOpta at the ground floor of an exciting program to develop ethanol plants based on cellulosic raw materials in China under an announced $5 billion ethanol program by the Chinese government.

It is CRAC's stated intention, based on the success of this first facility, to expand to 1.7 million gallons of cellulosic ethanol by the end of 2007, and 330 million gallons by the end of 2012, all of which would require multiple systems from SunOpta.

We are also pleased today to announce that we have just signed a contract with Celunol Inc of Boston, Massachusetts to supply a continuous steam explosion unit for their new cellulose to ethanol facility to be built in Jennings, Louisiana. This unit is expected to be shipped in approximately six months and further details will follow in a subsequent press release.

Seven, we're also pleased to announce that Opta Minerals has reached an agreement in principle to acquire 100% of the shares of a manufacturer of industrial materials for the steel industry located in the Midwest of the U.S. with sales ranging from $7 to $9 million. These products complement both Opta and Magtech's existing product lines and customer base.

The acquisition is expected to close in early September and will be immediately accretive to earnings. Further details will be provided in a press release at closing.

As discussed in our previous conference call, our key priority in 2006 is to improve earnings while continuing to grow a healthy products portfolio, in addition to positioning the Company for long-term sustainable growth and profitability within our key product categories. We are confident that the second half will show continued improvement in both revenues and profit.

And now Steve Bromley will provide additional operational detail.

Thanks very much Jeremy, and good morning. During the second quarter we realized solid growth and we continued our efforts to position each of our operating segments for continuing growth and improved profit throughout 2006 and beyond. Numerous initiatives were identified and implemented during the quarter and we are realizing the results of these activities.

In the second quarter, the Grains and Foods Group realized revenues of $49.9 million versus $39 million in the same quarter of 2005 -- an increase of $28%.

Internal growth was 24% in the quarter, with the balance coming from the rollover of the acquisition of Earthwise Processors in early May of 2005.

Segment operating earnings for the quarter were $2,273,000 versus $2,880,000 in 2005. The Group's soy, corn, grain-based ingredients, aseptic packaging, and roasting and packaging operations all experienced strong results in the quarter. The gains were offset by declines in the Group's sunflower operations.

Soy and corn volumes during the quarter were very strong as some of the delayed shipments which we reported to you during Q1 were realized. Demand for organic and non-GMO grain products remain strong.

Sales of organic feeds were very strong in the quarter with much improved margins versus the prior year due to improved supply and process efficiencies.

As the demand for organic foods continues to rise, our position in organic feeds continues to grow as well. As part of our organic feed program we are incorporating organic ocara into formulation. This ocara is a byproduct of our soy concentrate production and produced via drying equipment that we commissioned in 2005. By installing this equipment, we have turned a waste product that had to be land spread at a cost to the Company into a value-added revenue generating material.

The Group's organic vegetable oils business, primarily soy and sunflower based, continues to grow due to the demand for organic foods produced using organic oil. In order to keep pace with demand we have recently entered into a strategic partnership with a Colorado-based oil crusher to expand our capabilities in this fast growing market.

Under the terms of this arrangement we will invest in equipment to expand capacity in return for cost effective and expanded supply. We expect this relationship will continue to grow over time.

During the quarter, the Group also expanded its organic ingredients product offering by the introduction of a range of dairy-based non-GMO and organic ingredients, which are also in much demand as natural and organic foods continue to grow. These products include non-GMO and organic dairy powders, organic whey, and whey-based products. These are expected to grow over the next year to revenues of approximately $7 million with solid margins.

During the quarter, the aseptic soymilk and beverage packaging operations realized strong volumes and improved yields in efficiencies due to ongoing processing improvements. We are continuing our plant expansion initiatives in order to meet continued customer demand.

We are also working on a number of new soy-based opportunities with existing and new customers which will further expand utilization of our vertically integrated soymilk model. Jeremy mentioned a number of these earlier.

Also, as Jeremy mentioned, we are just completing an expansion at our dry roasting and packaging operation, Dakota Gourmet, located in Wahpeton, North Dakota. This facility had reached its productive capacity under its previous configuration. This expansion will increase capacity by approximately 40%.

We continue to experience strong demand for roasted grain-based products serving the school lunch program, baking, and nutrition bar industries.

As previously noted, operating earnings within the Group's sunflower operations were significantly down versus 2005. For the second quarter the business experienced a year-over-year decline in operating earnings of $1.3 million. Year-to-date operating earnings versus 2005 are off $2.6 million.

It is important to note that 2005 was a year of record earnings for the sunflower business, but even so, results this year are not acceptable. The decline in earnings has been driven by a number of factors. One, poor quality from a specialty [inaudible] type seed hybrid in the Kansas growing region due to a combination of weather and poor genetics. Two, collapse of margin in the birdseed market due to oversupply driven by poor quality crops going to bird food from numerous of suppliers. Three, excess Chinese kernel supply in high volume European markets driving down margins. And four, poor performance of our Hungarian-based joint venture due to very wet weather conditions.

In order to address these issues the following actions have been taken. One, elimination of the specialty type hybrid from the Kansas growing region, refocusing on growing high demand traditional variety produced on irrigated land. Two, transition of our Minnesota seed cleaning facility to new bakery kernel confection varieties. This shift will improve overall product quality, improve plant efficiencies, and less products costs and open up sales opportunities in the mid-range higher margin oleic markets. Three, expanding relationship with local seed manufacturers to create new varietals exclusive for SunOpta. And four, exiting our Hungarian operation and exploring better opportunities in Europe for the provision of kernel products to the European market. We've not lost money on this operation but feel that it is best to explore better growing areas.

We are confident that the sunflower business will return to historical return levels but this will not take place until the new crop is harvested during the fourth quarter

The SunOpta Ingredients Group posted a solid second quarter, increasing operating earnings by 67%. Revenues were $17.1 million for the quarter versus $16.6 million in 2005. Segment earnings were $1,774,000 versus $1,062,000 in 2005 -- an increase of 67%.

Year-to-date revenues total $35.2 million versus $31.8 million in 2005, reflecting internal growth of 10.7%. Operating earnings year-to-date total $3,480,000 versus $1,737,000 in 2005, an increase of 123%, reflecting the solid progress made over the last year in the Group's fiber ingredient operations, both from a market development and efficiency point of view.

In the quarter, the gross margin rate in the ingredients group increased by 220 basis points versus 2005 to 19.2%. This rate increase can be attributed to better plant utilization and the impact of cost reduction initiatives, offset by higher energy costs and the extra effort it cost in the second quarter to ramp up our soy production.

Demand for '05 was strong during the quarter and continues to increase as a result of new customers and applications across a wide variety of food and pet food applications. You will recall that in early 2005 we were struggling with the decline in the low carb product market and developed a detailed plan to revive our fiber business. These initiatives, including entry into new markets, cost reduction, development of new products, and international expansion have clearly been a success.

As Jeremy mentioned, we have launched a new soy fiber and it has been well received to date by a number of large customers. Our soy fiber utilizes a proprietary process developed internally over the past 21 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 second quarter was extremely active for soy fiber as a number of customer trials came to fruition in the form of supply contracts. As expected, margins were low on soy production during the quarter as we ramped up our production capabilities and refined our processors at higher volume levels.

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 a result of continued growth in our fiber business, we have recently approved expansion at each of our three facilities to leverage the current infrastructure that is in place and meet current market demands. These expansions, valued at approximately $1 million in capital, will increase capacity by approximately 15 to 20%. These expansions should be completed over the next six months.

At the recent IFP held in Orlando in June, 2006, the Ingredients Group featured a number of new products and applications utilizing SunOpta's organic ocara. Ocara is an excellent and cost effective source of soy protein and fiber. This effort has led to a number of promising opportunities in both food and pet food applications.

The Group had not planned for ocara sales into food during fiscal 2006, but we are now realizing initial food-based sales and have a number of active projects underway.

During the quarter, the Group announced an exclusive distribution agreement with Mikro-Technik of Burgstadt, Germany, to distribute their line up of wheat fiber, bamboo fiber, and powdered cellulose throughout the United States, Canada and Mexico under the SunOpta brand. Other opportunities exist to expand our relationship with Mikro-Technik and discussions are ongoing.

The Ingredients Group has launched a number of innovative new products over the past year including organic oat and soy fiber and grade-A acid whey. Recently, the Group also introduced a line of dried honeys and molasses used primarily in baked goods. This is yet another example of new product innovation from this Group and efforts focused to utilize internal production capabilities.

As mentioned on our last call, we received indications from a key customer that one of their customers was expected to reformulate their specialty fiber product to an alternative lower cost product. This has resulted in a drop in volume for this particular product and will likely stay this way while our customer develops new products, new markets, and customer relationships.

In any of our customers' efforts, we have developed a number of new contract manufacturing opportunities that will also have the potential to offset this decline.

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 the second quarter the Food Group realized revenues of $39.5 million, representing 28.8% of Good Group revenues. Year-to-date revenues have increased substantially versus 2005 to $70.6 million. Segment operating earnings were $2,870,000 in the second quarter, versus $500,000 in the same quarter in 2005 -- an increase of 474%.

Year-to-date segment earnings were $4,370,000, an increase of 405% representing 29.1% of Food Group's contribution.

As you will recall, the Food Group was created in July, 2005. The improvement in operating earnings is evidence of the Group's efforts over the past year at generating synergies through consolidated purchasing, supply chain management, automation and other operating efficiencies, and improved cost efficiencies through economies of scale. Specifically the Group has implemented a number of plant efficiency and capacity improvements, including capacity expansion and repack automations at our Buena Park facility, cold storage capacity expansion at our Southgate ingredients processing facility, and production improvements at our Salinas and Omac facility.

In addition, the Group is assessing a number of capital projects to further improve cost efficiencies, logistics and capacity, including a bulk sugar delivery system and filling capacity expansion in Buena Park, cold storage expansion in the Los Angeles area, east coast expansion, expansion of aseptic fruit processing capacity, and expansion of healthy snacks production capacity. These expansion projects are being contemplated in response to the significant increase in customer demand for healthy food products in both private label and industrial markets.

In 2006, the Group is expected to source approximately 225 million pounds of fresh fruits and vegetables for processing into finished products or for bulk ingredient sales.

The Group continues to expand its global sourcing capabilities and its strategic relationships with key partners in an effort to provide its customers with the security of guaranteed supply, high quality, and economical supply chains.

We are working diligently with farmers in key growing regions around the world to either transition conventional acreage to organic or farm virgin lands organically, exclusively to further strengthen our supply chain.

During the second quarter the Group moved into new consolidated group headquarters in Buena Park, California. The new expanded office will improve coordination and integration of key functions, including purchasing and logistics, analysis, marketing, and operations.

In addition, the Group has plans to expand the office to create a state-of-the-art fruit research and innovation center. This center will serve the Group's customers continual desire to expand their services and product innovation, [inaudible] internally to be at the forefront of product technology and process innovation.

Our healthy food product operations, operating as Kettle Valley Dried Fruit, have experienced significant growth over the past number of months as the demand for healthy, nutritious, and convenient snacks continues to grow. Hardly a day goes by when we do not read about industry efforts to improve the nutritional content in foods or school systems throughout North America banning junk foods. The product lineup of Kettle Valley is a great step for these trends and one of the key drivers behind the growth in our products.

A number of new private label accounts have been realized over the past six months such as two private label skews with over 1400 Target stores in the United States. In addition, we have restructured our selling and customer service resources to increase visibility but more importantly support ongoing business needs of our existing customers.

As a result of the rapid growth in this business, we will be significantly expanding our drying, processing, and packaging of fruit bar capabilities at our facilities in Summerland, British Columbia and Omac, Washington. We expect to complete the bulk of these expansions in late 2006, early 2007.

Demand for innovative healthy product offerings in this new category continue to grow. The Group is currently studying a number of exciting potential new healthy product innovations and processing applications in this regard.

The SunOpta Canadian Food Distribution Group realized revenues in the second quarter of $30.8 million versus $26.7 million in 2005 -- an increase of 15.4%. This growth represents an internal growth rate of 10% with the balance resulting from the acquisition of Hahamovitch at the end of 2005.

Segment earnings were $1.251 million versus $612,000 in 2005 -- an increase of $104.4%. As mentioned in previous quarters, the Distribution Group has been dealing with a number of integration and supply related issues with the bulk of these now behind the Group.

On a year-to-date basis the Group has realized revenues of $61.7 million versus $52.2 million in 2005 -- an increase of 22.9%.

Segment operating earnings have increased to $3.1 million versus $1.3 million in 2005 -- an increase of 138.5%. These improved results are reflective of the business building and cost reduction efforts implemented over the past year.

During the quarter the Group focused on further leveraging its national distribution capabilities and in doing so has once again added a number of national listings to its product offering. At the same time, the Group continues to focus on driving efficiencies across its platform with a focus on improved freight logistics costs combined with improved customer service.

The Group has recently consolidated a number of freight carriers in central and eastern Canada at a significant cost reduction and service improvement, and is actively engaged in best practices activities across the Group to drive improved customer service and cost efficiency.

The Group has recently finalized plans for a new 95,000 square foot warehousing and distribution facility in the Vancouver area, required to accommodate the continued growth of our grocery business in western Canada. The new facility is scheduled to be available in August, 2007, and will double current capacity allowing us to ramp up new brands and drive efficiencies by a consolidation of current warehouses and improved facility layout.

As the Group's national distribution capabilities continue to grow, we have expanded our healthy product offerings to include natural and organic health and beauty aids and nutraceuticals in western Canada. These products fit well with our existing product base and fill a void of services currently provided to our customers. We expect to continue to grow this offering across our entire system as we move forward.

The first half has certainly seen a turnaround for the Canadian Food Distribution Group, with the balance of 2006 and beyond looking very positive.

We were very pleased to be informed recently by the Alexandria Lake Area Chamber of Commerce in Alexandria, Minnesota, that SunOpta will receive the 2006 Business and Industrial Appreciation Day Award. Every year an Alexandria-area business or organization is chosen and acknowledged for their significant contribution to the social and economic vitality of the local area.

Today, SunOpta operates two facilities in Alexandria, which have both rapidly expanded over the past few years employing approximately 250 personnel. We are very pleased at this honor as it reflects our continued business growth and ongoing commitment to the communities within which we operate.

We are working hard in our BioProcess Group on our initial equipment contract with Abener and this project will be delivered this year. 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 U.S., European, and Chinese governments to the development of ethanol from biomass plants.

We have increased our marketing efforts and we are very excited by the opportunities that lie ahead. The interest in the SunOpta BioProcess Group's technology and equipment for the pretreatment of biomass for the production of cellulosic ethanol continues to grow.

Results for the second quarter reflect low revenues emerging primarily due to contract signings, project and marketing costs. The Group has announced three new relationships in the last several months including a joint development agreement with Royal Nedalco out of the Netherlands, an equipment supply contract with China Resources Alcohol Corporation, and today's announcement of an equipment supply contract with Celunol Corporation.

Between our laboratory and development facilities we have continued to conduct extensive study and pilot skill trials focused on the production of cellulosic ethanol from a variety of biomass sources with the intent of optimizing the entire process including pretreatment, [entomatic] hydrolysis and fermentation. We believe we have made significant progress. In fact, have succeeded in producing high yields of cellulosic ethanol at pilot plant scale. Our development efforts will continue in this regard and be incorporated into full-scale process design as cellulosic ethanol applications are rolled out around the world.

As mentioned on our last call, we continue to study the utilization of the Group's technology in the pre-treatment of by-product streams from our fiber manufacturing facility to the ultimate production of cellulosic ethanol. While in the early stages, we are optimistic about the potential in this regard. We have completed a number of fermentation trials and we continue to optimize the process using pentose fermenting yeast products sourced through our previously announced relationship with Royal Nedalco.

The combined SunOpta BioProcess corporate operations costs of $1,792,000 compared to $982,000 in 2005, and include the one time cost of listing on NASDAQ National America in 2006, amortization, postings 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 second quarter of $18.3 million versus $9.8 million in 2005, an increase of 86.7% -- 6.6% from internal growth and the balance due to the acquisition of Magnesium Technologies Corporation.

On a year-to-date basis, revenues have grown from some $17.6 million to $31.3 million, representing an increase of 77.5%.

Operating earnings were $2,396,000 versus $1,621,000 for the second quarter in 2005, an increase of 47.8%, and $3,394,000 for the first half versus $2,458,000 in 2005, an increase of 38.1%.

The strong growth in operating earnings reflects the impact of the acquisition of Magnesium Technologies and the numerous internal growth initiatives executed across the Group.

Demand for the Group's proprietary roofing shingle granules, silica free blasting abrasives are very strong and when combined with the recent acquisition of Magnesium Technologies we expect 2006 will continue to be a good year for this business.

The second quarter was a very busy period as the Group integrated the operations of Magtech. Migrations of systems has commenced with networks now converted and financial applications due to commence shortly.

Efforts are also underway to consolidate product offerings across the entire Group. A number of key product trials utilizing Magtech products are underway with new customers and should offer significant growth potential in the future.

Demand for abrasives used for both blasting and roofing shingles is strong and continues to grow. In order to meet demand, the Group is studying the use of a number of alternate raw material sources. As demand increases sources of raw materials becomes very key.

A number of strategic initiatives have been identified by the Group to continue to improve profitability and solid progress has been made in this regard. These initiatives include cost reductions at key facilities, strategic inventory reduction, savings on workers compensation, and revised pricing based on current market demand.

And finally, we have been able to restore power to our New Orleans plant and are making the necessary repairs to return the facility to full operation. These repairs and commissionings are expected to be concluded last this quarter. Jeremy.

Thanks Steve. In looking forward to the remainder of 2006, some of the key trends that we see are, one, a continuing strong demand for both soymilk and soy powders both domestically and internationally. We continue to expand our packaging operations and will need to further expand these operations in order to meet future customer requirements.

Secondly, continued growth in both oat and soy fiber, driven by the very strong trend to add fiber to many food products including bread, bagels, tortillas, tacos, cookies, drinks, yoghurts, pet food, beverages and so forth. In fact, as Steve has mentioned, we are expanding capacity at all three of our fiber plants in order to meet this demand.

Third, 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. Remember again, it takes three years to certify an organic producer therefore SunOpta's global sourcing capabilities have become a critical component in ensuring year-round quality, organic certification, 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. In Canada we have been contracted to supply Wal-Mart with their organic produce, their frozen organic products, and about one-third of their organic groceries.

In the U.S. we produce large quantities of soymilk under our customer brands that are sold to Wal-Mart and Sam's Club and many other products include our ingredients.

Four, at our last conference call we spoke about the enormous interest in ethanol. The announcement of new corn to ethanol plants in the U.S. has continued unabated and we are already beginning to see the future prices of corn beginning to rise as it is forecasted that almost 30% of the corn crop will go to ethanol by 2007.

This, of course, takes away needed exports to food short international markets. When the next drought hits, and it surely will come in the next five to seven years, then corn prices will really soar and make it very difficult for the smaller ethanol plants to survive.

In many areas, corn is irrigated and draws from the aquafur, which is not being replenished. Clearly, the solution to long-term ethanol supply must be in the use of biomass or cellulosic materials which are often waste. A perfect example is fast growing aspens, poplars or cottonwood trees which are high in sugars, grow from surface water, are available in vast areas of the world, can be harvested year round avoiding storage, and grow again from the same root when they are cut.

Many people and companies are beginning to recognize the importance of SunOpta's technology in the use of biomass for ethanol. We are now supplying equipment to three of the major programs in the world in Spain, China, and the U.S.

We're being very careful not to overstate the development of this market. However, we do see major commitment to cellulosic ethanol around the world and believe that commercial production will come more quickly than projected.

In summary, the second quarter showed a significant improvement in revenue and in operating earnings versus the first quarter of 2006 and the same quarter in 2005.

I would like to comment briefly on the current weather conditions and how they may affect our supply. First, the soy crop is in very good shape except in the northern Red River Valley where we grow some natural soybeans. But overall our supply looks good assisted by our policy to diversify our geographic growing areas to some 20 states and three provinces.

Corn is good -- no major issues. Sunflowers are hurting in central and South Dakota where we will likely be impacted but we expect to offset this area by increasing purchases in Manitoba where crops are good.

In Kansas we've increased our sourcing on irrigated farms from 40% last year to 70% this year, which also helps us considerably. The Red River Valley area looks excellent.

So in summary, August is a key growing month. At the moment supply looks good.

As we look forward to the second half we expect to see each of our business units grow in both revenue and profitability. We will continue to invest in the capital projects that Steve has described and we'll remain active in seeking complementary acquisitions.

We are fortunate to have a growing profitable company operating in growing markets and producing products which are healthy both for the consumer and the environment. We have 1500 hard working, dedicated employees and we are fortunate indeed to work in a challenging and stimulating environment where our stated values are fundamental to our daily work.

We'd be really happy now to try to answer questions that you might have. Thank you very much.

[Operator Instructions] Chris Krueger with Miller Johnson.

Hi, good morning guys. Congratulations on a good quarter. Just a couple of quick questions, you covered pretty much everything on your call already. But on your updated guidance revenues were increased. Is it fair to say on the EPS guidance where you maintained your $0.26 to $0.30 range, is it fair to say that the weakness in sunflowers might be hurting you by around $0.03, $0.04, $0.05 but strengths in other areas is allowing you to at least maintain that range?

Yes, Chris, as I mentioned year-to-date sunflower is off $2.6 million and when you tax that it's over $0.03 and we do expect that to continue into the fourth quarter-- pardon me, the third quarter but improve in the fourth. So it will be a $0.03 to $0.04 issue for us in the year and it has been factored into that.

And you would say that other areas like oat fiber, soymilk. whatever the case may be, are probably out performing original expectations and net net that's how you come to the same guidance range?

That's exactly right Chris.

I'd also like to say it's the first time that we've given profit guidance and so we want to be very sure that we meet or exceed our guidance as we have always done on our revenue guidance.

Sure. Okay, one other question. In the fruit bar area it sounds like business is beginning to pick up a little bit there. Can you quantify how large that business has been in a 12-month period maybe in 2005, where you think it might be exiting '06, and the potential in a couple of years?

Sure. We were running I guess in 2005 around $4 million. We should exit this year at $12 to $13 million. Next year I would think at least $20 and then exploding thereafter. We're getting contracts I guess almost every week now. We only have two competitors in this business, one of which was purchased by Kellogg so they're focused on their brand, the other which is Sun Right which focuses on their brand so we're picking up any of the private label contract that they used to do, just developing many others and I think the recognition now of the need for healthy snack food products is tremendous. The growth in this market is over-- for healthy snack food is targeted over 30% per year compared to traditional snacks which are going at 6 or 7%. So it's a great place to be.

Okay. Just one quick question on your fruit sourcing. I kind of missed your comments during the call. I believe you say you source from over 40 nations and you talk about California possibly having a tough fruit season. Do you foresee really any impact there? You went other crops areas, just wondering what you think on fruit.

Well I would say this that if we had more strawberries, we could sell more. Or blueberries, both of those are short supply. We are fortunate that we're able to source significant amounts of these products from places like Argentina and Chile and a little bit in Europe but both Europe and China had very poor crops this year so the supply situation is really tight. We've been developing new sourcing down into Baja, which comes on earlier, and I think as Steve mentioned we're working with a lot of farmers to develop more and more organic acreage.

So, revenue wise, profit wise, it's not going to affect us very much because of higher prices and decent margins. But the answer is that we could be doing even better if we had more supply.

Okay, that's all I've got. Thanks.

Bob Gibson with Octagon Capital.

Good morning everybody. Maybe you could just clarify the deal with Cellunol for a minute because I thought they had a deal with Iogen.

Did you really?

Yes.

Big surprise.

Big surprise.

Well, Cellunol is going to be building this facility in Jennings and we are going to be-- there's a more detailed press release going to be following very shortly today from both them and ourselves which is going to have a lot more detail. So this is a continuous system that's of substantial dimension and I think it's-- this is our first substantial unit going into the U.S.

So they will be commenting on the direction of their business and where they expect it to go so you're going to see a little bit more information coming shortly. I think it's going to be released at the close today.

Okay. Are you going to talk about your thoughts about how you want to sell these facilities going forward?

Yes, we have talked in the last conference call about the fact that we certainly are selling equipment and technology, hopefully at a profit. A lot of this is these days are going into what we'll call first stage plants, pilot plants as well as lower volume facilities so that once they've demonstrated the technology they will move into much larger facilities. I would expect at that time that we will then be incorporating at the second stage royalty or throughput payments in addition to the sale of equipment and technologies.

And in addition to that, we are very interested in participating in the equity of projects and or helping to develop cellulose to ethanol faculties where we would have actual ownership in the operation. And there are various discussions going on with different customers about the different potentials about this idea.

So, we are absolutely-- I mean there are inquiries coming in from all over the world and almost virtually every day and so we're having to be very careful to sort out the ones that are real, that have money and are committed. But we're certainly looking to participate in the equity of some of these projects.

But you'll see more about that I would suspect over the next month.

Great. Can we just switch to the Fruit Group for a minute and just give us more of a longer term thinking of where you want to position and what do you want to own globally?

So, I think on the sourcing side we've emphasized how important that is because if you are a major retailer you've got to deal with a company that can guarantee you supply, quality, and certification. And so there aren't very many alternatives there and the virtual size of SunOpta now is a very important factor in addition to our sourcing capacity.

We have stated that we are looking at the possibility of investing in facilities in some offshore places where we would add value to the products that we're importing and we are certainly actively looking at that. We do expect to also look at adding additional processing facilities in North America. So I would say those are the two areas directly in the Fruit Group and we think that our specific food operation, if things materialize as we anticipate, will require a major expansion in the coming year.

We talked about the fruit bar business. We're now looking at new products, as Steve has mentioned, that go beyond the conventional bar into different shapes and so forth so that will require some new equipment. There's tremendous interest in that area. So I have no doubt in my mind now we'll be building a whole new fruit bar or fruit snack facility in the next-- probably within the next year.

Great. And lastly, a number of Canadian companies have been taking, let's call it, a tax gain because of the lower federal tax rates going forward. Is that a factor with you at all?

John, could you answer that.

Right, it leaves us within our 30 to 34% range. It's not a big factor for us.

Not a big factor.

So there's no one-time gain?

No.

No. Definitely not.

Okay. Thanks, that's it.

[William Gidal with Gaucho Group].

Good morning gentlemen. Yes, the last conference call you guys mentioned focus on organic juice. And I'm wondering what is the projected growth of the juice portion of the Fruit Group?

The juice situation is that there's tremendous growth in this area. It is limited to the extent that we are able to source organic juice supply. And so, we really have a lot of customer demand in this area. And this may also be one area where we will invest in actually packaging facilities within North America. So, the demand for organic juices is very strong and the supply is very tight.

Okay. Regarding the BioProcess Group. We're really pleased with the CRAC and Nedalco contracts and we're seeing a substantial push in Scandinavian countries like Sweden for cellulosic ethanol. Can you guys comment further on any opportunities going on in Scandinavia?

Yes. In the last few months we've visited with [E-Tech] in Sweden as well as the University of Lund. We're involved with the NILE project. This is a project for cellulosic ethanol that's being run by the Institute of French Petroleum. We supplied a system a number of years ago to IFP for the production of butonal and ethanol in the South of France.

A lot of the work at [E-Tech] is being done on softwoods and softwoods are, quite frankly, much more difficult to process than hardwoods because of the resin component of those woods. And so our focus at the Company is going to be in hardwoods, and particularly in the products that I talked about of aspen, poplar and cottonwood, and some various other fast growing materials. So they're a lot easier to work. Their sugar content is higher and we don't think that softwoods are going to be our emphasis.

Okay.

But we are very much aware what's going on there and we're in contact regularly with people, not just in Sweden, but, of course, in Denmark and also in Holland.

Okay. The Celunol project, that's pretty interesting. One of the major shareholders in that is one of the co-founders of Sun Microsystems, so that interesting.

You're right.

You guys are building the first commercial plant in the world with [Avangola] in Salamanca, Spain. You guys are tied in with some of the things going on there including, I believe, the entire plants funded by the European Commission. The total capacity on that was 2.4 million U.S. gallons after phase two. Has there been any change in the commercial design for that facility?

No. The first phase is five million liters, that's right. But there are subsequent stages that are planned and which, of course, would require additional equipment. There, of course, is no assurance that they're necessarily going to buy that from us, but I think this is-- they're obviously a very important customer to us. They are a very important factor in the industry as the largest producer of ethanol in Europe so we're-- obviously we're talking with them everyday.

Okay. And the pilot plant in York, Nebraska with the subsidiary, it's the only plant funded by the Department of Energy in the United States. It's going to convert corn stover starting in November, if I'm correct here, and according to National Renewable Energy Lab, 20 to 50% of the corn stover out there now can be removed without decreasing soil productivity. Can you guys comment on possible clip-on operations for other corn to ethanol plants in light of the fact that you're talking about these upcoming droughts, potentially?

Yes, that's definitely a possibility to take the residue that's coming from existing-- there are a couple ways of going here, but residue that's coming from existing corn plants, just currently DDGs, or distiller's grains. As more and more ethanol plants are being built, the distiller grains market is becoming flooded and the price of distiller's grains is falling significantly. And so there's an opportunity to take some of this equipment and reprocess, if you will, the distiller's grain stream that's left over and recover significantly more ethanol than was taken out in the initial process.

That's one kind of possibility. The other is simply putting-- attaching on a facility to process the corn stalk or the corn stover. And that's certainly a possibility and the people are very interested in. The one, in some ways, disadvantage of corn stover is like some other materials is you harvest them one time a year, you then have to store them for the rest of the year to service the plant. So you've got large storage facilities that you have to deal with, unlike as we talked about earlier, the aspen trees that you can just cut each week as you need them. But any rate, certainly corn stover is a good option for ethanol.

Okay. Regarding the Royal Nedalco contractual relationship, that yeast strain that's going to convert those C5 sugars, licensing that for numerous feedstock you guys are going to be able to increase cellulosic production by 40 to 50%. Is that correct?

That's correct.

I have just a question on the steel acquisitions for the Opta Minerals.

Just a comment. The advantage of that particular use is that it is able to convert both glucose and xylose into ethanol. That has been the key. The problem in the past is that you could always convert the glucose but the xylose comes from the hemicellulose fraction, the glucose comes from the cellulose fraction, and it is a significant portion of the overall material. If you can do both it's a significant improvement in yield.

And then last question is regarding the steel acquisitions in the Opta Minerals Group, are you guys servicing mostly structural steel or rolled steel on your business relationships there?

It would be rolled steel mills -- both [inaudible] and maxi.

Okay, thanks very much gentleman.

Keith Howlett with Desjardins Securities.

I had just a question, if you could just maybe summarize the agenda in the United States on moving cellulosic ethanol forward in terms of government programs to help plants get funded and started and how you see the timetable evolving?

I believe that the next major submissions have to be in by February of '07, I believe if I'm correct, to access government funding to build the next level of cellulosic ethanol facilities. And I don't want to get quoted here because I'm not quite sure of my figures, but they are somewhere in the 30 to 50 million gallon type of facilities that they're looking at. And so there are a number of people, obviously, that are applying for that kind of program and we're certainly working with some of those parties.

Is the idea those plants would be up and going by spring of '08, or sooner than that?

I think that would be in '08, because they are fairly large facilities. And then there's also a lot of state and provincial programs coming forward. If Canada, for example, is going to move to 5% ethanol on all fuel, I think Ontario is moving to 10%, I think there is much, much interest in supporting cellulosic ethanol projects. And I think you'll see a lot more of that kind of a system announced.

Great. Just on the $1 billion run rate objective, that's a corporate-wide objective, that includes the Opta Minerals I guess.

That's the total Company, yes.

And Just on the Opta Minerals, can you give us where your thinking is in terms of your 70.6% ownership position as to whether you'll sell it down, whether you'll stay there at a long term, or what you're thinking.

I think it's clear that Opta Minerals is a non-core business in the sense that it is certainly not related to food in any sense of the word. It is an extremely good business, it's a very nice business. It's one that is not-- as much as any business is, it's recession proof and the kinds of markets that it serves continue to work throughout. It's a high margin business and so on. And there are huge growth opportunities.

So we, for certain tax reasons, even if we wanted or had decided to sell it today, we wouldn't want to do that at the moment at least until 2007. So we think that from our point of view-- gosh I guess we're probably with this acquisition we'll be up to about $80 million in revenue and I think we'd like to see this grow to $100 to $150 million hopefully in the next couple of years. And then we'll take a look at what we're going to do with it.

Sorry, was that to $150 million?

Yes, between $100 million and $150 million.

Between $100 million and $150 million in two years.

And obviously, Keith, some of that is going to come from acquisitions, which there are a lot of opportunities in that business. The very nature of that business is that the materials are so heavy that they tend to be regional producers that supply regional markets. And so you can have very strong market positions in a regional market and so you have opportunities to pick up these operations.

And in terms of your natural organic food business, you mentioned you might look at value added processing facilities for products that you're exporting to the U.S. and Canada. Would you look at expanding any of your other businesses outside of North America?

Yes, we might look certainly at sourcing, expanding our sourcing capability, possibly through acquisition. With processing, I think we've talked about--

I think fiber processing makes sense in other parts of the globe. Certainly as our fiber business grows, look at expanding globally in that area and probably also in some finished packaged products, utilizing our ingredients in other areas around the world as we develop those markets. So we see global sourcing and value added processing. Value added processing being one for those markets, and also two, to return cost effective products to North America in one state or another, be it in a finished product or process to make the transport to North America most economical.

I think our expansion globally is going to be very, very carefully done and we're not going to go very quickly. Our primary objective in investing overseas is to ensure supply, because as we've said, that's critical. If we do acquire operations, the objective here is in the final analysis is to be able to know that we've got supply to support our North American customer base. So we're not definitely looking to broaden this into any other kind of business here internationally.

Just one last question on the ocara business, which you developed from a waste to a product. What sort of revenues do you see getting out of that business?

Over time, it very much depends on the applications that it goes into and the types of processing that we do -- probably in the $4 to $5 million range.

Thanks very much.

We'll go next to [Frank Paloose] who is a private investor.

Thank you. First of all, congratulations to the management on the job well done there. I have a couple of questions. What is the market cap?

Today, if you take the stock at $9.00 today on about 58-- it's a little over $9.00 with 530 million.

So, 525 million U.S.

Thank you. And secondly, what is the debt that the Company has?

$66.2 million in long-term debt.

Our long term debt is at a fixed interest rate of 6.4%, and we pay interest only for the next five years at that fixed rate -- 4.5 years.

Do you have financing for the ethanol plant in Spain that's going to be built?

No, the financing is all being supplied by the customer, in this case being [Avangola] and so they're simply buying equipment and technology from us.

So there is no financing problem there.

There is no financing there at all. And generally these contracts that we get in the by-process area include down payments and progress payments as we build the equipment and ship it.

What analysts follow SunOpta?

There are two analysts in the U.S. with Canaccord Adams and Miller Johnson Steichen and Kinnard. There are a number of, I think, about four analysts in Canada. There is RBC World Bank of Canada, there's Octagon, Desjardin, and Toll Cross.

What is their comment on the, buy, sell, hold, what?

I think the only comment that we've seen so far this morning, in terms of the quarter, comes from Canaccord Adams and they've reiterated a buy on the stock with a stock estimate of $11.00 -- a stock target of $11.00.

And the other analysts have no comments?

They will have, I'm sure. They mostly, I suspect, are waiting to hear this call and then generally what they do is to follow-up with an update to their clients.

And any comment on why the stock price is down.? The high in May was maybe around 12.

I would think that obviously there was a significant correction in the marketplace. That is one factor. At the time there was a lot of, and I don't know any other word to say, but there was a lot of hype in the general market about ethanol and so there are a number of companies out there that reached a fairly large market cap in spite of never having produced an ounce of ethanol. And I would say that there was an element in our stock price as well.

As much as I've said again in my talk today that we don't want to over-- we announce things as they occur only and we're not out trying to promote our stock in the ethanol market area. We do think we have an important technology here. So I think then some of those stocks came off.

And also I would say that approximately four months ago there was some insider selling in our Company. We get very, very few opportunities to ever sell our stock because we're generally blacked out and so some people get concerned if anybody sells any shares. It was about 20% of the stock held by insiders that was sold. And nobody had sold stock for five years, and in fact, it all has been added and constantly adding and investing.

It doesn't really matter what you do. Unfortunately, people do object if you sell because they think it's a statement of non-confidence and it's certainly not the case. Everybody has maintained by far the majority of their stock position and every member of senior management puts 10% of his salary into the stock every two weeks. It's really one of those things that happens.

When was the insider selling?

It was back in May. It was really over the space of a couple of days when the market was strong. They were sold into the market. The stock went up I think another $1.00, $1.50 after the selling occurred. So, anyway, it's one of those things.

What's the PE at?

The PE? Well based upon our estimated earnings this year, in the $0.26 to $0.30 range, around 30 times.

And could I have the phone number for the home office? I haven't been able to find that.

You would like to know the number?

The phone number for the home office.

905-455-1990.

455-2990.

990

2990. What city is that in please?

I'll repeat that one more time -- 905-455-1990.

Thank you. What city is this?

That's in Toronto. Just outside, at the edge of Toronto.

Thank you so much.

You're most welcome, sir.

Going next to [Ronald Eminan with RMC Group].

Hi, Jeremy and Steve. Congratulations once again. Fantastic quarter. Over the years SunOpta has made many, many acquisitions and my question is, have any not met your expectations? And if yes, do you or have you disposed of any of these companies?

Interesting question. You're right, we've made quite a number of acquisitions. I guess the biggest one that did not work out for us was going into the organic chicken business. And so this was a situation where we had acquired an operation that provided the feed to organic chickens but was not in the growing business, was not in the processing business. They were also doing some marketing. So they were participating in the feed supply and the marketing side. I think the basic problem is we didn't bring enough value to the enterprise to really make it a worthwhile business and it took us a little while for us to realize that and when it did we wound it up.

You say, "You wound it up?"

Yes, wound it up. We were out of that business as of last year.

I see.

It was a good lesson for us I think. The profits looked significant but in the final analysis they weren't and we just weren't bringing enough to the equation.

Ron, it was a very small investment in terms of the financial monies that we had in it.

I remember that as being a relatively insignificant acquisition. In fact, your track record has been remarkable in terms of acquisitions and their successes. Along those lines, could you comment a little bit about the opportunities for cross marketing with these various acquisitions, obviously in the food business?

No problem at all Ron. Over the last-- let me just step back a little bit. As we brought the Company together over the years, we organized-- it was actually called the Sunridge Food Group at one time. Most of the operations operated fairly autonomously and worked together but operated in an autonomous manner. And over the last year and half to two years, we've re-branded, sorted the Company-- sorted the Food Group into four operating groups being Grains and Foods, Ingredients, Fruit, and Canadian Food Distribution Group.

So within those Groups inherently a lot of cross selling has happened. For example, in the Grains Group you used to have a focus on soy, you used to have a focus on corn, you use to have a focus on sunflower, now you have a focus on grains. And you use the same agronomy people -- when you're out selling to customers you sell the whole deck. Same thing happens in Ingredients, in Fruit, et cetera.

What has really happened over the last year and a half as we've branded all of these companies, food retailers and food manufacturers are now starting to truly understand the breadth and magnitude of natural and organic products that we can bring to them? And then not only bring them products but at the end distribute them in Canada, so become a customer of theirs in Canada, which is also quite interesting.

We have probably made consolidated Food Group presentations to 60 to 75 retailers and food manufacturers, where we're now talking to them about our total one stop solutions package. What can we do for you with our grain-based products, our ingredient-based products, our fruit based products? How can we cover off our total spectrum of needs? And it is really going and there are many opportunities coming out of that.

So we're selling very much on a global basis to these large retailers where we come with a full solution package, which is very important to them, including the ability to guarantee supply through our global sourcing expertise.

On another issue, totally unrelated and perhaps it's significant that my call follows the gentleman who talked about the insider selling or at least that issue, I was one who, as Jeremy knows, was overly concerned about that and perhaps it was unwarranted. The strongest issue I think that your management team has is your high integrity and just because everybody had sold at one time it just raised the question and perhaps unwarrantably so. So my concern, perhaps, was over the top and I wish you continued success and hope to remain an investor of some SunOpta for many years to come.

Thank you, Ron, and I will say -- this is Jeremy -- that we have taken your concerns to heart and we have developed internally now policies for all senior members of the Company that we are asking every member to end up owning a substantial block of shares and that they will accumulate that over a given period of time. And that it can come through their stock purchase plans, their open market purchases, and their stock options. But let's say it's a moral requirement now for every senior manager to own a minimum of three times their annual salary in stock-- sorry, 1.5 times per annual salary in stock.

If you are a young guy just starting off -- we have some very, very competent young people in the Company -- this is a big commitment when you've got mortgages and kids and stuff. But we took to heart some of your comments and have put in an agreement there.

Thank you, Jeremy, that's very comforting to hear. Continued good luck.

We'll go next to [Jim Vash] with IPS.

Good morning, gentlemen. Nice quarter. Great outlook and congratulations on the new deal with Celunol.

Thank you very much. We're excited about that.

In the PR you mentioned that BioProcess revenues had come down a quarter due to contract timing. So what I'd like to just ask you if I can get a little more color. Is it safe to say that we'll be seeing a return to growth in Q3 then?

Absolutely. Unquestionably.

That's good. Did you have plans to break that out separately from corporate?

The reason that we haven't done so, so far, is because up until fairly recently we've had one major customer. And so for reasons of disclosure about them and the fact that we don't want particularly to talk to them about whatever margins we're making in the business, given it was a single customer, we have consolidated.

As this division grows, I suspect we will and ultimately separate it, but right now it's still a relatively small part of the business at about 1%. I expect to see significant growth in the area and then ultimately see it separated.

Great. And as far as the one customer turning into multiple, do you see that happening then in the remainder of the year with Royal Nadelco and China?

Yes, with the Chinese and now with Celunol, so we're now beginning to broaden that base. There are so many opportunities right now that it's just with our very small staff they're trying to be very specific about who they work with.

Understood. That's wonderful to hear. Well thanks very much and keep up the great work.

[Steve Benisever] with Meyers and Associates.

Good morning, gentlemen. Congratulations on another great quarter. I actually had just two main questions. And the first question I had was just in regards to just overall markets of organic foods. I mean I've read a lot of reports just pertaining that it takes three years to get a farm certified for organic foods. And it seems to be that there is an overall shortage of organic foods in the general markets. So my question is is that well if there's a shortage in organic food, I would think that represents a price advantage that can be taken advantage of. So my question is is that all the products you guys are selling right now, as far the margin is concerned, but are you guys really priced to premium right now or do you still see more room to grow as far as increasing prices or profit margins?

I think we're seeing perhaps better than expected margins in our sourcing business as a result of the shortages. And certainly as we do more processing in the product you get the different margins -- improved margins.

I'm sure we've experienced good price leadership this year as a result of the supply situation. In other words, we are able to pass on the increases that are coming in terms of cost because of short supply. I'm very impressed with the ability to do that so far.

Very good.

And I think as the Company grows in reputation in the food area that too will also help in the margin area.

Okay, perfect. Next question I had was just in regards to the deal with CRAC and the China deal. And you made a statement, or a comment I should say, earlier in the conference call, you're saying that their goal, China's goal, is to reach I think it was like 337 million gallons or so, and that will require more facilities. Could you give a comment on how many more facilities they would actually need to obtain that type of capacity?

That's not the whole of China, that's just this one customer.

Right, exactly, right. In regards to just this one customer, would--?

We estimate that there would require something like 20 more plants.

20 more plants, right.

Plants could have more than one line of our equipment.

Okay. And do you guys see expanded business in the China area?

Yes we do. And one of the interesting things about this first sale to China is we've been working with China for a number of years on different things and the story has always been, well, you put in a facility in China, and if we like it and it works, we'll buy one. In this case, it's cash in advance and 100% paid before the equipment leaves. And the cash and deposit is already here and in the bank.

Very nice.

Very unusual and so I think it's an indication of their commitment.

Okay, very good. Thank you so much, gentlemen and continued good luck to you guys.

And there appears to be no further questions at this time. I'd like to turn the conference back over to Mr. Jeremy Kendall for any additional or closing remarks.

Well, thank you so much everybody for your good questions. I apologize for the short delay at the beginning. We, as always, welcome your questions, your contact with us, and/or even visits to our plant. So we'll try to keep you as informed as we can and thanks again.

And that does conclude today's conference. We thank you for your participation and have a great day.