Sunopta Inc (STKL) 2006 Q4 法說會逐字稿

Good day, everyone. Welcome to the SunOpta Inc. fourth-quarter and year-end results conference call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Jeremy Kendall, Chairman, and Steve Bromley, President and Chief Executive Officer. Please go ahead, gentlemen.

Thanks very much, operator. Good morning, ladies and gentlemen, and welcome to the fourth-quarter 2006 and 2006 year-end investor call for SunOpta Inc. I am joined on this call today by Steve Bromley, the Company's President and Chief Executive Officer; John Dietrich, the Company's Vice President and Chief Financial Officer; Joe Riz, the Company's Executive Vice President; and Ben Chhiba, the Company's 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 2007 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-K for the period ending December 31, 2006, will be filed by no later than the close of business on Monday, February 27, 2007.

First, I would like to formally introduce you to our new Chief Executive Officer, Steve Bromley, who has been with SunOpta for almost six years. We have taken a year to complete this transition, and I'm delighted to say that Steve has the full support of our Board, our employees and myself.

As part of our management evolution, we also were very pleased that Joe Riz joined us in January of this year as Executive Vice President in charge of operations. Joe has been chair of our audit committee for the past five years and therefore is thoroughly familiar with the company. I will remain as Chairman, working in a reduced capacity in the areas of strategic planning, policy development and acquisitions.

And I would now like to turn the call over to Steve.

Thank you, Jeremy, and good morning. We are pleased to report record revenues of $598 million for the year ended December 31, 2006, representing a 40.3% increase over 2005's annual revenues of $426.1 million and a 95.3% increase over the same period in 2004. Revenues in the fourth quarter of $163.5 million represent a 33% increase over the same quarter in 2005 and the highest revenues of any quarter in our Company's history.

In the fourth quarter, revenues from the SunOpta Food Group represented 89.8% of total Company revenues, reflecting an internal growth rate for 2006 of 18.4%, well within our annual target of 15% to 20%.

We have announced our revenue guidance of $740 to $760 million for fiscal year 2007, which will represent an increase of between 24% and 27% over 2006, excluding any potential acquisitions. We will update our revenue guidance mid-year, as we have traditionally done. Our 2007 forecast projects an approximate 15% internal growth rate as a result of a number of new contracts and business opportunities, including the aseptic and refrigerated Celunol contracts.

We continue to target a revenue exit rate of $1 billion in 2007, which is subject to achieving a 15% internal growth rate and completing acquisitions at a similar level as in recent years. We can see 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.

Each of our food operating segments are focused on key components of today's healthy eating trends and the UDSA's dietary guidelines, which call for increased consumption of fruits, vegetables, whole grains, fiber, and plant oils, including soy, corn and sunflower.

Gross profit for 2006 was $101.7 million or 17% of revenue, representing a 42.3% increase when compared to $71.5 million in gross profit in 2005. Operating income, defined as earnings before interest, income taxes, other income and expense, and minority interest, rose 41.2% to $23.3 million as compared to 2005, when operating income was $16.5 million.

Operating earnings growth in 2006 was led by a 323% increase in the SunOpta Canadian Food Distribution Group, a 102.2% increase from the SunOpta Fruit Group, a 39% increase in the SunOpta Ingredients Group, and an 80.6% increase in Opta Minerals Inc., partially offset by a 26.9% decrease in the Grains and Foods Group due to the sunflower issue.

We do not disclose the operating results for the SunOpta BioProcess Group, since it is quite small, representing less than 1% of our 2006 revenues. However, great things are in store for this group, which we will comment on later.

Net earnings in the fourth quarter rose 33.4% to $2,080,000 or $0.04 per diluted common share, as compared to $1,559,000 or $0.03 per diluted common share in the fourth quarter of 2005 after absorbing pre-tax costs of $1,601,000 related to the frozen fruit recall previously announced by our subsidiary, Cleugh's Frozen Foods Inc. These costs include direct expenses of $822,000 incurred by SunOpta and our affected customer and $779,000 in costs to voluntarily rework product that was produced and packaged during the period in question. This recall was an isolated incident, and the Company has captured all the known costs within the fourth quarter.

Net earnings for the year were $10,959,000 or $0.19 per diluted common share, as compared to $13,558,000 or $0.24 per diluted common share in the previous year. The 2005 results include a dilution gain related to the initial public offering of Opta Minerals, which increased earnings in 2005 by approximately $0.08 per diluted common share. The 2006 results also included a significant segment operating loss within our sunflower business of $3,948,000 as compared to segment operating income in the previous year of approximately $2 million, this due to the very poor 2005 crop conditions.

Net earnings before the sunflower write-off and product recall were $0.26 per share for the year. After these unusual expenses, earnings were $11 million or $0.19 per share. The Company achieved free cash flow of approximately $5 million for the year after changes in working capital and deduction of maintenance capital expenditures.

The SunOpta Food Group realized strong revenues and margins within the quarter, led by growing shipments of organic grains and organic shelf-stable and refrigerated soymilk products within the SunOpta Grains and Foods Group. The SunOpta Canadian Food Distribution Group increased its sales and margins of organic and natural grocery products and realized solid performance from the newly Purity Life Health Products business and Quest branded products within this group.

The SunOpta Ingredients Group continues to experience strong demand for insoluble oat and soy fiber, which resulted in increased segment operating income versus the fourth quarter of 2005. With the exception of Cleugh's Frozen Foods, the SunOpta Fruit Group has performed very well. Internal growth was 16.3% in the quarter. Segment operating income within the SunOpta Food Group increased from $4,670,000 in the fourth quarter of 2005 to $5,385,000, reflecting a 15.3% increase despite the costs associated with the previous noted recall. Segment operating income for the year in the SunOpta Food Group was $23,007,000, a 41.6% increase.

Opta Minerals Inc. realized a significant increase in both revenues and operating income in the fourth quarter and year as compared to 2005. Revenues in the fourth quarter increased 87.7% to $16,071,000. Operating income increased to $1,462,000 in the quarter, an increase of 263.7%. For the year, Opta Minerals achieved revenues of $64,261,000, an increase of 85.4%, and operating income increased 80.6% to $6,876,000. Increases in revenue and segment operating income were primarily due to the acquisitions of Magnesium Technologies Corporation and Bimac Corporation.

Interest in the SunOpta BioProcess Group's technology and equipment for the pretreatment of biomass for the production of cellulosic ethanol remains extremely high. And the group is now rapidly expanding its staff and pursuing additional supply contracts and partners. Results for the fourth quarter primarily reflect work on the Celunol contract. Equipment has been shipped as well with respect to the contract with Abengoa. Both of these contracts are expected to be completed in the first half of 2007.

During the fourth quarter, the group's proprietary technology was commissioned in China and is currently being operated around the clock in the production of cellulosic ethanol. The group has been working diligently on its previously announced financing to raise approximately $30 million for this business, which will be used primarily in the construction and ownership of cellulosic ethanol production facilities in Canada in our joint venture with GreenField Ethanol.

As noted, net earnings were impacted this year by extremely poor results in our sunflower business. This issue reduced our overall profit before tax by approximately $0.05 a share and approximately $6 million in segment operating earnings versus 2005. We also absorbed the one-time cost of $1.6 million associated with the previously mentioned strawberry product recall during the fourth quarter. It is important to recognize that every operating group of the Company is well-positioned for continued growth. And with the exception of the Grains and Foods Group, all achieved solid earnings growth versus 2005.

Our earnings guidance for 2007 has been set at $0.35 to $0.40 per share, which is approximately a 100% increase over 2006 earnings and approximately 4 times faster than revenue growth.

The Company's balance sheet remained strong at December 31, 2006, with $1 million in cash, which was then increased by approximately $51 million on February 12, 2007, with the underwritten purchase of 5,175,000 common shares. This financing was oversubscribed and was placed with institutional shareholders in Europe, the United States and Canada, with a small portion for retail investors in North America. This will provide sufficient financial resources to continue to fund growth in operations, invest in capital projects and continue our acquisition program.

Shareholders' equity increased to $176.7 million at December 31, 2006, and then further increased to approximately $228 million following the financing. This translates into a book value of $3.62 per common share, up from $2.83 at December 31, 2006. Long-term debt at year end increased to $77.8 million, primarily as a result of debt acquired through acquisitions and the debt employed to fund our 2006 acquisitions.

Our long-term debt-to-equity ratio at year end was 0.44 to 1, and 0.33 to 1 as of today, still well below our maximum targeted operating threshold. We have applied the funds recently raised for the short-term repayment of operating lines and will gradually increase these operating line borrowings in the future as required for further expansions and expected accretive acquisitions.

Working capital remained relatively constant year over year, this in spite of the fact that working capital requirements generally peak in the last half of the year due to the purchase and storage of fall grain crops, the purchase of domestic frozen fruits and vegetables carried over the winter season, strategic fruit purchases from contra-seasonal regions, and the building of inventories at Opta Minerals prior to the freezing of the Saint Lawrence River. It is important to realize that the year-end working capital, while remaining constant, is now supporting an excess revenue rate of an excess of $650 million.

I will now turn the call back over to Jeremy.

So as we look back at 2006, we can summarize the key events as follows -- first, the dramatic rise in the demand for oat and soy fiber, resulting in plant expansions at all three of our fiber plants, increasing our capacity by approximately 25%. And we remain at near full capacity today. We are currently studying further expansion options. This year, we introduced our new proprietary soy fiber product with a new patent-applied-for technology, with revenues far ahead of our original expectations.

Second, we have seen the benefits of the construction of our new state-of-the-art distribution center in Toronto and the subsequent integration of three organic, natural and kosher distribution operations into the new facility, with segment operating earnings increasing by 323%. We are currently constructing a new 95,000 square foot high cubed state-of-the-art distribution center in Vancouver to open in September 2007 to address the growing Western Canadian grocery market.

Third, the signing of new three-year contracts totaling revenues of $140 million for aseptic and refrigerated soy milk with a major U.S. retailer, which commenced production in January, August and December of 2006 -- these contracts positively impact every level of our vertically integrated soy model, from seed to (technical difficulty).

As a result, we continue to invest in expanding production to support our customers and have now increased production volumes to over 2 million quarts of soymilk on average per week at our packaging plant. So we are continuing to work at furthering capacity at this facility and are considering the construction of a second aseptic packaging plant on the West Coast this year.

Fourth, we have experienced rapid growth in the demand for healthy fruit snacks, high antioxidant fruits and organic frozen fruit and ingredient offerings, leading to expansion of sourcing and processing expertise and increased revenues and profits within the SunOpta Fruit Group.

Fifth, we acquired four food companies and one product line, plus two further acquired companies within Opta Minerals Inc. These acquisitions were as follows -- on September 20, 2006, the Company acquired 100% of the business and net assets of Purity Life Health Products Limited, a distributor and manufacturer of a wide range of natural health products, supplements and organic health and beauty aids, with annual revenues of approximately $50 million. Purity has become part of the SunOpta Canadian Food Distribution Group, which now distributes a complete line of approximately 18,000 SKUs of organic and natural products to approximately 7000 customers across Canada.

In November, SunOpta acquired the high-end Quest vitamin brand of vitamins, minerals and supplements, with annual revenues of approximately $8.5 million. This business was immediately integrated into the Purity Life operations.

In December 2006, we acquired 100% of the outstanding shares of Aux Mille et une Saisons, a profitable Quebec-based distributor of natural and organic foods with revenues of approximately $15 million. The acquisition of Aux Mille provides significant presence for SunOpta within Quebec and solidifies the distribution group's position as the largest distributor of natural and organic foods and health products in Canada.

In October 2006, we acquired 100% of the outstanding shares of the Hess Food Group of Chicago, a profitable company with approximately $4 million in revenue. The Hess Group works with major food service companies and quick-service restaurants to provide supply chain expertise and develop fruit-based products. The combination of Hess and the SunOpta Fruit Group strengthens SunOpta's position in the food service and casual restaurant industry and complements our strength in the private label and ingredient market.

In February 2006, Opta Minerals Inc. announced the acquisition of 100% of the outstanding shares of Magnesium Technologies Inc. of Walkerton, Indiana, a manufacturer of proprietary and patented magnesium-based desulfurization products, which help to remove sulfur during the steelmaking process. This $30 million business is profitable and growing.

And finally, in October 2006 Opta Minerals Inc. acquired 100% of the outstanding shares of Bimac Inc. of Milan, Michigan, a profitable manufacturer of proprietary tundish and ladle insulators, fluxes and conditioners, with revenues of approximately $8 million, much of which is made from recycled materials.

Sixth, we made a number of investments in strategic capital projects this year such as expansions within our fiber operations, expansion of our grains-based dry roasting and packaging operations; continued capacity upgrades at our aseptic packaging facility; capacity upgrades, packaging upgrades and automation projects within the SunOpta Fruit Group; and new software and warehousing in our distribution operations, all strategically focused on expanding the Company's ability to serve these fast-growing markets.

The Company signed a contract within the SunOpta BioProcess Group for the provision of technology and equipment to the first corn stover -- that is corn stalk -- to ethanol project in the world, located in China. This facility is now running 24 hours per day. And the customer, CRAC, has plans to rapidly expand their production to approximately 330 million gallons of cellulosic ethanol by 2012, employing the SunOpta equipment and technology.

China recently announced that they would not permit any further expansion of starch or food to ethanol, but would concentrate on cellulosic ethanol. We expect that the ethical issue of food to fuel will become a major concern in the coming year all over the world.

SunOpta's BioProcess Group also signed a contract to provide technology and equipment to Celunol in the United States for the first plant processing sugarcane to gas to ethanol. This plant will start up in June 2007. SunOpta BioProcess Group also shipped equipment to Abengoa in Spain for the first plant in the world to process wheat straw to ethanol, which is also expected to start up in June 2007.

And finally, the SunOpta BioProcess Group has signed a joint venture agreement with GreenField Ethanol, Canada's largest ethanol producer, to construct and jointly own cellulosic ethanol plants in Canada using fast-growing hardwoods as the primary feedstock.

As a result of the enormous interest in cellulosic ethanol and in particular in the SunOpta BioProcess technology and equipment, we have decided to convert this division to a wholly owned subsidiary and then raise approximately $30 million to construct and own cellulosic ethanol plants. This financing is expected to close during this quarter, and interest appears to be very, very strong at this time.

We continued the implementation of improved and stronger internal controls and once again met the requirements for Sarbanes-Oxley 404 certification. In addition, we continued implementation of our new Oracle operating platform at a number of our operating facilities and corporate office and expect to be fully implemented by the end of 2007. This is a key initiative as we continue to grow our business and build a scaleable and sustainable platform for continued growth.

Steve, I will turn it back to you.

Thanks, Jeremy. As we look at each of our businesses, we expect a strong 2007. The SunOpta Grains and Foods Group is well-positioned and will rebound from the previously discussed issue with the 2005 sunflower crop. Despite this issue, revenues within the group increased 25.4% in 2006, led by strong internal growth of 22.9%.

The 2006 soy and corn crops were quite good, and demand for organic grains is very strong. The 2006 sunflower crop was much better than 2005, positioning this sector for much-improved results in 2007. The sunflower group is starting to realize the benefits of its strategy to penetrate higher-margin value-added ingredient applications with major food marketers such as General Mills.

The group recently launched a line of organic whey and dairy ingredient products which have been received with strong demand from mainstream food manufacturers launching organic food offerings and also from organic baby food producers. Demand for organic vegetable oils continues to grow, and this business is quite strong.

Our investment in oil crushing technology at our processing partner in Colorado is nearing completion, and this will significantly improve our volume capabilities and current cost structure. We expect to further invest in vegetables oil refining technology in 2007.

The group's aseptic soymilk business grew dramatically in 2006 and is expected to remain strong in 2007 as a number of opportunities in retail, packaged and food service applications are pursued. As Jeremy mentioned earlier, we expect to further expand our processing capabilities and capacities during this year.

During the fourth quarter, we announced that we had been awarded a three-year contract from a major retailer for the supply of our refrigerated organic soymilk beverage, the largest refrigerated soymilk contract in our Company's history. The product continues to ramp up in volumes, and we are now shipping approximately 80,000 cases per week. The group continues to pursue a number of a refrigerated soymilk opportunities as retailers' interest in private label organic food products continues to grow.

The SunOpta Ingredients Group had a solid 2006, with segment operating earnings up 39.9%, and continues to be well-positioned as demand for oat and soy fiber grows and internal capacity expansions are completed to address market demand. The group has completed a 20% capacity expansion in Cambridge, Minnesota, and is in the final stages of increasing capacity in Cedar Rapids, Iowa, by 35% and Louisville, Kentucky, by 25%. With the strong demand for fiber, this incremental capacity is being absorbed in short order. We are continuing to study further expansions of fiber capacity and expect to do so during 2007.

Significant progress has been made in the production of our proprietary soy fiber, which was launched in 2006, and we realized margin improvements during the fourth quarter. Demand for fiber products worldwide continues to grow and the group has been moving quickly to address this opportunity. A full-time sales management resource has been added in Latin America and a network of 23 international distributors has been assembled around the world. In hand with continued volume growth initiatives, the group has implemented a margin enhancement program based on improved operating efficiencies as facilities are expanded, coupled with improved pricing on fiber products effective March 1, 2007.

The group has recently finalized a new three-year processing agreement extension with [Denisco] for the continued production of fermented natural food preservatives and is pursuing a number of coprocessing opportunities.

Despite the recall issues of the fourth quarter, the SunOpta Fruit Group had an exceptional 2006, realizing an increase in revenue of 91.4%, driven by strong internal growth of 25.9% and an increase in segmented operating income of 102.2%. Demand for healthy fruits, high antioxidant fruits and expanded organic offerings continues to grow, and this group is very well-positioned.

We continue to expand our supply sources around the world in order to meet demand and have recently entered into new supply relationships in Eastern Europe, China and New Zealand. We now have representatives on the ground in Mexico, Latin America, Eastern Europe, China and the Philippines. Sourcing and supplies [for these] is key as demand for organic products grows around the world.

During 2006, we expanded our strawberry processing capabilities at our Buena Park, California, strawberry processing and packaging facility and expanded our drawing, processing and packaging capabilities at our Omak, Washington, fruit buyer operation to meet increasing demand. In order to meet continued demand for frozen strawberry products, we have significantly increased our sources of supply with a focus on Mexico, Latin America and Eastern Europe and expect to realize a 50% increase in our supply of frozen strawberries.

In order to meet this demand, we're in the process of installing another IQF line in Salinas, California, in time for this year's crop, increasing capabilities at this plant by approximately 50%. We're also in the process of expanding the capacity of our Buena Park facility by 25% by the addition of another sorting line and process automation projects.

We are nearing completion of our fruit topping line expansion and automation project at Pacific Fruit. This expansion will be completed late in the first quarter and will increase annual capacities from 3 million to 14 million pounds, and a number of customer commitments have now been secured.

The group continues to work closely with a major quick-service restaurant chain, who has been testing an innovative fruit-based beverage product and is expected to commence a national rollout during the year using fruit-based product provided by SunOpta.

As healthy snacking continues to grow, so do our Kettle Valley fruit bar operations. Over the course of 2006, the group launched a number of new products, and operations have essentially reached capacity of approximately 100 million bars. We have recently commenced a project to construct a new facility adjoined to our operations in Omak, Washington, to expand our current fruit bar capacities and also allow us to produce innovative natural and organic fruit products in shapes, ropes, peelables and others focused on today's healthy-snacking youths. Initial production is scheduled to commence early in the third quarter, with full capabilities which will double current capacity online early in the fourth quarter. This is really exciting and positions the SunOpta Fruit Group for a prosperous 2007.

The SunOpta Canadian Food Distribution Group had a great 2006 as revenues increased 35.7% and segment operating earnings increased 323% as the impact of numerous market developments and cost efficiencies were realized. During the year, the group completed a series of strategic acquisitions, expanding the current product portfolio to include natural health supplements and health and beauty aids and solidifying the positioning of the group as the dominant distributor of natural and organic products in Canada.

The group is well along in its installation of a new state-of-the-art food distribution software for its grocery operations. This software will be implemented in the Western operations in April 2007 and Eastern operations in June 2007. This will drive significant internal efficiencies, working capital improvement and customer service enhancements, all essential as we maintain and grow our position as the dominant natural and organic food distributor in Canada.

Opta Minerals Inc. also realized an exceptional 2006 with revenues up 85.4% and segmented operating earnings up 80.6%. This growth was driven by a combination of acquisition and internal growth, and the business is well-positioned for 2007. The group recently invested in equipment and facilities in Montreal, Quebec, and will be expanding its presence in abrasives and industrial minerals in the key Quebec market, an area where the group was previously not competitive due to the location of our processing facilities.

In addition, the group will be expanding its Waterdown, Ontario, operations to provide a second source of magnesium-based desulfurization products, currently [singles first] at the MagTech facility in Indiana. This will provide additional capabilities for our customers and open up significant opportunities in the Northern markets. And the group expects to generate new business for 2007 based upon this expansion.

And we expect to see a dramatic change in the SunOpta BioProcess Group with the completion of the private placement financing, a much expanded staff, several new patents and a much-expanded business base. We expect to be able to confirm the final valuation of the BioProcess Group shortly, and we expect that the valuation will enhance the value of SunOpta significantly.

Operating margin improvements continue to be a key focus across our Company. All operating groups have implemented long-term improvement programs focused on facility utilization, cost reduction, pricing improvement and product mix, focused on high value-added products. In hand with our three-year, $10 million profit improvement project, which is also being driven by our supply chain teams, we expect continued margin improvement as we leverage the base we have built over the last number of years.

I would now like to turn the call back to Jeremy.

So we have recently updated our environmental and sustainability policies across the organization and we have increased our efforts in this regard. There is no question in our minds that we must continue to focus on the triple P&L of financial, environmental and social.

Environmental responsibility is a key platform for SunOpta and one which we believe will contribute to improved profitability and social responsibility in the long term.

In summary, we all look forward to 2007 with continued strong growth in revenues, but particularly strong growth in profits. Every operating group is forecasting improved results for 2007. Our plants are reaching capacity, our order backlog is strong and our markets are in the key growth areas of healthy and organic foods, alternative energy and recycled products.

Our food business is well-positioned in the organic markets and healthy eating categories. The organic market continues to grow in the 15% to 20% range per year, with the latest estimate reaching over $30 billion in North America in 2007. We see that the growing awareness of the benefits of organic food are manifesting themselves in a greater commitment by the retail sector to offer more and more organic products, many of which now carry a private label. We are approximately one-third of our business today in the production of private label. And we wouldn't be surprised 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, nondairy beverages, soy products, fruit bars and healthy snack foods.

Opta Minerals is well-positioned with dominant market positions in silica-free abrasives, industrial minerals and environmental recycling. It is growing rapidly and is well-positioned to consolidate a still fragmented market.

Our BioProcess Group is exceptionally well-positioned in the rapidly developing global cellulosic ethanol market. We are very fortunate to be in this position.

2006 was certainly a busy year, and 2007 shaping up to be a very exciting one, focused on continued growth and improvement in earnings.

With that, we would like to open the call for questions. Thank you.

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

Jeremy, congratulations on the margin improvement. First, there's been a little bit of M&A activity among your customer base in the last couple of weeks. Can you talk about any impact from the Diversa/Celunol acquisition?

Sure. I can talk about the Celunol acquisition. Celunol was bought by Diversa. And I think that brings more financial resources to Celunol. And I would think that that is likely to expand and accelerate their program.

And since they are building a plant and you are not building a plant up in Canada or plans to build a plant up in Canada, do you see any situation where your customers become your competitors a little bit, or how do you manage that?

Well, our business model, which we have laid out, is a combination of equipment sales and also taking equity positions. At this point in time, the equity positions that we are looking at taking in cellulose to ethanol are all in one geographic area, that being Canada. So I don't think -- these are quite different markets. I don't think there's going to be a conflict here at all.

Great. And I'm sure you saw the Whole Foods/Wild Oats merger. Any private label business with either of those customers that might be moving around?

Scott, we do a significant amount of private label business on the fruit side of our business and some on the beverage side of the business -- both very good customers, both have been growing really, really well in the fast-growing organic segments. I'm sure there will be some SKU consolidation over time. But our strength in those two parties as one combined, we're very pleased -- we think it looks good.

An example is fruit bars. We make a private label fruit bar for both companies. And it is possible that over a period of time, they may consolidate those programs. But I think they will still continue to sell in all of their retail outlets.

I would assume that would be beneficial, using the same volume with less SKUs.

Exactly. So it should provide more efficiencies at the plant level.

With the Aux Mille acquisition in Quebec and you are doing the new facility out on the West Coast, do you have any plans yet for a new facility and a consolidation project in Montreal?

No, Aux Mille is outside of Montreal, but has a recently expanded facility there that is adequate to carry our operations. In addition, then, we have a kosher distributor in Montreal. So we will probably run those two businesses separately. I don't expect to see anything more in that area for a while. I think we have got adequate capacity in both.

And I don't know if I missed it -- did you talk about the cost-saving programs that you've put into place -- I think it was beginning of last year, or maybe the end of '05? Any work or data points as to how you are progressing against them?

We could give you those. Steve, do you want to do that?

Scott, we have had cost saving programs in a number of key areas. Obviously on the fiber side of our business, we had the expansions and the streamlining of where we produce certain products. Those have done very, very well on that side.

On the fruit side of our business, a number of automation projects, which will continue to ramp up in part throughout 2007 due to the labor situation in California, which has tightened substantially. So automation becomes very, very important in some of the more manually intensive processes that we may have had in the past. So we have made good progress on that. And I did mention that we are continuing to automate at all of our fruit operations throughout 2007.

Our cost reduction program that we put in place in central Canada with the consolidation of three warehouses into one has really shown itself to be quite effective in our results in 2006. So we are very, very pleased with that effort. The Western Canadian opportunity will yield similar benefits as we move forward.

About this time last year, we brought in a Vice President of Supply Chain, Roger Eacock. And Roger has been working across our organization to consolidate our purchasing and consolidate our supply chain. We had very, very good progress. We realized about $2 million in saving before tax last year.

Our target is to generate $10 million over the next three years. We are quite comfortable that will happen. We expect a great deal of it will come from the logistics side of our operations, where there isn't a minute goes by, given the amount of product we move, that we don't have barges and ships moving all over the place, containers moving, trucks, trailers.

So there's a huge opportunity for us. It is also a very complex area that takes a fair amount of up-front work before you can pull the pin, because customer service is key and you don't want to lose the ability to be really effective. But we're making good progress. As I indicated, we have margin improvement plans which are key to our business. And we have specific plans in every one of our operating groups to do that. So we are working hard on all those fronts.

And lastly, on the quick-service operator you mentioned coming out with a smoothie, I think it is, is it only fruit you're supplying there? Are you doing other stuff in other segments of your ingredients? And did you say how aggressive that rollout would be?

I can give you a little light. First off, we deal with a number of quick-service operators. This is a quick-service operator of decent size, significant size, to be quite frank. We do business in a number of fronts with this particular operator. This will be a phased rollout. They did a market test last year. And they will roll this out starting in the next couple of months. And they will start with a smaller number of stores, and then they will move along. This is sort of traditionally how they will do a product launch like this.

The launch is pretty much dictated by equipment and how quick equipment can be produced for them to get it into the stores. But it is going to start this year, and that is great news.

And is it just fruit purees, or any other ingredients?

This particular program that we are referring to is a fruit-based program, but as Steve said, we do sell this particular chain various other products as well. But this rollout will start in March and will accelerate throughout the year.

Bob Gibson, Octagon Capital.

Most of your acquisitions have been in North America, maybe all of them. Any thought to going global? And if you were, could you kind of give us some color on what the environment is like out there?

Sure. The markets, of course, are growing in a similar kind of fashion. I suspect that the areas that we will be looking at in terms of acquisition will center around supply, supply in terms of organic ingredients. So it may be an organic ingredient sourcing company, or it may be an organic ingredient processor, such as a fruit company. So by investing in perhaps the IQF processing of fruit in certain areas of South America, we would then end up controlling the supply, which is such a key area today because there's just a shortage of product.

So I think those are going to be the areas. We are also looking at going into or broadening our product line in the fiber side from insoluble to soluble fibers. And some of those might possibly come from the Central America area. The areas that we are looking at in terms of acquisitions are in Europe, Central and South America.

And I don't know if you mentioned it, but can you give us an update on what your thinking is as far as Opta Minerals and divesting of that asset?

I think our position that Opta Minerals is a noncore business for us. And so it will be in all likelihood sold at a point in time when we need the funds. Of course, obviously, we do not at this particular point in time. It also will be sold at a time when we have something to do with the money. And so what you have is a very nice profitable, high cash-flowing business today. If you do sell it, you want to be able to replace that business with something else. And obviously, that something else would be in the food business -- that is where we are focused. So I would anticipate that we would sell it if and when we locate a major food company to replace it -- an acquisition.

Bob, the reality is in the meantime, it's a very well-run business and very profitable -- it is just a good business.

And very, very saleable, we might say.

With great people and great systems.

Lastly, tax rate -- what sort of numbers should I be using going forward?

32% to 34% going forward.

(OPERATOR INSTRUCTIONS). Chris Krueger, Northland Securities.

Just had a few quick questions. With the sunflower, you had a tough year with sunflowers last year. Assuming that that is back to what you would consider normal levels, what do you believe would be the EPS kind of swing year over year?

(multiple speakers) If I could be specific, we actually put out a press release in this regard. In that, we talked about a $4 million swing. So $0.06, $0.07.

That's what I thought; I just wanted to confirm that. I haven't heard any questions about the California freeze in January. Could you just kind of lay out how you think that has impacted you, now that you have had a few more weeks to figure that out, whether it be strawberries, oranges, other produce?

Let me just start off with the first group, the first group within the Company that could have been impacted, which was the Canadian Distribution Group, because they bring a lot of fresh citrus and leafy greens from that area. And the impact has been very, very minor. The citrus side of the business was replace quite quickly with alternate fresh product that was available from South America and also from the Florida area. By the way, on the citrus side of things, Florida has had a very solid crop this year.

On the leafy greens side, most of the shortfall in lettuce has been replaced with other leafy greens such as kale types of products. So the impact has not been -- it just hasn't been much of an impact on the distribution side of our business.

On the strawberry side, the crop that was impacted is crop in the American market that at this time of year is going to fresh. And so we're not in our processing season yet. So it hasn't had an impact on the strawberry side. And normally, what happens is these crops will rebud and continue to grow. The fresh season will have been missed for some of the fresh retailers. So we don't expect any impact on the frozen side. And often, these crops come back stronger and produce more crop later in the year after they have had a freeze earlier. So we don't expect there to be any impact at all on the strawberry side, and quite frankly, it could be positive.

On the citrus side, for our juice program, we had an immediate spike on prices, which we passed along to our customers, and a shortage of supply. We have located other supply in Southern -- further South climate. And now what is happening is with Florida's strong crop, we're seeing lots of supply coming back into the market and prices for the raw materials dropping. So it has been a little bit of an impact for us, but it's not a major issue for us and we expect to rebound entirely.

Last question -- you had indicated you are expanding your staff for your BioProcess Group, working on different opportunities there. Hopefully, it would be constructing the new facility. Before revenues start to hit, is there going to be -- what kind of impact on expenses do you think some of these moves could have in the next couple of quarters?

Don't have that figure right off the top, but I'm just trying to think -- we have added probably five people here. So you're probably looking at something in the order of $100,000 to $150,000 a quarter.

[Aaron Pinsen, Riven] Enterprises.

Congratulations on a great quarter and a great year. I just wanted to ask you a quick questions, if I may. First off, in regards to the strawberry recall, did Jamba Juice take any of the expenses from that or the cost from it?

Did Jamba take any of the expenses? I think the answer is yes, they did, because what we were paying to them is simply their out-of-pocket costs that they incurred in the process of the recall. And they have absorbed all of their management time. They have not charged us anything for that. They have not charged us any concern about loss of reputation, or loss of profits, or anything like that.

They understand -- we have been supplying Jamba Juice now for 12 years. It has been a wonderful relationship. The relationship throughout this recall has been wonderful, very supportive on both sides. They have had independent audits done on our facility, which have received very, very high ratings. So I think -- we feel that they have been very fair in the whole analysis. But as you know, the biggest cost in a way is just reworking the product that we have recovered back.

So I think the issue is totally behind us. I do want to state that our policies were in place, our procedures were in place, and unfortunately, the procedures were ignored in this particular case and product was shipped out before final tests were received. Of course, when they were received, there was an indication of listeria, and then, of course, on second testing, there in fact was no listeria, and so that was very frustrating. But of course, in the process, you had no option but to do the recall.

So our people responded immediately. Everybody has been extremely professional about the whole exercise. It is over. It is behind us. The procedures have been strengthened even further, and never expect to see this again.

And in regards to the BioProcess Group, obviously the private placement -- could we get some more color? At this point, I'm figuring you guys would have at least a ballpark figure of a percentage that you guys are going to sell for the $30 million. Are you talking about 10%, 20%, 30%, 5%, 10% -- as a ballpark figure?

I can speak to that. I think first of all, Steve and I and the management from BioProcess have visited numerous people across North America, Canada and Europe as part of this financing. I can tell you that it appears that we are substantially oversubscribed for the unit in terms of multiple oversubscribes. There is huge interest in here from all over the world.

The evaluation -- what we are trying to do right now is we've got a number of people that are interested in being the lead investor. And the lead investor generally does a little bit more due diligence than the other investors. And we expect that that lead investor will be -- the selection of that lead investor will be completed next week.

At that point in time, I would anticipate some further technical due diligence. And one case, they have hired a consultant, following which we would then go to market to complete the issue. It is certainly going to be one I think that is attractive to SunOpta's shareholders and will certainly add significant value to the SunOpta shareholders.

So as far as an actual percentage range, you have nothing public to say about that?

I hesitate to give it to you. I will give you a range that it would be somewhere between 10% and 20%, maybe -- could be a little less than 10%. So something like that.

I think that one of the other questions that we will have to decide is whether we want to in fact increase the issue a little bit beyond the 30 million, because there certainly does seem to be that option.

And timeframe you said it will be done -- you said this quarter, and in your prepared comments you're talking about this quarter, the first quarter -- by the end of March it should be closed?

That is correct.

In regards to the CRAC contract as well, I know you said in prior conferences as well as when we spoke at different times, you said a $500 million number. Are you still on target of showing -- if CRAC were to get those 330 million --

Gallons of ethanol, yes.

Yes, so would they move up -- is that $500 million number, as far as that contract, is that still something you guys are targeting? And at what point do you think that they would announce a contract like that?

I think that it is going to be an annual thing. So they will add capacity. They have a whole program which they've shared with us, which is how much capacity they are going to add each year between now and 2011. So we anticipate that we will sign annual contracts to supply equipment and technology. We are now discussing with them -- that $500 million was sort of simply the steam [exposion] portion, but there are other parts of the plant that could also become parts and equipment that we would supply. So our people will be back in China in March to discuss and hopefully finalize the next round of expansions.

I appreciate your time, and I wish you much further success. And Steve, welcome aboard.

William [Fiddle, Gato] Group.

The first question is in regards to -- can SunOpta give us a comment on the relationship between the federally earmarked loans in the United States and the relationship that those might have as a perceived value of future bioprocess contracts?

Can you say anything?

I don't know that we can be really specific about that. We have clients, potential clients, a number of potential clients in the U.S. who would want to access some of those funds. And in fact, what do you say, four or five clients, right? Four major clients right now that would be accessing those funds. But that is from their side.

Let me just say that all over the world, governments are coming forward with all sorts of incentives to build cellulosic ethanol plants, from capital programs to incentives on the use of ethanol. So it is just all over the place. Now you're starting to see of course that those incentives are merging, are veering towards cellulosic ethanol as opposed to ethanol per se, because I think everyone understands clearly today that corn to ethanol is a limited market. We would describe that as a transitional market, a transitional raw material, until such time as cellulosic ethanol becomes the major source of ethanol. So we are just seeing that all over the world.

That is very helpful. Does SunOpta intend to furnish value-added compounds and coproducts once, like, say, the GreenField facility is up and running, to the Food Group, or finding synergies within the Quest vitamins group? I know we have a lot of talk about pharmaceutical compounds and other things coming out of these biorefineries.

We certainly are going to focus in there or to look at these areas. But I think it's really important to know that we have a small group of people in our BioProcess Group. They have to focus on their core market today, which is cellulosic ethanol. As the group builds up and builds their resources and builds their research team, and we have just added two more PhDs to our group here, then I think we'll start to see a diversification of application for this technology. But we have such a huge market in front of us at the moment that we have just got to focus there, or in the end you never do anything well.

A lot of the other questions that I wanted to ask were pretty much covered. The only one that I have left is in terms of the robust growth that you guys were seeing with acai, the tropical berries, what does it look like going forward a little bit? Can you guys give us an indication of any kind of further growth there and what you guys are planning on doing?

That business continues to grow. The folks that we work with completed their plant, their new facility in Brazil, so that is increasing supply. There's still lots of demand for that. It is kind of interesting, that you tend to go through phases where these products ramp up and you get to commercial levels. We saw it with pomegranate, where it started small and grew and ramped up. And now, not saturated, but it is in the market and back to steady growth rates.

You will see the same thing with acai. There is more high antioxidant-type products behind acai. There's noni berries, and there is one more that we just started to work with. And I apologize -- I can't remember the name of it. But these are all very steady, and they find a place in the market. So acai has grown really nicely for us, and it's all about supply, just how much you can get.

(OPERATOR INSTRUCTIONS). Vito Menza, Sandler Capital Management.

Nice operating quarter. I just have two questions for you. The first one is on the recall -- where exactly was that charge taken in the P&L?

The charge was taken kind of 50/50 -- 50% is in cost of goods sold and 50% is in other income and expense. Actually, 822 and other income and expense and 779 in cost of goods sold.

And then my next question is about the BioProcess Group. Are there any plans post this to actually carve it out and go ahead and spin it out of the Company?

The second stage following the private placement is that the idea is to do an IPO in that division. And we expect we would do that somewhere between 18 months and 30 months following -- I think what we would want to do -- following the private placement -- what we would want to do is to be up and operating our commercial-scale cellulosic ethanol plant and being able to demonstrate the economics there before we move to the next stage.

Understood. Congratulations.

(OPERATOR INSTRUCTIONS). Keith Howlett, Desjardins Securities.

I had a question on the Colorado joint venture on oils. Can you give a little bit of background on that?

Traditionally, what our business model is is when we are incubating programs, we use a number of copackers. We have been in the oil business for some time using a number of copackers, and we just pay to have our seed processed and crushed and refined, primarily soy and sunflower oils.

And that business has continued to grow and continues to grow because as organic foods grow, the demand for oils grows, because they need to be cooked in organic oils, etc. So with the growth, sort of the largest copacker that we had was in Colorado. And what we have done is actually put some of our own equipment into their facility, and by doing so, really expanded our crashing capabilities and also improved our cost base. So that was equipment that is crushing equipment -- we are installing that now, should be up and running shortly. So that provides us both more supply and a better cost base. And we really like these partners. And chances are that we will invest in the refining side potentially later this year.

And the refining side is post the crushing side?

Yes, those are the two key steps.

You crush it and then you, in simple terms, clean it.

And is the refining already in their plan?

No.

This will be a new facility.

You can see the logistics -- we have to get the grains to the crusher and then we have to get the oil to the refiner, and then we have to get the oil from the refiner to the customer. So we need to become more cost-effective.

And in terms of the private label business, which is about a third now and could get up to half, are there some sort of core product categories that you're looking at? I guess one might be -- would oils be one? Or are there other --

We are really not in the branded -- we don't do private label packaged oil products. Others do that. We are in the industrial -- an ingredient supplier. The areas that we see lots of growth are in the fruit-based products, both the frozen products, the dried fruit bars, we see lots of growth on our soy beverage business, on our healthy ingredients snacks business and other new products that we intend on bringing out over the next year, continued growth in juice, and then through our fruit business we do a number of private label tomato products, etc., as well. So we really see the growth in the core segments that we are in.

So they will basically stay within those --

We are not heading off into a totally new product. We will continue to expand the scope of the areas where we are in.

(OPERATOR INSTRUCTIONS). And I am showing we have no further questions. I'd like to turn it back over to the --

Well, thank you very much, everybody, for attending today. And as we always like to say, please feel free to call us at any time if you have any further questions. Thank you very much. Bye-bye.

And that does conclude today's conference. We thank everyone for joining, and have a great day.