Sunopta Inc (STKL) 2010 Q4 法說會逐字稿

Welcome to the SunOpta Inc. fiscal 2010 and fourth quarter earnings call. Before I turn the call over to Steve Bromley, President and CEO of SunOpta Inc., we would like to remind listeners that except for historical information, the matters discussed during this teleconference may include forward-looking statements including, without limitation, statements relating to the Company's operations, market economic conditions, and financial position. All forward-looking statement reflect the Company's current views with respect to future events and are subject to risks and uncertainties and assumptions they have made in drawing the conclusions included in such forward-looking statements. Many factors could cause the Company's actual results, performance, or achievements to be materially different from those expressed or implied by these forward-looking statements including those factors and assumptions set forth in the Company's annual report on form 10-K for the fiscal year ended January 1, 2011. Such information can be found in the sections in these reports titled, forward-looking statements and risk factors. I would now like to turn the call over to Mr. Steve Bromley. You may begin.

Great. Thank you very much and good morning everyone. Welcome to our fiscal 2010 and fourth quarter 2010 shareholder conference call. I'm joined on this call today by Tony Tavares, our Vice President and Chief Operating Officer, and Eric Davis, our Vice President and Chief Financial Officer. Before we get going, I wanted to mention that we are trying to keep this call to approximately one hour and want to note that we will be filing our form 10-K for the year ended January 1, 2011, by no later than tomorrow evening, March 10, 2011.

As we embarked on 2010, we set a numbers of specific goals for the year and we have made great progress on all fronts. I want to review these further. Goal number one was returning our Company to profitability. In 2010, we did just that realizing a record earnings from operations of $0.32 per diluted common share and record earnings on a GAAP basis of $0.92 per diluted common share, including the net gains on the sale of our Canadian distribution assets and SunOpta BioProcess Inc. We will discuss the financial results further during this call.

Goal number two was to continue to leverage the strengths of our organization to drive long-term sustainable positioning and natural organic foods, categories that we believe are very relevant in today's society and which offer excellent opportunities. And we did just that, continuing with our process excellence and continuous improvement initiatives across the organization, and acquiring two businesses aligned with our core and natural organic foods platform. At the same time, consumer demand for natural and organic food products continues to show solid growth confirming our belief in the long-term prospects for our industry and our business.

Goal number three was to continue to focus on margin improvement in support of our long-term operating margin target of 8% of revenues, and we were successful on this account as well. Our operating income as a percentage of revenues increased to 4.6% for the fiscal 2010 versus 1.5% in fiscal 2009. We continue to make good progress on a number of fronts in this regard and believe that significant additional opportunities exist in process improvement, cost reduction, product mix, and the introduction of new products. Tony will discuss many of these in a moment.

Goal number four was to continue to reduce working capital and maximize cash flow in support of our long-term return on net assets of -- net assets target, pardon me, of 15% and we were successful here as well. During the year, our return on net assets increased to 10.1% versus 0.8% in 2009. Our current working capital ratio increased from 1.36 to 1 to 1.42 to 1 and EBITDA for the year increased to $59.2 million, an increase of 103% versus 2009.

And finally, goal number five was to continue the process of liquidating non-core assets with a focus on our core value-added food processing, sourcing, and packaging operations. And as we will discuss further, we made excellent progress on this goal as well having disposed of two non-core assets, the Canadian food distribution assets and SunOpta BioProcessing, both with substantial gains on the transactions. And during the fourth quarter, we acquired two core food businesses, Dahlgren & Co, an integrated sunflower processor, and Edner of Nevada, a producer of a wide range of nutritional bars and portable snack foods.

I want to reiterate our ongoing commitment to improving operating results and return on net assets employed, continuing to build a global leader in natural and organic foods. As I have noted, we are making good progress and are creating a solid and stable operating platform combined with what we believe is continued long-term interest in healthy food -- healthy living, pardon me, and the demand for nutritious and sustainable food options, we believe we are well-positioned for the future.

For fiscal 2010, we realized revenues of $898.9 million versus revenues of $819 million in 2009, a year-over-year increase of 9.8%. After adjusting for movements of foreign exchange rates, commodity rate pricing, and the impact of acquisitions, revenues increased approximately 10.6% on a consolidated basis. For fiscal 2010, we realized operating income of $41.4 million, or 4.6% of revenues, versus operating income in the prior year of $12.2 million, or 1.5% of revenues. During fiscal 2010, all of our operating segments realized increased revenues and operating income versus the prior year. On a GAAP basis, we realized net income of $61.1 million, or $0.92 per diluted common share for fiscal 2010 versus a net loss in 2009 of $6.8 million, or a loss of $0.10 per diluted common share. The earnings -- our earnings in 2010 were also a record for our Company. Included in the 2010 results was a net gain after-tax on the sale of the Canadian food distribution assets of $11.9 million, or $0.18 per diluted common share, and a net gain after-tax on the sale of SunOpta BioProcessing of $34.9 million, or $0.53 per diluted common share, offset by certain non-cash goodwill impairment charges and other items of $6.9 million after tax, or $0.11 per diluted common share.

Adjusted earnings from operations in fiscal 2010 were $21.2 million, or $0.32 per diluted common share. This is also a record for our Company. These results include additional pretax costs of approximately $5 million, including legal and professional fees and costs related to ongoing facility rationalization and operational rationalizations which are not expected to recur. A reconciliation of adjusted earnings from operations was included with our press release that we issued last night. The Company's EBITDA doubled in fiscal 2010 to $59.2 million from $29.2 million in the prior year. For the fourth quarter of 2010, we realized revenues of $230.4 million versus fourth quarter 2009 revenues of $199.3 million, a year-over-year increase of 15.6%. After adjusting for movements and foreign exchange rates and commodity related pricing and the impact of acquisitions, revenue increased approximately 10.6% on a consolidated basis. Operating income for the fourth quarter of 2010 increased to $9.9 million, or 4.3% of revenues, versus operating income in the prior year of $2.6 million or 1.3% of revenues.

For the fourth quarter, we reported net income on a GAAP basis of $1.9 million, or $0.03 per diluted common share, versus a net loss in the fourth quarter of 2009 of $2.2 million, or a net loss of $0.04 per diluted common share. Included in our fourth quarter 2010 results were other items of approximately $0.04 per diluted common share, including the impact of discontinued operations of -- negative impact, pardon me, of about $700,000 after tax, or $0.01 per diluted common share, plus the net impact of after-tax cost related to the fourth quarter acquisitions, non-cash stock compensation costs and a subsidiary, and non-cash pension wind up costs, all those totaling approximately $1.9 million, or impacting results by $0.03 per diluted common share. Adjusted earnings from operations for the fourth quarter of 2010 were $4.5 million, or $0.07 per diluted common share, or $0.08 per common share using the annual effective tax rate for fiscal 2010 versus the abnormally high rate in the fourth quarter. And Eric will talk about that in a minute. Absorbed in these results were additional pretax costs of approximately $400,000 related primarily to ongoing facility rational -- facility and operational rationalizations which are not expected to recur. EBITDA for the fourth quarter of fiscal 2010 increased 126% to $15.4 million versus $6.8 million in the fourth quarter of 2009, indicative of the improved operating performance realized within the business. At January 1, 2011, our balance sheet reflected a working capital ratio of 1.42 to 1, long term debt-to-equity ratio of 0.22 to 1, and total debt-to-equity ratio of 0.48 to 1, all well within our target limits. At January 1, 2011, the Company had total assets of $609.7 million and a net book value of $4.44 per outstanding share. Eric will discuss our balance sheet further in a moment.

Late last year, we completed two strategic acquisitions. In the fourth quarter we completed the acquisition of 100% of the outstanding shares of Dahlgren & Co Inc. on a debt-free basis for cash consideration of $44 million plus working capital adjustments and an earn-out based on predetermined targets over the next two years. Dahlgren is an integrated, confection sunflower producer headquartered in Crookston, Minnesota with four strategically located operating facilities in Minnesota, North Dakota, and South Dakota, Dahlgren is a global supplier of confection sunflower seed products, including in-shell and kernel products, roasted sunflower and soy nuts, bird food, hybrid seed, and other miscellaneous products. Dahlgren services a number of sectors including the snack food, bakery, and food ingredients industries. The combination of the Dahlgren business with our existing confection sunflower platform will be synergistic and creates one of the largest confection sunflower businesses in the world with extensive vertically integrated operating capabilities via operations in North America and in China. And in December, we completed the acquisition of Edner of Nevada. Edner produces a wide variety of nutritious portable food such as nutrition bars and grains and fruit-based snack bars serving the fast growing wholesome and convenient healthy snacks category. We believe these -- this acquisition should enable us to extend the breadth of our healthy snack offerings by the introduction of new products utilizing the capabilities that exist within Edner. These acquisitions are consistent with our strategy to grow our core value-added natural and organic foods platform, creating leading positions in niche categories. And we were busy divesting of non-core assets last year as well.

On September 1, 2010 we announced the sale of SunOpta BioProcessing to Mascoma Corporation for an ownership position in Mascoma. The new Company brings together two core technical competencies essential for the effective conversion of nonfood cellulose into ethanol and high-value co-products. As a result, we now have a 19.6% ownership position in Mascoma Corp and Jeremy Kendall, Chairman of SunOpta and former Chairman of SunOpta BioProcessing as joined Mascoma's Board of Directors. We are accounting for our ownership position in Mascoma on a cost basis, and as a result, no longer include the operating results of the business in our consolidated operating results. At this point in time, Mascoma is making good progress on its objective of commercializing cellulosic ethanol and we remain pleased with our decision to complete this transaction. This transaction has allowed our shareholders to continue to participate in the commercialization of biofuels through an equity investment in Mascoma, but more importantly, it allows us to realize on our stated objective to focus on our core value-added natural and organic foods business. And in May 2010 we sold our food distribution assets in Canada to UNFI. The transaction closed on June 11, 2010 for cash consideration of CAD68 million. The proceeds from this transaction were used to reduce debt with some of the funds now redeployed as part of the Dahlgren and Edner acquisitions.

I will now turn the call over to Eric Davis, our Chief Financial Officer. Eric will provide specifics related to financial position, certain balance sheet items, and our current debt status. Eric --.

Thanks, Steve, and good morning everyone. Before starting my comments, please note that all balances discussed are related specifically to continuing operations except as otherwise noted. As such, all comparative balances have been adjusted for the impact of the discontinued operations. As a housekeeping matter, the fully diluted weighted average number of common shares outstanding as of January 1, 2011 was 66,028,278 on a year-to-date basis. Cash generated from continuing operations before changes in working capital totaled $7.9 million in the quarter versus $2.4 million in the fourth quarter of 2009. On a fiscal basis, cash from operations before changes in working capital was $43.3 million versus $15.8 million from the prior year. Cash used for working capital in the fourth quarter was $23.6 million and $33.6 million on a fiscal year basis reflecting seasonally high inventory volumes, higher commodity prices, and higher volumes due to strong customer demand, offset by lower accounts receivable due to collection efforts and the seasonal impact of grains liabilities. Controllable working capital consisting of accounts receivable, inventory, and prepaid expenses less accounts payable and accrued liabilities was $193.7 million versus $154.7 million at the end of 2009. We continue to focus on working capital control; however, higher commodity prices and volume of key commodities have impacted our seasonally high inventory positions. We expect to reduce our seasonal positions during the normal course of our operations as we move into the second quarter of 2011.

During the fourth quarter, we completed the acquisitions of Dahlgren and Edner for net expenditures of $43.8 million. These are both strategic food-based acquisitions which feet -- fit extremely well with our core natural and organic food businesses. This amount excludes cash received, promissory notes, and deferred purchase considerations totaling $11.6 million. Capital expenditures of $6.1 million in the quarter and $19.7 million during the year include significant capital projects for expansion of our fiber processing facility in Cedar Rapids, Iowa and in a septic line expansion in our fruit ingredient facility in South Gate, California. We anticipate our capital spending in 2011 will be approximately $30 million -- 50% strategic growth projects and 50% maintenance capital. As of January 1, 2011, we had total debt and operating lines of $140.9 million, an increase of $46.2 million from the third quarter due primarily to the funding of business acquisitions previously discussed. Versus 2009, our total debt in operating lines have been reduced from $150.7 million to $140.9 million as a result of the strong operating cash flows and the net effect of acquisitions and divestitures. At the end of the year -- cash at the end of the year was fairly consistent with the prior year at $2.6 million versus $1.8 million. Cash consumed in the fourth quarter of $18.4 million was used to fund capital expenditures and increase working capital. Our primary food operating and term debt facilities, excluding European operations, totaled $71.8 million versus $33.7 million at the end of the third quarter. A new term facility totaling $30 million was completed in the quarter, replacing the previous term loan of $33.7 million in December. As part of the amended agreement, an accordion feature for $30 million was added to support future growth. The new facilities mature on October 30, 2012 and current with our existing Canadian and US operating facilities. As of the end of the quarter, we had approximately $51.7 million in cash and availability on the syndicated banking facilities earned -- are in compliance with all banking covenants.

Our European food operations are financed via an asset-backed operating line with a total outstanding of $30.6 million. Opta Minerals is financed via an operating and long term facility of $22.7 million with cash and availability of $10.3 million. Both of these facilities are stand-alone and have no recourse to SunOpta and are in compliance with all facility requirements. The year-to-date tax rate of 28.7% reflects the impact of our tax planning strategies on our annual taxable income. The rate in the fourth quarter and annual rate is higher than in the prior quarter to the increase in earnings from US where the blended state and federal tax rates can range between 38% and 42% plus the impact of nondeductible acquisition expenses.

In summary, our strong operating results combined with our working capital management and the sale of non-core operations have allowed us to reduce our operating lines and reinvest in core operations. We are well positioned to exploit growth opportunities supported by favorable cash flows from operations and a strong balance sheet. I'll now turn the call back over to Steve.

Great. Thanks, Eric. Opta Minerals, which represented approximately 9% of fiscal 2010 revenues, realized solid operating performance in the fourth quarter and fiscal 2010. For the fourth quarter, Opta Minerals realized operating earnings of $1.5 million, or 7.2% of revenues, versus $0.7 million, or 4.4% of revenues in 2009. This represents the sixth consecutive quarter of positive operating earnings for Opta Minerals after three successive quarters of negative results. The strong results have been driven primarily by increased activity levels in the steel industry, combined with the positive effect of reduced costs across the organization and the opening of new abrasives operations in Texas and Florida. For fiscal 2010, Opta Minerals realized operating earnings of $7.8 million, or 9.6% of revenues, versus $1.2 million, or 1.9% of revenues in 2009. Management of Opta Minerals remain confident that activity levels in the steel and abrasive sectors will be relatively stable for the foreseeable future and that results will continue to be positive into 2011. With that, I would now like to turn the call over to Tony Tavares, our Vice President and Chief Operating Officer, who will discuss activities in SunOpta Foods.

Thanks Steve, and good morning ladies and gentlemen. Fourth quarter operating income for SunOpta foods was $10.9 million versus prior year operating income of $3.6 million. And the full year operating income of $44.8 million was a record for SunOpta foods as compared to $17.7 million last year. We continue to make progress in all of our operations and several groups achieved record operating results in 2010. The Grains and Foods Group achieved a record operating income in the quarter and full-year and the excellent results were again driven by a very strong performance from soy milk and other beverages, as well as our grain handling operations on the strength of grid markets for soy and corn and an excellent new crop.

Soybean sales were up 65% in the quarter compared to last year, and were up 21% for the full year as a result of the added processing capacity at our Hope, Minnesota facility which we have previously mentioned. The organic feed business continued its improvement in the fourth quarter compared to the first half of the year and organic feed revenues in the quarter increased by 17% compared to last year, although full-year revenues remain below last year. Margins on organic feed sales were well ahead of last year in the quarter and full year. The group's food ingredient sales were 37% higher in the quarter and 8% higher for the full year compared to last year. Margins were also ahead of last year in the quarter and full-year due to better market prices in the 2009 losses on expeller pressed sunflower oil. The results in Colorado Sun oil processors joint venture facility have continued to improve and the operation achieved a small operating profit in the quarter. The sunflower segment's financial performance softened in the fourth quarter compared to the strong pace in the first half due to higher cost product and slower export sales. The sunflower results in the quarter reflect the commodity nature of a part of this business and our objective is to convert sales to value-added products. The acquisition of the Dahlgren business was a strong step in this direction.

The Dahlgren sunflower business delivered solid results in the month of December and the process of integrating the Dahlgren and SunOpta sunflower operations is well underway with an initial focus on aligning our procurement and seed sales as well as coordinating our roasting and other value-added activities. That plant expansion has started at our roasting facility in Wahpeton, North Dakota. This project will improve process flow, increase our dry roasting capabilities, and upgrade our existing oil roaster. The facility will focus on corn, soybean and specialty products, and the sunflower and bulk products will be transitioned to the Dahlgren facilities. Sales of packaged soy milk and other products in the fourth quarter were 36% ahead of last year and full-year sales were 12% higher than last year as revenues from new products and new customers are now more than offsetting the loss of the refrigerated soy milk business to a major retail customer in the third quarter last year. Receptive business continues to perform very well and margins are higher than last year due to better packaging and processing yields resulting from numerous continuous improvement initiatives. The launch of the sunflower beverage will begin in the next few weeks and there is significant interest in a product from the natural health foods segment of the industry. We are hopeful that this product will be a nice complement to our existing offerings. SunOpta South Africa had a very strong finish to the year but not quite enough to bring the full year to a positive operating income. We expect the business to be profitable throughout 2011.

In summary, the Grains and Foods Group continues to deliver strong operating performance. Even more exciting is that the strong performance is increasingly the result of value-added packaged beverages and other products and less from sales of commodity type products. We are confident that we will continue to grow the package beverage and grains businesses and we expect the results from our grain processing operations to improved in 2011 with the benefits of a higher quality new crop. Our dry roasting and South African operations are both expected to be profitable in 2011, and the Dahlgren business should also deliver positive results. The historical SunOpta sunflower business is expected to be less profitable in 2011 but we expect that the continued improvement in the other segments of the Grains and Foods Group will result in another excellent year.

Fourth-quarter results for the ingredients group remains strong and operating income remains essentially at the same levels as the previous two quarters. The full year operating income was a record and was 51% higher than the previous record performance last year. Sales in the quarter were lower than last year, mostly as a result of reduced soy fiber sales due to timing of orders from two major customers. Old fiber sales were lower than the first three quarters, but on the par last year due to timing of major customer. Sales have rebounded to prior quarter levels this year. Margins in the quarter and full-year remain well ahead of last year, as (inaudible) season improvements have kept pace with increases in cost of raw materials. The Cedar Rapids expansion project was recently completed at a cost of approximately $3.5 million and will be fully operational this month. This will increase throughput at the Cedar Rapids facility by approximately 30%. As we have mentioned previously, the success of the ingredients group depends on our ability to find innovative applications for our fibers and solutions for our customers. So far in 2011, we have successfully secured new business with a number of customers on a variety of new applications with estimated annualized revenues of approximately $2 million. We continue to work on production trials for our contractor to supply unique fiber to a major US bakery company for a potential revenue of $5 million per year. The sales and innovation and applications teams are also working on a number of opportunities with existing and new customers and we remain confident in our ability to find new applications and new customers for our fiber products.

A customer has recently informed us that they would be converting to an alternate fiber in the first quarter. This business represent approximately $8 million to $10 million in revenue per year and is a significant part of the production at our Louisville, Kentucky fiber plant. We've developed a plan to produce a variety of other fibers at this facility, including cellulose, bamboo, and sugarcane fibers and the existing processing equipment will remain in place and will be used to supply old fiber to our other customers. We've already begun to solicit business for the new fibers and there appears to be significant interest from a number of customers for use in both human and pet food products. We are confident that we will quickly replace this business. The conversion of the Louisville plant will take approximately 10 months to complete and we will be idling the facility starting the second week in March and have build sufficient inventory of our existing old fiber from that facility to service our customers through the end of the project.

Although some new challenges have appeared on our radar screen, we believe that the ingredients group remains on a solid foundation and is a core operation which we should build on and grow through acquisition and internal investment. Fiber enrichment continues to be a strong trend in the food industry. We have a strong management team. We have strong relationships with the major global food companies. We have a strong pipeline of potential new applications and customers and our facilities have capacity to handle new growth. We remain very bullish about our prospects in this sector.

Food Group results continue to show improvement over last year but were weaker than the third quarter due to lower sales in the processed food ingredients business and lower margins in the frozen food operations. Sales and profits in the healthy snacks business continued to be very strong.

Sales for frozen food products in the quarter were on the par last year and slightly below 2009 for the full year. A key factor in the fourth quarter results was the inability for selling prices to keep pace with dramatic increases in the cost of raw materials, especially blueberries. We have taken price increases again in February and early March and believe we should be able to achieve much improved margins on a frozen food business. Product development will also be key to our efforts to improve our margins and, in addition to establishing a solid base for our traditional frozen food to products, we continue to focus on a range of more unique value-added products. We also continue to work on the development of the green garbanzo. Sales of frozen private label retail products will start in March and we have been shipping bulk products to a number of other customers. Sales of green garbanzos for the first half of 2011 are expected to be modest but we remain confident that this is a significant market opportunity for us. The market for fresh strawberries appears to be firming and we expect selling prices will increase in the first quarter. We ended the year with more inventory than we had planned and the increased selling prices should help with margins in 2011.

In summary, although the operations remain a work in progress, there is a growing sense that we are finally turning the corner with frozen fruit.

The processed fruit ingredient operations had lower sales and operating income in the quarter compared to the first three quarters in last year as a result of strong earlier product launches and changes to our customer base. Full-year sales remain well ahead of last year and the full year operating income was a record and the 60% increase over the previous record operating income achieved last year. The new aseptic line project is on budget and should be operational in April. The project has been delayed by bureaucratic details with the several government authorities who have a hand in the permits and regulations. The sales and product development teams are working on a number of opportunities and we remain confident that we will be able to aggressively fill the new capacity and we expect a number of new customer wins throughout 2011. The processed food ingredients operations should return to its performance levels of the first three quarters and continue to deliver very strong results in 2011. We believe this remains very much a strategic business segment, which we will be able to develop and grow.

The healthy snacks operations had another strong quarter in sales and operating income and continues to build momentum and posted its second consecutive full-year record operating income. Sales in the quarter and full-year were ahead of last year on higher volumes with lower selling prices driven by reductions in material cost. The focus of the team remains on growing profitable topline sales and the team continues to successfully use category management and branding techniques to increase private label sales. The Omak, Washington operations are running well and the operations transferred from the Summerland, British Columbia facility have been successfully integrated.

The purchase of Edner of Nevada was closed mid-December and the Edner operations are being integrated. Customer response to the acquisition by SunOpta has been very positive. We've made several presentations on our new bar capabilities to our existing food snack customers and the sales team is confident that we will be successful in landing new business for the bar operations in the second half of the year. We also have recently been advised that two fruit bit products for a major retailer and a major restaurant company will be listed as permanent items and we are working on a number of other new product opportunities with the potential to fill the capacity of the mainline of the Omak facility. We continue to believe that the healthy snacks operations are well positioned to take advantage of the growth expected in portable nutritious foods. The International Foods Group reported improved earnings compared to last year, due mostly to a better performance by SunOpta food solutions in the quarter and full-year and a record full-year operating profit by the European organic ingredients business. Sales and margins in general continue to perform well across most of the product categories in both the European and North American markets. As expected, coffee sales and margins were strong in the quarter and our organic coffee operations achieved a record full-year operating income. The coffee segment continues to perform exceptionally well going into the year as coffee prices have soared.

Managing inventory levels remains a key focus. The increase in prices for many commodities has resulted in a corresponding increase in our inventory. There have also been increases in some items relating to timing of contract and seasonal factors as well as planned increases to secure supply, for example, coffee beans or organic sugar imported into the US on quota. The area continues to be well-managed and substantially all inventory is being held for signed sales contracts. Overall, the Outlook for the industrial organic ingredients businesses is very good and we are well positioned to take advantage of minute growth in the organic food industry in Europe and North America.

SunOpta foods solutions rebounded nicely in 2010 after two years of operating losses. As expected, sales in the quarter were lower due to a stoppage of, excuse me, of organic orange juice sales to major retailer in the quarter due to supply and the change in packaging. Sales of organic orange juice to the retailer resumed at the end of February under their private label. The project to sell food purees in an innovative resealable pouch format is progressing nicely and customer interest in this packaging format appears to be quite robust. We expect to be in production from the first machine in the third quarter and will need to invest shortly in a second machine if sales materialize as we expect. We are very encouraged by the improving results in SunOpta food solutions and restructuring at the end of March 2010 has allowed the team to use its expertise and supply chain to focus on expanding the business with a number of retail and food service opportunities. We are confident that SunOpta food solutions will deliver strong operating results in 2011.

The Purity Life natural health products operations were not profitable in the fourth quarter. The operating loss includes a one-time expense of approximately $500,000 related to the delisting of a branded product line at a retailer. Excluding this item, the Purity Life operations operated at close to breakeven levels for the second half of the year. The businesses is being better managed today as a result of more effective controls over expenses, a refocused sales team, and a new sales executive, and improved tools to manage the business. Many of the changes we've implemented have only recently been put in place and we expect to see further improvement in the second quarter as the effect of the changes begin to take hold. Although the results are still not acceptable, we are encouraged by the changes and believe that they will result in improved profitability in 2011.

To conclude my comments, we believe we are making good progress in our objective to create an organization which will generate a progressively greater economic bottom line for our shareholders. We are still not at a level where every quarter will be a new record, but we are making real progress in that direction. We are also making progress in our vision to be a sustainable organization which can generate the progressively greater positive impact on people and our planet. We are seeing increasing results from our continuous improvement initiatives including Pep, Lean Green, and another sustainability programs. As part of our internal framework to deliver on our goals, a sustainability team has been created from existing internal resources to help guide and support our progress in the areas of economic, environmental, and social responsibility. We are investing in training programs which will provide the necessary tools to our employees to move these initiatives forward and have created a number of multi-division teams to focus on all the areas which sustainability touches. Our approach is to create a culture where all SunOpta employees are fully engaged in our goals and sustainability is an integral part of our everyday business activities. We are actively working on preparing our first sustainability reports, a greenhouse gas report, and a corporate social responsibility report and are targeting completion in the third quarter. Steve --.

Great. Thanks for the overview, Tony. In conclusion, we are extremely pleased with our progress this year. We divested two non-core businesses and reinvested in our core operations with the acquisitions of Dahlgren and Edner. We are a transformed business with solid opportunities. Results from our operations have improved significantly and we believe this will continue. Our balance sheet is in good shape with resources available for growth in our core segments. We continue to invest in our people and processes, with a focus on innovation, category management, cost control, productivity improvement, and improved asset utilization. And these efforts are now showing their benefits. Our core business is growing. While never satisfied, we are pleased with our progress.

Our goals for 2011 and beyond remain focused on building a profitable, sustainable, and growth oriented global natural and organic foods business. With that in mind, specific financial and operating objectives for 2011 include continuing to improve our profitability and support of our long-term objectives of 8% operating margins, 10% EBITDA margins, and a 15% return on net assets; continuing to leverage the strengths of our organization to drive our long-term sustainable position in natural and organic foods, categories that we believe are extremely relevant in today's society and offer excellent opportunities; continuing to invest in our core value-added natural and organic foods platform by internal growth projects and strategic acquisitions; and continuing -- number four -- continuing to explore divestiture opportunities for certain non-core assets. As our results demonstrate, we are making real progress and we are very optimistic about our future prospects. Our balance sheet is strong and we are well-positioned. We are looking forward to a successful 2011 and beyond for all of our stakeholders. With that, we will now open the call to questions.

Thank you. (OPERATOR INSTRUCTIONS)Our first question comes from Peter Prattas of Fraser Mackenzie. Your line is open.

Good morning, guys.

Good morning, Peter.

It sounds like you have a number of internal growth initiatives across each of your segments. But is it possible for you to go over some of the more meaningful internal growth initiatives you have planned for 2011? Say the top three initiatives in order?

Tony, you want to --.

Sure. At Modesto we're going to be investing in new packaging equipment just to -- because of growth in that business. We're also final stages of securing a major piece of business with a new retailer, which we might be able to chase -- so there's an opportunity there. In the -- on the fruit -- frozen fruit side of the business, second half of the year we're sort of confident the Garbanzo project will begin to deliver some good results. We've had some learning curve there. It is a new product, a blue ocean as we like to describe it. We're expecting strong performance second half of the year there. That's a significant opportunity.

Certainly, a couple of the major fiber opportunities we're working on are significant. We've got opportunities in healthy fruit snacks. The ability to leverage our relationships in the fruit snack area with the Edner capabilities are exciting. It's going to take a few months to deliver, but we're very confident we'll get some business there. We've got some nice opportunities in terms of that resealable pouch. We're expecting good sales of that starting in the third, fourth quarters. Literally, every area has some. So, it's a broad-based opportunity.

Going back to Modesto then, are you planning on adding lines there? And can you say -- are you looking at more aseptic milk or are you looking at the soup category?

Yes. The -- I mean, depending on which customers comes this year, lines will be -- could be needed. But as you know, there's a lot of capacity at that facility. A lot of vital space. And the real exciting part, as we've mentioned before, is that we're managing to make very nice returns from that facility in spite of being only at a fraction of its total potential capacity. So, it's -- yes.

Okay. Thanks. And in terms of Opta Minerals, it looks like you're very much on track there to getting back to where you were say around 2008, notwithstanding that it's now contributing to earnings. You have expressed in the past that it is not a core asset for you. Are you any closer to a potential exit on that business, or are you most focused in the near term on growing that business and squeezing out some more profit?

Well, certainly that business is very much focused on growing and improving their profits. What we had said, Peter, is that we wanted to get through a full fiscal year of solid earnings from the business and that we're consistently monitoring it. I wouldn't say that we've moved it substantially ahead. We're in a position where the balance sheet is really strong, so it's not a case where we need the cash right now. We're monitoring it. We're staying very closely -- very close to it. And when the time is right, we'll be prepared. But they continue to improve in profitability, so I think our ultimate return continues to improve. They're doing just an awesome job down in that company.

Great. Okay. Thanks very much, guys.

Take care, Peter. Thanks, Peter.

Thank you. Our next question comes from Greg Badishkanian from Citi. Your line is open.

Thanks. This is Jeff Hans, actually, on behalf of Greg.

Hi, Jeff.

Hi, guys. Really nice results, particularly solid organic sales. You accelerated 4Q versus 3Q -- any sort of color on whether that momentum's kind of sustained in the first part of 2011?

Yes. We've seen very similar trends into the first part of 2011, and that's consistent with most industry participants are seeing.

Okay. And then in terms of some of your -- I guess your free cash priorities, I know you talked about potential acquisitions -- growing through acquisitions this year, what else falls behind that? I mean, are there any -- do you plan on paying down some debt? And also, how does the pipeline look for acquisitions in general?

Okay. Bunch of questions there. First off, I can tell you that we also -- beyond acquisitions and ones that we prefer even better are good internal growth projects. So we have some really good internal growth projects that could use up some capital. The acquisition pipeline is really -- there's a lot of activity. We're being very careful.

We want to make sure that anything that we get involved with is really fulfilling a strategic purpose and aligns well with our core foods platform. So, we did finish the two at the end of -- in the last kind of third of last year. And so our immediate priority is to make sure that those are absorbed and we have our hands around them and we're getting them integrated. So, that's a key focus. But the pipeline -- there's a nice pipeline of potential opportunities that are there. And then we continue to generate strong cash flow. And so we will -- when the opportunities present themselves, pay down debt. That's been our consistent practice and we'll continue in that regard.

Great. Thanks for your time, guys.

Take care, Jeff.

Thanks, Jeff.

Thank you. Our next question comes from Scott Van Winkle of Canaccord. The line is open.

Hi. Thank you. Congratulations, guys.

Thanks, Scott.

A few questions. First, everyone wants to talk about commodities and the whole food industry supply chain, and you've mentioned a couple of them throughout the presentation. Can you give us an overview of what commodities do to your business as far as cost, selling opportunities, selling prices, et cetera? Just so we can put it all in perspective.

The impact very much depends on which area of the business. In the grains business in general, we have the ability to hedge. So the price is through Chicago Board or other means. So, not overly significant there. An impact a little bit on some of the value added parts are going to be a percentage of total product cost; it's not significant. There is a general ability to gradually eek that out of the market. Same thing, I'd say, is true in general for international sort of procurement ingredients business. Most everything we buy we buy on the planned sale ahead of time. And some of the commodities -- example, cocoa for example, we can as well hedge. So, demand -- I guess if it reaches a point that it begins to impact demand, but what you're seeing is increases in organic prices as well as conventional. And it's really the difference between the two of them hasn't changed much.

On some of the retail items, frozen fruit, we commented before, these increases we saw and the rapid change -- we were unable to stay ahead of it. Right now we think we are. So, that one sort of less of an immediate ability, but gradually you sort of match to recover it. And again, when the commodity prices come down, we should sort of benefit from the opposite effect and see some nicer margins for a few quarters. So, it's a rambling answer a bit but really depends on which part of the business.

Yes. And if we looked enterprise wise back to '07, early '08, when we saw last commodities spike, is there anything from the past that would give us an indication of whether the impact is meaningful or not on earnings?

Well, you know, back then, Scott, it was very much similar businesses and there wasn't a meaningful impact. There'll be puts and takes in most of the businesses, but our risk management processes are pretty tight so we're -- as we go through these processes, you don't want to be long on products because eventually these things will cycle back down. That's just the way it goes. So we manage that very, very well. We have very good people in place. There's impacts like Tony talked about where you have to absorb pricing as you're passing through increased pricing and then you take it to the benefit on the other side. So, we don't anticipate that there is going to be a --.

Steve, I'd also say it's generally -- it's not necessarily the level of prices. It's the speed at which they go up and down that's a little bit harder to manage. So, frozen food, we had a couple of examples where it added up really quickly, so it's a little bit more gradual process to get -- a lot of the other items have been high for quite a while and eventually that just becomes a part of your business model. And I think that's -- in general that's what we're seeing.

Great. And a few other questions. First, if you look at the Grains and Foods Group, what percentage of that business would you call value added, as you define it, versus commodity today?

We're just doing some math because of the acquisition of Dahlgren. We just need to lay that --.

Acquisition always about half.

About half.

About half? And do you have a target embedded in your 8% operating margin expectation?

Our long-term goal is we want to be 100%. We don't want to sell grains anymore and put it all into value-added products. We need to get to 65% to 70%.

Yes there's nothing -- but we won't need to be anywhere near 100% to get to the eight.

Keep in mind that in the 8% target, Scott, our target is to have that group at 8%.

Which it was in the quarter just reported. Right?

Right. So it's not too bad. And it really depends on the value-added mix. There's a number of moving parts in there.

Great. And in the Cedar Rapids expansion, if you said this I apologize, I think you told us the capital investment was $3.5 million for the expansion. What was -- what's the impact on the dollar volume you can run through that facility?

$6 million.

Yes. $6 million, $7 million in revenue. Yes.

Okay. And then last question -- what percentage of your inventory at the end of the quarter was frozen fruit?

Something that begins -- 20%.

20%. Thank you very much.

Take care, Scott. Bye.

Thank you. Our next question comes from Tim Tiberio of Chardan. Your line is open.

Good morning. Congratulations on a solid quarter. I guess my question is just as far as the timing of the recovery in the fruits group. What is the sense internally of how quick you can turn that around from a profitability standpoint? And how should we look at normalized margins, specifically in 2011?

Yes. It's been a gradual process, and in affect what we had was a set of assets that were acquired for one purpose, where in the end it didn't come together and we've had to repurpose them and find alternative uses. We think we've made good progress. Raw material prices hurt us a little bit, as I mentioned, the fourth quarter. I mean, 2011 has to be the year. So, this year, the expectation is very much is that we'll be able to deliver a profit in that segment. We're looking at alternatives for a couple of our facilities, rededicating some, possibly selling others. So it's -- we think we have a solid plan, certainly by second quarter expectations is that we'd be able to turn the corner.

Okay. And is it possible to get into that 1% to 2% operating margin range? Or do think that's a little too aggressive?

It -- expectations are that it will be better than that. And again, to understand what's happening in that fruit group, there are two operations that are achieving substantially better margins than that and we have frozen fruit that still lost money. So we believe that we can get frozen fruit positive and overall [attempt to] cause specifically what our target is for the fruit group for the year. But it's better than what you indicated.

Okay. That's good year. And then just, I guess lastly, on the Canadian health distribution business. Any updates there? Any opportunities that you're seeing to make any changes there?

It's again been a slower process than we would have liked. We -- operating performance second half was quite a bit better and I think it's just better penetration into the back into the health store channel. It's -- that's where we think our historical strengths are and that's where we need to come back. And again, we've got a number of initiatives to improve our products and just get better at managing that business. Again, expectations are that we'll be able to have a positive year this year after a couple of loss years. And again, second quarter I think is going to be the time that the thing will turn.

Okay. Thank you very much for your time.

You're welcome.

Thank you. Our next question comes from Chris Krueger of Northland Capital. Your line is open.

Hello. Good morning.

Good morning, Chris.

Hello. Within your Grains and Foods Group, I know -- I think you stated that your soybean sales were up 65%.

Right.

Can you give us a sense of the mix of what -- how much of that was due to just higher pricing and how much was higher volumes? I know you had a good crop.

80/20 volume?

Yes. Pricing compared to last year is up 25% maybe? Something like that -- 25-ish. So a good chunk of it is going to be volume. A lot of, I don't know if you want to call it pent-up demand or perhaps something like it, but we just had a really good start to the new crop.

And that should continue into the first quarter as well then?

Yes. Expectation is that the grains handling business going to have a better year because of all the factors we've been talking about through 2010. Whether it will keep up the pacing specifically that we had in the fourth quarter? Probably a little bit too much to ask, but it's got to be better than it was in 2010.

Okay. Can you remind us what the Dahlgren annual run rate is for sales roughly?

About $80 million.

Okay. And then with your beverage products, I know that was up 35%, 36%. Are there any new categories within that emerging? I know sunflower milk has yet to really launch. I believe almond milk's been a strong grower. Anything else like a coconut milk or hemp or anything else happening?

We're actually co-packing a hemp product for someone now. So -- but there a lot of others without getting into a lot of items that we'd rather not disclose, we are working on a number of opportunities and we think we have a real nice pipeline for both Modesto and Alexander facilities. So, all those items that you discussed are opportunities.

Okay. And then last as far as opportunities go, in your Ingredients segment, I think you indicated a lot of opportunities there as well. Can you tell us what types of -- like end uses, whether it's cereal, crackers, cookies, pet food or what kind of areas are -- could be emerging in a bigger way?

Every one of the items you mentioned are sort of active projects in there. And it's -- we've got a nice presence in the bakery business, not so much in pet food but it is a category we're looking at. We think we have some opportunities in beverages where we don't play a significant role now -- are sort of developing some interesting blends to do that. Yes, quite a few areas.

Alright. Thank you. That's all I got.

Thank you.

Thank you. Our final question comes from Bob Gibson of Octagon Capital. Your line is open.

Good morning, everybody.

Good morning.

You guys talk awfully fast so you might be repeating yourself on some of my questions. Do you have a CapEx budget for 2011?

Yes. We indicated that our spending should be in the range of $30 million, 50% strategic growth projects and 50% maintenance capital.

Okay. Beautiful. Edner -- can I just get a little more color on that facility? What kind of -- like what are the nutrition bars and what could you potentially push through that? Cause you've got a range of products that the sky is the limit for that thing.

Yes. The facility is a very large facility. It's 120,000 square feet. We've got potential to put multiple lines in there. Currently we have really one line that's active and three others that we're working on a number of products. And again, it's in spite of that small capacity usage, it's eeking out a profit today. The products that they're producing right now are basically the protein bar category. So heavy percent protein, high calorie -- that market. We think -- what we think the opportunity is -- I mean certainly we can grow that and there's a number of interesting opportunities we're working on to grow existing customer base or taking the product -- that type of products to others. But more exciting is the range of other items using the capabilities that are there. Organic offerings, using sweeteners like a agave rather than sugar. Just a number of things that we think we can do with it. It's -- the opportunity there is a private label play. That category in general is still dominated by brands. We think we can attract the interests of a lot of retailers, especially to the private label category there.

Bob, just to follow-up on Tony's comment a bit with regards to capabilities, is the capabilities that we had in our fruit snack operations were to extrude fruit snacks. That was a pretty big category, and that we've made good progress there, but the Edner facility has the ability to do layered products. So, if you wanted to put down a layer of grain and then put some fruit on it, they can grow -- their capabilities are much more flexible around packaging concepts. So, we could take some of our fruit and enrobe it in organic yogurt and that type of product as well. So, Tony, I think it's fair to say really extensive capabilities beyond what we had.

It's totally different business segment. So literally, with the existing equipment, without too much exaggeration, any bar line layer, corkscrewed, multiple layers that you can imagine, we can make there. It's just a question of coming up, obviously, with the right blends that people will buy and we think we've got a good progress to do that.

Okay. Great. Purity Life. Could you maybe give us some color -- what SKUs are doing well and what are not doing so well.

In general, what we sort of kept pace with is the health food -- the health store channel. That one we managed to keep more of the historical sales level. It's on the food, drug, and mass area where we've had some of the setbacks. And going forward, we're going to emphasize health channel quite a bit more, get back to our traditional strengths, and we think that's where we need to focus on going forward.

Okay. Great. Thanks very much, guys.

Thanks very much, Bob.

Thanks, Bob.

Thank you. I'm showing no further questions in the queue at this time.

Alright. Well, thank you. Just to wrap up, we want to thank everyone for attending the call today. Thank you for the interest in the Company. As always, please feel free to give us a call if you have any questions and wish to chat further. We're thrilled with the year that's behind us and excited about what lies ahead. And thank you and we'll look forward to chatting with everyone at the end of the first quarter. Bye-bye.

Good day.

Thank you. Ladies and gentlemen, this concludes the conference for today.