Sunopta Inc (STKL) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the SunOpta Inc. 2011 fourth quarter and year-end 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 limitations, statements relating to the Company's operations, market and economic conditions and financial position. All forward-looking statements 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 information.

Many factors could cause the Company's actual results of performance or achievements to be materially different from those expressed or implied in 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 December 31, 2011. Such information can be found in the sections in these reports titled Forward-Looking Statements and Risk Factors. We would also like to remind listeners that the Company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the Company's press release issued last night. I will now turn the call over to Mr. Steve Bromley.

Thank you very much, and good morning, everyone. Welcome to our 2011 fourth quarter and year-end shareholder conference call. I'm joined on this call today by Rob McKeracher, our Vice President and Chief Financial Officer; and Tony Tavares, our Vice President and Chief Operating Officer.

Before we get going I want to mention that we intend to file our Form 10-K and related electronic submissions by end of day today. Looking back at 2011, we realized solid revenue growth indicative of continued strong trends in our core natural and organic foods business. We truly believe that healthy living and healthy eating is a long-term trend and our integrated product portfolio is strategically well-positioned to service these markets. After adjusting for a number of one-time and nonrecurring items, 2011 was one of the best years in our Company's history. While many of our operations achieved record results, the year was not without its challenges. We have been working to better position ourselves heading into 2012, and we'll discuss many developments over the course of this call.

As we enter 2012, we are confident in our positioning and opportunities to grow both our top and bottom lines. We expect to achieve this through a focus on continued internal growth driven by expansion of our existing customers; new customers, products and markets; product innovation; and organizational streamlining. We have undertaken a process to streamline our operations and organizational structure, addressing underperforming food-based operations and targeting improved earnings, predictability and return on assets. As part of this, we have commenced a reorganization within SunOpta Foods to realign our non grain-based food operating segments according to the type of customers and markets served as opposed to the products offered. These efforts are expected to streamline operations, drive efficiencies, and bring increased focus to our innovation and commercial activities.

To this end, the former Fruit Group has been eliminated, and a new Consumer Products Group has been created to focus on non grains-based consumer packaged products. The Consumer Products Group will comprise the Frozen Foods and Healthy Snacks operations, which were formerly part of the Fruit Group, and our Food Solutions operations, which were formerly part of the International Foods Group. Our Fruit Ingredient operations, sorry, which were also part of the former Fruit Group have been merged into our existing Ingredients Group. Accordingly, our International Foods Group now comprises our International Sourcing and Supply operations, otherwise known as Tradin Organic, which is headquartered in Amsterdam in the Netherlands as well as the Canadian-based operations of Purity Life Health Products.

The Grains and Foods Group remains unchanged. In summary, following this realignment, SunOpta Foods will consist of four operating segments -- Grains and Foods, Ingredients, Consumer Products, and International Foods. We will begin reporting segmented information based on these new operating segments for the quarter ending March 31, 2012, and we will provide revised historical segmented data in advance of releasing our 2012 first quarter financial results. In hand with the realignment, we also announced the rationalization of a number of operations and functions, including an approximate 6% reduction of our salaried work force. This is expected to decrease annual operating costs by approximately $3 million before tax, once fully implemented. Severance costs of approximately $500,000 before tax, are expected to be incurred as a result of these reductions, and now they will be incurred during the first half of fiscal 2012.

We are also actively working to address certain underperforming business operations in SunOpta Foods and are taking specific measures which are expected to improve future earnings and generate positive cash flow over the balance of 2012. This undertaking is consistent with our objective of focusing on value-added food businesses that align with our established operating income targets. In conjunction with the operational streamlining and rationalization efforts that I just described, we now also announced that we would be incurring non cash charges in the fourth quarter related to the write-down of intangible and other long-lived assets and certain inventory at our Purity Life Health Products and Frozen Foods operations. In a few moments, Rob, will provide more detail on these charges along with a summary of our results for the fourth quarter and year-end, including an update on our financial position.

These decisions and activities are important to our development as a global leader in natural and organic foods. We have grown rapidly over the last 12 years, and built a solid organization within foods markets that we feel are poised for long-term growth. We believe there is much more that can be accomplished, and this realignment and rationalization is a key step in addressing our true potential and improving our operational performance, innovation and customer processes all intended to position our Company for continued success. With that I will now pass the call over to Rob. Rob?

Thanks, Steve, and good morning, everyone. I'll take the next few minutes to review our financial results for the fourth quarter and fiscal year-ended December 31, 2011. Please note all figures discussed today are in US dollars and relate to continuing operations unless otherwise noted. Accordingly, all comparative period figures have been adjusted to remove the effect of discontinued operations.

As a housekeeping matter, the fully diluted weighted average number of common shares outstanding as of December 31, 2011, was $66.58 million on a year to date basis. For fiscal 2011, we realized revenues of $1.08 billion versus revenues of $898 million in 2010. A year-over-year increase of 20.5%. The base growth rate for the Company was approximately 7% after adjusting for changes, including foreign exchange, commodity pricing and the impact of acquisitions. In 2011, we realized operating income of $33.2 million or 3.1% of revenues versus operating income in 2010 of $43 million, or 4.8% of revenues. The decrease in operating income and operating income as a percentage of revenues reflects reduced earnings in the Grains and Food Group due to commodity market pressures in the Sunflower segment, reduced earnings in the Ingredients Group due in part to the loss of a major customer earlier in the year, and rationalization charges recorded in the Frozen Foods operation of the Fruit Group.

Earnings per diluted common share from continuing operations were $0.14 or $9.6 million during fiscal 2011 compared to $0.20 or $13.2 million in 2010. Included in the 2011 results were write-downs of intangible and other long-lived assets and certain inventory at our Purity Life Health Products and Frozen Foods operations of $8.7 million after tax, or $0.13 per diluted common share. Plus the effect of other net costs of $2 million, or $0.03 per diluted common share, that are not reflective of normal operations. Excluding the effect of these costs, adjusted earnings from continuing operations for fiscal 2011 were approximately $20.2 million, or $0.30 per diluted common share.

A reconciliation of adjusted earnings from continuing operations was included with our press release issued last night. As announced on January 9, 2012, the arbitrator in the Colorado Mills versus Sun Rich arbitration matter, rendered a decision in favor of Colorado Mills. The full amount of the award was $3.4 million after tax, or $0.05 per diluted common share and was recognized as an expense in fiscal 2011. We have filed a notice of our intention to request the courts to vacate the award. This expense, along with the losses generated by the divested oil refinery that was reported in the third quarter of 2011, are included in the loss from discontinued operations on our income statement. Accordingly, form no part of the earnings from continuing operations or adjusted earnings from continuing operations I previously mentioned.

Similarly, earnings from continuing operations in 2010 exclude earnings of $47.9 million after tax, or $0.72 per diluted common share, related to the gains on disposal of three businesses as well as the financial results of those businesses through to the date of their sale. Included in discontinued operations in 2010, on a net basis, is $13.4 million or $0.20 per diluted common share for the Canadian Food distribution assets, which were sold in the second quarter of 2010. $35 million or $0.53 per diluted common share for SunOpta Bioprocess, which was sold in the third quarter of 2010, and a loss of a $0.5 million or $0.01 per diluted common share for the oil refinery that was divested in the third quarter of 2011.

For the fourth quarter of 2011, realized revenues of $258.5 million versus fourth quarter 2010 revenues of $230.6 million, a year-over-year increase of 12.1%. The base growth rate for the Company was approximately 6% after adjusting for changes including foreign exchange, commodity pricing and the impact of acquisitions. Operating income for the fourth quarter of 2011 was $5.3 million, compared to $9.8 million last year. Once again, the decrease in operating income for the fourth quarter is a reflection of commodity market pressures and the Sunflower segment of the Grains and Foods Group and rationalization costs in the Fruit Group, as well as costs to curtail, retro fit and integrate new plants and processes. For the fourth quarter of 2011 we reported a loss per diluted common share from continuing operations of $0.06 or $4.2 million, compared to earnings of $0.04 or $2.6 million in 2010.

Excluding the write-down of intangible and other long-lived assets and certain inventory, we generated adjusted earnings from continuing operations of approximately $4.5 million or $0.07 per diluted common share during the fourth quarter of 2011. Tony will provide an overview of a number of ongoing business developments in his update in a few moments, while the previously mentioned commodity pressures and rationalization costs impacted the business. You will see that many of our operations realized record results and are poised for continued growth. At December 31, 2011 our balance sheet reflected a current ratio of 1.35 to 1, a long-term debt ratio of 0.17 to 1, and a total debt-to-equity ratio of 0.54 to 1. Total debt-outstanding at the end of fiscal 2011 was $162 million, an increase of $21.3 million from the prior year.

At December 31, we had total assets of $631.5 million and a net book value of $4.55 per outstanding common share. Controllable working capital, which is defined as accounts receivable, inventory, and prepaid expenses, less accounts payable and accrued liabilities, totaled $236.4 million at the end of 2011, compared to $206.3 million at the end of 2010. The increased working capital reflects higher inventory levels due to the increased commodity costs, a larger carry over of inventory in the Grains and Foods Group to offset a corresponding reduction in 2012 contracted acres, and increased sales volumes in our International Foods Group. We expect this inventory position will help us establish more favorable market conditions in 2012.

Capital expenditures of $2 million in the fourth quarter and $17.3 million for fiscal 2011 include spending on the aseptic line expansion in our Fruit and Ingredients operations, maintenance and capacity enhancements at our septic soy milk and alternative beverage facilities, plus investment in maintenance capital spending across a number of other business units. The sales of our Industrial Frozen Fruit Processing assets generated cash of $4.5 million during fiscal 2011, of which $2.5 million went towards paying down our term debt facilities, with the balance helping to finance some of our 2011 capital requirements. As of December 31, 2011, we had debt and operating lines, net of cash totaling $159.6 million, an increase of $5.4 million from the prior quarter, and an increase of $21.3 million compared to the prior year. The changes noted are primarily due to fluctuations in non cash working capital and capital expenditures, offset by cash generated from operations.

At December 31, 2011, our operating lines had approximately $50.4 million in additional borrowing availability. Subsequent to year-end, we completed amendments to our syndicated banking facilities, which included increases in the Canadian revolving credit facilities in for CAD5 million to CAD10 million and the US revolving credit facility from $100 million to $115 million, with the corresponding $20 million reduction in the amount of availability under the facility's accordion feature. The increase borrowing capacity will be used to help us fund seasonal working capital requirements, as well as internal growth projects.

Our North American line of credit and term debt facilities mature on October 30, 2012 and we are currently in discussions with our lenders regarding renewal. We intend to review all sources of credit available to us as the renewal date approaches to support our future capital and working capital needs to grow our business. We expect to renew our existing facilities or have alternative facilities in place prior to the end of the third quarter of 2012. With that, I will now turn the call over to Tony Tavares, our Vice President and Chief Operating Officer, who will discuss the activities and performance of SunOpta Foods during the fourth quarter. Tony?

Thanks, Rob. Good morning, ladies and gentlemen. Fourth quarter of 2011 operating income for SunOpta Foods was $5.3 million compared to $10.9 million in 2010. The full-year operating income was $33.4 million compared to $46.4 million in 2010. The fourth quarter 2011 results, include approximately $4 million in write-downs in the Frozen Foods operations. I will discuss these in greater detail in a few moments. The lower operating income in 2011 was due primarily to reduced earnings in the Sunflower, Fiber and Processed Food Ingredients operations. The combined operating income of these operations is approximately $4.1 million lower in the quarter, and $18.8 million lower for the full-year compared to a year ago.

The lower results in these business units offset excellent results from our Healthy Snacks, International, and the Grains and Foods Groups value-added aseptic packaged operations. As Steve mentioned in his comments earlier, we have made a number of strategic decisions to reposition SunOpta Foods for future growth and profitability, including a restructuring of our business segments to align through customer channels rather than product types. I had mentioned previously that although we are making progress, every quarter will not result in a new record operating income, and the fourth quarter results are certainly evidence of that.

Although we are disappointed with the write-downs which were required, we believe we are addressing the important issues and that we are on the right track to achieve the target operating income levels we have set for the Company. The markets for organic and natural products remain strong. Our business units are generally well positioned in these market spaces and we continue to make progress in many areas. The Grains and Foods Group achieved a lower operating income in the fourth quarter and in fiscal 2011 due to the results from the Sunflower segment. Revenues for the Group's Grain operations continue to be well ahead of 2010, due mostly to increased volumes in selling prices for corn and food ingredients and increased selling prices for soy beans and organic feed.

Although soy bean sales in the quarter and for fiscal 2011 were higher than the prior year, with increased selling prices, more than offsetting lower volumes, margins were below levels of last year due to lower demand in Asian markets. We started to see growing interests from International customers for food grade soy beans and combined with the concern's over the quality of this year's South American crop, we expect to see improved margins in this product segment. This is generally good news for our carry over inventory and with our planned reduction in harvest, we should see improved market conditions for 2012. The Group's Sunflower operations improved in the quarter as expected but results remain below acceptable levels. Operating income from the Sunflower operations was approximately $1.2 million lower in the quarter and approximately $7.3 million lower in fiscal 2011 compared to last year.

The lower results in the quarter were caused mostly by lower export sales of planting seeds to International customers which took place in the fourth quarter of 2010 and which were delayed or cancelled this year. Planting seed sales were also expected to be lower due to our decision to reduce contracted acres to lower our inventories. As expected, margins on sales of sunflower kernel remained below acceptable levels but improved in the fourth quarter due to our decision to discontinue export sales from North American supply in September and still contract supply and purchases from Sunflower operations in Eastern Europe through our European-based International Foods operations.

The Sunflower results are also being affected by lower margins on in-shelf products because of political unrest in the Middle East, demand has been soft and customer shipments have accordingly been slower on contracted volumes. Spot sales for North American products also did not materialize in 2011 due to lower cost South American supply. As a result of these factors, we reduced our purchase commitments for the 2011 and 2012 harvest and are carrying over lower cost inventory. The purchase costs of sunflower seed in North America has been driven higher because of competitive pressures from other grains and commodities which compete for the same agricultural land. The situation is not expected to change in the near-term and we will need to accelerate implementation of our strategy to convert sells of North American supply to more value-added items for the North American market, to build back our production levels, and to develop alternative sources of supply closer to our export customers.

The Group's value-added packaged operations recorded another solid quarter and we expect to see continued sales and profit growths from this segment as we introduce new value-added products to compliment our aseptic soy milk business. We are in the process of adding capacity at our facility in Modesto, California to meet growing demand for aseptic non dairy beverages, and are accessing offers to further increase product capabilities from this operation. As we've discussed previously, the Ingredients Group has faced a number of recent challenges, including the loss of a significant oat fiber customer at the end of January 2011 and the approval of another oat fiber for sale into Canada. We have also seen increased competition, especially from cellulose fiber as an alternative to oat and soy fiber, which has prevented us from passing on cost increases.

The cumulative effect of all these changes was a substantial drop in operating income from last year. The current year's operating income is on a par with or better than what has been achieved for most of the past five years by the Group, but is significantly lower than the record profits achieved in 2009 and 2010. The impact was especially hard on the fourth quarter as major customers also reduced purchases to control working capital and the results were also affected by production curtailments at our plant in the month of December in order to keep inventory levels in line. During the first two months of 2012 operating results have returned to levels achieved in the second and third quarter of 2011.

The success of the Ingredients Group depends on our ability to find innovative applications for our fibers, and solutions for our customers using our existing product portfolio and new products. We continue to work on the commercialization of rice fiber to address the demand for an allergen and gluten-free alternative. As well as reduce particle size in soluble fibers for the beverage and bakery industries and a new starch product for use in low fat yogurt. The initial phase of the project to produce cellulose fibers for the meat industry at our Louisville facility is essentially complete. The equipment has been commissioned and we expect to be in production by the end of the first quarter 2012. We believe cellulose fiber will continue to gain acceptance as a food ingredient, and we are getting significant interest from a number of customers for use in both human and pet food products. We will start the second phase of the project, expand the range of capabilities for this equipment later this year.

We have also started production of a new roll-dried starch at our Galesburg, Illinois facility. This new product has excellent characteristics for inclusion in natural products and is currently in test with major customers. We believe that it has large potential in dairy industry for use in yogurt and other products. In addition to these new products, we are aggressively marketing our existing fiber portfolios including a renewed focus on International markets. Prior to 2011, capacity constraints limited our ability to sell to International markets. The situation has changed and we will again aggressively target export markets for our fibers as well as starch.

We have an established International distribution network and have already been successful in the new fiber business for 2012 in Australia. In addition, we will work with our International Foods Group to sell our fibers through their network as they sell to many customers who also buy fiber and starch. As Steve mentioned earlier, we are combining the Food Ingredients and Fiber operations in a newly-formed Ingredients Group and believe there will be significant benefits from leveraging the resources of the two operations, especially in product development and sales with dairy industry customers.

We remain very positive about the prospects of the Ingredients Group and in the ability of the team to respond to the changing competitive landscape and to generate superior returns. The Frozen Foods operation results in the fourth quarter reflect write-downs of approximately $4 million related to the exit of Green Garbanzos and additional reserves against Industrial Food inventory. The write-downs related to the Green Garbanzo program are of course the key development in the Frozen business in the fourth quarter. The growth in garbanzo and hummus sales in North America continues to be very robust and the outlook for this market segment remains very bright as consumer awareness of the health benefits of garbanzo products increases.

Although we believe that the Green Garbanzo could be an important segment of this market, it has taken longer to develop than we had expected and current sales momentum made it uncertain whether we would be able to recover the investment in inventory for the garbanzo program. The write-downs reflect lowering the cost of inventory to estimated realizable values as well as the write-off of our investment in the patents, equipment and other assets related to the program. We continue to work on a number of sales opportunities for the Green Garbanzo products and are working with the owners of the intellectual property which would allow us to buy garbanzo beans in the future.

Although it is hard to get past the raw numbers, given the additional write-downs, we have made progress with the Frozen Foods business over the past several months. Essentially, all of the excess Industrial and Food Service fruit inventory which we had produced in 2009 and 2010 at the Mexican operations has been sold, or is contracted for sale by the end of the second quarter. We are now seeing the resulting reductions in warehousing and other carrying costs. We are now focused on IQF retail, private label products, and the simplified business model has allowed us to reduce our SG&A and other costs. We expect further reductions in 2012 as part of the reorganization, which Steve mentioned earlier.

The integration of the Frozen Food operations with SunOpta Food Solutions of the new Consumer Products Group is proceeding well. We expect the Frozen Foods operations will continue to improve as the benefits of the various initiatives gain momentum. We understand the frustration in which the Frozen Foods operations have caused. The process to get here has not been easy, but we believe their actions should result in better value than if we had walked away entirely from the business. We continue to evaluate options as how best to use their current production assets to create shareholder value.

The Food Ingredient operations reported lower sales and operating income in the quarter and fiscal 2011 compared to last year. In addition to the loss of a significant customer in the third quarter of 2010 which we have previously discussed, the results saw an impact in the fourth quarter of 2011, and several customers adjusted purchase patterns to lower year end inventories more than they have done in prior years. A significant part of the business today is with the dairy industry, especially yogurt. Total industry sales for the yogurt category were flat compared to last year reflecting unit growth on the part of the industry leader and declines for companies in the rest of the category. We saw this reflected in lower sales volumes to some of our customers in this category.

We have completed the installation of the state of the art aseptic processing line at the South Gate, California facility. The additional capacity will allow us to pursue a number of potential new applications and when fully utilized should add in excess of $20 million in value-added revenues in this product category. The new aseptic line will generate efficiencies in productions and yield gains and further enhance product quality and flexibility for our customers and we will also transfer existing production to the new line. We believe sales volume remains the key in returning to the profit levels we achieved in the first half of 2010. We have developed a number of new product applications and are working with a number of new and existing customers to commercialize these to fill the new capacity.

The Fruit Ingredients business has see an increase in volume and profitability in 2012 and we expect operating results to improve over the course of the year as the benefits from increased sales and the new aseptic line are realized. The SunOpta Healthy Snacks operations continues to report strong sales and operating income in the fourth quarter from the Fruit Snack operations and achieved a record operating profit in 2011. As previously discussed, because of continued growth in this segment, we have completed a project which will increase the capacity of the Omak, Washington facility by approximately 15%.

Integration of the Edner of Nevada nutritious snack bar operations continues to go well. The focus of the team has been to increase revenues and we have landed several new customers and product launches starting in the fourth quarter of 2011. We expect the Edner operations to continue to gain momentum over the next few months and expect a profitable year in 2012. We remain confident in the prospects for our Healthy Snacks business and continue to believe that portable nutritious food will be a key platform for SunOpta.

The International Foods Group continued its excellent performance in the fourth quarter, due to record results in the industrial organic ingredients business and improved results from SunOpta Food Solutions and Purity Life Natural Products. The Industrial Organic Ingredients business achieved a record fourth quarter and full-year operating income. The European operations continued to perform exceptionally well, and the US operations also achieved record results. We have not seen any measurable slowdown in demand for organic products and expect a strong performance to continue into the next quarter. The status of the SunOpta Dahlgren operations in Northeast China remains essentially as reported in the last quarter. The focus of processing for export continues to be on organic pumpkin seeds, beans, lentils and other specialty seeds for the EU market. We also continue to evolve this operation to sell products to the domestic Chinese markets.

As I mentioned earlier, the European Ingredients operation has assumed the sales contracts for conventional sunflower bakery kernel into the EU markets in cooperation with the Grains and Foods Group using production from a facility in eastern Europe. We will also plant a source organic sunflower seeds and oil from this facility later this year. The select sesame operations in Ethiopia are performing well and we started to process the 2011 harvest in October. The demand for organic sesame seed is growing and we are developing new export markets for our Ethiopian seeds. Overall, the outlook for the Industrial Organic Ingredients business is very good and we remain well positioned to take advantage of the continued growth in the organic food industry.

The Food Solutions operations within the International Foods Group delivered another strong performance in the fourth quarter, although as expected, results were lower because we suspended a private label program for our wholesale club retailer from mid-November to the end of February due to availability of supply. We are now back in supply and serving the customer again.

The juice extraction and packaging facility located in San Bernardino, California which we acquired in August, posted an operating loss in the fourth quarter due to the seasonality of this business, and to increased costs for orange juice, as well as costs related to the transition from previous ownership. We have made a number of changes to the management team as well as to the production processes and should begin to see positive results in the second quarter as the extraction season in California begins. We expect to have the first phase of the project to upgrade the facility completed shortly. In the third quarter, we will begin the second phase to redesign the receiving area and add equipment to extract and collect citrus oils from the peels.

Organic citrus is an important category for SunOpta Food Solutions. In spite of some short-term challenges, we believe the San Bernardino facility will be a solid contributor to the success of these programs. The project itself, fruit purees in a flexible, resealable pouch format continues to develop at a very rapid pace. We are currently running two shifts on two pouch filling lines at a production facility in California. After some start-up issues in the fourth quarter of 2011, yields and profit margins are improving and expected to reach target levels by the end of the first quarter. We are currently selling the full capacity of approximately 36 million to 40 million packages per year from these two lines.

We have also started the project to install additional lines at a facility in Allentown, Pennsylvania. We are targeted to complete installation of two lines by the end of the third quarter and additional lines with expanded capabilities in the first quarter 2013. We expect to have signed sales agreements in place shortly for the production from these additional lines. We remain very pleased with this initiative and believe we are on the way to creating the platform which we expect will generate $100 million in profitable revenues over the next couple of years.

As Steve mentioned, Healthy Snacks and Food Solutions now form the Consumer Package Products Group and the plan is for the Pennsylvania facility to also house production equipment for the Healthy Foods Snacks business. The Food Solutions operating income in the first quarter will reflect costs related to the transition of the San Bernardino operations, as well as development costs associated with the Pennsylvania project. We expect results to improve over the course of the year and are excited about the profit potential of the projects we are working on. We are confident that SunOpta Food Solutions will be a key contributor to SunOpta's future success.

Purity Life Health Products returned to profitability in the fourth quarter of 2011. Full-year results were still a loss but were significantly improved over 2010. Sales in the quarter and full-year were lower than 2010 in the Food, Drug, Mass channel but ahead of 2010 in the Health Food channel. The lower sales in Food, Drug, and Mass reflects product delisting for both branded and distributed products as the major retailers have rationalized their categories as well as the decision of a major vender to go direct to warehouse. We believe we've worked through the significant costs related to delist and in Food, Drug, and Mass and have also addressed third-party vendor contracts where we had exposure. This was a major initiative and the revived agreements will significantly reduce risks going-forward on delisting costs for third party vendors products and will also result in a more equitable sharing of promotional costs in Food, Drug, and Mass with vendors.

The focus on Purity has been to establish stronger operating controls within the distribution business and to return to its origins and strength in the Health Food channel. We have made good progress in repositioning Purity in light of the significant industry changes which have taken place over the past few years, but the cumulative effect of the changes to date was unfortunately not enough to prevent a write-down of the intangible and long-lived assets which Steve mentioned earlier. We expect the operations to be profitable in 2012.

To conclude my comments, last year we took several significant steps to put some chronic issues behind us. There is no doubt we still have work to do. However, we have a number of exciting growth opportunities in several of our operations, and believe that the new organizational structure and the focus on sales growth, sustainability and continuous improvement will help us leverage our strengths to realize these opportunities. Before I turn the call back over to Steve, I wanted to confirm that we did release our Inaugural Corporate Social Responsibility Report in December. The CSR report and our framework for sustainability have been very well received by our stakeholders and we are working diligently across all of SunOpta to meet the goals we have set for the Company. Steve?

Thanks very much, Tony. During the fourth quarter we announced that the Board of Directors of Opta Minerals had decided to suspend the strategic review process for the Company. We currently own approximately 66.2% of Opta Minerals and approximately 64% on a fully diluted basis. The decision to suspend the strategic review process was based in part on an assessment of global marketing conditions which were challenging, combined with a number of actionable near-term growth opportunities within Opta Minerals. As a result, the Board of Opta Minerals concluded that the interests of the shareholders were best served by completing and integrating these expansion activities and suspending the strategic review process until further notice. As part of these growth opportunities, on November 10, 2011 Opta announced the acquisition of Inland Refractory, a manufacturer of pre cast refractory shapes, injection lances and electric furnace deltas. The business is complementary with current Opta Minerals product offerings and has capacity for growth and significance synergies.

On February 13 of this year, Opta Minerals announced that they had acquired all of the outstanding common shares of Babco Industrial Corp, located in Regina, Saskatchewan. Babco is a profitable industrial processor and supplier of petroleum coke, synthetic slag, ladle sand, and crushed graphite. This acquisition complements Opta's existing product portfolio and provides for additional product line offerings to new and existing customers in the region. The Babco facility has capacity for further growth and expansion and is strategically located in proximity to its key vendors and customers. Babco is technologically-advanced with respect to product and manufacturing techniques which may be leveraged at other Opta facilities. The addition of Babco further increases Opta's position in the mill and foundry business and expands its current position as a key service provider to the North American steel industry. Opta Minerals expects to continue to explore additional acquisition opportunities and has identified a number of internal growth projects which are currently in development.

The strategic review process was a useful undertaking and provided us with a better sense of value for the business and the opportunities to enhance shareholder value. Opta Minerals is well run with a strong Management team and operating systems, allowing the Senior Management of SunOpta to focus on our core natural and organic value-added foods business. Opta Minerals remains non core for SunOpta and while the active strategic review process has been suspended for the time being, we intend to continue to assess options for this business as appropriate.

I also wanted to comment for a minute on our investment in Mascoma Corporation. As you may recall we sold our investment in SunOpta Bioprocessing to Mascoma in September 2010, and have approximately 18.65% ownership interest in Mascoma. Mascoma has developed innovative technology for the low cost conversion of abundant biomass, using its proprietary consolidated bioprocessing, or CBP Technology Platform. Mascoma has developed a genetically modified yeast and other micro organisms to reduce costs and improve yields in the production of renewable fuels and chemicals. Mascoma's first commercial application of its CBP Technology is its Mascoma Grain Technology, or MGT yeast product, which is a drop-in substitute for existing yeast designed to improve the economics of corn-based ethanol production.

Mascoma is also working with collaborators to develop and construct commercial scale facilities, to convert hardwood to cellulosic ethanol. We feel they are making great progress. In September 2011, Mascoma announced that it had filed a Registration Statement on Form S-1 with the SEC relating to a proposed public offerings of shares of its common stock. This process continues. We are very pleased with our investment in Mascoma and believe it provides our shareholders with a low risk option to participate in the fast growing renewable fuels industry.

To conclude, our goals for 2012 and beyond are 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 2012 include; one, improve our profitability in support of our long-term objectives of 8% operating margins, 10% EBITDA, and a 15% return on net assets, via our continued focus on operational excellence, continuous improvement, product innovation and improved customer interface. Two, leverage the strengths of our organization to drive our long-term sustainable position in natural and organic foods, categories that we believe are very relevant in today's society and offer excellent opportunities. Three, invest in our core value-added natural and organic foods platform, buy internal growth projects, strategic acquisitions and investments in categories offering above market growth rates. Four, continue to explore and divestitures for non core assets with superior returns for our shareholders.

We remain committed to building a profitable, sustainable and growth-oriented natural and organic foods business. We are confident in our future prospects, but we acknowledge that our results have been impacted by a number of factors that have somewhat masked the progress we are making. Our revenues and growth prospects are strong and we remain focused and committed to our strategic direction. With that we will now open the calls to questions. Thank you.

Thank you, sir. (Operator Instructions)

Our first question comes from the line of Peter Prattas from Fraser Mackenzie.

Good morning, guys. I just want to touch on the workforce reductions. Can you give us a sense there as to the timing of when you'll realize the full $3 million of annualized savings?

The bulk of the reductions are all done now. We'll have -- so assume that they are all, they are done. But, we missed the most of the first quarter. We'll have the severance costs of around a $0.5 million. So, we'll really see the true bottom line benefit come the second half.

Got you. So for Q1 then, it will be sort of neutral? Or I guess slightly negative because of the severance charges?

I think it would be slightly negative because we'll have severance charges in the first quarter that won't be fully offset by the benefit of the reductions in our costs, continuing forward.

Okay. And then also, with respect to I guess the earnings outlook, on the write-down of the intangibles, long-lived assets and inventory, can you give us a sense as to how that impacts your earnings, going forward?

Yes, sure. We certainly feel that the reductions that have been made will -- benefit the operations. I mean in the inventories that were written down. There was -- the carrying costs involved in carrying those inventories. There were sales and exceptionally low margins on those inventories. So that's all been -- that will provide a benefit for us. Rob, do you have any other comments?

Most of the write-downs are really to reflect what the estimated recoverable value is for the assets that took the write-down at year end, so it really is indicative of no further drag, at least from those inventories, going forward.

Okay. And then just my last question has to do with your capital expenditures. It looks like in 2011 you were a little bit below I think what you had guided there. I'm just wondering if you can give us an update for 2012, what you plan on spending? And if some that have spending that you didn't do in 2011 fills in at 2012, and what exactly are the bigger projects involved?

Yes. There is going to be a bit of a carry over into next year. We are kind of targeting a ballpark estimate maybe $25 million to $30 million in capital into 2012, just depending on timing of some of the bigger projects and when they come up. But, by and large, a very similar capital program to what we would have communicated this time last year.

Okay, great. Thanks very much.

Great. Thanks, Peter.

Our next question comes from the line of Alvin Concepcion of Citi.

Hi, good morning. Just wanted to get some more color on your outlook for 2012. What are some of the largest near-term opportunities for your internal sales growth, particularly in value-added? I know you pointed that out. Also, margin opportunities, beyond the restructuring? And your outlook on commodities inflation?

Okay, well there is a lot there. So let's start off with areas where we see large opportunity. We are completing an expansion at our Modesto facility for value-added non dairy aseptic beverage. And we see continued growth in those categories, both on the retail side and in food service. So we are actively working there. We do have our recently, well not recently launched, but we've had a sunflower milk that's been to the market for about a year now and that is starting to pick up and gain traction. So there is very, very good opportunity there when we look at the grain side of things.

On the value-added ingredients side, clearly, we are launching into a number of new fibers. Cellulose has a product offering. Tony mentioned rice fiber, which is a gluten-free alternative, which is really important for food items today with respect to all the allergens that are out there. So that is an exciting category for us.

Tony also mentioned the launch of a new starch product that we produce from our operations in Galesburg, Illinois. And this is a product that performs very well in a number of natural product offerings and performs extremely well in a lot of the Greek yogurt offerings, which is really important. Tony had mentioned that the conventional yogurt category flattened itself out. It flattened out at the expense of Greek yogurt which has really grown. I know all of a sudden my fridge seems to be full of Greek yogurt, so that product offering plays really nicely into that category.

Tony talked about the resealable pouch business and the puree products that we are filling and clearly there are very good opportunities in that category. Portable nutrition continues to grow. In hand with that, the efforts in our Healthy Snacks business, both on the fruit and the sort of nutrition protein side, offer us what we think are exceptional opportunities. I guess I could go on. But there is quite a bit on the growth side and we are quite excited by that, and that is where we are focused. And these are all internal growth projects. They are not acquisition driven, they are driven by us leveraging the capabilities that we have within the organization. The natural and organic food sectors continue to grow between 5% and 10%. Some categories much faster than that. Others which are a little bit more mature slowing and getting to the bottom end of that. So we see good, long-term potential in the business. That really excites us.

What are commodities going to do? Well that is always the million dollar question. We don't see them falling off dramatically. I think we may see some easing here. There is such a demand, long-term, for food around the world, with the Chinese market and the demand for corn and soy into those markets. And the Indian markets, all of a sudden, transitioning from one meal a day, not really much North American style protein consumption, to really much more demand for that. So, we believe that we are in a period where, if you go back over time, you have fundamental shifts in commodity costs where there is a significant change in the prices. And once you have that significant change in price, which we believe we have seen, you follow with a significant period of volatility, where there is some real bouncing in the commodity markets. And I think we are seeing that, they were high this time last year, they are a little bit lower now. So we expect that we have shifted to yet another level of commodity costs and now will be followed with a period of volatility. So it is very, very important for a Company like ourselves that we have processes in place to limit our exposure to those ups and downs. But, the demand for food suggests to us that we won't see a return to 2000 levels or anything like that.

Right. That was very helpful. Thank you very much.

Our next question comes from the line of Christine Healy of Scotia Bank.

Hi, guys. First question I guess, just using a baseball analogy for you guys. If restructuring the business and improving your bottom line was a baseball game, what inning would you characterize yourself as being in? And Tony, maybe you can give us some color on what your key focus areas are currently?

Well we feel like we are in extra innings.

In extra innings, yes. I think the key area this year is, I mean, aside from continuing the momentum that we have gained in continuous improvement and Lean and the other projects we have mentioned in the past, that is ongoing. And we are trying to increase momentum of all those initiatives across the Company because that is straight sort of margin enhancement. I would say that the key initiative that maybe we are going to stress more than we've done in the past is to align our sales strategies for the key customers across the business. We have had a coordinated effort and we are really going to really take an extra step to try to leverage the various relationships we have across the Company. Start some key account management, which we think we can do pretty effectively in spite of a de-centralized structure. So I would say, it is really continuing the continuous improvement initiatives, and then the big one I would say is really aligning sales. Steve, would you agree with that?

Yes. No, I would agree with that. I think as well, we'll be much more -- much more focused on new product opportunities and high growth opportunities, which are, which we have identified and which we believe are really solid, long-term opportunities for the business.

Okay. Well, in your comments, you said that you expect Purity Life and the Frozen Fruit to have a profit in 2012, and it looks like you have started moving some of our export business in sunflower over to a plant in Europe. Would you characterize that you guys are getting close to the end of the restructuring part of the game?

You know what? I don't know to suggest that we are ever close to the end of restructuring. We want to continue to leverage and drive efficiency and opportunity across the business. I think the steps that we've taken are good steps. It will be a continual process for us. But so to describe it as are we near the end? I think the major lifting is done but I hope that we continually find ways to restructure and improve this Company. That is essential to us. And so, we haven't stopped working at ways to further our efficiency and effectiveness.

Okay. And then, Tony, can you clarify just one of your comments that you made on the sunflower business? So, margins in the Grains and Foods group increased by quite a bit. I think it's the highest we've seen in a year? Is that increase just by removing the export kernel sales into the International Food group? Or was there improvement in the other areas of the sunflower business?

Both. I think the impact of moving the kernel business over to Europe had a positive impact. The normal grains business had the oils. The impact on oils and certainly the impact of the aseptic value-added business, we sort of increased sales. That is a higher margin business. That is a combination of all those, I think.

Okay. Just last question here. We have recently seen some weather events, extreme cold weather in parts of Europe, drought conditions, parts of South America. What opportunities, if any, could we expect to see on SunOpta for these?

Well, Christine, I can tell you that as Rob mentioned, we carried more raw material inventory into this planting year, crop year, for a number of reasons. One being we could carry it more cost effectively than contract into some regions with the higher costs. But -- what we have seen increased demand, or increased [call] from customers, who would traditionally source some of the grains from South America and those sort of things. And with the crop volatility in South America, we are seeing a lot more interest in demand. And hopefully that translates into pricing. I think that is positive.

The key for us is, you are quite right, there is weather volatility around the world now. Not just little stuff, like big problems, when they seem to arise. One of the benefits of our model is that we have spread our growing capabilities around the world. It creates complexity, but it also creates comfort for our customers in the fact that, look if there is a problem in one growing region, we have the resources and the know how and the effective ability to go out and source from other regions around the world. We have commodity-oriented personnel and agronomy personnel within our organization and we are talking about global markets all the time and what the trends are and where those problems are. So that is a significant advantage for us, and hopefully we can leverage that throughout the year.

Okay. Thanks, guys.

Thanks a lot.

Thank you. Our next question comes from the line of Tim Tiberio with Miller Tabak.

Good morning. Thanks for taking my question. Looking at I guess your decision to potentially finalize a facility in the East Coast around the pouch business. Can you maybe give us some color around the expected CapEx? And then looking at some of the comments around the credit line extension, does that kind of play into the timing of that decision?

Okay. I'll let Rob talk a little bit more about the credit line decision. The total capital costs of the East Coast facility is a little bit misleading in that the facility is a leased facility and the equipment the way it lines up is leased by the manufacturers and those sort of things. So the true cost of a facility like that is probably in the $16 million, $15 million to $16 million range -- capital that we will lay out. But a lot of that is just provided by various suppliers under lease arrangements. Rob?

There are really sort of two separate things we are tracking. So, as far as the renegotiation goes on the credit facility, we are going to be hitting the ground running very shortly on that and working with our existing lenders. Hope to have things in place certainly before the end of the third quarter. That is happening parallel to the build out on the East Coast. But neither one are dependent on each other.

I think what Tim was wondering as far as the exercise of the accordion to increase the capacity is somewhat related? And, yes --

There is elements of growth there and elements of working capital that we want to make sure we are not overly constrained in any way, to continue to grow.

Okay. When you look at the return on investment here, what does the East Coast presence really provide you with? Does that take out significant transportation and logistics costs that you have been basically facing as a headwind from your West Coast operations to some of your East Coast customers?

No, it's not so much a headwind, Tim, as an opportunity. The customers that we are serving on the West Coast today are primarily West Coast centric. Some of those customers, well, all of those customers are national customers and they want to continue to expand. And we, as a strategy, very similar to why we built the Modesto, California plant, which is to get closer to the customers and take cost out. So our ability to grow -- there is only so much growth we could do from a platform on the West Coast. So it just makes sense to go to the East Coast.

Also the same reason with our Fruit Snack operation, which Tony mentioned or Rob may have mentioned, that we are getting close to capacity. So this is a wonderful platform for another operation. Our existing operation is on the West Coast, so customers do have to ship those products. So having an operation on the East Coast does get rid of some of the potential headwinds that you would have if you wanted to grow customers who are primarily East Coast centric. The economics just might not work. Let alone the carbon footprint and the whole idea of strategically we don't want to be shipping products any further than we have to the end market.

I would also add that in subsequent phases of this project, we are going to add machines to the West Coast as well. This is brand new, sort of markets for us. We started off in the West where existing customers were. Sort of growing in the East because of national presence of some of them that Steve mentioned. And the intention is to add machinery on both coasts and be able to serve the thing effectively. So we haven't stopped the program in the West either. It is just a subsequent phase.

Great. One last question, you have touched on organic coffee on prior conference calls. Can you just give us a sense of how that is scaling out? I guess since the early part of 2011?

Yes, the performance from the organic coffee operations at Tradin was really very good this year. We had good growth and it's a category that we continue to be excited about. It's at a high-end sort of niche products. But, yes, we have seen really good growth and continue, we think that will continue.

Do you want to talk about Cape Verde?

Cape Verde is a new project that we set up in the Cape Verde Islands just off the coast of Africa. That is not going to come online for another, a little bit longer. Yes, so that is, it's a small addition but an interesting one, because of all the social responsibility and benefits that come along with it. But it is really a nice category that is very well managed by the Tradin folks. And again, we expect to continue to open up new sources of supply and to continue to grow it.

Okay. Thanks for your time.

Tim, there is a wonderful video on youtube, if you google it. If you went on youtube and hit Trabocca.

It is on our website.

Oh, it's on our website as well. There is a wonderful overview of our organic coffee operations in Ethiopia. I would encourage everyone to have a look at that. It's really great. There is also, a video with our Selet Sesame operations in Ethiopia under the Tradin component of our website. I encourage anyone to have a look at those. They are a real good depiction of what we are doing and the contribution that these operations -- not only is it good for our business, it is really good for those local economies, which are so important to our contributions. I encourage people to have a look at that.

Next question from the line of Chris Krueger of Northland.

Good morning. I know you went over the various segments. But in the Ingredients segment, obviously you lost an important customer about a year ago. And your margins are I think you stated, they've gotten back to the second and third quarter levels, looks like about high single-digit operating margin. Over the last couple of years before that they were in the double-digits and I think your longer-term goal was I think 12% to 15%. Is that still realistic, or is this high single-digits more of a new normal?

Yes. We believe getting back to the low double-digits is very much doable. That certainly remains the target for that business. With the loss of volume from the customer, you just need to gain that back as a start then we think we'll make good progress toward that this year.

I know we talked a little bit about integrating Edner. I know that you've owned that for over a year now. Back at the time of the acquisition you talked about new products that could include layering like a yogurt-base with your fruit base and different ways you could bring the two operations together with new products. Can you talk a little bit more about what's been occurring or what's been happening there?

Yes. Very much so. The go-to-market for that operation is are really quite simple. We sort of took a look at our existing customer base that we are dealing with, the retail base especially, tried to get them to convert existing product or to introduce new private label products using the facility. We have had good success with that. We are already doing a little bit of sort of products that combined the fruits with the various capabilities at the Edner facility. So that one still is, again, we are quite pleased with the result. It is a facility that has tremendous potential. We are still very much at the early stages of what that thing can do.

Tony, what would we have done -- the increase in sales from when we got it would be 50%?

Yes, we are roughly. Well, I mean, roughly double the pacing now. We're roughly double the old pacing. But again, it's sort of a smaller base. It certainly -- we've done with it what we thought we would. Remain very sort of positive about what that facility can do.

It really fits the portable nutrition platform that's got great opportunity.

Last question. Obviously, in the fourth quarter you had a lot of write-downs and one-time type of expenses that we adjust for the adjusted operating income on the last page of your press release. Looking forward to the first quarter, we know that there is going to be some severance expenses. But beyond that, should it be more of a sort of a clean quarter?

We certainly hope it will be. We put out the adjusted earnings obviously because we think that is a more meaningful depiction to explain what the business really did in the quarter. But, depending on how that goes out, we'll certainly have disclosure regarding all the costs and related savings at the end of the first quarter. So that everybody can understand what it all meant at that time.

No, Chris, we don't expect anything large. There is the severance costs that we'll incur and there's the costs that we are incurring in bringing up the East Coast facility. But, I think they are manageable and we won't be adjusting for those.

All right. Thanks. That's all we've got.

Thanks.

Thank you. Our next question comes from the line of Bob Gibson from Octagon Capital.

Good morning, everybody. Most of my questions have been answered. And I think, I don't know if I missed this earlier in the call but you had a really nice reduction in corporate services, both year-over-year and sequentially. Can you give me some color on that?

Yes. Really the big bulk of that is just reduced legal costs and reduced compensation costs as a result of some of the restructuring efforts and just lower comp overall. We have had improved safety record in our health and benefits side that also helped. And all that was in despite of a less of a foreign exchange gain year-over-year. Good, nice reduction in overhead costs in the corporate.

So is Q4 a more reasonable run rate, going forward? Or, how should we look at this? How should we look at this?

No. That would be your best gauge, excluding the foreign exchange piece there, which you can pull out certainly going forward.

Okay. And while I've got you still, tax rate, going forward?

The tax rate I think, similar to our expectation that we had most of this year in the 37% to 38% range would be a good proxy. Okay. Thanks so much.

Take care, Bob.

Thank you. Our next question comes from the line of Keith Howlett of Desjardins Securities.

Yes, I had a question on the new segments. I'm wondering if you can review what the operating income targets are for the redesigned segments? And I guess that would include, I know Grains and Foods has stayed the same but had very significant acquisition with the Dahlgren Sunflower business. So, can you just review what the targets are four new segments?

Yes. Sure. So, Grains and Foods target was 6% to 8%, and it will remain 6% to 8%. The Ingredients group was 12% to 15%, and the combined new group will remain 12% to 15%. Consumer Products group will have a target of 8% to 10%. And International Foods 4% to 5%.

Great. Thank you.

Keith, what we are going to do will be, as Rob mentioned for everyone, we are going to issue, before the end of the first quarter and probably sooner rather than later, revised historical groupings so you can see the segments historically, based on these new allegations. And in there, we'll confirm all the new targets.

Great. And just a question on the sunflower business, which is -- it's been a big commitment. I'm just trying to get a sense of -- sort of on a what do you call it? Blue sky basis -- what that, how that business can be used on the value-added side in terms of the snack business or your sunflower milk business, or -- if you sort of see a large play there in sunflower towards the more value-added spectrum. Or how you are viewing the future of that part of the Grains and Food business?

Well, clearly the value-added is a major part for us. That is everything from Snack, but it is more than just the traditional Snack, it's over into Beverage. It is over into value-added Ingredients. So we have a number of sunflower-based ingredients that we believe have opportunities. So those are very important, I think as well, Keith, leveraging that platform in North America to move us into other roasted categories as well.

So things like pitas and those sort of snacks that we have the platform and we can leverage that platform to drive some of these additional -- we can, our International group can do all the sourcing for these raw materials and then we can add value to them in North America. So we do intend on bringing some innovative new snacking ideas to the market that our customers can utilize.

Things like salad toppings and generally, it is sort of it will involve kernels and roasting and kind of using that in every format you can think of. But the examples you mentioned were certainly two good ones and there are some others were working on.

And just finally on the oil side of it, I know you have disengaged from Colorado Mills, do you foresee going back into oils on your own, or not? Sunflower oils?

Well, Keith, we still do have an organic oil platform that we are still running and it is profitable. The Colorado Mills opportunity really moved us away from more of the expeller-pressed conventional oil opportunity that we had hoped to pursue. But we still have a very vibrant, organic oil business that, frankly, we are satisfied with, and we are continuing to grow and that is organic sun and soy and a number of different oils, palm and those sort of oils. So we are still quite active in the oil segment. Not as large as we maybe had wanted to get into expeller-pressed side, we are continuing look at those opportunities. But we are pretty happy with the position that we have.

Does Dahlgren feed into the oil business? Or are they really completely separate? The Dahlgren from the --?

They don't have crushing and refining capabilities. We use third parties for that, although they can, they have to seed and process the raw material initially for us.

Great. Thanks very much.

Thanks a lot, Keith.

(Operator Instructions) I see no further questions in the queue at this time. I would like to turn the conference back to SunOpta for any final remarks.

Well, great. Thank you very much. I want to thank everyone for joining the call today. And thank you for your interest in the Company. We are excited about 2012, and look forward to speaking with you, well it won't be too long. It will be less than a couple of months and we'll be reviewing the first quarter. So, on that note, as always, we encourage everyone, please feel free to give Rob, Tony or I a call and we look forward to speaking with you. Otherwise, have a great day, and thank you very much.

Ladies and gentlemen, thank you for your participation in today's' conference. This does conclude the program and you may now disconnect. Everyone, have a good day.