Q3 2020 Ingredion Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2020, Ingredion incorporated earnings Conference call.
At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.
After the speaker's presentation, there will be a question and answer session to.
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Please be advised that today's conference maybe recorded.
I'd now like to hand, the conference over to your host today is Tiffany Willis Vice President Investor Relations and corporate Communications Officer. Please go ahead.
Thank you Liz good morning, everyone and welcome to ingredients third quarter 2020 earnings call.
Im took me Willis Vice President of Investor Relations and corporate Communications Officer.
On today's call are Jim Valley, our President and CEO and Jim Gray, our executive Vice President and Chief Financial Officer, we.
We issued our results yesterday in the press release that can be found on our website Ingredion dot com in the Investor section. The slides accompanying this presentation can also be found on the website and were posted yesterday for your convenience.
As a reminder, our comments within this presentation may contain forward looking statements. These.
These statements are subject to various risks and uncertainties. These segments include expectations and assumptions regarding the company's future operations and financial performance, including the impact of the Cove at 19 pandemic.
Actual results could differ materially from those predicted in the forward looking statements and Ingredion assumes no obligation to update them in the future as or if circumstances change.
Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in yesterday's presentation press release can be found in the company's most recently filed annual report on form 10-K, and subsequent reports on form 10-Q and 8-K.
During this call we also refer to certain non-GAAP financial measures.
Including adjusted earnings per share adjusted operating income and adjusted effective tax rate, which are reconciled to us GAAP measures in note two non-GAAP information included in our press release and in today's presentation appendix.
Now I am pleased to turn the call over to James Allison.
Thank you Tiffany and good morning, everyone.
As societies around the world enter new phases of the pandemic and continue to grapple with its impact.
We had ingredion remain guided by our values.
Three priorities that we established at the beginning of the crisis.
As part of our care first the value our employees safety health and overall wellness remains our top priority.
We've taken measures and apply learnings throughout the year to keep our employees safe.
And as a result, I am pleased to say that to date, we've had no.
Yes.
Yes.
We have also been supporting our employees needs to balance their personal and professional obligations, which has allowed us to productively progress, both our operational and strategic agendas.
Our second priority has been to support the communities in which we operate.
And I'm proud to say that our employees have really leaned in.
Consistent with our value of everyone belongs.
Our employees around the world have shown tremendous support for racial justice as weve elevated our commitment to diversity equity and inclusion.
As a company we have enhanced our internal programs clarified.
You'd be involvement and financial contributions.
As an integral part of the food supply chain. We're also working to do our part to address the growing problem of food insecurity in the communities in which we operate.
And again.
I'm proud of our companies and employees efforts to give back through charitable donations and volunteerism.
All of this is in alignment with our purpose to make life better.
Lastly, we've maintained an intense focus on business continuity on behalf of our customers, which has served them.
And in turn Sir.
Okay.
Clients and SK use and this has allowed us to get even closer to them during periods of swings in consumer demand.
We understand the critical role we play in the food supply chain for our customers and we strive to deliver on their behalf with each shipment we make.
One example, we'd like to highlight during the quarter is from our customer monopolies, who was recognized for its sustainable supply chain.
We are proud to be a trusted sustainable supplier, who played an important role in enabling their success.
We have also quickly pivot.
Yes.
Digital capabilities to collaborate and co create in real time.
This has afforded us the ability to quickly and economically deliver on new concept and re formulation requests.
As shown by our work for charities, a low sugar all natural Cheddar Cracker, where we helped improve their margins by leveraging our technical expertise on re formulation.
Now turning our attention to the third quarter, we were pleased with our operational execution and financial results in the face of a challenging global environment.
For the quarter, our global net sales were down 5% compared to the year ago period.
[laughter].
Yes.
Net sales were down 2% versus prior year.
Quarter, three results were sequentially better than the second quarter's 13% year over year decline in net sales.
Adjusted operating income for the quarter was down 7% year over year and down 4% absent foreign exchange translation impacts Hey, Jim Let me just pardon me I think we just need to try and dial back in as the Polycom is breaking up.
Okay. So.
Sorry, just one minute we'll pause.
[laughter].
So to me at.
Please continue.
It's page seven slide seven in Q3 2012.
Oh please continue.
Okay, we're going to get started again, we had a little technical difficulties. So I'm, starting with slide seven and I'm going to start with the third quarter. So turning our attention to the third quarter. We were pleased with our operational execution and financial results in the face of a challenging global environment.
For the quarter, our global net sales were down 5% compared to the year ago period.
Absent foreign exchange impacts of $38 million net sales were down 2% versus prior year.
Quarter, three results were sequentially better than the second quarter's 13% year over year decline in net sales Ajay.
Adjusted operating income for the quarter was down 7% year over year and down 4% absent foreign exchange translation impacts.
Versus the second quarter's 29% decline in operating income quarter, three results demonstrated improved volume demand and better fixed cost absorption.
Moving to our third quarter regional results, let me begin with South America.
South America sales were down 9% versus prior year. However, absent foreign exchange sales were up 7% as favorable price mix more than offset a modest volume decline.
Operating income was $29 million up 7% versus prior year as favorable price mix more than offset foreign exchange impacts.
Excluding foreign exchange impacts adjusted operating income was up 30% driven by strong price mix.
To further highlight South America, we have seen a sequential improvement in volume demand.
Consumer activity is returning to informal channels, albeit not to 2019 levels.
We have seen a strong recovery in sales for brewing ingredients and steadily improving sweetener sales.
In addition, the team has managed pricing actions very well given changing customer demand patterns as well as fluctuations in costs and foreign exchange.
Shipping shifting to EMEA.
Our sales were up 2% for the quarter. The increase was largely attributable to favorable volume and price mix in Pakistan.
Operating income was $25 million up 4% for the quarter. The increase was driven by favorable price mix and volume in Pakistan and lower operating expenses in Europe.
Moving to Asia Pacific net sales were up 1% compared to prior year, which includes the addition of pure circle.
Removing pure circle Asia Pacific net sales were down 3%, which reflects the pass through of lower tapioca costs to customers.
Operating income was $18 million down 18% versus prior year, which includes a $5 million operating loss for pure circle.
Excluding pure circle third quarter operating income was $23 million up $1 million from the year ago period, driven by lower input costs and favorable operating expenses.
Transitioning to North America, net sales were down 6% for the quarter versus prior year.
Volume demand continued to be weaker than prior year, although it improved versus the second quarter as away from home consumption increased quarter on quarter.
Operating income was $132 million down 9% versus the prior year.
The decrease was driven by unfavorable customer price mix lower sweetener volume.
And unfavorable fixed cost absorption in the us and Canada.
Returning to a view that we shared in our last earnings call. We wanted to highlight the pace of recovery of net sales in both us Canada and Mexico.
In U.S, Canada net sales were down mid single digits for the quarter with sweetener, Sarah volumes, improving from the second quarter, although still down high single digits versus prior year.
In Mexico net sales were down high single digits for the quarter, demonstrating a significant improvement from the quarters steep decline due to a government shutdown of the brewing industry.
In the third quarter sales of brewing ingredients recovered significantly.
Now, let me turn it over to Jim Gray, who will round out the financial review.
Thank you Jim.
Net sales of $1.574 billion were down 5% for the quarter versus prior year.
Gross profit margin was 21.7% down 15 basis points.
Reported and adjusted operating incomes were $153 million and $170 million respectively.
Reported operating income was lower than adjusted operating income due to asset closures and restructuring costs related to cost Mark.
Acquisition and integration costs related to pure circle.
And the impact of the severe duraseal weather was swept through Iowa in the month of August.
Our reported and adjusted earnings per share were $1.36 cents and $1.77 cents respectively.
Third quarter net sales of $1.574 billion were down 5% versus prior year we.
We experienced negative foreign exchange impacts of $38 million.
Sales volume decline of $28 million was driven primarily by COVID-19 impacts around the world on volume demand.
Unfavorable price mix had a small impact of $6 million largely due to lower raw material costs in some geographies and related price through to customers.
In North America, net sales were down 6% versus prior year due to sales volume decline of 3% and price mix decline of 3% driven primarily by the pass through of lower corn costs to customers or variable pricing contracts.
South American net sales were down 9% driven by a negative 16% impact from foreign exchange weakness.
3% sales volume decline was more than offset by strong price mix delivering 10 percentage points of favorability.
In Asia Pacific net sales were up 1% driven by the inclusion of pure circle.
Excluding pure circle net sales were down 3% driven by the pass through of lower tapioca costs in Thailand to our customers.
EMEA net sales were up 2% driven by higher volume and favorable price mix, and Pakistan, which offset foreign exchange impacts.
For the quarter reported operating income decreased $12 million, while adjusted operating income decreased $14 million.
The decrease in reported operating income versus adjusted operating income is primarily due to asset closures and restructuring costs related to cost more acquisition and integration costs and the impact of the Durational weather event impacting Cedar Rapids, Iowa in August.
Operating income was down in North America and was up in both South America and EMEA.
While Asia Pacific's operating incomes down please.
We recognize that this includes a 5 million dollar operating loss for pure circle.
While flat year over year for the quarter corporate costs include continued investments to drive business and digital traffic transformation.
Partially offset by less travel expense.
In addition, our company incurred incremental expenses due to COVID-19 for compensation personal protective equipment sanitation and health screenings. This.
This direct expense amounted to $2 million during the quarter with the majority occurred in North America.
Turning to our earnings bridge.
On the left side of the page you can see the reconciliation from reported to adjusted.
On the right side operationally, we saw a decrease of 15 cents per share for the quarter driven.
Driven primarily by margin decline of seven cents.
Unfavorable foreign exchange was a negative seven cents impact to the quarter.
Moving to our non operational items, we saw an increase of six cents per share for the quarter driven by lower financing costs attributable to lower net interest expense due to lower interest rates.
Tax rate was unfavorable driven by lower us foreign tax credits.
Geographic earnings mix and other onetime adjustments.
Year to date net sales of $4.394 billion were down 6% versus the year ago period.
Gross margin.
Was 20.9% down 29 basis points.
Reported and adjusted operating incomes were $419 million and $473 million respectively.
Reported operating income was lower than adjusted operating income due to asset closures and restructuring costs related to cost smart and acquisition and integration costs.
Our reported and adjusted earnings per share were $3.45 and $4.50 respectively.
Year to date at sales of $4.394 billion were down $266 million from the same period a year ago.
Foreign exchange impacts represented a 138 million dollar headwind.
Sales volume decline of $206 million of which $178 million occurred in the second quarter.
The sales volume decline was partially offset by $78 million a favorable price mix.
Turning to our year to date earnings bridge operationally, we saw a decrease of 69 cents per share driven by volume decline of 41 cents.
Unfavorable foreign exchange margins and other income items represented a negative 20 cents five cents and three cents decline per share respectively.
Moving to our non operational items, we saw an increase of 12 cents per share year to date, driven by lower financing costs and other non operating income items.
Moving to cash flow year to date cash provided by operations was $562 million.
Capital expenditures were $250 million up $19 million from the year.
From the prior year period due to the timing of payments.
For our growth projects.
At quarter end, we had cash and cash equivalents of $553 million.
During the quarter, we used cash towards the acquisition of juror circle and the redemption of our November 2020 senior notes.
Due to the uncertainty of COVID-19, we cannot reasonably estimate results at this time.
During the fourth quarter, we expect continued adverse impacts from COVID-19 on net sales across our operating segments.
With recovery in sales generally correlated with easing of restrictions and increased consumer activity out of home.
For the fourth quarter, we expect adjusted operating income to be down mid single digits versus prior year with the greatest range of potential outcomes in North America and South America.
We anticipate cash flow in line with changes to operating income and supported by tight management of working capital.
For the year committed capital investments are anticipated to be between $290 million to $310 million.
Our reported annual effective tax rate is anticipated to be between 32 and 36%.
And our adjusted annual effective tax rate is expected to be between 27 and 28%.
For North America, we are assuming slow resumption of consumer activity in both the us and Mexico.
And our watchful of potential cobot, resurgence, which could lead to greater restrictions and new stay at home orders.
We anticipate north American net sales to be down slightly and op income to be flat to slightly up versus prior year as the business overlaps unfavorable corn costs.
In Q4, we anticipate south America's operating operating income to be modestly down versus the prior year.
We expect continuing impacts of coated on demand for our ingredients in the Andean region.
And potentially unfavorable impacts due to Argentina currency weakness.
We anticipate that EMEA operating income will be down mid single digits to high single digits, driven by higher expected corn costs and Pakistan.
The effects of a hard exit of Britain from the EU trading block and very recent countries stay at home restrictions are additional uncertainties potentially impacting volume demand.
Including pure circle results, we anticipate anticipate Asia Pacific to be down.
Mid teens versus the prior year.
Viewed without the addition of course our goal we expect Asia Pacific Op income to be mid to be up mid to high single digits.
We expect your circle operating losses to be between four and $6 million as the business progress as the integration works to reduce cost of goods sold and continues to broaden and strengthen its customer relationships.
Now, let me turn the call back to Jim's Alley.
Thanks, Jim.
We are driving growth roadmap continues to provide the direction for the execution of our strategy and value creation.
We continue to make meaningful progress against each one of our specialty growth platforms, as we diversify and expand our ingredient portfolio in line with the most significant trends shaping consumer buying behavior.
Our pure circle integration has progressed significantly since we closed on the acquisition in July and we are on track to substantially complete the integration before year end.
Leveraging the Ingredion go to market network, we have begun strengthening the customer pipeline for sugar reduction projects and are executing on new customer contracts.
We are excited by the talent, we have acquired in pure circle ending.
Any ingredion and tiered circle teams are sharing the same passion for customers and innovation, which is leading to new ideas to drive stevia growth.
We previously shared that we expect to achieve both cost synergies of greater than 10% and additional revenue synergies starting in the second half of this year.
To date, we are pleased to say that we have begun to deliver upon $11 million of annual cost synergies.
This tangible achievement in the first three months of ownership is a testament to the cross functional integration team, we put in place on day one.
Also in the quarter, we continue to make excellent progress in building out the capabilities for our plant based proteins growth platform.
The South Sioux City Pea protein isolates facility continued its commissioning startup as we work to obtain food grade certification, which is required for any new food grade manufacturing operation.
We hosted members of our board at the sales Sioux City manufacturing facility for ribbon cutting ceremony in mid September and we expect to be sampling customers towards the end of the year and fulfilling orders in the first half of 2021.
As you saw earlier today, we are increasing our investment in Verde in foods to have 100% ownership in the fourth quarter.
The opportunity to create to acquire 100% of variant foods will enable us to accelerate net sales growth further expand our manufacturing capacity and enhance our supply network for protein flowers and concentrates for plant based foods.
The Verde and acquisition will bring our cumulative investment in plant based proteins to greater than $200 million and provide a complete formulating portfolio crude nutritional and texturizing ingredients and solutions for plant based consumer food and animal and pet nutrition.
Before closing I would like to update you on the work we're doing to transform the company not only as part of our cost Smart savings program, but also in response to the opportunities and necessities created by the pandemic.
We continue to advance cost more to improve profitability and invest in future capabilities.
From the launch of cost more in 2018, our global team has engaged in over 90 initiatives to reshape and restructure or our organization but.
By way of example, the pandemic has not held us back from expanding our shared service platform globally to include Asia Pacific and Europe.
We expect to open our Asia Pacific Center in the beginning of 2021.
Our team is exemplifying our value of an owner's mindset and demonstrating creativity in how we rethink work in.
In the quarter, we stood up an office of transformation that is led by a highly skilled specialist we brought into the company who has experience leading transformations at large multinationals. This.
The scope of this work is broad yet focused on organizational design work policies and practices and digital transformation all to maximize productivity while building resiliency.
We look forward to updating you in the future on the results of this work.
That concludes my comments and now let's open the call for questions.
Ladies and gentlemen, if youd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Our first question comes from the line of Ben Bienvenu with Stephens. Your line is now open.
Hi, good morning, everyone.
Good morning, Ben Ben.
I want to ask thank you for the color on.
On the fourth quarter.
Good to see the volumes recover in the third quarter I'm curious.
We've already seen the impact of.
The co that spike earlier in the year I'm curious to what extent given that we're seeing escalating cases in various geographies today.
How do you think the businesses positions.
In the event that we see worsening co that backdrop in the fourth quarter relative to how it performed in the first quarter and kind of what what actions can you put in place based on your learning that might mitigate some of the risks associated with that.
Jim you want to take that yes sure.
Hey, Ben.
One of the things that we learned I think with.
Abroad, and severe shutdowns is how much it can strain on the supply chain.
Of of channels, where consumers go for food and beverage choices, primarily in foodservice or if and if you look to the UK and kind of food takeaway.
And as we saw our.
Our customers, whether they're kind of direct manufacturers or distributors everybody was adjusting their supply chains.
To that to that kind of supply chain constriction.
Okay.
Whether there is theres resurgence in particular cities or in particular countries. What we're really watching for is is how how consumers have adapted to whether its curbside pickup.
Or ordering food from a.
Food for from the away from home occasions, and think the adaptation has probably moved beyond maybe the April and May shutdown that we experienced in the in the United States.
We will still see as a caution I think we will still see where certain governments may take more severe actions with stay at home restrictions and broad testing and that can have.
Q.
Two week periods.
And speaking I think primarily to Asia Pacific. So so what we're doing is we're keeping our inventories ready.
And we will we may carry some inventory as we move as we finish out the year, but we're really just trying to stay closer to to our customer supply chains and understand kind of where they are at with regard to their demand, yes, and I would say just picking up on what Jim said is that we've learned a lot through the last six to eight months in relationship.
To how our customers are looking at their supply chains, they've learned a lot. We've learned a lot and we are very close to them in relationship to how they're looking to forecast.
For their brands.
In many cases as they have look to rationalize and prune their product lines and SK use.
And supports some of their bigger brands, we equally have done the same cascading back to our supply chains. So we're applying all those learnings to make sure that we have the right products at the right level of inventory and taking some forward looking best based on some of the products that go into retail for.
Stock ups that were seeing in.
Going into the winter months and into the fall and winter months, both in North America as well as in EMEA.
Okay, great. Thanks for that my second question.
It is also related because it is more from a long term perspective, we heard from you at Cagney earlier this year about your.
Your outlook longer term for the growth of your specialty ingredients business, the world's changed a bit but still is in flux I don't think its lessons the important on the growth of that business either to your customers work through to your businesses, but I'm curious how is going to do you think impacted the pace and magnitude of growth in the specialty ingredients business.
If at all.
So our global specialty ingredients have performed well this year in the face of the challenges due to covert the cobi pandemic year to date.
Our sales are up slightly on a constant currency basis, and we're performing well with larger customers.
We expect specialty ingredients.
Yes.
Sales of our total sales.
And.
We expect to return to historical specialty rates, when COVID-19 restrictions ease and away from home approaches the pre pandemic levels.
We believe that every one of our five.
Global growth platforms remain as relevant today as they did pre pandemic when you think about.
Start based Texturizers.
For affordable formulating into a variety of retail and big branded based products. When you think about clean and simple ingredients and the trend towards simpler and cleaner labels sugar reduction in relationship to.
One of the co morbidities around obesity or client base.
Okay.
Thanks.
And formulating more complete food systems to support customers' needs to have more integrated solutions, given how labor costs and the workplace have increased and just simpler faster ability to streamline their their manufacturing and supply chain. So we think every one of the.
Those specialty growth platforms are as relevant today as they were prior to and to date.
Through the pandemic, we're pleased to be actually up.
In our sales in constant currency terms.
Okay, great. Thanks best of luck.
Thank you.
Our next question comes from Ken Zaslow with Bank of Montreal. Your line is now open table.
Hey, good morning, everyone.
Yes, I can.
Well I just a question on North America. There is a lot of things going on in North America between your strategy.
Strategy for ingredients, but then you have the potential to Mexican labeling in.
Somewhat you know the lower fructose corn syrup demand and stuff like that so when you think about the North American what do you think of the path to recovery do you think you know 2021 22. It is growth years are you looking to hold profitability, how do we frame that and not just for this year, just how do we frame it a little bit.
Longer term given all the pushes and pulls.
Yes, let me start and then I'll turn it over to Jim I think that.
One of the keys to North America.
Recovery is going to be the pace of food consumed away from home.
So foodservice overall consumption, which obviously both in Mexico and in U.S, Canada got hit very hard.
And that recovery is going to be linked with the recovery.
Of the economies related to reduce cases, and and COVID-19 impacts abating. So thats to me the biggest key to the path to recovery and at the same time, what we're doing is we're obviously investing in the larger can.
Customers that are.
Doing the best right now through the pandemic and are looking to.
Innovate with them.
As it relates to the micro trends in pockets of growth we call. It that are emerging through the pandemic and that will be the heavily continue to invest in our specialties.
To to leverage our specialties investments that we have made where we have made significant investments that were expecting starting next year to provide.
An additional boost to our North America sales in the form of plant based proteins for example, as well as sugar reduction popularity is very significant both in.
The us Canada as well as in Mexico, you talked about the labeling in Mexico and were watching that obviously very closely that began October onest for all package and processed foods and regardless of that change. We do know that there is interest in health and wellness and is going to be a lot of re formulation opportunities and that will provide opportunities for reduced calorie.
We reduced sugar and we have products like cellulose and stevia in Mexico that will will perform well. We are encouraged also by what we've seen in regards to the bounce back in certainly the brewing segment in Mexico, Jim do you want to add to that eight.
Hey, Ken the one thing I'd add is that if you. If you look at North America segment Op income.
And if you take where we were done year to date down about 50 million.
And you looked at our our outlook for Q4.
Largely that decrease three quarters of that decrease is really been driven by volume demand and I'd say, there's another portion of that which has higher fixed cost absorption given that volume demand has been down.
As we look forward to to the factors that Jim highlighted in Mexico as well as in U.S, Canada will see as soon as we get through winter as we move hopefully is vaccination programs start can begin in the first half of the year, we will see volumes.
And return both from our medium and small customers, who participate at retail as well as probably more broadly from other parts of our customer set that serve foodservice and serve.
As a pull our ingredients into away from home uses.
And so we just when we.
Look at that we really think it's about that volume recovering and the pace of that through 2021.
Probably more into kind of a full full recovery.
By 2022.
Perfect. Thank you very much.
Our next question comes from Robert Moskow with Credit Suisse. Your line is now open.
Hi, Thank you Tom I was surprised to see mix down in North America in third quarter.
I think that's a change from the first half of the year.
So its specialty sales are doing well, Jim and Jim why would mix be down.
Jim I'll take that one.
And Rob one of the as we've highlighted in the past primarily the US Canada business, but also some in our Mexico business.
We have variable pricing on contracts and as we saw the the prices of corn drop through really through Q2, they kind of.
Hit hit a low really assist the repricing of those contracts given where the monthly corn ops for those customers.
And that impacts the mix not the price.
That impact will also what you saw was that your larger customers.
We're we're also pulling I think a higher proportion of our volume.
So thats the mix portion of that.
Yes.
Branded retail customers.
Customers that serve food food products into grocery retail et cetera.
I think that their supply chains were.
We're actually very swiftly to get product back onto shelves. They were pulling a higher proportion of our ingredients and as larger customers. They tend to have.
Better pricing.
So you had your kind of cutting it out you said peak retail customers had a lot of.
Stronger volume, but.
Yes. It was basically a basic basically can it was a larger proportion of sales to larger customers.
That have better pricing.
Okay. Okay will that continue into fourth quarter or is that just kind of a transitory inventory. Thanks.
I think it may continue into quarter, four and again a lot depends on the.
The mix of the customer base in quarter, four vis-a-vis quarter three.
Okay.
And then last question is can you talk a little bit about the pricing environment for for sweeteners going forward I imagine everything's getting pushed back.
But.
What do you how do you see that shaping up in North America.
Yeah, Rob I would say that prices for the 2021.
Crop year for corn.
Increased approximately 15%.
Yes.
Okay.
Prices for the 2019 2020 crop at the same time last year and.
And obviously, that's being driven by increased import demand from China for commodities.
And I'm looking forward, we expect higher corn prices and therefore industry logic would typically translate into elevated pricing to customers that said.
There is more corn wet milling capacity available in the short term do.
Due to the pandemic, which may temper price increases that's really the best outlook I can give you right now it's too early to comment on 2021 pricing outlook, but those are the two key variables that will be taken into account by the industry.
Okay.
One more question in terms of your investment into digital.
Does that include vendors earnings calls or is that separate.
Sorry, Rob could you just repeat that.
I think he was making a joke and the answer is yes, we will certainly Rob of course.
Okay, Yes, thanks, I think now as well.
Right.
As a reminder, ladies and gentlemen that is star then one to ask a question.
Our next question comes from Adam Samuelson with Goldman Sachs. Your line is now open.
Hi, yes. Thank you good morning, everyone.
I would.
Hoping to tick.
Continue on the maybe just on the specialty side, a little bit and with increased investment going on the plant side, you've got the Ireland, Mexico wrapping up Im just trying to make understanding of.
What's a reasonable expectation on contribution from some of those growth investments next year on a on a year on year basis.
Think about that.
Download thing kind of the cyclical dynamics in the base business and some of the comments on contract to me just paid way with some of the internal investment that you have underway and how much we can reasonably expect those to be kind of company specific drivers.
Yep sure Hey, Adam This is Jim Gray.
As we've said when we invest in new facilities, where we bring on the substantial capacity.
Yes.
We usually plan over a kind of a three to five year horizon for the ramp up of volume.
Through that facility so usually in the in the first year.
While we are having samples out and we're working the customer pipeline and we're shipping those initial orders.
Our expectations are or volume and revenue tend to be a fifth to a quarter of the capacity and we are having cost impacts necessarily in the first year as we're running the facility.
But but ramping up and down volume. So so I think we're just on this path, where we understand the path for both our value of those expansion at our at our San Juan del Rio facility, but also.
Okay.
For 2020.
Those are continuing on a path of ramp up in the early years, yes, and I would just build on that in relationship to say pure circle in the near term. Our expectation is the net sales are going to grow high single digits next year and the synergies are going to deliver greater than 10% savings at.
And so we're very optimistic.
Optimistic and bullish based on what we've been able to do in the first four months.
After 15 months of pure circle really.
Being challenged in the last four months with customers as well as internally with our optimization program and our plant based proteins with regard to.
Okay.
It's still to.
To commence in 2021, the return on that investment is really going to be dependent upon the rate of customer adoption and market growth and so and that that is looking very favorable right. Now. So we feel that that investment is perfectly timed with the.
Growth in the marketplace for plant based proteins right now.
Okay Thats helpful. And then my follow up is really to any comment on the M&A pipeline and opportunities to further grow inorganically in.
Especially with tax reform potentially on the agenda, maybe that gives an impetus for single family owned or private companies to the.
Makes the decisions there, but any comments you have on that front and scope or anything on the larger side of the.
Well I would just highlight that.
We've been opportunistic.
With M&A in relationship to the acquisition of certainly pure circle and then the Verde an announcement that we're making on this call and being able to acquire 100% of variant were pleased with and again all of our M&A focus is around enhancing the value propositions.
For the five growth platforms. So I think you can expect us.
You can expect to see that any announcement that we would make would be to support those.
Five growth platforms for specialties, primarily in the bolt on area as.
As we go.
Yes.
Sure.
Whatever we were too to buy.
Would enhance shareholder value creation.
Okay I appreciate the color I'll pass it on thanks.
Thank you.
That concludes today's question and answer session I would like to turn the call back to Jim Daly for closing remarks.
Hey, just let me just answered really we do understand that there were some technical difficulties on the call. So we apologize for that.
And Youre, obviously going to look into whether it was the.
The the transmission lines at this point, but we'll try and capture it all in the transcript Jim all right that concludes.
It concludes the comments I just wanted to thank everybody for joining us today, we look forward to.
Yes.
In conferences and until we speak again, I just want to wish everyone, a safe and safe holiday season. Thanks, So much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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