Q1 2021 Ingredion Inc Earnings Call
[music].
Good day and thank you for standing by welcome to <unk> first quarter 2021 ingredient and incorporated earnings conference call. At this time, all participants are not listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question you will need to press star one and your tell.
And please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I will now hand, the conference over to your Speaker today, Tiffany Willis Vice President Investor Relations and corporate Communications Officer. Please go ahead.
Thank you Carmen and good morning, and welcome to <unk> first quarter, 2020 one earnings call.
And Tiffany Willis Vice President of Investor Relations and corporate Communications Officer.
On today's call are Jim Sally, our president and CEO and Jim Gray, our executive Vice President and Chief Financial Officer, We issued our results today and our press release that can be found on our website and greedy on dot com and the investors section.
Accompanying this presentation can also be found on the website and were posted today for your convenience.
As a reminder, our comments within this presentation may contain forward looking statements. These statements are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, including the impact of the COVID-19 pandemic.
Actual results could differ materially from those predicted and the forward looking statements and ingredient and assumes no obligation to update them and 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 this morning's press release can be found and the company's most recently filed annual report on form 10-K, and subsequent reports on forms 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 U S. GAAP measures and note to non-GAAP information included in our press release and in today's presentation appendix and with that I'm pleased.
I turn the call over to Jim Valley.
Thank you Tiffany and good morning, everyone.
We started the year off very well delivering excellent financial results and the quarter and positioning us for and exceptionally strong first half.
For the quarter.
Global net sales were up 5% compared to the year ago period.
The increase was driven by higher volumes and Asia Pacific.
And South America, as well as the inclusion of pure circle.
Adjusted operating income for the quarter was up and all four regions.
Led by exceptionally strong performance and South America.
Which was up 20% year over year.
Our execution and Asia Pacific was excellent as we began to lap the impacts of the pandemic from the prior year.
North America also grew operating income by 7%.
Benefiting from lower net corn costs and the delivery of substantial cost smart savings.
Notably volumes in North America continued to recover from the impact of last year's COVID-19 restrictions.
Global net sales growth of 5% was led by Asia Pacific.
We are a combination of the inclusion of pure circle sales.
Organic growth.
And the lapping of prior year, COVID-19 impacts contributed to 24%.
Net sales growth.
South America had a fantastic quarter with year over year growth of 15%.
Followed by EMEA with 5% growth.
North of North America closed the quarter with net sales down slightly.
Foodservice traffic that is picking up but has not yet recovered to pre pandemic levels.
We continue.
To make progress against our strategic pillars and are pleased to share some highlights with you.
Specialty ingredients remained a bright spot with particularly strong net sales growth in both Asia Pacific.
And South America.
The pure circle, and Verde, and acquisitions are enabling us to capitalize on growth opportunities and sugar reduction and plant based foods.
With significant year over year net sales growth achieved in both platforms.
And the first quarter, we strengthened the strategic pillar of commercial excellence.
By introducing our customer focused.
What's next brand positioning.
This reflects our passion and mission to innovate and co create with our customers to bring them.
New and novel ideas and.
Solutions.
Jim will progress.
Jim will address our progress on cost smart in his remarks, and I will expand later on how our team is re imagining the future of work with customer Centricity.
Speed and agility.
Now, let me share with you some exciting highlights from our plant based protein growth platform.
In March we virtually welcomed more than 700 attendees.
Including over 500 customers.
From 28 countries to our South Sioux City manufacturing facility, which produces pulse based protein isolates.
We were delighted with the breadth of ingredient interest requests for samples and new product development opportunities, which has come from the many discussions we've had with new and existing customers.
These activities along with a growing sales pipeline are exciting leading indicators for future sales growth.
We are also pleased to report that we are and the final stages of completing mechanical and operations testing.
And obtaining food grade certification and our vanscoy plant.
For our new range of pulse based protein and flowers and.
And concentrates.
Our ability to formulate with and supply a complete range of protein based flours concentrates and isolates.
Makes us and attractive development partner to fast growing plant based foods companies.
On April one.
We completed the acquisition of K Tec headquartered in Lubec, Germany.
And which is very close to our European headquarters and Homburg.
We are pleased to welcome this innovative team of creative application specialists, who develop customized ingredient blends that enhanced texture and provide stabilization, particularly in dairy dairy alternatives bakery and safety applications.
<unk> is a great acquisition that complements our existing specialty ingredient portfolio.
And it expands our food systems platform with a comprehensive suite of innovative capabilities that assist food and beverage manufacturers with product formulation ingredient functionality and technical assistance.
It also adds a European hub to.
To complement our existing U S and Asia food systems operations.
Yesterday, we announced an exciting exclusive manufacturing marketing and sales partnership with a leading synthetic biology biotechnology company amyris to produce and market a great tasting sugar reduction ingredient Reb M, which is derived from fermentation.
And.
The amyris relationship.
Makes for a powerful combination with their leading technology and ability to develop.
Scale and produce fermentation based products.
Combined with ingredients global customer reach and formulation capabilities.
Adding a fermented reb M product to our existing pure circle sugar reduction portfolio.
And now provides ingredients with the most comprehensive trifecta.
Of leaf extract.
And bio converted Steve here.
And for <unk> in the World.
This enables us to meet the growing needs of our global customer base.
That is looking now for ways to reduce sugar.
Without compromising taste.
Our relationship with Amyris may include overtime, other R&D collaborations to manufacture and market additional fermentation based food ingredients.
As we are re imagining the future of work.
We are doing so with a customer centric mindset and a focus on speed and agility.
The pandemic has enabled us to reposition and how we engage with our customers.
Because all of us are relying more on digital tools and digital connections. This opens a window for us to become more efficient.
And intimate with our customers.
We've recently relaunched our global website and are expanding our customer portals.
We are actively working towards providing greater availability of on demand technical service live chat and virtual co creation.
This reinvention of the way, we work affords us a great opportunity to improve productivity and do so in a manner that supports supports customer satisfaction.
And high employee engagement.
Now, let me hand, it off to Jim Gray, who will provide a financial review.
Thank you Jim.
North America, and net sales were down slightly for the quarter when compared to the prior year.
This was partially driven by the cessation of ethanol production at our Cedar Rapids planet.
As well as continuing volume recovery as our customers demand returns from the effects of the pandemic our consumer mobility.
North America operating income was $134 million.
Up 7% versus the prior year.
The increase was driven by lower net corn costs due to higher co product values realized during the quarter.
Favorable price mix and lower operating expenses.
South America net sales were up 15% versus prior year.
Absent foreign exchange sales were up 25%.
Driven by favorable price mix, including the pass through of higher corn costs and higher volumes.
South America operating income was $40 million.
54% versus prior year as favorable price mix more than offset higher net corn costs and foreign exchange impacts.
Excluding foreign exchange impacts adjusted operating income was up 65% and the quarter.
Moving to Asia Pacific net sales were up 24% and the quarter driven by the inclusion of pure circle.
Excluding PURA Circle Asia Pacific net sales were up 13% benefiting from higher volumes as the region was lapping reduced demand from COVID-19, Lockdowns and the first quarter of last year.
Asia Pacific operating income was $25 million up 25% versus prior year, which includes a $2 million operating loss per pure circle.
Excluding per circle.
First quarter operating income was $27 million.
Up $7 million from a year ago period, driven by the recovery of the South Korea, and China businesses.
And EMEA net sales increased 5% for the quarter.
The increase was due to favorable foreign exchange and Europe, and price mix gains and Pakistan, which included the pass through of higher corn costs.
EMEA operating income was $31 million up 15% for the quarter the.
The increase was driven by better price mix and lower net corn costs and Pakistan.
Net sales of $1 $614 million were up 5% for the quarter versus prior year.
Gross profit margin was 21, 7% up 80 basis points.
Reported operating income was a loss of $170 million and adjusted operating income was a positive $201 million.
Reported operating income was lower than adjusted operating income due to the held for sale impairment charge related to the <unk> joint venture and Argentina.
Which is anticipated to close and the third quarter of this year.
Our reported loss per share was a negative $3 66.
And adjusted earnings per share was a positive $1 85.
Turning to our Q1 net sales bridge.
A sales volume decrease of $16 million was driven by the continuing recovery of demand impacted by the pandemic and North America, and Europe as well as the cessation of ethanol production and our Cedar Rapids plan.
These decreases were partially offset by higher volumes and Asia Pacific and South America, and the inclusion of pure circle results.
Favorable price mix of $86 million was largely attributable to pricing actions and South America, and North America, including the pass through of higher corn costs.
Notably our South America team has been able to achieve better price mix versus the foreign exchange losses and Q1.
Turning to net sales variance by region and.
And North America, net sales were down slightly versus prior year as lower volumes were partially offset by favorable price mix.
South America net sales were up 15% driven by a price mix increase of 21% was more than offset foreign exchange weakness.
And Asia Pacific net sales were up 24% driven by the inclusion of pure circle volumes and higher specialty volumes across the region.
EMEA net sales were up 5% driven by favorable foreign exchange and Europe, and favorable price mix and Pakistan.
For the quarter reported operating income decreased $323 million, while adjusted operating income increased $34 million.
The decrease and reported operating income versus adjusted operating income is primarily due to the held for sale and impairment charge related to the <unk> joint venture and Argentina.
And as Jim has highlighted operating income was up and all four regions.
Corporate costs and total operating expense for the company were down for the quarter when compared to prior year.
Driven by our cost savings program.
Turning to our earnings bridge on.
On the left side of the page you can see the reconciliation from reported to adjusted.
On the right side operationally, we saw an increase of 36 per share for the quarter.
The increase was driven by margin improvement of 33.
Other income of <unk> <unk>.
And foreign exchange of a penny, which were partially offset by negative <unk> of lower volumes.
Moving to our non operational items, we saw a decrease of <unk> 10 per share for the quarter.
Primarily driven by a higher tax rate of <unk> <unk> per share.
Moving to cash flow year to date cash provided by operations was $22 million.
Cash provided by operations decreased versus prior year, driven by the impact of higher net sales on inventories and accounts receivables and working capital.
Capital expenditures were $63 million.
Down $35 million from the prior year period due to the timing of payments for investments and.
And our growth projects.
We repurchased 14 million.
Shares of outstanding common stock during the quarter.
At quarter end cash and cash equivalents were 560 <unk> $576 million.
For the second quarter, the company anticipates net sales to be up between 20 and 30%.
And adjusted operating income to be up more than net sales growth.
As we begin to lap prior year impacts of COVID-19, 19, and North America, South America and EMEA.
We expect net net sales volume will continue to recover with increases in consumer activity and the pace and effectiveness of vaccine distribution.
For our regional outlook.
We expect the following for second quarter, when compared to the prior year.
North America, and net sales to be up 15% to 25%.
Operating income expected to be up slightly more than net sales growth.
And South America, we expect net sales to be up 35% to 45% and operating income to be up significantly more than net sales growth.
And Asia Pacific, We anticipate net sales to be up more than 30% versus the prior year driven by the inclusion of pure circle.
And the pass through of higher corn costs.
We expect operating income to be down.
Finally from EMEA, we expect net sales to be up 20% to 30% and.
And operating income to be up in line with net sales growth.
For the full year the company anticipates net sales to be up low double digits.
Driven by strong price mix and the pass through of higher corn costs.
We expect adjusted operating income to be up mid single digits driven.
Driven by specialty ingredients growth.
Other volume recovery and cost smart savings.
Which will be partially offset by higher net corn costs and the second half of the year.
Assumed in our full year perspective.
We have accounted for the rise and the cost of corn to the $6 per bushel range and are largely hedged.
As a result for the remainder of the year, we have limited margin exposure to higher corn costs for our U S and Canada fixed priced contract contracts for customers.
Full year corporate costs are expected to be flat.
We anticipate our reported tax rate to be 70% to 75%.
And adjusted effective tax rate to be 28 to.
And to 29%.
For the full year capital investment commitments are expected to be between $330 and $350 million.
Of which more than $100 million has been invested to drive specialty growth.
Due to the uncertain environment. The company is not currently providing guidance for the full year of 2021, EPS nor cash flow from operations.
With that let me turn the call back to Jim's Alley.
Thanks, Jim.
Our strong financial performance is validation of our roadmap for value creation.
Our roadmap serves as our compass.
And has us centered on driving value for our stakeholders.
And the quarter, we held our second and virtual global growth summit with our top leaders to align on the ways ingredient will continue to identify and execute and cash and capture growth opportunities.
Despite the continued challenges from an uneven economic recovery around the world, we have been and.
And we will remain directed by our roadmap as we deliver on our goals and against shareholder expectations.
In line with our values and our purpose, we continue to elevate our commitment to sustainability.
As we see it as the way of doing business the right way for the long term.
Having a comprehensive approach to ESG is vital to ingredients and this is why it was featured prominently in our vision 2025 goals, which we shared earlier this year at Cagny.
We are committed to sustainably source, 100% of our tier one priority crops by 2025.
These crops are corn, rice, tapioca, potatoes, stevia and pulses and collectively they represent about 99% of our global crop sourcing by volume.
In addition, we are scaling regenerative agricultural practices with customers and a farmer centric and outcomes driven manner.
Achieving these goals will position us as a preferred supplier that bring strategic value to customers and will ultimately drive value for our shareholders.
Next week, we will release, our annual update to our 2030, all life plan, which will highlight our sustainability progress and accomplishments.
Now, let's open the call for questions.
Thank you and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Our first question is from the line of Robert Moskow with Credit Suisse. Please go ahead.
Hi, Thanks for the question.
And just about the outlook, Jim and Jim.
It indicates.
A slower pace of operating income growth and the next three quarters and and I think what consensus had in mind.
And I, just and you also mentioned that Youre now taking into accounts $6 corn and your outlook.
I imagine that that is higher than what you had expected originally.
And and now that you're fully hedged.
Or does your outlook now incorporate a slightly lower expectation for profit growth because of because of the hedges you had to put into to lock things up.
Or is it something different.
Steve do you want to take that Yeah, hi, Rob good morning.
Maybe just began and so for the first quarter.
And and anticipated and the second quarter, our North America gross corn costs were held in line with our business plan. When we started in the fall and we've benefited from from higher co product values and additions I mean, the team really executed well and the first quarter.
As it relates to the second half we would remind you that we saw volume recovery and the third and fourth quarters of 2020 and.
And we benefited from very favorable net corn costs and the second half of last year.
So our full year perspective, this year and considers the more challenging comparison to the second half of <unk>.
2020, and then as I said assumed in our full year perspective, we have accounted for that rise and the corn costs and the corn futures.
And to around that $6 per bushel range right, obviously, we lay out our <unk>.
Hedges and Q3 and Q4, but we're largely largely hedged.
And that was higher than what we anticipated I think and the attendance and the beginning of the year and so that's what it is.
That's what's putting some of the pressure against our second half of operating income and our and our and our perspective.
Okay got it.
And I'll get back in the queue. Thanks.
Hey.
Our next question comes from Ben Bienvenu with Stephens. Please go ahead.
Hey, good morning.
Good morning, guys.
I wanted to follow up on Rob's question about.
Corn, you noted that you hedged your.
And your corn at around $6 does that include having secured our locked and basis as well for the back half of the year.
And then what does your renewed outlook reflects relative to co product values, but just be reflective of.
Comparable veg oil or corn or.
Soybean meal futures curves as well.
I'm curious to understand what you're seeing there.
Sure Ben.
Maybe I'll take the lead and Jim can add color as.
We look forward and our hedging practices, we look at the gross cost of corn and the basis.
Paint upon which plant corn is coming into so yes, we are considering.
Basis as is.
As one of those risks that we have to hedge against.
And our covered against that.
I think when we look at co product values as I've said from the beginning of the year co product values were quite elevated.
As corn has risen and we're seeing the benefits of that clearly in Q1, we anticipate the continued benefits of co product values.
Into Q2, I think what we're cautious about is we're going to get a harvest here and.
And the U S and.
Towards the end of Q3, and depending upon that harvest there will be resultant impacts to both corn co product values as well as potentially soy.
And so I think within our within our full year perspective, I think we're reasonably cautious on co product values.
As we would expect the harvest as well as what the corn futures market reflects as a slight decrease and values.
And and I think that Thats, what were reasonably cautious about with regard to co product values.
Okay. That's great that's helpful.
My second question is you noted I think the word you used was south.
<unk> of ethanol production and Cedar Rapids facility is that a permanent.
Sufficient or temporary.
That's a permanent.
And the cessation of ethanol production and Cedar Rapids, and we would prefer to use the grind.
More towards starches and more value added products.
Okay, and then one quick one if I could on pure circle can you remind us.
Yes, it's still dragging operating profit can you remind us of what you think EBIT contribution will be and this year and then would it be next year that we'd start to see some positive EBIT contribution and then I'll, let Jack Thank you.
Let me start with the technical and then Jim can add color.
We're really seeing is as we largely got after the integration in terms of taking out some of the SG&A costs and successfully completed that and the last half of 2020 now we're working towards gross profit margin improvement as we bring and the next generation of Stevia leaf we're seeing continued improvement.
And margins and as we get towards the end of this year, we really believe that your circle will be breakeven to positive.
Yes, and I would just add that.
Pure circle for US right now is performing at or above our expectations since the acquisition in July.
And <unk>.
As a reminder.
We've owned the business for five years and for five months and we're seeing sequential improvement month on month right now based on how the team has managed the integration as well as the commercial receptivity of customers and and commercial engagement.
Okay. Thank you.
Thank you. Our next question comes from Ken <unk> with back from Bank of Montreal. Please go ahead.
Hey, good morning, everyone.
Hi, Ken good morning.
Just wanted to touch base on Brazil.
And South America were above our expectations.
As you look forward what are you seeing and Brazil and are you still able to keep this momentum going through the year or will there be some subtle changes can you talk about that.
Yes, let me take that and Jim I'll, let you add any color commentary.
As we've been saying for the last few quarters, we've been very proud of the South America team's performance and how they've managed through some really difficult.
Economic macroeconomic challenges, but then equally obviously with what's going on and South America with the pandemic as well the net sales increase and South America.
It has really been driven primarily by the pass through of higher corn costs and it's also benefited from higher volumes and Argentina, and Brazil. There has actually been very strong volume recovery that has continued in Brazil and in South America. The first more the first quarter operating income also benefited from well.
And contract management, and corn hedging as well as higher co product recoveries and it's worth to note that this is the third consecutive quarter of year on year operating income growth.
And South America, and it's the highest quarter, one performance and nearly a decade and South America.
So.
We just thank the team.
Is operating exceptionally well our operations are performing very well under difficult circumstances.
And.
It's a combination of volume uptick.
Great contract management and operational execution.
And what we're seeing and.
The question is.
Can the consumers continue to.
And feel robust and there.
And their purchasing behaviors going forward. That's that's the question, yes and.
A highlight that we've talked about and and Brazil in particular that just given the longer period of recession that was we saw ourselves coming out of I don't know if its at the end of 2019 and partially into 2020, but the utilization of our facilities we're always.
Lower and now what we're seeing is is that volume pick up gives us that incremental utilization to the low <unk> mid <unk> at times and all of that is just really incremental to the business and so you're seeing that benefit and then just to highlight Jim said the team is executing really well and I would call out there.
The South America team is doing two things and particularly well wishes. They are really thinking about pricing and the timeliness of the pricing and where value exists as well as they are really looking at corn procurement and and hedging differently and they just really tightened the execution on that which is benefiting the business and I think it's worth noting because we <unk>.
Talked about this and the past and relationship to the pricing pass through of foreign exchange devaluation. This is the first quarter in recent memory. If you were to go back where.
Price mix actually exceeds foreign exchange devaluation, it's the first quarter, we can remember when thats the case and that just.
As a further validation of what Jim just said.
Great and then Big picture question as you think about higher input costs across the chain view from corn to other parts of the chain how.
And how much demand you need is a recovery to be able to cover that and then that would mean.
And for this year or next year just in general how do you think about the day the volume demand that you need to get be able to get the pricing to offset the higher input costs and <unk>.
How do you work that through just again more of a longer term question.
Yes, it's an interesting question, Ken I mean, what I would say is right now we're encouraged by some of the signs we're seeing and increased economic activity and that's translating into increased industry capacity utilization, so and that comment would apply certainly to North America as well as South America.
And we're of course carefully monitoring the inflationary increases in freight and packaging chemicals.
And what we are witnessing right now our customers are announcing price increases to retailers and consumers.
And.
And Theres no doubt thats, all going to be factored into our pricing negotiations with customers ultimately in 2022.
But right now I think we're encouraged by.
The volume pick up and we're seeing increased economic activity, which is increasing capacity utilization. So we're very encouraged by that.
Great I appreciate it.
Thank you and sorry.
As a reminder, ladies.
To ask a question yesterday and then.
And why our next question is from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes, thanks, and good morning, everyone.
Hi, Adam Good morning, Adam.
So maybe.
And if I could take Ken's last question and maybe frame it a little bit differently and a little bit more near term and I know the volume kind of comparisons on a year on year basis start getting very noisy.
As we go through and the second quarter really March onwards.
And I'm wondering if you can give any kind of perspective by region by by key kind of category or product line.
But volumes versus 2019 levels and how we should think about that versus the balance of the year.
Yes, sure when and why don't you take a shot at and <unk>.
Hey, Adam.
And I'll take a quick survey of the world with regard to volume.
As a reminder for all listening.
I think when we went through 2021.
We actually saw greater exposure was and what I'll call. Some of our core ingredients right. So our some of our sweetener syrups, which might go into beverages.
Some of the adjunct and might go into brewing industry. Some of the some of the sweeteners that might go into confectionery or more food products that were.
Really benefit from impulse buying a lot of consumer mobility, and our specialty ingredients, primarily and those modified food starches and and clean label products really continued to kind of show up quite steadily.
We noted that we had a little bit of foodservice interruption and may win win win and I think the restrictions were so specific but generally we noted that specialties ingredient growth and 2020 has been pretty steady.
So when you look to 2021 and you go kind of around the world Real quick where do we see those sweeteners or ups and some of those.
And <unk>.
Core ingredients bouncing back so you'll see that strong and North America, where we had quite a bit of foodservice shutdown it impacted.
Beverage soda sales and it also impacted some of your morning, and your other occasions within foodservice.
And so as you see that steadily come back and the second half and even through Q1 of 2021, we're seeing just that steady foodservice improvement and that pulls demand.
South America.
And really saw a pretty dramatic drop off and and core ingredient sales.
In Q2 of last year, and a pretty sharp rebound.
And Q3 at least and brewing.
And then kind of up and down through Q3 and Q4. So we will see that that lap is actually still I think kind of contribute quite positively, particularly Colombia and.
And the MD and region, and we have pretty easy lap through the balance of the year.
When you turn to EMEA.
With regard to Europe, Europe has been really kind of up and down.
And on foodservice and takeaway foods, which is a particular strong.
Market area for us and and we are still actually seeing that slow as we even turned the year. The end of 2020, and so I do think that Europe has an opportunity for pretty strong.
Pretty strong lapse and most of Europe business and specialty Pakistan only had a blip.
Really in Q2 and.
And it was really driven by more kind of economic slowdown within the country and really the impact of exports of textiles. So I think we'll see Pakistan and be able to.
And it'll have slightly tougher laps, but I think that that business and that economy are still have the potential to continue to recover as the as the GDP rates continue to strengthen and then finally and Asia Pac.
We noted that really the impact from COVID-19 restrictions really impacted.
South Korea, and China, and Q1 of last year, we're seeing that lap here in Q1 of 2021, and then as we go through the balance of the year, we had some impacts in Q2 and Q3 and <unk>.
And kind of southeast Asia, and we will see and the ability to lap that for both Q2 and a bit of Q3, and that's kind of a survey of the world.
And I would say.
Yes, I would say that we are particularly encouraged by the fact that despite.
Some regional Lockdowns as the virus has surged and whether it be Europe or whether it would be and.
Parts of South America, despite that.
The second and third wave lockdowns are not leading to.
Anywhere near any kind of a volume drop off and in fact things are very even keeled and steady <unk>.
<unk> overall I think.
Is actually trending upward in 2021 vis vis 2019 foodservice is almost <unk>.
Almost back and hopefully we'll be back in North America, and the second half and Thats been reapportion between <unk>.
Fast casual as well as <unk>.
Fine dining, but but robust pickup and a brighter outlook for the second half year here in North America.
And so overall I think.
And the worst is certainly behind US we believe based on how everyone's learned to live with the virus and how.
<unk> consumer eating habits have changed and relationship to there will be a higher proportion of food consumed at home.
And then was the.
And the case in 2019 and that bodes well for the products that we supply.
That's some really helpful color.
And I guess my follow up is just thinking about 2022, I think about kind of the increase in core and you're going to use and from some very helpful color around the impacts of corn on this year's results.
And I'm, just trying to think about the setup into contracting and North America and next year and.
And then you are kind of early kind of thoughts just seems like contracting happened and a very different corn price environment and one we're in now and I'm just thinking about the ability to push on that through that much kind of cost inflation and just how you're approaching that.
Yes.
Obviously, it's a little early to be commenting on.
Pricing and contracting season, but I think it's very relevant as a reminder, over half of our revenue and North America.
As with larger customers that have a contract that is fee based and so that corn cost increase right now is being pass through.
So it's.
I think it's unusual that some of your largest customers.
We're actually seeing kind of higher costs for their syrups as it.
It's being pass through right now.
And remind you though for the other half our customers are benefiting from prices that were set and their contracts when corn was below $4 a bushel.
Right and these are many customers medium and small customers.
Through our procurement and our hedging we're managing the higher cost of corn and the second half.
This year for 2022, the company will be able to rebalance the pricing with the corn costs wherever the corn market settles out sometime after this year's harvest and we have a better view towards 2022 pricing.
And just remind you of that that difference and our customer concentration.
Alright, I appreciate the color I'll pass it on thanks.
Thank you. Our next question is from Robert Moskow with Credit Suisse.
And Rob.
Okay.
I had a question about your sweetener strategy.
Recent acquisition.
And I guess partnership and South America.
And I think Cargill is the leader and using fermentation to create.
Read them.
How do you think what you.
Purchased here compares to what cargo is doing in terms of volume and and expertise.
And then also.
As you build out this strategy and now you have assets in China, you have assets in South America.
Is that typical for servicing the North America.
Demand market.
B.
And to be sourcing from from those regions or are you competing against local north American players.
Okay well.
And to answer the question, specifically and relationship to sugar reduction, which I believe is what you are you are asking about and.
What.
We are very excited by is the fact that.
When we bought pure circle, we bought the leader in Stevia leaf extract and also and what it's called bio converted stevia, which takes leaf and then optimizes it through and somatic conversion to give you.
Different.
Fractions of Steve you that have different taste profiles were better taste profiles and so.
We bought that company with great technology, great intellectual property and.
And.
And the broadest and deepest portfolio of product technology and that space.
With the Amyris joint venture.
What we have done is add on.
And the access to fermented Reb M <unk>.
Which has the prospects for the.
And the lowest cost production of a great tasting sugar reduction ingredient and all of these.
Tools and a sugar reduction toolbox.
Our need it because when you replace sugar.
And a food application.
You are working and a customized way with customers.
Where.
Overall sensory and mouthfeel characteristics has to be built back and customized and understanding how each one of these ingredients effects.
Both the sweetness profile as well as mouth feel and flavor is very very important. So we think this is a tremendous.
Combination. In addition, there are different labeling requirements.
And different parts of the world.
That we think these three.
Variations of stevia.
<unk> will provide.
The the world to us really from a standpoint of the global customer base and all of the different regulatory.
Requests and requirements that we will have to meet as far as the geographic location.
We're sourcing from China from Malaysia with pure circle.
And the case of <unk>.
Sourcing from Brazil, ultimately, but we're talking about ingredients that are specialty ingredients.
Like our starch ingredients can be transported around the world like we do today and in those particular cases, the freight costs are not a significant part of the overall delivered cost to the customer so actually in the case of Amyris.
Locating it in.
Brazil, and using non GMO sugarcane gives us a sustainable sourcing option.
And that is part of the strategy also that Amyris has to use it as a feedstock. So we just are very very excited by.
This is what I call trifecta of ingredient portfolio that this now gives us a tools and our toolbox for sugar reduction and.
And we think it also enables us to be very cost competitive which is also an important requirement of customers when you replace sugar and a formulation.
Got it okay. Thank you thank you Rob.
Thank you and this concludes our Q&A session for today I will turn the call back to our president and CEO Jean Tallies for final remarks.
Alright, well, we thank everyone, who has joined US today and really appreciate your time I also want to thank our employees, who stayed focused and committed to serving our customers.
And to all of you until we speak again, please continue to stay safe thanks, very much everyone.
Thank you and this concludes today's conference call. Thank you for your participation and you may now disconnect. Good day.
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