Q2 2021 Ingredion Inc Earnings Call

[music].

Good day and thank you for standing by welcome to the ingredient incorporated Q2.2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask a question during this session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.

I would now like day on the conference over to your Speaker today, Tiffany Willis Vice President of Investor Relations, Inc.

Corporate Communications Officer. Please go ahead.

Thanks, Joelle and good morning, everyone and welcome to ingredient second quarter 2021 earnings call.

I'm, Tiffany 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 issued our results today in a press release that can be found on our website and greedy on dot com.

For section.

Slides 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.

Statements include expectations and assumptions regarding the company's future operations and financial performance Inc.

The impact of the COVID-19 pandemic.

Actual results could differ materially from those predicted in the forward looking statements and greedy on 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 on today's conference call or in this morning's press release can be found in 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.

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.

Now I'm pleased to turn the call over to Jim Valley.

Thank you Tiffany and good morning, everyone.

We delivered exceptional second quarter performance demonstrating the strength.

And breadth of our customer base.

And the resiliency of consumer demand for the range of food products that use our ingredients.

In every region, we saw double digit growth from demand recovery across all customer segments.

As well as very strong specialties growth.

Our strong sales execution and price management in the face of robust and fluctuating demand.

Contributed to our 31% net sales growth.

Adjusted operating income for the quarter was up 64% versus prior year.

And marks our strongest quarter since 2017.

All 4 regions performed extremely well with South America, delivering another remarkable quarter driven by favorable price mix.

Shifting to our strategic pillars.

We've made meaningful progress against each of our strategic pillars throughout the quarter and these continue to provide execution focus for.

For creating long term shareholder value.

Beginning with specialties, we continue to drive sales of these higher value ingredients and systems.

And we are pleased to share that they are now and even larger portion of our total net sales.

At 33% as of the end of the second quarter.

We experienced strong demand across our entire specialties portfolio, which led to healthy double digit growth in all 4 regions.

Moving to commercial excellence, our teams are working exceptionally closely with customers as consumer demand recovery has created pressures throughout the entire supply chain.

We are supporting increased foodservice demand as well as solid demand for packaged foods.

This quarter, we also enhanced our digital capabilities for customers by completely renovating and integrating many independent websites into 1 global user friendly.

Content rich customer destination.

I'll speak to cost smart details momentarily.

But I'm excited to share now that we have already action and captured $135 million and run rate savings year to date as our teams have been relentlessly executing against our program targets.

Our purpose culture values and talent pillar.

Is the foundation of our strategy.

Accordingly, our employees' health and safety remains our top priority.

Right now we are monitoring closely the increased COVID-19 infection rates in Asia Pacific and our Covid project management office is working to accelerate vaccination availability to all of our employees around the world.

Yeah.

In support of our diversity equity and inclusion efforts I'm also proud to highlight that we stood up to more employee business resource groups in the quarter in support of our Latin ex population and employees with disabilities.

This now brings ingredients for the total number of business resource groups to 7 with 33 chapters operating around the world.

Also this quarter, we re imagined the future of work for our company and recently communicated our approach to agile ways of working detailing the operating parameters of our hybrid model.

This is centered on providing employees flexibility within a framework balancing the needs of the business, while nurturing a culture of spontaneous learning and development collaboration.

And innovation.

Now, let me highlight our specialties performance for the quarter.

We delivered exceptionally strong double digit specialty ingredients growth in Q2.

Demand was strong across all 5 of our growth platforms, reflecting a strong comeback for foodservice and.

And the importance of our starch based texture risers and clean and simple ingredients for these formulations.

We also experienced strong demand for specialty sweeteners and sugar reduction solutions at our plant based protein sales more than doubled in the quarter for prior year.

Sales of specialty ingredients have now increased to represent 33% of the company sales.

As we recently shared at Cagny, we are well positioned with a 4 year plan to.

To have specialties meet our target of 38% of sales by 2024.

South America led our growth this quarter with 46% specialties growth driven by volume and price mix.

Asia Pacific also performed exceptionally well with 41% specialties growth in the quarter.

Led by growth from the sugar reduction platform, which included acquisition growth from the inclusion of pure circle.

Excluding pure circle Asia Pacific delivered 12% specialties growth.

EMEA delivered 35% specialties growth in the quarter, which includes 2 months of sales for K Tec.

Excluding K Tec EMEA delivered 25% specialties growth.

North America is 18% specialties growth was driven primarily by foodservice recovery.

And now let me provide an update on our recent strategic growth investments.

We are very pleased with pure circles net sales growth, which is ahead.

Of our first half expectations.

Most importantly, pure circles project pipeline continues to expand and new customer wins are being led by breakthrough bio converted reb M sales and flavor blends.

The Amyris partnership and collaboration on Reb M from fermentation is progressing well and initial customer feedback for this great tasting product has been very positive.

Now.

Sharing a few highlights from the plant based proteins platform.

We received food grade certification for our Vanscoy, Saskatchewan facility and the team reached a new record level of production for protein flowers and concentrates in June.

With respect to ourselves to city facility. The team continues to optimize its operations to meet anticipated increasing customer demand in the second half of 2021.

Within our food systems growth platform, our recently announced <unk> acquisition.

Is being integrated well into our EMEA business.

While early days, we are pleased to see sales growth ahead of our business case.

Now moving to ESG.

In the second quarter, we published our 10th annual all life sustainability plan, which contains updated and expanded 10 year ESG commitments.

This report highlights our sustainability accomplishments and progress and I could not be more proud of our team who continue to identify ways to improve our operations to benefit all stakeholders.

Given the importance of ESG, we are committed to highlighting our progress on a more frequent basis, which will be both annually in our sustainability report as well as biannually and our shareholder updates.

1 aspect of our ESG strategy is working closely with customers 1 important element of our or a life plan speaks to connected life and I'm pleased to update you on the progress specifically related to sustainable and regenerative agriculture, which is very important to our customers.

And growers.

We committed to sustained sustainably source, 100% of our global waxy corn needs are critical crop for us by the end of 2022.

As of the second quarter, we are sustainably sourcing, 95% of our global waxy corn needs and expect and expect to achieve our goal ahead of schedule.

We also remain committed to sustainably source, 100% of our tier 1 priority crops, including corn tapioca potatoes pulses in stevia by 2025.

These crops collectively continue to represent about 99% of our global crop sourcing by volume.

And we are already.

25% of the way towards meeting this goal.

And in addition, our commitment has been unwavering to educating growers and implementing pest management into over 70% of our agricultural supply by the end of 2027.

As of the second quarter, we have reached a milestone of 57% penetration of our agricultural supply.

The progress we have made in sustainable and regenerative agriculture has already made a meaningful impact and we are committed to ensuring this continues to contribute to our connected life goals.

I will now close my section with an update on cost Mark.

When we introduced our cost savings program in 2018, we set an initial run rate savings target of $125 million over 3 years.

We subsequently increased the savings target twice first to $150 million in 2019, and ultimately to our current stretch goal of $170 million by year end 2021.

Our team's resourcefulness and perseverance resulted in our second quarter closing with a solid $135 million of run rate cost savings.

And we are well positioned to deliver the full cost savings program target as many of the initiatives currently underway reach completion by year end.

Now, let me hand, it off to Jim Gray, who will provide a financial review.

Thank you Jim.

North America net sales were up significantly for the quarter when compared to the prior year.

This was driven by volume recovery from the pandemic impacts on consumer mobility in the same quarter last year.

The pass through of higher corn costs and continued specialty ingredients growth.

These increases were partially offset by the cessation of ethanol production at our Cedar Rapids plant.

North America operating income was $149 million.

Up 48% versus the prior year.

The increase was driven by favorable price mix volume recovery in volume growth and favorable corn margins due to higher than expected co product values.

South America net sales were up 47% versus prior year.

The increase was driven by favorable price mix, including the pass through of higher corn costs and volume growth.

Absent foreign exchange sales were up 45%.

South America operating income was $33 million.

Up 154% versus prior year is for.

Favorable price mix more than offset higher net corn costs.

Excluding foreign exchange impacts adjusted operating income was up 149% in the quarter.

Moving to Asia Pacific net sales were up 33% in the quarter, which includes pure circle results.

Excluding PURA circle.

Pacific net sales were up 17% benefiting from volume growth and favorable foreign exchange.

Asia Pacific operating income was $24 million up 9% versus prior year.

Excluding per circle first quarter operating income was $26 million up approximately $2 million from the year ago period, driven by higher volumes and favorable foreign exchange.

In EMEA net sales increased 35% for the quarter.

The increase was due to higher volumes and favorable foreign exchange.

EMEA operating income was $32 million up 52% for the quarter.

The increase was driven by lower raw material costs favorable price mix and higher volumes.

Let me turn let me turn to the quarter's income statement highlights.

Net sales of $1 billion $762 million were up 31% for the quarter versus prior year.

Gross profit margin was 28% up 70 basis points.

Reported operating income was $222 million and adjusted operating income was $208 million the most profitable quarter for the company since 2017.

Reported operating income was higher and adjusted operating income due to a favorable decision from the Brazilian Supreme Court related to indirect taxes collected from 2015 to 2018, which resulted in a net income gain of $15 million.

Our quarter 2 reported earnings per share was $2.62.

And adjusted earnings per share was $2.5.

Turning to our Q2 net sales bridge.

The sales volume increase of $230 million was driven by higher volumes in all 4 regions and the inclusion of pure circle and K Tec results, partially offset by the cessation of ethanol production in Cedar Rapids.

Favorable price mix of $144 million was largely attributable to the pass through of higher corn costs in North America and South America.

Turning to net sales variance by region in North America, net sales were up 26% versus prior year, driven by volume recovery and growth.

And favorable price mix driven by the pass through of higher corn costs.

South America net sales were up 47% driven by a price mix increase of 33% due to the pass through of higher corn costs.

As well as strong volume growth.

In Asia Pacific net sales were up 33% driven by the inclusion of PURA circle sales, which we show as an addition attributable to volume sales gains.

EMEA net sales were up 35% driven by higher volumes, which includes 2 months of <unk> results.

And favorable foreign exchange.

For the quarter reported operating income increased $109 million.

Adjusted operating income increased $81 million.

The increase in reported operating income versus adjusted operating income is primarily due to a favorable decision from a Brazilian Supreme court related to indirect taxes.

From 2015 to 2018.

And investment related credits.

Which were partially offset by restructuring costs related to customer.

As Jim highlighted operating income was up on all 4 regions.

Corporate costs for the company were flat for the quarter versus last year, driven by the timing of current year investments in global operations and commercial capabilities.

Turning to our earnings bridge on the left side of the page you can see the reconciliation from reported to adjusted earnings per share.

On the right side operationally, we saw an increase of 88 per share for the quarter.

The increase was driven by margin improvement of 40.

Higher volumes of 38.

Favorable foreign exchange of 7.

And other income of the resets.

Moving to our non operational items, we saw an increase of <unk> 5 per share for the quarter.

Primarily driven by a lower tax rate for <unk> per share.

I will briefly cover year to date results.

Year to date net sales of $3.376 million were up 17.17.

17% versus the prior year.

Gross margin was 21, 3% up 80 basis points.

Year to date reported operating income was $52 million.

And adjusted operating income was $409 million.

Reported operating income was lower than adjusted operating income due to the held for sale impairment charge related to the <unk> joint venture in Argentina.

Our year to date reported earnings per share was a loss of $1 and 1 penny.

And adjusted earnings per share was $3.90.

Turning to our year to date net sales bridge, a sales volume increase of $223 million was driven by higher volumes in all 4 regions and the inclusion of pure circle K Tec results parse.

Partially offset by the cessation of ethanol production at Cedar Rapids.

Favorable price mix of $220 million was largely attributable for the pass through of higher corn costs in North America, and South America.

Reported operating income decreased $214 million, while adjusted operating income increased $115 million versus prior year.

The decrease in year to date reported operating income versus adjusted operating income is primarily due to the held for sale impairment charge related to the <unk> joint venture in Argentina.

Operating income was up in all 4 regions.

Year to date corporate costs for the company were down slightly versus last year.

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 an increase of $1.24 per share year to date.

The increase in earnings per share is attributable to the same drivers as mentioned for Q2.

Moving to our non operational items, we saw a decrease of <unk> <unk> per share year to date.

Driven by an increase in net income attributable to Noncontrolling interest of -5.

And a higher tax rate of minus <unk> <unk> per share.

Which were partially offset by a decrease in shares outstanding plus <unk> <unk> per share.

Moving to cash flow year to date cash provided by operations was $129 million.

Cash provided by operations decreased versus prior year, driven by the impact of higher net sales on accounts receivable.

And higher corn costs on inventory values.

Capital expenditures were $102 million down $73 million from the prior year period due to the timing of payments for investments in our growth projects.

At quarter end cash and cash equivalents were $542 million.

While there remains some uncertainty around the degree of economic recovery in the second half of the year given the emergence of new Covid variants.

Our strong first half financial results.

Combined with our team's proven ability to navigate a difficult environment.

It gives us confidence to reinstate guidance for the full year.

Turning to our income statement outlook.

The layout of corn in the year will balance first half favorability with.

With second half core margin compression.

To deliver full year growth.

Our adjusted EPS guidance for 2021 is in the range of $6.45.

To $6.85.

We expect net sales to be up low double digits.

Driven by the pass through of higher corn costs strong price mix and volume recovery.

We expect full year adjusted <unk> adjusted operating income to be up mid single digits to high single digits versus last year.

We expect corporate costs to be up low single digits.

2021 financing costs are expected to be in the range of 80.

To $85 million.

Our adjusted effective annual tax rate is expected to be between 27 and 28%.

Cash flow from operations is expected to be in the range of 500 million to $600 million.

Which includes an increase in expected working capital due to higher expected net sales in corn costs.

Capital investment commitments are expected to be between 330 and 350 million on.

Of which more than $100 million has been invested to drive specialty growth.

We expect total diluted weighted average shares outstanding to be in the range of 68 million to $68.5 million for the year.

Turning to our region outlook.

North America net sales expected to be up 10% to 15%.

Operating income expected to be up low to mid single digits, driven by higher volumes and lower operating expenses.

In South America, we expect net sales to be up 10% to 15%.

And operating income to be up in line with net sales increase.

This reflects the contribution of our Argentina business to the joint venture with our core.

In Asia Pacific, We anticipate net sales to be up 25% to 30% versus the prior year, including pure circle results.

We expect operating income to be up high single digits, driven by higher volumes and favorable foreign exchange.

Finally for EMEA, we expect net sales to be up 15% to 20%.

And operating income to be up low double digits, driven by higher volumes and favorable foreign exchange.

Let me turn it back to Jeff.

Thanks, Jim.

As mentioned in my opening we are very pleased with our strong second quarter financial results.

Our results are particularly noteworthy when recognizing that we have been able to react to the sudden snapback of exceptionally strong customer demand as our teams work closely with customers to meet their changing needs.

Furthermore, our strong topline growth is evidence of the breadth and diversification of both our product line and customer base and the importance of the ingredient solutions, we provide across many different sectors of the food and beverage spectrum.

As highlighted previously our driving growth roadmap serves as our compass for creating value for customers and shareholders.

This most recent quarter provides further evidence of just how much value can be created when the components of the roadmap all performed well together and concurrently.

In closing, we look forward to sharing more about our long term plan for shareholder value creation at our 2021 Investor Day, which is scheduled for Friday November 12.2021.

We plan to hold our Investor day in person and more details related to the location and time will be forthcoming.

Now, let's open the call for questions.

Yeah.

Thank you as a reminder to ask a question you will need to press star 1 on your telephone.

Jai question Pester Punky, 2 standby will be compile the Q&A roster.

Our first question comes from Ben Bienvenu with Stephens. Your line is open.

Hey, good morning, everyone.

Hey, Ben.

That's on the quarterly results.

I wanted to ask.

The first half of the year has been exceptionally strong.

Other than any other as expected.

The full year guidance I think if I had interest.

Think about operating income relative to your prior operating income guidance is higher.

But it does look like things will slow in the back half of the year. So I think yes.

Jim Gray you made some comments around net corn costs.

Meaningful component of it I'm wondering.

If you could tease out the other puts and takes embedded in the guidance relative to how you were thinking about it previously.

Yes sure Ben.

As I mentioned in my remarks.

When we began.

Does take North America, as a region, but higher corn costs are impacting on.

I think all of our regions somewhat somewhat equally.

Within North America.

As we as we enter a year and our contracting season.

We're setting price and about half of our revenues come from on contracts that have a flat price throughout the year. We're.

We're laying on hedges and covering the gross cost of that corn.

More so those hedges are placed in the first half.

As we go through the year, we place hedges to to fill the second half corn risk coverage.

And we're largely covered on our corn risks, obviously corn has moved up significantly.

Second half versus the second half last year corn will be up more than $1 dollar on a half a bushel.

As you can see through looking at <unk> futures.

Co products have also moved up but generally what we're having is we have a price thats fixed on our contracts. We have had a move up in our raw material costs in the second half.

And that leads to the compression in the corn margins and so hopefully our guidance is just helping you with the favorability in the first half due to the how we've laid on our hedges and higher co product values as we move into the second half we have higher corn costs, yes, we still have some higher co product values, but we really have flat pricing.

Which then we will look to that inflation and how we look to the 'twenty 2 season I do think it's also noteworthy Jim to highlight the fact that we started to see the uptick.

In quarters, 3 and for last year in quarter 4 was our highest sales quarter last year. So from a comparator Stan I believe quarter for net sales were up 4% on prior year, which was 2000.2019 pre pandemic.

And South America in particular had a.

Tremendous quarter in quarter 4 last year. So we're up against some tighter comparisons for bet. We're really very good comparisons, which is just showing the momentum I think thats in the business that actually picked up in the second half of the year and just continues onward and.

I don't think it's just all about the corn compression and.

North America necessarily I've got to look at it related to the comparisons in the second half and especially quarter for last year and the momentum that continues in the business.

Yeah, Okay that makes that makes sense. Thank you my second question is as.

As we think about pure circle on the continued integration there if we just paying a bigger picture I'm curious to hear your thoughts.

On the broader adoption rate of stevia.

And you talked about the rest of the receptivity to the fermentation based rent them.

Just to hear how big you think.

These categories within the <unk>.

Sweetener category overall can get in your mind and just the long term view of that business.

Yes. So if you remember at Cagny back in February we talked about the size of the total addressable sugar reduction ingredient market was estimated at $5 billion by 2026 and the size of the global Steve Your market. We estimated by 2028 to be $1.6 billion. So we think theres a tremendous.

Headroom for growth with these products and.

What we are particularly excited.

Excited about is the fact that when it comes to.

A natural sweetener or a perceived the natural sweetener, a high intensity natural sweetener and alternative to artificial high intensity sweeteners that.

Our product offering is the broadest in the industry. When you think about pure circles leaf extract stevia.

The success that we're seeing and the investments, we'll be making to expand our capabilities and bio converted Reb M, which is taking a leaf and enzymatically converting it into the better tasting <unk> M.

And and then the fermented Rabanne, which has just tremendous benefits from both a cost and sustainability platform.

And we couldnt be aligned with a better technology partner in Amyris.

On a leader in synthetic biology, so on.

All 3 of those capabilities are coming together at the same time and different customers have different preferences. When it comes to labeling when it comes to the nuances of how to formulate.

Sugar reduction solution.

For a particular product and so we just think this gives us a pallet of capabilities to choose from.

To solve.

Sugar reduction.

<unk> and where we're seeing that right now and we're very excited about the prospects.

That's great. Thanks, so much for the questions and answers and best of luck in the back half for the year.

Thank you thanks Pam.

Thank you. Our next question comes from Robert Moskow with Credit Suisse. Your line is open.

Hi, Thank you.

Jim and Jim when I look at the math implication for the back half of 2021, I think it's an EBIT margin below 10%.

And.

Totally understand how the timing of the net corn costs flow through.

But as you look to pricing in 2022.

Is this margin structure in the back half reflective of a new base like a lower base of the business because it's never really been below 10 before or is it just kind of like a reset year in 2022, where you will take pricing to the extent that the market affords and supply demand conditions afford it.

And then I have a follow on.

Yes, I don't think it's a I think I think I don't think its a new.

Structural level of profitability I think that.

These.

These evolutions and in a year happen in our industry from time to time just related to the way that.

Corn cycle has moved in this particular case and the way our business model tends to operate but we are right now related to inflationary increases that everyone is experiencing moving up prices, where we can now even pre contracting and <unk>.

Certainly when you have inflationary increases and fleet and freight and manufacturing costs Thats. An example, right now of where our operating model allows us to pass through the majority of freight increases and we're doing that right now passing those on in accordance with our contract terms.

In addition.

When it comes to.

Other inflationary type inputs of chemicals and packaging contracting will address that.

And we intend to pass those through.

And pricing this year, but right now it's early obviously to talk about 2022 contracting terms, Jim if you want to comment Hey, Rob just to also kind of level set.

No.

Last year early November.

We're largely completing our contracting.

Within the U S can North America market.

There wasn't.

Any light at the end of the tunnel with regard to effective vaccine.

And there was impact on on particularly syrup volume in U S, Canada with regard to foodservice.

Quick serve restaurants, as well as other foodservice establishments being down move forward 12 months and we've seen kind of a rapid.

Change in balance back both in all overall foodservice in the last 2.

Quarter, but also obviously quick serve restaurants are significantly up both in traffic as well as dollar sales youre seeing a poll for.

For fountain drinks youre seeing a pull for beverages, which is largely leading to improved volume recovery in some of those tariffs. So that's having on industry impact right, there's just better utilization.

The industry as we head into the second half and so I think with better utilization and the fact that many of our customers are seeing in taking price increases themselves I think the environment sets well sets up well for us to recapture on our price or our increase in our corn cost.

Got it got it.

And then maybe a deeper dive into you said half your business is fixed half is kind.

On a variable.

Is there a difference.

In that mix for specialty versus the rest of the business is is your specialty business also half fixed half variable.

No no not at all the majority is fixed yes.

The vast majority vast majority is fixed.

Higher price point per ton.

And higher value add and tend to be more of a flat flat price yes.

Okay, and so so most of it is fixed but you also said that there is some freight cost kind of writer.

Writers in the contract where if your freight costs are rising higher you can price up for that this year.

Yes, if you remember Rob 2018, we got caught in relationship to.

A sudden spike in freight and all of that has been corrected so what we're saying is.

Right now.

We're passing through the majority of those freight increases to customers in accordance with our contract terms.

Okay Alright, thank you very much thank you.

Thank you. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open.

Yes, thanks, good morning, everyone.

Good morning, Adam.

Good morning.

I guess first question, just making sure we're clear on the on the corn cost side on the lay out.

Especially in third quarter I am just trying to think about the cadence between the 2 periods and you provided some comments on South America, having a particularly challenging comp, but in North America on corn is basis, a bigger issue.

Third quarter that we've got to be mindful of as we think about the layout of the op income for for the second happened in North America.

Yes, Adam.

And just for everybody.

There's just there's a couple of components when we think about what net cost of the corn to us obviously, the gross cost of corn.

Plus or minus the hedges.

The basis, which is really the cost from the farmer thats paid to the intermediary to get the corn to our facilities.

And then and then the value of the co products that we sell so we've spoken to the fact that we've hedged most of our gross corn, we think our hedge program is working well I do see a bit higher basis in Q3 than in Q4, I do think that second half basis.

Is elevated relative to the first half.

And then.

You can see and we've all seen that we've had higher co product values.

And we think that those will come.

Come down a little bit from their peaks.

But those will continue to contribute I think positively offsetting some of the higher gross corn costs that we're experiencing in the second half as well as part of the basis for the basis is 1 of the factors Adam.

That's impacting Q3, a bit more than Q4.

Alright.

That's really helpful and then.

On specialties.

I know you gave the global growth for the for the second quarter and that did have the impact of pure circle and.

And the <unk>.

What was organic specialty volume.

In the second quarter, and maybe as we think out into 'twenty 2 given the ramp up on plant protein some of the maturing of pure circle within the portfolio.

Any way at this point have to frame.

Incremental year on year on a contribution from that from those businesses next year.

Yes sure.

Just.

Real quick in the notes as Jim was speaking.

On a pure circle sales or highlight.

Highlights in my notes in the region performance for Asia Pac So we break out.

The net growth there and so all of your circles in the Asia Pac data number and then we've talked to on excluded and then <unk>. It's early days.

It's out about 5 points.

A little bit more positive to the EMEA specialty performance for for Q2.

We had very strong double digit volume growth in specialties across all platforms.

<unk>.

A lot of that was the drive the pullback of.

Demand increased for.

Foodservice.

And the.

The fact that our products find their way into those products as well as packaged foods at retail.

Okay, and then as we're thinking about 'twenty 2 with some of the the complaint protein capacity that's now.

That's in Ram process, now kind of year or 2 peer circle, where the EBIT contribution on that business has been pretty modest to date.

Yes.

Help us think of kind of.

Reasonable baseline for step up in contribution there.

I think we see steady increases in both sales and profitability from pure circle and we have a goal by the end of this year to be exiting the year at breakeven for that business and so the momentum and that excludes obviously any contribution from <unk>.

The partnership that we have with Amyris.

So.

We anticipate going into 'twenty 'twenty, 2 that we're going to see incremental both sales and profit contribution coming from.

Sugar reduction and pure circle, and especially when it comes to plant based proteins. So thats 1 of the big toggles that should draw.

Drive incremental.

Price mix as it relates to.

Specialties in 2022, and I guess, we're going to be able to communicate a lot more related to that specific question at the 2021 on Investor day in November.

We firmly believe that circle.

As it continues to drive that revenue growth in the topline along with the mix the very favorable mix that Jim highlighted in his comments that thats going to be on an op op income margin basis.

Very attractive in relative and similar to what our specialty op margins op income margin look like so we're progressing that as Jim mentioned, we will get to breakeven here by the end of 2021, you will see a step up in 2022, well on our way I think in 'twenty 3 'twenty for to that type of specialty op income margin.

Got it.

That's really helpful I'll pass it on thanks.

Okay.

Thank you. Our next question comes from Ken Zaslow with Bank of Montreal. Your line is open.

Hey, good morning, guys.

Hey, Kent.

Europe, South America profitability is coming back to I wouldn't quite payback the good all day, but it definitely moving in that direction can you can you frame.

I know a couple of years ago, you kind of frame, how you thought it would kind of get back to a certain level relative to the history. It seems like youre getting closer to the number can you talk about the long term.

Opportunity, there and how big that operating profit growth can get to say in the next 2 to 3 years or is it kind of Peter out over the next couple of years it.

Just kind of give that framework for that that's a hard business to kind of frame.

Yes, Ken first of all thank you for for the question about South America.

It's worth to note that this is the fourth consecutive quarter of year on year operating income growth and it's the second highest quarter performance in nearly a decade and South America.

And as I've been saying in prior calls we're very proud of the work that has been done by the team in South America over the last 3 years too.

Get their cost structure in line and eliminate waste.

As well as increased efficiency.

Our manufacturing our operations there are running exceptionally well and also get close to customers to drive specialties growth, which again, we called out South America, specifically for specialties growth is the highest performing region this past quarter.

As it relates to the quarterly results. The net sales in South America were driven primarily by pass through of higher corn costs and also benefited from higher volumes in Argentina, and Brazil for beverage and brewing ingredients respectively.

Commented in the past also just in relationship to foreign exchange devaluation in our ability to price through.

Price increases.

And this quarter again was another example of those.

Our pricing muscles in the center of expertise around pricing in a region. It really calls for it and being able to deliver.

South America as first half operating income benefited from really well executed contract management and corn hedging as well as higher co product recoveries.

And they're just doing a very good job down there and so I think the prospects for.

For the for a team that knows the region exceptionally well has gotten closer to customers.

<unk> positions us to continue to find pockets of growth continue to innovate and be a very strong player down there in the future, but thanks for the question because we are very proud of the performance in South America.

So so the idea of how that is going to grow in the future.

How are you thinking about that debt.

Again, I think that your preliminary guide just trying to figure out maybe a little bit more on duration. Do you think this is the growth rate is still sustainable do you think as you get more special deal. We've seen that 1 day, we can get to that $200 million level and like for 5 years, and just kind of framing that kind of what I'm trying to get at thank you yeah, Yeah, No I think that.

What we see is steady year on year progress building on what's already been achieved.

From a standpoint of.

Increasing the mix more towards specialties, which again is a major strategic area of focus.

And continuing to find ways to renovate our position in the core.

And grow with.

Increased foodservice consumption and remember when we all have to remember that these results are in spite of a region thats been hit very very hard by the pandemic.

So when that begins to lift I believe we will see even more opportunity for continued sustained growth there based on the strength of our market position and based on.

How the team has learned to execute under very difficult circumstances. So.

I think that we can we can expect steady year on year long term growth.

I would call out again, the exceptional comparison that we're going to see in quarter 4 of where South America performed a quarter for last year.

For this quarter for it that's an extremely tough comparator, so but long term the growth prospects.

For South America, I think for incremental steady growth.

Is it still quite positive, yes, hey, Ken I, just wanted to add though that when you look back historically.

2011, 2012 era.

You had some performance in Argentina that really contributed to that overall $200 million number that youre referencing.

Rinsing and Argentina has had other.

Country and economically along with the value of the peso has had a set of challenges, obviously, which we've highlighted over the last couple of years.

If you net that out.

The remaining business so Brazil on all of our countries in the Andean that business is net net much better and much stronger than kind of where we've been and that's a really good point, Jim and so what James calling out is back in the high watermark of 2011, and South America, Argentina is.

Net corn was virtually zero just related to the export policy and export tariff policy of the country at the time so in a sense they were anomalously high on.

On a mostly high profitability coming out of Argentina at a time and then of course, we have the <unk> joint venture right now, which will be another factor to consider as it relates to the Rebase, Inc of our South America outlook and again, it's another thing that I think will bring clarity on.

As we go into the 2021 Investor day.

Okay. Thank you very much.

And our next question comes from Seth Goldstein with Morningstar. Your line is open.

Thanks, and good morning, everyone.

I appreciate the question just 1 quick 1 on plant protein sales so they more than doubled in the quarter has your near term outlook changed for the capacity ramp up and the speed that you can do that and do you see an opportunity to hit the $200 million sales target earlier than expected.

So what we said at Cagny was we expect net sales of $130 million by 2024 with operating margins of 11% to 13% we have a.

An internal stretch target would be.

Even larger than that but right now.

We're very pleased with the progress with pulse based flours and concentrates and the sales ramp up there, particularly from our Vanscoy Saskatchewan facility.

And.

We're still very bullish on the prospects for the Pea protein isolate and the whole formulation capabilities that the.

Sweet of.

Of plant based protein type ingredients offers for alternative dairy and alternative meats and our pipeline for customer projects. Just continues to be very strong and we anticipate sales to continue to develop in the second half.

So we are remaining very bullish on the prospects for plant based proteins.

And Seth as we've mentioned as.

As we start a new facility up and we really plan for that capacity to be taken up over kind of a 4 year period.

1 other important things to recognize is that as our technical solutions team on our sales teams are working with customers. They are making sure that the ingredients and the specs around the ingredients are really fitting into.

What the customer wants so that we're not getting customer churn, we're really actually meeting and exceeding customer expectations. Early on and then we have the ability to continue to supply that that same quality in stack of on ingredient into our customers and so we want to make sure that we're taking each of.

Of these opportunities on our pipeline and we are building that sort of that.

We're building good really solid customer relations into novel ideas, where we think the islip for concentrates on the flowers will play a key role and that ingredient formulation that recipe for those products going forward.

I appreciate the detail thanks for taking my question.

Sure.

Thank you so much.

Showing any further questions at this time I would now like to turn the call back over to James Ali for closing remarks.

Okay.

I want to thank everybody for joining us. This morning, we look forward to a time when we can see each of you again in person.

And until then thank you for your continuing interest in ingredient and we hope you and your families remain safe.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Okay.

Okay.

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