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Executives

John Barry – Vice President Investor Relations

Ilene S. Gordon – Chairman of the Board, President & Chief Executive Officer

Cheryl K. Beebe – Chief Financial Officer & Vice President

Analysts

Analyst for David Driscoll – Citi

Heather Jones – BB&T Capital Markets

Christine McGlone – Deutsche Bank Securities

Ann Gurkin – Davenport & Company, LLC.

Christine McCracken – Cleveland Research Company

Ian Horowitz – Rafferty Capital Markets

Kenneth Zaslow – BMO Capital Markets

Vincent Andrews – Morgan Stanley

Corn Products International, Inc. (CPO) Q4 2009 Earnings Call February 2, 2010 8:30 AM ET

Operator

Welcome to the Corn Products 2009 end of the year and fourth quarter earnings call. Today’s call is being recorded. At this time I will turn the call over to Mr. John Barry.

John Barry

Welcome to Corn Products International’s conference call to discuss our 2009 fourth quarter financial results and guidance that we announced earlier today. I’m John Barry, Vice President of Investor Relations for Corn Products International. Joining me today to lead the call are Ilene Gordon, our Chairman, President and Chief Executive Officer and Cheryl Beebe, our Chief Financial Officer.

This is an open conference call simultaneously broadcast on our website of www.CornProducts.com. The charts for our presentation this morning can be viewed and are downloadable from our website and they are always available about 60 minutes ahead of our conference calls. Those of you using the website, broadcast mode for this conference call are in listen only mode.

Ilene Gordon and Cheryl Beebe will deliver this morning’s presentation. Moving on to the agenda, Ilene will provide a 2009 overview, Cheryl will present the financials for the fourth quarter and full year with appropriate analysis and flavor and Ilene will then provide an overview of the business outlook and guidance for 2010 and general strategy update. Following that we’ll move on to your questions.

As a reminder, our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties. Actual results could differ materially from those predicted in the forward-looking statements and Corn Products International is under no obligation to update them in the future or as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed today or in this morning’s press release can be found on the company’s most recently filed annual report on Form 10K and subsequent reports on Form 10Q and 8K.

Finally, statistical and financial information and reconciliations of non-GAAP numbers from this presentation are also available on our website at www.CornProducts.com and as you will see are included as an appendix to this morning’s slide presentation. I will now turn the call over to Ilene.

Ilene S. Gordon

I want to start by saying that I’m very proud of how our team and business performed in 2009 in the midst of unprecedented challenges, the global recession, our worldwide credit crisis, volatility in currencies and commodity prices and uncertainty over volume and pricing strength. While we had no control over market conditions we remain focused on those elements that we could manage, controlling cost and preserving financial flexibility while maintaining our commitment to growth.

We took advantage of our unique NAFTA position in North America to gain plan efficiencies and our operations around the world took numerous steps to reduce or avoid costs. In this challenging environment, we did not neglect the balance sheet. We managed our working capital, reduced our average days sales outstanding, days inventory outstanding and speeding up the cash conversion cycle. While we controlled our capital spending giving priority to projects in support of our future growth.

Our proven business model and prudent risk management policies allowed us to maintain a strong cash position and lower our debt by $322 million. We maintained our dividend and protected our BBB investment rating. We weathered the storm in the first half of 2009 and excluding the after tax impact of impairment and restructuring charges taken in the second quarter remained profitable.

In the second half we benefitted from lower corn costs, strengthening foreign currencies, improved co product values and volume growth in South America and in Asia. In fact, we experienced full year-over-year volume growth in South America which is a testament to the strength of our business in that region. We also saw the rebound of our South Korean business. As a result, in the second half of 2009 we delivered the fourth and fifth best quarterly EPS numbers in our history as a public company.

I will now turn the call over to Cheryl for a review of the financial results for the fourth quarter and the full year.

Cheryl K. Beebe

The fourth quarter continued the sequential improvement we saw throughout the year. I would like to point out a few things. First, this is the first quarter we have seen positive volume growth in all three regions since the third quarter of 2008. The volume performance was led by strong sales to the beverage, brewing and paper and corrugating industries in all three regions. Second, we saw the major currencies revalue i.e. the Brazil Real, Canadian Dollar and Korean Won. Corn oil, feed and meal prices have rebounded a bit from the first nine months and last but not least our South Korean business turned profitable.

With that said, let’s go to the summary income statement. Fourth quarter 2009 net sales increased 7% over the same period last year on improved volumes and favorable foreign currency translation despite an 8% increase in net corn costs per ton, gross profit increased 15% to $163 million from $141 million last year reflecting the improved volumes and lower manufacturing costs per unit.

Operating expenses for the quarter were $66 million, down 1% or $1 million from the same period last year. The operating income for the quarter was up 55% to $99 million compared to $64 million last year. 2008 Q4 operating income included $11 million related to expenses associated with the terminated merger with Bunge. Net financing costs were $6 million up $1 million from last year. The $6 million reduction in interest expense was offset by a $7 million unfavorable swing in foreign exchange gains and losses.

The fourth quarter tax rate was 38.2% versus 17.2% last year. Changes in the effective annual tax rate are the result of changes in the worldwide tax mix and recording of certain discrete items. Net income for the quarter was up 21% to $56 million or $0.74 per diluted common share compared to $46 million or $0.61 per share last year. Included in the 2008 fourth quarter results was a -$0.09 per share impact from expenses related to the terminated merger with Bunge.

Looking at net sales by geographic segment we see North America net sales declined about 2% or $8 million against the same quarter last year while South America increased 21% or $52 million. Asia/Africa increased 16% or $15 million for a total company increase of 7% or $59 million. The decline in North America’s Q4 net sales resulted from negative price product mix of about 4.4% largely due to lower co product values as volumes improved almost 1% reflecting strong HFCS 55 sales to the beverage industry in Mexico and the stronger Canadian dollar added 2.2%.

South America’s 21% sales improvement resulted from stronger currencies which added about 17% and 12% better volume which grew in every country and was led by the strength in the brewing market. Price mix was a -7.8%. Asia/Africa sales increase of 16.1% resulted from a 15.9% improvement in volume reflected improved HFCS 55 sales to the Korean beverage industry and strong starch sales to the Chinese paper industry. Favorable foreign currencies were largely offset by lower price mix.

Fourth quarter 2009 operating income improved 55% to $99 million from $64 million last year. The 2008 operating income included the negative $11 million impact of cost associated with the terminated merger with Bunge. Operating income improved in every region and was led by a $14 million or 31% improvement in North America. The North America results were largely driven by improved gross profit margin and lower operating expenses. South America’s operating income was up 22% or $8 million from Q4 ’08 due to better volumes and favorable currency translations. Asia/Africa’s operating income doubled to $6 million from $3 million in the fourth quarter of 2008 and reflects the improvement in our South Korean business.

Moving on to our estimated sources of diluted earnings per share, the $0.13 EPS improvement in the fourth quarter of 2009 resulted in solid performance from operations which added $0.39 partially offset by a -$0.26 from the change in the effective tax rate. Price mix contributed $0.27 offset by a - $0.13 from co product prices, foreign currencies added $0.09 and volume contributed $0.08. Other income/expense added $0.08 reflecting again the impact of the cost associated with the terminated merger.

I will now move on to the full year results. Net sales for 2009 were $3.7 billion down 7% from $3.9 billion last year reflecting unfavorable currency translation, lower volumes and lower co product prices. Gross profit margin declined to 14.2% from 17.9% last year. Operating expenses were down $27 million or 10% from last year declining to 6.7% of net sales from 7% in 2008. Operating income before impairment and restructuring charges was $278 million down 38% from last year.

Financing costs increased 28% to $38 million from $29 million last year. The increase in financing costs was attributable to an unfavorable swing in foreign exchange gains and losses of $15 million as net interest expense was down $6 million or 16% last year. Full year net income and diluted earnings per share were down 85% to $41 million and $0.54 respectively from $267 million or $3.52 per share last year.

Turning to net sales by geographic segment, we can see that the sales were down in every region reflecting the impact of unfavorable currency translation, lower volumes and lower co product values. Unfavorable foreign currency accounted for 4.7% of the change in net sales, the 2.7% volume growth in South America was offset by lower volumes in North America and Asia/Africa resulting in a 2% decline in net sales. Price mix was marginally down from last year as $134 million decline in co product prices offset improved head product price mix in North America. 85% of the co product decline was in our North American operations.

Moving to operating income by geographic segment, we see that the biggest decline in OI came from North America and reflects the impact of lower co product prices and weaker volume. The decline in South America’s operating income resulted primarily from unfavorable currency translations. Asia/Africa’s operating income declined 56% reflecting lower gross profit margins, unfavorable currency translation and lower volumes.

Looking at the estimated sources of changes in EPS from $3.52 last year to $0.54 this year, we can see that the operational changes accounted for $1.39 of the reduction. $1.11 of which related to lower price mix largely attributable to lower co product recovery, $0.22 to unfavorable foreign currencies, $0.08 to lower volumes. Non-operational changes accounted for a 12% reduction in EPS mostly due to a higher effective tax rate and higher financing costs. As I previously stated the higher financing cost was due to an unfavorable swing in FX gains and losses as 2009 net interest expenses were down from 2008. Finally, the negative impact of impairment and restructuring charges taken in the second quarter of 2009 was $1.47.

Turning to the cash flow highlights for 2009, we can see the excellent performance we’ve generated $586 million from operations reflecting the improvement in working capital and the non-cash nature of the $124 million write off of impaired assets taken in the second quarter. We saw a positive swing in our working capital number of $257 million. As we fulfill the business contracts for firm price business we recovered $232 million of our margin accounts.

Our net investment and fixed assets was $141 million, cash used for financing activities reflect the $332 million applied to debt repayment and $45 million in dividend payments. Our key metrics show that our return on capital employed in 2009 was 7.1% down from 13.1% last year. Debt to capitalization improved to 22.8% down from 36.1% last year reflecting the strong cash flow and debt reduction. The debt to EBITDA on an adjusted basis for the trailing 12 months was 1.3 times versus 1.5 times last year.

Operating working capital as a percent of net sales was 11.6% versus 11.1% last year. On a dollar basis operating working capital was $427 million down from $438 million last year. Net debt was $369 million versus $750 million last year. I will now turn the call over to Ilene for our 2010 outlook and a strategy update.

Ilene S. Gordon

As we announced this morning we expect 2010 diluted earnings per share to be in the range of $2.25 per share to $2.60 per share, an increase of 12% to 29% over the $2.01 earnings per share we earned in 2009 excluding the after tax impact of restructuring and repairmen charges. We expect to invest between $175 million and $200 million in capital projects in 2010. Approximately one third of the 2010 investment will be in projects carried over from 2009 including our high intensity sweetener project and expansion projects and expansion projects in Pakistan and Argentina. Major new investments will include growth and cost savings projects.

As we look to each of our regions we expect the North America environment to remain challenging. We largely completed contracting by the end of 2009. We expect higher gross profits and operating income resulting from better volumes and manufacturing efficiencies. We anticipate lower net sales reflecting lower corn costs and a low single digit decline in spreads. We expect volumes to improve largely due to sales of HFCS to Mexico.

Our outlook for South America remains positive and we expect continued growth in the region led by brazil. As economies within the region improve we expect volume growth particularly in the brewing market and price mix improvement with a shift to more specialty products. We expect currencies to remain stronger than in 2009. We also anticipate higher energy cost due to increased demand as these economies recover.

We also expect improvement in Asia/Africa driven by volume growth as the region’s economies recovery. We should see continued HFCS volume recovery in South Korea and the economics of HFCS 55 versus sugar remain positive. We anticipate an easing of the energy shortage in Pakistan in the second half of 2010. Overall, profitability should improve on lower corn costs and improved plant utilization rates and stronger currencies.

Finally, before moving on to your questions, I want to give you a brief preview of our updated strategy which we will expand on at our March 23rd investor day. As I mentioned on previous occasions, during 2009 we undertook a detailed review of our business. We looked at where we generate our economic profit, the efficiency of our employee capital and our opportunities for growth and we challenged and tested long held assumptions.

While we suffer some volatility based on changing commodity prices and with 70% of our business outside the US fluctuating foreign currencies as well. This business consistently generates strong cash flow. Bottom line, we believe we have a good winning business model. Our updated strategy therefore will build on our existing business models. We plan to add more focus to product innovations and development activities within specific markets.

We will invest to expand our ingredient portfolio and extend our solutions provider position. Lastly, we recognize that we have some underperforming assets. We will address those underperforming assets getting them to generate an acceptable level of profit within a reasonable period or we will redeploy the assets and resources to areas where we can achieve an acceptable return. Thank you. Cheryl and I will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Analyst for David Driscoll – Citi.

Analyst for David Driscoll – Citi

I just wanted to know it seems like in your prepared comments obviously volumes in North America showed a nice improvement from the first three quarters but it seems like most of the delta there was driven by improved results from Mexico. I just wanted to know what was your outlook for 2010 in terms of the US in terms of demands from both the beverage and the industrial side? And also, what would be your outlook for the direction that utilization rates would be headed in 2010?

Ilene S. Gordon

Well, I think that in general we expect a little improvement in North America, the US, more in the second half than the first half. We’re not seeing any major signs of growth at the moment so our forecast is based on some improvement in the second half. I think that the utilization rates will also be similar to where we are now as the ability to ship high fructose corn syrup down to Mexico is offsetting any volume weakness in the US.

Operator

Your next question comes from Heather Jones – BB&T Capital Markets.

Heather Jones – BB&T Capital Markets

I just wanted to go back to the US volume question, I just wanted to make sure I understood that currently you’re not seeing much improvement in US volumes but you anticipate some growth in the back half of 2010?

Cheryl K. Beebe

I think what Ilene was saying Heather was that for North America we expect to see volume growth and that’s been driven by the beverage industry. However, in the US we would expect to see basically flat to down a couple of percentage points in the HFCS market.

Heather Jones – BB&T Capital Markets

What about overall including the industrial side in the US? And, you’re saying flat to down a couple of percentage points, is that consistent with what you’re seeing right now in the US on the beverage side?

Ilene S. Gordon

Yes.

Heather Jones – BB&T Capital Markets

So that’s a full year expectation?

Ilene S. Gordon

Correct.

Heather Jones – BB&T Capital Markets

What about the industrial side?

Ilene S. Gordon

I’d say on the industrial side we also aren’t seeing much growth. It’s interesting if you look at the corrugated shipments data, November, December were rather positive versus earlier in the year but I think the expectations are for not a lot of growth during the year. So, we would expect our sales to the industrial segment not to be growing very much in the US during 2010.

Heather Jones – BB&T Capital Markets

Going to South America, that volume growth for the quarter was very impressive and I understand was driven by it sounded like that was broad based strength corrugated, brewing, etc. Is that a fair statement?

Cheryl K. Beebe

It was across the board.

Heather Jones – BB&T Capital Markets

Finally, on the North America contract pricing, the commentary regarding the spreads down slightly so essentially your net corn costs were down but pricing was down a little more than your net corn costs were?

Cheryl K. Beebe

Correct, our net corn costs came down as well as our selling prices.

Operator

Your next question comes from Christine McGlone – Deutsche Bank Securities.

Christine McGlone – Deutsche Bank Securities

My question on Mexico, volumes really started to pick up and the outlook for ’10 looks very good. I recall when you had lost that business a while ago with the tax that that had volume carries a rather high volume. I don’t know if you can comment on that, how the margin is on the Mexico business relative to the US and Canada? Then second to that, how much of that is sustainable because I think some of the bottlers actually invested cap ex [inaudible] so I would think that business could maybe last even when sugar prices come down. I wanted to get your view on that.

Cheryl K. Beebe

Christine I don’t think I can answer your question with regards to what’s the margin of our Mexican business versus our US. But what I will comment on is that we do concur with the fact that they’ve made investment and can blend at higher rates and we do believe that over time it’s sustainable.

Christine McGlone – Deutsche Bank Securities

But Cheryl would you say if there’s still a differential or can we use back in ’02 as a reference or has it normalized since then?

Cheryl K. Beebe

It’s almost impossible to give you the reference back to 2002. The business has changed, the amount of production, the exchange rate, the price of corn, I don’t think I can answer the question for you.

Christine McGlone – Deutsche Bank Securities

Then just turning to South Korea, you had the big write off and now it seems like it is recovering and I’m curious is it just the differential between sugar and fructose that’s driving the recovery? Is it short term or is there something else going on there that could carry forward?

Cheryl K. Beebe

What we did was write off the goodwill, we did not write off our fixed assets and you are absolutely spot on that it’s the differential between sugar and corn. We’ve seen sugar prices as you know up at unbelievable levels, 29 year highs and we’ve also seen corn abate from where it was back in 2007/2008. So the economic around importing corn in to Korea have improved and the pricing relative to pricing relative to sugar has turned favorable.

Christine McGlone – Deutsche Bank Securities

I guess this last question, in terms of the quarter when you had given us guidance in the third quarter, what was better in the fourth quarter than you expected in terms of co product, fx, volumes, fixed costs, absorption, if you could kind of go through like you normally do in terms of the swing factors.

Cheryl K. Beebe

Sure, the swing factors that performed better than what was anticipated was driven by volume across all three regions, we had slightly better foreign exchange and we saw a slight improvement in the co product value. But, the big driver there was the volume.

Operator

Your next question comes from Ann Gurkin – Davenport & Company, LLC.

Ann Gurkin – Davenport & Company, LLC.

Ilene I was wondering if I could start with one of your strategies in terms of product innovation, if you can give us anymore detail on which area you’re most focused on or is it across the portfolio?

Ilene S. Gordon

Well, I think obviously we want to be market focused and we’ll talk more about that in March but we’re seeing opportunities in the health and nutrition area just like our customers are so that would be a range of products sweeteners and starches that really address those types of consumers who were looking for a certain profile of sweetness, calories and texture. We obviously have a few products like that now with our GTC area but we are going to be looking to expand in those different products. We’ll talk more about that in March. I just think that’s a big opportunity.

Ann Gurkin – Davenport & Company, LLC.

Then several times in your comments you’ve referenced improved manufacturing efficiencies. Can I just get some more detail on that? And, is that going to be part of the component in 2010?

Ilene S. Gordon

Well I think one thing I would say is you see the volume up in the fourth quarter, obviously more volume helps our efficiencies at our factories and we run our North America as a North American system so that obviously gives us more opportunities to be more efficient. I think as we look at 2010 it’s important that we have cost efficiency all the time and so I think both as a function of cost investments that we’ve made for cost reduction as well as more volume and throughput should allow us to have cost efficiencies on the order of 2% to 3%.

Operator

Your next question comes from Christine McCracken – Cleveland Research Company.

Christine McCracken – Cleveland Research Company

You had commented that you’d seen an improvement I guess in the industrial starch market specifically in South America that is a little better I think than we were looking for and some of your competitors had commented they really hadn’t seen that kind of improvement. I’m just wondering is there anything unique about that business?

Cheryl K. Beebe

In South America, Asia/Africa we don’t typically see the normal competitors that we would see in the United States. I think just the fact that if we take Brazil, the economic activity is pretty robust and that helps to drive paper and corrugating and then in China it’s the opportunity in the paper industry.

Christine McCracken – Cleveland Research Company

On a relative scale I’d say Brazil is the bulk of that I’d guess or is kind of becoming a bigger piece?

Cheryl K. Beebe

On an absolute or on a percentage change? I think on a percentage change the biggest one came out of China but on an absolute because China is so small it would be Brazil.

Christine McCracken – Cleveland Research Company

Then you also commented in the slides that you had renegotiated some of your supply costs. I’m wondering could you provide any more color on that? Maybe I missed that in the past but that seemed new to me.

Cheryl K. Beebe

I don’t think we’ll break it down in to the specific chemicals or supplies but if you think about coming in to 2009 contracts would have been negotiated perhaps 2007, 2008 and just the high price of energy that would have impacted chemicals and supply costs. So, we’ve been able to renegotiate those to lower levels in 2010.

Christine McCracken – Cleveland Research Company

So they’re annual contracts I assume?

Cheryl K. Beebe

In some cases they are annual and in some cases we had multiyear.

Christine McCracken – Cleveland Research Company

As energy prices go back up is that a risk or have you locked them in for 2010?

Cheryl K. Beebe

Well, as we have talked about in the past in our international operations because we do more spot or monthly type business we expect the business model to be able to price to recover that. In North America which is more of the firmed price orientation we lock in our energy costs on a year-to-year basis and the recovery then depends upon what the dynamics in the market are. We’re looking at higher energy costs in South America and Asia/Africa in 2010 but lower in North America.

Operator

Your next question comes from Ian Horowitz – Rafferty Capital Markets.

Ian Horowitz – Rafferty Capital Markets

Can you just talk to me a little bit about the US HFCS demand and the continued decline in volumes when it seems like the rest of the world is looking at this from a sugar to fructose price spread. Is this a decline primarily because of end products switching from soft drinks in to water products or something like that? Or, is this more a switch from HFCS to sugar? How much do you think this switch from HFCS to sugar that we’ve heard about over the last couple of weeks is long lasting?

Ilene S. Gordon

We look at the same data that you do and the data that I read is that certainly the younger generation has a desire to focus more on water, or energy, or fruit drinks as opposed to soft drinks so I think there’s some of that going on right now. Then of course I know that the brands from our customers they’re all trying to compete and gain market share and people use different methods to do that. I think of course we can’t deny the trend that people want to take their calories in different ways and be more healthy so I think you’re going to have a combination of both trends to deal with.

But when I talk to my customers, and I went to a meeting and you listen to Coke, they believe there are different groups that want their calories and sweetness in different textures and taste and that they want to serve each group. So therefore, the demand for high fructose will continue to be there as will demand for other sweeteners especially those derived from let’s say the Stevia plant or those that have other sweetness profiles. I think it’s a combination but right now it’s the younger generation looking for more water and energy drinks.

Ian Horowitz – Rafferty Capital Markets

When you talk to your customers and you talk about this switch from HFCS to sugar in the current price environment do you understand it that their expectation is they’re going to move that price through to the end market or they’re going to absorb the spread in their own costs of goods and lower their margin?

Ilene S. Gordon

I would not have that discussion with my customers so I would not know their intent. I just know that they’re trying to grow brands. I think it depends on the company, and the brand and the strategy.

Ian Horowitz – Rafferty Capital Markets

Ilene, you mentioned Stevia, can you give us an update on how that’s going with you guys?

Ilene S. Gordon

Well, as we announced we’re building a factory in Brazil to produce the product which should be online at the end of the year. At the same time we do have products in samples that we’re testing with customers to commercialize. We’re working with many customers to formulate products that will work in their product profile. So, we’re excited about what we see in terms of consumers’ acceptance and some of the trials that are going on in different food and beverage products.

Operator

Your next question comes from Heather Jones – BB&T Capital Markets.

Heather Jones – BB&T Capital Markets

A couple of questions, first on the cap ex side, can you give us an idea what a normalized annual cap ex rate will be going forward?

Cheryl K. Beebe

You’re probably look at around $150 million Heather assuming that there’s continued economic growth. As you can see in South America we have over the past several years invested, everybody is expecting Brazil, Argentina and Columbia to have good economic growth so we’ll continue to invest in that part of the world. We have talked about we see opportunities in Asia and there’s our North American business where there’s opportunities for product line expansions, we would invest there. [Inaudible] cap ex is typically around $50 to $60 million.

Heather Jones – BB&T Capital Markets

The Cadbury Kraft combination, are they both customers of CPO’s?

Ilene S. Gordon

Yes they both are and depending on the region different variance of strength.

Heather Jones – BB&T Capital Markets

Do you anticipate any meaningful impact from that combination to your results?

Ilene S. Gordon

No. I mean we continue to be a supplier to both and help them formulate new products and grow.

Heather Jones – BB&T Capital Markets

My other question is the switch from HFCS to sugar that we’ve been seeing I wonder if you have a sense of how much of that is being driven by the customers such as Pepsi, etc. and how much could be driven by the retailer. The reason I ask is we’ve heard that Wal-Mart – that HFCS was something it wanted to do something about that the public reception wasn’t necessarily positive so it was something that it wanted to address and wanted its customers to address and has sense pulled back from that stance, it’s changed its view on HFCS. So, I’m just wondering if you have a sense of how much of this has been driven mainly by your customers’ customer as opposed to them and just if you could speak to that?

Ilene S. Gordon

I would say certainly the FDA has stood by high fructose corn syrup as a natural product and therefore I have not heard anything that you mentioned in terms of the retailers. I do know from what I read that Pepsi obviously wants to position their brand to gain market share versus competitors’ offerings in that energy space and therefore they’ve made decision to formulate it in a way to try and beat the competition but to me it’s all been the image of the brand and the end users that they’re trying to retract and nothing to do with any of the retailers.

Heather Jones – BB&T Capital Markets

My final question is just we have read recently about Mexico proposing tax increases on beverages and food just to combat obesity but also as a revenue generator. I’m just wondering how serious do you view those proposals? Is it just talk? I’m just wondering your thoughts on that.

Ilene S. Gordon

Well of course we’re watching changes in legislation very carefully but there’s nothing that we’ve seen that we think would have a material effect on us or largely affect our business. Of course we stay focused on all of this and NAFTA obviously changes are important to us and we focus on our own NAFTA case but there’s nothing that we’ve seen that has been alarming.

Operator

Your next question comes from Kenneth Zaslow – BMO Capital Markets.

Kenneth Zaslow – BMO Capital Markets

If I look at your 2010 guidance, how much of the improvement is related to the $500 million of growth cap ex spent over the last four years? In terms of that what type of return on invested capital are you going to get?

Cheryl K. Beebe

Well as you know Ken, we’re focused on exceeding our cost of capital which we believe is 8.5%. Dialed in to some of those South American numbers are the investments coming on line in the latter part of the year. A lot of the return has to do with how robust the economic growth is. We’ve made investments for Enliten, that is our product in the high intensity sweetener line. That doesn’t come up until the fourth quarter. We have the investments we’ve made over the last several years in modified starches which go both to the packaged food as well as to the industrial side and so as economic activity picks up we’ll get some of that in there.

Kenneth Zaslow – BMO Capital Markets

Then in terms of the allocation of capital going forward, is there different risk methods, are there different return metrics that you’re thinking about now in terms of with the new cap ex you’re spending be higher return or lower return?

Cheryl K. Beebe

No, I think they’re still in line with our long term expectations. I think that as we go through the strategy in March is that there will be the emphasis on a portion going to the organic growth and a portion going to support the product innovation, product expansion and acquisitions.

Kenneth Zaslow – BMO Capital Markets

Ilene, is this a new era in terms of how much cap ex you’re going to be spending for the company? Is this a step up in terms of the introduction of your new strategy of saying, “Hey, we use to be spending a certain amount, now we’re going to be moving up to this amount.” Is that a fair thing to say or is this just one step up and there’s nothing to read in to the capital spending?

Ilene S. Gordon

No, we’re not going to be portraying a step up in capital spending. Our capital spending has been similar to depreciation in the past and I think what you will see is we want to focus on markets so that we’re going to focus our capital on growing markets and growing segments so of course you’ve seen our investments in South America and we expect to continue to do that. We’ve made investments in Mexico so we would expect to continue to grow with Mexico and then we’re looking at certain market segments, as I mentioned earlier in the health and nutrition area that we would like to be investing both organically and inquisitively in those market segments that will grow above the average.

Kenneth Zaslow – BMO Capital Markets

Then the volume side of it for both South America and Asia, obviously they were very strong. Particularly for South America, is that a sustainable number or is that just a make up from last year and we’re going to see more 3% to 5% growth? Or, is there something in there that you’re seeing structurally improve to get to the double digit levels?

Ilene S. Gordon

I think you’ve got a combination of both Ken. We’ve had the impact of the decline starting in the fourth quarter of 2008 so call it an easier comp and we also see continued growth. We’ve spent a lot of money on our specialty business in Brazil and so the growth rate should deliver at least a GDP of three to five, perhaps a little bit stronger all the time.

Kenneth Zaslow – BMO Capital Markets

My last question, if I didn’t ask the question I think clients out there would ask me so there’s obviously been rumors that the high fructose corn syrup negotiations were down 15%. Obviously, you’re indicating that it’s not, can you just give us a number, what the negotiations actually were so we can kind of check that off so we can tell investors?

Cheryl K. Beebe

We don’t really state the number. What I said in my speech was that our spreads decline for 2010 was low single digits. So we were able to offset some of the decline.

Ilene S. Gordon

When you look at the commentary, we are saying that North America we’re going to see our operating income up.

Kenneth Zaslow – BMO Capital Markets

No I agree with you just I will get the question of what are high fructose corn syrup negotiations? Then I thought normally you tend to give a high single digit, low single digit something like that and I figured you would say mid single digit or high single digit not the 15% that was rumored out there and we’d be done with those rumors.

Ilene S. Gordon

I think at the end of the day Ken part of the challenge is that what we’ve seen in 2010 is the correlation between corn cost changes and the changes in the selling price and so it’s really more appropriate to talk about spread than it is to say, “Alright, my pricing went down 15%,” and I don’t know what’s the basis of the 15% is because as you well know knows what customers contract at. What you see in the marketplace is rumors of spot prices as opposed to the actual contracted prices that any of the major customers would have.

Operator

Your next question comes from Christine McGlone – Deutsche Bank Securities.

Christine McGlone – Deutsche Bank Securities

Just a follow up to Ken’s questioning, why did fructose pricing negotiations deteriorate as they progressed if Mexico shipments picked up? I can understand it happening after WASDE but it seemed like it happened even before the WASDE.

Ilene S. Gordon

I think Christine you have to look at what was happening in the corn market. If you think about the third quarter prices were down and then the fourth quarter prices started to firm up on the corn side and there was a lot of uncertainty about what was going to happen with this corn crop, was it going to get out of the field, was it going to be too most, was it going to have Vomitoxin issues and so I think there was just so much uncertainty and as we have said in the past, when you start to go in to the tail end of the fourth quarter, even potentially in to the first quarter of the following year pricing tends to get sloppy.

Operator

Your next question comes from Vincent Andrews – Morgan Stanley.

Vincent Andrews – Morgan Stanley

I apologize if you addressed this earlier but you already just mentioned the quality of the crop and on the last call we began to address it. I’m just wondering if you have any further insight in to how the quality of the crop will affect your operations? If there’s going to be any incremental corn needed to make the same amount of sweetener year-over-year or any commentary you can give on that would be helpful?

Ilene S. Gordon

I think we’re going to be fine. It’s a bumper crop, prices have stabilized and so I think we’re fine.

Vincent Andrews – Morgan Stanley

Then maybe lastly, how are things looking from an M&A perspective? If my memory is correct, there hasn’t been an acquisition in a long time so how are you thinking about that these days?

Cheryl K. Beebe

Well, I’ve spent a lot of time with the team looking at where we would want to grow and what the opportunities are and there are many opportunities. I think what’s exciting to us is that we have a strong balance sheet. We’ve paid down debt this year and we’re positioned to make investments and I think you’re going to start to see people looking at different deals and making them happen and really we want to make sure they are the right things to create the right shareholder value in the right geography and in the right market segments. So, when were’ together in March we’ll talk more about that but let’s just say that we feel that we’re in a great position to bring some on and add value and create a lot of shareholder value.

Operator

Currently there are no questions in the queue. I will turn the conference over to our host for any additional remarks.

John Barry

If there are no more questions, we’re going to close down the conference call and our webcast this morning. As a reminder, there’s a reply of the webcast at www.CornProducts.com and also an audio call replay is available through Friday, February 12th. The number for the audio replay is 719-457-0820 and you’ll need pass code 4656128. Thank you for your participation this morning.

Operator

That does conclude our conference call. Thank you for your participation today.

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Source: Corn Products International, Inc. Q4 2009 Earnings Call Transcript
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