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Executives

Mary Anthes - IR

Irwin Simon - Founder, President and Chief Executive Officer and Chairman of the Board

Ira Lamel - Executive Vice President and Chief Financial Officer

John Carroll - Executive Vice President and Chief Executive Officer, Hain Celestial United States

Rob Burnett - Chief Executive Officer, Hain Daniels

Analysts

Greg Badishkanian - Citigroup

Scott Mushkin - Jefferies

Ed Aaron - RBC Capital Markets

Andrew Wolf - BB&T Capital Markets

Sarah Miller - SunTrust

Andrew Lazar - Barclays

Mineo Sakan - UBS

Sean Naughton - Piper Jaffray

Amit Sharma - BMO Capital Markets

The Hain Celestial Group, Inc. (HAIN) Q4 2012 Earnings Call August 22, 2012 4:30 PM ET

Operator

Good afternoon. My name is Stephaney, and I will be your conference operator today. At this time, I would like to welcome everyone to The Hain Celestial Fourth Quarter Fiscal Year 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question-and-answer session. (Operator Instructions) Thank you.

I will now turn the conference over to Mary Anthes. Please go ahead.

Mary Anthes

Thank you, Stephaney. Good afternoon and thank you all for joining us today, and welcome to the review of our fourth quarter and fiscal year 2012 results.

We are pleased to have several members of our management team here today to discuss our results, Irwin Simon, our Founder, President and Chief Executive Officer, Ira Lamel, Executive Vice President and Chief Financial Officer, John Carroll, Executive Vice President and Chief Executive Officer, Hain Celestial, U.S. and in person, Rob Burnett, Chief Executive Officer, Hain Daniels Group from the U.K.

Our discussion today will include forward-looking statements which are current as of today's date. We do not undertake any obligation to update forward-looking statements either as a result of new information, future events, or otherwise. Our actual results may differ materially from those projected and some of the factors, which may cause results to differ are listed in our publicly filed documents, including our 2011 Form 10-K filed with the SEC.

This conference call is being webcast and an archive of the webcast will be available on our website at www.hain-celestial.com under Investor Relations. Our call will be limited to approximately an hour so please limit yourself to one question with a follow-up question. If time allows, we will take additional questions and management will be available after the call for further discussion.

Now, let me turn the call over to Irwin Simon, our Founder, President and Chief Executive Officer. Irwin?

Irwin Simon

Thank you, Mary, and good afternoon everybody. I hope you've had the opportunity to see the two releases that we released at 4 O'clock this afternoon. Well, first of all, it's our biggest year ever and it's our biggest net income and operating income year ever, and with great pleasure, I will take you through Q4 and our fiscal '12 numbers.

Our sales for the quarter $350.7 million versus $286.8 million which is up 22.3%, not included in our numbers is $23 million of discontinued operations which were ICL and our sandwich business. In regard for our full year, $1,378,247 not included in that number is $74 million versus $1,217,207 a year ago, up 24.3%.

Our gross margin in the quarter, if you take away our acquisition of Daniels and Europe's Best was basically flat and what a great accomplishment both, for the quarter and the year, 28.2 for the quarter and 28.8 versus 28.8 for the year considering all the input costs, considering our commodities and fuels and we were able to achieve a flat year-over-year on the quarters and year, excluding the lower acquisitions of gross margins which we talked about for the quarter, 26.6 versus 28.4 and actually for the year 27.8 versus 28.9.

Our operating income, which you heard me say, our biggest ever or biggest income producing year. For the quarter, 36.2 versus 28.6, and that's 26.6% versus a year ago, and for the full year $144.9 million, I guess we can round that to $145 million versus $111.5 million versus year ago, up 30% on operating income, so some great accomplishments on our operating income and our gross margin.

Our EBITDA for the quarter $45.6 million versus $35.5million, up 28.4% and our EBITDA for the year $179.1 million versus $141.9 million, up 26.2%, so again great accomplishments on our EBITDA.

Our adjusted EPS for the quarter $0.47 versus $0.36, up 30.6%, and for the full year $1.86 versus $1.43 up 30.1%, so some great growth. Our operating free cash $101.5 million versus $47.2 million, so we doubled our operating free cash, so let's go back and look at the year.

Fiscal '12 was a great year with many challenges up there from the commodities, from the economy, but again eating healthy has continued to be on the top of consumers' list. Our sales growth 24%, operating income growth 30%, earnings per share of 30%, productivity worldwide over $25 million, we're able to take pricing throughout the year for about 2%. Our market cap grew over $1 billion.

We reduced debt $90 million up to today and that's including with the Daniels acquisition. We went ahead last year with an acquisition of Daniels which was a great acquisition for us in the U.K. It was on trend. It was fresh soup, fresh juice, fresh fruit, fresh desserts, hot eating desserts, and still a lot of those things we will still bring to the U.S., especially our fresh soup and some of the fresh juice. With juicing become a big part of consumers' lives today, we see tremendous opportunities there, but it really allowed us to put a real foothold into the U.K. and we'll talk more about the U.K. and its acquisition in my presentation and Rob's in a little while.

We did a great acquisition in Canada in October with the Europe's Best. It gave the Canadian Group a good solid business in the fruit veg area, and with some great growth and it's really helped our business there.

Cully & Sully, which is a fresh soup, fresh meals business based in Ireland, gave us a foothold in Ireland and gave us some innovation to bring into the U.K. and with some new packaging and we're pretty excited about that.

New products, and I've always said this, new products are the lifeblood of any company and of course of ours. We introduced over $60 million of products and over 100 new products this year, so our pipeline of new products and innovation continues to be strong.

Hain Pure Protein, which we own 49%, the protein business which shows you consumers are eating antibiotic-free organic chicken and turkey. With Pink Slime that happened out there, consumers move more and more, eating more turkey and more chicken. Our sales were up 13%. Our pre-tax income was up 51%, and we continue to see great growth in that category.

As I talked on our last call, we would look at always to evaluate some of our assets, some of our businesses, and with the acquisition of Daniels and to reposition the U.K. we decided in our last call which we announced that we were going to divest our ICL business, which was a private label of ready-to-eat meals business which we felt just we couldn't take it to the next level. It was not a branded business and we decided to divest it. We have closed on that deal. We have sold it to Greencore and we feel good about that.

At the same time, we talked about our sandwich business. Some of it was branded with Daily Bread and some of it was private label, we have decided to divest that business, we have found a strategic buyer, we have entered into as a term, we expect to close some time in September and it is accretive to earnings and it is just not our strategy now that all that we have going on in the U.K.

The U.S. has integrated Sensible Portions, saw good growth in that business, cleaned up the portfolio and right are on trend for healthy snacks, for kid snacks and we continue to see that and we have tremendous growth opportunities in grocery which John will talk about.

Greek Gods which we acquired two years ago in July and the Greek yogurt category has grown tremendously. Today, Greek Gods has about 30%, 33% ACV with tremendous growth both, U.S., Canada, Europe and U.K., and we are pretty excited about that and the opportunities there.

Our personal care business, as we've gone out and reformulated our product line, Avalon, to fit within the NSS standards and we continue to see good double-digit growth and a product line that's well positioned.

In the U.S. our consumption growth has continued double-digits in the most recent quarter, up 14% which John will talk about but as you look at other consumer packaged goods companies, and you see consumer packaged goods companies' volume flat or declining, where is the volume? What are consumers doing? Where are they eating?

Again, which shows when you have 14% consumption and you see growth within supernaturals, your Whole Foods, natural foods independent and mass markets, you know the consumer is converting and moving over, and I'll talk about in a little while more and more about natural foods.

We continue to invest in our Asia investment. We continue to see great growth and we will continue to do that. In 2012, we had 11 brands that were up double digits, we had four brands that were up high single digits and we had 11 brands that were up single digits, so great brand growth and again, we have tremendous opportunity now as we have taken over the managing of their GG Crackers here in the U.S., great opportunities in meat-free.

Celestial Seasonings has had a great year both, with K-Cups's Energy Shots. We're seeing tremendous growth on Terra repackaging on Garden of Eatin', and one of the most exciting is Earth's Best with the pouch product, which now become 20% of Earth's Best sales and we continue to see tremendous growth there. Again, with baby rate down we're continuously seeing tremendous growth within the Earth's Best category.

If you look, the consumer, we're our moving our product line through more and more types of distribution and John and Rob will talk about that in Whole Foods and mass market. We really have beefed up our management team, our sales team, Rob and his group within the U.K., Philippe with his group in Europe, and Beena with her group in Canada, so we've really focused on our people.

With our customers today, as we diversified and we've really grown within our customer base, we've put teams in place to really manage our customers and that's why you are seeing so much growth within our mass market.

Our sales for Canada grew 34%, axe acquisition 7%. Our gross margins were up 1.3 bps. On apples-to apples business with Europe's Best is down a bit, because margins in that business are a little lower but Europe's Best has been a great acquisition for the Canadian group.

Our Dream business up 6%, our Spectrum business up 13%, our Greek Gods business and our Sensible Portion business, one up 171%, the other up 225%, so it shows you when we buy acquisitions or do acquisitions in the U.S., we are able to transfer them to our Canadian business and they've really been able to do great things with them. Strong growth within our Loblaw chain, Shelby's Costco and Target coming to Canada in December, we expect some good growth there.

In Europe, our Europe business was up 9.9% and that include the Danival acquisition. It was flat, if you take away acquisitions, and I got to tell you, all that has happened in Europe and having a flat business over there, our business is profitable, not where we would like it to be, but again we are focused on growth and we are focused on a lot of new areas. We are in the midst of building a new non-dairy and soup plant in Germany, which will be able to give us a lot of efficiencies, a lot of new productivity and a lot of new products and we'll continue Lima, Danival to really bring some of those products into the U.S. grow throughout Europe and we have a big focus on our GG Cracker.

We announced today that we are acquiring from Premier Foods, a consumer packaged goods business and with that, it's Hartley's, Sun-Pat, Gale's and Robertson's, about $250 million in sales. Rob will speak more of it in a little while, but our thought as we look to enter the U.K., we now have nine categories which were in fresh and frozen. If we want to go into the consumer ambient package, we really needed a good foothold of the great brands and we think what Hartley' taking into kids products, taking it into other fruit products, taking into fruit snacks, we think Sun-Pat with its almond butters, cashew butter, Gale's with honey and our Robertson's product, we have tremendous opportunities but taking our entail of a lot of the Hain products there and U.K. retailers are looking for a lot of U.S. products.

It makes us today among the top food and beverage companies, the 40 largest in the U.K., and we saw great value here with this company as we looked at acquisitions, we're paying about 6 to 6.5 times EBITDA before synergies and before the growth that we think we can get out of it, so with that we just saw some great value and really gave us a foothold to get into the U.K. in a much bigger way in the consumer packaged goods business.

As you come back and look at U.S. and you look at acquisitions that we've looked at here, we looked at a lot. Multiple seem to be sometimes in the Hemisphere and multiples, you know in organic food or in the Hemisphere a little bit excluding ours, of course, but if you look at $81 million of new distribution sales that John and his team were able to get this year which is $20 million of EBITDA. If we went out to buy that and paid at eight times the $160 million, so going out there and just growing distribution ourselves and really focus on it is what we're going to do, but again we are out there to really focus on acquisition and John will take you through how him and his team will build our space out there and grow through distribution.

If you look at fiscal 2013, and Ira in a little while will take you through our forecast and what our numbers for 2013, a very interesting thing as I was going through preparing for today, I was presented with growth, and I come back and I always hear what happens if the economy turns? What happens if the consumer stops eating healthy?

If you come back 48% of consumers buying organic that are 40 and younger. There is a lot of consumers out there that will continue to buy our products, there is a lot out of consumers out there that will build a lot. We will build a lot of brand equity with and with social networking today, there's a lot that we can do.

Consumer is eating healthier. New organic categories consumers are buying 11% more, consumers have bought $2.5 billion of more organic foods. Again, if we get to 10% of what sales are $700 billion of total food, there is a big number of organic foods to be able to jump into, so a lot of excitement out there to grow. 50% of Hain products there are organic and almost 98% of our products there are GMO-free. So, we got a lot to be able to tell the consumer about our products and how good they are.

With that the chapter, we'll close on 2012 and we really feel we have done a lot, accomplished a lot. In 2013, we're two months into it, we like what we see in July and August, and with that we feel we have a lot of good things in place to really go out there and accomplish what we want to do in 2013.

With that, I'll turn it over to Ira, who will take you through our 2012 numbers and will give you our guidance for 2013. Thank you.

Ira Lamel

Thanks, Irwin, and good afternoon, everyone. As we said in our press release, all of our full year and fourth quarter income and EPS numbers from continuing operations are the highest in the company's history.

Net income from continuing operations in the fourth quarter this year was a fourth quarter record of $35.7 million, compared to $13.7 million in last year's quarter. Earnings per diluted share from continuing operations on a GAAP basis came in at $0.77 in this year's quarter, compared to $0.30 per diluted share in last year's quarter. Adjusted net income was $21.7 million, compared to $16.5 million, improving by 31.8%. Adjusted earnings were $0.47 per diluted share, compared to $0.36 per share in last year's quarter, improving by 30.6%.

Our adjustments to net earnings consist of an earn out reduction of $15.5 million, offset by acquisition related expenses including integration and restructuring charges of $1.9 million and the loss from discontinued operations of $12.3 million. As mentioned in our press release, during the fourth quarter, we decided to dispose of our Daily Bread sandwich operations. Daily Bread, now classified as discontinued operation, generated a net operating loss in the quarter of $382,000 which was $0.01 per share. Other one-time charges associated with this pending disposal of Daily Bread, reduced earnings by a further $13 million, or $0.28 per diluted share.

Along with the U.K. private label ready meals business which generated a net income of $1.1 million in the quarter, net earnings from all the discontinued operations reduced our earnings per diluted share by $0.26.

Net sales from continuing operations in the fourth quarter were $350.8 million, an increase of 22.3% compared to $286.9 million last year. Foreign currencies negative impacted sales growth by $4.1 million. We saw a strong increase in sales across all of our segments coupled with sales contributed by our acquisitions. Sales from continuing operations include our recent acquisitions of Daniels Group, axe the private-label ready meals operation that has been disposed off and Europe's Best for the full quarter as well as Cully & Sully for two months of the quarter.

Sales of discontinued operations of $23 million are not included in reported net sales for the quarter. Gross profit in the fourth quarter was $26.6% of net sales. Input COGS inflation amounted to 3.9% in the fourth quarter this year, measured against last year. Inflation was offset by a better mix of sales at our pre-acquisition operating units, the impact of pricing actions we effected at the beginning of fiscal year and productivity improvements.

Our SG&A for the quarter excluding acquisition-related expenses and integration cost was 16.3% compared to 18.4% in last year's fourth quarter. This improvement comes from a combination of the lower SG&A rates we expected at the Hain Daniels Group in the U.K. and in Canada where our Toronto based G&A base was leveraged across the sales added by Europe's Best.

As mentioned in the third quarter, we continue to see the benefits from the integration the Sensible Portions operations where we closed its separate back office in the first quarter of this year, the integration of certain functions in the U.K. into the Daniels Group operation, and our focus on leveraging our existing G&A base across all of our segments.

Operating income for the quarter from continuing operations was $49.9 million, or 14.2% on a GAAP basis compared to $28.6 million last year. On an adjusted basis, operating income was $36.2 million this year, increasing 26.6% from $28,600,000 last year. With the reduction of contingent consideration increasing our GAAP earnings for the quarter, and not having any associated tax impact our effective income tax rate from continuing operations was significantly reduced to 21.2% of pre-tax income in the fourth quarter this year compared to 35.1% last year. Our adjusted effective income tax rate from continuing operations was an expected 31.6% for the fourth quarter compared to 38.8% last year.

The effective rate on adjusted income this quarter as I said was expected in order to achieve our estimated full year income tax rate of 34%. The lower rate this year was a result of change in mix of our worldwide income, principally the result of the inclusion of Daniels, with a lower corporate income tax rate in the United Kingdom.

For the full fiscal year 2012, our net income from continuing operations came in at $94.2 million compared to $59 million in the prior full year. From continuing operations we earned $2.05 per diluted share on a GAAP basis this year versus $1.32 per diluted share, last year.

Before acquisition-related items and integration costs, adjusted income from continuing operations was $85.5 million, compared to $63.5 million, improving by 34.7%, and adjusted earnings per share was $1.86 per diluted share, compared to $1.43 per share last year, increasing by 30.1%.

Net sales reached the full year record of $1.378 billion, an increase of 24.3%, compared to last year's $1.109 billion. Foreign currency reduced net sales in the year by $3.3 million. We saw strong increases in net sales across all our segments for the full year as we did in the fourth quarter. Sales coming from our discontinued operations of $73.8 million for the year are not included in reported net sales.

Gross profit in the full year was 27.8% on a GAAP basis, compared to 28.9% in last year's full year and was offset by a favorable trend in our SG&A rate to 17.2% from 18.8% in the prior year, each as expected due to the impact of the Daniels, Europe's Best and Cully & Sully acquisitions. This resulted in an operating income for the full fiscal year of $161.5 million or 11% on a GAAP basis, compared to $111.2 million last year or 10%, improving by 97 basis points. On an adjusted basis, operating margin improved by 46 basis points to 10.5% this year.

Depreciation and amortization in this year's quarter was $8.1 million, compared to $6.5 million in the prior year quarter with the increase coming principally from this year's acquisitions. For the full year, depreciation and amortization reached $30.5 million as compared to $24.1 million last year. Stock compensation in the quarter was $2 million as compared to $1.7 million last year and was $8.3 million for the year compared to $9 million last year.

Our balance sheet continues to be a strong one. Our working capital was $246 million with the current ratio of 2.2 to 1 at June 30th. Our stockholders' equity was $964.6 million. Our debt as a percentage of equity is at 40.5% and debt-to-total capitalization is now 29.2%. Total debt at the end of the quarter, and of course, the end of the year was $390.6 million with 38% of our debt carrying interest at a fixed rate and the remaining 62% at floating rates.

At the time of our acquisition of Daniels, we drew down $235 million of floating rate debt under our credit facility. Through June 30th, we had repaid $75 million of that debt and since June 30th an additional $15 million such that we have now already paid $90 million of the debt borrowed at the time of the Daniels acquisition. We continue to focus our attention on improving our working capital turnover and generating improved cash flows.

For the trailing 12 months through June 30, 2012, operating free cash flow was $101.5 million this year versus $47.2 million for the prior year. Days sales outstanding was 47, inventories at 65 days and our payables at 44. As a result, our cash conversion cycle has been reduced to 68 days. That's a 12-day decrease as compared to June 30th a year ago. CapEx amounted to $7.5 million in the quarter and $20.5 million for the year.

Guidance for 2013. Our net sales guidance for the full fiscal year '13 is expected to be in the range of $1.6 billion to $1.615 billion. We anticipate earnings per diluted share from continuing operations to come in between $2.10 per share and $2.20 per share. Some of the significant estimates we used in arriving at this guidance include an estimate of consolidated gross profit for the year which we are expecting to be in the 27.75% to 28% range.

Our SG&A rate as percent of sales is estimated to land at about 17.25%, and we have also estimated that our effective annual tax rate will approximate 34%. The last major assumption in our guidance is that our share count will approximate 47 million shares for the year. Our estimates do not include any results of discontinued operations or any restructurings or acquisition activity. We estimate that our earnings will continue to be somewhat seasonal with the second and third quarters being the strongest of the year.

We have not included in our guidance the anticipated impact of our just announced agreement to acquire brands from Premier Foods. We anticipate a closing at the end of October and for the eight months from the date of closing at the end of October through the end of fiscal '13, we expect sales to approximate $180 million from that acquisition and earnings to have accretion of $0.25 from that acquisition. Again, those amounts are not included in the guidance we've given you for the full fiscal year.

At this point, I will turn the call over to John.

John Carroll

Thank you, Ira. Good afternoon. Q4 was a very strong quarter for Hain Celestial U.S., providing a great finish to FY'12. We had many highlights in the quarter. Starting with our Q4 Nielsen all outlets combined or AOC, consumption growth of 14% as Irwin previously mentioned. This reflects our accelerating consumption momentum in the grocery, mass and club channels. Our Q4 total consumption was 10%, which was one point higher than the last quarter's growth.

Hain Celestial U.S. total consumption reflects the Nielsen AOC results combined with our high single-digit growth in the natural channel. Our 10% total growth was driven by gains across the portfolio, including 14 brands with double or high single-digit increases.

Our Q4 sales were $242.6 million, up 5.3% versus year ago. The difference between our 10% total consumption growth and our 5% sales growth reflects lapping $5.2 million in year ago sales from discontinued low-margin club, private label and Martha Stewart SKUs and $4.2 million in the year ago distributor forward buys against last year's July 1 personal care price increase, which we did not repeat this year.

Q4 U.S. sales growth, axe these two adjustments, was between 9% and 10%, in line with our 10% total consumption growth. Also in Q4, our gross profit margin was up 55 bps despite absorbing 4% in commodity and fuel-driven inflation. We were able to offset this inflation with productivity savings, dairy cost favorability and last year's price increase. Also, our Q4 SG&A as a percent of sales was down 65 bps reflecting the sales increase and the synergies realized from consolidating the Sensible Portion business into Melville. All this led to our Q4 operating income of $36.7 million, or 15.1% of sales which was up 14% and 120 basis points, respectively, versus year ago.

We leveraged our top-line growth with our gross profit improvement and our SG&A efficiency to drive significantly increased profit. Finally, in Q4, our U.S. inventories were down $2 million versus year ago while supporting our sales growth. This increased U.S. inventory turns by two-tenths of turn versus year ago and this inventory leverage coupled with our accounts payable improvement was a major driver in the company's improved cash conversions and operating free cash flow.

Now, as we turn to our full year '12 performance, we see our Q4 results topped off another strong year for Hain Celestial U.S. Our U.S. business model, with our strong portfolio of brands and our focused strategy, enabled us to overcome consumer uncertainty and commodity inflation to deliver FY'12 top-line sales of $991.6 million which was up by 9% versus year ago driven by our accelerating consumption growth.

We also delivered operating income of $149.8 million of 15.1% of sales which was up 15% and 80 bps versus year ago, respectively, driven by strong top line growth, gross margin expansion and again increased SG&A efficiency. Finally in regards to '12, our increased profitability along with our improved inventory turns and cash conversion metrics led to a 20-plus percent increase in U.S. operating free cash flow.

Now, as I said before on previous calls, look we continue to be very, very bullish about our U.S. business. We continue to see strong momentum across the business and we believe it is sustainable based on the latest metrics from the four key factors I discussed on previous call. The first factor is our continued U.S. consumption gains. Q4 was our 10th consecutive quarter of consumption growth. Importantly, our consumption growth is accelerating as demonstrated by our Q4 total and Nielsen AOC consumption numbers. The second factor is our demonstrated ability to offset input inflation.

Hain Celestial U.S. offset 5.1% cost inflation in FY'12 with productivity savings and pricing. Our productivity initiatives generated $20 million in FY'12 savings and look we have a full menu of projects to continue to drive savings in FY'13, including in-house production of our rapidly growing pouch business. We also saw full recognition of our FY'12 price increase in the second half '12 just as we said we would. Also, you know that we announced FY'13 2% to 3% price increase on grocery, snacks, and tea that will be effective on October 1. We are confident we will see full recognition of this increase in second half '13.

The third reason we feel bullish as we walk into '13 is a strong results from our U.S. sales force reorganization. For the third consecutive quarter, we saw a quantifiable benefit from our U.S. sales re-org. Specifically, our Q4 U.S. Nielsen distribution trends improved to 160 basis points for the latest 12 weeks versus our 52-week trends. This improvement was, again, across our entire product line not just our core SKUs.

Additionally, our strong Nielsen AOC consumption growth of 14% indicates we are making great progress penetrating channels and customers where we had previously struggled or had a limited presence. Our eight new customer teams at accounts like Whole Foods, Kroger, Walmart, are growing their business at two times the rate of all the other accounts and those all other accounts are growing as well.

Finally, filling in distribution wide space will continue to drive our future growth. A quick fact for your consideration, increasing our top 50 and that's our top 50 U.S. SKUs from 36% to 50% ACV distribution is worth over $200 million in annual retail sales. Our sales re-org will help us realize this opportunity. The final reason we are bullish about our FY'13 prospects is our continued positive response to our innovation.

FY'12 U.S. new product sales totaled a record $40 million, up significantly versus year ago led by $20 million in pouch product sales. In FY'13, we'll introduce over hundred new products, leveraging the hottest emerging trends in grocery, snacks, beverages, refrigerated and personal care. These products have all been consumer tested and will continue to drive distribution and consumption growth for Hain Celestial U.S.

To close, Q4 and FY'12 were strong for Hain Celestial U.S. highlighted by 9% top line growth for the year, accelerating consumption momentum, margin expansion, 15% operating income growth and over 20-plus percent operating free cash flow and we are bullish about FY'13 given our consumption trends, our demonstrated ability to offset COGS inflation, our U.S. sales force reorganization results, our strong innovation pipeline and the momentum on all of our businesses.

Now, I'll turn the call over to Rob Burnett.

Rob Burnett

Thanks, John. Good afternoon, everyone. Overall the U.K. had a solid fourth quarter with annualized like-for-like sales up almost 6% and 400% year-on-year for the effect of the Daniels and Cully & Sully acquisitions. Highlights in sales for the quarter included New Covent Garden Soup, up 20%, Linda McCartney frozen meat-free brand up 10% and prepared fruit up 13%.

Our U.K. gross margin mix improved. Thanks to the higher soup sales and lower input cost from drinks in the period, and SG&A mix was also significantly lower than last year. The fourth quarter has seen significant progress on a number of strategic revenue synergies that commenced following the Daniels acquisition in late October.

We have confirmed our frost listings with a major retailer for U.K. produced Greek Gods yoghurt, which we expect to commence in November this year. On preparation for the launch of Linda McCartney brand into chilled are at an advanced stage, and we received our frost listings from multiple retailers. This exciting project demonstrates the extended competencies of the Hain Daniels Group following the acquisition last year, as the products for this range will come from three different U.K. locations.

Our New Covent Garden has launched successfully in the fourth quarter Fresh Bowls, which is in test at the moment in convenient stores and expected to be rolled out in the autumn, and this innovative product utilizes a soup site for the base product and our fresh innovation center in Luton to finish the product off.

On a full year basis, sales were up 400%, of course, due to acquisitions of Daniels and Cully & Sully, but like-for-like sales were up almost 5% and Linda McCartney frozen meat-free was the star performer in our branded portfolio, up over 20%. The acquisitions also improved significantly the gross margins and SG&A ratios for U.K. and Ireland.

The Cully & Sully business acquired in Q3 continues to post impressive like for likes in the soup category and has overtaken its nearest competitor on Ireland to be the number one brand in the category and preparations are underway for a major investment in our Fakenham site which we expect to complete in May 2013 adding 150 new full time jobs for the facility and approximately $40 million in annualized new revenue in year one.

Our announcement today of the acquisition of market leading grocery brands from Premier really establishes to Hain Daniels business in the U.K. as a scale player across all sectors fresh, chilled, frozen and now ambient grocery.

Our leading portfolio of brands in the U.K. include the number one fresh soup in the U.K. New Covent Garden, the number one fresh soup in Ireland Cully & Sully. The number one freshness squeezed juice brand in the U.K., Johnson's. Number one peanut butter in the U.K., Sun-Pat, number one jelly and fruit brands in the U.K. Hartley's. Number one jam in the U.K., Hartley's. Number one marmalades in the U.K. Robertson's. Number two honey brand in the U.K. Gale's, and number two meat-free brand in the U.K. Linda McCartney. Very impressive portfolio of brand leaders.

The acquisition comes with a real great portfolio of brand leaders that have continued to prosper despite being starved of investment for a number of years in the previous owner. The business has real category scale in spreads and deserts, which can be further strengthened with a focused resourced and dedicated team.

We believe, we can modernize the portfolio and make it more relevant today with a relatively uncomplicated new product development. We believe the key brands of Hartley's and Sun-Pat have the capacity to stretch into new and adjacent categories. The acquisition gives us a scaled modeling grocery, which we expect to expand by introducing complementary Hain U.S. grocery brands such as MaraNatha, Earth's Best, Rice Dream and many more.

The site in Cambridgeshire has capacity and the free footprint to enable us to develop those things ourselves or through outsourcing. We also expect significant procurement leverage for this deal.

Now we are acquiring a scale consolidated brand leading business which will be accretive from day one and one that helps position the enlarge group into being the number one branded provider of fruit and Veggie solutions for the widest possible range of consumption occasions for all consumer groups in the U.K.

Today, we have also announced the completion of the sale of our private label business to Greencore and announced a Letter of Intent to sell the Daily Bread brand. We intend to transform our sandwich site into a high care fresh innovation center to deliver some of these innovations. These two divestitures further refine our portfolio in the UK around branded fruit and Veggie solutions and improves the mix of brand within our portfolio from 40% of sales to well over 50%.

Now, we enter the new financial year with considerable confidence. The integration of Daniels and Hain has brought significant new revenue synergies which will start to play out in fiscal '13. Cully & Sully offer new dimension to trading in Ireland and beyond, and the acquisition announced today gives the U.K. and Ireland group real scale across all food formats, and perhaps more importantly, a real identity focused and market leading position in branded fruit and Veggie solutions helping to enhance the Group's healthy eating proposition. Thank you.

Mary Anthes

Operator, any questions?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Greg Badishkanian with Citigroup.

Greg Badishkanian - Citigroup

Great. Thanks. Good quarter and congrats on the accretive acquisition.

Irwin Simon

Thanks, Greg.

Greg Badishkanian - Citigroup

Yes. I Just had two questions really. First is in terms of your sales growth, your consumption. Looks like consumption accelerated. What do you think drove it and are you seeing any big change in your current fiscal first quarter to-date, or is it pretty consistent?

Irwin Simon

Number one, Greg, I think as I said before, there are just more and more consumers buying more and more natural organic products. With distribution gains that we've been making, when you have more and more products available in more and more outlets it's what's driving the growth number, driving consumption

I think I mentioned it. I got a Portland, Maine outside and I have been going there for five or seven years, and each year I got to visit a major mass market up there and this year I was there and I just couldn't believe the amount of products that we had in that store, so consumers' demand number one because you can get distribution and the consumer is not buying it, it's staying on the shelf, so consumer demand and increased distribution is a key to it. They say August lazy days of summer, we are not seeing the lazy days of summer.

Greg Badishkanian - Citigroup

Good. Then with respect to the acquisition, I believe it was $0.25 accretive for 2013. Would the run rate just be, if that's eight months, do we just kind of do the math to get to 12-month annual period or would 2014 be more accretive and what are you assuming to get to that $0.25 accretion in terms of whether it's sales, or margin improvement or any assumptions on that?

Irwin Simon

As we said around $0.25 accretive for 2013. Well, everyone's accurate. That does not include any synergies, integration costs that we'll have. We are spending, as you heard Rob say before these brands have been starved for marking dollars.

Going into 2014, we think it will be additionally accretive as we expand distribution. There is no new products in 2013, we'll have a slew of new products, a slew of innovation coming right behind this, a lot of synergies and I think complementary to our current product line, so I don't think you can just take the $0.25 and add four more months to it and say that's what the numbers going to be for 2014.

Greg Badishkanian - Citigroup

Right. Great. Congrats again.

Irwin Simon

Thank you, Greg.

Operator

Your next question comes from the line of Scott Mushkin with Jefferies.

Scott Mushkin - Jefferies

I have a couple of clarifications in the press release, it says $250 million of revenues, is that pound or is that dollars?

Ira Lamel

That's dollars, Scott.

Scott Mushkin - Jefferies

That's dollars, because then the rest of it's in pounds, correct?

Ira Lamel

Well, we gave the acquisition cost in pounds because we don't know what currencies will do between now and closing, but the dollars, if we were to incorporate the full year, that's where it would have been.

Scott Mushkin - Jefferies

Correct. Thank you, Ira. I think, Irwin, in your prepared remarks you talked about 6 to 6.5 EBITDA before synergies. Were you referring to this acquisition?

Ira Lame

Yes.

Scott Mushkin - Jefferies

Okay. That's good. I guess you guys went through a good rundown of where the brands stand in the U.K. number one here. A lot of number ones, I think, were rattled off. Why have has Premier Foods, this is not part of their kind of, I guess what they call their premier brands, so why have these brands been neglected? That's question number one.

Then number two. If we think about Hain and its growth here in the U.S., Hain Celestial, it's been on the back of natural and organic. How do these brands fit into that kind of growth and how is natural and organic positioned in the U.K. in branded ambient grocery and where do you think that goes over time?

Irwin Simon

Number one, Premier Foods is going through a major de-leveraging of its balance sheet and it's been selling off assets and is focused on key categories. In discussions, this was a business they would love because it is, we would love to keep because it is profitable. There is growth and some significant brands, but they are ultimately key strategies in survival, so that why they've decided to sell it.

From a standpoint as we looked at the U.K. and our overall Hain strategy is, how do we grow our business with 50% within the U.S. and 50% was outside the U.S. and we feel from our retailers, we feel from food, we feel from health that the U.K. is a market that we want to blueprint what Hain is in the U.S. and be the largest manufacturer of marketer of healthier foods. We feel we have that today with refrigerated with New Covent Garden, with Johnson's with our desserts, with our fresh fruit, with our Linda McCartney, to really get into the packaged goods side of the business.

As we've tried, Scott, to take our products today, whether it was Terra Chips whether it was Dream and we have Rice Dream and Almond Dream in there and we do about GBP 6 million or GBP 7 million, we do sell a lot of Lima products through Whole Foods, but really to move into the Tescos and the Sainsbury's, we needed well known brands that were already in the U.K. If we could buy some brands that were over 100 years old, and really clean up these brands and take a lot of our entail that we really could create a good consumer packaged goods business.

Now in the U.K. organic is not as important as the U.S., but clean ingredient as we know, all products sold in the U.K. are GMO-free, and what they are looking for today in the U.K. are healthier products, gluten-free products, more and more natural products and matter of fact Tesco has gone ahead and put an American branded product line in a lot of its stores today as it copy some of its fresh and easy concept here in the U.S, so we feel Sun-Pat, we're in nut butters it's been a big growth business for us. We have a great formula for growing our nut butter business.

We think honey is the natural sweetener and we think honey can be expanded into a lot of different products. We feel with jam and marmalades are a big part of the British consumers breakfast, eating habits, and we think adding products to it, we think doing a lot in kids products because it's base fruit, we have pouches today in Hain and doing a lot of pouch products, we really believe Hartley's could be our baby food products, co-branded with Earth's Best instead of walking into U.K. and say here we are with Earth's Best.

When you have strong brands like [Hip Ellos] and that are already there, so the base of the business is fruit and veg and it has tremendous brand equity, and you heard Rob say are number one and two in so many categories. With that, we really feel a base business of $250 million that and all of sudden we've now become the 40th largest food vendor manufactured in the U.K. It really gives us a big opportunity to bring our healthy products in. I mean, we've tried to get into the U.K. with Terra Chips, we try to get in. We can get in, but it's really small.

Rob, anything you want to add to that?

Rob Burnett

Well, I think it gives us a proposition score and the U.K. has been the largest fruit and veg provider and there's quite a lot other products in the portfolio that are low calorie and there's quite a lot of sold NPD that did not had the money to invest to launch making the products more through one-a-day to five-a-day. They've just been starved of investment and we think we can unlock that and then add some value from our other businesses to create new category opportunities alongside the big brands of Hartley's. HARTLEY'S is a over GBP 40 million brand and it's something that's well respected by families and children and we think it's a great opportunity for a master brand in many different fruit and snack categories.

Irwin Simon

Scott, coming back, we got strong brands. We got a good size, we got good positioning in retailers. We have a tremendous amount of synergies with our existing business and that's why we sold our sandwich business, that's why we sold our ready-to-eat meals private label business.

Today, 65% to 70% of our business will be branded business in the U.K. and if we want to go into the U.K. with what we have here, this was the way to do it, to buy some of the scale because there's no natural and organic foods over there of scale to really get into the U.K., and we think at 6, 6.5 times EBITDA real good value.

Scott Mushkin - Jefferies

That was a fantastic explanation. I'm going to yield. I have so many more questions, but I know this call is going a long time, so I am just going to yield and maybe take some more offline. Thanks, guys. Really appreciate the [fairness].

Irwin Simon

Thank you.

Operator

Your next question comes from the line of Ed Aaron with RBC Capital Markets.

Ed Aaron - RBC Capital Markets

Hi, everybody and congratulations from me as well.

Irwin Simon

Thank you, Ed.

Ed Aaron - RBC Capital Markets

Just to kind of drill into the U.K. a little bit more. The $0.25 of accretion. Does that include the accretion that you were already planning on getting from the Daniels deal or is that incremental for those synergies?

Ira Lamel

That's incremental. The accretion from Daniels is included in our '13 guidance. The $0.25 accretion from this transaction is not.

Ed Aaron - RBC Capital Markets

Okay. Then, Ira, can you address the earn out reduction on Daniels, because it would seem to imply that maybe it hasn't kind of gone as well as might have been planned or accrued for upfront. Can you help me understand that?

Ira Lamel

Yes. It's not that it hasn't gone well. It's gone very well, but the earn out was based upon the plan that was presented to us by the seller sets. We of course put that up as a liability based on the accounting rules, but it was discounted on profitability and normal net present valued discounts.

What's happened is there have just been some changes in the business that we've affected that the market has affected and we don't see going forward that there are really going to hit that earn-out, so we've evaluated it and we've taken that liability down. Now, of course we don't view it as part of core earnings. That's why we have adjusted earnings of $0.47 rather than including that and what we've tried to explain our operating income to-date.

Ed Aaron - RBC Capital Markets

Thank, and then just one last one. I guess maybe, kind of bigger picture question. Buying businesses at a multiple of half of where you are trading at, that's good for your shareholder as long as it's not to say quality business, but as I talked to some people about the story, one of the concerns that I sometimes I hear is, that maybe you kind of get what you paid for and there are some pushback about whether the quality of the assets that you are maybe buying in U.K., is it good as what people have come to expect from good natural and organic asset in the U.S? Irwin I was just kind of hoping if you could kind of maybe address that just at a high level? Thanks.

Irwin Simon

From a standpoint, Ed, going back you get what you pay for. On the other hand at the same time, when you overpay, you get what you pay for too. Okay? I come back and I think from a Daniels standpoint, where we are today at that time we probably paid about nine times with synergies in growth today. It's down to about seven times and we think there's a lot more value there.

At the same time buying at 6.5, it is strong brands and I come back and say this here, Ed, brands, brands, brands, brands and they are not going away. They are brands that I think that really need some spending, some focus and their brands where there core is fruit and veg, which is the base of our business. If we really want to get into the U.K., we got to buy great brands.

To go into the U.K. and start from scratch, and we saw that with our sandwich business where we went in there with private brand, we had a brand, we had a lot of competition in that area, we weren't one or two and we got our heads in hand in someplace, but here we have a good team on the ground. Today, we're a major player and I think we brought an asset at great value and great categories, and it's not like we brought a brand where if something happened with Hartley's that's your only egg in the basket.

Again, Ed, we have proved it here. We bought MaraNatha, and we've almost triple that business okay? The honey business is a big part of the U.K. consumers' habit, so our jams and jellies, which are a big opportunity for kids product, so I think it's taking brands, taking our innovation, taking our health and wellness strategy and capitalize upon it.

If we were here just to buy for the sake of buying it, that's one thing, but if we are here to buy it, modernize it and help take our old U.K. business to a whole new level, I think that's where that's unique and exciting for us.

Ed Aaron - RBC Capital Markets

Thanks. I'll pass it on. Thank you.

Irwin Simon

Thank you.

Operator

Your next question comes from the line of Andrew Wolf with BB&T Capital Markets.

Andrew Wolf - BB&T Capital Markets

Good afternoon and congratulations on certainly ending the year with a bang. Onto the Hartley's brand, sort of to piggyback on what last couple of guys were talking about. I was thinking as I was waiting to ask you some questions, what brands in Hain's portfolio maybe needed kind of a repositioning? One that came to mind for me was Health Valley with some better ingredients, freshened up the packaging and other things. Is that a good kind of analogy to what you think? I think Rob was talking about Hartley's, more fruit and that kind of thing sort of an ingredient upgrade, and is it also marketing upgrade, packaging or is really a repositioning if you are going to extract greater value with Hartley's and get consumption and velocity up?

Rob Burnett

I think it's a number of these things. Hartley's itself is $95 million brand, so it's a very, very scaled brand at present, but it really had investment and when we say no investment, we mean $0 for over five years, and still maintain number one position in jams and fruit and jellies.

Andrew Wolf - BB&T Capital Markets

Rob, sorry to cut you off. Does that mean brand innovation investment or certainly doesn't mean marketing dollar. They got a market behind it right?

Rob Burnett

It means marketing dollars zero.

Andrew Wolf - BB&T Capital Markets

Okay.

Rob Burnett

This business has done extraordinarily well over the last few years, but of course the overall group has not, so it's taking those businesses that have been very much cash-driven. Thinking of large percent are not reinvested in some business, so it's almost $100 million. Hartley's on its own. It's had no marketing dollars, zero marketing dollars and it still got a phenomenal brand equity. We done quite a lot of due diligence as you can imagine into the brand equity and it's very, very strong, particularly when young families, children and even 65 pluses.

We think there is a lot we can do on the base businesses by communicating the benefits of the brand. It's called the best of British. It's been in Britain. It's been a brand leader in Britain for over 100 years, but it's got a long, long way to go and stretch. It has still have got, as I mentioned on the pipeline products that can be more one of your five a day, two of your five a day that got some very strong low calorie products that have been supported by dieting groups in the U.K. and they have got quite a lot of innovation in the jam category.

They have really haven't had the money to do, so it's a whole mixture of things, branch stretch, investing in the base brand, getting people to understand the categories more, investing in the categories and having a dedicated resource team which this business has now had for a number of years now.

Irwin Simon

I think the entail that we have in new products from the U.S. that we can take to U.K. and market under the Hartley's brand where we had to go market under Health Valley create a brand from scratch, the dollars that we would have to spend and the time would be very, very difficult and very costly.

By the way, you mentioned Health Valley. Health Valley this year with repositioning, repackaging is up 36% for the quarter, and the same with Garden of Eatin', up 26% for the quarter with the new packaging and new products, so new packaging, repositioning and spending on it is very important and we have a full plan for that.

Andrew Wolf - BB&T Capital Markets

Okay. That's really helpful. The other part of the U.K. question I'd like to ask is, I think you mentioned Greek Gods is going to gain distribution being produced over there. Just a sense of how broadly that distribution is going to be. Is it into the mass market? The Tescos and alike?

Then, I think Earth's Best and MaraNatha specifically you mentioned and maybe another brand, are those very likely or is that more hypothetical what make sense to piggyback on the Hartley's acquisition?

Rob Burnett

Well, first with Greek Gods. We chose Greek Gods as our first venture with U.S. brands because it obviously is doing fantastically well here in the U.S. and Canada, but it's also was a refrigerated brand, which was our core area of operation, and what we've done is, we've taken the Hain model, we've not invested in assets. We've got a fantastic co-packer and we're going to launch with our largest customer in the U.K. later in the fall and give them a three, four-month exclusivity, look at how it's doing and then get ready for full national launch in the spring but that trial and our biggest customer will still cover our 15% to 20% of the U.K. population, so this is a significant trial across all their stores.

Andrew Wolf - BB&T Capital Markets

Is Greek yogurt, a hot category in the U.K. like it is here?

Rob Burnett

It is. The yogurt category overall in the U.K. is very, very large. It's very well established and Greek is the highest growth area.

Irwin Simon

Andy in regards to Earth's Best and MaraNatha, we have tried to launch them in the U.K. as a standalone and there's many baby products there today. We have thought about co-branding it, Earth's Best, Hartley's or MaraNatha Sun-Pat with our nut butters and that would be a way to get into the U.K., of that market or just take our cashew almond butters and expand it, because right now it's only peanut butter they sell. They don't sell any almond butters, cashew butters or anything else.

We saw the explosion of pouches here in the U.S. and putting Hartley's into a kid's product with a pouch which is fruit, we think there's tremendous opportunity there and whether we call it Earth's Best, Hartley's, we are not sure yet but that's things we are going to look at.

Andrew Wolf - BB&T Capital Markets

Great. Just one last question coming back to the U.S. It's pretty high level, but I think it's fairly topical. You mentioned 98% of Hain's product is GMO-free, and assuming a 100% everywhere but the U.S., it's still a pretty high number in the U.S. over 95% I think.

California's proposition 37, from the ballot and some polls I read suggest it's probably going to pass or could pass. What is, and I know the Grocery Manufacturers Association of Americas have strongly opposed to that, so I just want to ask you a business question and a political question.

Business-wise with your strong GMO positioning, I mean, what does that mean for the (Inaudible)? Is that a major competitive advantage for Hain in that marketplace? Just from a cost perspective, how do you view this? Purely business-wise hypothetically, if the proposition passes?

Irwin Simon

Andy, the thing is Hain Celestial has published and we've supported GMOs and early on and no GMO sorry. It's been a long couple of days. In essence, if it passes, it's what we've been saying all along and I think there will be a lot of fall-out across the rest of the U.S. I think as there are some changes to the proposition that will have to happen, but we didn't believe in it. We wouldn't have 98% of our products today that are GMO-free.

Andrew Wolf - BB&T Capital Markets

Okay. That's great. I'll also pass it on and congratulations, again on such a credible year.

Irwin Simon

Thank you.

Andrew Wolf - BB&T Capital Markets

You're welcome.

Operator

Your next question comes from the line of Bill Chappell with SunTrust.

Sarah Miller - SunTrust

Hi, everybody. This is Sarah Miller on for Bill. I guess, Ira, question for you is you talked about when you ran through some of the financials what the balance sheet looks like at the end of the quarter and at the end of the fiscal year, but I am just wondering with the disclosure of the other sale and now this acquisition, what the is the shape of the balance sheet after the transactions and what's your capacity and your appetite for more deal, so could you kind of give us a little bit more color around that?

Ira Lamel

Sure. The balance sheet that's included in the press release identifies the assets held-for-sale, so you can look at that balance sheet without those assets and make the appropriate assumption that's what we look like, so the assets aren't very significant on those businesses and we will be just as strong without them on the balance sheet. Actually stronger than with them.

As far as our leverage is concerned and our capacity for greater acquisitions, we're only leveraged at about 2, 2.1 right now under our credit facility and we have the capacity to continue to fund acquisitions and there is a very heavy taste in the credit market for Hain to move its credit facility availability to higher levels, so we're being chased on that. Lots of room for more deals.

Sarah Miller - SunTrust

Then I guess follow-up question on that. What is the M&A market looking like now? Are you still going to focus on the U.K. or now that this deal is done, what the environment look like and what kind of stuff are you looking into?

Irwin Simon

You know, you heard what I said when I was going through my presentation. Last year in 2012, John and his team with $81 million of new distribution contributed $20 million of EBITDA, and that that did cost something, but it's not like we had to go and pay to 8, 9, 10 times, so number one, our appetite is to grow our business organically, gain new distribution, but if there’s good, smart, strategic, acquisitions out there, we're going to buy it.

Like Ed Aaron said before, if you're trading at 9, 10, times EBITDA, and you can buy 5, 6 times. Unfortunately, we got a lot of brands that we can turn into bunnies and we can turn in to rabbits within ourselves to go out and pay those kind of multiples, so we're not going to go out and pay the crazy multiples.

We'd rather go out and buy great assets, great brands like we get from Premier at 6, 6.5 times and really put our marketing innovation, our distribution cloud and take them to a whole other level and we are going to look at acquisitions abroad, U.K. We are going to look at acquisitions maybe in Australia, Asia, but the U.S. for us where our major market is.

We think we did a great acquisition in Canada with Europe's Best, so we are definitely going to be opportunistic. As Ira said, we got the balance sheet to grow there and do it. On the other hand, if we don't do another acquisition this year, we are in great shape.

Sarah Miller - SunTrust

Okay. Great. Thanks so much guys and congratulations.

Irwin Simon

Thank you.

Operator

We have time for just a few more questions. Your next question comes from the line of Andrew Lazar with Barclays.

Andrew Lazar - Barclays

Good afternoon, everybody. Just two things. First would be on the core business and the guidance axe the most recently announced acquisition of 210 to 220. That is quite a bit higher than I guess where the kind of consensus for fiscal '13 had stood and so I'm just trying to get a sense of where maybe, we on the street might have potentially been too conservative if you come in at the high end of that range or what you are seeing that gives you that level of visibility?

Is it the sales piece was roughly in line with where we had it modeled? My sense is it's more on the cost side, so maybe it's your visibility into where your input costs were locked in for part of the year, perhaps you can address that first?

Ira Lamel

Andrew, let's come back for a second. I think, again, number one everything disseminates from sales. Okay? We think we feel good about our organic growth, we feel good about the consumer continuously buying healthier natural organic products.

You heard what John took you through in regards to operation wide space and his growth with his retailers. At the same time, we feel good about that in Canada and we really feel good that we can develop new products like we have done in the past.

Now that we'll have a full year of the U.K. Daniels, we will not have our sandwich business to focus on and we feel there is tremendous growth opportunities with Linda McCartney fresh, our yogurt business. We've had some challenges last year in Europe with Danival. We think we got a lot of that straightened out. Our GG cracker business and taking it back in the U.S. and a lot of great things happening from there, so we have a lot of things lined up, throughout 2012 Andrew.

We are in the midst of converting our personal care product line to all new ingredients and let me tell you something. You just had Johnson & Johnson come out and say we're going take formaldehyde out of our products by 2013-2014. There is absolutely never had been formaldehyde in any one of our products, but just what we're seeing on calls and demand on our personal care products and like, oh my god, you're really telling me that was in our products.

Again, it comes back from our growth, our distribution. I really think we got our hands around procurement and purchasing. Yes, there is some risk out there from commodities but our guys have been buying natural organic ingredients for long time and have really got their heads screwed on right where they buying it and where they are getting, how they are sourcing, so I think we really got a good plan in place and we feel good about executing.

On the other hand, Whole Foods will open up 50 more stores. More and more Walmarts and Targets are bringing in more and more natural products. More and more products are wanted by Tesco and Sainsbury and Waitrose, so that's why we are feeling very, very, very good going into this year.

Andrew Lazar - Barclays

Great. That's helpful. Then just a quick one would be perhaps for Rob. I must say given all that you've done in the U.K. over the past sort of two years and such I must admit I probably lost a little bit of track of sort of where you are in the overall U.K. business with respect to sort of your capacity situation.

I don't know what it looks like at Histon facility, but I think you remember Premier always had an issue with excess capacity and that perhaps Hain on your own core U.K. business you had some there as well, so I am just trying to get a sense like on a pro forma basis for all the businesses that you now own or will own in the U.K. is there any more significant opportunity to sort of get the overall sort of supply chain in a much better place, true-up kind of capacity to be much more consistent with where your demand is? What are the opportunities there, because I must admit, I’ve kind of lost track of it.

Rob Burnett

Certainly, particularly new acquisition for us Histon has got quite a bit of capacity and it's also got an interesting site within the boundaries that they are not using, so we've been taking a good look at that to see whether we can convert it into some NPD or perhaps take some snacks box from some co-packers etcetera, so Histon business is well invested and got quite a little bit of free capacity.

Across the range of our businesses in the U.K, I mentioned in the release that we are building some capacity into Fakenham plant to facilitate a new business that's coming in there in 2013 and that's going to free that site up for a number of years. We have still got capacity in our core businesses in soup and drinks.

We have not got a lot of capacity in fruit, but the reorganization of Luton site, which is now going to exit sandwiches, is going to enable that site to free up in fruit, salads and some high care innovation products, so we're feeling pretty good about the footprint at the moment. We're not anticipating any significant spend to enable us to get the growth that we need other than the one big CapEx at Fakenham, which just going to bring in this $40 million of new revenue in 2013.

Irwin Simon

Andrew being at your own manufacturing in U.K. is important, because retailers come back and say, if you're not your own manufacturing, you just got a brand. Why do I need your brand because I'm paying more for or I can go outside anywhere else because my brand is the strongest, so having a factory there in U.K. has some most of our factories and we think our facilities that we are acquiring can really do a lot of the Hain ambient product that either we're shipping over there now and bring it into the Histon plant.

By the way Premier did invest heavily into that facility. That was one of the facilities that they consolidated as they acquired this and really are focused on it and really spent a lot of money in that plant. There was no shortage of capital put into that facility.

Andrew Lazar - Barclays

Got it. Thank you.

Irwin Simon

You're welcome. Thank you.

Operator

Your next question comes from the line of David Palmer with UBS.

Mineo Sakan - UBS

Hi. This is actually Mineo filling in for Dave.

Irwin Simon

How are you?

Mineo Sakan - UBS

Fine. Thanks. First of all, congratulations on the quarter, of course.

Irwin Simon

Thank you.

Mineo Sakan - UBS

You're welcome. Clearly you've had some great momentum here with solid consumption and like-for-like growth. Given these trends and this momentum, how are you thinking about the reinvestment of incremental dollars? I mean, you've mentioned sales realignment, but do you perhaps see potential upside or improving ROI from increased advertising or marketing for example?

Irwin Simon

Well, listen. I think, if we come back and you heard what we said, as we go after the younger consumer and the way we are marketing the consumer today through social media, through our networks, and I think a big part of our growth that came whether it was our key business, a big part of our growth with Earth's Best is being out there in front of the consumer. It doesn't mean we got to be advertising on the Olympics for the Super Bowl. It means we got to be reminding our consumers who are buying healthier products all the time.

From the standpoint of that, our consumers are educated. Our consumers are expecting value and our consumers are re-labeled, so telling the consumer about our product is something very important and that is something that we will continuously heavily invest in. We are spending a lot more money in the U.S. this year on consumer advertising, and we'll continue to spend a lot more money in the U.K. to take these brands that we're acquiring.

We're spending a lot of money this year on New Covent Garden. It's the number one fresh soup to take it to a whole other level, so yes there is a big investment to the consumer on our part. You can't starve brands and we've seen what happens when you starve brands.

Mineo Sakan - UBS

Great. Thank you.

Irwin Simon

You're welcome.

Operator

(Operator Instructions). Your next question comes from the line of Eric Larson with C.L. King.

Irwin Simon

Operator, I think he has dropped off. Can we take the next question?

Operator

Your next question comes from the line of Sean Naughton with Piper Jaffray.

Sean Naughton - Piper Jaffray

Hi, guys. Congrats on the U.S. operating margin expansion. Very solid execution there.

Irwin Simon

Thank you.

Sean Naughton - Piper Jaffray

There's a couple of quick questions. One, Irwin, you have such great visibility across all the different channels. Maybe just giving us a little bit of a deeper look kind of in that independent natural and organic space, are you seeing some of the nice consumption trends there that you are seeing across the rest of the channels?

Secondly, maybe just your outlook as you look into FY'13 given some of the crop conditions we're hearing about today. What is your assumption around inflation for FY'13, and then how did retailers kind of react to this October 1 price increase? Thank you.

Irwin Simon

I'm going to let John and he's got great visibility too, so John just on the independent. Just touch base on that and then I will come back to commodity.

John Carroll

Well, actually in terms of the natural independents, we've actually seen their momentum as the channel accelerate. Actually where they were previously dragging behind the rest of the categories, they are now growing as quickly as anybody in natural and organic.

Irwin Simon

That's interesting, because basically lot of the independents grew with vitamins and they were more perceived as a pill shop, and it is really good to see the independent back growing again because they were flat if not down for many, many years, so we continue to see good growth among the independents and lot of new independent stores continuously opening up.

In regards to commodities, I think from a standpoint the team has gone out and bought out on commodities and have protected ourselves. With that, we got to make sure we absolutely have delivery in that. I come back and I say this here, Sean, I think, yes. There is some concern out there from commodities.

We had to take pricing and we will get pricing and we've had a situation, where we get into a major retailer and we got major pricing, because they saw what? The commodity went up. At the end of the day, I think you are going to see commodities back off. I think, there's probably $1 or $2, a bushel speculation in corn and soybean, I think you're going to see demand fall off, so I think, yes. We did have drought, but I think we will be able to source a lot of commodities all over the world and that's a big factor within Hain today.

Jim Meiers and his group had a worldwide procurement meeting in July for all our divisions to start procuring from. Now we, with Daniels, with Europe's Best in Canada, with all our facilities in the U.S. and now with the acquisition, with the amount of companies we have buying fruits and vegetables and commodities today, it just gives us the ability to buy so much better and to buy all over the world and we are buying in Africa and South America where before we just weren't able to do that.

With that, yes. We are all on the same boat. The only difference is we are out there buying a lot more organic than anybody else and we are out there buying GMO-free, and we have such experienced teams that I will say it's not going to be a problem, but we are definitely on top of it.

Sean Naughton - Piper Jaffray

Okay. It looks like you guys are looking for gross margin expansion next year, and I guess the way to think about that is, you're looking to offset whatever inflation does come through the channel with continued productivity gains, and sales mix and maybe some pricing actions. Is that the right way to think about it?

Irwin Simon

Exactly. We took a price increase in July. We will not see the full effect of that probably until next March or April. I was going through some things today, where we had 5% reduction on packaging and need to continue to focus on those things and efficiencies, consolidate brands, consolidate some of our manufacturing, so that is a big thing that we have in place here that we will continue to do.

Sean Naughton - Piper Jaffray

Okay. Great. Best of luck in FY'13.

Irwin Simon

Thank you.

Operator

Your next question comes from the line of Doug Thomas with (Inaudible) Equity.

Unidentified Analyst

That's close enough. I sent Mary an e-mail. All I had was a one word line to my client that just said wow. I mean, it was a heck of a year, so you guys should all be congratulated. I appreciate the effort. A lot of people would have cut and run from the U.K, Irwin and you didn't. You figured out how to make it work, and I think that's also a significant accomplishment. Maybe you could talk a little about how that all played out looking back the last couple of years, because clearly it's going to be a big success for you.

The question I have really is for John. It has to do with one of the last questions and has to do with sort of being on the tip of the iceberg in terms of some of these large national accounts where you have teams in place, and I am wondering what the real marketing opportunity, what the leverage. Irwin you talked about leverage. We've got these loyalty cards and these tailored marketing programs for their customers and I'm wondering if you guys will be able to benefit from all of that.

Irwin Simon

Number one, thank you Doug for the wow, and I really appreciate that, and you've been here when there was lot of boos too, so and it's great to get wows. Again, arrogance and business don't get along, so we just don't take those wows and fly high in as well, because we know those who live in glass houses, there's a lot of rocks that can be thrown at you and that was the case in the U.K, and we've had many calls of a lot of investors and a lot of analysts that just get out of the U.K. run away from it.

In those times I thought the same thing, but a couple of big things that I can back and say in the U.K. I really believe we found the right mix of brands, I really believe we found the right categories. I know we have found a great management team and we have had some trip up with the management team in running these businesses.

Last but not least, going out and looking at the Premier business, moving back and forth many, many times and said is it on strategy? Is it perfect? I think what happens sometimes, there is not the perfect fit, there is not the perfect life, there is not the perfect wife, there's not the perfect product, and with that if we don't look for perfection we would never be able to do anything, so I think what we came back and looked at what would be out there to really take our U.K. business? U.K. has some of the best retailers in the world, regards with Tesco and Waitrose and Sainsbury.

Let me tell you something. There's a hell of a lot we've learnt, in the U.S., from our U.K. operation. There's a lot of innovation that we will take back from there and vice versa and there's lot of innovation that our U.K. retailers are looking from the U.S. to take back there, so it will become a big part of our business and I think we are getting in at the right price at the right time, when everybody is down on Europe or the U.K. but it's going to come back and we'll be there.

In regards to the U.S., John, I think John and the team has done a great job in building teams and when you put teams in the place, the results will show. John?

John Carroll

Look, I think you asked in terms of support with these accounts and being able to get enough scale to take advantage of some of the programming with the accounts, and as Irwin talked about our increased marketing spend, we are definitely increasing our investment with our key accounts to drive consumption at these accounts. It's the most targeted way we can get our business distribution and our consumption growing.

Unidentified Analyst

I mean it seems to me, John, clearly the type of demographics your customer base should be. I don't know what the word I am looking for is, but they should be really able to be turned on by the sort of the power of these custom marketing efforts, especially as it relates to the brands that you guys have?

John Carroll

Absolutely, and these are brands that they actually want to be merchandising in their different vehicles because they bring customers in from all different channels.

Unidentified Analyst

I would also think. My phone is almost dying, but I would also wonder when if some of the success you are seeing. Also down the road, I mean obviously, the success in the U.S. marketplace which is a very competitive market, your ability to help your customers drive top line has to be helping you gain support overseas. I'm talking maybe even outside of Great Britain and maybe even in Europe. I think from a contrarian point of view that this isn't a bad time. I see there is a headline about is investing in Greece today, which I thought was kind of interesting but you know your ability to help your customers demonstrate terrific results has to be beneficial for you as you seek to grow outside the U.S?

Irwin Simon

Exactly. I think, again, timing is everything, but I think what I said before who is buying natural organic today? It is your yogurt consumer who has disposable income and they will be consumers that will be around a long time, and that's where we want to build long-term relationship with and long-term equity with, so I think that's what happened to [Canso Soups], that's what's happens to sort of other products where they are no longer in vogue and the younger consumer is not buying it.

Unidentified Analyst

Just quickly. Any thoughts on the light weight spin-off?

Mary Anthes

I don't think it's appropriate for us to comment on that.

Unidentified Analyst

Okay. I am just asking. All right. Thank you guys. Congratulations again.

Irwin Simon

Thank you for the wow.

Unidentified Analyst

Sure.

Irwin Simon

Thank you.

Operator

We have time for one final question. Your final question comes from Amit Sharma, BMO Capital Markets.

Amit Sharma - BMO Capital Markets

Hi. Good afternoon, everyone.

Irwin Simon

Good afternoon.

Amit Sharma - BMO Capital Markets

Rob, I might have missed it. The $40 million sales opportunity for fiscal '13. Can you give us more details around that? What is that?

Rob Burnett

Yes. We are building a plant at the moment in Fakenham that will be online in May 13th, so actually really it's more of a fiscal '14 opportunity and there will be about $40 million new revenue in fiscal '14.

Amit Sharma - BMO Capital Markets

That will be frozen meals?

Rob Burnett

That is chilled.

Amit Sharma - BMO Capital Markets

Chilled meal? Okay. got it. Then the distribution gains are a big story in the U.S. operation, but I imagine that the brands that you are acquiring over there are fully penetrated in U.K.?

Rob Burnett

Yes. The brands are pretty fully penetrated in multiple retail channel, but what we think is there has been a lack of investment in terms of the consumer and we think it was a great opportunity to leverage new positions for them in NPD and the U.S. brands?

Irwin Simon

The big thing here is, as you heard what Rob said, there's good distribution out there on the products, but how do we increase velocity? The major thing is here how do we really drive new product on these well known brands?

Amit Sharma - BMO Capital Markets

Sure. That make sense. Then one for Ira. Ira, you gave 47 million share count for next year. It's a little bit higher than what we have in '12. You are not counting for the share as part of the acquisition, right?

Ira Lamel

No. I am not. What we typically see because of stock compensation plans and other factors that our shares, typically increase by a little bit less than 1% a year just naturally.

Amit Sharma - BMO Capital Markets

All right. That's all I have. Thank you, guys.

Irwin Simon

With that this is the end of our call for our year end Q4 of 2012, our outlook and our overview for fiscal 2012, our 2013 forecast out there and talking about our acquisitions in the U.K. I sit here today and I am very proud to report these numbers, and proud because, number one, I get to work with a great team around the world.

Hain, after this acquisition, will have close to 4,500 people worldwide. Hain was started in 1993 and today being one of the largest natural healthy organic food companies in the world and that we are changing the lives of so many people is something that feels great.

On the other hand, with obesity being a major concern. You talk about healthcare, and not that I want to get into politics, but healthcare keeps coming up with Medicare and everything else. Eating healthy is one of the biggest cures and one of the biggest prevention of diseases out there, and we really feel we are in the right space and bringing users in at young age is what ultimately help a lot of the problems that face our nation today.

With that thank you for listening to us on this lazy day of summer in August, and we look forward to reporting to you at the end of October early November, on our first quarter. Enjoy the rest of your summer.

Have a safe Labor Day or bank holiday in the U.K. or wherever else around the world and have a good evening. Thank you.

Operator

Thank you. This concludes today's conference. You may now disconnect.

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