Sensient Technologies Corporation
Q4 2008 Earnings Call Transcript

Published: 6 Feb 2009

[Operator:]

Good morning, everyone, and welcome to the Sensient Technologies Conference Call 2008 Fourth Quarter and Year-End Conference. Today's call is being recorded. At this time for opening remarks, I would now like to turn the call over to Mr. Steve Rolfs. Please go ahead, sir.

[Steve Rolfs:]

Good morning. I am Steve Rolfs, Vice President, Controller and Chief Accounting Officer of Sensient Technologies Corporation. I would like to welcome all of you to Sensient's 2008 year-end earnings conference call. I am joined this morning by Mr. Kenneth P. Manning, Sensient's Chairman and Chief Executive Officer; Dick Hobbs, Sensient's Senior Vice President and Chief Financial Officer; and Rob Edmonds, Sensient's President and Chief Operating Officer. Yesterday, we released our 2008 financial results. A copy of the release is now available on our website at sensient-tech.com. Before we begin, I would like to remind everyone that comments made this morning including responses to your questions may include forward-looking statements as defined in the Securities Litigation Reform Act of 1995. Our statements may be affected by certain factors, including risks and uncertainties, which are discussed in detail in the company's filings with the Securities and Exchange Commission. We urge you to read Sensient's filings for a description of these factors. Please bear these factors in mind when you analyze our comments today. Now we will hear from Ken Manning.

[Ken Manning:]

Thanks Steve. Good morning. As was stated in our earnings release, Sensient's revenue, operating income and earnings all achieved record levels in 2008. Sensient's revenue reached $1.3 billion this year, an increase of $5.7 billion over the prior year. Our earnings per share rose 14.5% to a $1.89. This is a third consecutive year in which Sensient has produced double-digit EPS growth. As I have stated throughout the year, this has been a year for solid demand and improving prices across our Flavor and Color businesses. The Flavors & Fragrance Group reported a 5.4% increase in 2008 revenue to $809.6 million which is an annual record for this group. The Color Group also reported record revenue in 2008 of $402.4 million an increase of 6.2% from the prior year. Our profits grew at a faster rate than our revenues. This was the result of our ability to increase prices and control costs. Operating profit for Flavors & Fragrance increased 7.6% and Color profit was up 7.5%. Sensient’s overall operating margin improved 50 basis points this year to 12.9%. This was the third consecutive year in which we have increased our operating margin. In the fourth quarter of 2008, Sensient’s underlying rate of growth remained solid, but our reported sales and profits were impacted by the strengthening of the U.S. dollar that occurred late in the year. Sensient’s fourth quarter growth in local currencies was 5.4% which is consistent with the solid growth we saw in the third quarter and above the growth rate in the first half of the year. Sensient’s fourth quarter operating income as stated in the local currency increased 14.4%. As I have mentioned in the past, the company continues to pursue a number of initiative to accelerate its organic growth. We are making investments in our facilities in order to broaden and enhance our capabilities to develop new products. Examples of these new products include preservative free natural colors, new pharmaceutical colors and coating, and unique natural flavor extracts. We are also preparing to enter new geographic markets in order to generate additional sales. We are in the process of strengthening and extending our distribution system so that we can take advantage of these market opportunities. Our consistent long-term strategy has delivered solid organic growth. I expect Sensient’s underlying growth prospects to remain solid even in today’s challenging economic environment. I will now turn the call over to Dick Hobbs our CFO to give you some of the details.

[Dick Hobbs:]

Good morning. I will now provide details of the results for the year and quarter ended December 31, 2008. Annual revenue for 2008 increased 5.7% to a record $1.3 billion. Each of our operating groups contributed to this year’s strong revenue growth. For the fourth quarter of 2008, revenue was down 2.4% to $293.8 million in comparison to $300.9 million in last years fourth quarter. Foreign currency translation had a modest 1.6% favorable impact of Sensient’s full-year revenues, but currencies had a negative 7.8% impact on fourth quarter revenues. As Mr. Manning stated, Sensient’s local currency revenue growth in the fourth quarter was 5.4% which is consistent with the local currency growth we saw in the third quarter, and above the growth rate experienced in the first half of the year. Sensient’s 2008 operating income rose 9.7% to $151.6 million a record for the company. Each of Sensient's Groups reported increase profits and improved margins in 2008. Sensient's overall operating margin in 2008 increased 50 basis points to 12.9%. In the fourth quarter, Sensient's operating income stated in local currency was up 14.4%. Unfavorable foreign currency translation reduced our reported operating income by 11% as a result Sensient's reported fourth quarter operating income was up 3.5% to $36.3 million. Our increased quarterly profit as a result of solid local currency growth in our operations and lower expenses. Diluted earnings per share as reported increased 14.5% to $1.89 for the 12 months ended December 31, 2008 up from $1.65 in 2007. In the fourth quarter of 2008, diluted earnings per share as reported rose 10.3% to $0.43 compared to $0.39 in the last year's quarter. The company reduced its total debt by $27.2 million in 2008 for a debt-to-total capital ratio of 37%, down from 38.4% at the beginning of the year. Debt-to-EBITDA at December 31, 2008 is 2.3 down from 2.6 at the beginning of the year. By the end of 2009, we expect debt to be less than two times EBITDA. Sensient's focus on debt reduction together with the current lower interest rate environment contributed to $1.5 million reduction in interest expense in the fourth quarter. At prevailing interest rates, we expect to see additional reduction in interest expense in 2009. Sensient's effective tax rate for the year was 29.7%, compared to 30.1% in 2007. The effective tax rate for the fourth quarter was 28.9%, compared to the prior year rate of 29.9%. Our tax rate in both year included benefits from the settlements in prior year tax matters and other adjustments. I will now like to take a brief look at the results of our operating group. The Flavors & Fragrances Group reported record revenues in 2008 of $809.6 million up 5.4% compared to 2007. Group revenue in the quarter was $193.5 million off 1.2% from the prior year's fourth quarter revenue of $195.8 million. Stated in local currency, quarterly revenue grew 5.8% in the quarter. Flavors & Fragrances Group operating income rose 7.6% to a record $123.5 million in 2008, compared to $114.7 million in 2007. Operating margins in 2008 increased 40 basis points to 15.3%. For the fourth quarter, group operating income was $29.2 million, compared to $29.7 million in 2007, a decrease of 1.8%. Operating income and local currency grew 5.4%. The impact of unfavorable foreign currency translation on the Flavors & Fragrances Group in the fourth quarter reduced both revenue and operating income by about 7%. Sensient's Color Group reported record revenue in 2008 of $402.4 million, compared to $379 million in 2007, an increase of 6.2%. Revenue for the quarter ended December 31, 2008 was $89.6 million compared to $95.9 million in 2007, a decrease of 6.6%. Stated in local currency, quarterly revenue grew 2.4% in the quarter. Color Group operating income in 2008 was up 7.5% to $71.6 million. For the year, operating margins improved 20 basis points to 17.8%. Color Group profit was up 6.2% on a local currency basis for the fourth quarter. The fourth quarter operating income reported for the Color Group decreased by 3% due to the strengthening US dollar. Revenue in the Corporate and other segments, which includes the company's operations in the Asia-Pacific region, increased 12.5% in 2008 to $75.6 million on strong sales gains in China, New Zealand, the Philippines and Thailand. Fourth quarter revenue for these operations grew 5.4% to $17.4 million, despite an unfavorable foreign currency impact of about 11%. Sales in local currency, fourth quarter revenue in the region grew over 16%. Sensient expects 2009 diluted earnings per share as reported to be between $1.90 and $1.95. I will now turn the call over to Rob Edmonds, President and Chief Operating Officer for some concluding remarks on this year's performance.

[Rob Edmonds:]

Thank you, Dick. I would like to conclude the call by highlighting the achievements in the operating groups this year. Sensient's focused on organic growth produced impressive results this year. Our flavor and color businesses achieved record revenues, increased profits and improved operating margins. Sensient's underlying organic growth in local currencies was in excess of 5% in both the third quarter and fourth quarters versus prior year. In the Flavors & Fragrances Group, we saw strong sales growth in the US and Canada for dairy and flavors as in savory flavors. The dehydrated flavor product line also continued to perform very well. Price increases across our business have offset the impact of higher raw materials and energy costs. In the Color Group, consistent demand for food and beverage colors resulted in higher sales and we’re able to increase prices in all major regions. Sales of cosmetics and pharmaceutical colors were up significantly in 2008, and we also saw improved profitability within our technical color product line. The company's operations in Asia also saw higher sales in 2008 driven by markets in China, New Zealand, the Philippine and Thailand. Combined sales in this region increased 12.5% this year. In the fourth quarter of 2008, despite a difficult economic environment our overall organic growth in terms of local currency continued to show strength. Going forward, we will stick to our strategy of investing in our businesses in order to ensure that Sentient continues to generate solid organic growth.

[Ken Manning:]

Thank you very much. We will now open the call for the questions.

[Operator:]

(Operator Instructions). The first question comes from Mike Sison.

[Mike Sison:]

Hey, good morning guys.

[Ken Manning:]

Good morning, Mike.

[Mike Sison:]

Congratulations on another great year.

[Ken Manning:]

Thank you.

[Mike Sison:]

In terms of your 2009 outlook, the $1.90 to $1.95, could you maybe sort of give us a sense, what you think market demand for Flavors and Colors will be next year. And to some degree, what the sales growth outlook underpins that $1.90 to $1.95?

[Ken Manning:]

Yes. Mike, this is Ken Manning. I am going to make some comments, and then let Dick follow, because I think this is a very good question. If you look at our business in terms of markets, the markets are growing very-very nicely and Dick will give you some numbers in a second. If you look at the business world in terms of a strengthening dollar and currencies are going one way or the other, we have chosen to be, [capital], with our guidance the $1.90 to a $1.95. We haven't disappointed you folks in several years, and we don't want to now, but we want to be careful. The actual demand for our products is increasing as people go to maybe less expensive products to attract consumers. This gives us a chance to reformulate that's always a win-win. We can use other ingredients, we generally get a higher margin and the customer gets a product that's more suitable for his customers. So, reformulation has always been good, we are very-very positive about our markets. I just can't predict to you what the dollar will be in terms of all the currencies that we are dealing, but the markets themselves are great. Dick, do you want to add something to that?

[Dick Hobbs:]

Thanks Ken. Good morning, Mike. Looking at our overall mix of customers, we have a very strong customer base. And in 2008 the sales to the top 25 customers was up over 8%. As we look ahead, and we look at some of the reports from our customers and from individuals who are selling into our markets, they expect a strong growth as indicated by Mr. Manning. And as evidenced by own experience in the fourth quarter of 2008, we are looking at our results on a local currency basis. Certainly, particularly if you look at the Flavor business on our local currency basis, we are up nearly 6%. Colors, was up between 2% and 3%, but Asia-Pacific was up in the high teens. So globally, as we look at these markets, we feel that we were having a robust experience. They were coming out of in the fourth quarter and we see that carrying into 2009.

[Mike Sison:]

Okay. I guess the way to look at it is that, given that the economy backdrop in the US and in Europe is basically in recessionary conditions. It's sort of prompting your customers to find solutions for consumers looking to sort of trade out and that essentially has been a positive for you heading into the year?

[Dick Hobbs:]

That's correct. Reformulation, Mike as a rule of thumb, almost an axiom, is [music jarheads]. It gives us an opportunity to produce a new product for the customer with new ingredients, and we used to get a better margin and it's just a way to go on. And this is not only true of food, beverage, this is also true in cosmetic.

[Mike Sison:]

Okay, then when you think about local currency growth for '09 it's going to grow, but maybe not to the same levels you saw on '08?

[Ken Manning:]

Well, one way to look at local currency versus as reported. Certainly for '09, we feel that in local currency our top-line is going to be up in the mid to higher single-digits. And when you look at some of the things that we have done in the company in the way of taking our cost, and you look at the fact that we did get here with some raw materials right through the end of 2008 to the extent there are some carryovers, we see that are going away as we certainly get into 2009 and particularly as we get into the second, third and fourth quarters of 2009. So, we feel that basis. And certainly on the basis of things like our interest expense because we brought the debt down, that even if the currencies stay where they are because who knows what’s going to happen with currencies. But even if they stay where they are we feel we have enough lift from enough areas in the company, they were comfortable with our $1.90 to a $1.95 forecast.

[Mike Sison:]

Okay, great. I will get back in queue. Thank you.

[Ken Manning:]

Thank a lot, Mike.

[Operator:]

Your next question comes from Christopher Butler.

[Ken Manning:]

Good morning, Chris.

[Christopher Butler:]

Good morning, guys. Sort of jumping off the last conversation a little bit, you have been able to generate some pretty strong growth out of Asia. I am just wondering if the global recession is going to have any more significant an impact on that region for you as it maybe fairly new to some of your products?

[Ken Manning:]

Right now we are not seeing that, people are still eating and drinking things. We do sell a lot into those markets, but we also buy some raw materials from it, and we see raw material cost coming down. So, I think this is a very good business to be in, in the time like this. The only real concern we have is the one we just voiced, that we can’t predict what the currencies are going to do, but the organic growth looks pretty good. They are also continuing in the food and beverage business trends that are very-very positive to us. People are still using more naturals rather than synthetic, that’s a real up-side. We see that particularly in Color. More than half our colors now are natural and years ago that we have just a small fraction of that. We see that trend continuing and the naturals are still growing double-digits. So, I think there is a lot of very good things, and I think the only thing that we are cautioning the group on is that we can't predict where the currencies are going to go.

[Christopher Butler:]

And how about any sort of de-stocking by consumers in their pantries or customers, has that been had any impact on you in the fourth quarter or moving into 2009?

[Dick Hobbs:]

Well, we have to feel that the de-stocking probably goes back to October something like that. So, certainly you will see that in areas like automotive and a lot of different things housing, people probably aren’t buying refrigerators, but with our stock that we are selling this stock turns over, and yes, there were probably was some of that. But in general, we feel that because of the markets we are in, 80% plus of the company is selling into food and beverage markets, so that's going to continue to turn over and as we just said, with some of the reformulations we should get some lifts.

[Ken Manning:]

I think, if there was some de-stocking, most of us [behind had said]. It's not like auto parts or stuff like that with a long shelf life. People may start using less expensive cosmetics, but they are still using. People may start drinking non-branded beverages, but they will still drink beverages. And this is the beauty of the versatility of this business.

[Christopher Butler:]

And finally, I am sorry, if I missed it. Could you give us an idea of the bottom-line impact from currency in the fourth quarter?

[Dick Hobbs:]

Looking at the company as a whole, and I will just kind of go down the list. As reported, revenue in the quarter was a minus 2.4% but in local currency it was up 5.4%. Operating income was up 3.5% reported, but in local currency up 14.4%. And then looking at net earnings, net earnings as reported in the quarter 11.9% up whereas this 25.3% up in local currency. So, what I just gave you is percentages. So, let me say it again. 3.5% on operating income and in the local currency it’s 14.4%, 10.3% on earnings before taxes, local currency is up 24% and net earnings 11.9%, 25.3% in local currency.

[Christopher Butler:]

Thank you. I will go back in the queue.

[Operator:]

The next question comes from [Matt Hagger]

[Matt Hagerty:]

Good morning, guys.

[Ken Manning:]

Good morning, Matt.

[Dick Hobbs:]

Good morning.

[Matt Hagerty:]

Could you just help me on the corporate and other line being down, and I apologize if you have covered this, but being down $2.3 million or so year-on-year. What were the components of that being down?

[Dick Hobbs:]

What that is, it’s a net of our corporate expenses and also our business synergies that aren’t part of the Flavor and Color groups, and those entities are in the Asia-Pacific region. So, you do have an income element to that line. Those earnings were very robust, they were up very nicely. I talked about the revenue in that area being up in the high single digits. The earnings were up significantly as well. In addition to that we've had very strict cost control throughout the company. This has typically, how we have operated but we even stepped that up and we continue to step that up. So, with the cost control and the results from the Asia-Pacific that had the lion share of the impact on that line. With that said, it was a very favorable change.

[Matt Hagerty:]

Right.

[Ken Manning:]

Because it is a net expense line.

[Rob Edmonds:]

We have been really watching our costs and although our sales are going up, in the last three years, we have added 31 people. We have had three years ago we had 3,582 people and now we have 33,613 people. So, we really have been watching headcount, watching expenses, we do not anticipate any layoffs in fact we anticipate adding some sales people and some technical sales support people.

[Matt Hagerty:]

Okay. And if I may one question on the balance sheet, the accrued employee and retiree benefits was down sequentially quite a bit it is about almost $8 million I was just curious what that was about?

[Rob Edmonds:]

It's really two fold, we did have some payments of retirement benefit that product down also as that figures revalued at the end of the year because corporate interest rates went up at the end of the year that brought the value of their liability down slightly.

[Ken Manning:]

And as long as you ask the question, I would like to add something to that. I think its important for investors listening in. We have certainly some of these costs and we have some of these items on the balance sheet as accruals related to these costs. But in general, the company does not have huge legacy costing over it. The company does not have defined benefit, our pension plans of any significance that are hanging over it. We do not have huge work groups are subjected to those plans. And also the company got the retiree medical business quite a few years ago. So certainly, we provide very good benefits to people but we do not have a big hangover, a big legacy hangover obligation in the company that's going to affect us going into the future.

[Matt Hagerty:]

I understand that the absolute dollar value is in large relative to your enterprise value. I guess where I was going it was more the revaluation that you mentioned, would that have run through operating income?

[Dick Hobbs:]

No, absolutely not.

[Matt Hagerty:]

Where did that run through?

[Ken Manning:]

It winds up being an actuarial gain or loss and it does not run through the P&L.

[Matt Hagerty:]

Okay, last question, on the Color business, your organic growth there in local currencies in Q3, I believe it was on the order of 9% or 10% if I am not mistaken, and this quarter down is to 2.4 any reason for that sequential slowing?

[Ken Manning:]

We feel that the Color Group performed very well, throughout the year, we are going to have not exactly the same kind of numbers in every quarter. So it was up and if you look at the Color Group operating income in local currency, I would like to note that it was up 6.2% in the quarter.

[Dick Hobbs:]

Yeah, there is no issue of that's, what you are asking, we expect Color they have enough year.

[Matt Hagerty:]

Okay. Thank you for your time.

[Operator:]

The next question comes from [Margaret Murtha].

[Margaret Murtha:]

Yes, thank you very much. I wondered why the SG&A was down so much in the quarter, absolutely and as a percentage was there anything non-recurring in there?

[Ken Manning:]

Well, I would like to note that because of effect of currencies, the selling and administrative expenses in the quarter have a huge component that is foreign currency related. And so it's just really kind of academic and mathematical that that would come down, because the effects on currencies. As far as any one time items in there, there really is not really anything in there that is outside the normal course.

[Margaret Murtha:]

But would that have any implications for SG&A in 2009, I mean?

[Ken Manning:]

Well, certainly we have had very tight control, as I mentioned earlier, on our expenses in general, we have endeavored to bring down the selling and administrative expenses and we will continue to do that. If you look at the euro for example versus last year our selling and administrative expenses has come down from 18.1% in 2007 to 17.5% in 2008.

[Margaret Murtha:]

Yeah, I see that. That's okay. Also, I think your operating cash flow came in less than you expected for the year. Inventories have been up a lot in the first quarter, so can you tells us what inventories are now?

[Dick Hobbs:]

Yeah, that's a very good question, and I would like to comment that with the inventories we have in the case of our operations that produce dehydrated flavors, we had a very robust production, and we had a higher yield as we end up with some inventories, all of which are going to be sold out. In addition to that, we did have higher cost in the company during 2008. We are having some of that in our inventory. I mentioned earlier, we see our cost coming down throughout 2009, we see that as an opportunity. These inventories will move out and we expected in 2009, we will have a reverse impact on the cash flow and expect it to be well in excess of $100 million.

[Margaret Murtha:]

Okay, thank you and.

[Dick Hobbs:]

Thanks.

[Margaret Murtha:]

Yeah.

[Operator:]

Your next question comes from [Andrew Kasch].

[Andrew Kasch:]

Hello, good morning.

[Ken Manning:]

Good morning.

[Andrew Kasch:]

I'm new to the company, so please, forgive any dumb questions I might have. But just looking at Sensient over a very long period of time, looks like you have some, very, very strong franchise positions in your products. But I am little bit surprised that the financial returns are not higher given these what I think a very strong position, so I was just wondering, is it perhaps?

[Ken Manning:]

Yeah. Andrew, how long of a period are you looking over?

[Andrew Kasch:]

I'm looking at like the last six or seven years.

[Dick Hobbs:]

Right, you're going way back. You are going back, way, way back. Because, yeah, it would be considered right now we have done something, very few companies have done, which is we have had 12 consecutive quarters of doing better than our expectations and doing better than the street expectations for us. And so, I think, most people would view our performance with very high regards. And that will be considered a gold opportunity company, so I'm not sure what you are referencing.

[Andrew Kasch:]

Well. The returns on equity for example, they are in the low double-digit level. You have generated pretty good cash flow, but I assume lot of working capital.

[Dick Hobbs:]

The returns on equity have gone up. I would say they have been going up 30, 40 basis points per year during this period of time that the company has had these very excellent results.

[Ken Manning:]

Andrew, maybe this will help you a little a bit. This is Ken Manning. The company just a few years ago was kind of a commodity company, our mainline product was yeast. We were also manufacturing frozen potatoes, bulk cheese, stuffs like that. We are not in any of those businesses anymore. And in 1997, we started to transform the company and we did 21 acquisitions, which basically is the company you are looking at today. Bringing those acquisitions together was a task. That task went on for several years. About three and half years ago, I announced that we had it together and that the company was to going to grow, and that's exactly what is done. But the early days of bringing all these different cultures, different people, different companies, transferring technology, getting setup, it took some time, it took some effort, but that's done. And last three years, I think would be more representative of the company, as a result of this transformation. And constantly going forward, I would recommend any investor to look at the last three years if they really want to see where the company is going to go for the next three.

[Andrew Kasch:]

Well, looking at the return on equity back in the early 2000, you were 15%/16%, 14%, do you think you will get back those sort of?

[Ken Manning:]

That's where we are heading. Moments before a business collapses from lack of investment, I guess a lot of returns peak because of the capital base among other things, we have had our investment in the new business, But one company which was a high returner, the yeast business is now out of business. All the plants are closed and we sold that in 2001, I guess it's demise came about 2005 or 2006. The potato business, we do not know where that is, we can not find that on the reports of the company that bought it from us, and the cheese business is out of business. Now these companies had a very low basis in terms of their capital, so consequently you will get very high returns, but you got to stay in business. We have had to invest in technology, we have had to invest in a lot of things with some very expensive, but this business is going to be around for a lot of years.

[Andrew Kasch:]

Okay. So, more of a not in a harvest stage, but we see the fruits of the labors in the future?

[Dick Hobbs:]

Right. Andrew, you gave me the line we are in the growth stage.

[Andrew Kasch:]

If I can ask just one other question?

[Dick Hobbs:]

Sure.

[Andrew Kasch:]

If your working capital, maybe you have to have that amount of working capital. I mean, you just mentioned, there was a question here about the inventory. But it seems like it's a fairly high level of working capital. Is that something that maybe as a percentage of sales or percentage of assets maybe trending down, but we are seeing a lot of free cash flow [for a year]?

[Dick Hobbs:]

Certainly, we always endeavor to bring that down wherever we can, and based on when I just said about inventory, we see that as a real opportunity in 2009. If you look at our businesses and you look at things like our receivables and you look at what they are in terms of day sales outstanding in different markets around the world. You look at our inventory and you compare based on, certainly business is selling into the same markets and the same customers. But we have different kinds of products that we are making, and different kinds of products call for different types of inventory planning. And we are consistent within each industry on the inventory, and then payables is payables. That's part of working capital.

[Ken Manning:]

Yes, the strength of the business is it's a specialty business. Every product is really a customized product or what the customer needs. Consequently, business is like rather than commodity businesses which we came out of tend to have higher working capital because we have a broader product line and we have broader requirements. So, you could not run a Flavor business with the same number of products that you run a Yeast business you have to have dramatically more products, because the customers use dramatically different products in a broad range. So, typically the working capital requirements of these businesses would be higher. And if you looked at some of the other companies in the industry I think you would see that.

[Andrew Kasch:]

Okay. Well, thanks a lot. I will look forward to following your company. But can I ask just one last question, can you give a capital expenditure how about for the next few years?

[Dick Hobbs:]

I think the first number would be $50 million to $55 million or so.

[Andrew Kasch:]

Okay, it's kind of per year?

[Dick Hobbs:]

I would say we do have certainly ROI projects in that we have a lot of ROI projects. If we had a big ROI project get in front of us that number could be a little higher, because certainly we are not going to pass up a solid ROI project and we certainly have plenty of balance sheet capacities. As a matter of fact, I should note that we have, and I think maybe we talked about this in the last conference call, but it's worth repeating for some of new folks. The company has totally financed it's balance sheet. We have very favorable terms to two major insurance that we did, one in June of 2007 and the second one September, October of 2008. We have raised $405 million which carries us to June of 2012. So, we have plenty of available credit to do whatever is in the best interest of the company.

[Ken Manning:]

And Andrew, thanks for your questions and welcome to the conference call and you gave us an opportunity to talk about our business, so thanks a lot.

[Andrew Kasch:]

Well, thank you very much. I look forward to meeting you some time.

[Dick Hobbs:]

Okay, Andrew.

[Ken Manning:]

Thanks, Andrew.

[Operator:]

We have approximately five minutes remaining in the conference call. And we will try to handle one or two more questions. If any one has a follow-up question that we are unable to get to you may contact Richard Hobbs at Sensient Technologies at 414-347-3836. Your next question comes from Edward Yang.

[Louis:]

Hi, good morning. This is Louis.

[Dick Hobbs:]

Good morning, Louis.

[Louis:]

Hi, just a question on the organic growth. Was that mostly a price or how could you break it down by segment, what was the volume price?

[Dick Hobbs:]

Sure, we had certainly, as I mentioned raw material cost increases and we were able to get pricing to offset that, but as well and this is always the case with our company. We endeavor to move our products up. As a matter of fact looking at the trend. The new products in our pipeline are up 28%, and with that we are endeavoring always to increase the mix to improve the mix and to sell higher end products. So, that was the component as well. But it was certainly pricing to cover the raw material increases. We more than covered the raw material cost increases with our pricing. We still see capability to continue pricing where needed, and in addition to that we did get a lift from volume and mix.

[Louis:]

Okay, thank you. And could you update on the Canadian plant expansions, is there anything new there?

[Ken Manning:]

Well, it's complete.

[Louis:]

But are you chipping in more products there right now, have you seen growth from there?

[Ken Manning:]

Yeah, it’s really kind of the second or third most profitable profits earning in the company. Its really doing well, and we are really happy for the capability and it's really been a win. So does that answer your question Louis?

[Louis:]

Yeah, that did the helps, thank you.

[Ken Manning:]

Okay.

[Operator:]

We have reached the allotted time for questions. Are there any closing remarks?

[Steve Rolfs:]

I would like to thank everyone for joining the call this morning and as moderator stated if there are any follow-up questions please feel free to call the company after the call. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.