Ingredion Incorporated

Ladies and gentlemen, thank you for standing by. Welcome to the Q4 2021 Ingredient Incorporated Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your host, Jason Pan, VP of Corporate Finance. You may begin.

Good morning, and welcome to Ingredient's fourth quarter and full year 2021 earnings call. I'm Jason Pant, Vice President of Corporate Finance and Interim Vice President of Investor Relations. On today's call are Jim Zally, our President and CEO, and Jim Gray, our Executive Vice President and Chief Financial Officer. We issued our results today in a press release that can be found on our website, ingredient.com, in the Investors section. The slides accompanying this presentation can also be found on the website and were posted today for your convenience. As a reminder, our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the company's future operations and financial performance, including the impact of the COVID-19 pandemic. Actual results could differ materially from those estimated in the forward-looking statements. And Ingredion assumes no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in this morning's press release can be found in the company's most recently filed annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. During this call, we also refer to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating income, and adjusted effective tax rate. which are reconciled to U.S. GAAP measures in Note 2, Non-GAAP Information, included in our press release and in today's presentation's appendix. Now, I'm pleased to turn the call over to Jim Zally.

Thank you, Jason, and good morning, everyone. For the full year, we delivered very strong top-line performance with 15% net sales growth. This reflected well-managed sales execution by our pricing centers of excellence, to manage price mix and address higher input costs while we responded to strong customer demand. As a result, full-year adjusted operating income grew 4% versus the prior year. Now, I'd like to highlight a few of our sales achievements. For the full year, we grew net sales by double digits across all four regions by actively managing the terms of our customer contracts including the pass-through of higher corn and input costs. As you'll see on the next slide, this applies to not only our specialty ingredients, but also our core sweetener and starch portfolio. Our stable, cast-generating core sweeteners and starches are used in a broad range of applications that saw strong demand growth in 2021. For example, Industrial starches used in paper making and corrugating saw increased demand related to economic recovery. In addition, pharmaceutical grades of dextrose and starches experienced strong demand related to health care applications. As a result, net sales of these and other core products grew 14% versus the prior year. In line with our strategy, we reduced the overall percentage of high fructose corn syrup sales in our portfolio from 12 to 10 percent as a result of our announced joint venture in Argentina. Now, turning to specialties net sales. Specialty net sales grew strongly in each of our four regions last year and now represent 33 percent of global net sales. Asia-Pacific led our specialties growth, driven by our sugar reduction growth platform, with Pure Circle performing exceptionally well. Tapioca and rice-based starch texturizers also contributed to the strong performance in the region. In EMEA, we also delivered excellent specialties growth, with food systems contributions from KTEC and strong starch-based texturizer demand. South America and North America benefited from strong food service demand and the pass-through of higher corn and freight costs. Now, I'd like to comment on the global supply chain environment. The global supply chain constraints we discussed during our last earnings call, which were driven by reduced ocean container availability, rail congestion, truck driver shortages, and the continuing impacts of the pandemic, intensified in the fourth quarter, with the emergence of the Omicron COVID variant. As a result, we experienced higher than expected supply chain costs in the quarter as we prioritized service and switched from lower cost to higher cost modes of transport as necessary to meet customer commitments. We foresee these exceptional circumstances we experienced in the fourth quarter steadily improving throughout the first quarter of this year. Additionally, the contracted pricing actions that took effect at the beginning of 2022 will address the most recent increase in input cost inflation that we experienced in the fourth quarter. Moving on to our strategic pillars. This year and during the quarter, we continue to execute on key initiatives to advance each of our strategic pillars. As discussed previously, Global specialties net sales grew nearly 17% in 2021, driven by increases across all of our growth platforms. Pure Circle continues to perform very well and finish the year with positive operating income in the fourth quarter. Moving to commercial excellence, our sales teams around the world finish the year upbeat as they continue to drive top-line momentum and expand our new project and product pipelines with customers. We successfully completed our three-year CostSmart program, delivering $170 million of cumulative savings, beating our original $125 million target by 36%. We will now carry forward the momentum and learnings as part of a rebranded strategic pillar, cost competitiveness, to continue to drive efficiencies across our business and reinvent the way we work. All of this progress continues to be underpinned by our purpose and values driven growth culture. We continue to make excellent strides and I will comment later on recent accomplishments and recognitions we received in a number of areas. Now let me turn to a few specific specialties highlights starting with sugar reduction. Pure Circle finished the year with net sales up over 60% versus 2020's results and continues to be a catalyst for growth in our sugar reduction and specialty sweeteners platform. Notably, we concluded the fourth quarter with positive operating income and were cash and EPS accretive. This has been a wonderful turnaround story in its first full year under Ingredion ownership with excellent execution against the integration plan. a reinvigorated customer base, and a strengthened R&D pipeline. We expect continued strong double-digit growth from our sugar reduction and specialty sweeteners growth platform in 2022. In plant-based proteins, we continue to be bullish on the many opportunities ahead. Despite the ups and downs in plant-based food demand during the pandemic, the plant-based protein category overall continues to grow double digits and this growth is expected to continue well into the future. Our existing customer pipeline remains robust across many food categories, such as alternative dairy, alternative meat, protein-fortified bakery, snacks, and supplements. Our 2021 net sales doubled off of a modest base. However, our production volume ramp-up has been slower than expected at South Sioux City as we optimize quality and yield to maximize batch sizes and extend uptime. The team has made excellent progress, though, in recent months, and we are building inventory of high-quality food-grade product in anticipation of accelerated sales development throughout 2022. In Vanscoy, our startup was impacted by COVID-related labor shortages and equipment delays as we executed on our transition from pet food applications to consumer food products. Today, our protein flour and specialty concentrates production lines are performing exceptionally well, and sales development is accelerating. The slower South City production ramp-up, Vanscoy delays, and higher P costs due to the drought in Western Canada drove higher than expected startup costs, resulting in an operating loss of approximately $40 million in 2021. Going forward, we remain optimistic in the long-term growth prospects for this exciting product category and expect year-over-year operating losses to decrease by approximately $10 million in 2022, and we expect to reach break-even by late 2023. We are actively managing yellow P costs and are confident we've secured our yellow P requirements for 2022. And now, let me hand it over to Jim Gray for the financial review. Thank you, Jim, and good morning to everyone.