Ingredion Incorporated : 2021 BMO Transcript

	BMO Farm to Market
	Ingredion
	May 20, 2021
	10:00 AM EDT
Ken Zaslow:	Hey, good morning, Jim. It gives me great pleasure to have you at our conference,
	particularly as Ingredion's transformation takes hold. With Jim as CEO, Ingredion has
	been on a steady path to transition itself from a commodity company to a more consistent
	value-added ingredient company, while at the same time aggressively reducing costs,
	optimizing its network, and navigating the ever-evolving landscape. And importantly, in
	three years, Ingredion will derive more than 55% of its profits from specialty products.
	You've also been laser-focused on return on capital, improving processes and cash
	generation. Again, I can't express my gratitude for you being here with us today.
	With that, I'm going to start -- kick it off with some big-picture questions. At CAGNY,
	you really provided a fantastic disclosure on your long-term objectives, your capital
	spending on your specialty business. Can you start with some of the key projects that
	you're doing on starch-based texturizers and Clean and Simple ingredients? And then,
	we'll work through all the different parts of the specialty portfolio.
Jim Zallie:	Thanks, Ken. So, as it relates to our five growth platforms, two of them you just
	described. One is starch-based texturizers, the other is Clean and Simple. Then, there's
	plant-based proteins and sugar reduction, and then food systems.
	The starch-based texturizers and Clean and Simple are two great ones to start with.
	Why? Because they're really the cornerstone of our specialty ingredients portfolio today.
	Ingredion is the broadest and deepest when it comes to a portfolio of starch-based
	texturizers. And what we unveiled at CAGNY was that we want to continue to broaden
	and deepen that portfolio beyond corn-based products. We feel that we have such a vast
	portfolio of corn-based products, and there is a trend, a gluten-free trend, for example, to
	go beyond corn today, or beyond grain-free-type products.
	And so, we've built a tremendous franchise in potato-based products with the acquisition
	of Penford back in 2015, and that has continued to deliver nicely for us. We're really the
	world's largest specialty tapioca supplier in the world, and we continue to broaden that
	portfolio and have some great innovations coming into the future with that portfolio.
	And then, we've expanded into rice-based products, as well. Rice is hypoallergenic, also
	gluten-free, and offers a lot of very interesting properties.
	And we've invested in starch-based texturizers for geographic expansion in Asia-Pacific,
	in Thailand to expand the tapioca franchise, and also in China, where we're investing $85
	million in an expansion of our specialty food starch franchise. And there, we're actually
	ahead of schedule to commission that operation in 2022, and the growth in China is very,
	very significant. Our Clean and Simple portfolio, which is also starch-based, where we
	pioneered the category of what we call functional native starches, those that perform like
	chemically modified products but have a Clean and Simple label, continue to grow nicely
	for us. And at CAGNY, what we said is that we expect, over the next four years, $50
	million of incremental growth from that platform alone growing mid- to high-single
	digits.
Ken Zaslow:	Great. And then, as you said, you have the other platforms, as well. I know you've been
	big into plant-based protein with customers. What is the status of your two new
	facilities? And what is the potential what you're looking at over the next, again, two to

	three years? It doesn't have to be this year, but we're just trying to build out a little bit
	longer-term thought process here.
Jim Zallie:	Sure. So, just to remind everybody, we've invested $250 million in the plant-based
	protein area starting really three years ago with the acquisition of a facility that we've
	retrofitted to produce pea protein isolate, and that is based in South Sioux City, Nebraska.
	That facility has commissioned. We had a customer welcoming event in early March
	with 500 customers, hundreds of samples being requested, and a great project pipeline
	being developed with customers right now for plant-based proteins based on isolates.
	In addition to that, last year we acquired a 100% stake in Verdient Foods, a company in
	which we had a joint venture up in Saskatchewan, to produce a range of pulse-based
	flours and concentrates. So, when it comes to protein-based flours, concentrates and now
	isolates, Ingredion is drawing upon the success it's had over so many years with a
	formulaic texturizing approach with starch-based products to now think about a
	complementary portfolio thinking in two dimensions. One is how we make foods taste
	great from a standpoint of texturizing, but also the nutritional considerations of an amino
	acid balance to have a multi-component formulated approach for plant-based foods
	inclusive of flours, concentrates, and isolates.
	Very excited about both of these investments -- Vanscoy, Saskatchewan, that investment
	is producing flours now, also producing concentrates, and will be producing specialty
	concentrates in the next few months. We're scheduled to get food grade certification in
	June there. We've already got food grade certification in South Sioux City, and again,
	have already had our customer welcoming event.
	So, we're just very excited about this new pillar, or new leg of our specialty franchise for
	Ingredion, that we had the vision, really, to invest knowing that the plant-based
	phenomenon was not going to be a fad but was going to be a sustainable trend for the
	foreseeable future. And we genuinely believe that. It's got great drivers behind it, such
	as digestive health, mindful consumption, sustainability considerations. So, we're very
	bullish on the prospects for the plant-based protein portfolio, going forward into the
	future.
Ken Zaslow:	When you figure out the plant-based direction of it, do you think about the customer base
	as being broad, or do you go deep within your customer base and say, look, I want to stay
	with a couple ones and just go really drive the trend with them? How is your business
	model built on that from the customer basis?
Jim Zallie:	Yes. We typically have developed over many, many years, our sales are very diversified.
	They're not in any way concentrated largely in any one or two customers. We sell into so
	many different customer channels, retail, food service, distributors, global key accounts,
	regional key accounts, small and medium-size entrepreneurial innovative accounts. So,
	our strategy is to go both broad and deep, as I mentioned, analogous to what we've built,
	which is a world-class franchise with starch-based texturizers and to emulate that for
	plant-based proteins.
	Now, clearly, there are some companies that are leading the way right now from a
	innovative standpoint with plant-based proteins foods, and those are coming to us
	because of our reputation and also excited about the prospects that we represent for plant-
	based products now that we've made these investments. So, we'll be, we think, supplying
	the gamut to a variety of customers, but we don't intend in any way to be beholden to any
	one particular customer or two particular customers. And also, what we do genuinely
	believe, at the end of the day, it's going to be a formulated systems approach to get great
	tasting plant-based foods to consumers.

Ken Zaslow:	When you think about your customer base, and we're still going to go to sugar reduction,
	but I just wondered, before I get there, your innovation, is this customer-driven, or does
	Ingredion come up with something and then go out and sell it? And then, what's the
	difference between the two, and how is your model built on that?
Jim Zallie:	It's really a great question. And what I would say is that we have a very integrated and
	thoughtful approach as it relates to understanding what consumers, at the end of the day,
	want. So, one of the things our marketing group does, and we've just recently
	consolidated a center of expertise around consumer insights that we ourselves monitor
	with and on behalf of our customers, as well as to provide insights to drive pockets of
	growth that we can pivot towards quickly that result from changes in the marketplace or
	that are symbolic of longer-term trends that are developing.
	And so, we combine that with the voice-of-customer work, where we're listening intently
	to our customers. And then, at the same time, we understand where process technologies
	or new, innovative technologies converge. An example of that would be in the area of
	fermentation technology, or synthetic biology, where we just made an investment with a
	world-class leader in that category, Amyris, to produce a fermented Reb M, great tasting,
	natural, nature-based, high intensity sweetener based on entirely different technology.
	So, we have a variety of, I would say, market-driven, backed by voice-of-customer
	insights projects, and at the same time for our R&D group, we call them the fewer, bigger
	bets, or the fewer, bigger, bolder bets. And we have about four projects that we are
	working on actively right now that we think would cut across many categories, many
	industries, many customers that would be true innovations when we introduce them into
	the marketplace. So, it's a combination of both, but that's how we go about it.
Ken Zaslow:	Great. Can you talk about the sugar reduction? How is this gaining steam, and what
	progress are you seeing with PureCircle in terms of the integration and the profitability?
	It seemed like it got off to a little bit of a tough start, given the COVID situation, and then
	now it's getting better footing. Can you just talk about the progress there as well? That'd
	be helpful.
Jim Zallie:	Well, I mean, we're very excited by the prospects for sugar reduction. The total
	addressable sugar reduction market between now and 2024 is estimated to be $5 billion,
	and the Stevia market alone in that timeframe will be about $1.6 billion, is what the
	estimates show.
	And our acquisition of PureCircle back in July of last year was a fantastic acquisition of a
	company that was the pioneer in Stevia, with a great heritage and a great intellectual
	property portfolio and tremendous technology in this whole space for leaf extract and
	bio-converted,great-tasting Reb M-type products.
	What we've subsequently done with the most recent alliance that we have formed, as well
	as joint venture investment in a manufacturing operation in Brazil with Amyris, is to
	bring to market a great-tasting fermented Reb M. So, we have what we are calling the
	trifecta of Stevia, high intensity, nature-based sweeteners that we are seeing tremendous
	opportunities, tremendous possibilities, and a great customer pipeline.
	And just specifically on PureCircle, I would say that, since we acquired PureCircle, we
	really haven't been swayed by COVID despite operations being in Malaysia. And we've
	really executed extremely well, and that has to do with -- when a company like Ingredion
	buys a company like PureCircle, we benefit tremendously by having such a global
	presence and a great position in Asia Pacific, leveraging talent there. Singapore, we've
	leveraged talent from Singapore to help with the whole integration. We've delivered
	above our expectations on cost synergies, so we are tracking very well. Our sales are

	increasing month after month since the acquisition. March was the highest month on
	record of sales. So, we really feel very good about the prospects there.
	And now with Amyris, it gives us, again, this complete portfolio that we think appeals to
	the range of customer interests, as well as labeling requirements around the world, and
	we're basically going to follow consumers and customers and what they want on their
	products. But what I can tell you is we combine that also with great tasting, what we call
	functional build-back. When you replace sugar, you need something that's going to
	replace the mouth feel. And so, we have a great portfolio of ingredients there as well to
	offer, again, a whole systems approach to sugar reduction.
Ken Zaslow:	When I put it together and I look at how you thought about this, again, 2024 number,
	there seems to be somewhat of a wide range of what you're looking at. Kind of back of
	the envelope, it was 470 to 560. How much of that variance is within your control and
	operational? And then, how much are you thinking about how it is incorporating industry
	growth? So, when you kind of built out your model for 2024, how much of that is in
	your control, either the upside or downside? And then, how much are you relying on the
	operating environment to help you? And how do we think about that?
Jim Zallie:	Yes, I think what you're referring to is the incremental profitability from our specialties
	portfolio that's projected between now and 2024. So just to clarify--.
Ken Zaslow:	--I'm sorry, yes.
Jim Zallie:	That's okay. And so, in relationship to that, I would say it's going to be a combination of
	both. We're looking at growth predominantly coming from plant-based proteins, sugar
	reduction. Specifically, what we said at CAGNY, with plant-based proteins, is between
	now and then, we should develop a greater than $100 million franchise. I think the
	number was $120 million or $130 million. For sugar reduction, we're looking at double-
	digit, 15% growth off of a PureCircle base when we bought it was north of $100 million
	of sales just in Stevia alone, but an aspiration to get to a $250 million sugar reduction
	portfolio.
	And that's not to forget that, because of the large base of starch-based texturizers, that is
	also going to drive a significant amount of growth, as will Clean and Simple. So, we
	think it's going to be a combination of the just operational execution of the Clean and
	Simple and starch-based texturizers established growth platforms, and then the very much
	on-trend high growth rate platforms of plant-based proteins and sugar reduction being
	pulled along by the strong market demand.
	So, it's really going to be a combination of both, and that's a nice position to be in, where
	you're going to be appealing to market trends and being very on-trend. But as it relates to
	the cornerstone platforms that are the foundation of our specialties, those we just know,
	based on our existing customer relationships, that we will continue to grow nicely,
	incrementally, steadily across the world and with the diversified customer base.
Ken Zaslow:	Great. Changing topics, and just moving into the pricing side of it, Ingredion over the
	years has had -- really been able to price through so many different operating
	environments. You started recently, I think over the last year or so, you've made key
	changes and improvements with the Pricing Center of Excellence. Can you talk about
	what are the actions that have changed with the development of the Pricing Center of
	Excellence? And how does that create greater pricing ability, and what's the end result of
	creating this Pricing Center of Excellence? I don't think you've talked about it enough
	and I wanted to get that out there.

Jim Zallie:	No, thank you so much for the question. One of the things that we feel, by the way, very
	glad we did what we did, which was back two years ago, to establish Pricing Centers of
	Excellence in every region of the world and have them share best practices as it relates to
	how to price through raw material cost increases. But also, some of this was borne out of
	urgent necessity, because one of the things I've highlighted in previous earnings calls is
	how much Ingredion has navigated over the last four years in relationship to foreign-
	exchange headwinds. It's been massive. It's been north of $900 million that we've offset
	with necessary, needed price increases.
	And an example of, or a testimony to that work of Pricing Centers of Excellence is the
	work we've done in South America, which obviously has had extreme currency
	volatilities, specifically devaluations when you look at Brazil, when you look at
	Argentina, and even Colombia of late. And the team down there has systematically
	developed muscles to put through price increases to manage the raw material cost
	increases, whether it be corn or the foreign-exchange devaluations.
	And this past quarter, what we've said on the earnings call, was the first time in recent
	memory that South America actually delivered a price increase in a quarter in excess of
	foreign-exchange devaluation. We always typically, because it moves so quickly, are in a
	lag situation where we get through about 70% in three to six months, and then it's a
	catch-up situation. But the teams have worked to look at many different aspects of the
	value we bring to customers, looking at value-based pricing and looking at our inter-
	company transfer prices for products that are shipped around the world and making sure
	that we also have the right -- proper incentives for our sales teams locally, and our
	finance teams are working extremely well with each of the regions.
	But we've required every region to develop expertise and competencies based on skill
	sets and resource then in a dedicated capacity to just work on pricing excellence based on
	best practice methodology. And they're sharing that around the world, and I think we're
	seeing the benefits of that. And the example I gave you for South America is, I think,
	testimony to the success we're having.
	And by the way, I would just say -- and by the way, I'm sorry, I would just say that, when
	you think about the period that we may be entering, or we are entering right now with
	inflation, what I said to the team is don't you feel good now about all the hard work we've
	done to stand up these Pricing Centers of Excellence as we head into 2022, and what
	we're seeing even now and into the back half of this year with inflation beginning to rear
	its head?
Ken Zaslow:	That was exactly what I was going to -- can you bring -- I think you've always done a
	great job in South America. Can you bring that to other areas, either the U.S. as well as
	Europe, right? Europe, you made a point about value-based pricing. I'm assuming
	Europe has a lot of value, right? That's your highest specialty business. So, is there more
	pricing dynamics there than typical because of this pricing dynamic that you're creating?
	And then, the other part is can you bring this -- better practices into the U.S., and how
	will that affect the U.S. business, over time?
Jim Zallie:	Yes. I think our attitude is we can bring -- this is universal, and it's applicable around the
	world. So, we're going to bring this competency and best practice to each and every
	region of the world. In Europe, for example, and you cited it, it has the highest
	percentage of specialties of any of our regions in EMEA. It's about 54% specialties, the
	same, by the way, as Asia-Pacific. Europe itself would be higher because, in EMEA, we
	have Pakistan.
	But the approach there is to really understand the value you bring to customers when
	you're solving a problem for them and to make sure that it's capturing all the elements of