Question-and-Answer Session
Unidentified Analyst
Its difficult to reconcile that really interesting chart and then the $420 million number particularly given the $420 million is a bigger number then what you experienced in 2008, to what degree should we think about this as kind of expectation management with retailers, to what degree should we think about this as truly your forecast?
Gerry Berryman
The $420 million is truly our forecast and as we look at our ownership positions combined with the hedging strategies that fundamentally allow us to buy ahead, and in doing that it pushes out current inflationary market conditions into future years. So the $420 million is in fact our forecast and what our expectations are.
Unidentified Analyst
So another way of saying that is you own an awful lot of 2009?
Theo de Kool
We typically hedge our positions three to nine months ahead of time to secure the supply, to lock in our margins so when the markets drop all of a sudden like they did, obviously there is a trailing effect on our cost price and I’d like to remind first, that we’ve [typically] estimated this to be $500 million, it has come down to $420 million but not all commodities have decreased in the same way. Like Gerry pointed out meat and packaging are still two elements that are increasing for several reasons. So it worked it way slower into our cost price and the markets of course and that means there is no reason at all in a lot of cases for us to decrease prices. This is what the market is.
Unidentified Analyst
Theo, you kept your cash flow from continuing operations flat despite the change in guidance, I would thought that the FX coming down would have had a cash flow effect, what am I not thinking about.
Theo de Kool
I think you think the right direction and we have looked at it, we think that we can stay within that guidance for the moment. There is uncertainty in cash flow always but we work all elements of the cash flow, very tight working capital management even more then before. There are some negatives in last year in terms of hedging impacts that turned probably into some positive this year so for the moment we kept the guidance where it was before. But you’re right, in principal we get a hit there of about $100 million but we are working hard to make up for it.
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