Louis-Philippe Carrière - Executive Vice President of Finance & Administration and Secretary Sandy Goldberg - Lino Saputo - Vice Chairman of the Board, Chief Executive Officer and President

Mark Petrie Irene Nattel - RBC Capital Markets, LLC Michael Van Aelst - TD Newcrest Capital Inc. Peter Sklar - BMO Capital Markets Canada Patricia Baker - Scotia Capital Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Saputo Inc. First Quarter Financial Results Conference Call. [Operator Instructions] Also as a reminder, this conference is being recorded, Tuesday, August 2, 2011. It is now my pleasure to introduce Mr. Lino Saputo Jr., President and Chief Executive Officer. You may proceed, sir.

Thank you, Paz.

Good afternoon, everyone, and thank you for joining us today. A press release detailing our fiscal 2012 first quarter results was issued earlier today, and is also available as we speak on our website at www.saputo.com. This call is being recorded and will be posted on our website for future reference. I would like to underline that our Internet listeners, as well as journalists are on a listen-only mode. Members of the media are invited to ask their questions by phone at the end of this call. Before we proceed, I'll remind you that certain information that will be discussed during this call may constitute forward-looking information within the meaning of securities law. Caution should be used in the interpretation of such information since management has made certain assumptions including among others, assumptions regarding projected revenues and expenses and references to objectives and strategies that are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those presented in such forward-looking information. For more information on these risks and uncertainties, you should refer to our most recent annual report that is available on SEDAR. Any forward-looking information discussed during this call is based on management's current reasonable estimates and expectations and we do not undertake to update this information except as required by law. The speakers today are: Mr. Louis-Philippe Carriere, our Executive Vice President Finance and Administration; and Mr. Lino A. Saputo Jr., our President and Chief Executive Officer and Vice Chairman of the Board. After a brief presentation, we will conclude the call with your questions. Louis-Philippe will now start the conference, followed by Lino Jr.. Louis-Philippe Carrière: Thank you, Sandy, and good afternoon. I would like to present our results for the first quarter of fiscal 2012. Net earnings for the quarter ended June 30, 2011, totaled $126.6 million, an increase of $14.9 million or 13.3% compared to the same quarter last fiscal year. Earnings before interest, income taxes, depreciation and amortization for the quarter totaled $209.6 million, an increase of $18.3 million or 9.6% compared to the same period last fiscal year. EBITDA for our Canada, Europe and Argentina Dairy Products Sector increased by $3.2 million, totaling $125.3 million for the quarter. Despite slightly lower sales volume in the fluid milk category, the Dairy Product division in Canada EBITDA increased due to cost reductions and favorable dairy ingredients market condition as compared to the same quarter in last fiscal year. EBITDA for the Dairy Product division Europe increased slightly during the quarter as compared to the same period in fiscal 2011. EBITDA for the Dairy Product Argentina increased slightly for the quarter as compared to the same period last fiscal year, mainly due to increased sales volume and the favorable selling price in the export market. EBITDA for the U.S. Dairy Products Sector increased from $65 million in the first quarter of fiscal 2011 to $80.3 million this quarter. The inclusion of the DCI acquisition and initiatives undertaken in current and prior fiscal years with regards to operational efficiencies offset higher fuel and other operational costs, thereby, increasing EBITDA by approximately $11 million in comparison to the same quarter last fiscal year. The block market per pound of cheese increased steadily throughout the quarter, having a positive effect on the realization of inventories. A USD $0.34 higher average block market per pound of cheese compared to the same quarter last fiscal year created the positive effect on the absorption of fixed cost. The relationship between the average block market per pound of cheese and the cost of milk as raw material was less favorable in the quarter in comparison to the same period last fiscal year. A more favorable dairy ingredients market in comparison to the same quarter last fiscal year also increased EBITDA. These market factors combined have a positive impact of approximately $10 million on EBITDA. Also, the appreciation of the Canadian dollar eroded approximately $5 million in EBITDA. EBITDA for the Grocery Products Sector amounted to $3.4 million, a $0.8 million decrease compared with the same quarter last fiscal year. This decrease is the result of higher ingredient cost and lower sales volume, which offset manufacturing efficiencies and cost reductions. Consolidated revenue was a total $1,639,000,000, an increase of 14.1% compared to $1,436,000,000 for the same quarter of last fiscal year. This increase was mainly due to the inclusion of the DCI acquisition, a higher block market per pound of cheese, a favorable dairy ingredient market and higher selling prices in relation to the higher cost of milk. Cash generated by operating activities amounted to $123 million, a 20.3% decrease compared to $154.3 million for the same quarter last fiscal year. The decrease is mainly attributable to an increase in noncash working capital items, which can be attributed to an increase in inventories and receivables, resulting from a higher average block market in the U.S.. During the quarter, we received $27.7 million as proceeds from the disposal of the dairy investment, and we had $20.1 million in fixed assets. Also the company decreased its bank loan by $68.8 million, issued share for a cash consideration of $13.8 million as part of the stock option plan, and purchased share capital totaling $20.8 million in accordance with the normal course issuer bid. Finally, the Board of Directors reviewed the dividend policy and increased the quarterly dividend from $0.16 to $0.19 per share, representing 18.8% increase. The quarterly dividend will be payable on September 19, 2011 to current shareholders of record on September 8, 2011. Lino Jr. will now proceed with the presentation of our outlook.

Thank you, LP, and good afternoon to you all. Fiscal 2012 is off to a good start. Across all of our facilities, we strived to reduce cost while maintaining high quality standards, as we review overall activities to increase operational efficiencies. And I believe our Q1 results are a testament to our employees' exceptional work. More specifically this quarter, we continue to focus on maximizing the benefits obtained from the consolidation of our manufacturing and distribution activities as announced at the end of fiscal 2010. In certain sectors, we pursued volume growth and focused on procuring milk supply at prices competitive with the selling price of cheese. To increase our presence in the growing specialty cheese category, we invested in several projects and evaluated opportunities at our newly-acquired DCI business. DCI holds an extensive portfolio imported -- import licenses for the specialty cheese produced abroad and also markets a wide variety of domestic products. In addition, during the quarter, capital expenditures at one of our California facilities were completed, and we are now servicing our West Coast customers directly from this facility. As well, on June 30 and July 1, 2011, we participated in the consolidated stabilization and marketing plan hearings held in California to oppose petitioner's request to consider amendments to the Class-4b milk pricing formula. A decision is expected to be rendered by the end of August. These amendments, if any, are expected to be effective September 1, 2011. As for the Grocery Products Sector, we've been focusing on increasing sales volumes and developing sales in the U.S. market. Our goal remains to offer high-quality products, while continuing to improve efficiencies, increase capacity and to pursue growth internally and through acquisitions. Our strong financial position and low debt levels enabled us not only to adapt to market shifts, but also provides us the flexibility to capitalize on opportunities as they present themselves. On that note, I thank you for your time, and we will now proceed to answer your questions.

[Operator Instructions] Our first question from the line of Patricia Baker from Scotia Capital. Patricia Baker - Scotia Capital Inc.: Lino, in your remarks, you referred to certain markets where you pursued volume growth. Can you talk a little bit more about that? Are we talking here in the U.S. or Canada or in both markets?

Well, specifically, we were going after volume growth in Europe. As you recall in previous quarters, we had talked about a reduction of milk intake because the milk prices in Europe were not in line with the selling price of cheeses, so we took a step back only to move forward. We have realigned our infrastructure in Europe and have been able to procure more milk in line with the selling price of cheese, so that has grown. But in addition to that, when we look at the -- on a division-by-division basis. We've often talked about the different commodity markets that were somewhat stagnant in terms of overall increases in volumes. We have continued to pursue a growth in specialty categories, in value-added categories like fine cheeses in addition to value-added single-serve fluid milks. So again, we can't circumvent the trends that are going on in certain markets, however, we can capitalize on the ability to be able to be a lot more flexible with the infrastructure that we've built over the course of the last 5 to 7 years. Patricia Baker - Scotia Capital Inc.: That's very helpful. And it makes a lot of sense. If I may follow up a little bit, just talk a little bit about the U.S. market. Have you seen any change in your customer base in the first quarter versus where they were in the fourth quarter? Is it more competitive out there, more promotional?

It is very competitive. In fact, you've seen the run-up of the block price of $2.15 in the last 6 months. And this would lead us to believe that the consumption patterns are increasing in the U.S. when in fact, we've seen it stabilize or shift from food service over to retail. I think the big demand for milk in the U.S. is going towards the emerging markets either in powder or butter or some cheeses. And so the domestic market really isn't growing all that quickly, and so you'll find the competitive environment getting that much more difficult. We have the great fortune of being able to sit on an incredible platform in the United States. We had manufacturing capabilities coast-to-coast. We have great infrastructure in California, Wisconsin and in Maryland. And I think we can compete well with anybody in the market. One of the reasons why we felt that the DCI acquisition was strategic for us is because they got us into another category of product similar to what we have in Canada in terms of the makeup of the infrastructure in Canada, and we're allowing ourselves to have access to a market that is in greater demand.

Our next question is from the line of Irene Nattel from RBC Capital Management. Irene Nattel - RBC Capital Markets, LLC: Just following up on the whole subject of where the milk in the U.S. is going. Can you talk a little bit or provide us an update as to where you stand right now with exports from the U.S. into other markets?

The export markets are very, very strong both on the primary products and the byproducts. Our platform in Argentina provides us a great ability to be able to be a long-term sustainable supplier into the international markets. Through those connections and through those relationships, we have had the ability to be able to export product from our U.S. business. However, the U.S. business is a little bit more spot than it is long term because, of course, we're heavily dependent upon a domestically-priced raw material. So our international connections allow us to capitalize on opportunities. Unfortunately, they're not long-term or sustainable opportunities, I would say, they're more spot opportunities for ourselves. Irene Nattel - RBC Capital Markets, LLC: So, I guess, the "experiment" or the initiative that you were kind of trying for a little while in terms of figuring, seeing whether you could somehow get a more stable pricing using futures or whatever to export from the U.S. It sounds as though that may not in fact be coming to fruition?

Well, we are using futures and that's the only way that we can price product for the international markets. But understand that the futures, the longer you are on futures, the higher price of milk you'll contract. And so in some cases, that is not an attractive opportunity for our customers. So we'll forward contract maybe on a 3-month to 3-month period, but not much beyond 3 to 6 months. We're not contracting out 12 months. So until there's a change in the regulations, if there ever would be a change in the regulations in the U.S., where milk will be priced at international levels, I'd say it would really would be a quarter-to-quarter analysis. Irene Nattel - RBC Capital Markets, LLC: Understood. Can you talk a little bit about what you're seeing right now in Argentina, and how we should be thinking about export levels from Argentina over the coming quarters?

Well, we have built the infrastructure in Argentina to create quite a bit of flexibility within our system. The flexibility allows us to capitalize on opportunities within the domestic market but also gives us the ability to be able to take in more milk for the international markets. And so Argentina has been an incredible platform for us with a lot of flexibility. We have virtually doubled the intake of our capacities over the course of the last 5 years and that has allowed us, really, to be able to supply the growing demand internationally. So the Argentina business is a good platform, not exclusively relegated to domestic or international but has the ability to fluctuate between the 2.

Our next question from the line of Michael Van Aelst from TD Newcrest. Michael Van Aelst - TD Newcrest Capital Inc.: Looking at the Canadian profit growth level, it does seem to be slowing here as the higher cheese prices are choking off demand growth, and I guess the same thing on the fluid side. So the last 2 quarters, we haven't seen much margin expansion, in fact, it looks like it's contracted a little bit. What can Saputo do, if anything, to accelerate growth at the Canadian revenue or EBITDA line over the next few quarters, over the next few years?

Michael, you're spot on in terms of your analysis with the Canadian market. We've been saying this for a number of years. Every time there's a milk price increase, it would almost encourage consumers to spend less on dairy products or consume less of dairy products. We're seeing on the commodity side, whether it would be white milk or commodity cheeses, the demand is curtailing. In fact, there is a decline from what we've seen in fluid milk demand. We haven't lost market share but yet, our milk intake on the fluid side is down versus a year ago. What we can do to mitigate that, again, we're in this value-added specialty categories, we've got the #1 product on the fluid milk single-serve flavored milk products, and that's growing. But in comparison to the commodity cheeses, the volume is not quite as big. The way we look at it is that Canada is a very good solid platform, less volatility, less disruption in day-to-day business but a lot more competitive and a lot more challenging in terms of gaining market share or growth. And so, if we set aside that platform, we can see growth in the United States, no limitations there. There is growth in Argentina. We have grown in Europe. And of course, the growth platforms for us will come outside of Canada going forward. Michael Van Aelst - TD Newcrest Capital Inc.: I guess, looking at the volume in the U.S., if you look at the cheese prices being well over $2 a pound right now, also difficult I guess in this kind of environment to grow volumes. Is it just a matter of time until the consumer adapts and then they kind of reset their expectations on what they have to pay for cheese? Or do you need cheese prices to pullback to grow volumes and demand down there?

I would say that the former before the latter. I think that ultimately consumers will adapt to these new prices both in Canada and in the United States. If the markets would be at these levels, long term and sustainable, I would say that the consumer will adapt.

[Operator Instructions] Our next question from the line of Peter Sklar from BMO Nesbitt Burns. Peter Sklar - BMO Capital Markets Canada: Lino, I noticed that your U.S. margin was down to the lower end of the range, where it had been over the last few quarters. And I'm just wondering, what factors would attribute to that? I thought maybe that the spread between the cheese price and the cost of milk had gone quite narrow particularly earlier in the quarter, and maybe that was the largest factor but maybe you could talk about what the factors were?

When you look at the overall, I mean, if you look at the dollar value of EBITDA generation, we're higher than we were last year but the percentage is lower and, of course, we have the block price being as high as it is, has an effect on that. That being said, U.S., it's no secret that it is very competitive. We have had some initiatives over the course of the last couple of years of consolidation and for CapEx execution, which have helped us on a quarter-over-quarter basis improved. But again, once you've got the U.S. business, that's a little bit more stable than it was in the previous quarter, that's where you start to see the profitability start to level off. Peter Sklar - BMO Capital Markets Canada: And you don't seem to be playing up the fact that the cheese price relative to cost of milk was quite exceptionally low at one point during the quarter? Does that not affect you?

The cheese price itself does have an effect on our EBITDA margins. If you've got a higher block price, even if you had the same or better generation on EBITDA on a percentage basis, you could be lower. Even though your dollar value is higher. Louis-Philippe Carrière: And if I can jump in. I think that also you need to take into consideration, that in Q1, that we're just adding DCI. DCI, if you recall, when we posted the acquisition, the press release, we're talking about $450 million on add-on basis, with about $33 million, $34 million of EBITDA. So we're talking about 7%, 7.7% of the margin. So certainly, having some pressure on the margin on the overall that's in Q1. Peter Sklar - BMO Capital Markets Canada: Okay. But even if you look dollar-wise, you did report less dollar EBITDA than you did in the fourth quarter, maybe there's some seasonality to your business?

Well, the other thing too as well is that you can't forget that the DCI acquisition is also on a fixed-price basis like our retail business. So you have more of that fixed-price business there as well. So it's a combination of a lot of different variables and a lot of different factors that allow us to be able to generate the dollar value even though the percentage is lower. Louis-Philippe Carrière: And also, in regard to -- you're referring to Q4, certainly the exchange was, I would say, more negative in Q1 than in Q4, probably in the range of $1 million to $2 million less -- or they're having more pressure on the Q1. And also certainly, probably more or even the better inventory realization in Q4 than what we would see in Q1. Keeping in mind that if you're looking to that the average cheese price in December of 2010 was in the range of probably $1.45, $1.46, about $1.94 in March and about $1.98 in June. So you would -- the inventory realization was certainly better in Q4 than in Q1. Q4 of fiscal '11 than in Q1 of fiscal '12. Peter Sklar - BMO Capital Markets Canada: Okay. And just my last question, in terms of the Toronto area distribution, consolidation, would you have seen pretty well the full benefit of that in the quarter or is there still more to come?

I think there's still is some benefit to come. Where we have seen the immediate benefit would be at the operations level over the closure of the Brampton facility and moving that production into other Ontario facilities. On the distribution logistics side, I would say that there's still are some benefits to come.

Our next question from the line of Mark Petrie from CIBC World Markets.

Just a quick question on DCI. I just wonder if you can talk a little bit about your experience today with those assets and those brands, and where you see sort of the most material opportunities over the next 6 to 12 months, whether that be increased selling of DCI products, selling sort of existing Saputo product into new channels or additional capacity?

Well, on the capacity side, there aren't a whole lot of synergies between the DCI business and our platform in the U.S. It's a different product, different channels and different categories of specialty cheeses than what we were accustomed to in the U.S. Although not foreign to us because we do manufacture those types of products in Canada, different in what the U.S. business was doing. But DCI, what we've seen so far is that there is a great, great, great group of people there that we can rely on to carry on this business as a segregated channel within the U.S. platform. Where I see some of the benefits going forward is the synergies between our Canadian specialty business and our U.S. specialty business in terms of the buying power and the knowledge that we would have with the imported products. I think there's going to be a lot of -- and there already has been a lot of discussion between our Canadian group and our U.S. group. Beyond that, within our U.S. operation, DCI was selling into channels that we were not necessarily a top of mind with the buyers at. DCI introduced this to us, some of those buyers in those channels, as well as we can introduce to DCI some other channels that they may not have been in. So I think there are some synergies but not as evident as some of the other acquisitions that we've had like Land O’Lakes or Alto or F&A, but there are some synergies, I believe, will materialize going forward.

Okay. Yes, just in terms of capacity, I guess I just meant more, the opportunities for you guys to add specialty cheese, production capacity and perhaps bring some of that manufacturing in-house.

Well, yes. Well, the production -- the products and the equipment are completely different than what we have in our facilities. And so I would say that the outlook for us would probably be to possibly, maybe acquire some small artisan-type of facility as opposed to try and to integrate those types of products in our current facilities.

Our next question is a follow-up question from the line of Michael Van Aelst. Michael Van Aelst - TD Newcrest Capital Inc.: Just getting back to the U.S. retail business, can you give us an idea of how often during a typical year you might adjust retail prices to the current commodity environment?

Well, typically, we don't adjust prices, what we do is we play with our trade spend and promotions. Usually, they're lined out at the beginning of our fiscal year, but we do allow ourselves to have a little bit of wiggle room within our budgets to be able to allocate more promotions depending on where customer demand is or where consumer patterns are. Usually back-to-school time is a time where we're promoting heavily. Beyond that, it's really the discretion of our President and his group and his team to determine where is the best bang for their buck. Michael Van Aelst - TD Newcrest Capital Inc.: Sorry, did you say you raise your prices typically in calendar year or at the beginning of your fiscal year?

Well, it's an ongoing process. In the U.S., you're referring to specifically, Michael, is that right? Michael Van Aelst - TD Newcrest Capital Inc.: Yes.

In the U.S., it's usually on a year-over-year basis. And then we readjust with the promotion and trade spend. Michael Van Aelst - TD Newcrest Capital Inc.: Okay. So I guess, as the prices run up and trade spend has to come off a little bit to adjust, so you can maintain some of your profitability and that doesn't help your volumes either, I guess.

That's correct. Exactly.

Mr. Saputo, we have no further questions at this time. You may resume with your presentation or closing remarks.

Thank you very much.

We thank you for taking part in this conference call. We hope you will join us for the presentation for our fiscal 2012 second quarter results in November. Have a nice day.

Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day, everyone.