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

Irene Nattel - RBC Capital Markets, LLC, Research Division Peter Sklar - BMO Capital Markets Canada Mark Petrie - CIBC World Markets Inc., Research Division Martin Landry - GMP Securities L.P., Research Division Michael Van Aelst - TD Newcrest Capital Inc., Research Division

Ladies and gentlemen, thank you for standing by, and welcome to Saputo Inc. Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, November 9, 2011. It is now my pleasure to introduce Lino Saputo, Jr. You may proceed, sir.

Thank you, Franz.

Good afternoon, everyone, and thank you for joining us today. A press release detailing our fiscal 2012 second 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 laws. 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, please refer to our most recent annual report 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 begin the conference, followed by Lino Jr. Louis-Philippe Carrière: Thank you, Sandy, and good afternoon. I will now present the highlights of our results for the second quarter of fiscal 2012 in comparison to those of the corresponding quarter last fiscal year. Net earnings totaled $127.1 million, an increase of $1.3 million. Earnings before interest, income taxes, depreciation and amortization totaled $213.1 million, an increase of $1.7 million. EBITDA for our Canada, Europe and Argentina Dairy Products Sector totaled $135.7 million, an increase of $2.9 million. In the Dairy Product Division in Canada, favorable dairy ingredients market condition and a gain on sales of property, plant and equipment are approximately $2 million, offset by the negative effect of lower sales volume and increased fuel and other costs. EBITDA for the Dairy Product Division in Europe remained stable. EBITDA for the Dairy Product Division in Argentina increased primarily due to the favorable selling prices and increased sales volume mainly in the export market. EBITDA for the U.S. Dairy Products Sector totaled $74.4 million, in comparison to $73.9 million. Initiative undertaken in current and prior fiscal years with regards to operational efficiencies and the inclusion of the DCI acquisition offset increased fuel and operational cost, including higher milk cost due to the negative impact of the revised milk pricing formula in California. These factors combined increased EBITDA by approximately $19 million compared to the same quarter last fiscal year. The $0.44 U.S. higher average block market per pound of cheese created a positive effect on the absorption of fixed costs. Despite a higher average block market per pound of cheese, the block price decreased steadily throughout the latter part of the quarter creating a negative effect on the realization of inventories and resulting in a less favorable relationship between the average block market per pound of cheese and the cost of milk as raw material. Finally, a more favorable dairy ingredient market increased EBITDA. These market factors combined added a negative impact of approximately $13 million on EBITDA. The appreciation of the Canadian dollar eroded approximately $5 million in EBITDA. EBITDA for the Grocery Products Sector amounted to $2.9 million, a $1.0 million decrease. Consolidated revenues totaled $1,791,000, an increase of 15.5% mainly due to the inclusion of the DCI acquisition and a higher average block market per pound of cheese. The appreciation of the Canadian dollar compared to the U.S. dollar and the Argentinian peso negatively affected revenues. Cash generated by operating activities amounted to $221.3 million, a 17.3% increase. During the quarter, the company increased its bank loan by $68.8 million, issued share for a cash consideration of $1.7 million, as part of the stock option plan, purchased share capital totaling $122.1 million in accordance with its normal course issuer bid and paid $71 million in dividends. Finally, the Board of Directors approved a dividend of $0.19 per share payable on December 16, 2011, to common shareholders of record on December 6, 2011. Lino Jr. will now proceed with the presentation of our outlook.

Thank you, LP, and good afternoon to you all. Despite continued challenging market conditions, we've maintained our strong financial position, strengthened our balance sheet and increased cash flows and for this, I am pleased with our results. Across all of our facilities, our focus on offering high-quality products is, without question, our greatest priority, as we continue to work at finding ways to increase operational efficiencies. Specifically this quarter, we focused our efforts on maximizing benefits from our consolidation activities. We pursued our investment strategy and product categories that offer potential for growth. We sought volume increases which included recuperating volumes lost in the fluid milk category in Canada. We've endeavored to obtain milk supply at competitive prices and striven to maintain current volumes in the export market. And it is during these challenging times that we can appreciate our steadfast focus and unyielding discipline. Additionally this quarter, we continued our integration of the DCI acquisition and we continue to evaluate opportunities. As well, in the Grocery Products Sector, we will continue to focus on increasing sales volumes and developing sales in the U.S. market. This quarter, we represented with changes in the California milk pricing formula. That is on September 1, 2011, following the California Consolidation Stabilization and Marketing Committee hearing -- amendments to the class 4b milk pricing formula came into effect. The whey factor used in determining the milk pricing formula is no longer fixed. It now varies in accordance with changes in the whey market. Had the revised pricing formula been in effect since the beginning of our fiscal year, the resulting negative impact on EBITDA would have amounted to approximately USD $6 million for the period of April 1, 2011 to August 31, 2011, based on whey market prices during that period. In the upcoming quarters, we will work on implementing various measures in an effort to diminish the impact of this decision. Consistent with our character, we will continue to monitor our domestic and international dairy markets and take necessary actions to benefit our platforms and our operations. With the overall objective to continue to improve efficiencies and pursue growth organically and through acquisitions. 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 Irene Nattel, RBC Capital Management from Montreal. Irene Nattel - RBC Capital Markets, LLC, Research Division: If we just look at the U.S. profitability in the quarter and look at the sequential shift from Q1 to Q2 and the reduction in profitability, could you please rank the different factors that contributed to that decline in descending order?

Yes, sorry, I mean the first I'll talk about really is the declining block market. When you look at the block price itself from the beginning of the quarter to the end of that quarter, there was a decline. You've got negative spreads that have an impact on our results in addition to negative inventory realizations. I'll have, maybe, LP go into a little bit more detail with the actual numbers, but in a sense, when you've got a declining market, typically it will have an impact on EBITDA. Louis-Philippe Carrière: Yes, and certainly, the factors that you were referring to in terms of on the impact on, let's say, federal realization of inventory adjusts to put everything in perspective. Going back, let's say in March, block price on an average was about $1.94 to $1.98 at the end of June. So essentially, first quarter almost essentially no impact in terms of better or poor realization of inventory. In regard -- in comparison to the second quarter, when you get, let's say in June 1, '98, you get to the end of September at $1.75, a big drop from probably the middle of August to the end of September. So certainly, that is the biggest factor. Over and above that, the spread is even $0.25 lower than the first quarter. Whey prices are certainly not the same impact in terms of profitability as what we gained from the first quarter. Even if the increase throughout the quarter by probably about $0.07 to about average of 59 [ph] for the quarter. Irene Nattel - RBC Capital Markets, LLC, Research Division: That's great. And could you talk a little bit about what's happening in the market in the U.S. in terms of demand, in terms of investments you may be making to support your products and the like?

I'll speak to the 2 different markets that are instrumental to our success. One would be the foodservice, the other would be retail. On the foodservice side, we are seeing quite a bit of activity. Our sales have been stable and in fact, actually are growing into -- in Q2, and we see that momentum currently continuing. On the retail side, however, we see that there is a little bit of a decline in sales. We are -- in light of the current market conditions, the high block prices, we have less promotional activity going on at the retail side and that's driving some business away from retail. So overall, in a nutshell, in the overall U.S. operation, our volumes are stable to growing but again, from a channel-to-channel perspective, there are some differences that are occurring.

Our next question from the line of Mark Petrie from Toronto with CIBC World Markets. Mark Petrie - CIBC World Markets Inc., Research Division: I wonder if you could just give us an update on DCI and specifically, the opportunity to bring some manufacturing into existing Saputo facilities or to maybe make an acquisition of some specialty cheese manufacturer.

DCI is a great platform for us because it does get us into channels of sales that we were not present in previously. It also allows us to have a much wider breadth of product within the U.S. channel. Again, fine cheeses are familiar to us in Canada but really, not familiar to us in the United States. DCI brings to us the ability to be able to not only have Italian specialty cheeses and commodity cheeses but now fine cheeses that are either produced domestically or imported into the United States. The opportunity for us, as we made that acquisition, was not one where we would find synergies within our U.S. platform. In fact, because it is a new platform, there are very, very little synergies that we could capitalize on. Having said that, it does provide the opportunity for us, as you say, Mark, to consider getting into a manufacturing platform very, very different from what we are currently doing in the U.S. with respect to specialty cheeses, which opens up the doors for us to consider the potential for acquisitions which we would not have otherwise considered. As an example, when you look at the fine cheese business and manufacturing capabilities, they are much more labor-intensive and they are much smaller than commodity-style plants. Without the DCI platform, quite frankly it would not have made sense for us to consider that kind of a platform. With the DCI acquisition, we are now open to considering possible acquisitions within the specialty category that allows us to be able to not only market and sell those products but also manufacture them domestically. Mark Petrie - CIBC World Markets Inc., Research Division: Okay. And if you could just maybe talk as you did about the U.S. sort of broad strokes about Canada in terms of trends on foodservice versus retail versus industrial.

We have seen for the second consecutive quarter in Canada per capita consumption, or at least any ways, to have milk volumes decline. There has been continued decline in the fluid milk categories. Beyond the specialty products like the single-serve value-added milks, we have seen that the overall market is shrinking. Either that consumers are consuming less product or possibly that consumers our sourcing product from other areas which will be possibly as well, cross-border shopping. That is a reality of the Canadian market today. On the cheese side as well, we're seeing a lot more competition and less consumption of cheese products and this decline is something that now we've experienced over the course of the last 2 quarters and we're trying to create some, I guess, energy and some potential to try to mitigate some of those volume losses having an effect on our EBITDA.

Our next question is from the line of Michael Van Aelst from Montréal with TD Securities. Michael Van Aelst - TD Newcrest Capital Inc., Research Division: Just to clarify on the last point to start, did you say that cheese volumes were declining as well in the last 2 quarters or is it just milk volumes?

If we look at the cheese volumes themselves, either whole, you've got some categories that are declining, other categories that are remaining stable. So we are seeing a lot more stability. You know where we historically may be seen 1% growth in consumption, that growth is no longer there. It's either stabilizing or in some key areas, declining. Michael Van Aelst - TD Newcrest Capital Inc., Research Division: So overall, declining a little?

Overall declining a little. And again, if you look at -- if I further specify, historically, we have seen in the specialty cheese category growth of 6%, 7% per year. That is slowing down as well. Michael Van Aelst - TD Newcrest Capital Inc., Research Division: Okay. If you look at Argentina, the volume gainings you said were coming mostly from exports but it sounds like going forward you're talking about just trying to maintain that high level of export volumes and growing the domestic business more. Is that accurate?

It is accurate, yes. But I'll add one other thing to that. If you look at the overall dairy production in Argentina, milk coming off the farms is much greater today than it was a year ago, and so our overall throughput and capacities in our plant has been growing. So even though there is a shift in percentage, overall growth to the domestic market has been there in addition to growth in the export market. Michael Van Aelst - TD Newcrest Capital Inc., Research Division: Okay. So what kind of consumption growth are you seeing in the domestic market in Argentina?

There's -- I would say domestically -- and again, this is based on economics and based on inflation and promotion and all of those things, what we're seeing anywhere between 4% to 6% growth in the domestic market. And again, we pick and choose our battles domestically. We want to be in those categories where we are #1, #2 and #3 and we stay away from those markets where we will just be a filler of -- pipeline filler. We don't want to do that kind of stuff. All of that business that we have domestically is business that does make sense for us from an EBITDA perspective. Michael Van Aelst - TD Newcrest Capital Inc., Research Division: And you mentioned that Argentina is facing rising prices -- rising raw milk costs. When is the last time there was an increase?

Well actually, that milk price is reviewed on a month-to-month basis. It has been actually quite stable over the course of the last 6 months or so. There has been quite a bit of stability. That being said, milk price itself has increased. If I look at a year-over-year basis, Mike, milk price had increased but so too had the selling price of cheese domestically and so too had the export market cheese prices.

Our next question from the line of Peter Sklar from Toronto with BMO Nesbitt Burns. Peter Sklar - BMO Capital Markets Canada: On the proposed changes to the U.S. dairy pricing regulations, I see that Saputo signed -- you are part of a group that signed the letter where you are opposed to the dairy market stabilization proposal and I believe you're arguing that it ultimately raised dairy prices as a result of its supply management aspect. I'm finding the structure of the program somewhat complicated. I'm just wondering if you can flush out your position a little bit and why you're against it? And if this legislation did go through, how could it potentially negative effect Saputo's U.S. business?

Okay and I'll try to keep things as simple as I can. As we look at the world dairy markets, we believe that we can be very good, very strong suppliers to the emerging market demand for cheese. I have mentioned on previous conference calls that there are very few platforms around the world that would allow any country to be a supplier of increased demand of dairy protein. One of those countries is the United States. So the U.S. needs to be producing milk at least exceeding the demand domestically, in order to be able to service the international markets. Right now, you've got about 14% of the total solids, milk solids, from the United States that are being exported, which is a huge increase compared to previous years. That is because there is a demand and that international demand is paying the price for it, but the U.S. has to be a supplier of those solids. If the supply controls are in place, we believe that it will limit the availability of dairy solids available for international markets which is what we are not in favor of. Peter Sklar - BMO Capital Markets Canada: Okay. And one aspect of it is that, as you know, they get rid of the milk marketing orders and the milk prices is what they call a competitive price set by the USDA. I mean, I don't understand, what -- how would they determine the price of the milk? That seems kind of vague when we look at the material.

I'll be honest with you, Peter. There are a lot of anomalies based into the different proposals. Until those proposals are final, I reserve any judgment on my evaluation of the system, so I prefer not to answer that question at this stage. Peter Sklar - BMO Capital Markets Canada: I mean it sounds like, to me, the USDA is going to set a price where they believe that it will establish a supply-demand balance?

It would be a supply-demand balance. Effectively, that's what it would be, yes. Peter Sklar - BMO Capital Markets Canada: Okay. And then last thing I wanted to ask you about, I understand Canada's negotiating a new trade agreement with the EU and any thoughts on how this could potentially impact your Canadian business?

My understanding of that discussion would be that it would have an effect on imported products into Canada, which means that there would be larger quotas permitted for import products to come into Canada. That will have an effect on quota values and domestic market but at this stage, it still seems to be a little bit theoretical, not in place and not concrete. And it's really -- because it's not complete, it's not really defined. But my understanding of it is that they would provide more access to imported products into Canada, which right now are capped. Peter Sklar - BMO Capital Markets Canada: Would that be positive or negative for you?

Either way, depending. If we get licenses, it'll be very positive. If we don't get the licenses, it could be negative. So it all depends on how things would turn out with respect to how they would distribute those incremental licenses, which is still very vague at this stage and this is why I hold back on making any comments.

[Operator Instructions] Our next question from the line of Martin Landry from Montreal with GMP Securities. Martin Landry - GMP Securities L.P., Research Division: With regard -- in Canada, with regards to your volume to the market volume decline, do you have any specific data or specific number that you can share with us in terms of the level of decline that you're seeing right now?

Unfortunately, no, I can't share any of that information. There will be some publications, I'm sure, in the year to come or so of Canadian dairy market numbers that will be public. What I can say without giving specifications, I can say that even though our overall volume is declining, our market shares are growing. And that's as good as I can say. Martin Landry - GMP Securities L.P., Research Division: Okay. And according to what you're seeing, the decline in consumption driven by higher milk prices or it's a change in consumer patterns?

Well, we started to see this effect right after the last increase which was in February and went into effect in March. We started seeing, as of April, a decline in market consumption of product. We have seen that, that has been pretty stable in the entire first quarter. A stable decline is what I'm saying, and we saw some decline as well in this last quarter that we just concluded. Again, what we are understanding is it's a combination, first driven by a milk price increase, and second, driven by cross-border shopping. Martin Landry - GMP Securities L.P., Research Division: Okay. And on your DCI acquisition, could you remind us is there any cross-selling opportunities available for you and have you started looking at these opportunities?

Absolutely, in fact,, right after we took ownership of the DCI acquisition, our President of our Canadian Dairy Division, our President of our U.S. Dairy Division had their groups meet in New Jersey to talk about opportunities, either for acquisition from product coming overseas or from some cross-border opportunities where we can use licenses in Canada or in the United States to get products from one country to another. That has taken shape. Our divisions, DCI and the Saputo Canadian Specialty business are in constant communication and if there is any place where there could be some synergies, I would say that's where it would be.

We have a follow-up question from the line of Irene Nattel from RBC Capital Markets. Irene Nattel - RBC Capital Markets, LLC, Research Division: Just staying in Canada for a moment. Have you started to see some of the benefits of the consolidation of the distribution warehousing in and around the GTA and how should we think about that evolving over the next 12 months?

The majority of the improvements were materialized in previous quarters when we did make change and we did consolidate 4, 5 different centers into the one mega center. Of course, consistent with our character, we're always looking at ways of trying to find new opportunities to reduce our expenses, all the while providing a better service to our customers. So that's an ongoing process. But I would say the bulk of our improvements, the bulk of our savings, we would have already seen them in previous quarters. Irene Nattel - RBC Capital Markets, LLC, Research Division: Okay, that's very helpful. And then, just thinking about what's going on out there on the retail side of things, obviously, virtually all retailers are talking about increasingly value conscious consumers. We're seeing a lot of pressure on retailer margins and I'm just wondering about the degree to which they're coming back to you and asking for vendor support.

That is a constant discussion we have. It's not new to this year. It's been something that we have been living over the course of the last 3, 4, 5 years more intensively. What that -- both in bakery and in the dairy businesses, that is something that we need to deal with on an -- almost on a month-to-month basis. Irene Nattel - RBC Capital Markets, LLC, Research Division: Okay. So you're -- so you haven't seen any particular intensification of that?

Not more than what we've experienced last year. But it is consistent.

We have another follow-up question from the line of Peter Sklar from BMO Nesbitt Burns. Peter Sklar - BMO Capital Markets Canada: The $2 million gain on sale of property, plant and equipment, I believe, Louis-Philippe disclosed. Which segment was that in? Louis-Philippe Carrière: It's actually in Canada throughout the CEA segment.

Mr. Saputo, there are no further questions at this time, sir. I will turn the call back to you. Oh actually, we just have a follow-up from Mr. Michael Van Aelst from TD Securities. Michael Van Aelst - TD Newcrest Capital Inc., Research Division: Can you talk a little bit about the seasonality of the milk volumes in Argentina?

Yes, I can. Actually, we're in the peak season now of milk. Our plants are running pretty well close to its full capacity. This is a season now where we expected and we normally do have more volume than we have in previous months and previous quarters. So we are at the peak now of production. Michael Van Aelst - TD Newcrest Capital Inc., Research Division: On average, is fiscal Q2 or fiscal Q3, the peak?

Q2 and Q3 would be the peak, a combination of the 2. Q4 and Q1 are usually the lower production times for Argentina.

Mr. Saputo back to you, sir, for closing remarks.

Thank you very much, Franz.

We thank you for taking part in this conference call. We hope you will join us for the presentation of our fiscal 2012 third quarter results on February 7. Have a nice day.

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