Lino Anthony Saputo - Vice Chairman, Chief Executive Officer and Member of Environmental Committee Louis-Philippe Carrière - Chief Financial Officer, Executive Vice President of Finance & Administration and Secretary

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

Ladies and gentlemen, thank you for standing by. Welcome to the Saputo First Quarter 2014 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, August 6, 2013. I would now like to turn the conference over to Lino Saputo Jr., Chief Executive Officer. Please go ahead, sir.

Thank you very much, Susie.

Good afternoon, everyone, and thank you for joining us today. A press release detailing our results for the first quarter of fiscal 2014 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. [Operator Instructions] Before we proceed, I remind you that certain statements that will be made during this call may constitute forward-looking statements within the meaning of securities laws. Cautions should be used in the interpretation of such statements since management has made certain assumptions, including among others, assumptions regarding projected revenues and expenses and references to beliefs, expectations, 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 statements. For more information on these risks and uncertainties, please refer to the materials filed with the Canadian Securities Regulatory Authorities, including our most recent annual report available on SEDAR. Any forward-looking statement made during this call is based on management's current reasonable estimates, expectations and assumptions, and we do not undertake to update or revise such forward-looking statements except as required under securities laws. The speakers today are Mr. Louis-Philippe Carrière, our Executive Vice President, Finance and Administration; and Mr. Lino A. Saputo Jr., our 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 our results for the first quarter of fiscal 2014 in comparison to those of the corresponding quarter last fiscal year. These results are presented for the first time under new reporting segments reflective of our 3 geographic sectors, specifically the Canada sector, the USA sector and International Sector, and are consistent with our operating structures. The comparative figures have been reclassified to reflect this new reporting structure. Net earnings totaled $136.7 million, an increase of $14.9 million or 12.2%. Earning before interest, income taxes, depreciation and amortization, EBITDA, amounted to $242.1 million, an increase of $39.1 million or 19.3%. EBITDA for the Canada sector totaled $115.7 million, a decrease of $2.3 million or 1.9%. In the Dairy division, Canada, higher manufacturing cost, lower sales volume and a less favorable product mix, as well as increased promotional activities due to highly competitive market, negatively affect EBITDA. The Bakery division EBITDA increased slightly due to higher sales volumes. EBITDA for the USA sector totaled $112.6 million, an increase of $41.8 million or 59%. This increase was mainly due to the inclusion of the Morningstar acquisition. The market factors combine had a positive impact of approximately $12 million on EBITDA. During the quarter, EBITDA was negatively affected by lower cheese sales volumes, increased promotional and other operational costs and higher milk cost resulting from the temporary revised milk pricing formula in California. EBITDA for the International Sector amounted to $13.8 million, a $0.4 million decrease. EBITDA of the Dairy division Argentina were essentially the same as compared to the corresponding quarter for last fiscal year. Included in the EBITDA of the first quarter of last fiscal year is a $2.5 million inventory write-down relating to a drop in selling price towards the end of the quarter. And in the first quarter of this fiscal year, increase in selling prices and higher sales volume in all markets were not sufficient to offset the increase in the cost of milk. EBITDA for the Dairy Ingredients division remained stable. The Dairy Ingredients market price were higher during the quarter, offsetting a less favorable product mix as compared to the first quarter of fiscal 2013. Consolidated revenues amounted to $2,174,000,000, an increase of $475.2 million or 28%. This increase was mainly due to the inclusion of the revenues derived from the Morningstar acquisition. Net cash generated from operating activities amounted to $119.6 million, a decrease of $25.3 million, mainly attributed to an increase in inventory levels, as well as fluctuation of the average block market in the U.S. During the first quarter, $50.1 million were spent in addition to property, plant and equipment, and we issued share as part of a stock option plan for a cash conservation of $9.8 million, paid $80.2 million for the repurchase of share capital as part of the normal-course issuer bid and reimbursed $29.4 million of long-term debt. Finally, the Board of Directors reviewed the dividend policy and increased the quarterly dividend from $0.21 per share to $0.23 per share, representing a 9.5% increase. The quarterly dividend will be payable on September 16, 2013 to common shareholders of record on September 5, 2013. Lino Jr. will now proceed with the presentation of our outlook.

Thank you, LP, and good afternoon to you all. I'm pleased with our first quarter results. Net earnings are up, EBITDA has increased and revenues continue to grow, this mainly due to the inclusions of the Morningstar acquisition. Notwithstanding, we've experienced an increase in competitiveness in all our operating markets: Canada, United States, as well as internationally. We currently operate 53 manufacturing facilities in 3 countries as we chose to exit the European market, allowing us to concentrate on platforms with a stronger growth potential. We have the knowledge, the resources and the skills to take full advantage of opportunities and to reach our objectives. Worldwide, the demand for dairy products is growing as our industry offers healthy, nutritious foods that are easy to add to any meal of the day. Dairy products are becoming increasingly popular in developing countries where consumers are exploring new dietary trends. Saputo continues to take strategic measures to be among the dairy processors who will be properly positioned to feed families all over the world with tasty, high-quality products. We've reinforced our platforms and continue to work towards developing new markets within the global dairy industry, specifically in Latin America and Oceania. In closing, I'd like to extend my gratitude to our employees who devote their energies and resourcefulness in ensuring our company continues to be among the leaders in the dairy space. On that note, I thank you for your time, and we will now proceed to answer your questions. Susie?

[Operator Instructions] Our first question coming from the line of Irene Nattel with RBC Capital Markets. Irene Nattel - RBC Capital Markets, LLC, Research Division: Lino, you made reference to a more promotional environment in -- or a more competitive environment in all of the markets. And wondering if you can provide a little bit more color around the nature of that promotion. Is it coming from international players? Is it coming from domestic players? And is it taking the form of more aggressive pricing, vendor support? Like how are you seeing it play out in the marketplace?

That's a very good question, Irene. We have seen, specifically within our Canadian platform, increased activity from a competitive nature. We -- 3 players in Canada make up 75% of the milk intake. The Canadian dairy landscape is not growing. If you look at per capita consumption, both in fluid and on cheese items, there's been no growth with the exception of a few value-added categories in specialty cheeses, as well as value-added milks. And so in order for any one company to grow their base organically, they have to steal market from someone else. We've seen activity in the likes of price reductions. We've seen activities in the likes of increased promotion, promotional spend, discounts, and so we're noticing here in Canada that there's a lot more competition to try to hold on to or grow some of the volumes that companies have. I think we are well positioned coast-to-coast. I think we've got leadership positions in many of our markets, and we're fighting to maintain our market share, and unfortunately, sometimes, that will come at the cost of margins. It is a close market, as you all know, Irene. There isn't a whole lot of opportunity for us for further innovation, which is unfortunate. Those are regulations that came into place back in 2008. Historically, we've been able to, through our research and development initiatives, to try to find ways to lower our costs on the manufacturing side so that we can remain competitive and maintain our margins. Unfortunately, since the regulation changed in 2008, we're capped and limited in that avenue, and so we have to look at items like the Warwick -- the announced closure in Warwick and the announced closure in Winkler, the consolidation of our activities in the Montréal, B.C. So we're seeing quite a bit of competition. We're defending ourselves extremely well, but unfortunately that's at the cost of EBITDA margins. Irene Nattel - RBC Capital Markets, LLC, Research Division: Lino, given your leadership position across Canada, do you think that you would be in the position to make acquisitions of dairy facilities in Western Canada should they present themselves?

I think there are pockets of areas where we might have some opportunity for potential acquisitions. And again, we'd have to look strategically within ourselves where we have dominant positions and where we have some opportunities where we can grow. I think there still are some very key, very small strategic initiatives that we can, perhaps, entertain. And that's probably as much as I would say on the acquisition front. Irene Nattel - RBC Capital Markets, LLC, Research Division: Yes, I figured as much. And then just finally, because I have to ask this question on every call, on acquisitions, what are you seeing out there right now, expectations, multiples, regions, that kind of stuff?

From our perspective, you know that the regions that still make a whole lot of sense for us, outside of what I spoke about in Canada, would be the United States. Now, again, cheese and fluid products similar to what the new division, the old Morningstar, the new Dairy Foods Division, would be able to offer us. Outside of the United States, Latin America still makes a whole lot of sense for us, perhaps Brazil, perhaps other countries in Latin America. And Oceania still is on our radar screen. What we're seeing, I mean, from our perspective, Irene, you've heard us say this many times before, we have a number of files on our table at any given time, 3, 4, 5 different files. Is the potential there for us to materialize some sort of acquisition, medium or large or even small? I would say the likelihood of that is actually quite good. But again, we need to be strategic, we need to be very disciplined in our analysis, and we're looking at a long-term perspective on assets that perhaps could become available for us for acquisition.

Our next question coming from the line of Martin Landry with GMP Securities. Martin Landry - GMP Securities L.P., Research Division: I would like to know with regards to your Morningstar acquisition, is there any way that you can give us some color on how the business performed perhaps on a sequential basis versus Q4 in terms of sales and profitability?

Morningstar has been a shining star for us, I would say, in the first quarter of this fiscal year. Kevin Yost and his team have done a phenomenal job, really remarkable job at driving some of volume. National accounts are on the rise. Food service is on the rise. I think we're doing a really incredible job at trying to get in front of our customers new products, new categories, innovative things that perhaps would drive some volume at their stores, which, specifically the customers that we're servicing are doing extremely well. So I would say that the Dairy Foods division in the U.S. has been a real good platform for us in the Q1. Martin Landry - GMP Securities L.P., Research Division: Okay, good. And with regards to your cheese volumes in the U.S., you're mentioning that they were down year-over-year. Is this an industry-wide issue? Or is this mostly related to your company? And was curious to see where does it come from. Does it come from retail, food service or industrial?

The U.S. business really has been somewhat challenging as well for very different reasons than the Canadian market. There has been perhaps a little bit more volume in the production than there is demand on sales. And so that always creates a dynamic where, if people want to keep their plants full, they've got to go out and get market share. Specifically, to the different channels, retail, the whole retail channel has been up. The food service channel is regaining confidence. It's on the industrial side where we're seeing a lot of competition, big volumes, low margins, that's where we're seeing quite a bit of competition. Martin Landry - GMP Securities L.P., Research Division: And lastly, last week, Fonterra issued a safety warning on their whey products and it resulted in China banning imports from New Zealand, and also other countries in Asia did the same thing. Could we see a short-term benefit from -- for you in terms of increase imports of whey in the coming weeks?

Well, the only comment that I would make on that is that the Fonterra that we know is a very good, very solid company. I don't think they're going anywhere anytime soon. This, like most companies would have if there is some sort of a food safety issue or recall, perhaps there might be some short-term pain. But over the long haul, I don't think the dynamics of the market would change all that dramatically.

Our next question coming from the line of Michael Van Aelst with TD Securities. Michael Van Aelst - TD Securities Equity Research: First question, just on the Morningstar again. Are you able to quantify the revenues for Morningstar? And I guess, I'll be hopeful and ask you about EBITDA as well. Louis-Philippe Carrière: No, essentially, they are grouped into one segment, on which is the U.S. sector. Michael Van Aelst - TD Securities Equity Research: Okay. Because in Q4, you did say how much it was on the revenue side. You said what percentage it had accounted for. So you're not willing to do that this quarter? Louis-Philippe Carrière: It's not something that we are try to -- they are grouped into the U.S. sector, and it's not that we're not publishing on a separate basis per division, as well as like in Canada, grouping the Canadian dairy as well as the Bakery division, and we're presenting on the segmented basis essentially. Michael Van Aelst - TD Securities Equity Research: Okay. When you talk about the mix in Canada shifting unfavorably, it's been actually a positive for you for the last few years. So how is that shift turning unfavorable for you now?

Well, essentially, what we're seeing in the marketplace is even consumers with the last price increases are resisting the increase in prices. So what we're seeing is shift from value-added products over back to commodity products. As an example, Michael, very concretely, if you look at a 1 liter jug versus a 4 liter bag, the 4 liter bag is cheaper per liter than the 1 liter jug. And we're seeing some of the customers moving back to the products that are less costly, and the effect for us is less sales on the value-added products. Michael Van Aelst - TD Securities Equity Research: Okay. So -- and can you comment on your specialty cheese business? Is that also slowing down now?

No, specialty cheese business actually is doing quite well. Those customers that have a taste for brie and camembert and [indiscernible] and all the other categories of the products are still consuming those products. So we don't see the same shift on value-added cheeses going back to commodity cheeses as we would see on the fluid side.

Our next question coming from the line of Peter Sklar with BMO Capital Markets. Peter Sklar - BMO Capital Markets Canada: A couple of questions. Lino, could you talk about the competitive landscape for Morningstar in the industry? Is it fragmented, or are there some bigger players that Morningstar is competing with? Can you kind of lay it out for us?

Yes. I'd say that there are perhaps 1 or 2 other companies that have the profile that Morningstar had in terms of product categories and geographical presence. So I'd say there might be 1 or 2 other players out there that would be similar to Morningstar. The rest of them would be small regional players in different categories of product. You've got some small regional players that are completely focused on national brands or national accounts. Then you've got others that are focused exclusively on food service and then others that are focused on retail. Morningstar operates in all 3 of those categories. So if you see shifts similar to what we have in the U.S. between retail food service and ingredient, when you've got customer shifts going from one to the other, overall, the volume itself may not be impacted. Perhaps maybe where the revenue streams coming from might be impacted, but we cover all of those bases. I would say there might be only 1 or 2 companies that have that profile in the U.S. The rest are all regional. Peter Sklar - BMO Capital Markets Canada: So the top 2 or 3 players, depending on how you count it, what proportion of the industry would they represent?

I don't know if we published those numbers. I would say that we are close to being the largest player in those categories. And we're quite happy with our market share, and we think that there still is some opportunity for us to grow those bases. Peter Sklar - BMO Capital Markets Canada: Right, okay. On another topic, with your -- the new base that you have for segmented reporting, the -- I believe the International Sector includes Argentina, as well as the whey business and the cheese export business from the U.S. And that entire group accounts for about 6% of EBITDA for the quarter. So I was a little bit surprised, because for some time, you've been talking about how whey has become a more important part of your business, but it looks like on that basis of segmentation, it only accounts for a few percent of your total EBITDA. So am I reading that right? Or can you explain that?

I'll explain it. Essentially, what that is, is that you've got the whey -- you got the international sales portion of it, which is more of a brokerage business. So our sales guys are getting a broker fee. Typically, what happens is we have the manufacturing and operational profit that remains within the division. Peter Sklar - BMO Capital Markets Canada: You're saying -- within what division?

Within its respective division. So if the U.S. business is producing a WPC at 80%, all of the operational profits, as well as the value profit for the whey, remains within the U.S., and the international business is only receiving a brokerage fee to market that around the world. Louis-Philippe Carrière: So that -- essentially, Peter, the background of that, essentially, the dividends making the investment in term of -- for the, I would say, the R&D and background of all the other whey products, as well as you would certainly recall, there's a factor into the milk price that is linked to the whey also. So again, it needs to be and belongs to the division because, essentially, there's a link and there's a scale in term of the milk price, the price that we're being -- and more importantly, in the U.S. Peter Sklar - BMO Capital Markets Canada: Okay. And I just had one other question on the whey business. So for your facilities that don't have the whey drying and the further downstream processing capability, what do you do with the whey? Do you transport it to some of your other divisions? Or do you just sell it as liquid whey? Or like how is the whey dealt with where you don't have the processing ability?

There is very little percentage of that whey that is being sold to a third party in liquid form. Now there could be whey that we're selling internally in the liquid form that we used to further process other products, as an example, ricotta. We're using whey to make ricotta for the ricotta whey. So that is being sold from one plant to another plant to make a finished product. But by and large, the bulk of our volume liquid is being concentrated at a plant that doesn't have a capability of drying it, shipping it to a sister plant within the region and then that sister plant has the infrastructure to dry it in specialty powders. Peter Sklar - BMO Capital Markets Canada: And that works? Because your shipping a lot of water.

But we are concentrating it. And what we have done over the course of time is that we have focused on adding main plants within a region. So as you look at -- just as an example, Peter, because I know that you've had the chance to visit some of our facilities, if you look at the Tulare area within the radius of 1.5 miles, we have 3 plants. To us, it's so much easier to ship that condensed whey from plant to plant than to have a multiple infrastructures in one region.

[Operator Instructions] Our next question coming from the lime of Mark Petrie with CIBC. Mark Petrie - CIBC World Markets Inc., Research Division: I just wanted to follow up on the industrial channel in the U.S. The volume trend there, has it worsened? Like has the competition become more intense since the last quarter? And what's your outlook there?

The competition has increased since last quarter. We, again, in the U.S., as we've done in Canada, is we're defending our positions. Again, the great advantage we have in the United States is there aren't any limits to innovation or our research and development. We currently have quite a few projects in the pipeline that will allow us to produce a higher-quality product at a lower cost. And we're defending our positions, and I think that the erosion here in the industrial channel might be temporary. I think we're focused on getting back some volume. Mark Petrie - CIBC World Markets Inc., Research Division: And what are the nature of the supply contracts in that channel? I mean, retail is probably the stickiest, I would imagine. How does that sort of compare with retail food service and industrial in terms of supply contracts?

In many cases, it's more of a relationship you have with the end-user. And typically, if you're a high-quality, low-cost supplier and you're supplying on time when they need it, the types of products that they need, typically, it's the relationship that will carry the day. Unfortunately, in some cases, you end up losing the volume before you remind them that through thick and thin, you've been there for them. So it's the nature of the business, not a whole lot of contract that you're looking long term. And this is why we have to be as effective and as efficient as we can be on a day-to-day basis. We can never take anything for granted. Mark Petrie - CIBC World Markets Inc., Research Division: So little barriers to you winning those back?

Little barriers for us to winning those back, that's correct. Mark Petrie - CIBC World Markets Inc., Research Division: Okay. And then just a basic question, back on the Morningstar. How do dairy ingredients and byproducts fit into that manufacturing process? Like, obviously -- or I would -- not even obviously, but I would imagine there's a lot less byproducts created than in the cheese manufacturing process, but are there some? And what's the sort of status of the Morningstar infrastructure on that side?

Yes, there are very, very little, if any, byproducts that are generated from a fluid plant. In fact, actually, the dairy foods plants are actually using a byproduct, which is cream. That is one of the main ingredients that they use. When you process that cream into a liquid product, the UHT product or some sort of cream-based finished product, well, there's very little, if any, byproduct that is generated from that.

Mr. Saputo, there are no further questions at this time. I will now turn the call back to you.

We thank you for taking part in this conference call. We hope you will join as for the presentation of our fiscal 2014 second quarter results on November 7, 2013. Have a nice day.

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 great day.