Sandy Vassiadis - IR Lino Saputo - CEO Maxime Therrien - Chief Financial Officer

Irene Nattel - RBC Capital Markets Mark Petrie - CIBC Peter Sklar - BMO Vishal Shreedhar - National Bank Financial Michael Van Aelst - TD Securities Patricia Baker - Scotia Capital Keith Howlett - Desjardins Securities

Ladies and gentlemen, thank you for standing by. Welcome to the Fiscal 2018 First Quarter Results. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, August 01, 2017. I would now like to turn the conference over to Lino Saputo, Jr., CEO. Please go ahead, sir.

Thank you very much, Julie.

Good afternoon, everyone, and thank you for joining us today. A press release detailing our 2018 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'd like to specify that our listeners on the phone and on the Internet as well as journalists are on a listen-only mode. Members of the media are invited to ask their questions by phone after this call. Before we proceed, please be reminded that some of the statements provided during this call are forward-looking. Such statements are based on assumptions that are subject to risks and uncertainties. Refer to our cautionary statements regarding forward-looking information in our annual report and our quarterly releases and filings. Please treat any forward-looking information with caution as our actual results could differ materially. We don't accept any obligation to update this information, except as required under securities laws. Mr. Lino A. Saputo, Jr., our Chairman of the Board and Chief Executive Officer, will begin this conference by providing his brief overview of key highlights relating to the first quarter of fiscal 2018, after which he along with Mr. Maxime Therrien, our new Chief Financial Officer, will proceed to answer your questions.

Thank you, Sandy. Today marks several important milestones for our company. Earlier during our Annual General meeting, we highlighted my father’s numerous achievements and his retirement as Chairman of the board. I am appreciative of the many experiences I shared with him over the years within Saputo. He founded our company in 1954 and built a solid culture with a commitment to provide a fulfilling work environment initially for our family and then for thousands of people. We continued to be inspired by my father, and I will ensure to pass his legacy on to future generations. This morning was also marked by Louis-Philippe Carrière last presentation of our results as CFO. I'd like to thank LC once again for 30 years of dedication and contribution to our growth. I am please with his recent nomination to our board of directors, and I'm looking forward to working with him as a senior advisor. With this change, I wish to officially welcome Maxime Therrien to his first analyst conference call as Chief Financial Officer. I'm thrilled to have Max onboard, and I'm convinced he'll contribute to our future growth. This year's AGM also marked our 20th anniversary as a publicly traded company. Since our IPO in 1997, we've grown significantly. Between 1997 and 2017, our revenues increased from $451 million to $11.2 billion, and adjusted EBITDA grew from $72 million to $1.3 billion and adjusted net earnings from $41 million to $731 million. Since October 1997, we completed by 25 acquisitions for combined purchase price of approximately $5 billion. Through each acquisition, we were able to learn and adapt as we generated, added value while maximizing efficiencies and gained market share. I'm delighted with the complementary platforms we've developed in Canada, the U.S., Argentina and Australia, to serve our customers and consumers in domestic and international markets. I'm very proud of our evolution and the progress we've made over the past 20 years. With patience and discipline, we've generated growth, profitability and value for shareholders year after year. As such, our stock price and dividends per share both generated a compounded annual growth rate of 17%. Today, we're one of the top 10 dairy processors in the world and market numerous well known brands. This is only possible with the commitment of our 12,800 employees, who enable us to process over 8 billion liters of milk every year and sell our various dairy products in more than 40 countries around the world. I'm enthusiastic about the future and continue to have great faith in the dairy industry globally and in our ability to be a consolidator of dairy assets worldwide. We have the knowledge, the resources and the skills to reach our objectives Now let's talk about the first quarter results. To start, I congratulate our team for a solid performance. Revenues, EBITDA and net earnings are above those of last year's Q1 results. More specifically, in the Canadian sector, revenues remained quite stable and EBITDA increased due to improved raw material and ingredient optimization. In the U.S. sector, sales volumes and a favorable product mix were some of the main drivers of revenue and EBITDA growth. In the international sector, revenues and EBITDA increased notably due to higher selling prices in both the domestic and export markets as well as higher sales volumes. I believe the strong results of our first quarter provide us a positive start to fiscal 2018. Our operations are strategically aligned to pursue organic growth during this fiscal year. Furthermore, we benefit from a strong balance sheet and maintain financial flexibility, allowing us to target new acquisitions. Dairy environment will continue to present some challenges. That said, we intent to benefit from our expertise to face and mitigate market fluctuations, as we have done in the past. In terms of NAFTA or any other regulatory discussion, our entrepreneurial spirit and agility have always enabled us to respond rapidly and to react effectively. We operate across four countries, each with their own milk supply and pricing structures. We have always adapted our activities and business strategies to be an efficient manufacturer of high-quality dairy products and dairy ingredients in any jurisdiction and prevailing regulatory environment. Our focus remains on constantly finding innovative ways to improve our overall efficiencies and to pursue our growth. On that note, I thank you for your time, and we will now proceed to answer questions. Julie?

[Operator Instructions] Our first question comes from the line of Irene Nattel with RBC Capital Markets. Please proceed.

I wonder if we could just spend a minute and talk about some of the key drivers of the nice recovery notably in international in Q4 and what you see kind of as the biggest headwinds and opportunities in F '18 - sorry, Q1, not Q4, and in the balance of F '18?

Well, our results in the international platform over the course of Q1 were helped by incremental volume that we picked up both in Argentina and in Australia. We did mention in previous quarters that we were receiving a lot of interest from dairy farmers to sell their milk to us. In the fourth quarter of last year, we were at the tail end of just starting up the plant expansion that we have talked about through CapEx allocation. We were able to effectively get the plant started in June, which was on time and on budget, and we processes that milk into categories of products through June and July so that we can get product into market. None withstanding project, we ran the plant quite effectively and quite efficiently. We can see the same thing in Argentina. With some of the difficulties that one of our competitors was having, there was a lot of interest from dairy farmers within the area that wanted to sell the milk to us. And so even though there were floods but has hampered overall milk production in the country by about 10% or 12%, we were able to grow our milk intake and thereby being able to process product effectively in our system and sell them to market. So I think that internationally a combination of increased volume, combination of the increased selling prices in the international market and also better overhead absorption really helped the performance of the first quarter results for the international sector.

And then in terms of the biggest challenges that you see, because your turnaround challenges in F ‘18 is a little bit more cautious than I would have thought, what are the key challenges that you are seeing?

Well, the biggest challenge that we face is the cycle of supply and demand. And as always seems unfortunate that every time we go through a very, very tough environment where dairy farmers are actually panelized and the milk receipts, the industry readjusts with lower production. The big challenge going forward is maintaining that supply and demand cycle which unfortunately as an industry we haven’t been very good at balancing. So the biggest challenge to me would be that somewhere down the road there would be an overproduction of solids and thereby a further reduction of prices. So perhaps what I could say is that our expectation for the international market is that they will continue to be some volatility even though there are good trends in terms of consumption patterns. Q - Irene Nattel: That’s very helpful. Thank you. And Lino, on the last call you sounded extremely optimistic around the M&A with greater than usual number of files open. I wonder if you could provide an update for us today.

Those files are still open. And I'm still very optimistic that by the end of this calendar year that we may have an acquisition to announce and perhaps by the end of our fiscal year we may have more than one acquisition that would be announced. We are working very, very hard and very diligently to look at those assets that actually make sense for us to acquire. Now there have been a lot of assets that have gone to market that we haven’t acquired. I would say that more often than not, we’re involved in those processes. If we haven’t bought those assets, it’s either because: number one, we didn’t see the strategic value in them; or number two, the purchase price is way too high. With the file that we’re looking at now, I think we’re in a pretty good sweet spot to be able to be confident enough to materialize at least one or two before the year is out.

That's great. Thank you. And just one final question, if I may. Around the whole subject of potential changes, NAFTA, it certainly seems like Class 7 milk is on the - it’s sort of squarely in the line of fire. Can you take us through how you think that would impact particularly given that -- the improvements that you've seen in Canada in productivity recently?

So here is my take on that NAFTA. Based on some of the conversations I've had with the industry players, including some ministers, I believe that Canada feels very, very comfortable about their position to defend milk supply management in this country. I think that perhaps maybe what might be at risk, and you’re spot on and saying that Class 7 is a sore point with the Americans, Class 7 might be up for a discussion or renegotiation. So if there is -- any in my opinion, if there is any risk to the system would be Class 7. Now what does that mean for Saputo? Not a great deal. We said it very publicly that we are going to be buying solids on the market, high-quality solids on the market, that we will use as ingredient in our make process from countries that can deliver to us at a cost-effective level. We were buying an equivalent of Class 7 from the U.S. prior to the Class 7 being initiated. It’s milk protein isolates that help our recipes, our stabilization of our production as well as our costs. If we had to go back to the market and buy those solids from the U.S., we are not opposed to that. So right now Class 7, yes, it's cost effective for us. We can buy solid domestically here in Canada. But if that pipeline should dry up, then we would revert back to buying solids either from United States, Australia or Argentina or any other country that has a vast -- those solid stock for us that believe can be cost-effective and high quality.

Our next question comes from the line of Mark Petrie with CIBC. You may proceed.

I hope that you could just give a little bit more granularity in terms of the volume performance across your geographic and then specifically within the U.S. maybe across food service, retail and industrial.

So let me just talk a little bit about where we were in Q4 and I talked about what’s defined as a block market in the U.S. that some of the buyers both at the retail and at the food service level weighing on the slide lines, while in Q1 those buyers came back to the table. And so we're back on our normal run rates in the U.S. in terms of overall volume and that did, of course, help the overhead absorption of that platform. I will tell as a general comment that we are facing out of the market in terms of overall sales growth, organic sales growth, I would say that if you look at where the markets are in Canada, United States, Argentina and Australia, we continue to do better than what those markets are showing in terms of overall growth. I don’t want to get into specifics with respect to percentages. We realize that with some of the information that we have disclosed in the past, it has come to not help us when it comes to competitors’ initiatives against us. So I would prefer not to get into specifications with respect to incremental percentages by division, but what I can say is that we have outgrown and outpaced growth in every single one of those markets. Now that growth has to be profitable growth. We're not going to grow just to wave our flag and say, “Here we are. We're number one and outpacing market.” If that growth is not profitable, then we sometimes would prefer to forgo that volume. Having said that, what we've seen in the markets is that both at the retail level and at the food service level there has been some softness, and you may have seen that in other publications. But the great thing about our organization and the great thing about one of our strengths is that I think we’ve hitched our wagon to the right horses. And some of the QSRs that we're serving are outpacing the market themselves. Some of the retailers that we're servicing are outpacing the market themselves. So we find ourselves on the right side of these fights in terms of being able to have the right product for the right clientele. If you look at some of the publications at the QSR level, some of those chains are doing extremely well and they've highlighted the growth in their beverage category. We're at the forefront of that especially with SDF, and we are at the forefront of innovation in terms of being able to highlight to them where the trends are. And when you have that kind of success and you have that kind of insight, then price almost becomes secondary to the primary objective of being a high-quality supplier of dairy products.

Okay, appreciate that context. In terms of the ERP rollout, I think it’s complete in the international, upcoming in the U.S. Could you just give us a sense of what kind of impact that had in the quarter in international? And then what kind of impact do you expect that to have in fiscal '18 and overall?

So Max is much closure to that files, so I’ll have Max give you some insight on the ERP rollout.

Sure. So over the five platforms that we have to convert, two have been completed. Just on July 1, we have our Australian operation fully integrated into our SAP system. So we’re manufacturing, we are producing, we’re warehousing, delivering, invoicing everything within the SAP system. And the rollout for the remainder of this fiscal 2018 is to attack our SDF platform hold that Morningstar business and then after than rolling out on the SCUSA side and for the following year. So currently we are ramping up within our SCUSA cheese division in U.S. to build our team, and we are actively planning for the implementation phase to start this fall with SDF. After that we will go over the Canadian operations. So in terms of additional spend, in terms of capital, we are talking about $19 million for the quarter. And in terms of operating expenses, it’s about $7 million within this Q1. About half of that has been to go to specifically to the platform in international, and for the year we are expecting to be around $24 million, $25 million in terms of operating expenses relative to the system implementation.

Okay, thanks. And do you have the number for what that was in fiscal 2017, the total SG&A investment?

It was -- in terms of SG&A, I don’t have that number handy, but certainly the number this year is higher than what it is last year.

Sure, Now I understood. Okay, thanks. And then just my last question, if I could, on international, just a quick follow-up. Lino, you gave some good color there and I am just wondering, outside of sort of price volatility, how should we think about the EBITDA margin for that business as the rest of the year plays over. I think when you bought in Australia, it was quite seasonal. You had offset that and brought a lot of stability to that, but maybe just remind us in terms of seasonality for the international segment?

Yes. So if I look at the performance of the international sector year-over-year, you are looking at 8% EBITDA on the low end and probably 14% on the high end. That’s the nature of the international business. I understand that we’re very, very mindful of our supplier group, the dairy farmers. We made some commitments both in Argentina and in Australia. We need to understand that the dairy farmers need to be profitable and from time to time we will absorb maybe some of the hits which we did couple of years ago in the fourth quarter. So I would say that EBITDA will be volatile as the markets remain volatile. Volume itself can go up and down based on where the buyers are or are not in the market. The price for milk may not always be linked to the price of selling prices of product around the world, and so there might be a little bit of a gap from quarter-to-quarter. So this, I would say, would remain the most volatile platform that we operate in. We believe that the benefits by far out way the negatives. I think when you’re thinking about markets that you are servicing and that have the potential to grow at 6% or 7% or 8% and in some cases 10% and 12% per year and are considering where our domestic markets are at maybe 1.5% or 2% or 2.5%. I think it's a good risk for us to take, and we would like to continue to grow all those platforms. We're looking at potential acquisitions in those platforms even though they are volatile. We know over the long haul that things will come out on the upside for us and we want to be part of that growth.

Okay, I appreciate your comments. Thank you very much.

Our next question comes from the line of Peter Sklar with BMO. You may proceed.

Lino, in your comments about NAFTA, I was surprised to hear you say that the U.S. kind of getting at the whole Class 7 situation is the biggest risk. I would have thought that big risk in NAFTA negotiation is that Canada grants a bunch of TRQ, so I’m just wondering if you could comment on that.

Yeah, it's quite possible that that could happen, the TRQs, like we saw in the CETA deal, like we saw in the TPP deal, but we're talking about a limited amount maybe under 4% or 5%. So you're talking maybe 17 million kilos of product one shape or form. I don't know if that's a big risk in the NAFTA negotiation. Now I could be completely off mark here, but I think the position of Canada holding on to its milk supply-manage system in its original form of 4, 5, 7, I think has got a lot of merit, and that's what I'm basing it on. Class 7 is relatively new. And when Class 7 was initiated, it came at the expense of import product from the United States, and that's what that focus and motivation was. So I think if we go back to the normal of U.S. regulatory system and the Canadian regulatory system, it will not include a Class 7, and that's really where my thinking is at.

Right. And why do you believe that the TRQ would be limited to 4% to 5%. Now I know in TPP it was a little bit less than that, but I'm wondering like how do you know how this negotiation is going to unfold?

The reality is, is I don't know. But if I look at the history of what Canada is given up in its market, it's always been around the 3% to 5%. So I don't think that there would be any real desire to go beyond that. Don't forget that also in the CETA deal, there is compensation that that Canada is going to be wishing out to the dairy industry in the order of somewhere around $100 million to compensate for that access to market. Then, of course, you have those quarters that need to be allocated to different players within the dairy industry. They've done it before into small percentages. I think it would be very very risky for the future of the dairy industry, mostly dairy farmers, if those numbers will go beyond the 5% TRQ.

Yeah. Like, I don't know if you saw, because know you're busy with your annual meeting today, but the government just released the press release on TRQ allocation for how we're going to about it for the EU agreement, for the CETA agreement. And the press release more talks about like how much is going to manufacturers and how much is going to distributors and small ones and big ones. I'm just wondering, like has -- is that gotten down to your level yet, the Saputo, know how much you're getting of the TRQ?

We don't. So you’re breaking news to me on this conference call. So thank you very much for that, Peter. But there is going to be a portion allocated and we will be treating like all other large dairy processors, whatever that amount is, it will be not overly concerned about that. I know from past discussions and readings that the retail lobby groups have been partitioning to get some of that TRQ. I wouldn’t be surprised if in that press release there is a portion of it that is going to retail or distributors. But I'm not overly concerned about what that percentage is as long as we get them.

Our next question comes from the line of Vishal Shreedhar with National Bank Financial. You may proceed.

Just on your P&L. In your segments in the statements. you reclassified some revenue numbers for the segment statement for the export to reside in the countries where they export away from the international division, but the EBITDA number then unchanged, early sign of season changed. So I just wanted to get some perspective on that.

Okay, so that said, we are in reference to our ingredients division, which the EBITDA generated through that division or the commission-based, and the EBITDA was not significant. So it's not something material that we feel we needed to do any reprocess. Sorry, it's really the sale attributed to those external market that we are attributing now to the manufacturing country, just like we are doing, what's were doing in Australia or Argentina.

Okay, because there is a commission profitability with that, was it very meaningful? That’s why the reclassification on the EBITDA?

Yes, exactly, the profit and losses are attributed to those sales or already factored in our North American division.

Okay. And only volume increased in Australia, just wondering from modeling purposes how we should think about I am befuddling own modeling ram in terms of the ramp up and when it should be fully ready to go?

So that volume is fully ready to go, and we have in this last quarter taken on the milk that was destined to come to us. So I talked about in the past that we had post of billion liters of milk process. There was an interest of 250 million liters of milk coming our way. That milk as of the month of, I would say, probably May or June has been fully dedicated too, to our facility. So the run rate that we have going forward, rolling through the 250 million liters. That’s over roughly around $1.2 million liters in 0.4 versus historical 1 billion.

I just wanted to ask a high level question. Sequentially, the milk cheese spread improved quarter-over-quarter. How important was that in the improvement of your results on the margin side?

As look at the overall impact on our profitability, cheese spread, I would say, 10 or 15 years ago we used to live in day by day. Today its one element among many other elements that we have to take a look at, look at whether or not that the clock is growing or declining within the quarter, because that will have an impact on your inventory realization, which will have perhaps say a right-up or a right-down included in it. If you look at like we saw in Q4, where in a declining market the buyers are going to be on the side line, and so with that lack of volume is going to impact the overhead absorption. When you think about now with the SDS platform, cream is an important variable swing up or down for that division. So there are so many other variables now that we are looking at within our U.S. platforms that have an impact on our profitability. So I think the spread of the difference between milk and cheese price maybe represents 25% of what is used to represent 10 years ago.

Okay, you said that in terms of the block price changes, you write up or write down. Is it only you right-down at the end of the quarter? Could you not write up the inventory deal?

No, on the way -- when the block is growing, you are actually buying milk at a lower price and you’re selling cheese at a higher price within that quarter. So as we are not necessarily just really riding up inventory but you are upside in terms of profitability here for that quarter, during that quarter.

Okay, great. Thanks a lot.

Our next question comes from the line of Michael Van Aelst with TD Securities. You may proceed.

You talked about higher promo spend in the U.S. in you are press release. Can you talk to us a little bit about what's happening on the U.S. retail market and that is requiring the higher promo strengths?

Yes, so we’re actually putting money behind our brands. And you think about in volatile markets, especially when the block was declining her early on, it's a good time for us to be able to spend money on our fixed-price items, because we have the ability to do so, and that would be in promotion and trade spend; which give us the better lift, and that lift we saw that in Q1 of this year.

Okay, so there is not really a pick-up in competitive activity as margins taking advantage of the drop in the input cost, I guess.

In this case here, specifically it was opportunistic.

And then just can you remind us to what the two joint ventures in Australia do and what's driving that profit almost double in fiscal 2017?

Yes. So the two joint ventures are, one is on the byproduct side that helps us give Mark, give value a byproducts and the other joint venture is on a sales perspective when we sell product into very specific markets like Japan.

Okay, and….

So we have these value of being part -- partnerships with both of those entities in our domestic, because in some cases, we are actually operating the facility which is a JV facility with the cost, with a actually revenue, and in the other case, we have a benefit because we are involved in a sales market without actually having to have the infrastructure there and both of those entities are profitable.

Right, thank you.

Our next question comes from the line of Martin [Andrea] with GMP Securities. Please proceed with your question.

Lino, I'm trying to understand a little bit the earnings potential in your international segment, and can you give us a little bit of color how much capacity that you have in terms of volume? Are you right now operating at full capacity or do you still have a bit of -- we go room to grow your volumes?

The Australian business now with the plant upgrade and the 250 million liters coming to us, we're pretty well at our capacity. I was in Australia in the month of July with our COO Kai Bockmann, and we recognized that there was some more interest for suppliers wanting to come our way, and our message was quite simple: if there is more milk coming our way, we will find a way to increase capacity of the plant. We're in this business for the long term, and as long as the milk is there and as long as we have a home for the finish product, which we do have our home for the finish product, we will further invest in those facilities. So it would not be uncommon for us to consider perhaps maybe another 100 million, 150 million liters of milk coming our way and in due time we will see how to process that milk in our facility so that we can accommodate the farmers. We told the dairy farmers as they believe in us, we will believe in them. And I think we've made a lot of promises to them over the course of the three or four years that we've been there, now we’ve delivered on every promise. So I don’t think that that’s going to change going forward. Perhaps, I can just say a couple of words in Argentina. So Argentina, I did talk about in previous years that we have invested $120 million to double the -- more than double our capacity to be able to process milk. Unfortunately, Argentina, over the course of last two years, we’re hit with back-to-back floods and overall production in the country is down, I would say, over 10%. So we're not running at full capacity in Argentina because of that. Now we been fortunate, I guess, that we've gained quite a bit of confidence and credibility in that market in the 13 years that we’ve been operating there, and when one of our competitors started to import, that’s when we saw exited of dairy farmers from them coming to us. And so we’ve picked up some of that volume that we lost through the flood, we picked a good percentage of that volume, but we're still not at full capacity.

Okay. So are you - well, can you give us a order of magnitude of what capacity you're running now in Argentina?

Argentina, I would say, we're probably closure to about 90% capacity utilization, so I would say we still have about 8%, 9% to go.

Okay. And do say that you can easily find a home for products. Can you remind us how much of your volumes on the international market you sell at spot versus sold under long-term contracts?

I would say 90% is long-term contracts, very, very little what we sell at spot. Again, there too, we gained a lot of credibility on the international market as a very solid supplier of dairy, not just cheese but some selective powders, and because of our reputation, our customers are telling us that if we had more capacity they would take more volumes from us.

And pricing on those long-term contracts, are they fixed or variable?

While they are fixed contracts for a limited time. So we don’t go out with a year contract, typically what we do is we will look at that three or six months out contracts, that’s usually the kinds of contracts that we would take. Again, some of that is depended upon where we see the markets going, submarkets are rising or declining; and of course, we have a very respectful relationship with our customers. We don’t look at the international market as a spot market. We look at building strong foundation with consumers around the world, and so we need to be mindful and respectful of pricing protocols.

[Operator instruction] Our next question comes from the line of Patricia Baker with Scotia Capital. You may proceed with your question.

Thank you very much. Lino, I am going to stick with the topic of capacity and look at your U.S. business. Both in the cheese division and the dairy foods division you’re spending in adding capacity there, I think what, on blue cheese in the cheese division. Can you talk to us just a little bit about just how much capacity you are adding in each of those divisions?

Yeah. So our U.S. platform usually is running in the high end of the 90% capacity utilization. We would be somewhere around 95%, 98%, 99%, depending on where the order patterns are and how much milk is coming out of different regions. But we’re on the high ends of the 98% capacity utilization. Anytime we have commitments from our customers that want to grow their milk and customers want to grow their usage of dairy, we’re certainly not going to refuse them. And so it’s really common for us on an ongoing basis that we will invest in CapEx allocation in our facilities. Now many times our milk intakes are adequate enough for increased capacity. Sometimes it has to do with things as simple as pasteurization and getting product downstream of pasteurization. With very little funds, often we can increase production 10%, 15%, 20%. And that’s been the model of the U.S. platform and I think it’s a model that we’re going to continue employing as we move forward.

Thank you very much.

Our next question comes from the line of Keith Howlett with Desjardins Securities. You may proceed with your question.

Yes, I wonder if you could expand upon the reference of both capacity additions in the dairy foods business.

Yeah. The dairy foods, as you know, we are making dairy products not necessarily cheese, but bag-in-a-box type products, ice cube mixes is in coffee blend, then special tea and milks in some cases. And so usually what it takes is that a line within one of those facilities and usually once we installed line the we try to get it up to 100% capacity usage as quickly as possible so the bottleneck itself will not be on the inner take of the product. The milk receiving base have enough capacity to unload more milk. Our silos can warehouse more milk. Our pasteurizers can pasteurize more dairy products. And it’s really downstream of that and getting that product into a bag and into a box, and more often they’re not in FDF. It will be downstream of pasteurizer where we’ve aimed ad production capacity, so that would be incremental lines within a current facility.

And I know that you wish to provide detail on this, but how roughly big is your blue cheese business?

Blue cheese, we are the larger blue cheese manufacturer in the U.S. I am certainly not going to give numbers out for competitive reasons, but we have got the line’s share of the market in blue cheese.

What will be the size of that market, maybe I can ask that?

I’m amortization not going to give number specific to the size of the market. In fact, I don’t even think the dairy industry breakouts out together. I think its in included in specialty numbers. So again, for competitive reasons, I prefer to stay away from that.

And then just on the closure of a plant in Iowa, how was that volume being distributed when that occurs.

So as we talked about our Canadian platform, capacity utilization is probably in the average of about 70%, 75% capacity utilization, so there is opportunity for us to move milk into other facilities. So that volume will be absorbed other facilities within the Saputo system on the fluid side.

And then just maybe finally on the working capital, there were some tax payable and other payables that went down. Was it just sort of timing issues or nothing there to note?

Yes. Certainly, there is some timing, but more importantly, we have some tax payments that have been paid within this quarter relative to our fiscal '17. So nothing out of the ordinary, and this is referring to - I am referring to the $65 million that we paid in Q1, in line with our tax installment and stuff like that. In terms of elements into the working capital, looking at the international, certainly pricing, whether it's on domestic or on the export markets, higher is having an impact on our accounts receivable, sales volume as well. And just also that from an accounts receivable standpoint on the international, there is longer return on that front. So we're supporting that. And in the U.S., higher black market, higher butter market really have an impact. So overall, when you look at the reduction in liquidity, we're referring to market -- attributable to market for 80% to 80-plus percent overall. Of course, there is the additional volume. I we have to support the working cap but really the main impact refer to market pricing.

Thank you very much.

Thank you very much, Steve.

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

Thank you very much, Julie?

We thank you for taking time with conference call. We hope you'll join us for the presentation of our fiscal 2018 second quarter results on November 2. 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.