Greetings, and welcome to the Saputo Inc. Fiscal 2021 First Quarter Results. [Operator Instructions]. Now I would like to turn the conference over to Lino Saputo, Jr. Please go ahead.

Thank you very much, Tommy.

Good afternoon, everyone, and thank you for joining us. Taking part in our call today are Lino Saputo, Jr., Maxime Therrien and Kai Bockmann. Before answering questions from our analysts, Lino will begin by providing an overview of our fiscal 2021 first quarter results. Before we begin, I will remind you this call is being recorded and will be posted on our website. Please also 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. We refer to our cautionary statements regarding forward-looking information in our annual report, press releases and filings. Please treat any forward-looking information with caution as our actual results could differ materially. We do not expect any obligation to update this information except as required under securities legislation. I'll now hand the call over to Lino.

Thank you, Sandy, and good afternoon to you all. I hope everyone is keeping safe. Our thoughts are with those affected by the pandemic. Our fiscal 2021 first quarter results were released this morning, and I am delighted with our performance. However, there's simply no getting around it, COVID-19 has impacted our business. Compared to the corresponding quarter last fiscal year, consolidated revenues decreased 7.6%. Net earnings, however, were up 16.6%, while adjusted net earnings were down by 2.4%. And our adjusted EBITDA increased by 2.4%. The quarter began during one of the lowest points of the pandemic, which directly impacted global economic conditions, supply chains and business productivity. As things progressed, we saw economic indicators start to improve as governments began easing restrictions. As such, we've continued to experience fluctuating shift in consumer demand, impacting all our sectors to varying degrees. During the quarter, we witnessed strong volatility. Sales volumes in the foodservice and industrial market segments remained at low levels, while retail market sales volumes increased. More specifically, the Canada Sector benefited from higher sales volumes mainly in the fluid milk category. In the U.S. Sector, lower sales volumes dampened efficiencies and the absorption of fixed costs. On the positive side, U.S. Market Factors and the fluctuation of U.S. and Canadian currencies helped to offset this decrease. We're happy to announce today that our 2 U.S. divisions have merged into a combined and more agile Dairy Division (USA). This milestone marks an important step towards procuring further synergies in all aspects of our U.S. business. This will allow the 2 divisions to benefit from a streamlined organizational structure and a solid, solid leadership team with Carl Colizza at the helm of operations. We firmly believe this will make the entire platform stronger, allowing our employees to work collectively and to serve our markets even better. In the International Sector, increased milk availability in Australia lifted our results, as did contributions from the Lion Dairy & Drinks Specialty Cheese Business acquisition. In our Europe Sector, we experienced a surge in the retail segment as our sales volumes increased mainly as a result of the pandemic. Building on the success of its well-loved Cathedral City brand, we recently introduced our fellow Canadians to Britain's most favorite cheddar by importing it across the pond. During the quarter, despite the many challenges of the pandemic, we did not waver in our corporate responsibility commitments. We continue to do the right thing with a long-term perspective on the future of our business. Our priorities remained intact. We focused on progressing in each of our 7 pillars. When it comes to our business ethics, we reinforced our stance to combat racism. As this important topic sparked conversations around the globe, we were proud to be one of the companies who signed the Business Council of Canada's statement denouncing racism. We strongly believe we all share in the responsibility to eliminate racism in all its forms. Standing firmly behind this, we recently confirmed we will retire the Coon cheese brand name from our Australian portfolio. We are now working to develop a new name that will honor the brand affinity felt by our valued consumers while aligning with current attitudes and perspectives. We also celebrated the fifth anniversary of our Animal Welfare Policy in June. Therefore, we took the opportunity to enhance it, to broaden its scope and to reinforce our vow to bring stakeholders together to make positive contributions on this topic. We also advanced in our environmental pledge to make sustainable progress regarding our climate, water and waste performance. Various projects aimed at reducing our annual energy consumption, CO2 emissions and water usage globally have now been identified. In terms of our community pillar, from the onset of COVID-19, we've committed to helping the communities where we operate, focusing on food security for the most vulnerable through donations to local food banks. With numerous initiatives undertaken globally, product and financial donations amounted to over $5 million to date. This action complements our assurance to our people, no layoffs as a result of the COVID-19 pandemic until further notice. In these unprecedented times, we are writing a pivotal chapter in our history. It is one filled with challenges and uncertainty but also one which is open to possibilities and opportunities. Until this pandemic is behind us, we remain focused on managing through its effects. And we will keep safeguarding the health and safety of our employees while adapting to consumer demand. Our results reflect our strength and resilience as an organization. And we have our employees to thank once again for our continued success. Their camaraderie and their commitment to our business reinforce the vitality of our culture every single day. And for this, I am so proud of our remarkable team. On that note, I thank you for joining our call, and we will now proceed to answer your questions. Tommy?

[Operator Instructions]. And we'll get to our first question on the line from Peter Sklar with BMO.

You're seeing a problematic area for Saputo. It's been the fluid milk business in Canada for quite a period of time now, but you're calling it out as a right spot. Is that just demand in the retail channel as people are staying home and consuming more fluid milk at home? Or is there another dynamic at play?

So Peter, if you listened to the comments that Max made at the AGM, we're talking about growing in our profitable categories. We did, in the past, walk away from some business because the prices that were being offered in the market we felt were unrealistic and not sustainable, to find that our competitors were not able to service those markets effectively, and some of that volume came back. They came back under better terms and better conditions. And so for us, fluid milk has been a bright spot in this last quarter specifically because we got back some volume that we had once lost but also because we got it back at better pricing. And also, it became a comfort food for consumers as the pandemic started to take shape. So for all those counts, fluid milk in this quarter has been a benefit to the Canadian platform.

And Lino, has that changed your view long term of how you feel about the category? I know at times, you've been quite frustrated about the performance of the category. Does that change your mind? Or you think this is just a temporary thing?

Absolutely not. It is a temporary thing. There's a lot of trends and a lot of patterns that we're seeing through COVID that, quite frankly, I don't think are going to be sustainable. So if you're asking would we invest in fluid assets through acquisitions, I will tell you, the answer is no. Our CapEx allocation, however, for the Port-Coquitlam plant still continues because we do have a solid business here in Canada even though the market isn't growing. But beyond the Port-Co investment, we are not considering further development in the fluid category. I think that this is more of a blip than it is a trend.

Okay. And the other positive development - or one of the other positive developments you called out was, in Australia, what's been problematic to you has been the shrink in the milk supply, but you called out that there was more milk availability. So is there more milk coming out of the farms? Or are you capturing a bigger share of the milk versus your competitors?

So there's slightly more milk coming out of the farms. So I think that the erosion at the farm level has stopped. In fact, it's actually turned around. But a very positive thing happened to us through COVID-19 as well in Australia is that some of our competitors were not able to process their milk because they were mostly foodservice or industrially oriented. We had the capacity. We had the ability to service customers domestically and internationally, and we gladly took on that milk. And I think that, that has secured a lot of farmers in Australia that we are the right home for their milk. And so a good portion of that milk, I think, is going to stick with us. And so I'm still optimistic about our outlook for the production capacity that we laid out through our 3-year plan. We're not far from that number now. And I think that, that is a very, very positive sign and a testament to the quality of the team we have in Australia that represents us every single day.

Okay. And then just lastly, could you explain maybe in a little more depth why you decided to merge the U.S. divisions? From a product standpoint, one is cheese and the other one are cream products, things like cream and ice cream mix, and I kind of - it just seems to me those are two completely different channels.

Yes, Peter, it's not that different from when we first acquired Dairyland back in 2001, we operated the fluid milk separate from the cheese. Until such time that we got comfortable with both of those divisions and thought that there were some great synergies to bring them together. The same thing could be set for the U.S. But I'm going to ask Kai to go into a bit more detail. I think we've got a great leadership group out there. And Kai's got some real great ideas and plans for that division with Carl Colizza. But I'm going to have Kai go into more detail with that, please.

Sure. Thank you, Lino. So essentially, what we need to do in the marketplace is we need to have one voice with our customers. We don't want to have our customers having to deal with multiple sales representatives to get the solutions that they're looking for, for their business. So one voice with those key customers is critical. We - there are a lot of strengths within the SDF platform in terms of the go-to-market strategy, their insights work, they're very strong. In fact, they don't have a lot of brands, so they're all about providing solutions to the customers and consumers. SCUSA is very strong operationally. And we feel that bringing the 2 divisions together, we'll be able to leverage the strengths of each of the divisions to benefit an overall - the overall newly created Saputo USA. And we also believe that there's going to be a lot of synergies that we'll be able to garner from the business, whether it's on the manufacturing side, raw material procurement, supply chain and so on. And if you look at the makeup of the team, it's a very experienced group. We're taking the best of the 2 divisions to create a senior leadership team for the one USA. Combined amongst the 10 members, you're looking over 2 centuries of very experienced and over - for 125 years of Saputo experience, so a very seasoned group. And we're very confident that we're going to be able to take that business to the next level, creating a bigger, better, stronger USA.

And the gentleman who runs SDF, I believe his name is Paul is he staying?

Paul Corney has retired. And if you recall, Carl Colizza took over that position as an interim role. And I believe at the last conference that we had with the analyst, somebody had asked the question if we're having trouble finding a leader for SDF. The reality is, is that Carl, once he got involved in running the North American platform, had in the back of his mind potentially unifying SDF and SCUSA. And he wanted to know more about the division prior to pulling the trigger on that. Carl has understood that platform extremely well and spent most of his time there. And with Paul's retirement, we didn't think it was prudent to hire anyone especially if those 2 divisions will come together. But Terry Brockman still stays with the platform in a different capacity but still very valuable to the U.S. developing its network, its business and its infrastructure.

We'll go to the next question on the line. It's from Irene Nattel from RBC Capital Markets.

Just following up on the U.S. please, if you don't mind. So would you be willing to quantify for us what types of synergies or benefits you expect to get in the U.S. or how many positions might be eliminated. Or anything you could say on that subject?

This is Kai. We're going to have - the leadership group is going to be tasked with identifying opportunities. Again, we're trying to leverage the strengths of each of the divisions. But what we're looking to do is create enablers to fuel future investments. So this isn't a cost cutting exercise. This isn't a business that's in trouble. It's a business that's performed quite well for us, especially SDF. So we're looking to continue to fuel future growth with the synergies that we uncovered.

With respect to your question on positions eliminated, at this stage, we don't see any positions eliminated. In fact, since we've got into COVID-19, we had a halt on any new free - any new hirings in any one of our platforms. We want to guarantee that there will be no layoffs and all of our employees were paid, but we were not filling any positions. Right now, we have at various levels close to 300 to 400 positions that are open, so our hope is that we can redeploy the personnel there, but the real value is going to find some of those synergies and bringing the units together servicing our clientele in the market.

That's very helpful. The second question that I had on the U.S. segment really comes down to this. In light of all the challenges that you were facing in terms of your mix of what was going on in the market, your financial performance was nothing short of heroic. So wondering essentially, how do you do it? I mean what changes did you make? What did you focus on? How did you manage it? How did you do it? Other than superb management, of course, but more granularly.

As you recall, Irene, in the past quarters, we had some incremental spending with regards to warehousing, delivery and logistics. And we said at one time that we have to go to market and try to recoup some of those costs. And those costs, when you try to recoup those, don't come back to price initiative immediately or the next quarter. It takes some time. So during the quarter, we definitely benefited from pricing action to mitigate the incremental cost of warehousing and logistics. Obviously, from - the volume affected us in the U.S. Our efficiencies, overall, are definitely not the same levels as past quarter. But to the extent we could, reducing our spending, whether it's on the SG&A front and all other - the elements of the spend helped to drive some positive. That's on top of the market factor that was - that were all directed positively for us during the quarter.

That's great. And then you'd be very disappointed, we know, if I didn't ask about all of this. Can you go - or can you just spend a couple of minutes talking about your current thinking around M&A, what you're seeing in the marketplace in the different geographies and where you might be seeing the most interesting opportunities?

Yes. So we definitely do have a focus on acquisitions. We've got a pipeline that is actually quite full. I would say that legitimate files, we would probably be upwards 5, 6, 7 legitimate files, although there is a lot of underperforming assets or what I would deem as a junk on the market that we certainly don't want to be part of the processes. And we've signaled to the sellers that we are not going to be part of those kinds of processes. And we have signaled to the sellers of high-valued assets that we do want to be part of a process. So I will tell you that given our financial flexibility, our deleveraging initiatives, the talent that we have that is eager to do more, we're definitely looking at acquisitions. We're active in files, despite the fact that there is COVID, we still have the opportunity to perform due diligence. That would be through the virtual rooms as well as we have deployed some of our teams into different facilities to perform a physical inspection of some assets. So that is still ongoing. However, it's not the same team that's being deployed because of travel restrictions, but it's given an opportunity to some of our talent to perhaps do things that they won't normally do. So the wheel continues to turn on acquisitions. I'm optimistic that we will materialize one or perhaps multiple acquisitions over the course of this next this fiscal year. But again, we do that with a lot of prudence, we do that with a lot of discipline. And just like we can walk away from some business that is not profitable, we're happy to walk away from some acquisitions where we think that either the conditions aren't right or the price is not in our sweet spot. But I'm still quite optimistic that despite COVID and some of the limitations there, that we can get something done over the course of this fiscal year.

We get to your next question on the line from the line of Michael Van Aelst with TD Securities.

I just want to follow up a little bit, I think, on some of Irene's questions. But your last outlook painted a pretty tough picture for the near-term financials given all the changes in the channels and the challenges in adjusting production levels. So were you able to do anything differently than you - that you didn't think you were going to be able to do heading into Q1? And do you still expect earnings to be lower year-over-year in fiscal '21?

So Michael, if you recall, the last call we had, there was a lot of uncertainty and a lot of volatility in the markets. And so it was - it's very difficult - even now it's very difficult to predict what the future is going to look like. However, I would say that based on the experience we had coming in through March, April, May, June, we feel like we're in a good position to be able to navigate well or perhaps better moving forward than we did getting into it. As Max alluded to, there were certain things that we tried to do to mitigate some of the inefficiencies in terms of overall volume. Spend deferrals, that was something that our team is focused on, trade promotion, travel spends, cost containments, changing shifts within our facilities, adding machinery where we needed to add machinery to be able to deliver the volumes that were being called for. These are all things that now we have under our belt. We feel quite comfortable that our team has responded well and that they can respond well moving forward. But that uncertainty and that volatility still exists. If there's going to be a second wave, how that's going to impact us, we don't know, depending on how severe the governments are going to be at shutting down economies. So there still is a lot of uncertainty, but I feel very, very good about the spot that we're in. I feel good that we've got the right foundations. Our balance sheet is clean. Our employees are engaged. Even in the hotspots where some communities had some massive outbreaks, where we had to close down some plants for a week or 2, send people out for testing. As soon as our employees got their test back that were negative, they were ready to come back to work. And so the energy really is amazing, and perhaps that might be why our outlook is a little bit more positive than it may have been going into the COVID-19. So that's a general tone that I'm saying we have in the organization. I'm going to ask Max to speak to a bit more specifically in terms of maybe some financials and numbers that he's thinking.

Well, just, Mike, in terms of the sector per se, the items that we called out, whether it's in Canada relative to the additional fluid milk volume helping to lift our results, this is there to stay. We don't see this going back. Same thing with regards to the milk availability in Australia. So we feel that this milk that we've been able to attract is going to be sustainable. And from a Europe perspective, yes, definitely, there are no signs to tell us that the performance would start to decline whatsoever. So it leaves us with the U.S. And when we talked last time, and you recall early on in April or so, probably the $23 million market factor favorable for the quarter was looking more into maybe a negative $23 million. So there's a continuous improvement in the market conditions that allowed us to - ended up the quarter positively. And that would be the wild card for us to say are we going to be whether better than last year, lower than last year and so on and so forth. At this time, for this Q1 all the way up to June, we were unsure that these market conditions would be favorable to us. There was unprecedented volatility. So we're still calling it in the U.S. to be volatile. And as you saw the block, the last few days, a significant decline. So we'll see how this all turns out over this particular quarter. So hopefully, that's helpful for you.

And I would add, Max, domestic market, but it's also if you look at the international markets, the GDP this week has dropped significantly for some of the commodity products. So volatility is going to be a continued theme for this quarter.

Okay. That's all very helpful. And I was just - I was also trying to understand in those market factor comments for the U.S. I think in your press release, you pointed out that the ingredient price increase had a positive effect, but the cheese price fluctuations had a negative impact on realization of inventories. Why was that the case when we saw a big run-up for the most part of the quarter? I know it went down initially, but the cheese price ran up for most of the quarter and hit record highs.

The inventory realization for the quarter was positive, so was the spread for the quarter. So the combined of - all of those elements was favorable. At early on in the quarter, it was negative. At some point, we reached a point of a midpoint or a [indiscernible] and then ended up being positive. So as we're looking into this quarter coming to us with block going down, so the realization of our inventory will be stressed. And although we had a very good start in Q2, we'll see how this all plays out.

Okay. That's helpful. And just finally, on the competitive activity, you pointed it out in the past several times in both Canada for milk and the U.S. for mozzarella, it seems like milk is not so much an issue anymore in Canada. But what's the status of the competitive environment in the U.S.?

So right now, it's pretty well balanced. We don't see any irresponsible behavior on the market, and that is a very good thing. There is, however, an oversupply of mozzarella in the U.S., and that still does exist, and that's putting pressure on prices not because our competitors are getting irrational but because there's an oversupply, and people are trying to lock in some business at favorable rates, which is common when you have an oversupply situation. But I would say for the large part, I would say that there is pieces in the valley right now. We're hoping that, that will be sustained for some time to come.

And we'll get to our next question on the line. It's from the line of Mark Petrie with CIBC.

Sorry, just a follow-up again. Could you just be a bit more specific with regards to the dairy ingredients that were favorable for you in the U.S.? Because like I know the whey way price was pretty stable, all things considered. So just wondering if you can be a bit more specific. Was it some of the higher grade whey that you guys do good volume in?

Well, yes, that definitely refers to high-protein powders, namely WPC80 product.

However, we're seeing, as we're moving into the next quarter, there is pressure on the higher proteins, but we are seeing favorable - more favorable outlook when it comes to the lower protein commodities.

Yes. Okay, okay. Just - and then coming back to Canada as well with regards to the comments around volume and then fluid milk being the key driver there. Separating some of that fluid milk volume that came back to you with a return of contracts and then also the spike in retail demand, can you talk about the volume performance in Canada, separating that fluid milk component out?

Yes. So I'll just give you a general shift of what we saw, and then Kai will fill in the blanks with some more specificity. But the retail volume was actually quite strong. There was a boost of about 20% in overall volume at the retail level. And I'm talking besides the fluid milk, we're looking at the cheese categories and cheese products. So that was very favorable for us. We saw a drop in the foodservice early - on in the pandemic, drop in foodservice and industrial business by a rate of maybe 30% or 40% and then since came back probably 10% or 15% to below its normal levels. So that's what we saw in the Canadian platform. Kai, you want to give a bit more color there?

Sure. What we're seeing on the horizon from a foodservice perspective is continued recovery on the foodservice side. Retail is kind of stabilizing, so looking at flat relative to last year. We are running full out and seeing very strong demand, especially on the moz and cheddar sides.

Okay. Yes, that's very helpful. Can you give sort of a similar commentary for the U.S.? Is that possible?

Yes. So in terms of overall channel sales, we've seen very much the same kinds of patterns, so decline in foodservice and ingredients, rise in retail. However, I will say this that our retail business is not as robust or in terms of percentage impact in the U.S. as it is in Canada. And so what we found ourselves in, in some areas with the capacity surplus in most of our plants and capacity limitations in other plants. So in a sense, we had some plants who were really busy, and other plants were idle, and that was the nature of the makeup of our U.S. platform. Business started to take off when we saw the opening up of the economies. And then maybe Kai can give you a little bit of a perspective on the outlook there.

Sure. So foodservice-wise for the U.S., we're looking at sort of 70% to 80% of normal levels. Retail is leveling off. And just to add on the foodservice component, we're seeing some weakening in national accounts in the QSR segment. Again, those that are well set up for takeout, delivery are performing well, and those that aren't adapting to the new normal are obviously not doing so well. You've - Chapter 11, California Pizza Kitchen, there's a lot of examples of casual diners that have gone out of business. And then on the industrial side, it's a bit of a mix bag for us. In SCUSA, our industrial volumes go to retail processors, and that's faring quite well, it's because of the pickup in retail. But on the flip side for SDF, a lot of our industrial volumes go to more foodservice type products like coffee creamers, as an example. And that's been down quite a bit over the last year.

Okay. And then I guess on that sort of topic, I mean, you guys have invested and put a lot of effort and put - invested a fair bit of capital in terms of adding brands into your business across a number of geographies. Could you just sort of run down the extent to which those brands are kind of number one or number two in their respective categories? And then - or - and then the component of your brand portfolio, where maybe they're more like number three or number four?

Yes. Kai?

Sure. I'll go around the horn. So we'll start with the U.K. because that's an easy one. Market-leading retail cheddar brand, Cathedral City, performing phenomenally well. In fact, we're ahead of plans in terms of our expansion operations in that part of the world, so doing very well. I would also call out Frylight. It's a smaller part of the business, but we never talk about it, and that's doing extremely well. It's a market-leading frying oil spray for the retail segment. If we move over to Argentina, we have a variety of brands. La Paulina is our predominant brand and is a market leader in a variety of cheese categories. And in Australia, our Coon brand, which will be renamed next year, is the market-leading brand from an everyday cheese perspective. And we have solid brands in the other spaces. We do have market-leading positions in our Specialty Cheese Business, where that - we recently acquired from Lion. And if we move over to Canada, we have a lot of market-leading brands at retail as well as foodservice, mozzarella, a lot of the Italian specialty products. If you look at our fluid milk brands, Dairyland is #1 out West. Nielsen is #1 in Ontario. Nutrilait, not so strong, probably #3, #4 player. Armstrong is moving up the ranks, been performing very well, especially matter of fact that they have recent new product launches. So that's kind of at a high-level sort of our market position around the geographies.

[Operator Instructions]. We go to our next question on the line from Chris Li from Desjardins.

Lino, I just wanted to maybe, first, to get your thoughts on Canada's decision to allocate a lot of the dairy import licenses to the dairy processors. I know that's something that the industry has been advocating for, and now you guys have it. Just want to get your thoughts on that and maybe the impact on Saputo going forward.

Yes. Thank you very much, Chris. The free trade agreement, the last two free trade agreements have been favorable for the dairy industry with respect to the allocation of those import licenses. So if you think about the CPTPP and the USMCA, 85% of the allocation have gone to dairy industry players, stakeholders of the industry. And so I had gone to Ottawa a number of times to petition and lobby for - on behalf of the dairy industry as well as on behalf of Saputo, that this is the best thing to maintain value in the space. Our objective as an industry, our objective as an organization is to import value-added products and not to bring in commodity products that are going to take value out of the space and out of the category. And now it's up to us to live up to the commitments that we made to governments of using 100% of those licenses that were allocated. So I feel very good about the resolution of these trade agreements and how dairy stakeholders can now control their own destiny. So I feel very, very good about where we are.

That's great. And I guess, am I correct, that's one of the reasons you started that importing the Cathedral from the U.K. to Canada?

That's absolutely correct. So we have the ability through licenses to bring value category products into this country that are going to be selling for higher than what the domestic product is. And so again, this is one of the commitments we made to government. And shortly thereafter, we've lived up to that commitment. So Cathedral City, highly valued brand, now is in this country for consumers to consume, of course, at a higher price than domestic product.

And do you see that as a big opportunity going forward to grow that brand in Canada? Or maybe some numbers would be helpful.

Well, maybe not that brand specifically because I think there is sort of elasticity in terms of overall consumption of value-add cheddar. But perhaps we could do the same thing with other products that we're manufacturing. I'll give you another example. We've got Treasure Cave Blue Cheese in the U.S. Now with the USMCA, why not bring that blue cheese high-valued product into Canada and broaden our portfolio of products that we can bring to market. So there are other examples. So we don't always have to go to the same well to get the water. There's a bunch of different wells that we can use to get a wider range of value-added products into Canada and on store shelves.

Okay. That's very helpful. And maybe just one question on - one more on Canada. As you know, I mean, it's been reported that Walmart is looking to increase their supplier fees to help cover some of their store renovations and online initiatives. From Saputo perspective, is that going to be a meaningful headwind to you guys? Or do you have initiatives to offset some of those cost increases?

Well, you have to understand that we're also incurring additional costs in relation to dealing with this COVID crisis, whether it's protecting our employees, whether it's additional labor. So we will be in discussions with our retailer partners in terms of what is the right thing moving forward.

So more to come on that front. I don't think the story has ended right there.

Yes. No, for sure not. And maybe in the U.S., you mentioned foodservice is about 70% to 80% of normal sales. I just want to - just to confirm, was that during the quarter or was it exiting the quarter?

That is currently in the month that we're in. When we were entering the COVID crisis, we were looking at 50%. And that's recovered to, depending on the geography, between 70% and 80%.

And have you seen that improvement kind of stall recently as some of the states are to shut down again?

There could be an actual retraction, but what we're seeing is it's stabilized to that 70% to 80% of normal levels. But if there is a wider shutdown, specifically in the United States, we would expect to see contractions in those foodservice numbers.

Okay. And sorry, you mentioned earlier in the U.S., your retail channel is starting to kind of stabilize a little bit or less growth in Canada. What is the difference, both the U.S. versus Canada, that causes that difference in the retail channel?

Yes. My reference there, Chris, was - is that the portion of our retail business in the U.S. relative to the total business is smaller than that of the - of Canada. So even though retail is growing in the U.S., we don't have the same lift in percentage as we might have found in Canada. So I apologize if there was some confusion there.

And just a couple of more quick ones. Lino, you mentioned with the merger of the two U.S. divisions, is there going to be an opportunity to perhaps repurpose some of the foodservice facilities to maybe retail as the demand continue to shift to retail longer term?

We are not going to move away from our foodservice customers or industrial customers. If there are opportunities on the retail side, definitely, we'll look at CapEx allocation to increase capacity there, but it will not be at the expense of foodservice or industrial. We believe that those markets are going to come back to levels that they were - once were. It's just a matter of time, and we'll be patient that way.

Perfect. And my last question just on M&A., you mentioned you have 6 or 7 legitimate files you're looking at. Can you give us a sense of the size from like the range, how small to how big, and maybe what geographies or product areas?

Yes. So there are a number of different - and you can appreciate this through COVID-19, perhaps some - the companies are in a more difficult situation than others. Some have had some strategic orientation changes away from either cheese or dairy. And so typically, when there are files available, we're one of the first companies to be approached. And so those files would range anywhere from $200 million in sales to $2 billion in sales. The range is - it really is that wide.

We'll get to our next question on the line. It's from Vishal Shreedhar from National Bank Financial.

This is Ryan Lee in for Vishal. Maybe just wanted to start off with regards to the direct-to-consumer website that was online. What - how did this come about? And what are the plans for this business going forward? Is there - is it more of a short-term play? Or is there any longer-term strategic implications here?

Yes. I'm glad that you brought that up. The e-commerce play is something that we had been contemplating for quite some time. And I said this to our team here, COVID is giving us a license to change, to consider things that we never would have considered before. And so with this license, we need to take advantage of the opportunities that are presented to us. Going back in time, there was a home service business that we inherited through the Dairyland acquisition where we were going door to door to consumers' houses selling them milk. Well, this is still selling to consumers direct but through a different platform. We had a problem of too much inventory in some cases, in some categories of product. And those products were being requested by consumers. And so we put the two things together and developed the Saputo fridge, which is an e-commerce business where consumers can buy product that is close to the end of shelf life but at discounted prices and delivered directly to home. It's something that we toyed with, one, to understand consumer behavior; but two, also to perfect our e-commerce type business that we could either do direct to consumers or perhaps leverage with some of the retailers that were going down that way. It, to me, was a great experience. Despite the fact that some journalists couldn't understand our strategy, I can get that, journalists are not typically entrepreneurs, we are entrepreneurs, and so we found that this has been a great little niche that we can tap into. And we're going to be expanding that e-commerce business. I'd like Kai to speak to a little bit some of the other initiatives that we have ongoing that are creating quite a bit of energy within the organization in terms of just thinking outside the box.

At Saputo, we're committed to a robust e-commerce strategy, it's not going away, through the insights work that our teams have done. Consumers are going to be increasing their e-commerce, their online purchasing of grocery items. And when we look at some of the opportunities for Saputo moving forward, we've got to look at ways to develop solutions to make home meals more convenient, more interesting. So as an example, with our Le Frigo, we launched pizza kits. So it's an opportunity for people to - because we already supply all of the main ingredients to pizza operators, we thought we would provide the home meal solution for our consumers. So it's a way of trying out new innovative ideas in a platform that we know is going to be - is going to continue to grow and be important for us.

But I'll be very honest with you, Ryan. If we stand still, we're not going to progress. And so we've got to try different things. And some things are going to stick, and other things won't, but that's what being an entrepreneur is all about. And I'm so delighted and I'm so excited about the ideas that our teams are coming up with, and we're providing them that latitude to really spread their wings and try out different things.

That sounds like a very interesting opportunity. And then my last question, it's is a two parter. You mentioned during the quarter that there were some - obviously, promotional activity was limited, which kind of mitigated some of the pressures. How has that shaped out now that we're into July, into Q2? And then the second part is somewhat related. There's been media reports that some Canadian grocery retailers are looking to reduce costs and looking to suppliers to do that. And can you comment on that?

Sorry, can you repeat the second?

Start with the first half, and then you'll get to the second half.

Sure. So in terms of - we talked about retail volumes sort of normalizing. And as these volumes get back down to earth, we are not looking to reintroduce some of our trade spend to introduce promotions and get back to the levels where we were. So we will have to push that as we move into the next couple of quarters. The second question, sorry, I didn't quite catch what you were asking.

So Ryan, if you could just repeat that there, the second question, please?

Yes. The second question relates to - there's been some media reports about some Canadian grocery retailers looking to reduce some of their costs, and they're looking at suppliers to do that in terms of increasing some of the fees, e-commerce fees. Has that impacted you guys? Has there been any of that kind of action in some of your markets?

Well, I talked to that point earlier. And that in this COVID crisis, we have incurred additional costs in terms of servicing our customers and achieving the fill rates that we have. So we will be having these strategic discussions with our retailers to find a suitable and fair outcome.

And if I can add on that, Ryan, when we talk about competitive market environment, well, that pressure fits right into it.

And our next question on the line from - another follow-up question from the line of Mark Petrie from CIBC.

I wanted to ask, one of the themes that's sort of been consistently covered through the most difficult parts of the pandemic and the strain on supply chains is, many food manufacturers narrowed production on - to focus on their higher volume SKUs. I'm just wondering if that's something that you did. And sort of coming out of the most volatile or challenging part of the pandemic, does it affect how you think about your portfolio or present certain opportunities or challenges over the course of the next 6 to 18 months?

Absolutely. Again, through our insights work, yes, there's - we've got some highly capable groups that are working together. We found that on the foodservice side especially, more or less, so it's about making every SKU work harder and finding equilibrium between assortment, profitability and efficiency. So we are revisiting that. We can't offer all the hundreds of SKUs that we have in the past. We have to streamline our operations, especially in our foodservice-dedicated facilities that are not running at the same levels as they were in the past. So we're going to have to become more efficient, and that means less SKUs.

And what we found too early on in the pandemic is that a lot of the retailers and also foodservice distributors were very accommodating to the types of runs that we can have in our plants. And they were working with us to minimize the number of SKUs, so we can get the maximum amount of volume out. So we have had a very good collaborative approach with our customers and a good, healthy discussion. And I suspect that, that will continue.

And did you experience that in the retail channel as well? Or was it more - mostly prevalent in foodservice?

No. It was also in the retail channel. And I think everyone put on their solution-oriented hats to try to see how we can best service consumers, first and foremost. That was everybody's priority.

Thank you very much. And Mr. Saputo, there are no further questions at this time. I'll turn it back to you.

Thank you very much, Tommy.

We thank you for taking part in this conference call. We hope you'll join us for the presentation of our fiscal 2021 second quarter results on November 5. Stay safe.

Thank you very much. And that does conclude the conference call for today. We thank you for your participation and ask you to disconnect your lines. Have a good day, everyone.