Greetings and welcome to the Saputo Inc. Fiscal 2022 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Thursday, August 5, 2021. I would now like to turn the conference over to Marlene. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Taking part in the webcast are Lino Saputo, Maxime Therrien and Kai Bockmann. Before answering questions from our analysts, Lino, Max and Kai will provide an overview of our fiscal 2022 first quarter results and an update on our operational initiatives. Please note, that if you are joining us by phone, you will not be able to see the visual components of the presentation. You must join the webcast for full access to the content. Before we begin, I remind you this webcast is being recorded and will be posted on our website, along with the investor presentation we are showing. Please also note 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 accept any obligation to update this information, except as required under securities legislation. I’ll now hand it over to Lino.

Thank you, Marlene. As we round out the first quarter of fiscal 2022, we’re beginning to see signs of recovery in many of the regions where we operate. But we are definitely not yet in the clear. We face some difficult headwinds and although things look more hopeful as each day passes, the impacts of the pandemic still resonate in our business. Before Max digs deeper into this and our fiscal 2022 financial results, I’ll share some brief highlights from our 2021 Saputo Promise report published this morning. Of note, this year we aligned our report with the recognized disclosure frameworks SASB and TCFD. Among many other accomplishments it details are considerable efforts towards our environmental pillar. Although our metrics trended negatively this year, mainly as a result of the pandemic, we still made tremendous strides towards our 2025 environmental plan targets. In fiscal 2021, we allocated investments to complete 12 projects across our network, and I’m pleased to announce a further 24 projects will be funded in fiscal 2022. In fact, today we amended our $1 billion revolving credit facility, which now includes a sustainability linked loan structure. This introduces an annual pricing adjustment based on the achievement of key climate and water targets in line with our 2025 commitments. Beyond the scope of our own operations, we’re also dedicated to doing our part in creating a sustainable food system. Our passion for this led to the development of our Supply Chain Pledges, an exciting initiative coming to reality this fiscal year. As part of these pledges, which we announced today by 2025 we aim to source 100% of our principle ingredients sustainably and to contribute $10 million to fund relevant projects in this area. With so many forward-thinking elements underway in our business, some of which Kai will cover shortly as part of our organic global strategic plan, I strongly believe we’re moving in the right direction, creating shared value for all stakeholders and ensuring the long-term sustainability of our business. I want to thank every Saputo employee for their resilience and for their care for each other and for their care for our business. Their passion truly drives our success. Our team has gallantly adapted to the changes and challenges of the last year and a half. And I strongly believe we’re in a great position to seize the opportunities, which are coming our way. Aspiring to become bigger, better and stronger. We’re already making solid progress towards our goals. With that Max, I’ll pass it over to you to provide an overview of our financial results.

Thanks, Lino. And as Lino mentioned, the lingering effects of the pandemic continue to impact our sectors to varying degrees. We continue to face challenges related to global economy condition, commodity pricing, consumer demand, supply change in labor productivity. During the first quarter of fiscal 2022, consolidated revenue reached close to $3.5 billion, an increase of 2.9%, while our adjusted EBITDA declined 21% to $290 million. Overall food service sales volumes were higher than those of the first quarter of fiscal 2021. However, our results were negatively impacted by U.S. market condition. Number two, inflationary pressure on input costs in all of our division, especially as it relates to freight transportation and logistical costs, also supply chain challenges in our international sector, which negatively impacted our export sales volume and finally, the fluctuation of the Canadian dollar versus foreign currency, particularly the U.S. dollar. In Kenneth Canada sector sales volume were good as the food service market segment showed signs of recovery. This was tempered by lower retail market segments volume, but still contributed positively overall to growth to both revenue and adjusted EBITDA. Higher selling price, specifically in connection with the increased cost of milk as raw material and increases in dairy ingredient market prices also had a positive contribution. In our U.S. sector, COVID-related over supply and ongoing overcapacity in the market of mozzarella destined for food service market segment has further increased competition. Volatility in the dairy commodities markets also remain led by an unfavorable spread. U.S. market factor a negative impact of $42 million on adjusted EBITDA. These conditions will continue to fluctuate from quarter-to-quarter, but based on the current trend, we expect to start seeing better market condition in the second quarter of fiscal 2022. In our international sector, we faced some obstacles for sure. We felt the weight of supply chain challenges on the export side, such as container shortages and port inefficiencies, adding to this in Australia, the competition for raw material as intensified pressuring boat, milk intake and pricing. Accordingly, we are continuing to leverage our diversified approach, which combines milk purchases from our patron farmers, third-party brokers, as well as toll manufacturing agreements. However, we expect to continue to experience some disruption in the next quarter in relation to export volumes. In our Europe sector sales volume in the retail market segment were lower than the comparative quarter last fiscal. This decrease was offset by the positive impact from a higher industrial market segment sales volume, mainly in the dairy ingredient category. The acquisition of Bute Island on May 25, although positive provide a minimal contribution to the sector performance of the quarter. As we move our business forward, we still expect our retail market segment to perform well and to exceed pre-pandemic levels. Input costs in general, including transportation, fuel, consumables, packaging are expected to remain at sustain high level due to inflationary pressures. As mitigating measure, we are currently implementing pricing initiative that will take effect starting as early as the second quarter of this fiscal. On our food service side, we will continue to work closely with our customers to adapt our offering to new consumer trends, such as takeout for in-home dining. In our industrial market segment, volumes are expected to continue to recover. However, the pace will depend on the ups and downs of the export market and on the evolution of the shipping constraints we filed during the last quarter. Today, our Board of Directors reviewed our dividend policy and increased the quarterly dividend from $0.175 to $0.18 per share representing a 2.9% increase. Finally, as we look towards the rest of the year, we are focused on controlling the controllable as we stayed of course, under the roadmap of our global strategic plan, which is designed to deliver accelerated organic growth across all of our platform. Kai, I will pass it on to you to provide an update on this.

Thank you, Max. As previously shared our global strategic plan is designed to deliver accelerated organic growth across all of our platforms. From a financial perspective, we aim to reach $2.125 billion in adjusted EBITDA by the end of fiscal 2025. This represents a total increase of $650 million or approximately 44% compared to our fiscal 2021 performance. To go a little deeper, approximately 70% of the growth is expected to be generated by initiatives to optimize and enhance our operations. The remaining 30% is expected to come from initiatives aimed at driving our top line. We aim to increase profitable sales volumes at more than double the rate of global per capita dairy consumption in all regions. The exception to this is Australia, where we do not expect the milk pool to grow up. Of note, the anticipated cost efficiencies that will come from optimizing and enhancing our operations are expected to come to fruition in the second half of our plan. Therefore, periodic increases to adjusted EBITDA are not expected to be linear, but we are confident that we will see bottom line growth in every year of our plan, despite the challenging market conditions in the first quarter of this fiscal year. I'll now move on to our pillars and provide some color around each one. When it comes to strengthening our core business, I'll share some concrete examples of the progress we are making. To start, the ramped up cheese capacity at our Davidstow facility in the UK is allowing us to further bolster our market-leading Cathedral City brand through additional export avenues. In fact, during the first quarter of fiscal 2022, we were thrilled to enter into a long-term exclusive partnership with a key dairy player that will allow us to expand distribution of Cathedral City into the EU, starting in the fourth quarter of this fiscal year. On top of that, we are gearing up to ramp up our distribution of Cathedral City in the United States and Canada, following the brand’s successful introduction into those markets in fiscal 2021. Another example, I'm pleased to share, it comes from one of our U.S. facilities, where we implemented a new filling production line, which is expected to be up and running by the end of this month. This investment will enable us to manufacture aseptic nutritional products to be sold in the retail market segment under a partner's well-known brand name. To further enhance our customer solutions in the USA, we appointed a new Senior Vice President of sales during Q1. In this role, he will seek to build on his solid sales and business development experience in our business. Talking about the next pillar, which is accelerating product innovation on the dairy alternatives front, we are well on our way in the dairy alternative cheese category, where we intend to take a leadership position. During the quarter, we were very happy to acquire UK-based Bute Island Foods, an innovative manufacturer, marketer and distributor of a variety of dairy alternative cheese products on the award-winning vegan Sheese brand. Prior to the acquisition, Bute Island Foods was a key partner in manufacturing the dairy alternative mozzarella. We have been successfully trialing with several current and potential foodservice customers in North America. Now that we have the manufacturing capabilities in-house and a very compelling product with the right taste, texture and performance, we are working on leveraging this innovative recipe into sales on a global scale. On the dairy alternative beverage side, we're focused on supporting existing players through co-packing arrangements and we continued to secure new business across North America in the first quarter. Right now, we have two facilities in the U.S. that will be taking on additional volume in the second quarter. And we'll be adding more capacity to our network with our new facility in Port Coquitlam, British Columbia. When we look at the next pillar, which is to increase the value of our ingredients portfolio, we have some interesting progress to share as well. Acquiring the Reedsburg facility, Wisconsin Specialty Protein was a key component of our plan. This facility provides our Dairy Division USA with new manufacturing capabilities for value-added ingredients, such as goat whey, organic lactose and other dairy powders. We made great strides in the integration process during the first quarter, as we look to develop specialized whey products to bring to market. Across the pond, our Dairy Division UK has been enthusiastically working on diversifying our dairy ingredient customer base, and we expect the benefits of this to come through in the second half of fiscal 2022. Of note, the first three pillars I just covered will all contribute to our growth at similar levels. I'll now move on to the optimizing and enhancing operations pillar, which is expected to drive the largest contribution to our adjusted EBITDA growth throughout the plan. Under this pillar, we are undertaking specific operations focused initiatives in our manufacturing, supply chain and logistics activities. In Canada, the construction of our state-of-the-art facility in Port Coquitlam, British Columbia is on track to open this month with fluid dairy production starting by the end of August and plant-based beverage production beginning later this fall. The execution of our cheese network optimization plan in the U.S. is underway and the initial phase and the related capital expenditures are progressing according to our timeline. We have already made investments aimed at enhancing the production of our market-leading Frigo Cheese Heads string cheese portfolio. Over in Australia, we're accelerating continuous improvement initiatives aimed at maximizing our yield per liter of milk, with a specific focus on the recovery of byproducts. Finally, I'll touch on our create enablers to fuel investments pillar, which comprises initiatives, some of which are ongoing that will allow us to materialize synergies and reduce overhead costs. Our global ERP implementation falls under this pillar and the rollout within the remainder of our Dairy Division Australia and the subsequent phases of the implementation within the Dairy Division USA are expected to be completed by the end of fiscal 2022. And the Dairy Division Canada, the planning for our ERP rollout is currently underway. As for the merge of our two USA divisions into one USA, we are continuing to work on our processes and procedures, aiming to maximize synergies and support our division's future growth. Underpinning our global strategic plan is the deployment of $2.3 billion in capital investments. Approximately 50% of this amount will be allocated to base capital expenditures, including those related to our ERP initiative. The balance will be supporting the plan initiatives with a larger portion of investments expected to be deployed in the first two years, optimize and enhance our operations, which should act as a catalyst for increased margins through cost efficiencies and contributes significantly to the achievement of our growth target. On the topic of acquisitions, last week, we officially added Wensleydale Dairy Products and its talented team of over 210 employees to our Saputo Dairy UK roster. With this acquisition, we aim to expand our brand portfolio and diversify our existing range of British cheeses with a leading UK brand. We are very optimistic. We will have further traction during this fiscal year. As we stand, we are well positioned to seize more growth opportunities with a tank that is full and a pipeline of cause that are exciting. And I'll end on that note and we'll open the floor to your questions. I'll now hand it over to Frank to tee it up.

Thank you. [Operator Instructions] Our first question comes from Patricia Baker with Scotia Capital. Please proceed.

Thank you very much and good afternoon, everyone. Just two quick questions, one on the mozzarella situation and the challenge there in the U.S. market. Maybe if you could talk about what your outlook is there, and when do you think we'll see some somewhat of recovery, recognizing that you don't have full visibility on that. And then secondly, can you talk about the dynamics behind the increased competitive intensity around the milk uptake in Australia? What is driving that specifically?

Okay. Patricia, I'll answer the first question in terms of the mozzarella outlook. The good news is that we're seeing stronger volumes on the foodservice side. So that what we saw in Q1 was healthy growth over last year, albeit that was the first quarter out of the gates with the pandemic. There is intensified competition as a result of there, continuing to be excess supply in the system. But with the improvement in the foodservice sector we see conditions improving as we move into the second and third quarters. In terms of your question around Australia and the milk supply situation, there has been intensified competition in terms of milk supply. And our strategy has always been to have a three-pronged approach where we're looking to continue to build on our base of our farmer supplier base, together with total manufacturing opportunities, which is going to be absolutely critical for us. We are currently working on sizable opportunities, which we hope to share some more news during the next quarterly call. And then finally we will also look to leverage third-party milk brokers to make up for some of that lost volume. The good news is that we have stop the bleeding if you will. And we are seeing stabilization in terms of the total milk supply that we have. We will carefully reevaluate our network to make sure that we have the right infrastructure in place. So the total milk that we have today, as well as what we anticipate to have over the next 2, 3, 4 years as part of our strat plan.

Thank you very much, guys. That's helpful.

Our next question comes from Irene Nattel with RBC Capital Markets. Please proceed.

Thanks, and good afternoon, everyone. Just continuing on with the U.S. please, so clearly, getting rid of a lot of that excess inventory in mozzarella is a big piece of improvements from the U.S. segment, but can you walk us through what the other big pieces are and the cadence that we should expect as we move through a fiscal 2022 and into fiscal 2023?

Yes. The three or the four big factors that have impacted our business in the U.S. and will continue to impact our business are really four – the following four big buckets. One, we talked about the U.S. market factors, and we're seeing a inverse in a relationship when we look at whether it's the block barrel spread we see, whey pricing coming down, we see ingredients pricing firming up, so that bodes well from a market perspective. The next big bucket would be around inflation and the U.S. team has developed cost recovery initiatives, which are currently being rolled out. We're currently in the second phase and we'll return to market with further initiatives to continue to recover those inflationary pressures. And that's across, all of the inputs, whether it's packaging resin on the supply chain side as well in terms of the higher freight rates and so on. The third big bucket is around supply chain and that's the availability of trucks. Similar to ourselves, we have other players in the logistics warehousing side of the industry that are having the same challenges from a labor standpoint. And so we're looking at different contingency plans. One of the big initiatives for the U.S. is skew rationalization to reduce the complexity in our operations, not only at a manufacturing level, but obviously on the supply chain side as well. And the last big bucket would be around labor. And the good news is that we've seen a progress at 16 of our 26 facilities during this past fiscal. And we feel that with the government subsidies and support programs coming offline in September that should help provide an incentive for people to return to work. So those would be the four big buckets and how we're tackling all of those.

Yes. So Irene, I'd like to chime in here on this, because as we talked at length about the strat plan over four years, the biggest catalyst for growth in EBITDA is going to come from our U.S. platform. We, as a management team has been spending quite a bit of time in the U.S. In fact, myself personally, I've been back and forth to the U.S. since the beginning of the calendar year and more intensely since the month of June. There are some things that are beyond our control. Like U.S. market factors, there's not much we can do about type of conditions we saw in Q1, but there's a lot of things that we can do relative to the other elements like inflation and supply chain and the network optimization. I will say that over the course of the last month, the discussions that we've had with the team here have been so encouraging. The types of discussions we've had, the ideas that that we put on paper for the strat plan, of course, which require CapEx allocation are very, very clear, we know exactly where we're going. And I'll tell you, Irene, it – the energy I have makes me feel like back in 2001 to 2004 when I was the President of the U.S. business, I feel like I'm 10 or 15 years younger, there is great energy. That team is coming together. Kai talked about the sales focus team that we have. It's not by mistake that we took a veteran from Canada brought him out here into the U.S. and we're applying very much the Saputo principles of Saputo character and the Saputo approach. Things like recapturing some of the inflationary measures going out to market and taking price. We have to do that, and you need to have the courage to do that. Dominic Bombino had that courage with the rest of the team. And so we're seeing great things happening. Again, it's a four year strat plan but the foundations are being built for us to be able to capitalize on the network that we have, the brands that we bring to market, the relationships we have with our customers. So I'm delighted that we have this office in Miami. We're spending quite a bit of time here. We're walking the corridors. We're having meetings beyond the structured meetings. The corridor conversation is engaging. I feel like I'm back in Chicago in 2001, and I'm really, truly excited about us rolling out all of these initiatives within the U.S. So I wanted to give you a little bit of color there as well. There are going to be some short term issues, labor is probably the biggest. When you've got a manufacturing site, that's got five lines that could run at full capacity, and you only have employees to run three lines. Well, two things happen there. Number one, you don't have the overhead absorption that you should normally have. And number two, we're short shipping our customers. And so we need to find a solution to this labor issue. That's not just affecting Saputo, but it's affecting a lot of companies all over the U.S. Kai mentioned that, we have had some initiatives where we're seeing better numbers, employees, a turnover is going down, the absenteeism numbers are going down and I'm also hopeful that once the subsidy checks expire in the U.S., which should be around the month of September, when the kids are going back to school, we'll start to see the labor coming back to the plants. So still a little bit of headways or headwinds in Q2. But we are starting to see the light here now.

And Irene, I just wanted to add two additional points to give some more color. When you look at the milk supply situation in the United States, we're coming off the first time in 11 months, where there's a decline in the herd size. You combine that together with rising input costs for farmers, and we will see a leveling off in terms of milk production. So that's going to help create some more equilibrium when it comes to supply and demand. And the great news for us is that we're seeing robust, healthy demand across a lot of the categories that we plan. So that's great news for us.

Absolutely, and thank you for that, extremely comprehensive answer that I wish I could see you walking those halls meet up. But I just did have one other question, a small question about Cathedral City and that contract for UK exports. And just wondering about whether you can give us any more color about how that rolls through what the magnitude of that is, what the upside might be, and even maybe who the partner is?

Yes. For confidentiality reasons, I'll provide as much color as I can, but it is our largest export win to date. It is one of – in the most UK cheddar market outside of the UK in a fast growing market with a healthy population, again, healthy growth rates. We're kicking into the contract will kick-in December. And the great thing about this partner is that they're a very strong player on the continent and they're putting significant investment dollars behind the brand. So this isn't simply a transaction, it's a strategic partnership to help elevate Cathedral City in a very, very important export market for us.

That's great. Thanks so much.

Our next question comes from Mark Petrie with CIBC. Please proceed.

Yes, good afternoon. I wanted to just ask about the U.S. specifically in the foodservice segment. And when you think about recovery, is the best benchmark for that the fiscal 2019 sort of foodservice business, or is that a realistic target or is something structurally changed when you think about the opportunity to rebuild your foodservice business?

Well, I think that, if we look historically at where we've played and it was predominantly in the mozzarella category. We're not going to abandon what got us to where we are today. But in terms of the initiatives tied to the strat plan, we are moving into more retail oriented initiatives. We talked a lot about string cheese, and when we talk about strengthening our core, if you look at the first quarter, a lot of initiatives are just crossing the line in terms of bringing more of that product online. So for us really, it's about focusing on those categories that are going to drive profitable growth, and it will be in those segments, that'll offer higher margins. Obviously, we're not going to shy away from intensified competition. But we will be strategic in terms of where we want to play in and where we're going to focus our efforts.

And Mark, maybe if I can just talk a little bit about the infrastructure and foodservice in the U.S. the things that we're seeing. So there are independent restaurant operators that did not make it through this pandemic. So they have shutdown. The broad line distributors are actually doing quite well in terms of being able to increase their velocity and their volumes. But it is true even for those small to medium chains in the U.S., they're also having labor shortages, labor issues. So they may not be working at full capacity just yet. But we think it's a matter of time before we get back to historical levels of velocity and foodservice part of the business. And this is why Kai made the statement that although we have a lot of initiatives that are going into retail. We are not going to abandon the foodservice trade.

Understood. Thanks. And with regards to the status of the price increases that are underway in your business, can you just give us a sense of the magnitude of that? I'm sure it varies a lot by channel or geography but any high-level commentary would be appreciated. And also, is it your intention that that's basically completed in fiscal Q2 and that any sort of volume impact as a result of that would also be in Q2? Or do we expect this to take a couple quarters to play?

Well, in terms of pricing on the market, we do expect a benefit to start to kick in this current Q2. But then we will have other positive effect that will kick in Q3 as inflation continued to rise. So we have programs in place and planning when our customers to properly schedule those price increase, obviously, from a logistical standpoint, we have other mitigation that we're looking at trying to stay away from spot market to get deliveries and availability to ship with trucks and so on, but from a pricing perspective, benefit in Q2, incremental benefit also in Q3. So we would expect to at least recover not only from the logistical transportation and fuel, but also on the other input costs that we have to face.

Okay. I appreciate the comments. Thanks.

Our next question comes from Peter Sklar with BMO Capital Markets. Please proceed.

Okay, thanks. I noticed in your guidance that you're still saying your EBITDA is going to be up this fiscal year versus the previous fiscal year. And when you just look at the math of the arithmetic of it already in the first quarter, you're down about over $75 million of EBITDA year-over-year. And some of these issues that you're facing are like, as you indicated, they're not going to go away like the freight and logistics costs the strength of the Canadian dollar the ports and container issue. So like, I'm just wondering, like what skates you want site here that you're going to get that you're going to get back to EBITDA growth, where for the full year you're going to be growing year-over-year, which means the later quarters are going to be quite strong. Is it all price? Or is it an accumulation factor? So if you could just kind of enter into that discussion? And so we have a better understanding.

Okay, Lino, I'll kick in, and you'll jump in. Yes, tough start of the year. Certainly Q1 has been a challenge but we're certainly shooting for growth in this current fiscal. So that means our teams, our plans are built so that we deliver a growth might not be the percentage of growth that maybe initially we anticipated in year one, but certainly we are not giving up because we're losing three one in the first period. So we will definitely be pushing and forging ahead for growth, this fiscal we have full confidence that we will be in a position to deliver growth certainly on the four-year plan, but the four year plan implies that there's growth every single year. So to that hand yes, we're forging ahead.

Yes, but my question is – my question is like, how are you going to do that? You need to have a really strong Q3 and Q4. So what are the underlying factors that are going to give you that strength?

Yes. So let me give you perhaps a bit more color on what we're seeing now, and then some of the initiatives, and perhaps, maybe Kai might talk into a little bit more detailed with respect to some of the initiatives that are undergoing or underway right now. The way we're looking at the business is that if we defined by different sectors. Our Canadian sector, others, if perhaps one of the sectors that is the best balanced and so whatever shifts are happening whether relative to retail foodservice, industrial, our Canadian platform is equipped to be able to service all of those markets. Add to that in Canada with the recent CapEx investments and the network optimization that we rolled out over the course of last three years, which are actually taking effect this year the PoCo plant, our Saint-Leonard upgrade, and our Saskatoon upgrade as well allowed us to close three plants in the system. So that's actually rolling out as we speak, so not a lot of risks to the growth projections that we have for Canadian platform. Argentina is actually running extremely well. So this group, this team has lived through so many different crisises in their existence since we've owned them. That for them a pandemic is par for the course, they're navigating well through the pandemic, they're navigating well through the FX fluctuations, they’re navigating well through the political changes. And so the Argentinian group is delivering on the deliverables with the increase in milk, further projects they have going on in their plants. Again, don't forget, we still have the same two plants running more milk. So very little risk in Argentina. When I look at the European sector with the – our group in the UK, first and foremost, their base business with what we, those former Dairy Crest used to be. There are great things going on. Kai spoke to the increased capacity in Davidstow. The ability to be able to find a home for the incremental cheese that's coming out of that system into the EU, not just into the UK, but into the EU27 with great partners, in addition to our initiatives in the U.S. and in Canada that the point that was holding the UK business back historically was on the byproduct side. We're coming to the end of that contract that we had with the partner that was not delivering on their end of the bargain. We're coming out of that and going into the end of Q2 into Q3 that should very well be resolved. So we're optimistic about the UK. So that takes care of three of the five sectors where the level of risks for us to achieve higher EBITDA margins than previous year are pretty well. We feel pretty comfortable with that. So the two divisions that are at risk would be Australia and the UK. So let me talk about Australia first and foremost, heavily challenged relative to the milk intake. This is what is creating a problem for that division right now. In addition to the fact that historically and when I say historically, I’m saying in Q4 and Q1, we weren’t able to get the containers, we needed to ship product that was at a low price. That – a good portion of that volume is out of our system and out the door. And there is some relief on the containers, not back to historical levels, but there is some relief there. Pick up a volume in the Pacific Rim that’s happening the firming up of prices that’s happening. And then we’re looking at some initiatives. Maybe Kai can speak to in Australia that the team is undergoing to try to get more capacity in our system, more volume that we can process, manage the overhead absorption, and also other initiatives with respect to our network optimization. Maybe before I move on to the U.S., you want to talk about Australia specifically, Kai.

Yes. Just on Australia, it’s really around the tool manufacturing opportunities and I touched on that a little bit. We still have assets that are not at full utilization, but we are in advanced discussions with major dairy industry players to look to bring their milk to process in our facilities, which would result in increased efficiencies, overhead absorption and a positive impact to the bottom line. In terms of the original question around the positive Q3 and four and how we’re going to recover from Q1. I think it’s important to highlight that if you look at the global dairy markets from a supply and demand perspective, the first six months saw incredible growth in all of the major dairy producing regions of the world. I mentioned that the U.S. we’re seeing that milk production starting to stabilize and not grow at the accelerated clip we saw in the first half. In the EU, we’re seeing moderate to little growth. In New Zealand, we’re seeing very little growth as we enter the second half and Australia is pretty much flat. So when you combine that all of the major dairy exporting regions of the world, we’re going to see again, better equilibrium from a supply and demand perspective, which equates to a better pricing. Cost recovery initiatives, those have all been rolled out the first phases and across all the divisions. There are plans and they’re currently being executed. So that will have a big impact in terms of recovering some of that inflationary pressure we saw in Q1. And then on the labor recovery side, I talked to the U.S. where we’re seeing improvement in 16 of our 26 plants. And we anticipate that that’s going to continue, which will help increase our productivity across all of our assets. And then Lino touched on the exports from Australia that had a big lag in Q4 and Q1. We have confirmed pricing and shipments going in August, September at increased velocities getting those containers out the door at a much faster clip at much higher pricing. And then we can’t discount the fact that we’re coming off of another harmony deployment in Australia, which did cause a bit of turbulence out of the gates in Q1, which we will not have as we move into the third and fourths.

So let me continue on the U.S. And again, look there are some actionable items that are happening as we speak. We talked about the price increase activity that that we rolled out into that is going to affect us positively in Q2. And we also advise our customers that we reserve the right to further increase the selling price of our products should this inflation continue. So we’re optimistic that we can roll out in Q3 and Q4, should the need arise more pricing pieces. But then there are also some operational opportunities that we took advantage of. When you think about the lack of labor in certain areas we have moved some production over to areas where we do have the ability still to staff close to 100%. And so those activities happened in Q1 that we’ll start to see the positive impact of it into Q2 and then should carry on into Q3 and Q4. The only issue I would say, that I would be somewhat concerned about in terms of us achieving the plan for the rest of the year is access to labor and our anticipation of people actually coming back to work in September. It’s not for lack of orders, the orders – even though we’ve taken price increases, the orders are still there. We just cannot meet the orders right now. We’re running at – historically we were at 99.8%, 99.9% order fill rates, we’re averaging somewhere around 96% order fill rates. So we were not hitting the numbers that we need to be hitting because of the shortage in labor. What that means, again, as I talked about earlier overhead absorption that affects us negatively also the ability not to be able to deliver on time with some customers creates penalties for us. And so we’re mindful of the fact that we don’t control everything, but we’re doing as much as we can to control the controllables and that’s what gives us the optimism for the second half of Q2. And I clarify that, second half of Q2, because in July we saw some of the same repetitive negative headwinds in July that ultimately August and September look like they are getting better. I’m keeping my fingers crossed that this variant is not going to create further shortages in labor in the overall pool in the U.S. But based on what we’re seeing right now, second half of Q2 we should start to see some recovery. Then we get into Q3, which typically is our best season year going into the holidays. And by that time, we should have more projects underway that have been either executed or in the process of being executed going into Q4. So I hope Peter that that gives you enough color to allow you to have visibility on what we see. It’s not going to be an easy trick, but we have to shoot for progress. And that is what we’re pushing and pressing upon with all of our teams across all of our divisions specifically in the U.S.

That is very comprehensive and helpful. Thank you. And just one follow-up then, based on your comments on the U.S. food service channel, like the messaging seems to have changed a little bit from last quarter. Last quarter you said that there was this overhang of mozzarella because there was all these other dairies who couldn’t sell into the – don’t sell into the retail channel. So they’re sitting on all this mozzarella dumping into the market, pricing was under pressure, and you had to walk away from contracts. But now you seem led by your commentary today, you see much more optimistic about your opportunity in the food service channel. I forget if it was you or Kai said that you expect to get back to historic levels of volumes. So I’m just wondering what has caused the change in messaging on the U.S. food service.

Yes. So there still is an oversupply of mozzarella in the market. Thankfully, mozzarella consumption continues to grow. So that’s one thing that is a positive. The other thing too is, having sat down with our sales team, I think they’ve got a keen focus on the recovery of that volume. Now it’s not going to happen all in one quarter. But over the next few quarters, we have a recovery plan. Some of it might be large contracts, some of it might be very small a store-to-store wins. And that is the focus that the team has. We talked about the change in the sales lead in the U.S. We’ve taken a very experimented, very knowledgeable food service and industrial focused sales lead in Dominic Bombino over to the U.S. And we have to street fight every single day in Canada. The markets aren’t growing as rapidly as the United States. There aren’t as many customers as there are in the United States. And he’s looking at this as a world of opportunities for us to be able to get out to the market and to pick up one pound at a time. That’s the challenge ahead of us. That’s the task ahead of us. Again, we’re not going to get all that volume back, but we believe with the quality of product that we manufacture with the focus that we have to servicing our customers that over time we will recapture the volume that has been lost. In addition to that, of course, we’ve got a look at our mozzarella network and part of our strapline calls for increased capital activity. And we have to look at the entire network of the manufacturing end of our business. And in some cases, we have some plants that are not quite as sophisticated or automated as some other plants. At some point some investment will have to be made to make sure that we’re as efficient and as effective as we need to be. So all of these things are working in tandem. Yes, the optimism we’re showing for mozzarella is a recovery to get back that volume that we lost. It may not all come this fiscal year, but every journey starts with one step and I think we’re probably about four steps ahead of where we were last quarter.

Okay. Thanks for the comprehensive answers. That was very helpful.

Our next question comes from Michael Van Aelst with TD Securities. Please proceed.

Hi. Those were some pretty comprehensive answers as Peter said, so I’m going to have a long lap, but I just wanted to circle back on the M&A side. In the past, Lino you said, you’ve got pretty much everything that you would consider need to have and now you’re onto the nice to have acquisitions. And I’m wondering where you’re seeing the best opportunities and what are you aiming to accomplish strategically with future acquisitions that are nice to have?

Yes. So we did materialize the Bute Island, the Bioriginal or the Reedsburg facility Wensleydale. So those were all on our checklists. And if I speak to each one of them the values that they bring to us, of course, a Bute Island gives us the in-house capability of manufacturing non-dairy cheeses. So check mark on that. Value-add ingredients, especially in the U.S. check mark on that with the Reedsburg plant. Other retail in Europe, in the UK so that we can further leverage the Cathedral city brand, Wensleydale get us back check on that. So there are assets that would be available whether it be in North America, Latin America or Europe that would further amplify our plan for the strategic orientation of our business. Perhaps more assets in the U.S. that will allow us to be a stronger co-packer or perhaps a stronger food service or industrial provider of product. Well, we’re not hiding the fact Michael, that in the U.S. we need to be better weighted on the retail side. So if there are assets that become available that are retail driven, that give us a strong presence in the retail market with brands that we – that resonate with consumers that is on our checklist as nice to have. We’re looking at assets that allow us to export perhaps a little bit stronger and better from Argentina as well. So perhaps, in Latin America there are some opportunities there to be able to get into other countries beyond our Argentina. And Europe, well, right now our teams are busy integrating both the Bute Island and Wensleydale, so we might take a pause in Europe for now. So I would say that the majority of our focus at this stage would be U.S. and Latin America.

Again, at the Annual Meeting I think you said the pipeline is difficult. So are these lots of small kind of strategic acquisitions, or are there other large opportunities as well?

I would say both. So there are small strategic tuck-in businesses, as well as I would deem transformational, so large acquisitions, yes, are also in the pipeline.

Great. Thank you.

Our next question comes from Chris Li with Desjardins. Please proceed.

Hi. Good afternoon. Just wondering if you can maybe talk a little bit more about your progress on the dairy alternative cheese side. I remember last quarter you mentioned that you have faced significant progress in securing listings with some of the major food service distributors, as well as some of the regional pizza chains. So wondering if there’s any update on that front. Thank you.

Yes. Thanks for the question, Chris. So on the dairy alternative side, obviously we just acquired the Bute Island assets. And as a result of that acquisition, they have done some tremendous work with some U.S.-based chains both in the sandwich category, as well as the pizza category. And it is our intent to leverage the experience that they’ve had in the UK to see whether there are opportunities to bring that over to the U.S., because obviously the U.S. is the big pot of gold at the end of the rainbow in terms of the sheer market size and opportunities from a volume standpoint. We have in this past quarter landed some wins with multiunit regional chains in the United States, as well as independent operators. If we look at up in Canada in the Atlantic’s on the plant beverage side, we’ve also secured some private label wins with some large retailers in the United States. And we’re actually getting into – we just signed an agreement with another player that is getting us into the pea protein beverage space. So we were focused on Allmand to note, and this gives us an opportunity to get into the pea protein, which is obviously going to be a part of the next wave of innovation in that category. So a lot of irons in the fire. We are currently developing a strategic roadmap as it pertains to Bute Island and how that fits in our overall growth aspiration. Our intent is to use that platform to help accelerate our efforts. But ultimately we would like to have assets on the ground, and then the key markets that we’re going to be growing the segment namely the United States and potentially down the road in some of our other divisions.

Okay. That’s very helpful. I guess my follow-up to that would be, it sounds like the EBITDA contribution from all, everything you just mentioned, it’s going to be more for next fiscal year, not a meaningful contribution for this fiscal year. Is that right?

That is correct. It’s ramping up. We’re early going on the plant-based cheese side, there’s a long sort of lead time required with a lot of these large QSR food service chains that are based in the U.S. They have to work for their R&D and their menu development program and so on. So it’s just – we got a lot of lines in the water. It’s just some of these require some time and effort, but we’re optimistic that as we enter the next fiscal year, that we’ll have more material wins to share with you.

Okay. Another question I have is how far along have you on your SKU rationalization initiative in the retail channel. And is that going to be a meaningful cost benefit from that initiative?

Well, we’re just getting going, and we anticipate that it’s going to bring a lot of benefits, because again, it’s going to reduce our complexity at the manufacturing level. But more importantly as well on the supply chain side, you’ve heard about the shortages around trucks and the issues we’re facing in the warehouses and from a logistical standpoint. So if we can simplify and again, focus more of our efforts around those categories, where we have a market leading position, where we have a point of differentiation, which also have less – where there’s less price elasticity, such as blue cheese, provolone those are areas we can really command a stronger price premium. So what we’re trying to do again, as part of our strengthening our core strategic pillar is reducing the level of complexity around our brands, reducing the number of SKUs so that we can strengthen our overall core business.

That’s helpful. And my last question is with respect to the overcapacity issue in the mozzarella space, is that mainly a function of competitors just building capacity before the pandemic, and then being stuck with the end used – the unused capacity when the pandemic hit. Are you seeing competitors actually adding new capacity during the pandemic?

There was sizable capacity that was added to the system within the last 12 months. And that’s what caused a bit of an uptick in terms of inventory in the system. Also we have not just mozzarella, but there is an indirect impact when you have capacity coming online in other cheese types. So there were sizable investments that were made in the past 12 to 18 months, which brought a lot of additional cheese capacity into the system.

And why do you think they’re doing it? Is it because of all the excess milk that you mentioned or are they seeing expecting a strong recovery? Just curious, just given how competitive spaces, like, why are they getting even more capacity?

Yes. Chris, part of that answer is because of the milk production in the U.S. is growing. And some people have commitments with their milk provider, their co-ops, their patron base that they’ve got to take on the milk that is coming off the farm. So as long as milk continues to grow in excess of consumption that’s where those dynamics come in. Maybe Kai, why don’t you give it a little bit of update on what we saw in the last month in terms of overall milk production in the U.S.?

Yes. I mentioned it earlier, Lino. We’re starting to see – for the first time in 11 months, we’re seeing a reduction in the cow herd numbers, albeit, the yield per cow productivity wise has increased over the last year, which has caused an influx of milk into the system. But when we look at the U.S. production leveling off, as we move forward, that’s going to help bring some more equilibrium from a supply and demand perspective. And I also mentioned the input costs escalating, and there’s also a shortage of labor just doesn’t apply to our industry, but even in the farming community, they’re having a tougher time getting the necessary labor to help in terms of milking those cows and running their farms. So from a U.S. perspective, overall, more equilibrium and I talked earlier about sort of the supply and demand situation from a world dairy market perspective, we’re seeing better equilibrium. And ultimately that means that will result in more positive price appreciation in the commodities that we operate in.

Great. That’s very helpful and all the best.

I appreciate your sentiment, Chris.

Mr. Saputo, there are no further questions at this time.

We thank you for taking part in this webcast. We hope you’ll join us for the presentation of our fiscal 2022 second quarter results on November 4. Have a great day.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.