Greeting and welcome to Saputo, Inc. Third Quarter Fiscal 2023 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded Friday, February 10, 2023. It is now my pleasure to turn the conference over to Nick Estrela. Please go ahead.

Thank you, Tina. Good morning and welcome to our third quarter fiscal 2023 earnings call. Our speakers today will be Lino Saputo, Chair of the Board, President and Chief Executive Officer; and Maxime Therrien, Chief Financial Officer and Secretary. For the question-and-answer session, Lino and Maxime will be supported by Carl Colizza, President and Chief Operating Officer, North America and Leanne Cutts, President and Chief Operating Officer, International and Europe. Before we begin, I'd like to remind you that this webcast and conference call are being recorded and the webcast will be posted on our website along with the third quarter investor presentation. 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. Lino A. Saputo: Thank you, Nick and good morning everyone. Following a solid first half of the fiscal year, our positive momentum has continued across all our sectors in the third quarter. We delivered strong results, reflecting our focus on execution and the advancement of our strategic priorities. Our U.S. sector led the way with a significant year-over-year improvement, while our Canada and international sectors continued to deliver consistent results. Our Europe sector trended better despite inflationary pressure and prolonged challenges in the consumer environment. Consolidated revenues increased to 18% versus the prior year due to both inflation driven price increases and improvements in our ability to supply ongoing demand. The broad based inflationary pressure we are experiencing across our cost base continues to be well controlled and mitigated. We're making progress on adjusted EBITDA margin recovery with a meaningful year-over-year improvement in Q3, a positive step up when compared to the last several quarters. Our focus on inflation driven pricing actions and on operational improvements position us well from a margin perspective going forward. Consumer demand for our products in the third quarter was strong. Despite increasing prices compared to last year, dairy remains an affordable, flexible, and accessible option relative to other proteins on the market. That said, consumers are value conscious, so we're meeting their needs through a tailored product offerings, pack sizes, and promotions. The operating environment remains dynamic. Consequently, we are advancing our efficiency and productivity initiatives. Like many other businesses, we have been constrained by labor shortages, especially in the U.S. Staffing levels and the impact on operational throughput have been a major challenge the past 18 months. We have responded aggressively by ramping up recruitment and retention activities and leveraging our foreign worker program. Although Labor has improved notably with greater workforce stability, we're not out of the woods just yet. While the external environment has required a heightened focus on execution, it has not limited our ability to advance our strategic priorities. We are continuing to make progress on our global strategic plan road map. While managing our portfolio to maximize value creation and drive organic growth we are investing for the future. As such, several capital investments and consolidation initiatives in our U.S. sector were announced last week to further optimize our manufacturing footprint and enhance operational agility. This includes the construction of a new state-of-the-art cutting rack facility in Franklin, Wisconsin and the expansion of string cheese operations on the West Coast. This has led to the decision to permanently close our Big Stone, South Dakota; Green Bay, Wisconsin; and South Gate, California facilities. As a result, we will increase operating efficiencies, translating into lower costs, further consolidate our production capacity in world class facilities, and increase capacity and capabilities for higher margin value added products to meet growing demand. Specifically, we expect to yield financial benefits beginning in Q4 fiscal 2024 and reaching its full potential of approximately $74 million annually by the end of fiscal 2027. This more focused footprint aims to strengthen the competitiveness and long-term performance of our U.S. operations. We reached a significant milestone with our One USA project. In April, we will have completed the combination of our legacy cheese and dairy foods divisions with the alignment of our business processes, system applications, and IT infrastructure. This will allow for a unified customer experience, easier customer and supplier transactions, support a single cheese and dairy food supply chain, and continued organizational growth. Overall, we expect the initiatives to harmonize our processes and procedures to maximize synergies, support growth, and drive more of an integrated business model in the U.S. sector. The project will mark the culmination of several quarters of hard work by our teams to thoughtfully plan for the implementation. So, I'm confident we'll have a seamless transition in Q1 of fiscal 2024. We're pleased with what we've accomplished so far this year. And overall, we see a long runway of opportunity ahead. I said this in the past, all of our efforts today need to be balanced with an eye towards future profitable growth. Although there remains more to do as we continue unlocking our full growth potential, this quarter's results represent a strong turnaround in our performance and we have good momentum exiting this year. I will now turn the call over to Max for the financial review before providing concluding remarks. Max.

Thank you, Lino and good morning, everyone. I'll cover the consolidated financial performance before moving on to the sector review. We are encouraged with the continued progress that we're making and we delivered solid results in the third quarter. Adjusted EPS on the diluted basis was $0.53 per share, up 61% when compared to the same quarter last year. Consolidated revenue were $4.6 billion an 18% increase when compared to last year. Revenue increased due to pricing initiative implemented in all of our sector, higher average market price for cheese and butter in the U.S., and higher international cheese and dairy ingredient market price. Ongoing inflationary pressures on input costs and commodity market volatility were successfully mitigated by pricing initiatives. Adjusted EBITDA amounted to $445 million, a 38% increase when compared to last year and up 21% versus last quarter. Higher year-over-year adjusted EBITDA was driven by previously announced pricing initiatives to mitigate higher input costs and the favorable impact from the relation between international cheese and dairy ingredient market price and the cost of milk as raw material. We continue to benefit from our cost containment measures aimed at minimizing the effect of inflation and our effort to prioritize efficiency and productivity initiatives. Although we are progressing with our labor initiatives, we still face labor shortages in some of our facilities and supply chain challenges, which put pressure on our ability to supply ongoing demand. These factors along with reduced milk availability in Australia negatively impacted efficiencies and the absorption of our fixed cost. We continue to actively manage these challenging market conditions. During the quarter, we recorded $38 million of restructuring costs which include a non cash fixed asset write down totaling $30 million. These costs were incurred in connection with previously announced consolidation initiatives in Australia being undertaken as part of the optimized and enhanced operation pillar of our global strategic plan. Net cash generated from operating activities amounted to 134 million, up $27 million versus last year. This brings our year-to-date total to $604 million. I'll now take you through key highlights by sector starting with Canada, revenues for the third quarter totaled 1.2 billion, an increase of 9% when compared to last year. Revenue increased due to higher selling price in connection with the higher cost of milk as raw material and pricing initiatives implemented to mitigate increasing input and logistics costs in line with inflation. Similar to prior quarters, sales volume were higher in the food service market segment, mainly in the cheese category partially offset by lower volume in the retail market segment, notably in the fluid milk category. Adjusted EBITDA for the third quarter totaled 149 million, up $28 million or 23% versus the 121 million for the same quarter last fiscal. The improvement was driven by pricing initiatives, favorable product mix, further benefit from our continuous improvement programs, and benefit from SG&A cost containment initiatives. In our US sector, revenue totaled $2.2 billion and 34% higher versus last year. Revenue increased due pricing initiatives implemented to mitigate increasing input costs and due to the combined effect of the higher average market price for cheese and butter. Sales volume increased due to improvement in our ability to supply ongoing demand. Adjusted EBITDA totaled $146 million compared to $83 million in the same quarter last fiscal. The year-over-year improvement was mostly driven by the previously announced pricing initiatives to mitigate higher input costs. The negative net impact of $6 million of U.S. market factor as compared to the same quarter last fiscal year was mostly the results of the negative spread between the block price of cheese and the cost of milk as raw material. On a sequential basis comparing Q3 versus Q2 U.S. market factor was positive approximately $13 million due to the favorable trend in milk cost component and the average block market price. We expect the commodities market to remain volatile but they have been trending favorably since the beginning of our fourth quarter. In the international sector revenue for the third quarter were $917 million similar to last year, while adjusted EBITDA totaled $111 million, up 26 million versus last year. Revenue reflected higher international cheese and dairy ingredient market price, higher sales volume in our domestic markets along with higher domestic selling price which were offset by lower export sales volume. Revenue also include $141 million of negative foreign exchange translation relative to the weakening of the Argentinian peso. The improvement in adjusted EBITDA was driven by a better relation between international cheese and dairy ingredient market prices and the cost of [Technical Difficulty]. In the Europe sector, revenue in the third quarter were $285 million or 17% higher when compared to last year. Revenue increased due to pricing initiatives implemented to mitigate higher cost of milk as raw material and other input cost increases. Sales volume decreased due to the added pressure on the retail market segment from inflation driven pricing action. Adjusted EBITDA for Q3 amounted to 39 million, which was $6 million higher than last year. The improvement was driven by pricing initiatives to mitigate the higher cost of milk as raw material and other input costs in line with increased commodity and energy costs. So this concludes my financial review. And with that, I'll turn the call back to Lino. Lino A. Saputo: Thank you, Max. The decisive actions we've taken to address some of the transitory challenges while also executing on our strategic priorities will enable us to be a much more agile, resilient, and customer centric company. We maintained our momentum in the third quarter with effective execution across our global system despite a macro backdrop that remains challenging. In Canada, we're building on that momentum on the strength of our balanced, flexible, and diversified business model. We had a strong revenue performance. Our top line also drove good growth in adjusted EBITDA where we benefited from manufacturing efficiencies and cost containment efforts. New product innovations within our leading brands are showing promising early results with new flavor extensions and formats. During the quarter, we launched the Armstrong Lactose Free Block and Shred in addition to the Saputo Mozzarella Lactose Free product line. And our efforts are being recognized by consumers and leading grocery associations. Best new product awards, as a leading consumer voted awards program recently named several of our products as winners in their respective categories. This includes Armstrong Combos, Vitalite plant based cheese flavored slices, Armstrong moths and yellow cheddar swirled cheese snacks, and Armstrong bacon natural shredded cheese. The Armstrong Bacon Shred was also named a Top 10 innovation of the year by Grocer Innovations Canada. These impactful product launches reaffirm our ability to bring innovative products to market as part of our overall growth strategy. We also continue to take meaningful action towards becoming one of the most sought after places to work. So we're extremely proud to have been recently included on the Forbes list of Canada's best employers. To be recognized for the efforts we make in providing the best possible work environment for our valued talent. It is a testament to our people focused approach and how it has always been central to the Saputo culture. In the U.S., we realized strong sales growth and margin recovery supported by pricing initiatives. Sales volume also increased as we made headway in improving our ability to supply market demand. Although still in negative territory versus last year, U.S. market sectors improved from last quarter, driven by favorable commodity market prices, which rebounded from trough levels. We continue to focus on improving staffing through investments in our people, enhancing recruiting, and retention efforts and process automation. With increased staffing levels, we're improving our ability to supply ongoing demand. We're pleased with the progress we're making around margin recovery with three consecutive quarters of improvement. This reflects strong execution on pricing action, a better supply chain performance, and cost containment initiatives. We'll continue to narrow the margin gap as we advance on our global strategic plan initiatives, which include productivity initiatives, right sizing our manufacturing footprint, optimizing our plant operating costs, and cost savings. In the international sector, we delivered a solid performance in Argentina, driven by international cheese and dairy ingredient market prices, pricing actions, and higher domestic sales volumes. In Australia, pricing initiatives and healthy demands bordered top line results while reduced milk availability continued to impact efficiencies, margins, and our ability to fulfill demand in our export market. We made good progress advancing on the Australia networks optimization plan. In Q3, we announced our intention to permanently close our Maffra facility and streamline activities at two further facilities Leongatha and Mil-Lel. These changes take effect in Q4. These measures are part of our road map to increase capacity utilization, reduce costs, and drive improved returns on invested capital in Australia. In Europe, despite persistent inflationary headwinds and a challenging consumer environment in the UK, the business improved its performance supported by pricing actions translating into revenue and EBITDA growth. The ongoing volatility in the operating environment, however, further pressured operating margins. Our retail volumes trended positively versus the prior quarter with the price gap to private label continuing to narrow following additional private label price increases in addition to the positive impact from new listings and private label wins. Cathedral City, the UK's number one cheese brand, recently extended its product lineup into the dairy alternative category. The recently launched plant based offerings have resonated well with consumers. We're seeing incremental volumes from this product offering as well as solid repeat purchase rates already exceeding our original demand forecast. We're also receiving positive retailer feedback with expanded distribution. Notably, we've secured several new retailer listings and we were recently recognized by the Food Bev Awards and the Grocer at The Best Plant Based Alternative to Cheese and the Top Launch award for dairy and dairy alternative cheeses. Recognized and trusted brands like Cathedral City provide a powerful platform to offer plant based options as well as a competitive advantage that will help us lead in this category. As we closeout the fiscal year and look forward to next year, we're paying particular attention to the following areas. First, inflationary pressures remain high across the supply chain and on wages. In response, we are focused on executing cost savings in addition to pricing initiatives to offset some of the cost pressures we cannot mitigate. Second, our elasticities are only moderately increasing and we see good market demand, but we are closely monitoring for signs of changing consumer behaviors. Finally, our labor initiatives will need to deliver further results and what remains a challenging labor market for us to accelerate the recovery of our U.S. sector and execute our global strategic planned initiatives. In closing, I'm very pleased with our year-to-date performance. We continue to build momentum and we are well positioned for the current consumer economic environment. We are confident that the focus on our key initiatives will drive growth through the remainder of the year and as we continue to execute our global strategic plan. I thank you for your time and for your support. I will now turn the call over to Tina for questions. Tina.

[Operator Instructions]. The first question comes from Vishal Shreedhar of National Bank Financial. Please go ahead.

Hi, thanks for taking my questions. Congrats on the quarter and the momentum that the business is building. And I think you alluded it to it off the top. But I'm just wondering as you look back when you initiated the global strategic plan or at least announced it to the market and you look at the various segments, if you can just update us on where each segment is versus plan or what you thought, if they're ahead of plan, there's still some catching up that needs to be done and if there is, how you're going to close that gap? Lino A. Saputo: Yeah, that's a great place to start, Vishal. You have to understand that when we first initiated the -- at first designed and architected the Strat plan, the world was a very, very different place. Labor, inflation, and supply chain impacted us over the course of the last two years and not just us, but also our suppliers, suppliers of goods, suppliers of services as well, and suppliers of equipment. So we have found ourselves over the course of this last year adjusting and adapting. So I'll take you back to year one, we weren't adjusting or adapting. We were just putting out fires. Last year, this fiscal year that we're in right now we have seen the resiliency of our talent, of our people, of our team to be able to adjust and adapt effectively to the new global macro environment and new realities that we had to contend with. So the world is very, very different today than the first day that we drafted and introduced our Strat plan. The fundamentals of our Strat plan are intact. Now I will tell you that as we're moving along, there are certain elements of the Strat plan and certain elements of the pillars within the Strat plan that are changing as we move along. And I'll give you a couple of examples of that. There are more opportunities today in the network optimization versus the original plan. And if I take a look at both the U.S. and the Australian platform circumstances have changed dramatically in the last two years and so those opportunities are going to be enhanced. Those opportunities are going to be put in the forefront. The other element I would say that has changed dramatically from the initial phases of the Strat plan is we're not focusing on the volume targets anymore, we're focusing on value over volume and this is a substantial shift to make sure that we keep our margins intact and that we continue to create a valued product for our customers in an environment where they're prepared to pay for the incremental value. And so that has just two examples of some of the things that have changed. So there are still some moving targets, we do evaluate on an ongoing basis of what fits best for us and what will drive the best returns, but there will be more details to follow. As you can appreciate right now we are in our budget season and these are the kinds of questions we're asking ourselves. So we can look well into fiscal 2024 and fiscal 2025. But I will say that Q3 is a great indication that we have turned the corner, we're well on our way to recovery, we've got great momentum, and the fundamentals of the Strat plan are very, very much intact.

Okay, so with respect to the regions that are -- is it fair to say that some regions are performing ahead of plan, maybe Canada and some regions still have some catching up to do maybe Europe and in international. I think that's was the previous suggestion, is that still the way we should look at it? Lino A. Saputo: That is a very accurate statement. So I will tell you that there are some divisions that are ahead of their plan. Others are behind their plan. There are some puts and takes. We still feel very, very good about all of the initiatives that we put on paper even for those divisions that are lagging. But yes, there are some puts and takes, some pluses and some minuses, Vishal, that's a very fair statement.

Okay, thank you.

Thank you. The next question comes from Mark Petrie, CIBC. Please go ahead.

Hey, good morning. Obviously the volume recovery in U.S. is great to see. Can you just talk about that a little bit more, help us understand how the effect of the price increases played against the improved service levels, so in other words do you think the price increases had a negative impact on volumes at all?

Hi Mark, this is Carl. Thanks for the question. No, what I would say is and I'll try and answer the question with some of our major categories, dairy foods and cheese. From the cheese perspective overall from a fill rate and service perspective we're back on track. So for the most part there is no challenges really in supplying the market demands in most of our cheese categories. On the dairy food side, I would say that demand has continued to increase materially. So in some of our dairy foods categories, we are I will use the word struggling to keep up with that demand. But our overall throughput in both categories has increased and continues to be on a good momentum. Pricing and the pricing actions that we have taken has not negatively impacted demand from the marketplace. So really when we take a look at our service levels it comes down to ongoing strong demand specifically in the dairy food sector and some ability to adapt to that strong demand in some sectors, aerosols being one of them in particular.

Okay. And so on pricing, I mean, obviously it's going to depend on the category, but where you have a good degree of control, do you think you're effectively in balance today in terms of your operating costs and your pricing?

Yes, Mark we've taken the necessary pricing actions across our portfolio as needed and I would say that we're effectively, I will use the word caught up at this point. And I also want to qualify that we've done everything we can and we continue to do everything we can to mitigate costs as they come through and before we think of the pricing actions. Obviously if you roll back 18 plus months there was lots of catching up to do as the inflationary pressures were coming in fast and furious. We've since caught up, we're on top of it, and as the inflationary environment persists and it is persisting, we will continue to look to mitigate to offset some of those costs before considering pricing action. And if we need to do -- if we need to explore pricing action, we would do that. And it may not be across the board. We always look at it on a case by case basis and ensure that we're doing the right thing for our customers to keep our demand in check.

Yeah, understood. Okay, and then just the last one, I also wanted to ask about the progress towards the fiscal 2025 target, EBITDA target and notwithstanding the challenges in exports from Australia, it seems like the commodity is now generally a tailwind for you. Can you just give us a rough sense from the run rate that you're at today, how much of the bridge to the fiscal 2025 target would come from a commodity and how much will come from work that is within your control?

Well, Mark this is Max. So I would say when we look at the market that are -- is now recuperating, all the favorable trend we'll take it. I mean we've been hurt in the last couple of years from a market perspective. Any benefit that we could get absolutely we'll take it as we move forward. We feel from a pricing perspective we're in a good spot. We now have to bring our initiatives up to the expectation and this will be for us the key element for us to achieve our fiscal 2025 target as Lino mentioned. And the labor is one of the critical component. We need labor, we need -- and we're maintaining our efforts in order to achieve that target by fiscal 2025. It is a stretch target. The mark remained on the wall. We're confident in our initiatives, I mean that they will materialize and the benefit will be there. And a lot has to do with what we can control and everything from a market perspective will absolutely take it.

Okay, that's helpful and all the best.

Thank you. The next question comes from Irene Nattel, RBC Capital Markets. Please go ahead.

Thanks. And good morning, everyone. Can we just talk for a minute about the Canada segment, which it was really nice to see that sort of very strong trend, and the EBITDA margin level that we have not seen in a very long time. So, can you just walk us through what the key factors were that contributed and is there anything from the results in Canada this quarter that we can extrapolate to the other segments as time goes on? Lino A. Saputo: Thanks for the question, Irene. What I would say in Canada in particular, is that, from a timing perspective, what we're seeing is operational efficiencies benefiting also from prior initiated projects. So over the last several years, we've initiated, a variety of either consolidation projects, automation, all of the above. Some of that has finally come to fruition and we're seeing that in our results today. We're also seeing a shift in channels so the food service sector recovered very well in calendar 2022 here, and from an overall business, that was favorable to us, from a margin perspective as well. So overall, when we take a look at mix versus cheese versus fluid, all those pointed in the right direction, contributing to the positive results we see in Canada, on top of the efficiency. And I would also add that the Canadian team fared better, certainly than the American division with regards to labor attraction and retention. The gap was smaller in way of vacancies and they fared better at filling those roles quicker and benefiting from the market demand and being able to supply the markets, where others competitors may have faltered as well.

That's really interesting. Thank you. And then just sort of jumping off from that point. Lino mentioned that the One USA is really going to be sort of coming together in let's call it in early in fiscal 2024. Again, any key learnings from when you merged Canadian operations, what kind of benefits or what is the magnitude of the benefits that we're expecting to see? And how should we on the outside be watching all of this to gauge the “success” of the One USA?

Yeah, I mean, what I would say is, when we announced the merger of the two legacy groups, the very first thing that we did was with a management, if you want merger at that point. And we knew that the business processes and the systems in which they operate in, the ERP both being SAP at the time and the U.S. division was the cheese division, excuse me, we're still going through deployments of SAP. So, we had to let that sort of follow its course. We're now at a point where after having unity as a team, and as a group, we now need the business processes and the back-office systems to merge. That's what this One USA if you like and internally called Project North Star is really all about. And Lino referenced the date of April. So on April 1st, we will have those systems and mergers go live on us. And the learnings really come from the prior go lives, I would say from our SAP deployments. So much of the same work goes into this when it comes to change management. And ultimately, what we will see is an easier set of business practices that will allow us truthfully to have a combined supply chain, and an easier customer interaction or ease of transaction with Saputo as we move forward. So in the near term, the benefits will be small, in the longer term this sets us up to further integrate our two legacy business practices and installations, in fact.

Thank you, and then just finally, because you'd be disappointed if I didn't ask about it. Can you update us on your current thinking around M&A and the activity levels and valuations?

Yeah, so evaluations as you've seen in many transactions have come down. And you could expect that if we were to make an acquisition that we will be mindful of the current economic environment. Having said that, we continue to look at different files that do come up. As I’d mentioned in previous calls, we will be extremely disciplined in our approach to evaluate them, those acquisitions definitely have to be strategic and need to be accretive day one. Our primary focus, as I've also mentioned on previous calls, is the Strat plan. We believe in the investments we're making, we believe in the returns that those investments will make. But if there is an acquisition that will allow us to enhance part of the pillars of the Strat plan, get us further along quicker, and mitigate some of the CAPEX allocation, then that's something that we're looking at. We need to stay active in the market, we need to know what's going on, we have to have the market intel as well. Our M&A teams continue to look at different files, not all of them fit our criteria, not all of them are strategic, and not all of them are priced right. I can assure you that that discipline will continue as that focus will continue and we're just going to be moving ahead on the Strat plan as our primary focus.

That's great. But presumably, as you move further along in the process of implementing the Strat plan, sort of the opportunistic elements of M&A, if the wheels are already in motion, the opportunistic element kind of diminishes in probability, is that the right way to think about it?

I'm not sure I understood the question, right. But, you know Irene, that you've been following us long enough that acquisitions is part of our DNA. And so, if the opportunity for the right deal to come along at the right time is there, we will take that opportunity. But the criteria’s have tightened quite a bit. Multiples on transactions are not what they were even a year ago. And our willingness to buy a fixer uppers is no longer there, we have enough to do within our own platform that we don't need to fix someone else's problems. So, it's got to be a well-run good business that is accretive and diversification from the categories that we're currently in. So that would narrow down quite a bit, the number of fires that we're looking at. But still exciting for us, as we think about, beyond the Strat plan of future potential growth.

That's great. Thank you.

Thank you. The next question comes from Michael Van Aelst of TD Securities. Please go ahead.

Hi, good morning. Congrats on the results. I wanted to ask you about those U.S. fill rates because on the one hand it sounds like you're catching up in terms of your ability to deliver, on the other hand talking about labor still being a challenge, and you still have to make more progress. So, can you update us as to where you are on fill rates in the U.S. in Q3? And am I right to read into the outlook statement that you expect to be back to that 99% or so by the end of Q4?

So maybe, Michael, I'll take that question in two parts. I'll speak to the labor aspect first, and then I'll circle back to the impact to fill rates. So from a labor perspective, we've made very important improvements since the start of the fiscal year with regards to filling our gaps and our vacancies. And if I had to put a number to it, I would say we're about two thirds of the way of where we filled about two thirds of our vacancies. So that's meaningful progress at this moment and that has absolutely contributed to our ability to rebound on our fill rate since the start of that fiscal. When we took -- when we take a look at the sort of the outlook, as well as the more near-term of what occurred in Q3. There are some categories and some regions where it was tougher to recruit, and we still have larger gaps than what I just referenced. And that would have impacted our ability to supply the ongoing demand. Now in Q3, there's some seasonality to contend with as well. There are some categories in particular on the dairy foods side that have very high demand at that moment in time. And despite increased output throughout the network in that dairy food sector we were not able to keep up with all of that demand. And so on a pure percentage basis, some of our fill rates may have dropped in that sector. But we're confident with the ongoing progress that we're making with talent acquisition and retention and we made some very specific changes to the way it is we onboard our teammates, the way we select candidates with compatibility to the manufacturing sector, all of those things are contributing to a more positive experience for those who join our team. And a quicker contribution, if you'd like from them, in way of the efficiency and proficiency. So very confident that Q4 will be able to continue with that momentum despite the U.S. continuing to be a very challenging labor market. Unemployment rates continue to drop in the U.S. as we just saw here in January. But I think our proposition as an employer is attractive. And that will translate into continued improvements in the overall outputs of both categories and then translate obviously into improved fill rate levels for most of our categories. So still very confident that we will get back to historical levels here in near term.

Okay, so not, not necessarily in Q4, but in the next few quarters?

Yes, that's absolutely the target. We feel very confident that both, our mechanical installations, as well as our human resourcing aspect to make it happen are both well positioned right now.

Okay, great. And then also in the U.S., you talked about some of the dairy ingredient prices rising and I'm wondering which ones in particular were most helpful for you?

I would say that, on the surface, the higher fractions of proteins, so WPC 80s, we've benefited from good market conditions not just in the U.S., but globally. Also, with some of the common lower value items or ingredients such as lactose, they were also I'll say good value in the marketplace. So that did benefit us, of course, but some of those highs are starting to taper off here. And maybe I can, turn it over to Leanne for some commentary about sort of global demand and pricing outlook for that category.

Hi Michael, it's Leanne. Yeah, so we do expect pricing to moderate, especially in the lower protein ingredient categories. As we look ahead, however, highly specialized ingredients, as Carl referenced, that pricing continues to be quite stable. And we have a lot of contracted business as well. And we've taken that into those prices into account. We actually have overlapping contracts that move across quarters for a number of our geographies. So that market pricing has benefited a number of our geographies. However, we do expect that pricing to moderate.

Can you give us an idea of what roughly the mix is between those higher protein items?

Really, it depends on the geographies and you're looking in the U.S. and Canada which we operate fundamentally as one group when it comes to the dairy ingredients space. We have a very good balance between higher fractions of proteins as well as what we would call lower valued whey solids which is fundamentally sweet whey protein. So we have a very good balance in North America with regards to those kind of market shares if you want. Leanne.

And the same in Australia in particular, we operate across multiple categories. So we have tailored ingredients right through the mix and with Argentina it is again a mixture with more at the lower protein level.

Okay, thank you.

Thank you. [Operator Instructions]. And the next question comes from George Doumet of Scotia Capital. Please go ahead.

Yeah, good morning. Congrats on a strong quarter. I just want to talk a little bit about selling costs. They were down year-over-year typically, it grows with inflation over the past few quarters. Maybe any sort of comment there, is it a one-time thing or just maybe trying to get a sense of the sustainability of the trend over the next few quarters?

George, it is Max. Are you talking about SG&A cost, not sure I understand the properly?

Yeah, selling costs?

Yes, on the selling costs we've seen customer that includes some delivery and logistical costs in that line that you're looking at. And in some instance, in the U.S. we do have some customer that have some pickups, rather than us delivering. So that attracted the cost down. I would also say that there's, of course some FX component within the line that you're looking at. And also from an efficiency standpoint, we have a lower resupply from facility to facility between our own plants that are being captured under that selling cost line. So those would be the key elements that would reduce the selling costs.

Okay, thanks for that Max. And just one more on for you on working capital. The investment seems to be continuing there, can you maybe give us a sense of how long we should expect the drag to go for and maybe any sign of reversal coming up in next few quarters and any color there perhaps?

Yes, every year in Q3 we tend to see an uptick in our working cap. Right now the level where we're at, we feel we're at a high in terms of investment. Understand that from that investment it's mostly market driven. So we have some instance where I mean, we're not only recovering or growing some of the business. So there's some logical or normal growth in the working camp. The majority of the investment we're seeing is market related. And yes, we feel we're a bit of an uptick and we do expect the use of cap frozen into working cap should diminish over the next couple of quarters.

Okay, thanks. And just a follow up on an earlier question. Well, can you give us a sense of how much more room we have on the optimization initiatives, I think the bucket was 200 million, it seems that we're running well ahead. So maybe in any color that you can provide? Lino A. Saputo: Yeah, George. So we are right in our budget season, these are the types of things that we're discussing and evaluating. I would say that there is going to be more CAPEX allocated to optimization. But with it, of course, will come the return on investments. We'll have more color in the future quarters. We are challenging our teams to look at those projects and those opportunities that will derive the best value for us. So there are going to be some moving parts here. But more color to come.

Okay, thanks, guys.

Thank you. Our final question comes from Chris Li, Desjardins Securities. Please go ahead.

Oh hi, good morning everyone. And hi Lino, just made me a quick follow up on your answer to last question just, when you said about do you guys have identified more opportunities in optimization and additional shift, maybe a bit more from volume to value, is it fair to say compared to your original Strat plan, that you have essentially really pivoted to more areas of the operation where you do have greater control over your own destiny and if that's the case, does that change kind of give you more confidence that your Strat plan EBITDA target is achievable? Lino A. Saputo: Yeah, so let me start off by the achievable target that 2.125 is a solid number. That is, as Max mentioned, it's the target on the wall that we're all shooting for. And the initiatives that we have are supporting the 2.125. This part of the reflection that we're going through now, and number one is to see how quickly can we get some of these projects done, understand with supply chain impacts to our equipment vendors and service suppliers, in some cases have slowed down relative to the original project. Labor also is an important element for us, we need to have the talent to be able to execute internally. And so that is also an element. The number 2.125 is solid. Some of the projects and priorities may have shifted. But this is what we're all working towards right now.

Okay, great, that's helpful. And maybe another question I have is, and I know no one has a crystal ball on where cheese spreads is going but can you remind us again, what is your underlying spread assumption to achieve that EBITDA target? And secondly, in your personal view, what are some of the risks that could drive the spread should you look back to that minus $0.20 range?

Hi Chris, this is Carl. We certainly don't have that crystal ball, because every time we try and forecast something, the market surprises on spreads. So what I can tell you right now is that, yes, the spreads are favorable to what they were last quarter. They're actually not as favorable as they were last year, same time. So you can see that there's still lots of volatility in the market space. The near term, and I mean, like, really near term here, one week, two weeks, three weeks, we still see some, I'll say favorable market spread environments. But overall, some of the underlying assumptions that we do have, as part of our modeling is still negative territory. So it's not as though our models consist of some sort of positive territory. And whether it be historical levels that we may have seen like positive $0.03 or something like that, that's not built into our models.

Okay, okay. That's great. And then maybe last one, just on the international side. You mentioned that the export sales volumes were negatively impacted by the mill situation in Australia, does that sort of worsened sequentially from Q2 to Q3 and also when do you expect that situation to start to stabilize or is that a growing concern?

Hi, Chris. It's Leanne here. So as far as some of the things -- we talked about the pricing, so yes, both the market pricing obviously did benefit our Australian division. At the same time, we still have headwinds around our lower milk intake. Actually, we now obviously just passed the flush milk season as well for Q3. So sequentially we're seeing improvements. And of course, we'll need to keep obviously an eye on milk in Australia, managing our milk intake is a key priority for us. But equally as important is actually what we do with that milk. And we believe we can still be profitable and maximize the value of every liter of milk from the Australian platform.

Great. Okay. All the best. Thank you, everyone.

Thank you at this time, I'll turn the call back over to our speakers for any closing remarks. Lino A. Saputo: Thank you, Tina. We thank you for taking part in the call and webcast. Please note that we will release our fourth quarter and full year fiscal 2023 results on June 8, 2023. Thank you and have a great day.

Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.