Saputo Inc SAP
Q4 2013 Earnings Call Transcript
Transcript Call Date 06/05/2013

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Saputo's Fourth Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Wednesday, June 5, 2013.

I would like now to turn the conference over to Lino Saputo, Jr. Please go ahead, sir.

Lino A. Saputo, Jr. Thank you very much, Albert.

Kristel Alexandra Salesse - Corporate Communications: Good afternoon, everyone, and thank you for joining us today. A press release detailing our 2013 fourth quarter fiscal results was issued earlier today, and is also available as we speak on our website at This call is being recorded and will be posted on our website for future reference. I would like to specify that our listeners on the phone and on the Internet as well as journalists are on a listen-only mode. Members of the media are invited to ask their questions by phone after this call.

Before we proceed, I'll remind you that certain statements that will be made during this call may constitute forward-looking statements within the meaning of securities laws. Caution should be used in the interpretation of such statements, since management has made certain assumptions, including, among others, assumptions regarding projected revenues and expenses and references to beliefs, expectations, objectives and strategies that are subject to a number of risks and uncertainties which could cause actual results to differ materially from those presented in such forward-looking statements.

For more information on these risks and uncertainties, please refer to the materials filed with the Canadian securities regulatory authorities, including our more recent Annual Report available on SEDAR. Any forward-looking statement made during this call is based on management's current reasonable estimates, expectations, and assumptions and we do not undertake to update or revise such forward-looking statements, except as required under securities laws.

The speakers today are, Mr. Louis-Philippe Carriere, our Executive Vice President, Finance and Administration; and Mr. Lino A. Saputo, Jr., our Chief Executive Officer and Vice Chairman of the Board. After a brief presentation, we will conclude the call with your questions.

Louis-Philippe will now begin the conference followed by Lino, Jr.

Louis-Philippe Carriere - EVP, Finance and Administration: Thank you, Kristel, and good afternoon. Before our comments on our fiscal 2013 results, I'll cover our results for the fourth quarter of fiscal 2013 in comparison to those of the corresponding quarter last fiscal year.

On January 3, 2013, the Company completed the acquisition of Morningstar Foods for a total cash contribution of C$1.434 billion, financed through a combination of available cash and a new four-year term bank loan facility of C$1.2 billion. The Morningstar acquisition contributed to both revenues and EBITDA for the fourth quarter. The Company incurred acquisition costs in relation to the Morningstar acquisition as well as restructuring costs in relation to announced plant closures in Europe and Canada, totaling C$22.6 million after tax, of which about only C$1 million is cash cost.

Adjusted net earnings, which do not take into account acquisition, restructuring and impairment costs amount to C$129.2 million, an increase of C$6.8 million or 5.6%. Consolidated earnings before interest, income taxes, depreciation, amortization, acquisition, restructuring and impairment costs, EBITDA totaled C$229.7 million, an increase of C$28.7 million, or 14.3%.

EBITDA for our Canada, Europe and Argentina Dairy Products Sector decreased by approximately C$1 million. Benefits derived from lower ingredients and other operational costs were partially offset by a less favorable dairy ingredients product mix in Canada. In Argentina, lower sales volume and selling prices mainly in the export market negatively affected EBITDA. Dairy Products division in Europe recorded C$1.1 million loss in EBITDA. EBITDA for the USA Dairy Products sector increased by approximately C$29 million. The additional EBITDA derived from the Morningstar acquisition, offset lower sales volumes, higher operational and promotional costs, and the impact of higher milk costs resulting from the revised milk pricing formula in California.

These factors combined positively affected EBITDA by approximately C$23 million as compared to the same quarter last fiscal year. An increase in the average block market per pound of cheese positively affected the absorption of fixed costs and had a favorable impact on the realization of inventories. Additionally, a less favorable dairy ingredient markets negatively affect EBITDA.

These combined market factor increased EBITDA by approximately C$5 million.

EBITDA for the Grocery Products sector increased by approximately C$1 million. Consolidated revenues for the fourth quarter totaled C$2.053 billion, an increase of C$349.8 million or 20.5%. This increase is mainly due to the increase in revenues in the USA Dairy Products sector with the inclusion of the Morningstar acquisition.

During the fourth quarter, the Company had approximately C$82 million in property, plant and equipment, issued share for a cash consideration of C$12.5 million as part of the stock option plan, purchased share capital for C$58.2 million in accordance with the Company’s normal course issuer bid and paid out C41.3 million in dividends.

I would like to highlight some of our fiscal 2013 results. For the fiscal year ended March 31, 2013, adjusted net earnings as defined previously totaled C$510.6 million, a 0.9% increase in comparison to fiscal 2012. And adjusted basic earnings per share was C$2.58; that's about an 8% increase as compared to the C$2.51 per share for fiscal 2012.

Consolidated earnings before interest, income tax, depreciation, amortization acquisition, restructuring and impairment cost, the EBITDA amounted to C$860.8 million, an increase of 3.6% compared to last fiscal year. The EBITDA of the CEA dairy products sector decreased by C$15.8 million, or 3.1%, while EBITDA of the USA dairy products sector increased by C$44.5 million, or 14.7% over last fiscal year. The grocery product sector EBITDA also increased by C$1.2 million, or 9.4%.

Consolidated revenues reached C$7.298 billion, an increase of C$367.3 million or 5.3% compared to C$6.930 billion in 2012. During fiscal 2013 the Company added C$178.2 million in property, plant and equipment, issued share for a cash consideration of C$38.5 million as part of the stock option plan, paid C$161.7 million in dividend and C$190.4 million for the repurchase of share capital as part of its normal course issuer bid. The Board of Directors approved a dividend of C$0.21 per share payable on July 18, 2013 to current shareholders of record on July 8, 2013.

Lino Jr. will now proceed with the presentation of our outlook.

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Thank you, L.P. and good afternoon to you all. Reflecting on fiscal 2013, I am satisfied with our accomplishments. Our revenues are up 5.3%, our EBITDA has increased by 3.6% and adjusted net earnings have increased close to 1%.

Despite challenges and market factors, we had a good year. Our new management structure has been in place for 12 full months. This year was marked by strategic planning initiatives.

The leadership team and I focused on putting forward our company's next steps.

This fiscal year was highlighted by many important decisions, including the consolidation of distribution activities in the Greater Montreal area. We announced closure of two Canadian plants one in Winkler, Manitoba and the other in Warwick, Quebec, and our exit from the European market.

This year was also characterized by the acquisition of Morningstar Foods which complements our existing portfolio in the United States and will allow us to continue to develop new and existing platforms.

Now known as Saputo Dairy Foods USA. This division complements the activities of our Cheese division USA, and offers increased value for customers and consumers.

Though Saputo Dairy Foods represents a sizable acquisition, we continue to have the human and financial resources to pursue growth through acquisitions. We are ranked among the top 10 dairy processers in the world and we believe in the importance of embracing a global perspective for long term growth.

As we look to the future we remain confident in our ability to develop new platforms and new markets mainly through acquisitions. We are always on the lookout for new ways of working more efficiently and we continuously adjust our approach to take advantage of opportunities.

Everything we do is driven by our purpose to feed the world with high quality and nutritious dairy products. We have the people, the financial resources and the passion to meet our growth objectives and our accomplishments would not be possible without our outstanding team.

On that note, I thank you for your time and we will now proceed to answer your questions.

Transcript Call Date 06/05/2013

Operator: Irene Nattel, RBC Capital Markets.

Irene Nattel - RBC Capital Markets: First question I have is around the announcement you're going to change the segment reporting, and wondering why at this point you decided to break out the Dairy Ingredients in a separate division?

Louis-Philippe Carriere - EVP, Finance and Administration: Essentially, that's part of our outlook, and the fact that we're going to segregate or re-segment the way that we are presenting our financial information. Essentially two or three sector, the Canadian sector on which we're going to include Dairy division in Canada as well as the Bakery; the U.S. sector on which we're going to combine the Cheese division as well as the Dairy Foods division; and finally, the International sector on which we're going to combine our operation in Argentina as well as the sales of dairy ingredients as well as export cheese from North America. Essentially, we're going in that direction because that's the way that we're looking as of now to our business. That's the way we're now structured keeping in mind that part of our group, Kai Bockmann joined us last year in January 2012 as the one leading the International division. So essentially the way that we are set up and the way that we are to our business now is essentially the right move in terms of the way that we're going to present the financial information.

Irene Nattel - RBC Capital Markets: And on the whole international, is it fair to think that possibly as you – I guess, in the past whenever we've all thought about international acquisitions, we've always focused on cheese. But dose Morningstar open up a whole bunch of possibilities for you?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: I think as we look at our strategies for international businesses, Irene, we're looking at really Dairy Products and the entire world of Dairy Products, whether that would be in a liquid form or solid form or powdered form. That was true even before the Morningstar acquisition. In fact, if we look at our product portfolio that we are currently selling into the international markets, they do include powdered products and cheeses, and perhaps someday there might be (variants) possible. Some other dairy ingredients are blends for ice cream and perhaps even maybe coffee mixes. So again, we're looking at the whole dairy world in terms of our platform for growth.

Irene Nattel - RBC Capital Markets: That's great. And one final question, if I may. It's now been a full quarter since you got Morningstar. Could you give us any insight into what your initial thoughts are around what you've acquired and how it might be integrated on a go-forward basis?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Well, we're still extremely excited about the Morningstar acquisition which we've now renamed Dairy Foods U.S.A. Again, I'm thoroughly impressed with the management team, impressed with the facilities. Of course, there's certain things that we are learning from the folks out at the Dairy Foods and Dairy Foods is learning from Saputo's management style and management approach. I think there's a lot of compatibility there. I think there's quite a bit of opportunity for us to further develop that platform. So, again, we're extremely excited about having those assets under our responsibility and part of our large family and large team, and again I said this in the last quarter, if there are other potential acquisitions within that space, we’re motivated to continue growing that platform.

Operator: Martin Landry, GMP Securities.

Martin Landry - GMP Securities: When I look at your financial statement notes, you indicate that on a pro forma basis including Morningstar, you would have recorded C$530 million in net earnings in fiscal ‘13. If I calculate that correctly, it looks like it's an accretion of 5%. It seems to differ a little bit from the accretion of 11% that you were talking about in the press release on the day of the acquisition. I am just looking has there been any changes that would reduce your accretion level for Morningstar?

Louis-Philippe Carriere - EVP, Finance and Administration: No. To answer, the accretion or essentially the pro forma that we presented at the time of the acquisition essentially was in line. What you’re referring to, I can get back to you separately. Honestly I am going to have to go and dig into the note of – I think the (25) notes that we have to the financial statement. It’s precise detail, but I can get back to you during the day.

Martin Landry - GMP Securities: Can you share with us the contribution of Morningstar in terms of revenues and EBITDA for the quarter?

Louis-Philippe Carriere - EVP, Finance and Administration: No. Because they are combined with the USA sector essentially as they are (presented actually).

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Perhaps maybe the only thing that I would add to that without specifically talking about the numbers, as we look at the Morningstar business and you look at the EBITDA that we had published at the time of acquisition, we need to understand that there is some seasonality built into that, and so there are some periods of that specific platform where volume will be higher than other times within the year, so you need to keep that in mind as you look at the potential performance of the platform.

Martin Landry - GMP Securities: Okay, that's helpful. And lastly, in Canada, the Canadian Dairy Commission they announced creation of a new class for milk, the 3(b) that's going to be sold to the restaurants for the mozzarella. Can you give us any – will that have any impact or any changes on your gross profit dollars going forward?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: The way that this program works is that you would have to have the end-user pizzerias that would have to register to be applicable for this program. Essentially the cost reduction would be in milk and that milk cost reduction would be transferred over to the end-users in their cost of pizza cheese, so it's a direct bypass. So it just gets passed right through to the end-user. So to answer your question, no impact to the EBITDA generation for Saputo.

Operator: Michael Van Aelst, TD Securities.

Michael Van Aelst - TD Securities: I'm going to start with a few follow-ups to earlier questions, but you talk about restating your results or changing the way you break out your results. So will you be able to provide us with quarterly restatement so that we can see what they look like for last four quarters.

Louis-Philippe Carriere - EVP, Finance and Administration: Just for clarity we are not restating let's say our results. The way that we – as soon as we are going to publish our first quarter. So suddenly if we're going into the direction that we are going to report with the three segments I just mentioned previously comparative figure will be in line with that new presentation.

Michael Van Aelst - TD Securities: But we won't be able to get all four quarters – trailing quarters or all four quarter for fiscal '13 sooner.

Louis-Philippe Carriere - EVP, Finance and Administration: I don’t think so, that was not essentially, is going to be published throughout every quarter, but if there's anything that we can do in the first quarter to accommodate we'll do it in the – with the specific publication of our first quarter results.

Michael Van Aelst - TD Securities: So when you look at the fact that you guys have split out the division for international now. Does that give us any, should that be an indication that you are looking to export more from North America.

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: It's an indication that we're focused on growing the international platform. We talked about the hire of Kai Bockmann, over a year ago. The idea was to one manage the international assets that we have and secondly to explore new territory and new areas where we can find either more sales or perhaps even platforms where we can manufacture. So the idea of this is really to set it up as a division unto itself that would focus on its potential for growth, even if that means that perhaps we could take some product from North America and sell it into the international markets to the degree that we can make some profit with it.

Michael Van Aelst - TD Securities: Turning to the Argentinian business, you talked about pressure on the export markets for you. I guess you've had some raw milk increases domestically that you've been able to pass on but you haven't been able to pass that on internationally. With the international prices higher now, are you starting to see the benefit of those higher international prices?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Yeah, this last fiscal year was challenging for the export portion of Argentina's business. We believe that this upcoming fiscal year, the one that we're currently operating in will be more favorable than last.

Operator: David Hartley, Credit Suisse.

David Hartley - Credit Suisse: I just wanted to ask you whether you can breakout how foodservice performed versus retail in the quarter.

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Actually both the foodservice and retail were stable to slight growth. Having said that, in both channels, we experienced in Q4 quite a bit of competition. We had at the retail level competition with other retailers or branded products trying to take on market share and this is why you see our promotional activity was slightly increased in the Q4. Similarly on the foodservice side, there was quite a bit of competition which did affect some volume that that we would historically have had that we lost in the fourth quarter.

David Hartley - Credit Suisse: And what's the outlook you think for 2014 fiscal year? Do you expect more of the same in the early part of the year or..?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: I think that, that the markets are becoming more and more competitive. If I look at specifically the Canadian business where there is relatively no growth, that's always been challenging and always been competitive and I don't see that changing anytime soon. Again, our infrastructure, I think, is quite effective and quite efficient and I think we can compete quite well. And unfortunately some times in order to remain efficient we have to take some decision as we did with the closure of the two facilities and the rationalization of our distribution activities in Montreal. I mean, those are – that's part for the course. I mean, that the decisions we have to take in order to remain competitive. The same could be said for the United States. Milk sheds are growing. The growth in consumption sometimes could be volatile and the competition continues to be ferocious. It's up to us to make sure that we are effective, that we are efficient, that we maintain our volumes and maintain our margins at the same time. That's a pretty tall order, but I think we've got infrastructure, the people and the focus to be able to get that done.

David Hartley - Credit Suisse: And the most recent acquisition, does that help in any which way, because you've mentioned as a complementary business, but does it help you competitively in any way?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: The only way that it would help us is if we're going currently to one customer with cheese, that is also producing other dairy liquids like the creamers and/or the ice cream mixes and coffee blends, then perhaps the fact that we are an incumbent or that we are a good provider, that provides us credibility to try to expand our presence in another categories of product. That being said, there are no real synergies between the Dairy Foods division and the Cheese division. And I think I was quite clear when we made the acquisition that we would not see any major improvement to the EBITDA generation within the first couple of years until such time that we would make other acquisitions that would perhaps allow us to make some efficiency initiatives or rationalization changes.

David Hartley - Credit Suisse: Just final question and just on acquisitions. Given Morningstar for years I guess that division was looking to be combined with something else under different ownership. I mean, how confident are you today that you can find assets businesses that would be synergistic with the Morningstar going forward. From a U.S. perspective or as you know I like to ask this type of questions about international trade packs. I mean, this is more set up for something like that should one day changes in regulations around the world affect your business?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: I think both that would be the case, and probably the most immediate would be acquisitions within the U.S. That would either complement or enhance what the Dairy Foods Division is doing. You're asking, how likely is it? I think it's very likely. In that space and in the categories of product that dairy foods processes themselves, you've got quite a few national competitors as well as some and perhaps even more regional players that could really fit our platform and be a real nice tuck-in business for us. I think there are multiple targets out there. It’s a question of finding the right one, finding one that has a desire to sell as much as we have a desire to buy them.

Operator: Vishal Shreedhar, National Bank Financial.

Vishal Shreedhar - National Bank Financial: Lino, given the most recent acquisition in the U.S. I was hoping you could update us on the key U.S. performance metrics that your team follows to monitor ongoing performance? In particular I was hoping you could comment on the validity of the milk cheese spread and how much your team monitors that to gauge performance?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Well, let me answer the second question first. The milk cheese spread is still a variable that we look at; however, less important to us today than it was prior to say 2006 when we made the Land O'Lakes and Alto acquisitions, and started adding some whey drying capability to our platform. Milk cheese spread still, yes, you know we track what's going on in USDA, we track what's going on in California, but we don't live and die by the cheese spread anymore. There are other variables that we look at and there are a number of different things. Block price is important for us, where the block price sits beyond the cheese spread. Whey pricing is important for us. We look at other ingredient cost, non-fat dry milk and others that are important variables for us as well as you look at the international markets for other ingredients, those are all important variables for us. So, as important as milk cheese spread used to be prior to 2006, today it's one variable amongst many variables that we look at. In terms of matrixes, we're a very simple company. We don’t look at – we're not analysts and we don't look at formulas to dictate or determine where our profitability should be. We take a very fundamental approach of customer-by-customer, product-by-product and line out exactly where we think we need to be in terms of EBITDA generation on per pound or per kilo basis and that’s as simple as we can look at it. And then at the end of the day we roll-up the numbers and we come up with an EBITDA generation for the enterprise and we'll determine whether we are satisfied or not satisfied based on what we believe we can attain or achieve on an efficiency perspective on selling perspective and fundamentally a EBITDA generation dollar perspective.

Vishal Shreedhar - National Bank Financial: In terms of Morningstar given that's or the former Morningstar given that, that business has a unique product mix relative to the residual of the U.S. business. Can you tell us the key metrics that you use to monitor that business or do you very much look at it as a whole?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: The key things that we look at there, and there are couple of different categories or products within Dairy Foods USA. You are looking at the ice cream mix, the coffee creamers, the indulgence business, the cottage cheese and sour cream. Each one of those are defined independently and individually. We look at our volume metrics and we look at also the ingredient cost for each of those categories of product and within each of those categories of products there might be a different regulatory system that would dictate the price of the cost of raw materials at the end of the day no matter what happens in the dairy space cost of raw materials are key. And how you can extract the efficiencies from the cost of raw materials will make you either a winner or non-winner within our space. So again the same principles that we apply at Saputo Cheese USA the same principles that we apply in Saputo Canada or in Argentina are the principles that we will employ in Dairy Foods.

Operator: Peter Sklar, BMO Capital Markets.

Peter Sklar - BMO Capital Markets: In your discussion of the Canadian U.S. business, you talked about that the business was negatively impacted during the quarter by ingredients mix. Can you talk a little bit about what's going on with whey, and why you're not getting as fruitful a mix as you were in previous quarters? Is there something to do with end market demand or looking for a less developed product or what's going on?

Louis-Philippe Carriere - EVP, Finance and Administration: It's more related to demand on the market than the developed product, Peter.

Peter Sklar - BMO Capital Markets: Can you be a little – just elaborate a little bit about what's going on, like what's the market looking for versus previous quarters?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Well, there are a number of things there. One is the whey variable, the whey factor that influences the milk price. But then there are other ingredients that we do use within our mix that are based either domestically, priced or internationally priced and there are fluctuations based on those ingredients that we use. So, it's not just the whey variable that will affect the milk price. The whey variable will affect the milk price when we're looking at a USDA system and the California system. That's a factor of increasing whey pricing will increase the milk cost and a decrease in the whey pricing will decrease the milk cost, but beyond that there are other ingredients that we're using to stabilize and to improve our operations from a quality and cost perspective that are sometimes sourced domestically and sometimes sourced internationally.

Peter Sklar - BMO Capital Markets: Yeah, but I'm confused like, I'm looking at your write-up, you talk about – when you're talking about the U.S. business, you're talking about a less favorable Dairy Ingredients product mix. So I think you are referring there to the – to what you are realizing on when you sell the whey byproduct domestically and in international markets.

Louis-Philippe Carriere - EVP, Finance and Administration: Yeah, and we're referring to products that we are selling. So there's some, in the category of the Dairy Ingredients, there's some product that are more profitable, less profitable. So the mix in this quarter was less favorable than last year.

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: And I think where the confusion is, Peter, I think I'm understanding this. When we talk about the ingredients, there are two types of ingredients. One is the ingredients that we use to manufacture product, and the other one which used to be, I think we called it in the past industrial business. It's an ingredient business. They are ingredients that we actually manufacture and sell to market and perhaps that might where the confusion is.

Peter Sklar - BMO Capital Markets: Right. But you have a big business selling whey. Do you – like how did you – is that what you call a dairy ingredients, do you call that dairy ingredients?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: That would be dairy yes. That would be categorized right now as a dairy ingredient, and when you look at product mix in there, it's anything from whey powder to WPC 35, WPC 80% of WPI.

Peter Sklar - BMO Capital Markets: Right. So I understand all that. So given everything you've just said, given the spectrum of things that the language ingredient covers, where was the weakness?

Louis-Philippe Carriere - EVP, Finance and Administration: It’s just a mix of the product, Peter that we essentially result in less favorable. There were less favorable this quarter compared to last year. So essentially there is – in the category of the product that Lino was mentioning, these products were certainly more profitable when you are expanding in term of the product per se. In this quarter, the mix of the product is the same as the (indiscernible) cheese business, a mix of product for cheese as the (indiscernible) commodity. If you have a better plan with specialty cheese, you got to have a better mix of products. So, essentially what we are saying is this quarter it was – the mix of products was less favorable for us than it was last year. So that means that we sold product at let’s say lower and in term of product development, in term of product category per se, so which was less favorable for us.

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: On the sale side, Peter.

Peter Sklar - BMO Capital Markets: In the outlook section, when you are talking about production capacity in the CEA division, you had some statistics, 27% and 34% for cheese and fluid milk respectively. Could you explain what those statistics exactly what they represent?

Louis-Philippe Carriere - EVP, Finance and Administration: They represent the excess capacity that are available for additional production, but in essence of this we are not publishing for the U.S. as we always said in the past in the U.S. due to the fact that we are able to reach to let’s say the highest level of capacity. Here in Canada we can’t because of some regulations on a provincial basis. So that’s why we have available capacity. Are we able to fill that? Certainly, we’re going to be able to reduce that from time to time with the announced closure of or rationalization that we announced last March in Canada, but other than that we’re living with the system that we have.

Peter Sklar - BMO Capital Markets: Just my last question. On the question on the Canadian market, these pizza prep kits that are being brought into Canada duty-free, two questions related to that. Is that still growing and continuing to displace your mozzarella cheese sales and in the U.S. are you supplying any of the players who are exporting these kits into Canada?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Let me answer your first question first. It is still coming in and it is still growing. With respect to specificity of our products and our customers, I prefer not to get into that kind of discussion. The only thing I can say is that we will be protecting our market share and we will do everything we have to, to protect it.

Operator: Mark Petrie, CIBC.

Mark Petrie - CIBC: I just wanted to ask about the U.S. retail business and I think in past quarters you had sort of commented that you hadn't participated in all the competitive activity that was going on and you wanted to preserve margins as opposed to preserve volumes. This quarter it seemed like it was a bit of a different tact. Is that an accurate interpretation and what was driving that?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Well, you know sometimes you'd like to play offense, but you are obliged to play defense. I think in Q4 we played a lot of defense. So we were – yes, to answer your question more directly, we were active in trying to maintain our market shares.

Mark Petrie - CIBC: And what do you think the outlook is for the retail segment?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: I think it will continue to be competitive. I think if you look at the announcements of some of our competitors, specifically in the U.S. about their intentions of growing their space, I think that competition will continue. We still have number one categories of products at the retail level. We want to maintain that position and I'm challenging my R&D team to be more cost-effective at the plant level and challenging our distribution guys to be smarter on logistics so that we can hold onto our share of market without eating into our margins.

Mark Petrie - CIBC: That's helpful. Just in terms of Morningstar I know you don’t want to give sort of specific numbers but can you talk about sort of the change in year-over-year performance versus what they had done last year when they were part of Dean Foods. And also as it pertains to the inter-segment sales that Dean was reporting. How much of that were you able to retain?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: It's very difficult for us to comment on anybody else's reports. We have no idea what was allocated in their reports or not. The only thing that I can comment on is if you refer back to our statements when we made the acquisition. The EBITDA generation at the time of our due diligence process we still feel very comfortable and very confident that we made the right acquisition with the right EBITDA margins and multiples and looking forward I see no reason to be concerned about the generation of EBITDA at the old Morningstar the new Dairy Foods. But with respect to someone else's report I have no idea how they split their costs or how they made allocations and I can't comment on that.

Operator: Michael Van Aelst, TD Securities.

Michael Van Aelst - TD Securities: First off you talked about lower volumes in the U.S. I guess there is no legacy business can you give us any indication as to what kind of decline there was and whether that was a flat decline accelerated in the quarter?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: The majority of the decline was in the Q4. If you're asking how we've responded to that, I would say, yes. It's not something that is continued or persistent. In fact, I would say that our focus is to go back and get some of that volume back at the market level, whether that would be at foodservice and/or at the retail level.

Michael Van Aelst - TD Securities: So then you're saying frankly, the volume decline you recorded in Q4 was worse than in prior quarters but you do expect it to recover?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: That's it. Precisely what I'm saying, yeah.

Michael Van Aelst - TD Securities: And then on the Grocery side, can you give us an indication as to how the exports to the U.S. are doing? And have you seen, in the Canadian market, have you seen any noticeable change in the competitive environment in the lead up to Canada Bread exiting the Canadian business?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Actually I'll backtrack a little bit before I answer those questions. I talked in previous quarters how Lionel has given new life to that division in terms of initiating some very strategic changes of which include longer shelf-life product which allow us to get into new markets where we weren’t that cost-effective to get into in the past. There are a number of other streamline items which I talked about in past quarters that today are bearing fruit. I think that the bleeding has stopped perhaps even six months ago. I think that we're looking at more optimistic future for the Grocery Products division. Our penetration to the U.S. is good, it's slow but it's very good. We're not looking for any immediate fires that are going to extinguish rapidly. We're looking at those channels of sales where we can not only sell once, but have repeat business, and there are some key customers that we're working with currently and that we have some potential to work with in the future. So, it will be slow progress in the U.S., but it will be a long-term sustainable progress. Within the Canadian landscape, you indicated that there are, and there has been a player that dropped out of the business. Their market share was small relative to what we have, but we believe that we can capitalize on some of the sales that they were having that ultimately we can pick up on.

Michael Van Aelst - TD Securities: I guess more importantly, has it relieved a little bit of the pricing pressures given that there's less capacity in the market?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: The pricing pressure, I think, are related to consumers' expectations and less related to competitive nature of the business. You know, Vachon has got incredible brands that are well recognized by some consumers. It is what it is, but the consumers expect to pay a certain price for those categories of product irrespective if there are other products on the shelf. So, I think those issues and challenges with respect to pricing remain whether other players are in or out of the business. We've got good brands, we have great products and we've got lot more flexibility built into it and I think that the margin improvement is going to come less from pricing, more from other initiatives within our operational structure.

Operator: Martin Landry, GMP Securities.

Martin Landry - GMP Securities: Yes, just one last question on Morningstar. Could you tell us what major steps you've done with that business since you've acquired it and what the major steps are left in terms of integration of Morningstar?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Well, the first major step which is stay in business type of orientation. We have to unplug from Dean Foods and re-plug into Saputo. So the majority of our focus is to make sure that our employees get paid and so payroll changes have to happen and that was a primary focus. There are other services that even before you get into the day-to-day operation of the business, you need to make sure that when you open up the computers in the morning, you got the information that you need to have. So the first and most important criteria was the unplugging from Dean Foods and plugging into Saputo. The next most important thing for me would be the administrator or accounting programs and systems whereby we can have the numbers in the same format that we’re accustomed to having Saputo, so we can do the same types of analysis. All the while that this is going on, of course, we have customers that we need to continue to service and develop new products and look for new business, so all of those things are happening at the same time. I'm confident that we have the right people in place to make sure that happens well.

Martin Landry - GMP Securities: Are you prepared to share maybe or quantify your synergy and cost reduction goals for Morningstar?

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Well, I think I made it clear in previous conference calls that there are no synergies. This is a separate unique platform that we acquired that was we believe has strategic value to us, and the assets and the infrastructure on the dairy foods side is very, very different from the assets and the infrastructure on the cheese side. Perhaps, there could be some exchanges between Terry Brockman and Kevin Yost in terms of strategies to go-to market and perhaps how they can help each other out with some services potentially, but in terms of real operational synergies there really are none and I think that was clear and when we made the acquisition and the announcements that we made I thought we were pretty clear on that.

Operator: Mr. Saputo I will now turn the call back to you please continue with your presentation or closing remarks.

Louis-Philippe Carriere - EVP, Finance and Administration: I'm going to jump in just to answer the question that asked earlier. He was referring to note 16 of our financial statement that we published our audited financial statement that we published today. And for which we are saying that on an annual pro forma basis and the acquisition of Morningstar taking place on April 1, 2012. Their company would have recorded C$8.6 billion in revenue and C$529.7 million in net earnings. That’s C$529.7 million in net earnings in comparison to what we post as net earnings this year C$481.9 million. That make a difference of 48 million, 48 out of the 197 million shares outstanding that’s meaning about C$0.25 compared to C$2.44 it's about little bit more than 10% accretion, technically. So that would be essentially the answer for that thing and for the benefit of all the people on the phone.

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: So following LP's comment Albert are there any other questions lined up.

Operator: There are no other questions at this time.

Lino A. Saputo, Jr. - CEO and Vice Chairman of the Board: Thank you very much Albert.

Operator: We thank you for taking part in this conference call. We hope you will join us for the presentation for our fiscal 2014 first quarter results on August 6. Have a nice day.