Saputo Inc. (SAP) Earnings Call Transcript

[Foreign Language] I always get emotional on that part. [Foreign Language] Before we begin, here are a few words on the general proceedings of the meeting. First of all, we have simultaneous interpretation. So here is the procedure to ask questions during the assembly. So this is -- this was sent beforehand. So register shareholders and duly appointed proxy holders present in the room may ask questions at one of the microphones when invited to do so. You will need to identify yourself and confirm your status as a shareholder, or a proxy holder before asking questions. Participants online need to be connected with their control number to ask questions during the meeting. To ask a question, click the Messaging icon, you can choose to Write Your Question or Enter Your Phone Number in the text box. If you provide your phone number, please indicate, which agenda item your question relates to so that it can be addressed at the appropriate time. If you do not tell, which agenda item, this is about your question will be addressed during the Q&A session at the end of the meeting. In all cases, an operator will call you when the time comes to ask your question. If you prefer to submit your question in writing, I encourage you to do so as soon as possible, and we will address it at the appropriate time. Participants online that have connected as Invitees, will not be able to ask questions. So in fairness to other participants, please keep your questions concise, short. If we cannot answer them within the allotted time, we will publish the answer in the Investors section of our website. So we reserve the right to modify, or reject questions that substantially repeat the content of a prior question. If they are deemed also inappropriate, or unrelated to the meeting, or that relate to nonpublic information concerning Saputo, or that serve the personal or business interest of a shareholder. Now we may make today statements that contain forward-looking information within the meaning of applicable security laws. These statements are based on assumptions and are subject to significant risks and uncertainties and our actual results could differ materially. So I refer you to the cautionary statement on forward-looking statements, or forecasts contained in our annual report of our website and appearing on screen. Now I'd like to appoint Ms. Martine Goutie and Ms. Teresa DeLuca, Computershare Investor Services, Inc. as scrutineers for this meeting. These scrutineers have provided an attendance report, and I can confirm that the quorum of shareholders present, or represented by proxy, is reached. The matters to be considered for today's meeting are set forth in the proxy statement dated June 5, 2025. Now the company used the notice and access regime to make its meeting materials accessible and sent the notice, including all relevant information and documents in regard to all shareholders, on or about June 24, 2025. So this was sent beforehand. Now the circular, notice of meeting and annual report are available to shareholders on our website. Additional copies are also available today at the registration table. For online participants, you can access them by clicking on the Documents icon on your screen. All of these documents are also available under the company's profile on SEDAR+. I will therefore omit reading the notice of the meeting. Now our transfer agent, Computershare, has confirmed that the applicable meeting materials documents have been sent to shareholders in accordance with the Canadian Business Corporation Act and the company's bylaws. I therefore declare that this meeting is duly convened and constituted to discuss the affairs of our company. I move to omit reading the minutes of the annual meeting of August 9, 2024, and to consider them as adopted or carried. The minutes will be kept in the company's books and may be consulted by any shareholder. We now move on the -- to the voting instructions. Voting will be done by secret ballot for all proposals under consideration today. Each shareholder of the company is entitled to one vote for each share held. First were the participants in this room registered shareholders and duly appointed proxy holders who have not already submitted a proxy, or who have revoked their proxy have been given ballots at the entrance. Computershare representatives will collect the ballots after the final proposal. Now for online participants, registered shareholders and duly appointed proxy holders who have logged in using their control number can vote on all of the agenda items. Regarding shareholders who have already sent a proxy, there is no need to vote during the meeting, unless you wish to change their vote on proposal. Now a shareholder, or proxy authorized in writing who wishes to change their vote most immediately revoke their proxy, either by going to the Computershare office at the entrance. If you are in this room, or by clicking on the Voting icon, if you are online. As Chair of the assembly, I will propose all motions and none will need to be seconded. Once the discussion of all agenda items has concluded, a short Q&A session will be held. Preliminary results will be announced before the end of the meeting. Now the first item on the agenda -- on this agenda is the presentation of the financial statements. A copy of the financial statements for this year ended March 31, 2025, which is available on the website, and on SEDAR+. Now I'd like to invite Max. He will be talking about the 2025 year, and of the first quarter of 2026. Then there's going to be a presentation of our achievements and also our strategic priorities. Max, you have the floor.

Hello, everybody and thank you for joining us today. The 2025 financial year tested the resilience of many businesses. At Saputo this rather highlighted the solidity of our business model. Today, I would like to introduce you the key elements of our performance, namely our results per division but also the operational work that supports them, and the measures who have been taken -- which have been taken rather to promote long-term value creation. Now financially speaking, consolidated revenues of the 2025 financial year increased by almost 10% compared to previous year, with an increase in each in our sectors. This revenue growth reflects higher sales volumes and increased selling prices in domestic markets, offsetting the impact of inflation on our costs. The increase on international prices for cheese and dairy ingredients in export markets also had a positive effect. The adjusted EBITDA for fiscal year 2025 increased across all divisions with the exception of Argentina, reaching a total of $1.565 billion. We received a net loss of $176 million, or $0.41 per share. This loss is due to a noncash goodwill and intangible asset impairment charge of $674 million after tax related to the dairy division U.K. of our European sector. Adjusted EPS was $1.46, compared to $1.54 for the prior year. Of the $1.1 billion generated by operating activities, we have paid $320 million in cash dividends, invested a net amount of $285 million in fixed assets, and we have carried out share buyback for an amount of $149 million. And finally, we paid a debt for an amount of more than $100 million. Now our team -- our seasoned team in Canada has had another excellent year with growth on both revenue and adjusted EBITDA. Now the results reflect higher sales volumes, favorable product combinations and rigorous management in our operating cost. Retail cheese sales volumes, specifically in the convenience segment outperformed industry trends. Armstrong, Dairyland, Neilson and Saputo Mozzarellissima maintained their status among Canada's most trusted brands. And we have strengthened our position in value-added categories such as protein drinks and cottage cheese. Now operationally, we have achieved significant efficiency gains thanks to investments in fixed assets in recent years. Several targeted supply chain optimization and packaging automation projects have not only increased efficiency but have also reduced labor intensity for employees. We have also been able to reduce transportation and logistics costs. The Canada sector remains a model of continuous improvement combining the strength of our brands and of our people, the management of our costs, and strong relationships with our customers, including agility of execution. Our U.S. sector delivered solid results despite persistent headwinds related to negative spreads between the cost of our raw material, milk and the price of lot of cheese. Our U.S. team excelled both operationally and commercially. We have achieved our target of $100 million in operating profits for fiscal year 2025. Rico's cheese had another record year in string cheese production, while Montchevre maintained its leading position in goat cheese products. The brand Treasure Cave also expanded its product line with the addition of new blue cheese formats targeting a younger customer base. The optimization of our network continued with marked progress. As planned we closed our 4 facilities, namely those of Belmont, Big Stone, Lancaster, Bardsley, 4 facilities, and we have moved these volumes to higher efficiency facilities, such as those of Tulare, in California, as well as in -- to our new plant in Franklin -- sorry, Wisconsin, Franklin. As previously announced, we also expect to close our Green Bay plant, Wisconsin, facility by the end of the third quarter of fiscal year 2026. Our Franklin cutting and packaging plant is now fully operational and plays a central role in reducing our operational costs. To support future growth, we completed construction -- the construction of a 300,000 square foot distribution center in Caledonia, Wisconsin. This facility complements the Franklin facility and simplifies our supply chain in the Midwest. Our U.S. business is in excellent position to experience sustained margin improvement over the long term. Now let's move to the international sector. In Australia, we have benefited from an improvement the relationship between prices in international cheese and dairy ingredient markets, and the cost of milk. The attention was paid to optimizing our network, which has led to concrete results. We have completed the sale of two fresh milk facilities in fiscal 2025, as well as the sale of the King Island dairy manufacturing facility in Australia more recently, which has optimized our manufacturing footprint and freed up capital to drive long-term growth. Our shift towards higher value-added products such as cheese, green cheese, yogurt and dairy ingredients is also beginning to bear fruit. Now in a very demanding consumer context, our team has been able to draw its pin out of the game by how -- by launching new formats by obtaining various private label contracts. In making progress with the relaunch of our brand, Devondale. With the initiatives and improving market dynamics, our platform is well positioned to grow profitably. Let's talk about Argentina. In Argentina, we have operated in a really difficult macroeconomic context. Despite this, thanks to our team, we have delivered a solid performance in the domestic Argentinian market. We have maintained our leading position with our brand, La Paulina, and we have recorded volume growth in soft cheeses, in mozzarella and in grated cheeses. During fiscal year 2025, our results were affected by an unfavorable relationship between inflation and the variation of the Argentina peso, which led to higher milk costs and reduced our competitiveness in export markets. Volatility persists however. However, signs of slowing inflation and stabilization of the currency suggests a more stable and favorable environment for the 2026 fiscal year. In this context, our local presence, our capacity for innovation and ingredients, and the value of our brands in Latin America remain key assets for the 2026 financial year. In Europe, our margins improved as we completed the disposal of high-cost manufactured inventory and implemented site consolidation initiatives. The work of our dedicated team has enabled Cathedral City to maintain its leading position in the U.K. cheese market with innovations in high protein and plant-based options, which has contributed to growth in volumes and our consumer presence. We have completed the closure of our [ old ] site and transfer cutting and packaging operations to the Nuneaton facility. Further consolidations are underway, including the planned closure of our Kirkby Malzeard site. We have also announced the end of the manufacture of certain functional ingredients in order to first simplify production and reduce operational complexity. And second, to also generate savings. Now in the long term, these measures are part of our objectives of building a more efficient European company focused on high value-added products. As far as the managing of our capital, we remain true to our balanced and disciplined approach. The distribution of capital will be focused on capital investment expenditure, on the payment of dividends and on debt reduction, while emphasizing short-term share buybacks. Our new debt to adjusted EBITDA ratio was 2.03 at the end of June, which remains below our long-term target. Our cash flow is strong, and we intend to continue opportunistically repurchasing shares under our normal course issuer bid. Since the beginning of fiscal 2026, we have used more than $170 million in share repurchases. And the best is coming right after. So yesterday, we have announced our results for the first quarter of fiscal year 2026. Adjusted EBITDA was $426 million, up more than 11% compared to the previous year while adjusted net income amounted to $184 million, an increase of 10%. Adjusted benefit per share was $0.44, up 13%, compared to $0.39 in the previous years. We are pleased to enter fiscal 2026 with a positive momentum. Our first quarter results were strong, reflecting the strength of our global business. Margin expansion across all our segments, improved performance in the U.S. despite a less favorable commodity market than last year, and significant year-over-year gains in our international and European segments all contributed to an excellent first quarter. Our revenues and sales volumes were higher on a relative basis, supported by the favorable spread between milk costs and selling prices on international markets and rigorous commercial execution. Our ongoing operational improvement efforts, particularly those related to our capital investments and cost optimization efforts are paying off, supporting both our performance and our long-term competitiveness. Our strong cash flow from operating activities this quarter demonstrates the resilience of our business. This has allowed us to redistribute the majority of this cash to shareholders in the form of dividends and share repurchases. Now as we enter fiscal 2026, our priority is not just protecting margins but also unlocking the full potential of our investments. The Board of Directors has revised its dividend policy and increased the quarterly dividend to $0.20 per share, an increase of 5.3%. The quarterly dividend will be paid on September 12 to shareholders of record as of September 2, 2025. Thank you so much for your attention. And now I'd like to give the floor to Carl.

Hello, everybody. Dear shareholders, members of the Board and colleagues. First of all, I would like to say that I'm proud of the progress of last year that we have been able to do, and also of the direction that we have been taking together with your support. This was a very volatile year. There were lots of geopolitical tensions and there was lots of change in consumer behavior. Saputo remained focused on its objectives. We have achieved positive financial results generated strong cash flows and maintained stable margins. We have -- we invigorated our management team, completed a major cycle capital investments and made concrete progress to transform our operations and remain competitive on the long term. But the most important message I'd like to convey to you today is as follows. Saputo does not stand still. We are entering a new chapter focused on extracting the full value from our recent investments, accelerating our business strategy and optimizing our execution focused operations to create sustainable value for our shareholders. Over the past 4 years, we have undertaken an ambitious capital investment program in order to modernize our network, to improve our productivity and to build a more resilient company. In fiscal 2025, a significant milestone, completing this program and beginning to see the returns it was designed to unlock. These investments were not about quick wins. They were made with the long game in mind. Today, they are enabling us to streamline our operations across geographies, expand capacity in value-added product categories, optimize our supply chain, and support the continued growth of our brands by staying true to our customer first commitment. The benefits are visible in our U.S. operations, where we realized over $100 million in benefits from cost savings and operational improvements in the past year alone. As we move forward, we expect these efficiencies to further reduce costs, improve our margins, and enhance our competitive positioning. This is the Saputo of tomorrow, modern agile and built to perform across all market conditions. At the heart of our strategy is a commercial discipline, a renewed focus on where we win, how we differentiate, and how we serve our customers and consumers better. We are doubling down on our focus brands, recognizing their strength and relevance in consumers' lives. With innovation pipelines tailored to value-conscious consumers, and increased agility in how we go to market, we're reinforcing our presence across both traditional and emerging channels. We are also embracing data-driven decision-making to accelerate growth. Our adoption of digital technologies from automating workflows to leveraging advanced analytics is enhancing our ability to respond to market dynamics swiftly and operate with greater efficiency. In fiscal year '26 and beyond, we will continue to invest in elevating the consumer experience, strengthening our customer partnerships and expanding our reach in high potential regions and segments. This strategic clarity allows us to focus not just on top line growth but on building a more profitable and sustainable business. Our confidence is also grounded in the strength of our industry. Dairy remains one of the most versatile and resilient categories globally. From cheese and cultured products to protein beverages and functional ingredients, dairy touches nearly every modern food trend while remaining a staple in daily consumption and shared moments. Saputo is uniquely positioned to capitalize on this versatility. Our diversified product portfolio is balanced across retail, foodservice and industrial channels. This mix provides both stability and room to grow. We're especially encouraged by growing demand in the protein space and continue to support customers with innovation that adds value to their menus and shelves. As just one example, our Dairyland protein line, and recent QSR partnerships, reflect how our products are meeting modern consumer expectations. Our ability to navigate economic uncertainty is rooted in our operational discipline. In fiscal year '25, we took bold action to reduce SG&A, optimize our plant footprint, and restructure where needed to align resource with business needs. Our now leaner and more agile organization is better equipped to adapt and to respond. We are seeing the results, improved performance in the early part of fiscal year '26, increased productivity and stronger fill rates across our network. Looking ahead, operational excellence will remain a key pillar of our strategy. We will continue to simplify, consolidate and digitize ensuring that our business is as efficient and competitive as it is resilient. Another key area of focus is our Saputo Promise. We believe that long-term value creation cannot be achieved without environmental and social responsibility. I'm proud to share that we delivered on our 2025 environmental pledges, achieving our climate targets and making progress towards our energy goals. Our carbon intensity decreased significantly versus our fiscal year '20 baseline, and over $75 million has been invested in more than 100 sustainability projects to date. As we turn to our new 2030 commitments, we are renewing our ambition. With new science-based climate targets, continued water efficiency efforts, focusing on operations at high water risk regions and streamlined waste and packaging targets. Just as we invest in assets and brands, we are investing in our people. We were again recognized as one of the world's best companies by Time magazine, and earned gender parity certifications for a second consecutive year. Testaments to the strength and integrity of our team. We have started 2026 in a very positive way with a clear vision. Our strategic priorities are well defined. So we want to make sure that we will have the full value all across our business, investing in our business strategy and also by reducing the costs by improving our operational efficiency. This is how we will reach higher value. And we have continued our share repurchases during the new financial year, confident of our ability to generate stable cash flows while maintaining the flexibility to invest in our future. Now that being said, we approach this exercise with lucidity. The consumer landscape remains uncertain. Our answer will be measured. We want to be proactive. We wish to make sure that we will be conservative in terms of debt. We want to limit our expenses of capital, we want to control our costs. So we are ready to adjust quickly while continuing to support the growth of our segments that are the most resilient across all sectors. So finally, I would like to thank our employees for their excellent work and commitment. To our customers and suppliers, thank you for your trust. And to you, our shareholders, thank you for your continued support. On behalf of the executive team, I would like to extend a special thank you to Lino, for his support as Executive Chairman of the Board and his unwavering commitment to the success of our organization. Saputo has a proud history built on passion, integrity and entrepreneurial spirit. Today, we continue this legacy with a fresh perspective, and renewed ambition. The work ahead won't always be easy but we are clear headed, we are ready, and committed to executing with excellence and creating lasting value for all our shareholders. Thank you. Thank you very much.

Thank you, Max. Thank you, Carl. The next item on the agenda is the election of directors. The Board proposes to nominate the current Board members as director candidates. Their bios can be found in the proxy statement in the circular that was sent beforehand. Now I propose the candidacy of the following 10 persons for election as directors of the company, who will remain in office until the next meeting of shareholders, or until the election of their successors: Olu Beck, Victor Crawford, Anthony Fata, Annalisa King, Karen Kinsley, Diane Nyisztor, Franzisca Ruf, Stanley Ryan, Annette Verschuren and myself, Lino Saputo. All candidates confirmed that they are eligible to serve as Directors if elected and that they are willing to do so. We will now take your questions on this agenda item. We will first take questions from the floor before moving to online questions. If you are in this room, and I would like to ask a specific question on this item, please come to the microphone and identify yourself as a shareholder, or a proxy holder, before asking your question. So I don't see any questions right now in this room. So let's go to the questions online. Are there questions?

No.

Great. Well, thank you, Lydia. So now let's go to the vote. In order to vote online, please choose select applicable voting options on the voting panel that appears on your screen. Participants in this room who received ballots can also vote. The next item on the agenda is the appointment of the auditors. I propose that KPMG be appointed as the company's auditors until the next Annual Meeting of Shareholders and that the Board of Directors be authorized to set the firm's renumeration. Are there any questions from the floor on this point from this room? There are no questions in this room, Lydia? Any questions online?

No.

Very well. So there are no questions. Yes. Okay. All right. Now, I would like to invite you to vote on this item of the agenda. [Voting]

Now the next item of the agenda is the adoption of a advisory nonbinding resolution regarding the company's approach to executive compensation. So I propose that -- now I propose that on an advisory basis and without diminishing the role and responsibilities of the Board, shareholders accept the company's approach to executive compensation described in the proxy circulars for the 2025 Annual Meeting of Shareholders. Any questions in this room about this item? No questions. So Lydia, any questions online?

I confirm that we do not have received any questions.

All right. Thank you, Lydia. Now I invite you to vote on this item of the agenda. Please vote. [Voting]

Let's go now to the next item in the agenda, which is the confirmation of bylaw #2 regarding early nomination. I propose that shareholders confirm this by law adopted by the Board on June 5, 2025. The full text of this bylaw can be found in schedule B of the proxy circular on our website and on SEDAR+. Are there any questions in this room about this item in the agenda? No questions in this room. All right. Lydia. Any questions online?

No questions online.

Okay. Good. Thank you. I invite you to vote on this item. Online voting will close in a few moments. If you haven't already submitted your online vote, please do so now. [Voting]

I invite the participants in this room to raise their hands so that the scrutineers can collect the completed ballots. Please raise your hand. Okay. Thank you. So with that I declare that the vote is now closed. The scrutineers confirm the following preliminary results. According to the results of the proxy votes received at least 96% of the votes were cast in favor of the 10 Directors proposed in the proxy solicitation circular. Congratulations to everyone. About 99% of votes are in favor of the appointment of KPMG. So the advisory resolution on the remuneration of senior executives is approved by 97% of votes cast in this favor. The confirmation of the administrative regulation relating to early nomination is approved, so that's the bylaw, with about 99% of the votes cast in favor of it. Shortly after the meeting, we will file on SEDAR+ a report presenting the final voting results for each item submitted to the vote. In addition, we will report on the election of each director in a press release. We will now move to the Q&A session. We would be pleased to answer your questions. I would like to remind you that registered shareholders and duly appointed proxy holders who have logged in online using their control number can ask questions by clicking on the Messaging icon. We will answer, first of all, to the questions in this room. Before we answer to the online questions. We would like to invite participants in this room to go to the microphone, please identify yourself and confirm that you are either a shareholder or a duly appointed proxy holder.

So I see that there are a few questions. Let's go.

Shareholder. My name is [ Johannes Ghotte ]. Congratulations on the first quarter. I hope the trend continues. So I have a question that has a similar I guess, trend, similar thesis. Two parts. So one is you guys put a zero tolerance policy on the mistreatment of cows. I wanted to see how that was going? If you saw any evolution with that? And secondly, I wanted to know how the plant-based products section of your array of products is doing? How the profit margins compared to maybe those of dairy. How the trends are going over time?

Perfect. I'll -- as Chairman, I have the authority and the ability to pass on the hard questions to Carl. So I will ask Carl to answer these questions.