Saputo Inc.

and the webcast will be posted on our website along with the fourth 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 Carl. Thank you, Nick, and good morning, everyone.

As I approach the end of my first year into my role as president and CEO, I am incredibly proud of what the team has accomplished in fiscal year 25. Over this time, we have reinforced our executive leadership team across the globe, enhanced operational efficiency, We refined our capital allocation plan and executed on a clear strategy to advance our goal of delivering sustainable value to our shareholders. Despite a volatile macroeconomic landscape, we stayed focused and delivered consistent operating and financial performance. The strength of our balance sheet allowed us to accelerate share buybacks with approximately $150 million in shares repurchased under our NCIB program in fiscal year 25. Over the past four years, we have solidified our asset base, anchored in strengthening our foundation, and optimizing our diversified portfolio. In fiscal year 25, we continued that momentum through strong contributions from capital investments, progress across strategic initiatives, and disciplined cost control. And there is more we can do. Despite the efforts we have made in stabilizing our performance and improving how we operate the business, we know there are more opportunities ahead. We are confident that these efforts are paving the way for a more sustainable and competitive future. In the fourth quarter, we reported an adjusted EBITDA of $365 million on revenue of nearly $4.8 billion. Our Canada, USA, and Europe sectors all generated year-over-year growth. We saw encouraging improvement in Australia. However, overall performance in the international sector was tempered by the negative impact in Argentina from currency devaluation and hyperinflation. Amid persistent commodity volatility, we maintained stable margins as a result of our disciplined cost containment efforts and contributions from our strategic initiatives. Notably, we were happy with the performance of our focus brands in a highly competitive environment. This underscores the enduring strength and relevance our brands in consumers' everyday lives. Building on that momentum, we're advancing on our key commercial strategies, strengthening our customer value proposition, enhancing returns through focused revenue growth management, and accelerating market entries in new priority regions that drive long-term growth. As a natural next step, our accelerated commitment to putting the consumer first will be further strengthened by our strategic adoption of digital technologies. From automating routine workflows to leveraging data-driven insights for faster, smarter decisions, these initiatives are expected to not only reduce costs, but also position us ahead of the curve and delivering value to our customers and shareholders. These dynamics will support top-line performance, and we remain focused on expanding adjusted EBITDA margins through disciplined operational execution. A notable example of this discipline is our ongoing SG&A optimization program, which included a restructuring of several administrative functions in the fourth quarter, Our now leaner and more agile organizational structure better aligns our resources with the needs of the business following our network optimization initiatives. This is already positively impacting our first quarter performance and will help us deliver our fiscal 2026 outlook. We continue to generate healthy cash flow from operations. Since the beginning of fiscal year 26, we have continued to opportunistically repurchase shares taking advantage of attractive market conditions. Our capital investment program is also delivering strong and sustainable productivity improvements. For example, in the USA sector, we achieved approximately $27 million in cost savings and benefits during the quarter and reached our $100 million milestone for the year. This is a direct result of the infrastructure investments and systems enhancement we have made to optimize our cost base and support long-term competitiveness. That said, we did observe some softening in the consumer demand, particularly in the food service channel, which was more pronounced during the fourth quarter. In response, we are supporting our customers through value-added initiatives focused on operational efficiency, menu optimization, and profitability. Nevertheless, the food service market channel has recently shown signs of recovery and our volumes so far in the first quarter have been solid. We are also investing meaningfully in our brands to deliver compelling consumer value at a time when it is critical to consumers. As a result, our innovation pipeline remains robust with a sharpened focus on value-conscious consumers across all market segments. Even against the challenging macroeconomic backdrop, it is evident that demand for protein-rich products remains strong. We view this as a positive, durable trend that reinforces the relevance of our product offerings, and we are well positioned to capitalize on this demand. On the matter of trade-related tariffs, we continue to anticipate limited and manageable direct impacts. Our diversified supply chain and cross-border operations, which span food service and retail, continues to support our resilience and ability to pivot as needed. We continue to monitor external developments closely while leveraging our strong balance sheet and healthy cash flows to ensure financial stability and agility. We are encouraged by our progress and we remain committed to sustained growth in fiscal year 26 and beyond. I will now turn the call over to Max for the financial review before providing concluding remarks.

Thank you, Carl, and good morning, everyone. Here are the financial highlights of the fourth quarter. Consolidated revenues were $4.8 billion, a 5% increase when compared to last year. Revenue increased mainly due to higher domestic selling prices and higher international cheese and dairy ingredient market prices, as well as higher sales volume in Canada. Adjusted EBITDA amounted to $376 million, similar to Q4 of last year. Net earnings for the fourth quarter totaled $74 million, and on an adjusted basis, net earnings totaled $128 million, down 28 as compared to the same quarter last year. The decrease is primarily attributable to a higher depreciation and amortization expense stemming from our capital expenditure program, as well as increased financial charges related to utilization of the Argentina credit line. I'll now take you to key highlights by sector, starting with Canada. Revenue for the fourth quarter reached nearly $1.3 billion, an increase of 6% when compared to last year. Adjusted EBITDA for the fourth quarter totaled $157 million, up 14%. Our improved performance reflected the benefit derived from operational efficiencies, including continuous improvement program, supply chain optimization, and automation initiatives. Improved performance also reflected a favorable product mix and a higher sales volume, and the positive impact of lower general and administrative costs. In our U.S. sector, revenue total $2.1 billion and were 11% higher versus last year. Revenue increased mainly due to the combined effect of the higher average cheese block, butter, and dairy ingredient market prices, However, volume were slightly lower quarter over quarter from softening demand, mainly in the food service market segment. Adjusted EBITDA was $148 million, which was 7% higher when compared to last year. Our results included approximately $27 million in benefit derived from capital investment in our cheese network, cost reduction and lower SG&A. Our results also include a $20 million unfavorable impact from U.S. market factor mainly due to the negative milk cheese spread. The negative spread was partially mitigated through positivity from dairy food product pricing protocol on butter market fluctuations. Duplicate costs incurred to implement previously announced network optimization initiative or approximately $10 million and continue to trend down in the first quarter of the current year. On a full year basis, the USA sector performed well with an adjusted 18% higher versus last year. Despite the negative impact from a persistent negative milk cheese spread, a testament to the progress we're making around operational and commercial execution. In the international sector, revenues for the fourth quarter were $1 billion, down 10% versus last year. Revenues included a $225 million non-cash negative impact when compared to last year due to the application of hyperinflation accounting under IFRS to the revenue of the Argentina division. Adjusted EBITDA totaled $47 million, down $41 million on a year-over-year basis. And this year-over-year decline in adjusted EBITDA was mostly driven by our Argentina division, which has resulted impacted by higher production costs. due to the effect of inflation and the peso devaluation. Reduced milk availability in Argentina further contributed to higher milk costs. The less favorable effect of the currency fluctuation on export sales denominated in US dollar. And the non-cash negative impact of $9 million due to the application of hyperinflation accounting to the Argentina results when compared to last year. In the Europe sector, revenue were $335 million, while adjusted EBITDA was $24 million. Adjusted EBITDA margin recovery reflected the positive impact from a higher sales volume in the retail market segment. The favorable adjusted EBITDA margin comparison was due to the selling off high inventory costs last year, which had put down pressure on our adjusted EBITDA. NEP cash generated from operating activities for the fourth quarter amounted to $362 million, while capex for the quarter totaled $113 million, in line with our plans. A healthy balance sheet and a strong cash flow generation provides us with a foundation for financial stability and flexibility. We have been able to deliver a consistent cash generation as well as reduce our net leverage ratio, positioning ourselves to better navigate this uncertain environment. As of March 31, 2025, our net debt to adjusted EBITDA ratio stood at 2.1 times, reflecting our healthy financial position. On capital allocation, as Carl mentioned, Our focus remains on share repurchases. We repurchased approximately 4.8 million shares during the quarter for a total of approximately $120 million. Subsequent to the quarter end, we repurchased an additional 2.5 million shares for approximately $63 million. Looking ahead, we are in a good financial position to capture opportunities and continue to operate in a dynamic environment.

This concludes my financial review, and with that, I'll turn the call back to Carl. Thank you, Max.

In Canada, performance exceeded expectations with a year-over-year improvement in adjusted EBITDA and a nearly 100 basis point increase in margins. From a commercial standpoint, we saw strong momentum. One of Canada's largest pizza chains launched a new stuffed crust product featuring our mozzarella cheese sticks. In the QSR channel, a major customer introduced a protein coffee beverage with our Dairyland protein drink. This builds on the retail success of our Dairyland protein line. In the U.S., our results improved year over year, driven by benefits realized from strategic capital investments in our cheese manufacturing network, targeted cost reduction initiatives, and lower SG&E expenses. Looking ahead, our strategic focus in the US is building on a best-in-class operation. We have invested significant capital over the past four years to expand production capabilities. These investments are now enabling us to efficiently scale new products nationally and unlock new growth opportunities across customers and channels. We see meaningful opportunity to expand margins over time and our multi-year plan focused on operational optimization, launching winning innovations and distribution expansion is right on track. I'm pleased to share that our Franklin cut and wrap facility is nearing the completion of phase one of the ramp up, a significant milestone that reflects the strong collaboration across our teams. As we continue to progress with the ramp-up throughout the year, we expect to see a meaningful reduction in the duplicate operating costs associated with our transition. This progress will also position us to further consolidate production and drive greater efficiency across our network, particularly in preparation for the planned closure of our Green Bay facility at the end of the calendar year. Additionally, We made progress optimizing our plant network and are now beginning the next phase of logistics and distribution infrastructure improvements. These early stage efforts are essential to driving long-term efficiencies. In support of this work, we recently completed a new 300,000 square foot distribution center in Caledonia, Wisconsin, complementing our nearby Franklin facility. This new site will enhance our service capabilities and simplifies our supply chain. Momentum behind our U.S.-focused sales initiatives is also building, and we are optimistic about what lies ahead. Examples of some of these initiatives include securing new volume for our national fast casual chains cheese program, supporting their Monterey Jack needs. We were also selected by a major QSR brand for a product relaunch with our cheese supply, a strong endorsement of our quality and reliability. On the retail side, we took a key strategic step with the restructuring of our sales team. We've established a dedicated growth channels team focused on driving our branded business and aggressively pursuing untapped white space in retail. This structure is better aligned with evolving consumer demand and will support accelerated brand presence in high potential areas. In our international sector, we are encouraged by a strong rebound in domestic volumes in Argentina. This is despite the devaluation of the peso, not keeping pace with inflation and leading to higher production costs, particularly for milk. Volumes grew compared to prior year, driven by increased consumer demand for soft, pressed, and processed cheese. In Australia, we benefited from a more favorable balance between milk costs and international cheese and dairy ingredient market prices. Domestic volumes in Australia remain stable. However, export volumes saw a meaningful increase, particularly in cheese and butter, as we capitalized on a favorable export market environment. In the UK, the environment remains challenging, but we are managing it with discipline. Volume was higher year over year, and margins continued to recover. As part of our ongoing cost optimization initiatives, we will no longer manufacture functional ingredients. This decision is expected to simplify our production processes, streamline our go-to-market strategy, and deliver meaningful cost savings. Turning to our outlook, this past year has presented numerous macroeconomic headwinds, which we have proactively managed, namely in Argentina. As we look to fiscal 2026, we remain confident in our ability to deliver growth despite persistent headwinds. We are well positioned to drive sustainable value creation. Our key drivers include capitalizing on the benefits of our capital projects, the strength in our commercial strategy and growing demand for protein rich products, and our sharpened focus on cost reduction and competitive edge. From a financial perspective, we will maintain our strong balance sheet and prudent approach to capital allocation, striking the right balance between capital expenditures, dividends, debt reduction, and share repurchases. Given the strength of our cash flow generation and balance sheet, we expect to continue to actively buy back shares through our NCID program. In closing, I have great conviction in our strategic direction and our ability to deliver sustained value for our shareholders. That concludes our formal remarks. I will now turn the call over for questions.

Thank you. If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press star 1 again. One moment for your first question. Your first question comes from the line of Irene Nattel of RBC Capital Markets. Your line is open.

Thanks and good morning, everyone. Carl, listening to you this morning and reading the press release last night, I was really struck by the outlook section where the tone seems more confident than I've heard it in several years. Can you comment on that and can you talk about where you're feeling the most confident, where you see the biggest upside and where you see kind of some potholes that you're going to need to navigate?

Good morning, Irene. Thanks for the question. Yes, it's certainly intentional and natural. The business is performing well. It's been, I'll say, a long couple of years with regards to the cycle of investments, the efforts that the teams across the globe have put through it, and we all know the backdrop over those couple of years. So all this to say that we do feel strongly about the capabilities that we now have offered ourselves, the position that we've put ourselves in with regards to supply, the diversity of the portfolio, and this is quite frankly across every one of our divisions. So we feel that we're in a very good place to be able to capture the ongoing demand for dairy and how dairy is perceived by the consumer. That said, some of the areas where we feel that we'll probably have the greatest upside absolutely is here in North America, specifically in the U.S. It was the largest of our capital investment program, the longest to really come to fruition and to deliver, but we're here now. The team is stable, the team is very motivated, and I know that we'll be able to benefit from the man in the marketplace, and we're in a good place. So there's going to be growth across every one of our sectors. That is our plan. And I can share that same, my team, excuse me, shares the same enthusiasm as you hear from me right now.

That's great. Thank you. And then just asking specifically about Europe. Obviously, it's possibly been the most disappointing region over the last several years. How would you describe where it is today and what is reasonable for us to expect on a go-forward basis in terms of both revenue, but particularly somehow reconstituting the profitability of the division?

Our European sector and our team in the UK specifically have navigated through some pretty important inflationary pressures over the last several years. And the reality is that a lot of those input costs we were not able to recover from the marketplace. So it's put the pressure on margins. But despite that, the team has continued to plow ahead with the various network optimization initiatives. They're still in the middle of a couple of them that will continue to contribute positively to the business's bottom line over the current and future fiscal years. But what I would say more specifically, those are brand health, has been very good with Cathedral City, as well as Clover in our butters, rolls and spreads business. And we do feel we're in a good place with both the balance around branded offering into the marketplace, as well as what we do provide in the private label sector. There's a greater degree of stability as well in the overall pricing, specifically associated to a more stabilized inflation. And I think one of the things that we need to keep in mind is historical EBITDA margins were 18 plus percent. What would be more normal for a European sector at this point is going to be more in the low teens to mid teens as an ongoing for the business.

That's really helpful. Thank you.

Your next question comes from the line of Mark Petrie of CIBC. Your line is open.

Yeah, thanks, and good morning. I wanted to follow up on a few of the comments in your prepared remarks, and I guess specifically the comment about accelerating investment in priority regions, and I'm hoping you could just expand on that a little bit.

Thank you, Mark, for the question. I would tell you a couple of things. One, certainly with the tariff force that we have, we've had to accelerate in many ways finding incremental markets to move some of our products to, especially from our U.S. operations who have had a number of different, I'll call them hurdles, in selling to their traditional channels. Whenever there's an obstacle, it always presents an opportunity, and that has actually allowed us to explore more aggressively and more urgently new markets. And I think we've been successful at bringing into these new territories. And by territories, I'm talking about expanding, with an example, Southeast Asia. We would have had maybe a more limited set of customers Beyond what we traditionally sold today, we're taking full advantage of that entire region. Furthermore, we're expanding some of our offerings into the Japanese market and also looking to other areas in the Middle East as well. So it's a combination of two things. One, where is the dairy demand coming from in various parts of the world? And some of that is shifting or accelerating. with the territories I just described. Others is coming from the fact that the supply agreements and trade agreements from various countries we operate in and the relevance and value that come from that have been shifting, forcing us to find those new markets as well.

And does all that work have a meaningful impact on your profitability or how you sort of look at that over the next year?

New market entries mark two things. For the first part, it's ensuring that we don't erode our current baseline, and that has not happened. We see it through our first quarter today, and for the most part, we're happy with where we've been able to bring our products to and the margins associated to it. It's what it does in the longer term. Establishing yourself as a relevant supplier, credible supplier in new areas, takes time. We might only be afforded the opportunity to supply one aspect of our portfolio or one SKU. The intent is to continue to develop relationships and build upon them. So it's a multi-year process to make meaningful improvements in these new areas.

Yeah, understood. Okay, that's helpful. And then I'm also hoping you could expand on the work on SG&A optimization. and maybe shape the materiality of that with regards to the current cost base and how you look at that playing out in fiscal 26?

So the focus of our efforts was making sure that we don't take things for granted, and specifically the kinds of business processes we operate with, both those that are driven by the system that we have as well as some of our legacy practices. So we took a fresh look at the way we conduct business on a day-to-day basis and ensured that the limited resources that we do have are focused in the right areas that drive the most value. That led us to reshaping some of the things that we do, as well as, as I spoke about in my remarks, I'll call it the conclusion to Accelerate, our need for adopting greater digital technologies. And of course, AI is part of those technologies. And that's going to span a number of areas driven primarily or from a priority standpoint in the supply chain side. There are a number of things that we can do with the adoption of readily available technologies to help with our overall relevance to consumers with data, with fill rates, so on and so forth, and all leading to an overall better cost base. So all of this to say that, yes, we have in the fourth quarter reshaped these business processes. It has led to the reduction in our overall workforce, and that, of course, is a more structural change, a permanent one as we move forward, and will continue to, I'll say, benefit us both in the cost of that as well as the efficiency that comes with the streamlining.

Okay. Thanks for all the comments, and I'll get back in the queue.

All the best.

Thanks, Mark.

Your next question comes from Michael Van Elst of TD Securities. Your line is open.

Good morning. Questions on Argentina. It's been a struggle in the last, while, mostly because of the hyperinflation, but also because of declining volumes, milk supply volumes. So the milk supply seems to be improving again. But can you help us understand the extent to which you could benefit from the relaxation of the currency controls and the slowing inflation and how much we could see these hyperinflation impacts go away in fiscal 26.

Yeah, thanks, Mike, for the question. I'll provide some comments, and then I'll also ask Max to contribute a little bit more in and around the hyperinflation accounting. But you are correct. Milk and milk supply has been steadily improving, and we've been getting... our fair share, if you like, of that recovery and then some. So we're in a good place for providing volume to our domestic and international customers. So I'll say it's all green lights on that front. We're also seeing, generally speaking, good stability in the overall currency value, which is helping with the overall recovery pricing and our pricing strategies to the various markets. So despite the volatility that we saw over the last 18, 24 months in Argentina, what we are seeing right now is a greater degree of stability, both in the input cost, the supply of it, and in the overall commitment to the monetary policy. I'll turn it over to Max, who can maybe enlighten us a little bit more on how that can translate to our financial results.

Good morning. Back in April, from an Argentina government perspective, the country itself ended up having an agreement with the IMF and facing their maturity. This was viewed and is still viewed as a big step towards a more stable, autonomous economy. and providing some relief around the currency control in various measures in order to reduce inflation, remove the restriction to the currency to boost activity, to boost employment, investment, that sort of thing. The anticipation is the gap between the devaluation of the currency and the rate of inflation to narrow, to get closer. So the variability or the volatility that those metrics would have on our results is viewed, we're looking at it, that it's going to be less meaningful. And what this could mean to us with lower inflation, of course, yeah, lower cost to operate, lower milk costs. And from a currency perspective, being... more profitable from an export perspective from a lower inflation rate. Those would be still valid, and this is what we expect that it's going to be over the next future, the next few months and quarter. That said, everything could change, but it looks like the population is behind the current government. The hope to aspire and the aspiration to the stable economy remains there. And right now, you know, despite there's still a gap, even as of today, between the rate of inflation and the devaluation tends to narrow. So we expect to have a bit better visibility, predictability on our results. So we're looking at it very favorably.

Yeah, so just to simplify it a bit for me, it seems like you're probably close to break-even in Argentina this quarter, given all these impacts, but is the narrowing of that gap between inflation and foreign exchange devaluation, is that enough to turn it positive, or is it just slowing the erosion, the pace of erosion in profitability over the next few quarters? You did say you were expecting profit growth, so I guess where is profit growth going to come from in Argentina?

Yeah, we're seeing that we're sort of at the bottom from that angle, if you will. We feel the reduction in the rate of inflation is going to be a positive. On top of that, not only from a milk cost, but also from a financing perspective. So the below EBITDA should be less penalizing, if you will. And don't get me wrong, we're not in a negative position from an Argentino standpoint, but we're certainly looking at it as a positive catalyst for us in F26.

Michael, just to add one other item. When we talk about the commentary on growth, Let's not forget specifically in Argentina, there's about a 7% gap in the milk supply as far as volume goes that we are now recovering and we see it in our first quarter. So just the recovery in the milk and the revenue from bringing those products to market is also going to be an important contribution to the Argentinian performance.

And you're seeing that 7% already coming through in this quarter?

It's tracking to being about a 7% recovery to the milk pool.

Okay. And then just a question on Australia. It looks like for the July 1st new fiscal year in the milk market there, that you've offered about 6% more to the farmers for their milk. I think that's right. Is that correct? So that seems like it's in line with the increase we're seeing in international dairy prices, but how do you plan on managing that domestically? Do you have the power to pass that on fully within the Australian market?

Well, first of all, the opening price that we've presented is one that we feel is competitive versus the alternatives that our farming partners have as well. It's a competitive price aligned and balanced between that of what the consumer is willing and capable of paying in the domestic market as well as the same in international, but certainly balanced against the index that exists. We feel good about the opening price. We feel good about continuing with our model and our model is we will continue to support our farming community as the commercial activity and the demand in the marketplace and pricing accordingly continues to improve. And we've seen a meaningful improvement over the last 12 months in the GDT, as well as the demand. And I would also say for specifically Australian products, part of that stemming from a shortfall in the European supply to various markets. It's a bit of where the commentary earlier I had made around having to find new markets or new markets pulling from us as various things occur in either trade wars or just basic milk supply. In the end, I do feel comfortable that our dairy industry is all in the same place. We do need to recover the costs that come at us in a balanced way, and it's our job to continue to bring value to the domestic space. So we do feel that despite an increase in the raw milk price or farm gate price that we're willing to pay, that's not going to be a detriment to our bottom line.

Okay. All right, thank you.

Your next question comes from the line of Vishala Sridhar of National Bank. Your line is open.

Hi. Thanks for taking my question. I'm wondering if you can help us, in terms of modeling, quantify the benefits we should expect in fiscal 26 related to duplicate costs. In fiscal 25, it was $42 million. How should we expect that to cycle off, and what number should we model?

I'd say a couple of things. So we've peaked. The crest of the duplicate cost was in our Q3 fiscal 25. Our Q4 numbers would have been an improvement over that. As we sit here in our first quarter, we're also seeing a continued improvement. So it's going to be meaningful. And I know I've said this before. the bulk of or the most important reduction into duplicate costs will come from the complete closure of the Green Bay manufacturing site. And when those production lines or specifically the production volume integrate into Franklin, that's when we're going to see the most meaningful improvement. That's slated at this point for, and we're confident in our timeline, to be no later than the end of the calendar year. So we're going to continue to see, despite that dual operating environment, we will continue to see improvements in the overall Franklin operating costs, performance, output, all of the other key metrics for manufacturing. The other thing I would say just on the overall US platform, we've been chasing approximately $200 million in operational efficiency and savings. A portion of that was delivered through the late end of fiscal 24. As we stated, over $100 million was achieved this fiscal or last fiscal year, fiscal 25, and we expect that the remaining of that will be delivered in most of it, if not all of it, in 26.

Okay, so in fiscal 27, based on your comments, we should expect the duplicated costs to have entirely faded off.

Yes, it's absolutely fair to plan for that. It is in our outlook as well as far as how we intend to operate our business and how we intend to bring our products to market.

Okay. In prior calls, you provided a hypothetical benefit from the USDA milk pricing formula of 60 to 70 million USD on fiscal 24 results. Just given all the volatility, I was wondering if you could baseline that again for us or give us a perspective on how you expect that to unfold.

The number is still an accurate calculation. So the... formulas that were adopted, which are now active as of June 1. They've gone into effect. They are as expected. So the estimate we provided of $60 to $70 million US on an annualized basis as a function of the fiscal 24 mix of goods. Is it materially different in our current fiscal 26, I'll say, expectations for products that we're going to bring to market and the product mix? I would say that there isn't any change in our outlook of what it will deliver to the industry and to Saputo.

Okay. DNA, over the last several years, it's been growing at an accelerated rate. Obviously, the facility improvements have driven that in part. And just wondering, is it logical to expect that DNA rate to and the increase in the actual DNA to start slowing now that we've lapped that investment phase?

Yeah, the DNA did increase as it relates to the investment that we've made over the last few years. So that's one of the elements. The other element I would point you to would be around FX, just pure conversion, bringing other currencies into Canadian. That explains a number. So we're finishing the year around 620, 630, 628. You know, from a modeling perspective, this remains a good assumption for fiscal 26.

Thank you. Your next question comes from the line of John Zamparo of Scotiabank. Your line is open.

Thank you very much. Good morning. I wanted to follow up on the new Class III formula. Can you say how much of that benefit you expect to fall into this fiscal year and what kind of cadence we might see?

So the mechanics of it, as I mentioned, is that the Class III milk price is going to be positively impacted here in June. So, you know, prorate that over a 10-month period is essentially what we believe we're going to see with regards to the changes in the FMMO contributions. And you can, based on the product mix being what it is, we, you know, certainly take a few quarters maybe for things to shake out, but at the end of the day, as I said, our product mix and what we expect to be marketing is similar to F24 and no real change to our upload.

The only caveat I would put to what Carl was saying is around the inventory. So we still have to flush the inventory, which could take a few weeks to roll out. So when Carl talks about a 10% Ten months, yeah. It's true that starting June 1st, we start to pay a lower mill. But by the time you see it in the results, it could be in early Q2 rather than June.

Got it. Okay. And then there was a comment on digital technologies and potential savings from that. I wonder if you can expand on those comments. Are there specific examples you can give? And is there a way to quantify the benefits from that?

We're not at the stage of quantifying, especially that we're in the early stages of identification of the areas that we want to prioritize. As you're likely well aware, it's a vast opportunity, an opportunity to benefit many aspects of our business. And when you consider, in our case, where we believe we've got you know, the highest degree of complexity in data and data management, in forecasting and outlooks. It really is in our operations sector and specifically supply chain. And so as it sits today, outside of targeted, you know, ad hoc initiatives that bring tools such as, you know, your traditional AI tools to the everyday user, which will bring, you know, some level of contribution to productivity. The bulk of the improvements, the meaningful improvements, to how it translates to the benefit of the consumer, to the benefit of our business, will come with the choices we make on the supply chain side. Once we have a more defined plan, certainly our due diligence will bring us to evaluating the returns and we'll be in a better position to share some of those exciting details. Okay.

I appreciate the commentary.

I'll pass it on. Thank you.

Your next question comes from the line of Scott Marks of Jefferies. Your line is open.

Hey, good morning. Thanks so much for taking the questions. First thing I want to ask about is just some of the USA dynamics. I know you spoke to softening food service demand. So just wondering if you can kind of dig into that a little bit in terms of the differences you're seeing between food service and retail and some of the dynamics at play there.

Thanks. So our business has seen tailing off from, call it the late Q3 into Q4. the slowdown in foot traffic that we would have all heard and read of in a number of QSRs and actually across the board, whether it's fast casual QSRs and so forth, has certainly slowed the overall demand. Now, with that in place and considering the breadth of our portfolio and the number of channels and relationships that we have, we've been able to work closely with a number of our key customers on the food service side specifically to help with the overall offering and what we are seeing today is that first and foremost dairy is core to many of the QSRs and fast casual outlets and in their menu offerings so when they start to focus on fewer items to promote focus on bringing value to consumers dairy tends to be at the center of that. Very few of our products, I'm going to use the word, don't make the cut. So having said that, we've been able to benefit from the focus that they have had over the last couple of months, and we're seeing some of that recovery. On the retail side, of course, the demand has been stronger, and this is not new. We've seen a stronger demand in the retail side as a function of people essentially slowing their out-of-home consumption. So overall, both on the consumer dynamics and their shopping habits and our ability to supply those well, we've been able to nonetheless continue to grow our business

Got it. And then just here in the U.S., we've heard from a number of companies talk about maybe stepping up some brand investments, stepping up some promotional activity. So just wondering if you can kind of speak to the competitive environment in the dairy space right now here in the U.S. and what you're seeing on that front. Thanks.

Much like those other entities and their brands that you heard about, we're doing the same. We're certainly... bringing to market a renewed focus on our most important brands and ensuring that the right amount of dollars is applied against a smaller set of our offering that has the greatest degree of impact. So we are dialed in like many others, ensuring that we're constantly reading the signs, if you like, But overall, the balance of milk supply and product supply into the marketplace, the basics of supply and demand, are well balanced in the U.S. So the consumer continues to see dairy as good value from an overall nutritional perspective. And we're seeing, I'll say, a typical U.S., level of competitiveness in all marketplaces, but nothing unusual.

Got it. Thanks so much. I'll pass on.

Your next question comes from the line of Chris Lee of Desjardins. Your line is open.

Good morning, everyone. Hi, Carl. I just want to maybe start with a question on milk cheese bread. While it is still negative, it has improved sequentially so far in Q1. I know it's a hard number to predict, but Based on your expectation for EBITDA growth in the US this year, what type of spread are you forecasting for this year, especially when you take into account the benefit from the lower Class III milk price? Thanks.

I guess I would say that had I been asked to predict this at the start of every other fiscal year over the last three years, I would have been wrong. And I share that because the dynamics and the volatility have been present and are certainly still present. However, what I can say is that as we sit here in Q1, we have seen some meaningful improvements in that spread over the quarter versus Q4. And there isn't anything in our nearer term outlook that would suggest a material imbalance between the overall supply of milk and that of some sort of erosion in demand. The U.S. pricing for just about all of its portfolio of dairy offerings to the export markets is still at a good value and you could even say at a discount to European offerings and or offerings from Oceania. So there's still a healthy demand and pull on the U.S. dairy sector to supply both domestic and international needs. And it's that balance that I think will be consistent over the next couple of months and quarters, and I think that will continue to support the kind of pricing we're seeing in the block as well as what we're seeing translated into Class III. And that's despite any changes in FMMO.

Got it. Okay. No, that's helpful. And then maybe just to follow up on your comment about operational efficiency savings, as you know that you guys achieve about $100 million in fiscal 25. How much do you expect to achieve this year?

Like I said, it's the remainder of the $200 million. We're not talking about the same value as we had this year. It's something that is, you know... meaningful nonetheless to our bottom line and at the end it's not just a question this time around of the contribution from simply closing the assets in hand. Now we're talking about how it is we actually improve on the line outputs and as well as bring to market the products that we now have the capabilities for. So I'll say that in the end, it'll be as per our plan, in way of contribution, and we expect it to be nonetheless a meaningful one. Okay.

And then my final question is, where does M&A rank in terms of your capital allocation priorities?

Well, Chris, I think that, you know, by virtue of it being absent in some of our projects, conversation, remarks, so on and so forth, it kind of tells the story as to where it is within our current mindset. And the reason for that is we are very dialed in and focused on extracting the full value of the investments we put in. I know I sound like a broken record when I say that, but that is only so much we can tackle. And the team is very encouraged by the efforts and the focus that they've put in over the home stretch of the investments and now really want to benefit from the new capabilities and opportunities that this presents. So they're dialed in and focused on that and we're supporting them in that endeavor as well. It doesn't mean we're standing still by any means. We constantly are looking at how it is we can innovate, complement our portfolio as consumer habits needs, expectations change. And, you know, things that could be complementary to our offering are always in our minds. But I can tell you that right now, the greatest degree of focus for our capital and capital allocation has been completing our capital expenditures, making sure that we, considering the current valuation of our share price, if you like, continuing with our buyback program, And M&A is one of those items that we will consider should there be something that we need.

That's very clear. Thanks and all the best.

Next question comes from the line of Tammy Chen of BMO Capital Markets. Your line is open.

Hello, good morning, everyone. This is Riyadh on for Tammy Chen. So my first question is on Europe, where the margin was down quarter over quarter this quarter. So my question is, how should we be thinking about the pace of margin recovery going forward?

Well, before commenting on the quarter-over-quarter, I would say that the European sector is in a better place when it comes to, I'll say, the milk supply, the overall stability in the pricing of the input costs that... that they're planning to be working with, as I said earlier, are the brand health in both Clover, Cathedral City, some of our Wensleydale products as well is in a good place. So we expect that with the overall positioning and the strength of our brands, our offerings, as well as the initiatives that the team have initiated around optimization, and maybe I can just recap briefly some of those work, It's basically consolidating our cut and wrap capabilities into our Nuneaton site and that is not completed as of yet. It's three quarters of the way there so more to come on the overall bottom line benefits and contribution. We've also recently announced changes to the byproducts that we'll be bringing to market to the ingredients that once completed and that will be towards the tail end of Q2 early into Q3. We'll also see a more streamlined cost basis for the European sector. We do believe that the margin will continue to recover with all these initiatives in place. Max, do you have any comments on the Q over Q in particular?

No, I think you covered it all, Carl, to be fair to him. Okay, great, thank you.

My second question is if you would be impacted by Trump's new proposed tax bill where he's intending to materially increase the withholding tax on dividends repatriated from U.S. subsidiaries of non-U.S.-branded companies. Do you guys receive dividends from your U.S. subsidiaries at all?

Yeah, of course. We ultimately could end up being targeted with this one big, beautiful bill should the need to repatriate funds out of the U.S. into Canada. We tend to use our cash that we generate in the U.S. to reinvest within our U.S. business. It's not a corporate tax rate per se. It would typically impact us more when we the trans border payment and on cash repatriation so we don't foresee you know significant impact on the near term in the short term long term yeah it could be an impact with increased withholding tax that is taking place but the bill also creates incentive for investment in the U.S. such as R&D accelerated depreciation that sort of thing that creates opportunity for us to strengthen our network as well and use the cash that we generate in the U.S. So not so much of a disturb, but still we'll be watching out the detail as they become available.

And, yeah, this is it. Great. Thank you.

With no further questions, I will now turn the call back over to Nick Estrella.

Thank you, JL. Please note that we will release our first quarter fiscal 2026 results on August 7, 2025. We thank you for taking part in the call and webcast. Have a great day.

This concludes today's conference call. You may now disconnect.