Saputo Inc.

Hello and welcome to the Saputo First Quarter 2027 Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. I'll now turn the conference over to Nick Estrela, Head of Investor Relations. Please go ahead.

Thank you, JL.

Good morning and welcome to our first quarter fiscal 2027 earnings call. Our speakers today will be Carl Colizza, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded. The webcast will be posted on our website along with the first 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 risk and Uncertainty. 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. Good morning, everyone, and thank you for joining us.

We started the year with a strong first quarter. One that builds directly on the momentum we exited fiscal 2026 with and reinforces the direction we set out for this business. All four of our operating sectors delivered earnings growth versus the prior year, supported by commercial momentum, higher volumes from expanded ingredients capacity and the operational efficiencies flowing through from our prior capital investments. Importantly, this performance also reflects Our ability to mitigate the cost inflation we continue to manage across our network. What is particularly encouraging is that this performance is broad-based. It reflects the quality of the platform we have built, not the benefit of any single tailwind. On a consolidated basis, adjusted EBITDA grew close to 8% and our margins expanded. Behind those numbers is a business that is executing with more discipline, Converting demand into higher quality earnings and benefiting from a more focused portfolio. Nowhere is this clearer than in ingredients, where the investments we have made over the past several years to expand capacity and upgrade our production network are now translating into results. Whey, lactose, and high protein ingredients are performing well. Market conditions are constructive. and our positioning allows us to capture the opportunity while continuing to serve the customer base we have built alongside these platforms. This is precisely why we have invested in assets such as WAPON. Through targeted investments in capacity, capabilities and product quality, we have strengthened our ability to participate in higher value protein and lactose categories where we see attractive long-term demand. This is a category we believe in and one where we are committed to building a leadership position over time. More broadly, the consumer backdrop for dairy remains supportive. Protein continues to be a defining theme in how consumers think about food and dairy is uniquely positioned to meet that demand.

Frost cheese, ingredients, cultured products and value-added beverages. Beyond its protein content, dairy provides key nutrients, affordability,

Convenience and Versatility, reinforcing its relevance in consumers' day-to-day food choices and eating habits around the world. We remain optimistic about the runway ahead. Protein consumption is not a passing trend. It is a structural shift that plays to the strengths of our portfolio and reinforces the choices we are making in where to invest.

Strategically, our approach is unchanged.

We continue to concentrate on the categories, geographies, and customers where we can win, and we are prepared to simplify and act where we cannot. That discipline was evident again this quarter with the closing of the sale of a majority stake in our Argentina operations. We are committed to making thoughtful portfolio choices that strengthen our business, sharpen our focus, and support disciplined capital allocation. Our objective is straightforward. Concentrate capital and management attention on the areas where we have the clearest path to sustainable growth and value creation. At the same time, we return meaningful capital to shareholders through our share buyback program and a 5% increase to our quarterly dividend, a clear signal of the confidence in the trajectory of the business and the strength of our cash generation. Taken together, This quarter reflects where we are on our journey past the heaviest phase of investment, executing with more consistency, and increasingly able to translate strategy into results. I will now turn the call over to Max for the financial review before coming back with some concluding remarks.

Thank you, Carl, and good morning, everyone. Before turning to the results, a brief update on the portfolio changes reflected in our reporting this quarter. On June 18, we closed the sale of an 80% interest in our dairy division, Argentina, to Gloria Foods. We received proceeds of $710 million, representing approximately $612 million after tax. Argentina is presented as a discontinued operation and prior period results have been presented accordingly. All figures I will discuss today reflects continuing operation which exclude the Dairy Division Argentina results. On June 22, we announced an agreement to sell our interest in the Danone Saputo Dairy Australia joint venture for approximately $253 million. The transaction is subject to regulatory approval and is expected to close in the second half of calendar 2026. The related assets have been classified as held for sale as of June 30th. First quarter results reflect earning growth and margin expansion, with all four sectors contributing to a higher year-over-year profitability. Adjusted EBITDA increased close to 8% or $30 million to $427 million. Margins expanded to 9.7% up from 9.1% last year. Revenue came in at $4.4 billion up 1.5% driven by volume growth in high protein ingredients, higher domestic selling prices, and higher dairy ingredient market prices partially offset by lower U.S. cheese block and butter market prices. Net earnings from continuing operation were $183 million. On an adjusted basis, net earnings were up 13% at $199 million and adjusted EPS increased 17% to $0.49, benefiting from stronger earnings and the impact of our share repurchase program. Net cash from operating activities from continuing operation was $151 million in the quarter and reflects higher working capital usage, driven by the timing of receivable and payable and higher inventory levels to support customer demand. We feel confident about our cash generation through the balance of the year. Capital expenditure total $57 million in the quarter in line with our phasing plan. For fiscal 27, we continue to expect capital expenditure of approximately $515 million weighted towards high return projects in our fastest growing dairy segment, capacity optimization, and operational efficiency. During the quarter, we used proceeds from the Argentina divestiture to repay the $350 million of our Series 8 Senior Unsecured note. We returned approximately $380 million to shareholders through the repurchases of 7.2 common shares for approximately $300 million under our NCIB and dividend payment of $80 million. Subject to TSX approval, we intend to increase our NCIB to approximately 24 million shares representing the maximum 10% of public flow permitted under TSX group. Supported by our strong balance sheet, we expect to remain active in repurchasing shares. As announced yesterday, the Board also approved a 5% increase in the quarterly dividend from 20 cents to 21 cents per share, effective with the September payment. From a leverage perspective, our net debt to adjusted EBITDA ratio ended the quarter at 1.47 times. Our long-term leverage target remains 2.25 times, providing meaningful capacity to fund growth initiatives and capital projects. We also remain committed to a balanced approach

to capital return.

Revenue in Canada were $1.4 billion, up 6% year-over-year, driven by higher sales volume across cheese, dairy foods, and milk. Results also benefited from a favorable product mix, reflecting stronger sales of value-added beverages and culture products supported by consumer demand for high-protein offering and supported by targeted A&P investment behind our and Saputo Brands. Higher domestic selling prices implemented to mitigate inflationary pressures and higher raw milk costs further support top line growth. Adjusted EBITDA was $175 million, up 3%, driven by higher sales volume and a favorable product mix, with margin of 12.5% compared to 12.9% last year. Manufacturing efficiency from our capital investment in automation and production capability continued to support earnings growth. The benefit was tempered by inflationary pressure on labor, logistics, and packaging costs, as well as continued investment in technology, digital initiatives, and brand support, resulting in modest margin dilution during the quarter.

In the US, Revenues total $2.1 billion, down 1% year-over-year.

The decrease reflects lower average cheese block and butter prices. Higher dairy ingredient market prices and higher selling prices were implemented to mitigate inflationary pressure. Adjusted EBITDA was $181 million, up 6%, with margin expanding to 8.6% driven by higher sales volume and a favorable product mix together with higher market prices for our high protein ingredients. Results also benefited from our recent capital investment at our Wapong facility alongside operational efficiencies from our consolidated Midwest warehousing facility. The elimination of duplicate operating costs across plants and discipline execution on customer fulfillment. These were partially offset by cheese market dynamics and the similar cost pressure experienced in Canada, including ongoing inflation, higher SG&A, and continued investment in brand building and technology. Turning to international, which consists of our dairy division, Australia, revenue were $635 million, up 8%, Adjusted EBITDA was $38 million, up 46%, with margin at 6%, supported by a more favorable product mix. Higher international cheese and dairy ingredient market prices helped mitigate the impact of higher mill costs, while increased mill availability favorably impacted efficiencies and the absorption of fixed costs. Revenue in Europe were $283 million, down 11%. The decline reflects two factors. First, bulk cheese volumes were lower as we reduced milk intake to optimize our production mix. Second, selling prices were lower in line with milk and cream input costs. Adjusted EBITDA was $33 million, up 10% with margin expanding to 11.7% from 9.5% last year. Margin expansion was supported by a favorable product mix, operational efficiencies from the consolidation of our cheese packing operation at Nuneaton and the transition of our ingredients platform. Both international and Europe sector benefits were partially offset by inflationary pressure on input costs and incremental ANP behind our core brands. Overall, Q1 reflects a strong start to fiscal 27 with earnings growth across every sector and continued balance sheet strengthening. Our capital structure is in the position of flexibility. Our leverage is well below our long-term target and our cash generation continue to support disciplined reinvestment and consistent capital returns to shareholders.

With that, I will turn the call back to Carl. Thank you, Max.

In Canada, we delivered another quarter of solid broad-based growth with revenues up nearly 6% and continued momentum across our core categories. This was supported by disciplined execution across retail, food service, and industrial market segments, where we continue to grow with winning customers under long-term commitments that anchor our volume base. Our Armstrong and Saputo brands continue to perform, and we saw particularly strong traction in value-added beverages and cultured products. Both categories align with the growing consumer focus on protein.

This is where our portfolio, our brands,

and consumer trends are converging and we intend to continue investing behind that opportunity. Margins reflect ongoing inflationary pressure on labor, logistics and packaging along with continued investment in technology and brand support. But the underlying quality of the earnings and the consistency of the platform remain a clear strength.

Canada continues to be the steady, demand-driven anchor of the business and we like the runway ahead. In the U.S.,

The story this quarter is about volumes and our investments in higher value categories delivering results. Adjusted EBITDA increased nearly 6%, reflecting strong volume growth and improved utilization of the capacity we have added to support our high protein ingredients platform. Higher whey ingredient market prices provided an additional benefit, more than offsetting continued pressure from cheese market dynamics compared to the same quarter last year.

More importantly,

This is fundamentally a volume growth story. The capacity we have added over the last several years is being absorbed by customer demand, driving increased production of higher protein ingredients and supporting earnings growth. In cheese, momentum was driven by mozzarella, full capacity utilization, strong exports, and a cost-competitive milk supply positioning us to compete and win globally. That momentum extended into our commercial execution Within our specialty cheese portfolio, we expanded our business with a key retail partner, further increasing our household access to premium cheese offerings. We also commercialized new mozzarella items with a major national retailer, broadening our participation beyond pizza-centric occasions and increasing our exposure to the growing at-home cooking segment. We continue to advance our branded growth agenda through innovation, distribution expansion, and targeted marketing. We expanded the rollout of our Cheeseheads Cheddarella String Cheese, strengthening our position in the growing cheese snacking segment and driving incremental household penetration, while distribution gains across strategic brands like Monchev and Frigo created additional runway for future volume growth. In food service, we expanded Saputo Gold, Saputo Gold's adoption among operators, broadening awareness and usage and deepening our presence in premium cheese. In ingredients, the momentum continues to build, but the market backdrop remains constructive. Our WPC80 ramp up is a clear example of this in action. Extending our position in higher value global markets, deepening the customer relationships we have built alongside these platforms, and giving us the capacity and the product capability to capture demand where the returns are most attractive. Together, these businesses are delivering what we designed the U.S. platform to deliver. Scale, category exposure aligned to where consumers are going, and a cost structure that supports sustained margin expansion. In our international sector, Australia had a strong quarter with adjusted EBITDA up over 45% and margins expanding by over 150 basis points. Better weather in key milk producing regions boosted milk availability, allowing us to run our network more efficiently. Our portfolio optimization strategy focused on growing our domestic and export premium categories while reducing exposure to export commodities continued to drive a more favorable product mix. International cheese and dairy ingredient pricing were constructive and we remained deliberate in how we allocated milk, prioritizing value creation over volume, and directing production toward the channels and markets offering the best returns. Against this backdrop, the announced sale of our interest in the DSDA joint venture represents the culmination of years of investment and operational improvements that have significantly enhanced the value of the business. As we consider this next phase of development, we concluded that this transaction offered the best opportunity to realize the value while reinforcing our focus on areas most aligned with our long-term strategy. It allows us to concentrate capital and management attention on the parts of our platform where we see the clearest path to value creation and to support targeted reinvestment across our network, including in Australia. In our Europe sector, the quarter demonstrated the continued benefits of a more focused branded portfolio. Margins expanded by more than 200 basis points as we lean further into branded cheese and step back from lower value bulk exposure. Cathedral City remains the engine of that strategy, with branded volume growth reinforcing both category leadership and consumer relevance. This year, we are proudly celebrating 60 years of Cathedral City with an integrated campaign across every branded touchpoint, delivering scale, consistency, and continued brand equity. Our licensing portfolio also continues to deliver double-digit growth, extending the brand's reach. In parallel, we are making progress in expanding our food service presence. We are deepening relationships with key national food service partners, including new supply agreements that will grow our business in the year ahead.

Taken together, Europe is a more focused, Brand-led platform with stronger earnings quality and the results this quarter reflect that transformation. As we look ahead, our strategy is consistent and our conviction is unchanged.

We will continue to operate as a low-cost manufacturer of high-quality dairy solutions focused on driving efficiency, strengthening commercial execution, and capturing the long-term opportunity in dairies. Our approach is grounded in a disciplined, category-led strategy, investing behind the brands and customers where we can compete from a position of strength and simplifying where we cannot. The momentum we are seeing in ingredients and the sustained consumer pull toward protein-rich and value-added dairy reinforces the choices we have made about where to invest.

These are structural trends, and we intend to continue building around them.

At the same time, we recognize that the operating environment remains dynamic with continued uncertainty related to geopolitical developments, fluctuations in global milk supply, and the broader inflationary backdrop.

On capital allocation, we are determined to pursue growth, and we will do so with discipline.

We intend to invest where we see attractive returns, through organic initiatives, targeted capital project, and strategic M&A guided by value creation and our long-term ambitions for this business. Our balance sheet is strong, our cash generation is solid, and we can act decisively when opportunities meet our criteria. Taken together, Saputo today is more focused, more agile, and ready to accelerate its growth supported by a stronger operating foundation A clear set of strategic priorities and a growing ability to translate them into consistent, high-quality results. This 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 please for your first question.

Your first question comes from the line of Irene Nattel of RBC Capital Markets. Your line is open.

Irene Nattel Good morning, everyone. Can we start, please, by focusing on the U.S.? Because listening to you, Carl, it sounds as though we're in a much, much stronger position, yes, of course, from a network perspective, but also more balanced volume and revenue across the segments, new partnerships, etc. Can you talk about or can you expand on some of the key wins? and where we can expect to see the most growth in the U.S. from here, let's say, over the next two to three years.

Good morning, Irene. Thank you. Yes, the U.S. team has done a great job over the last couple of years bringing to life the numerous capital projects and platform consolidation that we had put forward. And fundamentally, we're now bearing the fruit of that and it's anchored in our ability to supply the demand and to grow with our customers. So over the years, we continue to develop our working relationships, continue to focus on innovation with our customer base, both in food service and in retail. And we are here today providing those products to the marketplace, growing with those retail champions, as well as growing our food service brand. And that's what's anchoring fundamentally The volume growth from our U.S. platform. And you couple that with the growing demand for protein-rich products. And by protein-rich products, yes, we are talking about aspects such as WPC80 that we invested in in Waupon. But we're also talking about products such as cottage cheese. And certainly our two assets in the U.S., our two facilities and teams, are running around the clock, basically producing as much as we can in these areas. And at this moment, we're also looking at expanding those capacities. So we have announced some interesting capacity additions to our Friendship plant in New York that will see us expand our capabilities and volume offering on cottage cheese, which is centered to consumers' demand right now. We feel very strong about the overall capacity utilization in a number of sectors, including our base dairy foods. Winning with the right customers, committing to them for growth, committing to them for innovation is fundamentally allowing us to enjoy the moment today, despite some difficult moments for consumers as a whole, as a backdrop in the U.S.

That's really helpful. Thank you. And then, you know, do you see a way for the profitability on the cheese side to have a better tone to it? Or given the demand for the types of protein that we're seeing, are we kind of likely to be stuck in this environment with higher milk production and sort of some dislocation in terms of the products being made?

It's a great question, and I would say that certainly as we shared in our remarks, the overall market conditions specific to the block market were not as favorable as last year. Fundamentally, it's not a function of the demand change, percentage demand change versus last year. It's more about the milk supply and the availability of milk. The farming community in the U.S. is very resilient. They are producing lots of milk, lots of components. And accordingly, we have a slight imbalance when it comes to the overall supply of milk versus that of the overall demand of products. But nonetheless, this is also allowing us to be quite opportunistic with our exports. Milk pricing in the US is very competitive on a world stage. and we've taken the opportunity to bring more of our products to the international markets and benefit from that side. So we do see better days ahead when it comes to the overall price of the block which will improve our overall returns coming from our cheese category so we are optimistic about that but it is what it is now and we feel comfortable with the breadth of our portfolio providing us The balance, the hedge, and the opportunity to service our customers.

That's great, thanks. I'll get back into the queue, thank you.

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

Hey, good morning, Max, Carl. Thanks very much for taking our questions and congrats on a nice quarter. I wanted to just first ask a little bit about some of the inflationary pressures that you mentioned. It seems like your team was able to manage through some of those dynamics in the quarter. Just wondering if you can help us understand maybe what kind of inflationary pressures you're seeing, where you're seeing them, how much is being managed through price increases versus product mix or other efficiencies throughout the network. Thanks.

Thanks, Scott.

Most industry, we certainly have seen inflationary pressure on our energy and fuel costs. So different percentage of impact depending on the type of service we offer with regards to distribution. So certainly in Canada, it's weighed on us when it comes to our DSD networks or direct store delivery network. And when we think about some of the overall costs associated to energy and the inputs such as packaging. So we've seen an overall increase in our cost of goods associated to a number of those inputs. From a management perspective, certainly taking a pricing action is always the last option for us. So a number of operational improvements and decision making on demand planning and production planning have been put forward. In some instances, yes, pricing and taking pricing action was part of that solution. In some cases, it's a temporary basis example for fuel. We're not shielded from those realities specific to fuel. Maybe Max has a few comments to add.

Well, it's something that we have to monitor every day. Our conversation, whether it's from a supplier perspective or our customer base, of course, intensify relative to inflation every time we have a touch base, whether it's tariff related or other element that brings the cost to get to an elevation. Yes, pricing is part of the action, but at this time, I mean, it's a battle on the field, and we try to take the cost out first and foremost, and whatever we can mitigate, we will. Otherwise, it's acting as a responsible operator for both our supplier and our customer base.

Okay, understood. Appreciate the thoughts there. And then maybe secondly, if we just think about profitability within Canada, you know, I think despite some of these pressures, you're still putting up pretty good profitability, you know, in the region there. So maybe as we look ahead, Specifically within Canada, how do you think about the margin opportunity? How do you think about incremental upside? Is a lot of that driven by product mix maybe relative to anything else? Just any thoughts you could share on that. Thanks.

The Canadian business is very resilient and the breadth of its portfolio is second to none. So it's what's allowing the Canadian business today to continue to sustain its performance and equally to keep inching forward You know, month after month and year after year. We focus on innovation, we focus on the products that are most meaningful to consumers and our customers, and we continue to reinvest to make those things happen. So we feel very strong about Canada's ability to maintain its market share, its growth, and most importantly, being able to service the customers that rely on us and are growing. We're making capital investments in a number of areas. More soon to be announced with regards to investments in cultured products that are very much front and center with consumers. So I would say in the very short term, the biggest pressure on Canada will be really associated to some of the inflation associated to fuel. Part of our distinction, part of our offering to the marketplace is our distribution network, our refrigerated distribution network. and today we're seeing some of that pressure translate into the result. But despite that, we're seeing a strong Canada continuing to move forward.

Appreciate the thoughts. I'll pass it on.

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

Good morning, everyone. Carl, there's no question that there's a lot of growth potential for high protein ingredients. You know, anything that you can provide to help us better understand the size of the opportunity for Saputo will be very helpful. Thanks.

I won't get into quantifications, but what I can say with confidence is one, when you think about the investments that we put through our network in the U.S. in particular, and I'll get to some other geographies as well, but in the U.S. over the last couple of years in Waupon, So our asset that is now producing high quality WPC80 as well as lactose is, they're not full. Those assets are not full. They're running efficiently. They're running with basically all of the waste solids available from our cheesemake operations, but there's still capacity available. So I see a runway over time as we continue to do a couple of things. One, grow our cheese business and provide it additional waste solids to transform and then there's a variety of network optimizations north and south so Canada, US that we're also looking at to be able to unlock more value, more high-value WPC 80 but we're also looking at the very same things in other jurisdictions including Australia so the runway for us to continue to play in this space will come through A few things. One, our continued focus on the capacity and capabilities, some investments in R&D and innovation, and of course, continuing to innovate with our customer base. But that's on the ingredient side. And I want to bring it back also to the broader protein movement. It's not just in the ingredient segment. It is in the ready-to-drink format. It's in the higher protein Everyday Cheese and or Cultured Products. Very much the same. We announced recently a material investment in our friendship facility in upstate New York to expand our cottage cheese operation by 30 to 40% in capacity. And we feel strongly about being able to bring that to market across our branded products as well as our private label offerings. The same thing is being contemplated in Canada. Then you get into the aspects of beverages. So one, we're already the market leader in Canada with our Dairyland and Nielsen offering in higher protein multi-serve. We have also our single serve capabilities. So there's a large runway with the portfolio and the offerings that we have and equally with the innovation that we have in our pipeline. So I could go on and on, Chris, but I do feel strongly about our ability to capture the opportunity that exists with this protein demand.

That's very helpful. Thank you. And I was also going to ask, you know, how big of a competitive advantage is it for Saputo? You know, the fact that you guys produce a lot of cheese and whey is a byproduct of cheese. Do you have access to that maybe versus some of your competitors who don't directly have access? How big of an advantage is that for Saputo, do you think?

We're certainly in a good position versus some of the competition. By the competition, I'm talking about those who aren't dairy processors necessarily. Out in the marketplace, there are a number of brands, whether you want to call them insurgent brands or newcomers to the marketplace, who fundamentally buy ingredients, some of the ingredients that we produce, to formulate their products and they go the last mile out to the consumer. We're in a unique space where we certainly control an important amount of the raw material that goes into our own products that we bring to market. And we feel strongly about finding the right balance of whether it's cheese make, whether it's overall milk processing, in order to maintain our ability to bring the WPC80 or the refined proteins, if I can say it that way. It's not all about WPC80, but bringing those refined proteins to market. So we feel comfortable. It's our area of expertise. Manufacturing always has been. And it's an area that we won't shy away from growing in and we're not because we're comfortable with all aspects The next question comes from the line of Tammy Chen of BMO Capital Markets.

Your line is open.

Hi, good morning. Thanks for the questions. Continuing with the cheese and whey dynamic in the U.S. in particular, so I'm just thinking about how you're talking of the opportunity on the ingredient side, particularly in whey, Carl. Given that there's the higher supply of milk, there's continued cheese production, I understand whey is a shortage in the U.S. right now. So I'm thinking the processing industry will continue to ramp cheese production for that whey byproduct. And Is it your view that the potential continued pressures on the block and on the cheese side will be more than offset by the positive from the whey WPC ingredients tailwind?

What I would say is the following.

As we stated that in this quarter in particular for Saputo, the benefit on the protein side helped offset the I'll say the unfavorable conditions and the block price. But what I would say is if you recollect over the last several years, the U.S. dairy industry invested over, I believe it's close to $8 billion in dairy processing with a lion's share of that going to cheesemake. Most of those assets have come online. Most of those assets are ramping up. And most of those assets are accounted for in many respects with regards to our competitive set We always knew that those assets were going to continue to grow with their output. I don't foresee there being a flood of cheese investments for the sake of protein. It's an expensive endeavor to get into just for the sake of producing a protein. The inventory, cost of carrying, so on and so forth. It absolutely is about The overall dairy category, more specifically cheese, continues to be on the positive side of the ledger as far as growth rates, but not as strong as protein. So there's going to continue to be tension there for quite some time. And the barrier to incremental protein is going to be cheese make and or cheese demand. Those are dynamics that we're going to live with for some time. I go back to the earlier comments I made. We feel that we have better days ahead with the overall block price and how it's going to support our overall earnings. We feel very good about our ability to keep navigating that supply and demand dynamic between cheese, milk, and waste solids.

Okay, I see. And on the way side, on WPC, is it true that there is currently a shortage? And are there several other processors, not just you, that are going to bring online new capacity starting next year? Is that the case?

There is. I mean, our dairy industry remains very dynamic, very competitive globally. And We have a number of peers and competitors out there that are investing in the space for sure. But it's not all about net new waste solids being either created or processed. Some of them are moving up the ladder, if you like, from simple sweet whey powder to higher refinements or fractions of proteins. And that's what you're hearing and seeing from some of the more recent studies. Announcements on Investments. It's moving up that ladder more so than it is creating incremental waste solids.

Okay, got it. And I just want to squeeze one more in here for a second. So you're generating very good cash. You've upped your buyback, upped your dividend, CapEx numbers still the same. What is the way now to think about your capital allocation going forward? Would you move some other buckets, possibly M&A a bit higher? Thanks.

So what I would share on that is that first and foremost, our capital allocation plan and strategy remains based basically on discipline, balanced in nature, but we are absolutely looking forward to growth. So in order for us to grow, we're going to need to invest in a variety of initiatives, both, you know, with regards to brand support and innovation. That will absolutely trigger the need for continued capital investments into our assets. So a number of different projects will be unlocked to be able to meet the consumer where they are today. And M&A will absolutely be part of the choices we will make in order to address the market. We've said it before when it comes to M&A, if we can't build it, and the path to being able to grow and to meet our ambitions and our customers' needs passes through M&A, then we won't shy away from that either. And it's not about when it comes to M&A in particular, there isn't a particular size that is of interest or part of our criteria. It's what meets our needs. So having said that, growth is what will drive most of the decisions of our capital allocation.

Thank you.

Your next question comes from the line of Derek Lessard of TD Cowen. Your line is open.

Yeah, good morning, guys, and a really nice start to the year. I just want to stick with the protein theme here and maybe ask it in a different way. How do you guys, I guess, think about the durability of these trends so as to ensure that maybe to keep you guys from over-investing in the business. And I'm just thinking we're coming at this from the context of the plant-based craze that we saw several years ago.

Yeah, it's a great question. And I've seen ourselves do a bit of a double-take every now and then and say, is this just a trend? Is it sustainable? But when you take a look at what the fundamentals behind this The trend is, sorry, the demand is, it's not a trend. It's rooted really in health and wellness. It's rooted in nutrition. It's rooted in consumers and citizens being fundamentally more focused on their overall health. And dairy as a whole and its combination of nutrients is a great starting point. And then from a protein perspective, you've got to look at it on multiple dynamics. Thank you for joining us. are dollars behind the innovation about growing the platforms and growing with our customers in this space.

Awesome. And then I guess I noticed some subtle changes in your outlook statement compared to the prior quarter. You know, specifically, you guys called out investments in technology and digital initiatives. Just maybe help us flesh out what these would entail and give us a sense of the cost and what you're looking to generate from the investment.

Max will give you a bit of a sense of the overall cost and then I might add some color to the direction.

When we, Derek, when we refer to technology, we refer to a few items. One relative to our IT platform where some upgrades has to be taken care of and we need to proceed with some changes into the infrastructure of the platform. We also include in there cyber security investment that is a constant year after year and it's not going away and as well as digital investment particularly on the commercial aspect. So when you put all of those elements that we refer to in terms of technology, we could think about $28, $30 million investment in that space.

Yeah, and maybe just to add a little bit more color on what types of digital technologies are the areas that are primary focus to us. So Max referenced the commercial side to give you examples. A lot of it will be centered around consolidating Insights in a manner that's not just digestible, but in a manner that's actionable. And that will help feed a number of other technologies, digital technologies that we're looking to employ to enhance the efficacy of our promotional activities. And all of this is fundamental to how we improve with the notions of revenue growth management. So we're looking at the commercial side as one of our priorities. I mean, there are other streams that are moving along, and you can certainly expect to see digital technologies and automation being deployed into aspects of our supply chain, especially on the demand planning and production planning side, which we're already seeing and having some traction. So we're going at this with very specific use cases. and making sure that it simplifies our operation and allows us to be true to our core operating model, being a low-cost manufacturer of high-quality dairy solutions and being true to our customers and providing the agility to make these things happen.

Thanks, everybody. I'm looking forward to seeing what you can do in the coming years.

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

Hi, thanks for taking my question. There are many cross-currents in the quarter. I was hoping you could help me understand, in particular in the U.S., what is driving the growth between the protein pricing, the volumes, the efficiencies. Maybe you can give me a sense of where that growth is coming from and the commodity prices on the cheese side as well.

So I'll say this. I'll start at the basis of our operations. Our operations are performing at a higher level of efficiency than the day before. So as we look forward, our operations continue to improve their overall cost structure, whether that's labor efficiency, whether that's the overall cost associated to various overheads. That is allowing us to nonetheless in the core of our business sustain our overall margin and grow our margins despite some of the headwinds. On the protein side in particular, so our Waupon facility came off the commissioning phase, is now running efficiently, and we're able to deliver on the orders, the strong orders for that matter, that are coming through in protein. The demand in the global markets for whey proteins is extremely strong. We're fulfilling and filling all of the orders that are coming our way. But overall pricing based on the limited availability globally is a big driver of the protein profitability for sure in this quarter. Pricing has improved significantly. But it's also coming at a time when we're actually able to supply it based on the prior year's choices that we've made in our network.

Okay. Thank you. Thank you for that. With respect to M&A, maybe you could give us some updated thoughts on how you're thinking and what you're seeing in the market and what investors should expect from Saputo.

I'm going to bring back the answer, Michelle, to, you know,

Our objectives are to continue to grow our brands, our business, our offering at a moment when dairy is in such high regards and I used this expression before, but in share of stomach with consumers. And so our growth will be led by choices that we make and investments that we make. We recognize that we're going to need to continue to invest in our assets and they will absolutely include Capital investments, incremental capital investments to grow in categories that we feel strongly about the quality of the returns, the longevity and sustainability of those returns. And yes, many of them are protein-centric. It's not all about absolute highest quantity of protein, but it has a lot to do with wellness and health, as well as everyday affordability. I want to emphasize all of that as well, because consumers and customers all have sort of Thank you. If I could just add one last thing to clarify with M&A. One of the things that I want to emphasize is that we're not looking for new milksheds. I've said this before, but I want to emphasize it again. We feel very, very comfortable with, especially for the export markets, to be producing our products and bringing innovation to market through our U.S. platform as well as our Australian platforms. We feel strongly about not only their geographical presence, but most importantly by the quality and cost competitiveness of the milk supply in these regions.

Your next question comes from the line of George Dumais of Ventum Financial. Your line is open.

Good morning, Carl and Max. You guys have had this 10% to 12% EBITDA long-term margin goalpost for the U.S., I wonder if you think of that any differently, perhaps the magnitude or perhaps in terms of timing of how soon we can get there as a result of all the demand we're seeing from ingredients.

It's still our ambition, our target, and certainly the overall market dynamic for those for whey proteins is to help the overall margin structure, our efficiency and our consolidation plans have also contributed positively to this. There will be more choices that we're going to make with growing volume from the asset base that we have that will further amplify it and another possible call it step change in that reaching our objective will come when we see a better pricing balance or spread with regards to our block price and the price of milk. It's still our objective to be in double digits in the U.S. We do believe it's achievable and it's going to come from those three specific aspects working in tandem.

Okay, and Carl, it's pretty impressive that you guys were able to grow the mozzarella volumes in an environment where We're seeing pressure from food service, especially from the pizza players. Just wondering how you're doing that, and given the additions and the low cost capacity that we've seen in that space, do you think we can see maybe some irrational behavior from some of your competitors if things don't get better soon?

The market remains, it's very competitive. The U.S. market on mozzarella and cheese in general has always been competitive. and we're not seeing anything that is different than that very statement today. What has allowed us to excel here and to fill our assets and be successful has been a combination of things. One, being able to produce day after day, week after week and be the anchor to important customers on supply and being a reliable supplier of that high quality product. and yes, some of the backdrop has been a little bit more difficult. You have some winners and some losers when it comes to some of the QSRs. We've been fortunate to be growing and supporting the right banners and some of those banners are picking up the share, if you want, of others and we're winning in that space as well. So that's allowing us to grow on the mozzarella side as well as new opportunities and new occasions. Not all about the QSR slash pizzeria space. Our continued push and focus on retail is also allowing us to expand our mozzarella utilization in out-of-home experiences.

Thanks for that. I think it's the second quarter in a row where we're seeing Margin compression in Canada. Is that purely the result of fuel? So should we see margin expansions come back maybe later this year? Or should we just think of Canada in general as more of a kind of a dollar growth story as opposed to maybe even a margin expansion story?

Yeah, I'm not going to confirm that second quarter in a row because this quarter is. But what I would tell you is that, yes, in Canada, With regards to fuel in particular, there was a disproportionate amount of inflationary pressure and an inability for us to mitigate all of it. But I would tell you that on an ongoing basis, Canada will continue to grow its business, certainly in a more confined market. But we have the innovation, the assets, Your next question comes from the line of John Zamparo of Scotiabank. Your line is open.

Thank you. Good morning. I wanted to come back to the topic of margin goals, in particular, Australia and Europe. And you've captured lots of the upside from efficiency and capacity. I wonder what upside remains, especially from product mix. And if you keep getting the benefits from product mix, that's a good benefit from how much margin expansion remains in those two sectors.

Well, let me start with Europe and the UK in particular.

So certainly, we've been able to grow our branded presence in Cathedral City. Very impressive, actually, in the current market dynamics in the UK. But what I would tell you is, one, the continued focus on the operational efficiency will continue to deliver incremental margin for that platform. And equally, if you remember, one of the choices that we made We're almost coming on a year ago with regards to exiting the D90 and Goss business on the wayside in our main cheese operation in Davidstone. We still have an opportunity to enhance our overall returns from our waste solids in the UK. That will be one of our primary focuses as we move forward. Australia. We're still targeting high single digits as far as an overall margin number for that business. It is subject to certain volatility, of course, from the international markets, but how it is we are approaching that, it hasn't changed. We're looking for a better balance for the limited amount of milk, the finite amount of milk that we have in Australia. and moving to a larger share of domestic versus that of international. And it's not just about the volume in international, it's about the mix and the quality of the offering. So said differently, we're not looking to just process milk to put into the markets. We're looking to ensure that the products that we bring to the international space out of the Australian platform, examples of course will include some of our cream cheese offerings, Some of our high-quality, high-value cheddar. Those are the things that we will target our limited milk supply to for international markets, improve our overall margin structure as we're seeing now, and continue down the path of innovating and being a dominant player in the domestic market.

Okay, thank you for that. And then on capital returns, you took up the maximum buyback amount. I wonder what we should expect in terms of usage of that program this year. You've illustrated your desires for M&A and capital spending sounds like it'll have good returns to it, but leverage is already well below your target. You've got the proceeds from the JV sale coming in, so I wonder what we should expect from the buyback this year.

Yeah, the NCIP, you know, it's a flexible tool. We intend to use it for excess cash. Of course, valuation will be a key element in our decision making. Cash generation will definitely be the key driver, of course. And the intensity of the buyback will be evaluated against the growth alternatives and opportunity that comes to us, whether it's through M&A or strategic investments. So NCIB remains opportunistic and it's going to be benchmarked in our growth ambition.

Okay, that's all. Thank you.

Your next question is a follow-up from Irene Nattel of RBC Capital Markets. Your line is open.

Sorry, I should have put down my hand. In the interest of time, we'll let it go. Sorry. Thank you.

Thank you. With no further questions, this concludes the Q&A session. We thank you for your participation. This concludes today's conference call.

You may now disconnect.