Saputo Inc. (SAP) Earnings Call Transcript & Summary

Good morning and welcome to all to this shareholders meeting. My name is Lino Saputo, Executive Chairman of the Board of Directors in this capacity. I will be presiding over today's meeting. I'm thrilled to welcome our shareholders to our annual meeting whether you're attending in person or online. Thank you with us here today. I'm joined today by Carl Colizza, President and Chief Executive Officer; Maxime Therrien, Chief Financial Officer and Secretary, who will serve as Secretary for this meeting. And Lydia Pham Fab, Executive Vice President, Legal Affairs will serve as our moderator. Before we begin just a few words on the general run of the meeting. This meeting will be conducted primarily in French with simultaneous interpretation. The procedure for asking questions during the meeting is described in the proxy statement. Registered shareholders and duly appointed proxies present in the room. They ask questions at one of the microphones went invited to do so. You must identify yourself and confirm your status as a shareholder or proxy holder. Prior to asking your questions. Online participants must have logged in using their access number in order to ask questions, during the meeting. In order to ask a question, please click on the questions. You can choose to type your question. or enter your phone number in the text box. If you provide your phone number, please indicate which agenda item your question refers to so that it may be addressed at the appropriate time. If you do not specify an agenda item, your question will be addressed during the question-and-answer session at the end of the meeting. In any case, an operator will call on you when it is time to ask your question. If you prefer to submit your question in writing, I encourage you to do so as soon as possible, and we will address it at the appropriate time. Online participants who have logged in as guests will not be able to ask questions for vote in order to enter fairness, participates be concise to your question. If we are not able to answer questions within the allotted time, we will post answers on the Investors section of our website. We were a rate to modify or reject questions that substantially duplicate the content of a question asked by another participant that are deemed inappropriate or unrelated to the meeting that concern nonpublic information regarding Saputo or that serve the personnel or commercial interest of a shareholder. We may make statements today that contain forward-looking information within the meaning of the applicable securities laws. These statements are based on assumptions and are subject to significant risks and uncertainties and our actual results could differ materially. I refer you to the cautionary note regarding forward-looking statements contained in our annual report on our website displayed on the screen. I would now like to appoint Ms. Martine Goutie and Ms. Teresa de Luca of Computershare Trust Company of Canada as scrutineers of this meeting. The scrutineers have provided a report on attendance, and I can confirm that shareholder quorum either present or represented by proxy is the agenda for today's meeting are set forth in the proxy statement dated June 4, 2026. The company has used the notice and access system to make all documents available and sent to notice containing all relevant information in this regard to all shareholders on or around June 23, 2026. The proxy statement, notice of meeting and annual report are available shareholders on our website. Additional copies are also available at the registration desk here today. For online participants access these documents by clicking on the documents items on your screen. All these documents are also available on the company's profile on Cedar plus, I will, therefore, omit the reading of the notice of meeting. Our transfer agent Computershare has confirmed that the applicable meeting documents were duly sent to shareholders in accordance with the Canada Business Corporations Act and the company's bylaws, therefore, declare that this meeting is duly called and constituted to conduct the business of the company. I move to dispense with the reading of the minutes of the annual meeting held on August 8, 2025, and to be adopted. The minutes will be kept in the company's books and may be inspected or consulted at any time by any shareholder. We will now proceed with the voting instructions. Voting will take place by secret ballot for all motions under consideration today. Each shareholder of the company is entitled to one vote per share held for people present in the room Registered shareholders and duly appointed proxy holders who have not already submitted a proxy or who have revoked their proxy or given ballots upon entry. Representatives from Computershare will collect the ballot after the final motion. For those participating online, registered shareholders and duly appointed proxy holders who have logged in using their access code may vote on all items on the agenda immediately. Shareholders who have already submitted a proxy, it is not required to vote again at this meeting unless you wish to your vote on a motion, a shareholder or proxy holder authorized in writing is to change their vote must immediately revoke their proxy, either by visiting the computer share desk at the entrance if you're in the room or by clicking on the voting icon if you are participating online. As chair of the meeting, I move all motions, and none will need to be seconded. Once discussion on all agenda items has concluded a short period of time, will be dedicated to voting. Preliminary results will be announced before the end of the meeting. The first item on the agenda is the presentation of financial statements. A copy of the company's financial statements for the fiscal year ended March 31, 2026, is available on our website and on SEDAR. I would like to invite Max make a few comments on our results for the fiscal year 2026 in the first quarter of 2027. will then present our achievements from the past year and provide an overview of our strategic priorities. Max, the floor is yours.

Thank you, Lino. And thank you to all of you for joining us here today. Fiscal year 2026 was marked by solid progress in our results and strong earnings growth. This performance reflects the strength of our business momentum, which supported organic volume growth as well as profits in our investments and operational efficiencies, thereby improving our cash flow generation. I'd like to present a few key elements of our performance, including our division results, but also operational work that underpins all this and the measures that we took to drive long-term value creation. Fiscal year 2026, consolidated revenues from continuing operations totaled $17.55 billion, down 1.5% from the previous fiscal year. This decrease primarily reflects our lower market prices for dairy products in the U.S. As said higher sales volumes, particularly in North America and higher set prices in domestic and international markets for Keys and dairy ingredients had a positive impact on revenues. Adjusted EBITDA [indiscernible] basis points to reach 9.5%, reflecting the quality of our execution and the benefits and the profits resulting from our operational initiatives. Combining adjusted EBITDA from continuing and discontinued operations, the total reached $1.7 billion, up 13.6%. Adjusted net income from continuing operations came in at $751 million or $1.82 per share, an increase of 18% compared to the prior fiscal year. Net income from continuing operations totaled $690 million. This result compares to a net loss for the prior fiscal year, which included noncash impairment charges related to goodwill and intangible assets associated with our U.K. Dairy division. We also generated net operating cash flows from continuing operations of $1.51 billion, up 26%, driven by rigorous management of our inventories and working capital items. Now let's turn to results by segment. In Canada, our experienced team once again delivered results that exceeded historical revenue levels. Revenues increased by 5% to reach $5.4 billion. Adjusted EBITDA rose to 7.7% to reach $697 million, while the margin reached 12.9%. This performance reflects volume growth across several categories. It also reflects the returns of our investments in automation and our packaging initiatives, which continue to improve our cost structure. Overall, results in our Canada segment demonstrates the strength of our business, driven by the strength of our brand, sustained demand in our key categories and continued growth in our value-added segments. On the U.S. side of the U.S. segment, our team made significant progress during fiscal 2026. Adjusted EBITDA came in at $672 million, up more than 9% and margins improved to reach 8.1%. These results reflect growing revenues and profits derived from our network optimization initiatives, particularly in Wisconsin. Over the course of the year, we completed the closure of our Green Bay facility. We continued to increase production at our Franklin plant. And commissioned our Caledonia distribution center. Our investment of $180 million in Waupun also allowed us to increase our protein ingredients capacity by approximately 35%. This investment strengthens our position in ingredients with higher margins and support our growth in value-added segments. Finally, the new federal milk pricing formula, which took us in June 2025 resulted in cost savings in line with our expectations. Now with regards to our International segment, which now consists solely of our Dairy Products division Australia. Adjusted EBITDA reached $162 million, up 20%, and the margins improved to reach 6.3%. And this performance reflects the favorable impact of higher prices in international cheese and dairy ingredient markets which was, however, partially offset by higher milk costs Performance also reflects growth in our high-protein ingredients lactoferrin cream keys, particularly in Asian markets. On the domestic Australian market, growth was driven by gains in private label segment. In spite of reducing milk availability and the of optimization, both in terms of cost and product mixes enabled the division to deliver solid results. On the European sector side of things, adjusted EBITDA came in at $128 million, up 21%, and the margins increased to reach 10.1%. Initiatives implemented over the past fiscal year have begun to yield expected results. Consolidation of our cheese packaging operations in Newton, combined with the strategic discontinuation of certain functional dairy ingredients contributed to generating operational efficiencies starting in the second half of the year. The division also improved its cost structures through active management to optimize inventory levels. These initiatives are in line with our goal of building a more focused platform that is well positioned to support our long-term growth -- now in terms of capital allocation, we maintained our balanced and disciplined approach Capital expenditures totaled $339 million, these investments focused on projects designed to support the execution of our operational priorities and strengthen our business. Over the course of the year, financial year, we also repurchase redeemed $19.2 million in shares for approximately $679 million is the normal course issuer bid, which was renewed in November 2025. We also paid $329 million in dividends. Our balance sheet remains strong at the end of the fiscal year in March 2026. Our net debt to adjusted EBITDA ratio was 1.7. As of today, this ratio, this debt ratio stands at 1.47, well below our long-term target of 2.25. Yesterday, we announced our results for the first quarter of fiscal year 2027. Adjusted EBITDA came in at $427 million, up nearly 8% from the prior fiscal year. Adjusted net income from continuing operations totaled $199 million or $0.49 per share. All of our operating segments reported improvements in profitability compared to the first quarter of the prior fiscal year, contributing to strong earnings growth. These results the impact of our recent investments aimed at expanding and strengthening our production capacity, combined with strong business momentum and operational efficiency gains, which supported margin expansion in spite of persistent inflationary pressures with revenues up 1.5%; adjusted EBITDA up 8%. Adjusted net income up 13% and adjusted earnings per share up 17%. We are entering fiscal year 2027 in a strong position with a solid financial profile, increased margins, low debt and the financial flexibility needed to support strategic investment priorities. The operating environment in which we operate is a dynamic site. And we are in a tremendously excellent position to navigate uncertainties that persist due to various geopolitical development, dairy market conditions, particularly those in cheese as well as the broader inflationary environment. Our enviable financial position gives us the means to achieve our growth ambitions. Yesterday, our Board of Directors reviewed the dividend policy and increased the quarterly dividend to reach $0.21 per share. This is an increase of 5%. Quarterly dividend will be paid on September 25, to shareholders of record as of September 15, 2026. Subject to TSX approval, we also plan to increase our share redemption program to approximately 24 million shares the maximum authorized and continue to actively redeem shares, thanks to the solidity and the strength our balance sheet. Before concluding I would like to thank our teams for their discipline, their diligence, their commitment and all throughout this fiscal year. To our colleagues listening in, we work our passion, both continue to be reflected not only in our results but also in our ability to build a more efficient, more agile company that is better positioned for the future. I would now like to invite Carl to present an overview of our strategic priorities. Thank you for your attention.

Good morning dear shareholders, members of the Board of Directors and guests. Thank you for joining us here today for our annual shareholders' meeting. Fiscal 2026 was a year of progress. The results that we delivered testified to the character of our team and the strength of our company. Our performance also demonstrated that decisions that we have made are now paying off. And our strategy continues to generate positive momentum. I'm very proud of what our teams have accomplished over the past year. But what makes me even more enthusiastic is that I foresee is what I foresee for Saputo's future. I'd like to take a moment to talk about the opportunities before us and how we are positioning ourselves to capitalize on each of them. Around the world, consumers are rethinking about what is on their plate, and they are focusing on 3 sustainability priorities, nutrition, protein, well-being and value. Dairy products naturally meet each of these expectations and the underlying trends supporting our category show no signs of slows down. On the contrary, they are in acceleration. Let's think of protein, whether it be milk, cheese, fermented dairy products, snacks or beverages. Protein is transforming consumer -- it's influencing how restaurant operators are designing their menus and driving innovation among our ingredients, customers. I can ensure you that at Saputo, we are not just watching these things evolve we are contributing to shaping this evolution. In Canada, Armstrong has become a flagship brand in its category, attracting new consumers and expanding the role of keys in negative well-focused lifestyles. In the U.S., our snack brands continue to drive growth in on-the-go cheese consumption, a category which virtually didn't exist generation to go and in which Saputo is now leader. In the U.K., Cathedral City is further strengthening its leadership by reaching new consumers. The brand continues to expand its presence into additional consumer occasions and opportunities, thanks to licensing partnerships and innovation in refrigerated meals. In Australia, Devondale a brand built over decades through long-standing partnerships with dairy farmers and consumer loyalty, remains one of our most trusted brands on the store shelves. These are not just brands. They are platforms, strong enough trusted enough to grow well beyond the traditional categories and into new occasions, new formats and new customers. And the demand picture beyond our retail brands is equally compelling. Foodservice operators are seeking partners who can innovate with them at speed. Ingredient customers are looking for functional high-protein, high-value solutions. Both are areas where Saputo is structurally advantaged through our scale, our R&D capability and the breadth of our portfolio. We have made deliberate disciplined choices about where we will compete and how we will win. We are concentrating our energy, our capital and our talent on a focused set of geographies, each with the scale, the brands and the structural right to lead. We have meaningfully simplified our platform, exited businesses that no longer fitted our long-term growth strategy and reinvested in the platforms that do. A more focused Saputo is a more agile Saputo. And in an industry being reshaped by consumer change, channel evolution and technology agility is increasingly the difference between leading and following. Focus also brings clarity to execution. It allows our regional teams to make decisions faster to allocate resources with confidence and to deepen the customer relationships that drive long-term growth. We are also running the business with a sharper commercial mindset than at any point in our history. Everything starts with the consumer. Our innovation pipeline reflects that focus with targeted investments in protein, snacking, premium ingredients, food service partnerships and value-conscious offerings that meet consumers where they are. We exited fiscal year '26 with some of the strongest customer service levels in our history. That did not happen by chance. It is a result of operational discipline, investments across our network that are delivering results and a culture that treats execution is a true competitive advantage. At the same time, we are embedding data, automation and artificial intelligence more deeply into the way we forecast, plan and serve our customers. This work I am personally engaged in through our digital advisory committee and we are already seeing tangible benefits in demand planning, supply chain visibility and commercial decision-making. Together, these efforts are shaping the modern operating model of Saputo customer-led, data-driven and disciplined. It is paired with a renewed focus on talent. We are investing in the next generation of leaders, strengthening our leadership pipeline across every region and creating conditions for our people to do their best work. Foundational to all of this is our Saputo promise. This is not a site initiative. It is how we operate. It is fundamental to how do we create long-term value. Fiscal 2026 marked the first year of our current 3-year promise plan, and we delivered against every commitment we set out to achieve. Our climate trajectory in operations is on track against the science-based targets validated by SBTi. We are continuing to reduce energy intensity, expand renewable energy, electricity sourcing and invest in efficiency projects across our network. In line with consumers' priorities, more than 80% of our products now meet our nutrient profile modeling criteria, reflecting our strategy and commitment to making nutritious food for households around the world. We are investing in our communities, supporting the farmers who supply us and continuing to advance an inclusive culture across every region in which we operate. Long-term value creation depends on getting all of this right, and our employees take genuine pride in living our every day. Now as we look to fiscal '27 and beyond, our priorities are clear, consistent and unchanged. First, we will capture the growth opportunities in dairy through targeted strategic investments and accretive M&A. The heavy capital cycle behind our network modernization is complete, and the returns are now compounding. From here, we'll deploy capital where the growth is structural and the returns are most compelling, prioritizing value-added growth in culture, protein and functional segments where consumer demand is strongest and where our capabilities give us a clear right to win. Second, enhance our commercial strategy. We will continue to support our focused brands, deepen innovation partnerships with our key customers and expand the global reach of our portfolio. These are the levers that turn category leadership into sustained profitable growth and where our commercial discipline will continue to make the greatest difference in the years ahead. Third, drive operational and administrative efficiency we will protect and extend our market competitiveness by continuing to invest in technology and automation, simplifying how we work and taking costs out where it does not create value. Underpinning all 3 is a fourth nonnegotiable commitment, operate with discipline to navigate whatever the environment brings. While staying offensive on the opportunities that matter most. The environment -- the market environment will remain dynamic, trade policy, consumer sentiment -- our input cost volatility are realities, we will continue to manage with the same operational rigor you have come to expect from this team. But Saputo was built to perform in good markets and in challenging ones. Our brands are stronger. Our network is more competitive. Our balance sheet gives us flexibility. Our people are aligned around a clear plan, and our strategy is working. That gives me confidence, not just in fiscal '27 but in the trajectory of this company for years to come. To our employees from around the world, thank you for your passion, your expertise, your know-how and your commitment. This is what is transforming this strategy into reality day after day to our customers, our dairy farmers, our partners. Thank you for choosing Saputo. And thank you for growing with us. To our Board of Directors, thank you for your support, your sound advice and your candor. The greatest chapters in Saputo's history are not behind us. They are being written as we speak and what we are building today makes us more optimistic than ever when it comes to the future of our company. Thank you. I will now turn the floor over to Lino.

Well done, Carl. It's an optimism. My mom likes it, too. Our next item on the agenda is the election of Directors. The Board is nominating all current directors the exception of a net for churn, who will not be standing for reelection this year as well as Carl Colizza, who is running for the position of direction. For the first time -- their biographies can be found in the proxy statement. I therefore nominate the following 11 individuals for election as directors of the company who will serve until the next shareholders meeting or until their successors are elected Olu Beck, Carl Colizza, Victor Crawford, Anthony Fata, Annalisa King, Karen Kinsley, Linda Mantia, Diane Nyisztor, Francisca Ruf Stanley Ryan and myself Lino Saputo. Candidates have confirmed that they are eligible to service directors, if elected, and that they are willing to do so.

We'll now take questions on this agenda item. We'll first answer questions from the floor and follow up with online questions. If you are in the room and you would like to ask a specific question on this item specifically, please come to the microphone and identify yourself as a shareholder or proxy holder before asking your question. Over to you. I'm not seeing questions in the room. Lydia, do we have any online questions on this item?

No, we do not have any online questions.

Thank you for that Lydia. We can now move to the online vote, to vote online, please select the applicable voting options on the voting panel appearing on your screen. Participants in the room, who have received their ballots may also vote. The next item on the agenda concerns the appointment of the auditor. I move that KPMG be appointed as the company's auditor until the next Annual Meeting of Shareholders and that the Board of Directors be authorized to set the firm's compensation. Are there any questions from the room on this item now. No questions from the room. Lydia, do we have any questions online?

No online questions.

Thank you, Lydia. I invite you, therefore, to vote on this item. The next item on the agenda is the adoption of an advisory and nonbinding resolution regarding the company's approach to executive compensation. I move that an advisory capacity in an advisory capacity and without diminishing the role and responsibilities of the Board. The shareholders approved the company's approach to executive compensation as described in the proxy statement for the 2026 Annual Shareholders Meeting. Do we have any questions from the floor on this item? Seeing none. Are there any questions Lydia online? No. Okay. Thank you, Lydia. I invite you to vote now on this item. We will now move on to shareholder motions or proposals. We have to from the movement for shareholder education and advocacy the MEDAC. We have been told that no MEDAC represents is here today, the MEDAC proposals and the reasons why the Board recommends that shareholders get each of those proposals are set forth in the proxy statement. Are there any questions from the floor on this item? No questions from the room Lydia. Have we received any online questions? No. Okay, no questions. All right. Well, this is turning to be quite efficient. I now would like to invite you to vote on these items. Online voting will close in just a few moments. If you have not yet submitted your online vote, please do so now. I ask participants in the room to raise their hand so that sellers can collect the completed balance. Are there any in the room? Okay. Thank you to all. I therefore declare voting close scrutineers confirm the following preliminary results based on the results of the proxy votes received at least 96% percent of the votes were cast in favor of each of the 11 directors nominated in the proxy statement. I think you Carl, I think you have in.

Very good. approximately 99% of votes are in favor of appointing KPMG as the auditor -- the advisory resolution on executive compensation has been approved with approximately 95% of the votes cast in favor. The shareholder motions submitted by the MEDAC have been rejected. More than 99% of the votes cast were against Proposal #1, and approximately 92% of votes cast against proposal #2. Shortly after the meeting, we'll file a report on SEDAR plus presenting the final voting results for each item put to vote. In addition, we will report on the election of each director in a press release. We will now move on to the question-and-answer session. We are very pleased to answer any of your questions. We would like to remind you that registered shareholders and duly appointed proxy holders who have logged in online using their control number. May ask their access number, may ask questions by clicking on the question icon. We will first take questions from the room on the floor before moving on to online questions. I'd like to invite participants in the room to come to the microphone. Please identify yourself confirm that you are indeed a shareholder of the company or a duly appointed proxy holder. You can ask your questions. Yes, I've got a couple of questions. Yes, your name.

[indiscernible] I am a shareholder. Okay. Great. So my first question is particularly in the U.S., about the U.S. because the dairy price fluctuates more. How are you minimizing the impact of these commodity price fluctuations, particularly like I said in the U.S. And how are you going to increase your margins when it comes to the sector given fluctuations?