Q3 2020 Earnings Call
Greetings and welcome to <unk> Inc. fiscal 2021st quarter results can presentation, all participants will bring to listen only mode. Afterwards, we'll conduct a question and answer session.
Our time do you have questions Preston.
One by the four on your telephone if any time to Crawford to reach the operator, you press the star for but is there.
Somebody today's kreisberg Thursday February six 2020, now I want to turn the call. So to lead also put a junior before what ahead.
Thank you very much Tommy.
Good afternoon, everyone and thank you for joining us today.
A press release detailing our Twentytwenty third quarter results was issued earlier today. It is also available as we speak on our website at Www Dot Trudeau Dot com.
Call is being recorded it will be posted on our website for future reference.
I'd like to specify that are less stores on the phone and on the.
The internet as well as journalists or other listen only mode.
Members of the media or you might ask their questions I phone after this call.
Before we proceed please be reminded that some of the statements provided during this call are forward looking.
Such statements are based on assumptions they are subject to risks and uncertainties.
Refer to our cautionary statement regarding forward looking information in our annual and quarterly releases filing.
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.
<unk> legislation.
We don't junior Archera support and Chief Executive Officer will begin this conference by providing a brief overview of key highlights relating to the third quarter fiscal 2020.
After which he along with back in California, Our Chief Financial Officer and Cai.
<unk>, President and Chief operating Officer, who don't Inc. and the international sector built prestige to answer your question.
Thank you Marlene and good afternoon to you all.
We released our physical 2023rd quarter record results this morning, and I am delighted.
Hi challenges facing the industry.
Team remained agile proactively managing headwinds.
Consolidated revenues increased by 8.8% related to the contribution of recent acquisitions fire international selling prices of cheese and dairy ingredient.
And I guess pricing initiatives got mitigates cod.
And although we experienced lower sales volumes in the fluid milk category in Canada, and the cheese category in the U.S. as well as reduced raw milk availability in Australia. Our results are solid.
Adjusted EBITDA reached a $417 million a growth of 29.8% for the third quarter.
In Canada.
Inscape remains competitive.
We steadfastly continue to focus on profitability not volume.
The service, our customers and the best way possible with a long term perspective in mind.
The sector well controlled on controllable by focusing on operational efficiency.
Ladies and Rightsizing the business as required.
So never an easy decision to make this includes the upcoming closures of our facilities in trend in Ontario, and same John Congrats.
Which we announced today.
The U.S. sector posted improved results this quarter despite.
The thing domestic commodity market conditions.
Specifically the cheese division, it's focused on optimizing product mix and growing its specialty and value added business.
While supply customer orders in our commodity products.
And the dairy Foods Division delivered another outstanding performance.
In Australia, the recent Bushfires I've been devastating to many.
And in response, we put into place a number of support initiatives to assist affected farmers suppliers.
So far these events have had minimal impact on our business and we've been able to continue operations as usual.
Strong competition for milk as raw material prices. However, we've put in place measures to mitigate this such as co packing and third party sourcing.
Moreover, we're benefiting from synergies related to our recent acquisitions and our newly broadened product range.
In Argentina.
Yeah, we're seeing unsettled economic conditions.
However, our seasoned management team is in place and has the experience to pick the right decisions in a volatile landscape.
In both Australia, and Argentina, we intend to remain nimble and flexible leveraging both platforms to develop additional.
International markets.
We will maintain efforts on controlling costs.
Evaluating overall activities and maximizing operational flexibility to mitigate the effects of market fluctuations.
And the Europe sector.
The dairy division UK is performing as expected and milk and take a.
For the remainder of fiscal 2020, we will continue the integration process.
That's a brutal promise also remains a key priority for us and the future of our business. We're focused on the execution of our three year plan, which we launched in 2019.
We're ramping up our commitment to.
Possible environmental practices with a central focus on climate water and waste.
We're also dedicated to diversifying our product portfolio and pursuing more plant based opportunities.
In this regard we plan to leverage a common customer base.
Technology.
Manufacturing expertise.
Okay and supply chain in order to benefit from this important consumer trend.
As you can see it's been a very very busy yet rewarding time for support all.
With immense pride felt by our entire organization, we were named the dairy foods back.
As being 2019 processor of the or at the idea phase annual dairy form last week.
I'd like to congratulate our entire team for this outstanding accomplishment.
Their dedication expertise and passion continue to elevate our company and we are leading the dairy industry.
Sorry.
I am tremendously proud of what we've achieved together.
I'm also bullish about the long term prospects for the dairy industry I'm certain we have the right people the REIT focused and the right infrastructure in place to capitalize on growing markets and evolving trends.
The appointment.
It's in senior management announced today reflect this sentiment as we laid the groundwork for future success in the industry.
With that we will now proceed to answer your questions.
Let me.
Thank you if you like to register question just crossed the one probably the floor on your.
Funky pack your history, Tom Propped technology request.
Question I have been aspect to draw your restoration and at the one provided three.
One moment, please our first question.
And we'll get our first question the life from hiring Natal with RBC capital markets go right ahead.
Thanks, Tom and good afternoon.
Freelance.
Looking at the appointment of the senior VP business development plant based foods and clearly that's assigned to me at least that you're making a serious commitment to this category can you walk us through what we can expect in terms of up presence.
And the magnitude of the investment you're thinking about.
Yeah. That's a very good question are you know the upside based business for says we are defined it a in previous conference calls, it's not that different from the dairy infrastructure that we used to process no.
We.
Need to be where consumers are now we need to leverage all of the expertise that we have a including manufacturing expertise.
So the facilities that we have within our infrastructure or have the capacity to be able to process more fluid products, whether that would be dairy or non dairy products.
And as long as we've got a long term commitment act a fair transformation revenues, we are prepared to make those investments for the long haul and as a long term viability of our business. So as an example, our plan in portable quick Limon, British Columbia is being dealt.
The opportunity and the ability to segregate non dairy products from dairy products and process efficiently and we're looking for volume to fill that up.
Similarly, we have other plants within our system within our structure a in the United States and also in Argentina.
Where we can leverage our know how and our expertise and the manufacturing footprint that we have sold the the naming about senior VP is really another step forward for us to become more active in discussions with industry players as well as non industry players about us being able to.
Two.
I'll provide a good resource for them as a co packer for their products. We have a we've had some very good very fruitful discussions.
We have some volume that's already entering our system that is non dairy oriented we believe that.
There is even further opportunity along those lines I'm going to handed off to tie in see maybe if he's got anything else you want to add on that strategy hiring so in terms of the specific segments a retail wise.
We've got a pretty strong private label business with our SDF platform. So we'll look to leverage those.
And ships at a key accounts the toll manufacturing is going to be another big one for US. We also have great experience on the cheese side in terms of non dairy cheese is in our vital lane bryants in the in the UK and we'll be looking to take advantage of the innovation Center, we haven't UK in terms of they are resources and know how there.
So look at developing some products that have a better taste better performance in foodservice.
And better nutritional attributes because the stuff that's out there today is pretty block. So we think it's a tremendous tremendous opportunity for the group.
And I just want to specify that we are still and we will always be a dairy.
Yes the organization.
But why not use our expertise and innovation capabilities to be able to go where consumers are going and I think that we're on the right track here.
That's great. Thank you and just to be absolutely Crystal clear, there's no intention at this time to invest heavily in.
And building in the plant based segment.
No that's not our focus at this stage or ultimately if there's an opportunity for us to make an acquisition of brands, we would seriously consider it but at this stage.
We are looking at partnering with folks that are already in that space and being a great partner.
For them.
That's very helpful. Thank you.
Just wondering if you could talk a little bit about.
What's happening right now in Australia in terms of the success that you are having on the milk intake side, and where you might be along the process of improving the capacity utilization and your for.
Ladies there.
Sure. This is kind of I'll take that question first off I just to give you some perspective in terms of what's going on in Australia. We've heard a lot about the fires on lean on his opening comments talked about the minimal impact on our operations, but when you look at the overall milk production.
Developments that are occurring there because of the severe weather and the high input costs that producers have to deal with lower water and a less feed availability is causing some strain in the system, which is leading to a lot of calling of cows reduction in farm sizes people getting out of the farming business.
So what we've seen in terms of national production. If you look at a couple of years ago. Total production was at about 9.3 billion liters of milk and two years later, it's now projected to land at 8.3 billion liters of milk for this current milk here and we feel that this is going to be the new normal and Ah theres going to.
The continued intensified competition around milk supply. So I think we mentioned in previous calls but for US it's really about looking for opportunities to process more mill, so working closely with other.
Companies in Australia around toll manufacturing opportunities.
We're also.
Taking advantage of milk.
Supplied by third party milk brokers and we're also taking a page off of our playbook in North America in terms of how do we extended the milk how do we use our technology and recipe optimization to produce more of the products that we make with less milk. So those are the things that we're tackling and if.
We look at the mill can take numbers that we had called out a few years ago, we're probably about 10% down from what we called out.
In terms of our ambition as we move for a lot of the milk that we've lost again as a result of the decline in the mill pool and that intensified competition, we have recouped the majority.
Of the Nope, that's been lost the competition through those arrangements that I talked to the third party milk.
Brokers, the toll manufacturing and those types of arrangements. So we feel pretty confident that we're in pretty good shape at this point when it comes to our mill can take and fully utilizing our assets on the asset utilization, we have we just announced.
That one of our facility would have moved to a seasonal facility. So operating only five months of the year. This is our macro site and by doing so it allows us to make sure that we move our milk to those facilities and most products that generates the highest variable rate of return per liter of milk.
That's very helpful. Thank you for.
That color.
Hello.
Thank you very much well gets her next question on the line from Microvision Health with TD Securities current ahead.
Thanks, I just want to continue on those two topics first of all first so.
The.
Talk about utilized you mentioned that you feel good about your utilization rates right now and in Australia can you give us a sense as to how much call backing you've actually take Don or toll manufacturing whatever you want to call. It how much you've actually taken on how many different companies you're doing it for right now.
Tentative reasons I can't divulge the.
The number of.
Companies were working with but I would say that we're working with some of the largest enterprises in the dairy space in Australia, and if you fall than use you'll have seen that does some of these major players have shuttered some of their facilities and would have taken the milk that was originally process and those facilities.
Is that a lot of that milk has been diverted to us and we are we have been manufacturing products for for those two majors, we have a lot of opportunities in the pipeline as well as it pertains to our fluid milk business.
As a antiquated assets be get taken out of the system and so other ongoing talks with not only larger.
Players, but also some of the smaller ones as well.
So Mike if I can add maybe just a better color there to give you some satisfaction.
If you recall when we first acquired the Australian platform, we were targeting after the sale of CROI at around 3.1 billion liters of milk.
Factors that noon normal.
It's 2.7 billion liters of milk and the reason for that is really the decline in production.
In the country. So anything we lost the competition, we picked up through third party, we're still very confident that.
The other third party discussions and negotiations, we're having a are going to be fruitful in.
In addition to co packing arrangements that we believe will be fruitful. So the new normal for us up from the historic number 3.1 is 2.7 with the partial closure of MACRA, we still think we're going to be around the 95% to 98% capacity utilization.
And just to add to the point as well.
Our most recent acquisition was the Lions specialty business the great thing about being in Tasmania is that it is the highest milk producing region from a growth perspective, so getting more milk in that part of other countries not going to be an issue for us.
Okay, Great and Thats helpful. So when you look at the international business than.
You had a pretty big adding $14 million increase in the EBITDA year over year can you give us an idea the biggest drivers between if you want to break it out between like the Lion acquisition.
Something Argentina, and what the factors or is that where there and then Australia.
Yes, I can provide you with some as detailed and I would say the major contributor to the that though the prices that were higher on the international market, whether it's on the cheese on the Toleracyte.
That was the main driver obviously the contribution of that.
Specialty cheese.
For a couple of months during the quarter help on that as well.
What I would say definitely would be the impact of the prices on the international market.
Okay, Great and then on the plant based side.
Are you willing to discuss.
The brands that you're producing for.
No and that it's for really confidential reasons as we get into these discussions with the some of the partner at that we're dealing with out of respect to them, we will not talk about their brands without their consent.
And you said you're already starting to.
The process as I'm sure that is correct, yes. So we've got some installations going on a plant city in in a in Florida, a set up I add new line that is in the process of being commissioned so volume will be going through that very very shortly in addition.
And do some other capacities that we had a into you asked that is now doing some non dairy products. So we've got a where wherever our customers have a requirement we will find the capacity to be able to service then effectively as long as we're working on long term.
Attracts and long term relationships.
I didn't mention Australia is one of the targets for client base as a reason for that.
Oh, Yes, I did that in my one of my statement I said, we do have the capacity to be able to do that in Australia and again. There are two were in preliminary discussions for that we're not doing any no.
Dairy products in Australia, but we certainly do have the square footage in the capacity to do it.
Okay.
So its Australia, I think you mentioned, Argentina, as well or Ginger.
I doubt, if I said, Argentina I meant the I meant to say Australia.
All right Thats all into three the three geographies that we're looking at.
Would be Australia, a United States and Canada as a pint a base capacities that we can cope back for others or perhaps look at acquisitions and then the plant based chiefs already we're doing that in the UK, but in terms of plant based beverages would be the three regions that we don't mentioned.
And plant based uses that something.
You could make in Canada for example.
Eventually at right now we are marketing that product in the UK. Our innovation center is looking at improving on that product on when we think we've got something that is appropriate for either Canada or for the United States, We will definitely roll that out.
I'll get back into queue. Thank you all right.
Thank you very much. Okay. Next question on the line from Peter Sklar with BMO go right ahead.
On the Bushfires I understand.
A lot of the center of gravity for the Bushfires has a new South Wales, and Victoria, where you have a lot of your.
Plants located lot of your dairies located so how is it that you're not being.
Disruptive and disrupted in terms of procuring milk by the Bush fires.
So I'll answer that question in terms of the Bushfires, they're largely focused in the area of New South Wales, South of Sydney and.
And also in the eastern part of Victoria. So if you look at a map of Victoria and New South Wales, you'll see their facilities are on sort of the fringe areas of a of of those fires. If we look at the impact to us the poodle since the Bushfires started a we had a impact of about 700000.
On liters of milk on a base of 2.3 billion liters of milk on an annualized basis. So you can see that that's a minimal impact and we don't expect any further losses as we move forward.
Had a total of 33 farms that were impacted.
But there is that since gotten back online. So the again the impact has been minimal.
And Peter just on that note, we havent says that some of our competitors in the industry either to collect milk in it regions, where they couldn't collect or perhaps the take on some additional capacity when they were not able to take on that capacity. So I think the industry itself has locked arms and Oh and support each other.
Other and that's very difficult time.
Meaning you're collecting on their behalf yet your processing and are delivering it to their dairies.
So while it's still depends on if their plant was affected by the Bush fire, we would process to know if not a we can collect the milk incentive to their their facilities.
At this stage, we're putting competition on the side and we're looking really at what's in the best interest of the dairy industry.
Okay.
Different topic.
And your.
Commentary in the press release, you indicated that you're expecting.
Volatility in the dairy ingredients market like your.
When you're talking discussing international commodity prices, but at the same time, you're expecting stability in terms of cheese prices and I'm. Just wondering why are you expecting that volatility.
For dairy ingredients is not because of the China situation.
Yeah. So China is is an unknown factor you know just as you had the lifting.
Being of some of the tariffs and the trade award is getting better you've got a the corona virus and so the reality is a lot of our dairy ingredients are going into that that part of the world and so that's the volatility that is unknown to us even though we're.
Seeing the numbers tell us that the the consumption is firming up.
And the supply is also very stable. So it's perhaps a tale of two different cities here.
At a macro level at a macro level, we're seeing we're definitely seeing better equolibrium.
The global dairy markets from a.
Demand and supply standpoint, we project that demand will actually exceed supplied for calendar 2020.
Okay.
And then just lastly on the.
Huh.
Canada, U.S., Mexico trade agreement when do you expect the.
The allocation of the.
Import licenses and maybe we can be a little more specific on how you did and TPP could you maybe quantify did you get your fair share in the new TPP and what are you expecting for this trade agreements.
That's a very good question, so I think that especially with the minority government.
This will not be ratified any kinda until.
Sometime.
Later this summer probably by June or July.
Probably in effect for the month of August I think August as an important milestone, especially for the dairy farmers because it's a new milk here.
And Uh huh.
Easiest way to trigger or are these aloe.
Patients would be at the beginning of a new milk here.
So I don't expect anything what happened before August in terms of ratification and implementation.
On the on the quota side or TR accused.
Yeah. So we we had discussions with governments related to a the initial seat locations and unfortunately.
The the seat that locations in large part went to Oh people outside of the processing dairy industry.
And as it turned out to the majority in the first year of those locations we're not used.
And so that created a difficulty for Canada.
Because they're trading partners were saying well that's really not in the spirit of the of the trade agreement itself I think at a time under 50%, maybe something like 46 of 48% or the total quote as were used and so with that information. We went to government and we said look under this new deal the CPT.
BP or if the quarters were allocated to processors. A then we would have the ability to bring in a either raw material or finished goods that we can bring into our system and create value in the dairy space and effectively that's exactly what we did a we used 100%.
The allocation of the quotas that we had a and we brought in value added products and created great great value here in Canada. So my discussion now with government is related to kinda U.S. in Mexico that trade deal that we would like to see more of the same with the CP TPP, where over 80% of the allocation winter processors.
Pro rata by there.
Their production production capability numbers.
And so that's what we would like to see with Canada U.S. in Mexico.
Optimistic that that's what will happen I did indicate that government that we'd like to be held to account. So that if we're not using those licenses then they have.
Have the right to take them away from us and give them to others, perhaps distributors and retailers, but for the time being as long as were honoring their commitments that we made.
We believe that we should be in a position to control Island destiny.
Okay. That's all I have thank you all right. Thank you Peter.
Everyone gets her next question on the line some vishal Shreedhar from National Bank go right ahead.
Hi, Thanks for taking my question.
Just wanted to circle DOCSIS plant based.
So that you made.
And just looking at your business and the end the nature of the activities you.
Okay do you want to get involved with it seems like this opportunity in reference to the scale of your current business.
The incremental for now is that fair way of thinking about it.
That is exactly the way we should look at it because let me make one general statement that I hope everybody, we'll hear dairy is not dead.
There is still great life, and dairy dairy continues to grow at a rate of one and a half the two per cent per year, and we're still very very very bullish on dairy however.
If we have the expertise and we have the infrastructure to leverage our capabilities to do a product other than dairy.
As simple as beverages.
And that would go into our stream and create an opportunity for us to mitigate some overhead expenses then we will do that that's very entrepreneurial.
So I want to again reiterate my comment that we are and will be a dairy focused organization.
Anything we do in client base is going to be an add on to be able to leverage some of our expenses.
Okay. Thanks for that and just on the just on the back of the comment that you made about.
Seeing a lot of opportunity in dairy.
Foreseeable future.
Throughout the release there were.
Several markets that experienced and.
Little bit softness in volume.
Outside of Australia, which had a specific issue just wondering if you can comment on that and where.
When you see that volume growth turning around.
Yeah. So look if you look at the other general market there is growth.
In the emerging markets, a much greater than a the domestic markets.
So I would say that the emerging markets are growing at a rate of maybe three or 4% for a year and then domestically we might have one and a half or 2% growth in a very specific categories like cheese.
And value added ingredient.
So the opportunities that we see in the markets, our global as well as domestic outside of some key areas like Australia because of the because of the a other the fires.
But but in general terms on the.
Non fluid Ah products.
We see that there was growth in just about every single one of those categories Chi you want to add to that yeah sure. So if I looked at a different geographies.
Our SDF platform is performing very well across all segments. So volume is very strong and that division.
And ER.
Our Chief Division in the U.S., our volumes have been pretty strong and most segments, except the industrial segment, where we've seen a lot of bottom feeders that are trying to you know there's erased the bottom from a pricing standpoint, and then in Canada, we've done pretty well from a volume standpoint, we have talked about in previous calls where we've walked away from accounts.
Our business that was unprofitable for us, it's really about profitable growth and not just chasing volume for the sake of voice. So we have made decisions to walk away from business.
Opportunities when the when the margin structure doesn't make sense and the first thing we do a before walking away when when the.
The cost structure Doesnt make sense as we take a proactive pricing initiatives and if they stick we'll continue with a went back customer and if they don't stick well then we'll walk away from that business and I I would say that sometimes we walk away from business only to capture it back three or six months later at favorable pricing.
So it's a question of having the right disciplined to an all went to walk away and went to service our customers.
Okay.
Thank you for that color.
In the industry in the US there have been high profile announcements from from milk.
Okay players regarding the viability of.
Their business and.
I'm wondering number one if there are any.
Jason to impacts that suitable experience because of those players.
And number two.
You could just help us.
Give us some sense of the materiality of your food business, just given that it so topical recently.
Okay.
Yeah. So so let me just say that within the U.S. platform, we don't do any commodity.
Traditional fluid milk.
If we're going to be in the fluid milk space, coupled with the value add like the lactose free products and some other products that we bring to market.
Generating a better return and just commodity products.
And the adjacent to a impacts to us is minimal.
We have a good working relationship with Dean foods, but we don't have any liability with respect to a accounts receivable or any operational liability.
So our team really has been managing that division extremely well, we made sure that we get paid when we when we were supposed to get paid.
And so there isn't much.
Negative impact related to either the a bankruptcy of dean foods or the bankruptcy.
Of aboard and it's actually created an environment to make a dairy more economically sustainable and it's resonating with our key stakeholders and we're seeing that across both sides of the border.
Because they don't want to see another major food manufacturer brought a business. If the economics are there aren't right. So it's actually been.
Helpful in situation.
Okay. Thanks for your color.
Thank you very much.
Next question on the line from Patricia Baker with Scotia Bank. Please go ahead.
Thank you very much I have two questions and I actually Bowser are related to your most recent acquisitions.
Firstly going to Australia, and looking at Lions specialty cheese can you talk a little bit about the positioning of the portfolio of brands. There on what the experience has been in the last a little while of whether these brands are gaining market share and how well they're positioned in the marketplace.
Yeah, So it's pretty fresh and so since our last acquisition.
Mission, but we're seeing a real strong growth in the category, it's actually the fastest growing category in the and achieve space in Australia. We've got a strong market share position are ready out in the game. So obviously with the brands that we picked up we're also looking at some opportunities to leverage some of the pages from our playbook in our North American platform.
Because we have the largest go cheese business in SCUSA and ours approaches USA Division and we have a history with specialty cheeses and our Canadian divisions were looking to take some of those experiences a and some of those product ideas over to Australia to continue to grow that category.
And the assets that we picked up as well its.
Again, we're trying to implement the processes and systems that we haven't other facilities. So it's early going.
But there's a lot of available capacity when it comes through the heart cheeses. So the parmesan style cheeses, which will open up opportunities for us on the export side as well.
Okay. That's very helpful and then secondly with respect.
Gary Chris So you know you're.
Great to continue on with the integration, but you do note that you're going to be making some capital investments there to improve the cheese, making capabilities can you talk about exactly what you're going to be doing in what what we can expect to see over the course of the next two years with respect to all the investments.
Yeah. So.
Dairy craft model is going to follow that Wcb model and I'll take you back in time, Oh, we acquired in Wcb a platform that was very very efficient at the time Warner cable cheese and butter was processing about 750 million liters of milk, when we acquired a and we thought that the only way that.
We were able to reduce the expenses there what's the bringing more volume. So we made an appeal to the different dairy farmers that were in the area and we said if you will sell lesser milk, we will grow the capacity at that plant and sure enough. We had about 200 dollar or so million liters of milk that was offered to US we spend 40 million.
In dollars to increase the manufacturing footprint.
We executed that I think it wasn't about 18 months or so and we then leverage that new volume to the existing overhead costs and reduced our cost per kilo of production. So when we.
Took a tour for the very.
The first time at the dairy crest through the due diligence process. We realized it was a very very similar similar setup. So our plant that was running very very close to 98% capacity utilization, a very efficient operation producing high quality product.
And we saw that the only way that we can reduce some of the expenses.
On a per kilo costs with the increase capacity and so at that point in time tie and I met with the Devry group that is representing the dairy farmers and we appealed to them.
About a us wanting to increase the capacity in the footprint of the plan, but we were the only do so if they're milk was available.
They made a commitment to us at.
The milk would be available and in short order, we picked up by this year alone 50 million liters of helped to incremental and we have the potential to increase another 150 or close to 200 million liters, a mill, but that would now require further capex allocation and some more.
Time to get that installed a and so what we're doing it the dairy crest plans and David though it's not so much changing what they're doing but rather adding more capacity. So we can lower our for our cost per kilo operational efficiencies.
That's tremendously Lino It makes me understand.
Much better what you're doing that thanks, all right.
Thanks, very much well go next question on the line from Mark Petrie with BC go right ahead.
Hi, This is actually Christian let them on the line from Mark Yes, I didn't think mark was going to be here today.
[laughter] [laughter] my first.
Soon is on the dairy foods, you called out higher volumes in the U.S. dairy foods business can you speak to the competitive dynamics in the dairy food segment and highlight the drivers behind your improve performance.
And while we're on the subject can you also give us an update on the stage of recovery of the dairy foods business following the ERP rollout.
Sure the pleasure.
So first of all there's limited capacity in the system when it comes to the products, but SDF producers. So we have that advantage also where are the only with where the only player that has a national footprint from coast to coast and a with a proven track record that we've had with a lot of these large scale players whether its foodservice or retail that's really helped us out in terms of one.
Looking at new product.
New products, new formats, we tend to be the stuff first phone call and when you look at our supply chain aside of the business as well or celebrates than our customer service levels are back to a if not better than historical levels.
Especially now that we've had time to digest the.
Harmony or ERP deployment.
That did cause a lot of noise for us in that platform, but that's that's that's a far behind us at this point.
Okay great.
And I didn't have a question on dairy Chris just a follow up on Patricia his question can you highlighting the benefits that you're seeing a in dairy crest, particularly.
Me on the byproduct side.
Have you been able to leverage any of the learnings from Democrats, particularly from their investments in de mineralized way across the rest of this platform.
It's a good question the de 90 product that you're referring to as a capability that we did not having a system and we actually been able to leverage that.
Ability to grow our business with some of the majors are that are in the infant formula space. So Theres limited capacity in the world. When it comes to de 90, So we're able to leverage that limited capacity to try and gain more business with some of these large multinational players.
Great. That's all I think is excellent. Thank you very much Krishna.
Thank you will get her next question on the line from Chris Lee with theirs. They go right ahead.
Hi, good afternoon, everyone.
Just a couple quick questions last quarter, you mentioned Argentina.
In terms of.
Potentially increase in export taxes as a potential headwind.
Seems like you guys, it's kind of doubled on down when looking at some of the Texas apply to other agricultural products.
Do you have an update on that situation.
Sure. The a this is tied up in terms of the taxes there they've only been imposed on a few items.
Primarily whole milk powder and the rates, 5% so the impact to our export business has been a minimal at this point.
Maybe max might have something to add on that so that there are some of the price control mechanisms on the domestic side as well.
Just to keep some of the products that affordable for the.
For the consumer in Argentina, So ultimately with the cost of mills that were seeing there remain absolutely competitive yes, it's minimal impact to us.
And as I mentioned in my opening statements. We've got a very very seasoned management team in Argentina, They know how to.
Navigate through those waters, a better than anybody else and so whatever governments that are wide then they know how to they know how to deal with it very very effectively.
Okay. That's great. That's helpful. And then just on question on Capex, you still on track to achieve spend to target that.
That seems but just over 600 million.
And for the full fiscal year.
Seems like Youre now sort of a bit milt below that run rate well. Good question, Chris Yeah, our target for the year was 611 million.
So we do anticipate a strong Q4 in terms of investment in our capital expenditure.
Will we get to the 600 million will be close to that so we certainly have a good quarter.
Currently proceeding on Capex.
And how about steel look for next fiscal years that too early to two to talk about that or Directionally do expect to be similar.
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Well you did this year as the last year, our three year cycle. So next era is going to be the first year of it and you cycle or we will have quite a bit we expect to have quite a bit of the capex.
Will that be the 600 million probably not but.
It's too early to give you an.
Number at this time.
Okay and then my last question just with respect to them some of the cost savings from the the plant closures in Canada is the way to think about it. This the savings is that there will be reinvested to continue to drive topline growth or will we see some of that flow into the to the earnings line.
Well typically.
Hey, those savings will provide us the.
Well basically those plants order is to get more efficient and this will be starting.
Late.
This tour in calendar year and the following year.
And we do have investment plan in others.
So that needs to be able to attract to transfer to volume.
So essentially Chris if I can elaborate on that up most of the monies to accommodate that additional capacity has already been spent through these last few a fiscal years. So we had a project in a saskatoon.
That we were able to increase capacity to be able to accommodate more volume and shifting volume from Trenton over to other facilities and ultimately into Saskatoon and we also have a major capex allocation that is underway right now and our same menard facility also to accommodate more capacity here. So.
We weren't waiting for the plant closure savings to ultimately spend the money in a new capex capacity or the new Capex capacity was built into a previous capex budgets.
I think as savings from your question, Chris the savings is more around the capital that will not.
The spend in those facility that were.
Shutting down the yes, we'll be investors throughout the rest of our network.
Okay I understand thank you for your helpful answers.
All right. Thank you Chris.
Andrew for procure one's got on the fourth I just tier one four to registry question.
And we do have another problem question right or myself I know some TD go right ahead.
I have a few quick ones.
Depreciation jumped in Q3 versus Q2 and a lot of it I think 8 million was in the UK sequentially. It was there some purchase price allocation adjustment or something in the quarter that causes it to pop.
Temporarily yeah, right on a brand value a final assumption or a that were consumed during the quarter, increasing our depreciation.
It is a asset base.
So thats why the the number is up.
As compared to let's say Q2, if you compared to last year.
We also have to figure it out the.
Hi, FRS exceeding the lease accounting to has an impact on the depreciation.
Right, but the number in Q3. It does that include some retroactive catch up for that there is out there was a bit adopted you'll have that also in Q and Q4, but said in terms of going forward. That's it for F 20.
One of the mid 20 is going to become number for UK and it all depends of the the Capex projects evolution and there's also an FX consideration to that number but the mid 20 with.
Via number that would make sense.
And then.
There are few foods, you I say you.
I think in the press release, you say that you increase some capacity or added capacity wise when did that kick in.
Their capacity or that we're looking at the at was over the course of this fiscal year and it will bring us right to the end of this fiscal year with a plant city a start up.
Which is going to be happening in Q4. So this is ongoing throughout this fiscal year and we'll continue to the end of this fiscal year.
Okay, and then just finally.
For that division it seems like it's taking a long time to find a.
Permanent replacement.
The written run that.
With that business, what's the challenge there.
There's no challenge you know as a business that continues to evolve we need to see whereas a REIT structure will be a and and again with Karl as the lead of North American platform.
He thought that it would be the right opportunity for himself immersed himself in that business. So that he can understand exactly where the where are the key points are and eventually have a north American platform that will be that much more effective and not much more efficient so that was actually carl's decision or to step into the dairy.
He foods platform to better assess where are the potential is going to be in the future for a a synergistic north American operation.
Okay. Thank you and then one last question actually the de mineralized way that you're doing in the UK is that something that you would that be able to do as.
As well in Canada or are the U.S. or another market, where like do you have the capacity to do that are the technology at this time.
We do not have the technology and it would require significant capital to build that capability at this point.
And the other thing we need to keep in mind, Michael is we don't want to over and then date the market.
Overcapacity of a product that's creating value so even before we would spend that money, we need to see if theres a market for it first and foremost.
Oversupply is not good for any category of products. So we won't be very careful about so the places we invest money to produce additional capacity.
Perfect. Thank you.
Thank you very much and this is pretty where I've no further questions on the line I now turn the call back here. Thank you very much Tommy.
We thank you for taking part in this conference call. We hope you'll join it's been a presentation of our fiscal 2024th quarter and year end results on June four.
The nice thing.
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