Saputo Inc.

Sandy Vassiadis - IR Lino Saputo - CEO Maxime Therrien - CFO

Peter Sklar - BMO Michael Van Aelst - TD Securities Mark Petrie - CIBC Irene Nattel - RBC Capital Markets Vishal Shreedhar - National Bank Financial Keith Howlett - Desjardins Securities

Thank you very much, Julie.

Good afternoon, everyone and thank you for joining us today. A press release detailing our 2017 fourth quarter and year end results was issued earlier today and is also available as we speak on our website at www.saputo.com.

This call is being recorded and will be posted on our website for future reference. I'd like to specify that our listeners on the phone and on the Internet, as well as journalists, are on a listen-only mode.

Members of the media are invited to ask their questions by 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 that are subject to risks and uncertainties. Refer to our cautionary statements regarding forward-looking information in our annual report and our quarterly releases and filings.

Please treat any forward-looking information with caution as our actual results could differ materially. We don't accept any obligation to update this information except as required under securities laws.

Mr. Lino A.

Saputo, Jr., our Chief Executive Officer and Vice Chairman of the Board, will begin this conference by providing his brief overview of key highlights relating to the fourth quarter and fiscal 2017, after which he along with Mr. Louis-Philippe Carriere, our Chief Financial Officer, and Mr.

Maxime Therrien our incoming will proceed to answer your questions.

Thank you, Sandy. And good afternoon to you all.

Overall fiscal 2017 was a good year. However, our fourth quarter proved to be more challenging than expected.

For the quarter, revenue slightly decreased by 0.5% mainly due to lower sales volumes in the Cheese division USA and in the international sectors. Adjusted EBITDA also decreased by 9.3% specifically related to market factors in the US and to increase sales marketing and ERP expenses companywide in addition to efficiencies impacted by lower sales volumes.

That said looking back at our entire year operations revenues grew by 1.6%, adjusted EBITDA increased by 9.8% and net earnings were ahead of last fiscal year by 21.6%. This outcome demonstrates our resilience and highlights are multi-platform strength as we further expand our business despite challenging market conditions.

In Canada, we strengthen our relationships with our customers and aligned our go to market strategy specifically in the Atlantic region and wish shut down are Sydney and Princeville operations thereby transferring production to other more efficient facilities. We also directed capital towards innovation, operational efficiencies and production capabilities in markets with solid growth potential.

We continue to build our consumers preference for our products as we re-launched the Saputo Cheese brand. These initiatives allowed us to retain leading positions in Canada yielding solid returns within a competitive landscape.

In our US sector we generated solid results mainly due to higher sales volumes and benefited from a better alignment of selling prices with fluctuating commodity prices and a lower ingredient costs. Our Cheese division introduced new products and generated sales growth by securing business with current customers and increasing volumes.

Our dairy foods division worked closely with customers to develop new value added products which strengthen our position in core categories. Additionally, we continue to invest in our infrastructure enhancing our network and increasing our production capacity for future demand.

As for international sector, we experienced an improvement in market conditions more so towards the latter part of the fiscal year. We grew our presence in existing markets and expanded into new international regions while maximizing our operational flexibility to mitigate commodity price fluctuations.

In Argentina, the recovery in global markets helped improve our export business. Higher selling prices grow revenues and helped reduce the effect of weather impacted milk intake volumes.

In Australia we continue to make capital investments and devote resources to grow milk intake, increased manufacturing capacity, drive ongoing improvements in operating efficiencies and support new product development. More specifically, our -- per plan production expansion is expected to be completed on time and on budget.

Additionally in March 2017, we obtained full ownership of WCB acquiring the remaining minority stake from the shareholders. We're delighted with this outcome.

As another year ends, I wish to recognize our employees' hard work and dedication. I'm privileged to have great teams focused on achieving success and working together every day to push boundaries and find new innovative solutions.

I'm delighted to be surrounded by ambassadors who live our values and our culture every single day. With the passing of time however, some of our longstanding ambassadors have retired or will retire shortly.

As such, we carefully focused on training their successors who will continue to support our 12,800 employees worldwide as we pave the way into the future. Our employees truly distinguish us from the rest and they remain the drivers of our growth.

I thank every single one of them for their dedication and I'm looking forward to achieving even more together in fiscal 2018. And on that note, I thank you for your time.

And we will now proceed to answer your questions.

Good afternoon. Lino obviously the question, the first the leading question is to ask about the shortfall in US profitability.

If you look at the numbers EBITDA was down in your US business by $40 million year-over-year and you disclosed that market factors were $10 million of that. So there's $30 million of EBITDA decline.

I mean you have called out volume declines, so can you elaborate a little bit were these volume declines substantial and maybe you could talk about your various distribution channels like what you're seeing in retail food service et cetera and were there other factors that play that cause that $30 million shortfall year-over-year.

So I'll take this opportunity then to do a little review on each one of our sectors and highlighting some of the questions that you asked Peter specifically to volume. The fourth quarter historically is the lower season for us.

As we're coming into Q2 and Q3, we've got to return to back to school which is driven by promotion and traffic either at retail and food service and then we have the same thing also leading into the holidays where you've got more traffic at the retail level due to the holiday period. So queue Q4 historically is a seasonally low time of the year for us.

When I think about the volume in Q4 company-wide relative to what we had in Q3 we're talking about low single-digit number percentage points lower in Q4 than we had in Q3. Having said that, in the US essentially compounded to that we had a declining block market, I think when we opened up the quarter we were sitting at about over $1.70 block price and towards the end of the quarter we may have hit as low as $1.37 or lower than that.

In a declining market, what happens typically of course is that we have a cost of milk impact relative to the selling price of our cheese. We have inventory issue, so we're selling higher priced inventory into the market and then what we can derive as a revenue but also what happens specifically in the US, is that we do have customers that are trying to look for a bottom like any commodity.

They are trying to hold off on orders until they understand where the bottom is and then they replenish their inventories. So we were impacted by all of those factors and all those variables in the fourth quarter that had a bigger hit in our US cheese results than what we would have anticipated.

I would say that the business still is strong, it's not like we've lost any customers. There's been no erosion of our customer base neither in the US or in Canada or in the international markets.

I think our platform is still generating very good value for our customers whether they would be at the retail level at the food service level or at the ingredient level. So I'm not overly concerned about the result of the fourth quarter, I will say that in previous conference calls, I did talk about market factors hitting us up from time to time on a quarter to quarter basis this is one of those times and this is exactly what I was referring to.

I'm thinking with the recovery of the block market that we've seen since the drop in our fourth quarter and if I look at the customers and the traffic pattern starting to come back in the next quarter, I'm not overly concerned with these numbers.

And how about, can you elaborate a little bit by channel was the weakness in food service, it sounded like in your commentary the weakness was in retail.

Yes, so we had weakness in just about every one of our channels and I would say this would be companywide as well because there is no difference in Canada. The seasonality issue after a holiday period I guess the holiday hangovers is affecting us.

But we also did have within our Canadian platform some year-end adjustment expenses. We had an ERP program that impacted our Canadian results.

As well as a year-long marketing plan in Canada with our re-launching of our brands in our Canadian cheese platform. So again, when you have higher expenses and lower volumes and of course it will have an impact on EBITDA.

But again if it's a long term sustainable issue, clearly there has to be a realignment of the business this is not the case here.

Okay and just sorry not to belabor the point, but you did talk about how your volume spared quarter over quarter. But I thought what was more important is like how deeply were your volumes down in the US cheese business year-over-year?

They would be in the single-digit numbers. I mean not dramatic, but still in the single digit numbers lower and of course that also does impact our overhead absorption so that also has an impact.

Right and then just one last question in your dairy foods business you talked about that higher commodity prices I take it that's the butterfat had a negative impact. But I thought you had made attempts to restructure the relationship with your customers so that the commodity risk was placed onto the shoulders of the customer rather than Saputo and you've had some success in that direction.

That is true but there are in some cases pricing protocol lag in the adjustment. So again, this is why I am saying if I look at it on a longer term perspective not overly concerned because that will benefit us as we move forward.

Okay, thank you.

Thank you very much, Peter.

Hi, good afternoon. I just wanted to follow-up on some of those comments in US.

So the declining block market -- how much of that $30 million do you think can really be explained -- drop your rear can really be explained by that. Because you had some pretty good momentum in the volumes year to-date, it's a very good momentum actually.

And the commodities were generally working for you a little bit better even though they hadn't recovered fully. But then of course, so we would have expected some growth without just declining Bach markets so how much of that $30 million you think was just basically tied to those factors of a you know, the cost of milk, selling higher priced inventories and the delayed purchases?

So I'll have Max answer that question.

The block is certainly a factor but in terms of EBITDA generation it's not so much the block; it's the spread that are the major factor it that regard. And yes, the block did do during the quarter significantly, it went down much more than the same period last year.

So that's causing the variance more specifically.

Heading into Q1, you're saying what prices recovering; have you seen the volumes come back and the spreads come back?

Yes, so in Q1 and again I'm not going to provide guidance in terms of overall numbers but we are seeing a much, much better environment; both from a block price perspective and from a volume perspective.

Okay. But are you willing to say whether it's kind of back to normal levels like what we saw a year ago let's say or are you not willing to go that far?

Yes, I would say that we're back to normalized levels; and again, this is why Michael I made the comment in past conference calls even when we were hitting record numbers, you know, record numbers sometimes you know, they affect us positively on the EBITDA generation but it's not like that that business has dramatically changed. So the same could be said when you're looking at a declining block from an operational standpoint, from a customer profile standpoint, from a relationship standpoint that we have with our customers whether it would be retail food service or ingredient have not materially changed; it's just that the market conditions either drive us up or they drive us down.

And again, to answer your point moving forward, given a block price in the $1.70 range, and looking at the volume perspective that we're seeing that have come back since the holiday hangover effect, I feel very good about our business and our platforms.

There is nothing competitive in the U. S.?

Absolutely not, nothing competitive -- no, let me rephrase this. There is always going to be competition in the U.S.

that we have to contend with but it's no different than what we did in 1997 we own Stella [ph] and we were much smaller organization. We defended ourselves well then; today we've got better a platform, today we have a better infrastructure, today we have more knowledgeable people; so there's no reason to believe why we shouldn't be able to defend ourselves in the face of competition.

And I would say that for about just about every single one of our platform; so I don't see there being anything structural in our business that would cause me any concerns.

Okay. And then in the opening statement of your outlook section, you talked about -- you kind of mentioned the challenges that you're facing in the dairy market environment; are these challenges any different than what we've been seeing over the last couple of years?

And can you kind of maybe be a little bit more specific as to which regions -- because it doesn't seem like that's an issue in the U.S. really other than what you saw in the quarter; so I mean can you maybe talk a bit more about Canada and international and the challenges you feel you're facing there?

So on a more macro basis the challenges we face would be the headwinds related to market conditions whether it would be international pricing or it could be something to the effect of buyers not showing up at the trades and not being able to have to lift because of lack of consumption, that could be a market factor. It could be a decline of the block, could be decline of whole milk powder, skimmed milk powder pricing.

So it could be a number of different things. In addition to that though, market factors and headwinds that we would face would also be related to competition.

And we're not alone in this space, you know, if in Canada, we've got three major players who -- each one of us want to maintain our market share and perhaps if there is opportunity for us to grow, we will try to grow. We like to think that we're going to grow logically and systematically and sometimes we see some illogical things that are going on in the business and we got a deal with that so that would be a market challenge.

And the same thing in the states where you've got you know, either national players or regional players, who each want to increase their capacity and want to increase their ability to be able to sell product to the customers so we have to defend ourselves because in many cases we're the incumbent or the contenders that are buying for business. So again, not that much different than what you may have heard of in the past years.

Again, I think our infrastructure is very good, I think we're in terms of being able to be entrepreneurial, we're second to none. And again, from time to time there are going to be market conditions that are not favorable for us and we'll deal with that.

If it was something more structural, I will tell you as you've seen this in the past. We will make the necessary changes to make sure that we are leading edge within our business, within our platforms.

I don't think that's the case right here, I think we are leading edge; I don't think there is a complete revamp of the business that we have to consider.

In Canada you're showing some really good recovery in your profitability and over the past three to four quarters. And then, also some good volume momentum; that volume momentum seemed to go away in the quarter…

Well again, the same thing, yes -- so the same thing are related to the seasonality of the business. Some of that volume is gone away for that quarter, specifically.

I don't think that that's the trend either.

I'm just talking year-over-year, it seemed like the volume growth that you're pointing to that was quite impressive in the last few quarters, wasn't there this quarter?

So we're still at pace with market. Again, you have to look at the overall -- if you think about the revenue number, the juice business is no longer part of our platform, we chose to get out of that business, so it's going to affect us on the revenue side.

But if I think about fluid and cheese volumes, I think we are keeping pace with market; if not in some cases growing -- continue to grow.

Are you able to quantify the impact of exiting the juice business on both, the sales and profit standpoint?

I'll have Max maybe take a look at that.

Well, from a profitability standpoint, it would not move the needle for the Canadians division as whole. In terms of the revenue, there will be a slight reduction of the revenue, not hurting the overall operation, but it would be in the low -- the single digits.

Thank you.

Good afternoon. I just want to ask a little bit about the CapEx plan and the strategic investments that you guys are making.

You sort of touched on it there in the last question but are these investments more capacity related or in terms of increasing capacity or is it more related to trying to reduce your cost for the existing business?

Mark, it's a bit of both; so our CapEx allocation in the past has been roughly around our depreciation value. We, as a management team, got together through this last budgeting period and we want to speed up the level of innovation, we want to speed up our ability to be more effective and more efficient.

In some cases we're going to retire some old equipment and put in some new modernized equipment in our facilities. And in many cases we're going to increase capacity.

So it's all of those things combined; we have a three-year outlook with respect to our CapEx allocations. Part of it is just simple infrastructure requirements that we need it for drains and roofs and floors and things of that nature but there is a good portion of it where we're looking at potentially greenfielding as we've done with our Amina [ph] Plant and the Blue Cheese or CapEx for expansion of capacity very much like we've done in Australia because we do have the milk for it and that is, we believe the model for us to move forward with especially when in some cases we're looking at some assets that are aging and us wanting to be at the leading edge of our technology.

And how should we think about the waiting by region of that spend, of the $150 million?

It would be postly aligned to their percentage of depreciation. So with the exception of course of -- you know, a project like Australia where we had this opportunity to take on 250 million liters of milk and we needed the capacity to be able to process that milk.

So again it would be weighted related to the depreciation value of those assets but we do keep a side fund for very entrepreneurial opportunities that come up.

Okay, thanks. And then just to circle back; I mean -- I think you've covered all this but I just want to be clear, like -- you know, in the U.S.

business a few years ago, you sort of went through a period where volumes declined at the same sort of rate that you're talking about now and it was sustained for about a year, give or take; and it was stemming from competitive issues where the competitive environment escalated and you chose not to follow on price investments and I just want to be clear that that's not the situation today and it's more of a market situation?

That is not the situation that we're facing today. In fact if I look at my year-over-year numbers we still outpaced the market and we will always do that very responsibly, we will never be the lowest price product out there, we take a very responsible approach to market, we will not undercut, we will sell ourselves on the value of the product offering that we have, we will sell ourselves on the service that we can offer and on the reliability of the infrastructure that we can -- that we bring to the table so I can comfort you in saying that that's not the case here today where there is an erosion of the business that related to price concessions.

Okay. I appreciate it, thank you.

Thank you very much, Mark.

Thanks and afternoon, everyone. Just so to be absolutely crystal clear, yet again, on a region by region basis, do you think that you are maintaining increasing or perhaps losing a little bit of market share.

Our market share is not being lost. I would say that we would either be flat or increasing our market share in our respective markets.

That's very helpful, thank you. If we could just turn for a moment to Australia, certainly there's been a lot of ongoing sort of turmoil in that market shifts of volume back and forth.

Can you talk about what opportunities you're seeing right now and you know, of the 250 million liter expansion that you're planning, how much of that volume have you secured at this point?

Yes, so Australia is a region that has been impacted by climate so overall industry is down, I would say close to 7% of what I read in the last publication. We, as I've indicated our overall milk intake has grown, mostly related to the missteps of some of our competitors.

All that milk that we are committed to taking I would say we're probably about 80% of the way there. We actually - I got some good news this morning that our plant startup is on time and on budget, first block cheese has come off that line in Australia so I have no reason to believe that we will be at 100% by the end of the December.

That's great thank you and so you'll be running a level of capacity utilization on the incremental volume that's actually higher than when you're running Canada right now, correct?

Yes I absolutely because we're in Canada probably somewhere around 75% capacity utilization, mostly related to the regulatory environment here. In Australia we've always been close to 98% capacity utilization.

With the increased capacity that we've just put online, we will go back with the new milk that we've just taken on global [ph] back to being 98% capacity actualization.

That's great thank you and we know just on the subject of the regulatory environment in Canada obviously a lot of discussion going on right now around the dairy industry here in Canada with what looks like it's going to be NAFTA negotiations again. Can you just walk us through your views of Saputo's positioning and anything that you're hearing right now around the likelihood of the government being willing to sacrifice the dairy industry?

Yes. So I will take this opportunity to talk about perhaps the three big agreements that would and could impact our business.

One is the SITA which has been signed and ratified and received royal consent are sent to here in Canada. We believe that the implementation is going to be sometime in July and the TRQ allocation are to come.

We're optimistic that the TRQ allocations will be in the hands of the stake holders of the dairy industry so I don't see it much impact related to SITA for our business. TPP seems to be dead since the U.S.

pulled out of that agreement. However the other non U.S.

partners of the TPP DO are looking at perhaps aligning in and coming up with a new deal but I still view that as being somewhere way down the road not before a year or two so not issue on TPP. And then of course the elephant in the room is the NAFTA.

So I will say that in our discussion through the our dairy associations with ministers and prime ministers as well. They have every desire to save the milk supply manage system in Canada.

There is no reason for us to believe that there is going to be a dissolution of the Porter system here in Canada. If I just take a quick indication of the conservative government leadership race that happened over last weekend, I can tell you that I don't think anybody is going to stick their neck out on the lines to try to dissolve the Canadian milk supply managed system.

So I'm quite comfortable with what I'm hearing either through our associations or through different players within government that there is little risk to supply management in opening up of NAFTA negotiation.

Thank you, that's very helpful. And yes, that was a very interesting loss on bearing these cart.

And then finally can't let you go Lino without asking the M&A question; anything we should be looking at right now?

We are as we've been in the past, very active on a number of files so we've got you know, I normally say three to four files, I will say we're probably active on four to five files at this stage. We're optimistic that in this fiscal year that something will materialize and again some of them are medium sized and some of them are large sized that but we have a good comfort that we were active and could be leading contenders in any one of these four to five files.

Are any of them likely to come to fruition [ph] in the sooner rather than later term?

We're hoping all of them will be sooner than later but - and we're putting a lot of energy towards that. You know, our legal teams are busy and M&A teams are busy so if it doesn't happen, had a rapid case shift [ph] is not our doing because we're ready, we're eager, we're active and we're hungry.

Got it, thank you.

Thank you very much Irene.

Hi, good afternoon. Would like to just touch in - one answer to your question - the questions asked you said that there had been some yearend adjustments and you're talking about also higher administrative expenses in your MD&A; was -- were there any non-recurring expenses that were expenses during the quarter?

Actually there is not that there is any particular element that would be out of the ordinary. We're looking at a year-over-year comparisons and so some of those yearend adjustment we could have some positive in the year and negative this year so that makes kind of a bit of a difference but in reality expenses which relates to some of our ERP and marketing and sales that's kind of explain the vast majority of that.

Okay. And can you talk just a little bit about your ERP implementation, how's that going?

Sure. ERP is fully rolled out in Argentina.

And at the moment in Argentina, we're still fine tuning the process but the businesses it up live and running from that manufacturing production we're delivering our products. We're focusing now on to the Australia.

Australia is our next platform at the go live next summer. We're planning as well to start our SDF Saputo daily food starting in Q3 this fiscal and after that will be tackling Saputo cheese USA and finally with the Canadian division.

So at the moment we are progressing per plant and all the hiccups are being managed and it works efficiently in our business, not affecting the business from the issue perspective.

Yes, and if I could just add a little bit of color there too, I think you know, we have talked about this and some of the one on one meeting with the investors and analysts and as well publicly on the quarterly calls that we think that you know, the success of that rollout has to do with preparation and I think that we prepare ourselves extremely well, we brought in some resources from the outside who are experts in this field, not only at the head but also in the actual execution of the plan that new team has blended extremely well with the - I guess some of the old timers here in Saputo so culturally no real ship in Saputo. But technically, I think with ERP rollout of an SAP program we have the right resources, right people in place and I'm very optimistic about rollout of the other divisions.

You know, we are we are going to make sure that if there is going to be a rollout that we're going to analyze the timing of it and make sure that we don't precipitate any movement unless we feel comfortable that it's the right time for us to move forward.

Okay, thank you very much.

Hi, thanks for taking my question. Just following up on the expense question, engineer disclosure documents the other G&A aligned with particularly higher year-over-year growth, as well as employee benefit expense.

And you mentioned that the seasonally like quarter; so just want to get some color on these growth rates and if we should expect them to continue and if there's anything unusual about those numbers this quarter?

This quarter -- certainly year-over-year, certainly there is the -- I would say the Wurdwich [ph] acquisition in 2015; certainly year-over-year for looking to fiscal '17 versus fiscal '16 there is certainly some I would see our year employee with the expense, as well as any G&A for this year. But other than that there's not nothing special, it's pretty in line, they are pretty in line the quarter over quarter.

Okay. So those dollars that we've seen, nothing unusual and that kind of run rate is you know that's a reasonable run rate to expect?

Yes.

Okay, alright, thanks for that. I just want your thoughts on [indiscernible] price is pretty strong in the quarter.

I know earlier in the conference calls the spread was mentioned as being a factor for some of the weak results in the US but how did Way explain in this quarter if Way would have been helpful factor.

Yes. On the selling side of our solid, it is a helpful factor.

However, there is the California formula which I'll remind you at $0.24 Way price is neutral, anything above that starts to cost us money on the milk and so was almost a double whammy here where we had at increasing formula price in milk and in a declining market so that hit us actually both times.

Okay, fair enough. In terms of the food innovation program that you talked about in the past where you help customers without product ideas and I guess more than U.S.

program I want to hear your thoughts on that and initiative is still going strong, if it's gaining traction and if you're seeing competitors follow with that initiative more so than they have in the past.

So from a competition standpoint we're one of the only companies in this space that is national in scope. We have a lot of regional players so our competitors usually would be much, much smaller than we are and don't have the ability to build this kind of infrastructure in innovation.

To answer your first question, I would say that yes it is still going strong over the course of last quarter and two quarters we've had some of our bigger customers come into the innovation center. There are lot of products that are going to be rolled out over the summer this year that we would anticipate in their stores and hopefully drive traffic.

And those customers since have come back done a second session of innovation in our center. So that tells us that we're on the right track, that we are offering something that a few of our competitors can't offer and I think that that creates solid foundation for us not to have to go always compete on price but we compete on quality and service and we're very proud to do that.

Okay, thanks a lot for your time.

Thank you, Vishal.

I was wondering if you could outline the operating expense in the capital spending on ERP in fiscal '18?

How about Max get those numbers out for us, so you're looking for this upcoming fiscal year that we're in right now?

Correct.

Okay.

We're looking to $68 million in terms of capital. We're looking at about $61 million additional capital expenditure intangible.

And in light of the additional expenses which relates to ERP, we're talking about additional $24 million next year as compared to this F-17.

Incremental in spending?

That's correct, yes.

And then just in terms of your marketing and selling expenses that were including Q4 to relaunch brands; can you speak a bit, is that complete now and what was that process?

Yes, so that was -- it is complete now. We did over the course of this last year rebrand our cheese category products and you may have seen that on the shelves now where we have a unified color amongst all of our different categories of products whether they would be commodities or specialty driven.

So again, we have a lot of upfront money to be able to roll that out irrespective of where the volume is going to be. In Q3 we had quite a bit of promotional spend related to the holiday period.

In Q4, we had the SG&A spend related to the entire project but not necessarily in trade spend itself.

Okay. Was that capitalized before?

No, it's not capitalized, its expense. But when you think about a large scale program, it's going to be sort of a fixed expense for the division where trade spend will be variable so even if you don't have the volume, the fixed expense is still going to be there because it was booked in Q4.

I think so, thank you. And then just on the juice business, was that a food service business or retail business?

No, it was a retail business, branded retail business that we had a licensing agreement with, that we chose not to renew.

And the low single digits, was that a percentage of revenues, the low single digits?

Yes.

Thank you. And then just on the uptake in the capital spending going ahead, I was wondering how you determine the incremental amount was it done on our own [ph] return on invested capital, cut off or done on some high impact projects or how did you come to the $142 million?

Well, this is basically the amount in excess of the expected depreciation over the two year period. So over the three-year period, we are going to spend $821 million based on the plan so that means we expect depreciation of about $671 million so that's kind of the $150 million on top of the depreciation we're planning to spend in CapEx.

And so the way that we came up with this is that we had meetings with our President -- the Regional President and we talked about a very specific programs and projects that if money is tied to. If we choose over the course of the three-year period not to rollout that specific project then that money does not get spent; so it is attached to a project with the return on investment on that project.

And so I may have misunderstood that, was all the $150 million going to get spent in fiscal '18 or is it spread over the three years?

It's spread all over the three year.

Thanks.

But that mean it's 50 -- let's put it this way, $50 million roughly on per year basis additional, not spread evenly throughout the year but it's 150 for three years. So like in 2018 in the sense of what we have as total CapEx budget is $357 million for which it's include ERP, 61 and other project are $296 million split between BS [ph] project at $154 million and strategic project on which we refer essentially as yes return on investment.

All this -- see the total amount with BS [ph] eventually; if you compare with depreciation, we are essentially foreseeing depreciation at a level of $218 million for this year.

I see. Thank you, that's pretty helpful.

And I just want to ask you both, California whether they are going to be implementing a new milk order, a federal milk order or where that process is at?

Yes, there has been talk over the course at least the last five years or so that there would be a new Milk order, that the desire of the dairy farmers has to be more aligned with the USDA system. In the meantime there have been some temporary fix it in the formula pricing which is affecting us now because of the way prices being higher than the $0.24 that I leave [ph] it to in the past.

Somewhere along the line, they're probably might be more petitions to have changes in the milk marketing order in California. As of yet we don't have any clarification on that.

Thanks very much.

Thank you very much.

In Australia you said that your domestic and export volumes were down. That's strictly related to the milk supply and are you still confident that you can get your -- get enough volumes into your plans to get to that 98% utilization?

Absolutely confident, yes. In fact that we have some of that cheese that is not produced already spoken for so no real concerns on filling up that plant.

What happened in the quarter then?

What happens is and this could happen from time to time where you've got inventory buildup to be able to sell in the flush [ph] of the season when people require the product. And by and large a lot of that is long hold product so we know that the orders are coming down the road we just don't have it within that quarter.

Okay. And then what's the timing of the blue cheese capacity expansion in terms of startup and are you able to quantify that the startup costs you're expecting.

I'll answer the first part of the question. I don't think we have an answer on the second part but maybe Max knows something I don't know.

But -- or might want to share something that I don't want to share. But yes especially in terms of the overall operation the product is going as planned.

We've got our curing rooms that are up and we have started to do some small runs of production in the new facility. And we will over the course of this summer into the fault have two production lines working one in the old plant, one in the new plant until such time we have the confidence that we're producing the same quality cheese in the new plant at which point in time 100% of production will go into the new facility and then we would shut out the old ones.

So I would suspect between now and the end of calendar 2017, we should be in much better shape at shutting down the older plant.

Alright, thank you.

And to your question, the fact that we would be running some parallel for a certain period of time, we could work with an estimate maybe roughly about $5 million additional expense by getting this startup stand alone.

Is that per quarter?

No, one-time.

Okay.

During the period of dual plant.

Thank you.

That's additional expense.

Thanks. I just want to clarify that I'm understanding what you said properly.

So with regard back to the issue of CapEx, is it reasonable to assume that the sort of an go forward basis, let's say '18, '19, '20, we will see CapEx running closer to the $350 million then let's call to the $250 million historical pace.

We may -- it may essentially we're looking to three year rollout but we need to keep in mind certainly we have things that we're planning ahead. On the other hand as Lino has mentioned earlier and as you questioned about the MNE activity, MNE activities certainly could put situation for which we may have in the future some CapEx avoid that so for today it's essentially the outlook that we are but certainly we are going to roll that out every year on the three year basis depending on taking consideration our three- the other element that we are going to face and that's going to come from time to time, we may essentially correct for say more IAO [ph] return project or stuff like that but certainly MNE activities will be a consideration.

Thank you very much.

Hi, just two quick follow-ups. On balance sheet comfort, you've given us I think was $3 billion to $4 billion in the past is that still kind of where you stand?

In terms of the acquisition flexibility?

That's right, debt EBITDA.

Yes so we're quite comfortable with that $3.5 billion of additional debt on the balance sheet perhaps even depending on the target itself up to $4 billion of financial flexibility for acquisitions.

Okay. And in terms of large and medium sized deals, I mean I think you quantify that for us in the past so I wonder if you could do that again.

So I would say medium sized business for us that they would be somewhere in the order of $100 million to $500 million. Our large sized business would be $500 million to say about $1 billion, and of course, we had the extra-large business that are $1 billion plus.

Okay. And that's EV or revenue?

That's revenue.

Got it. Okay, wonderful, thank you.

Alright.

I just had a question on the dairy foods business. You have a lot of regional competitors and there is a plan I guess to expand capacity in that business.

I am just wondering whether build or buy is the better approach to that segment in the U.S.?

Both makes sense for us. To be perfectly honest with you, I prefer to buy than to build because at the same time you add your footprint and you're able to that inherit customers as you buy a business but we have in the dairy foods over the course of last two years have built additional capacity.

So either way it's good, as long as the volume is there and as long as our customers are growing, we're going to make sure that they've got product to service their customers.

Thank you. And just follow-up on the Atlantic Canada, change in the supply and distribution arrangement, is that already in place and is there some benefit to you from the new arrangement?

It is in place and there is benefit both to us and to the retailers because they took on the -- that merchandising service for a reduction in price; so it benefits us and it benefits our retailers as well.

Thank you.

Thank you very much, Keith.

Thank you very much, Julie.

We thank you for taking part on this conference call. We hope you'll join us for the presentation of our fiscal 2018 first quarter results on August 1.

Have a nice day.

Thank you very much everyone.