Saputo Inc.

Lino Anthony Saputo - Vice Chairman, Chief Executive Officer and Member of Environmental Committee Sandy Vassiadis - Director of Corporate Communications Louis-Philippe Carrière - Chief Financial Officer, Executive Vice President of Finance & Administration and Secretary

Irene Nattel - RBC Capital Markets, LLC, Research Division Martin Landry - GMP Securities L.P., Research Division Michael Van Aelst - TD Securities Equity Research Peter Sklar - BMO Capital Markets Canada David Hartley - Crédit Suisse AG, Research Division Vishal Shreedhar - National Bank Financial, Inc., Research Division Keith Howlett - Desjardins Securities Inc., Research Division

Thank you, France.

Good afternoon, everyone, and thank you for joining us today. A press release detailing our results for the second quarter of fiscal 2014 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. [Operator Instructions] Before we proceed, I remind you that certain statements that will be made during this call may constitute forward-looking statements within the meaning of securities laws.

Caution should be used in the interpretation of such statements since management has made certain assumptions, including, among others, assumptions regarding projected revenues and expenses and references to beliefs, expectations, objectives and strategies that are subject to a number of risks and uncertainties which could cause actual results to differ materially from those presented in such forward-looking statements. For more information on these risks and uncertainties, please refer to the materials filed with the Canadian Securities Regulatory Authorities, including our most recent annual report available on SEDAR.

Any forward-looking statement made during this call is based on management's current reasonable estimates, expectations and assumptions, and we do not undertake to update or revise such forward-looking statements except as required under securities laws. The speakers today are Mr.

Louis-Philippe Carrière, our Executive Vice President, Finance and Administration; and Mr. Lino A.

Saputo, Jr., our Chief Executive Officer and Vice Chairman of the Board. After a brief presentation, we will conclude the call with your questions.

Louis-Philippe will now begin the conference, followed by Lino, Jr.

Thank you, Sandy, and good afternoon. I will now present our results for the second quarter of fiscal 2014 in comparison to those of the corresponding quarter last fiscal year.

Since the beginning of this fiscal year, our results are presented under new reporting segments, reflective of our 3 geographic sectors, specifically the Canada sector, the U.S.A. sector and International sector, and are consistent with our operating structure.

The comparative figures have been reclassified to reflect this new reporting structure. Net earnings totaled $133.3 million, an increase of $3.6 million or 2.8%.

Earning before interest, income taxes, depreciation and amortization, the EBITDA, amounted to $240.4 million, an increase of $24.8 million or 11.5%. EBITDA for the Canada sector totaled $116.7 million, an increase of $0.5 million or 0.4%.

In the Dairy Division Canada, higher manufacturing costs offset the favorable product mix. And in the Bakery division, EBITDA increased slightly for the quarter due to lower operational costs.

EBITDA for the U.S.A. sector totaled $107.9 million, an increase of $18.8 million or 21.1%.

The increase was mainly due to the inclusion of the Morningstar acquisition. During the quarter, combined market factors had a negative impact of approximately $17 million on EBITDA.

Such market factors include an unfavorable absorption of fixed costs, an unfavorable spread and an unfavorable inventory realization. During the quarter, EBITDA was also negatively affected by lower cheese sales volumes, increased fuel and other operational costs and higher milk cost resulting from the temporary revised milk pricing formula in California, partially offset by better efficiencies.

The weakening of the Canadian dollar versus the U.S. dollar had a positive impact on EBITDA of approximately $4 million.

EBITDA for the International sector amounted to $15.8 million, a $5.5 million increase. EBITDA of the Dairy Division Argentina increased mainly due to the higher selling prices in the export market.

EBITDA for the Dairy Ingredient division decreased slightly, primarily due to the lower selling prices in the international market and to an increase in operating costs. Consolidated revenues amounted to $2.230 billion, an increase of $484.9 million or 27.8%.

This increase was mainly due to the inclusion of the revenues derived from the Morningstar acquisition. Net cash generated from operating activities amounted to $182.3 million, in comparison to $184.7 million for the corresponding quarter last fiscal year, an increase of $2.4 million.

During the second quarter, $47 million were spent in addition to property, plant and equipment. Also, we issued share as part of Stock Option Plan for a cash conversion of $6.4 million, paid $59.8 million for the repurchase of share capital as part of the normal course issuer bid and reimbursed $38.6 million of long-term debt.

The Board of Directors approved a dividend of $0.23 per share payable on December 13, 2013 to common shareholders of record on December 3, 2013. Lino, Jr.

will now proceed with the presentation of our outlook.

Thank you, LP, and good afternoon to you all. It has certainly been a busy quarter and I'm proud of our accomplishments and excited about the initiatives we've undertaken.

Net earnings are up, EBITDA has increased and revenues continue to grow. This is mainly due to the inclusion of the Morningstar acquisition.

We see continued competitiveness in the markets, specifically in Canada, the United States and internationally. However, the Canadian dairy division, at the beginning of the fiscal year, implemented measures subsiding erosion on volume and on profit generation.

As such, we've noted a stabilization of EBITDA. We expect the impact of our initiatives to further materialize during Q3.

Though a decline in dairy consumption can still be felt in Canada, we're confident we're on the right track. In the cheese division U.S.A., fluctuations in the dairy markets were monitored and appropriate measures to mitigate operational impacts were implemented.

The cheese division experienced an increase in competition, specially at the food service and industrial levels. We maintained our focus on regaining lost volume and though we may be slightly behind in comparison to the same quarter last year, we are now better aligned and the outlook is promising.

Given the market context, we are very satisfied with our results. We will, notwithstanding, continue to seek further improvements, synergies and market opportunities.

As for the Dairy Foods Division U.S.A., we are ahead of last year in terms of volume, but product mix has been unfavorable and other expenses have had a higher impact on profitability than anticipated. In the International sector, we witnessed a strong quarter from a volume and profit perspective.

On the regulatory front, Canada and the European Union have reached an agreement in principle with respect to the CETA. The parties will now seek to conclude the formal text and its ratification which is estimated to take about 2 years.

It is further expected CETA's implementation will be phased in over a number of years. Once fully implemented, the annual volume of European-manufactured cheeses permitted to enter the Canadian market on a preferential basis will double from the current volume to 30,000 tons.

In early October, we announced a takeover bid for the Australian dairy company, Warrnambool Cheese and Butter. The Board of Directors of Warrnambool has unanimously recommended shareholders accept the Saputo offer in the absence of a superior proposal.

Our offer is subject to a limited number of conditions, including foreign investment approval and a minimum tender condition of greater than 50%. Though there can be no guarantee the offer will be successful either in whole or in part, as Warrnambool is also the subject of other non-solicited takeover offers and proposals, we believe our offer is an attractive and compelling one for Warrnambool's shareholders.

As always, our goal remains to pursue growth and continue to work towards developing new markets within the growing global dairy industry. And on that note, I thank you for your time and we'll now proceed to answer your questions.

Lino, just on the subject of international expansion, while the saga continues to unfold in Australia, are you putting your various looks at other markets on hold at this point? Or are you continuing to look at other markets as well?

Thank you, Irene, for the question. The Australian file is very active at this stage.

Thankfully, we have the resources to be able to do multiple deals at the same time. I've always talked about a number of files that we're looking at, anywhere from 3 to 5 files.

That still is the case now. As I identify the different platforms that do make sense for us, the Canadian platform makes sense for us again albeit very small or perhaps strategic types of acquisitions.

The U.S. platform, both in cheese and in dairy foods, does make sense for us.

Latin America still makes a lot of sense for us, whether it's Australia -- rather Argentina or Brazil. And finally, Australia, I've been talking about Australia for the last 12 years.

We've been in discussions with Warrnambool for the last 10 or 12 years in terms of potential to enter that market and finally we have the opportunity through this file here to make a go of it.

Okay. That's great.

If I could switch gears for a moment and just talk a little bit about the U.S. market.

Clearly, market factors had, I guess on a 2 year basis, had a negative swing of 27 and that obviously hurts. But can you provide a little bit more color around what happened in the Dairy Products Division?

A number of things. If I look at Dairy Foods Division, we had a good volume.

We had a lot of our customer base go through some promotional activity, which increased the volume for us. However, product mix was unfavorable.

We sold more of the categories of product that are low-margin product. In addition to having some incremental expenses within this quarter that we hadn't anticipated, operational, and perhaps even some shipping expenses that we hadn't anticipated.

So that's where the -- perhaps the shortfall may have been in Dairy Foods. On the cheese side in the U.S., again, a decent quarter.

We regained some of the volume we had lost in Q1 and the beginning of Q2. However, if I compare this quarter versus same time last year, last year we did have a run-up of the block from I believe it was $1.60 to $1.95, all within the second quarter which provides us some beneficial effects on the profitability side, which unfortunately we didn't have this year.

That's great. And just -- obviously because this is the first time that we're really paying such close attention to Morningstar.

The unusual expenses, the unfavorable mix, are these things that are going to likely continue through the balance of the year or are they timing, onetime things? How should we think about it?

I think most of the expenses are onetime elements for the division in that quarter. The product mix, of course, we're trying to favor more of the value-added products.

Again, we need to have the consumers that would follow those categories of products on the upside. But again, I don't think that this is long-term or sustainable in terms of downtick in terms of profitability.

I believe that within the coming quarters, that should rebalance itself.

Okay. And just my last question, again, on the subject.

Is some of it, Lino, seasonal? You're selling less ice cream mix at this time of year or that's not really the issue at all?

It's a question of, again, product mix. We are selling and we had a good season, actually, on the product mix side.

What I'm looking at really is more on the consumer retail products, where the volume was down, and that has nothing to do with seasonality.

You mentioned that your cheese volumes in the U.S. are down year-over-year and I believe they've been down for a couple of quarters.

I'm just wondering, how long do you expect the market or the environment in the U.S. to be challenging?

As long as we've been in the U.S. the markets have been challenging, so that's nothing new for us.

I did mention at the end of the first quarter that we saw increased competition, which actually trickled into the second quarter, the beginning of the second quarter. We have had a number of discussions with our sales team in the U.S.

and we have gone out to market and we have picked up some volumes. So I'm seeing, going into the third quarter, that we are back to our historical levels.

Okay. And you've alluded to some mitigating factors or steps that you're taking to improve the situation.

Can you give us maybe 1 or 2 examples just to give us a little bit more color on that?

I've always said that you can take a 2 by 4 and knock your competitor over the head and sell on price. We choose not to sell on price, we choose to sell on service.

So again, some of the initiatives that we've taken are to have compelling arguments with some of our suppliers that we are the right -- with some of our customers that we are the right suppliers for them. Of course, operational efficiencies are things that we look at on an ongoing basis, whether that would be in the U.S.

platform, Canadian platform or international platform, and there have been some measures that we've taken that I think from an operational standpoint are going to benefit us going forward.

Lino, would you mind elaborating a little bit. I didn't quite understand when you talked -- the last thing you said about the -- I think it was in response to Irene's question about the consumer retail products being down.

Is that -- that's part of the Morningstar business that you're -- is that what you're talking about?

Yes, precisely. When we acquired that business, there were a number of different categories of products that we inherited with this business, namely cottage cheese and sour cream that are branded products, higher margin generating products.

We are seeing that those categories are down. It hasn't.

It's not a seasonal issue. I think Irene's question was that seasonal, and that's where the dip may have been.

That's not a seasonal thing. I think we need to relook at those categories of products and understand exactly why consumption is down and come up with initiatives that would perhaps try to get those categories of products going back up.

Is this an industry demand issue or is this a private label versus branded issue?

I think it's an industry related item. If I look at the numbers on consumption of cottage cheese and sour cream, perhaps more cottage cheese than sour cream.

Consumption is down, I think that might have something to do with yogurt being as strong as it is and consumers' appetite for dairy protein. But again, as an industry and as a company, we're looking at how we can drive more volume of cottage cheese to branded products.

Okay. If you stripped out the Morningstar acquisition, would you have seen profit growth in the U.S.

business or the industry factor is too great?

If I would move Dairy Foods out of the mix and I focus only on the U.S. cheese business, year-over-year the profitability would have been down.

But that's all related to market factors. As I've indicated, we had a block price last year in Q2 run up -- consistent run-up of $1.60 to I believe it was $1.95 by the end of the quarter.

We had the lag of the milk price that was beneficial to us, and we had also inventory realization that was beneficial to us, which we didn't see this year. If I look at on an operational basis, we are no less effective or no less efficient this year than we were last year, however, in the cheese business.

Okay. And when you -- when I look at the Dairy Ingredient volumes, you say they were down, is that simply because cheese volumes were down in the U.S.

and therefore you had less liquid whey to process? Or is there a change in demand there as well?

No, that is precise. Of course, if we are manufacturing less cheese, we'll have less byproducts and that's a direct correlation to the volume.

Lino, when you went through the laundry list there of why your U.S. cheese business was down year-over-year, you didn't -- I mean you talked about the run-up in the cheese price last year and other factors.

But you didn't mention the fact that your volumes are down. Were not your cheese volumes down in the second quarter, year-over-year?

Yes. So the cheese volumes in the U.S.

were down in Q1 and they were down at the beginning of Q2. Towards the end of Q2, we've recaptured some of that volume.

So on a run rate, we're very close, if not ahead, of last year. However, we cannot go back and recapture the past.

Right. And so and I just want to understand your earlier comments.

Are you saying that, that recovery in volume was not done at the expense of margin?

It was partially at the expense of margin because again, when you lose the volume, the plants are running less capacity through it, so less overhead absorption as a starting point, less solids that are going to the byproducts. So again, less revenue and profit on the byproducts side.

So it has a, I guess, a multiple effect.

I guess I've mischaracterized the question. I guess what I'm really asking, did you have to offer more promotion to your customers to get that volume back?

No, we did not drop price. If that's the question you're asking, we didn't drop price.

Again the easiest thing in the world is to go out to market and drop price and try to get that volume back. As long as people have been following us and knowing us, that's typically not the approach we're going to take.

We'll be patient. We will identify the customers that believe in Saputo as a strong dairy provider.

But we provide not based on pricing, we provide based on service and quality.

Okay. And I just want to switch to Australia.

One question I had is, I mean I think obviously the reason why Saputo and other dairy processors would want a position in Australia would be to supply the emerging Asian economies. But it seems to me that where the demand is, it's skim milk powders and whey.

Why is it that you can't supply Asian markets from some of the other platforms, say from Argentina or from United States? Why is it so critical to have a platform in Oceania?

That's a very good question. Throughout my travels in Australia and with meetings with dairy farmers and dairy participants, I've been asked that question a lot.

And I want to make it clear that the platform in Australia for us is not exclusively for the Asian market. We are currently selling to 40, 50 different countries around the world.

There are more net importing countries than there are net exporting countries. Australia is a net exporting country.

That's why that platform makes sense for us. Milk is priced at international levels.

And so, if we are able to acquire milk at international levels and we're able to process it into a number different categories of products, not just powders, but powders could be very profitable as well, but not just powders. If we are able to manufacture cheeses and we're able to manufacture a wide range of Dairy Products that are in high demand in these emerging markets, then it gives us an additional platform by which our sales folks can get out there and say, look we can offer you product from the United States, we can offer you product from Argentina and now we can offer you product from Australia.

So for us, we've been talking about this Australian platform for the better part of 12 years. As I mentioned, we've had ongoing relationships with Warrnambool for the last 10 or 11 years.

Again, our approach is that we think it could be a good strong platform for us. But for all emerging markets, not just for the Asian market.

And the fact that the milk is priced based on international markets as opposed to milk marketing orders in the United States, is that a favorable dynamic for you in terms of developing your export ability?

Yes. I've always said that I think the U.S., ultimately, has the right infrastructure to be suppliers of dairy to the world.

The only downside of the U.S. is that it's purely domestically focused in terms of milk pricing principles.

And so there are certain times of the year where it does make sense for us to manufacture product in the U.S. and export it because milk price is favorable.

And other times of the year it's not. The Argentinian platform and the Australian platform and the New Zealand platform are actually more geared towards international pricing.

So although the infrastructure exists in the U.S., I think it's more of a opportunistic type of an approach from the U.S. until such time that the U.S.

price is much more in sync with international pricing.

Just -- given the challenge that you've mentioned in the release around trying to -- having a tough environment, tough market and there's going to be a focus on getting efficiencies and so on, particularly in North America. Does that cause you to accelerate the idea of making acquisitions elsewhere in the world, like Australia, New Zealand, Brazil?

Not at all. We're very patient.

We're long-term thinkers. We are long-term players.

We don't feel any pressure at all to have to make an acquisition because we're facing challenging markets domestically. I did, however, say that I believe the dynamics in Canada for the last 3 or 4 years had been changing.

It started off with the regulatory change in terms of innovation and R&D. It continued with the entrance of the pizza kits in Canada and now it's continuing now with the CETA deal that we'll see eventually more imports coming into Canada.

So we've said that we need to have a medium -- long-term perspective on our business. We need to find those platforms that are going to be able to allow us to control our own destiny.

But by no stretch of the imagination do we feel like we're compelled to make an acquisition urgently. We feel that if we find the right assets, if they are available to us at the right price, we will move ahead with them.

That discipline continues. It will always be there as long as I'm CEO, that the focus, the discipline, the control on expenses, I mean, that is part of our character, that's part of our DNA, and we will certainly not be pressured into making an acquisition.

I certainly appreciate that you've built a nice business here in North America. But as you move forward it seems that the focus, if I may and you can disagree, is more towards this kind of platform -- building platform for the long-term outside of North America.

So as the game that you play now as a great provider of cheese, milk and so on in North America, does it change quite a bit now as we move forward such that your earnings are not as steady as they used to be and are going to be much more volatile?

Well, let me clarify something. Our earnings are more than steady.

In fact, our earnings are increasing. If you look at our year-over-year EBITDA generation and cash flows, I think we have progressed despite the fact that the markets have been volatile.

I think we've taken the right decision at the right time. I think we've been extremely patient.

We haven't panicked when there were price wars in Canada or perhaps increased competition in the U.S. We've never taken a short-term look at -- in trying to get volume that we've lost because of pricing.

So again, I think even in terms of our domestic orientation to market strategies, we've always been very disciplined. But if I look at -- our evolution of growth in revenues, our evolution in EBITDA generation, I mean, we have been progressively increasing that.

Cash flows have been increasing. We've continued to repay debt on an aggressive basis.

Our balance sheet is extremely clean and I'm pretty proud of where we are now despite the fact that a few markets have been quite volatile. That being said, I think that the more platforms we have that we can control our own destiny, I think the better off we are at mitigating some of those -- some of that volatility.

In some cases, we might find more competition in Canada and less in other markets. And to have multiple platforms, I think it makes us a much stronger dairy player.

Fair enough. And just when you think about Australia, we've seen other companies go to Australia.

It is a long way to go from your core -- physically to manage a business that will be -- if this were isolated to 3%, 4% of your total business overall. I mean, if you were successful in securing the asset in Australia, would it cause you to be more aggressive all of a sudden to ensure you support that asset and not have it orphaned over there?

No. I think we've been clear about our intentions in Australia for the last 10 or 12 years.

We've had the opportunity in the past to make smaller acquisitions in Australia. But we felt that with the distance -- and you're very right on saying that.

I've been to Australia twice in the last month and I can confirm that it's a long ways to get there and you got 14 or 15 hours of a time difference. And so, it perhaps could be a bit more challenging if the infrastructure was very small and we had to manage it from Canada.

On the positive side, with this acquisition, potential acquisition of Warrnambool, there's a very good, very strong management team that is in place. I've had really the pleasure of being able to travel the landscape -- the Australian landscape with David Lord, who is the CEO of Warrnambool.

And I tell you, he is as good as any one of the presidents in any one of our divisions and I would feel extremely comfortable having David manage that business on a day-to-day basis, provided that we give him the tools to be successful from our Canadian platform. So again, the focus would be to try to continue to cater to the domestic market in Australia and try to find new opportunities in the international market, which are very, very similar strategies to what Warrnambool has put in place.

They've talked about the 5 pillar orientation in terms of what the outlook for the business is, not very different from Saputo's orientation in terms of trading value for dairy, whether that would be domestic or international, innovating, investing in the business. So I see that there are a lot of similarities between the way that David is managing the business and the way that Saputo has managed the business.

Just a quick technical question here. With Warrnambool, what percentage of ownership is required to squeeze out remaining shareholders?

90%.

So if you had above 50%, that would imply that you would have ownership in a publicly traded company?

I would say so, yes.

Okay. Understood.

Lino, in your prepared remarks, and you've commented on this throughout the conference call, I just want to make sure I understand. In your prepared remarks, you noted that the outlook for the U.S.

business is favorable. I was hoping you could elaborate on what that means and why you think it's favorable?

I think you've already noted that you have a volume -- you're seeing volume pickup, but is it also efficiency initiatives? And when you're saying that, are you seeing the benefits of that in the current quarter or -- and how do you see the cadence of that?

Well, first I guess the first and most important element of the U.S. business is the volume and the efficiency related to the volume.

So when you've got more volume running through the plants and of course overhead absorption does help, so we will be more efficient. There are initiatives that we've undertaken at the beginning of fiscal year in terms of CapEx and technology that we're employing now, so I do see some benefit there as well.

And I would have to say perhaps the third element there would be the market conditions. The block price is higher than it was in Q2, and I see that being a favorable thing for the outlook in Q3.

Just wondering -- in terms of the market factors that affected the U.S., what would've been the driving one amongst the ones that you listed there?

I would say the most important one would be inventory realization. As Lino was mentioning earlier, the ramp-up in the block price last year is not comparable to what essentially we saw this year.

So the biggest factor would be essentially amongst the others wouldbe the inventory realization being better last year than what we saw this year.

Does that cheese inventory turn a number of times during the quarter?

It all depends on the product category. Certainly, if you're looking to our cheese at the end of the day, we are dealing with different category.

Our cheese would be essentially in inventory for -- in some case for 7 months or 9 months and other category like blue cheese, 60 days, mozzarella and -- let's see, product like that will turn within a month. And so different category, different time of turnover in term of inventory.

And then just in terms of the Morningstar business, what's -- how is it going with using their back office? And is that creating any issues?

And when do you anticipate cutting off from their -- from the food systems?

No. I think, since the -- let's say that we closed the transaction in January, we have some agreement with them in term of what we call some Transition Services Agreement in different area.

So far, I would say generally speaking, we're almost done in term of, I would say, what we call disconnecting and reconnecting into our platform, our system. So essentially, we are almost at the end of the -- that process.

Would that -- will your cost remain about the same or go down after that ...?

We said at the beginning of the year that certainly we are absorbing certain amount of costs in addition to I would say a normal situation. So typically, we should see probably in Q4, but I would say to a bigger extent, in '15, 2015 fiscal year some -- certainly some improvement on that side or some nonrecurring stuff that shouldn't happen in 2015.

And then just one question on the U.S. market.

You indicated that the pressure was mostly in the industrial and food service channel, not the retail channel. Is that sort of a typical -- like are they 2 totally different businesses with different sets of competitors?

Or is there some other reason that one felt the pressure versus the other?

Yes. They are almost 2 different industries.

You've got different competitors for different channels. In the industrial and the food service channel, of course, there are processors that produce industrial and food service type products.

So there -- I'd say that there are very few companies like Saputo in the U.S. that play in all 3 channels.

And so, we have a multitude of different competitors in different channels and it seems like in Q1 and Q2, the folks in food service and industrial businesses had the need to fill up their plants.

And then just a question on some of the products that Australia is, I think, getting geared up to produce like lactoferrin. Has that product got potential in North America or is it unique to other markets?

Lactoferrin is a highly specialized protein derived from milk. There is a market for that, but albeit a very, very small market.

If there are too many players that get into lactoferrin then the value of lactoferrin would go down and then ultimately the profitability will not be as good. And so, players of lactoferrin have to be very, very selective about the customers that they target and the markets they will want to be in.

I think Warrnambool has determined that they have an inroad with that market and they're prepared to make that investment.

And just one last question on your broad acquisition strategy. The -- you have the one -- or you have your baking, your snack cake operation which goes back a long time.

But going forward, are you exclusively looking at dairy-related acquisitions?

Absolutely. I mean, we've -- I think, it said, it comes as no surprise to anybody that we are dairy-oriented people.

We're in every category of dairy that does make sense with the exception of, say, ice cream and perhaps some other niche areas of dairy. But we are dairy processors.

We're looking for assets, again, in Canada, United States, Latin America and Oceania, that will allow us to process dairy into a wide range of products and to service 40, 50 different countries around the world.

Hi, a few odds and ends here. First of all, can you give us a bit more color on these operational and shipping costs that you said accounts for a lot of the shortfall on -- in Dairy Foods?

Yes. It's really plant related expenses.

We have energy costs that were up and especially in California with the heat wave that we had. We had odds and ends of course of -- in the labor, related to the shipping and logistics end of our business, which, in my opinion, would not repeat in the coming quarters.

And repair and maintenance that were specific to this second quarter.

Okay. So things like the energy and the labor -- I assume energy is still an issue, but labor and repair and maintenance is not anymore?

Right.

Okay. On the milk cheese price spread, I know that on a consolidated basis, it's not a big issue anymore, but going forward, given the way you structure your divisions, I'd assume that now we'll see the spread will actually have an impact on the U.S.

division but you'll see the offset in the international business?

Not necessarily.

Well, given that -- like if whey prices rise, then that will impact the U.S. business cheese profitability, but then the international business, would see better profit.

Not necessarily, Mike. As we indicate, first of all, let's say -- and let's take the U.S.

business, the way it's structured for the international. International on the sales side of the Dairy Ingredient is acting as essentially a broker.

So essentially when we're making cheese, we do manufacture some byproduct and we -- the manufacturing of the byproduct itself, let's say in the U.S., remain into the U.S. division.

So it's linked with the cheese production.

Okay. That's clear then.

And then finally, you had talked about challenges in the international market, sourcing raw milk at international prices. Has there been any change in the raw milk price in Argentina over the past 6 months?

No, it's been pretty stable, but it's been stably high compared to historical levels of milk price in Argentina, it's been quite high. On the upside though, we had -- we were able to extract some of that increased costs from either the domestic or international selling prices.

And of course, the foreign exchange also does help us out.

Is there any reason to believe that, that raw milk price would come down over time or is that something that's going to stay high and possibly go higher?

I think there would be a potential for that milk cost to go down. Again, it all depends on supply and demand.

And right now, if I look at the amount of demand that's in Argentina, it's actually quite a -- it is quite a bit of competition for that milk. So I would think that, going forward, in the short term, I think that price would be stable.

So I just wanted to ask about the Argentine market. That was a market where I think you've grown internally since you've made your first acquisition.

Just wanted to ask if you'd clarify what you said earlier, would you look at Argentina acquisitions or is that a grow internally sort of market?

Yes. It's more of a grow internally kind of market for us.

We've, over the course of the last 10 years, we've invested moneys on the CapEx side that would increase our ability to process more milk. We virtually more than doubled the amount of milk that we intake into those 2 main facilities.

It's been the right strategy for us. We've increased our market share in the domestic market.

We've increased the amount of solids available for the international market. And so it's been a winning strategy for us and I think going forward that, that would continue.

Thank you very much, France.

We thank you for taking part on this conference call. We hope you will join us for the presentation of our fiscal 2014 third quarter results on February 6, 2014.

Have a nice day.