Saputo Inc
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Saputo Inc
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Ladies and gentlemen, thank you for standing by, and welcome to the Saputo Inc. Fiscal 2019 Third Quarter Results. [Operator Instructions] As a reminder, this conference is being recorded Thursday, February 7, 2019.I would now like to turn the conference over to Lino Saputo. Please go ahead, sir.
Thank you very much, Sieglinde.
Good afternoon, everyone, and thank you for joining us today. A press release detailing our fiscal 2019 third quarter 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. [Operator Instructions] 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 in our quarterly releases and filings. Please treat any forward-looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information, except as required under securities laws.Mr. Lino A. Saputo, Jr., our Chairman of the Board and Chief Executive Officer, will begin this conference by providing a brief overview of key highlights relating to the third quarter of fiscal 2019, after which he, along with Mr. Maxime Therrien, our Chief Financial Officer, will proceed to answer your questions.
Thank you, Marlene, and good afternoon to you all. Fiscal 2019 has been a challenging year thus far. Our adjusted EBITDA for the quarter totaled $321.2 million, an increase of 1%, while adjusted net earnings declined by 4.8%. Conversely, higher sales volumes derived from the activities of our recent acquisitions contributed to an increase of 18.4% in consolidated revenues.Again this quarter, we were met head on with higher warehousing and logistical costs, weak dairy ingredient and cheese markets, working in tandem with an increasingly competitive landscape. As well, we faced the impact of the Federal Milk Marketing order implementation in California. As such, we continued initiatives designed to mitigate the impact of these headwinds. We will continue to monitor dairy markets and make appropriate decisions to minimize their effects on our cost structure. We are continually reviewing our strategy with respect to customer pricing. At our newly constructed Almena facility in Wisconsin, we will continue our efforts to achieve blue cheese manufacturing efficiencies within the short term.During the quarter, our advantageous balance sheet, strong foundation and sound expertise allowed us to complete our most recent acquisition, F&A Dairy Products, a manufacturer of natural cheeses, bringing us to 5 acquisitions in the last 1.5 years. This acquisition will add to and complement the activities of our Cheese Division in the U.S., and give us access to a new milk pool in New Mexico. Alongside Montchevre, these recent acquisitions continue to help expand our cheese offering in the United States.Abroad, we continue to demonstrate our long-term commitment to fostering loyalty and building trust among Australian dairy farmers. Recently, we announced a step up in our farmgate milk price. Additionally through the new supplier relations and pricing policy committee we created, our Saputo Dairy Australia suppliers now have a forum to evaluate and discuss all matters relating to milk supply with senior management. Our teams have been working intensively aligning our 2 platforms and ramping up our ERP activities within the MG acquisition, now known as Saputo Dairy Australia, into fiscal 2020.With recent acquisitions, namely: MG, Southeast Milk, Montchevre, Shepherd Gourmet and F&A, we've increased the scope of our ERP program and the duration by 2 years, increasing the expected total investment to approximately $370 million. Furthermore, the expected total investment and duration of the ERP program will vary as a function of the company's growth through acquisitions.In Canada, the integration of Shepherd Gourmet is complete, adding to our product portfolio in specialty cheeses and specialty Skyr yogurt. During the quarter, we sold our Burnaby plant in British Columbia for $209 million. This follows the announcement of our capital expenditure plan to build a state-of-the-art facility in British Columbia. Moreover, as part of the ongoing analysis of our operations, we will close our Courtenay facility. The decision to close any plant is never one taken lightly. This was a necessary step towards rightsizing the business.On the regulatory front, since the announcement of the allocation of quotas under the CPTPP in November, we have not been shy in voicing our support. We commend the Government of Canada for its decision to allocate a significant portion of these dairy import licenses to Canadian dairy stakeholders. We're confident this will have a positive outcome for consumers and the dairy industry in Canada. We will continue to use these quotas effectively to import Dairy Products and complement our current Canadian offering.Looking forward, we hope this decision will pave the way for a complete evaluation of the allocation and administration of all Canadian dairy quotas, CETA and the renegotiated NAFTA included. Throughout all our operations, preserving our identity throughout our history has proven to be a competitive advantage. Our fundamental values, all of which my family imparted on this business over 65 years ago, are still a part of who we are today.With these elements intact, we will remain a vibrant player in our industry, optimizing our operations and pursing our growth strategy with a disciplined and responsible approach.With that, I thank you for joining our call and we will now proceed to answer your questions. Sieglinde?
[Operator Instructions] Our first question comes from the line of Irene Nattel with RBC Capital Markets.
Just in your remarks, Lino, you talked about optimizing pricing, you talked about improving efficiencies in Almena. And then, of course, there is a whole sort of oversupply of milk in the marketplace. As you think about the key elements that are going to help you improve the profitability over the next 12 to 24 months, how would you rank those? And what are the steps that you're taking to achieve that?
Thank you for that question, Irene. So as I look out into the next year, in a calendar year, saying, starting from January into December, I'm seeing that the market conditions are getting more favorable. If I look at what's going on in the EU, milk is growing at a rate of probably less than 1%. The U.S. milk is growing at a rate of 1.5%. Australia is challenged with milk production, New Zealand will have its blips where it can, in certain times, outpace its production from the year prior, but then other times, it will have some challenges with respect to environmental issues as well as climate issues, which, on a whole, will probably get them to about 1% growth year-over-year. When you think about the impact that those countries will have on dairy trade, I would say that overall production will be in line with consumption growth or perhaps just below it. The inventory stockpiles in Europe have now been depleted, so that overhang is gone. So I see that the market conditions are getting better and more favorable as we get out of our fourth quarter here -- our operating quarter. There are anomalies in that, Fluid Milk continues to decline at a rate of maybe 1.5% or 2% per year. But there is growing cheese demand and growing demand for dairy solids around the world. So the industry definitely is not dying. What we have on the horizon that could create some volatility, of course, could be a potential recession. The trade wars have not been favorable, especially when you think about the U.S. trying to export product into China and into Mexico, that has created some difficulty for us. But the fundamental underlying message here is that consumers are there around the world, and they will be fed from a number of different platforms, whether that would be the U.S. or Australia or New Zealand or the EU. And perhaps, in our case, through Argentina as well. So we're optimistic more so now than we've ever been before about the future of the dairy industry and the market conditions and the dynamics. I will say that, that will not make us complacent. Definitely, we have to look at optimizing our platforms, rightsizing our platforms and case in point would be the announcement that we made for the closure of Courtenay. Courtenay is in light of the competitive nature of the landscape here in Canada, our reduced Fluid Milk production relative to a loss of a contract. But yes, I'm still optimistic that there are opportunities for us to take the right decisions at the right time and try to improve those margins from this point moving forward. Efficiencies, those are things that are in our wheelhouses, in our DNA. Investing money in capital, whether that would be equipment, technologies or ingredients. That's something that we've been very, very good at and we will get back to those things in a more intense fashion as we move forward. So again, I think that there are some opportunities for us to get back to our historical levels of profitability. I think the market conditions will help, but there are the controllables that we need to control, that we are controlling and that we will continue to control moving forward.
That's great, Lino. On the last call -- and I think you alluded to the fact that in light of the change in the California pricing background that you were having conversations with customers. Any progress on those?
Yes. So the California impact for us is a 3-pronged strategy. Number one, we have to discuss milk handling premiums with our suppliers, which we have done and I would say that we've done that effectively. So there is going to be a reduction of the handling charge on our raw material moving forward. So that has been completed. And we'll see some of the impact of that into the next quarters. There is some plans and ideas for internal optimization of our manufacturing footprint, including perhaps moving some volume from California into New Mexico, the newly acquired platform. I think that, that acquired platform comes at an ideal time for us. And we made it clear to the California dairy farmers that somewhere down the road, perhaps that platform will be less and less important to us by moving volume into other milksheds that are more attractive for us, that has less transport cost to get product to market. And of course, the third element is what you bring up, discussions with our customers and those are ongoing. And I will tell you that we have been successful in pushing price increases.
That's great. And one more, if I may, and of course, this is M&A. You mentioned New Zealand a few times, so we know that there is a -- that market right now there's a lot of activity and you mentioned the EU. Anything you can share with us on the M&A pipeline?
Well, I'm still very optimistic about the pipeline and the opportunities that are presented to us. Now as you can well appreciate, not every single one of those files come to fruition. There have been files that we've been in discussions in the last 1.5 years that didn't make it to the finish line for one reason or another, whether that would be price-driven or conditions-driven, sometimes the conditions of a deal just don't make sense even though the price is okay. But despite that we made 5 acquisitions in the last 1.5 years. We still have a big appetite for acquisitions moving forward. So yes, those geographies that I highlighted in the past are still the geographies that are important to us. So development in New Zealand, one day we would like to have a platform there. We think that New Zealand is an ideal location to have an export platform where we can service customers around the world. I would also highlight that there could be some other tuck-in businesses in Australia that could make sense for us, and we have a great management team that's in place now. The MG employees and the Warrnambool employees are coming together beautifully under one umbrella, Saputo Dairy Australia. That is going better than expected and we are ahead of schedule there. So a tuck-in business in Australia would make a lot of sense for us. The U.S. is an important platform for us. We've got a strong dairy food base there with a great management team and we've got a strong cheese base there with a great management team. So again, other acquisitions, tuck-in like F&A could make a lot of sense for us as we move forward, and we're looking and exploring at other avenues there. And I will not shy away from Europe. We had the experience in Europe years ago. I think we've learnt a great deal of what winning conditions in Europe would be for us and we continue to engage in discussions and conversations with potential targets in Europe as well. As I said before, the pipeline is full and I'm very optimistic that something will materialize within this calendar year for us. I'm optimistic.
Our following question comes from the line of Peter Sklar with BMO Capital Markets.
I'm looking at the outlook section of the MD&A, and I think this is the first time you've commented on calendar '19. Before you were talking about fiscal '19. And what you say in the second-last paragraph, you expect modest price recovery in cheese and dairy ingredients, but the company does not expect that this price recovery will offset market volatility. So I wasn't too sure what you meant. It sounded like you don't expect to realize the price recovery in dairy commodities?
So let me explain a little the difference between calendar and fiscal is that, that the milk year in most geographies operate calendar. We -- our fiscal year is off calendar and that's why sometimes there's different anomalies about the outlook in terms of what the market conditions might be and how they would relate to us. I would say that based on what we're seeing in the market is that there is going to be recovery and we're starting to see the recovery, but it will not be at peak levels that we've seen back in -- I believe it was 2014 or 2015. I think those peak moments are gone. Recovery, yes, lift from where we have been over the course of the last calendar year, I think that, that is favorable. But we need to be cautious about that because there still are some uncertainties like recession and like the trade wars that give us a little bit of a pause or over optimism. So we are cautiously optimistic, despite the fact that the last, I guess, 4 or 5 trading sessions on the GDT have been favorable, we know that things can turn rather quickly. My larger concern is with the discipline in the industry and once the economics get better, that the suppliers around the world don't start to think of this as a never-ending trend and start to produce product beyond consumption abilities. So we're cautiously optimistic about this next year, calendar year in the milk world. And we're planning for better economics, but we're also planning for internal cost control optimization and efficiencies at the same time.
Okay. Switching topics to Australia. I understand there's quite a severe drought in Australia and that's milk -- and that's curtailing milk production. And it's not clear to me, is that overall positive or negative for Saputo? I mean, obviously less milk intake, but on the other hand, that should ease some of the milk oversupply globally.
Yes. So you're absolutely right on that. So for the general market, that is favorable because it creates less solids for the rural markets, but it does create a much more competitive environment in Australia to collect milk and to buy milk. So that's something that is affecting our platform. Milk production has been down for us year-over-year related to just the drop in production. So yes, we're feeling the effects of that. So it's a double-edged sword here. On the one hand, we've got the benefit of less dollars on the market. On the other hand, we have less dollars that we can process through our facility in Australia.
Yes. Okay. And then just lastly, I mean, you've commented in the write-up, like all this increase in warehousing, transportation and logistics is taking quite a bite out of you, I think it was $30 million in the quarter. Like is this above and beyond the ERP discussion that we had last quarter where you had to take additional warehousing space?
Well, the ERP program per se, there is a minimal impact for this quarter. The $30 million within the quarter and the $81 million on the year-to-date basis, yes, this is over and above what we call the ERP program. So this is in light of additional cost that we have to absorb on the market. Freight, there is a component of transportation in there, but there's also some may be disruption SAP related. I would say that out of that $81 million of additional spend in that warehousing, logistics and transport, the majority of that is kind of a new -- set new level of expense. And there is a portion of that, that we feel are inefficiencies that we need to tackle and get better at it.
Our following question comes from the line of Vishal Shreedhar with National Bank of Canada.
I'm just looking at the balance sheet, very strong here. And I know you have some acquisitions files that you're looking at. But in addition to the acquisitions, is there something else that management would have to deem necessary with some conditions for them to get active on the buyback or rather, Saputo?
Yes. It's important for us to make sure that we have the financial flexibility to be able to materialize the acquisitions in the pipeline here. So I would say that perhaps the last use of funds for us will be on the buyback. With the pipeline as full as it is, we will not be active on the buyback at this stage. Now again, if some of those acquisitions should fall through then we'll have to use the funds we have most appropriately. But for the time being, I would say that given the optimism we have to materialize some of the acquisitions that are in the pipeline is quite high, we'd like to save our cash for that.
Okay. That's helpful.
And Vishal, maybe Max might want to add something to that.
Just want to point it out that as part of our 3-year CapEx plan, whereby we said we would over -- we would spend about $150 million above our depreciation level of the 3-year plan. We are into year 2 right now and we intend to spend the exact or similar amount of our depreciation this year. Last year, we spent about $50 million, so we could see that. In the F20 year, we intend to spend an additional $100 million above our depreciation level. So that's part of our cash planning metric.
Okay. And just a follow-up to that. I mean, your leverage capability for this company is very high. So I think -- and correct me if I'm wrong, you have comfort of going up to 3.5x debt to EBITDA. So is that the kind of the size of -- and the scale of the acquisitions we should be thinking about that's causing you to think maybe we shouldn't execute the buyback now?
Yes. So let me correct that number, it's probably closer to 2.9-ish or so, $2.9 billion, $3 billion of financial flexibility before having to issue equity, if we would go that route. And so yes, to answer the second part of your question, we believe the pipeline is full enough that we can potentially use up all of those funds for 1 or multiple acquisitions.
Okay. That's helpful. On India, in the materials there was -- I think there was some restatements as well, but you talked about a standard relating to hyperinflation. And I think there were some benefits flowing through the P&L related to that. I think they're sizable. Just wondering how investors can forecast that, if there's any tips you can give us to forecast that looking forward?
Okay. The hyperinflation accounting basically was -- it was just 2 main things is, first, you have to convert the Australian peso into the rate at the closing date. So that's one of the element that has taken place with the standard that we're applying, international accounting standard. But also from -- and to fight against the inflation, we do have to index all of our balance sheet and also the income statement, so that creates, obviously, a positive for us. At the time of Q2, we started to apply that hyper-inflationary accounting and we had that big catch up whereby we increased our asset by $57 million, and we increased our liability around $14 million and there was a onetime $43 million that hit our retained earnings as well. As we get into Q3, when you look at the devaluation of the peso from Q2 to Q3 , remained pretty much stable from quarter-to-quarter, but the inflation remain and continue on. So the effect of the inflation, that's creating that positive, that's the $19 million that we have in our income statement and we do -- wanted to present it below our EBITDA line so that we have a clear visibility. And due to the nature of -- the volatile nature of this element, we wanted to flag this as a single item. But as far as the presentation per se, it's nothing different than sort of a finance charge that we could have grouped it with, but we rather wanted to present it separately.
And to answer your questions on the predictably of that, I mean, it's very, very tough to predict only because of the volatility in the country that we're operating in and 1 specific, which is Argentina. Hard to predict where the economies are going and hard to predict where the political climate is going, and that is going to have an influence on the valuation of the peso.
So should the peso remains relatively stable in -- within the Q4 and inflation continues to grow, we should have some -- we could accept some favorability as well in Q4.
Okay. And Lino, off the top, I think one of your caveats to the market improving statement was you indicated a potential recession. I'm wondering if that was just a cautionary statement kind of given. Or if you're seeing something in your business that led you to make that statement?
So that was cautionary of what if I heard at the IDFA from the economists that were there. They said that the fundamentals of the dairy industry are improving, but the risks still that lie in the industry itself would be recession, which has an impact on consumption of dairy and the trade war. So that was more cautionary based on what the economists in the industry are saying.
[Operator Instructions] Our following question comes from the line of Mark Petrie with CIBC.
This is actually Krishna Ruthnum on for Mark. During the quarter, your international profitability was quite strong. Just wondering if you can walk us through some of the drivers of profitability there in Argentina and Australia?
Yes. So the -- when you factor the efficiencies that we've brought to play in the Murray Goulburn platform, profitability there was -- is well ahead of our plan. That combined with already an efficient platform in Warrnambool, an already efficient platform in Argentina, they're driving some very good numbers for us, especially in light of the fact that in Argentina we're able to collect more milk and have more volume pads through our facilities and lower our overhead expenses and allow us to make more profit. Then we do have low-cost milk in Argentina that do help us, especially when you factor that into U.S. dollars where we sell into the international markets. And the foreign exchange factor of U.S. dollar to peso was favorable for us, U.S. dollar to Argentinian dollar was favorable for us. So selling into the export market has been beneficial for us. And over the course of this last quarter, we've shifted some of our production and some of our focus into the international market because they are getting a lot more attractive for us; one, because the prices are going up; and two, because foreign exchange factor is more favorable.
And just on Murray Goulburn, it does look like from your disclosures that MG was a positive contributor to earnings during the quarter, and I was just wondering if you'd walk us through the integration there, just give us an update on what's going on in Australia.
Yes. So early on in the process in Australia, we had a frank and clear discussions with our management team. It was clear that Murray Goulburn was not buying Warrnambool and Warrnambool was not buying Murray Goulburn. This is 2 separate entities in 1 country and we are going to be identifying the most valuable talent to lead the integration process with sort of boots on the ground there. Of course, we have oversight from our corporate office and our COO is heavily involved in that integration. But the people who are executing are the people that actually live in Australia and operate that business. I think we used the model of our ERP setup in terms of tackling the different initiatives that we need to tackle. So we used the template that works effectively in ERP rollout where we've got process managers and leaders of different functions to be held to account to execute on all the matters that are important to us. One of the great things that we're noticing in Australia is that the team is pretty independent. As long as they've got very good, very strong and clear marching orders, they know how to execute quite well. So a pretty autonomous team. Once you give them the right directives and give them the right information, they can execute quite effectively and efficiently. So we do have blended teams there. We do have teams and talents coming from either the MG platform or the Warrnambool platform that are working and thinking in harmony with each other. And then, of course, we have also transplanted some people from our North American platforms as specific into certain plants and infrastructures, where they know that they're there to execute as well in terms of the knowledge and expertise that they have in other geographies in other regions. And also identify talent to make sure that they can lead the charge once they go back to their respective functions back in their home country, either Canada or United States. I think over time, we've developed a really unique way of identifying talent and being able to put plans together, roadmaps together that allow us to have success in a very short time. In some cases, of course, when you have to order equipment and install it, it does take a little longer to derive the benefits. But some of the low-hanging fruit, some of the things that are easy decisions to take, it's a question of having all the information and giving the people the tools and the knowledge and the authority to take decisions and that's what's performing extremely well for us in Australia.
Great. And one last one, if I may. I just wanted to ask about high protein whey, and any pricing trends you're seeing in that market. Just with particularly in regards to some of the capacity additions that one of your competitors is bringing online later in 2019?
Yes. So that's been a real hindrance on our results for our U.S. platform. If I go back to 2005, 2006, when we first got into WPC, whether that would be WPC35, 65 or 80, we were among very few players in the industry that were adding value to the whey proteins. Of course, fast forward into 2017, 2018, WPC 80% or 65% has become a trend. Other dairy players have seen our success in those categories and of course, the built infrastructure in there and now all of a sudden there is an overabundance of production. And of course, with overabundance of production there is depressed prices. So historically when we've seen $4 a pound on WPC80 in our, I think, Q1 or Q2, we've then gone as low as $1.75 a pound. So a huge, huge impact to our revenues and a huge impact to our profitability. We have since seen those prices move up to $2.05 and $2.10. So better than the $1.75 that we saw in the first 2 quarters, but still far away from the $4 WPC 80% that we've historically benefited from. Moving forward, I think that WPC will continue to be challenged, specifically for the reason that you brought up, that there are competitors that continue to build infrastructure in the WPC market. Now we need to look at what is the next best innovation in whey processing and we have our technicians looking at that now.
Our following question comes from the line of Keith Howlett with Desjardins Securities.
Yes. So just wondered on the -- if you could recap how you fill the $1.9 billion you spent in acquisitions between September of 2017 and November 2018? How they've gone relative to your expectations?
Yes. Well, that's a very good question. And in fact, our board asks us the same question and Max does a very thorough analysis and presentation to our Audit Committee. I will tell you, in all 5 cases of the 5 acquisitions we've done, they are either contributing to the level that we expected or contributing beyond the level that we had budgeted. So the acquisitions have been a saving grace for us. All 5 have materialized the benefits that we had expected them at the beginning of the process.
Then just on the -- I was wondering on the California federal marketing order. I know that it was uncertain at the beginning, just how it would shake out, how might be positive or negative. Is it substantially more negative than you anticipated and is that $8 million over the 2 months, is that sort of the worst it's going to be? Or how should we view that?
Yes. So out of the gates, of course, it's going to be a negative because you've got to roll out new plans and have new negotiations. So of course, there is the lag effect of the impact of it. I would say moving forward it should be neutral, not a benefit, but it should be neutral. And how do we get to a neutral point and again, it's a little bit how -- what I explained in Irene's question. The first and most important thing is to look at the negotiation of our raw material relative to the new milk marketing order. All the farmers out there and co-ops need to understand that there has to be a new level of handling charge. They're going to be getting a bigger check because of the new milk marketing order. They've got to give up something on their handling charge and we've been very successful at mitigating a portion of that incremental cost through a handling charge. So that is done. We'll see the impact of that perhaps not so much fully seen in Q4, but going into Q1 of next fiscal year. The second element, of course, was negotiations with our customers. Those customers that buy product from California are very much aware of the milk price increase to us, they recognize that milk is 85% of our cost of goods. And so there has to be some impact to them with respect to our selling price and we've been successful at those negotiations. Some of those new prices will be included in our fourth quarter results and the balance of that negotiation will go into the next fiscal year. So I would say, we're probably 50% of the way there. And the other third element -- 1/3 element that we're looking at as a mitigating factor, of course, are the initiatives that we've got to bring internally. And so that would mean more efficiencies in our California operations, in addition to perhaps moving some product categories out of California. And so the timing of the New Mexico acquisition could not have been better for us. We've got a platform in a new milkshed that is much more favorable than California, and so we will be moving production out of California into New Mexico, but of course, that does take a little bit of time because we've got to order equipment and then we've got to install the equipment and then we've to debug the plant. But from a medium- to long-term perspective and for us, long term would be 1 year, medium term would be about 6 to 9 months, we think that we can execute effectively on that plant.
Then on the Argentinian market, can you speak -- there has been a -- I think a co-op there who's shrunk quite a bit. But can you just speak about the competitive dynamics there and where you're placed?
Yes. So I would say -- I mean, there's no easy platform, but I would say that Argentina would be one of the easiest platforms to us to operate in only because I think we're one of the most credible dairy players out there. In order for us to increase our production, it's a question of convincing dairy farmers to come to us and it's very easy to convince them when they know they're getting their milk checks on a regular basis and those milk checks are being cleared at the bank very easily, which is not the same for some of our competitors. In fact, we worked on different terms with them. Historically, milk payments were twice a month. Now we've gone to 3 times a month because we know that that's a benefit for the -- our suppliers. Our competitors cannot do those kinds of things. So our milk intake is up about 10% in Argentina and the only thing that's holding us back is capacity. So we've got our engineers looking at capacity utilization and see if there's different ways that we could bring in more milk. Now the beautiful thing about the Argentinian platform is that we understand with volatility in the economic market, might create some disposable income issues with consumers domestically. Well, then it's very easy for us to shift some of that production onto the international market. And so if I look at year-to-date, we were probably selling about 50% into the domestic market and 50% into the export market. Now we're probably closer to 60-40. So we have some of that flexibility to get the incremental solids into the international markets. So I think, navigating through Argentina for us is probably a little easier than most of our competitors; number one, financially we're more solid; and number two, I have to say, we have a very good experienced management team in place that's there, they know how to navigate through choppy waters and I'm very proud of what they've done.
And if I could just ask one last question on the Fluid Milk market in Canada. What's your thought on that product category and whether it's -- can generate attractive economic return or not?
Yes. It's really unfortunate, Keith, of what's happened in the fluid space here in Canada. When we acquired Dairyland back in 2001, I think we bought some discipline to the market and profitability in fluid went from miniscule profitability up to more respectable numbers. And then, of course, I guess with some changes at the head of some of our competitors here in Canada, it seems like a market share with more important than profitability. And so every time there was an opportunity for an RFP, they viewed it as an opportunity to take on more market share. And somewhere along the line, we have to make choices. You can suffer the volume losses, but then, of course, the flip side of that is that you have the opportunity to rightsize and bring the margins back. Or suffer margin losses that will never recover. And so we chose not to suffer margin losses that will never recover. We chose to suffer the volume loss and somewhere down the road, we'll have an opportunity to bring our margins back to respectable levels, even if it means that we have less volume. That being said, Fluid Milk, traditional Fluid Milk is in decline. It's declining not just here in Canada, but in all of the developed markets at a rate of maybe 1.5% or 2% per year. That's the reality. There's a lot more competition with other sources of, I guess, protein, plant-based in some cases and it's a reality of our market. It's not by taking value out of the category that we're going to make Fluid Milk better. What we're choosing to do is to get into those categories of products that are more value-added. Our Lait's Go value-added flavored milk is still a very good category for us with great profitability. When I think about some of the other value-added products like lactose-free, like the sports drinks that we're doing, like the protein enhanced with our Joya product, those are all value-added products. So perhaps we might have less volume in the entire Fluid Milk space. We're going to pick and choose the areas that we want to be in because, number one, they're growing categories; and number two, they've got better economics than the Fluid Milk. It's a shame that Canada has gotten to this level, but that's the nature of your competition. And you know what, we're big boys and big girls and we can deal with it. I prefer to deal with it by taking the right decisions after we've lost the volume than trying to give volume and lose the margin that will never recover.
Mr. Saputo, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.
Thank you very much.
We thank you for taking part in this conference call. We hope you'll join us for the presentation of our fiscal 2019 fourth quarter and year-end results on June 6. Have a nice day.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.