Dino Dello Sbarba - Ontario Dairy Council

Priorities to
grow the
Canadian Dairy
market
ODC, Annual meeting, June 09
1
Company overview
The Canadian Dairy Market
Growth Priorities
Priorities to
grow the
Canadian Dairy
market
2
Saputo – Today
$ 5,700 billion in sales
5 countries
48 plants
9,400 employees
3
Company History
Acquired the
Treasure Cave and
Nauvoo blue cheese
brands (USA) from
ConAgra Foods for
$36.5 million
Entered the fluid milk
market by acquiring
Crémerie des
Trois-Rivières (Québec)
Acquired several
manufacturing
operations and
developed its
Canadian
national
distribution
network
1954
1970
Founded in 1954
by Lino Saputo
and his parents
in Montreal
(Québec, Canada)
Acquired Stella Foods
(USA), with $1 billion in
sales, for $580 million
On October 15, 1997,
completed its IPO of
18.9 million shares at
$4.25 (2001 and 2008
split adjusted)
1988
Entered the US
dairy market by
acquiring two
cheese plants
1997
1999
Acquired
Groupe
Cayer-JCB,
a fine cheese
manufacturer
(Québec), for
$13.7 million
2000
Completed the
private placement of
US $250 million
Senior Notes
Acquired Culinar, a
bakery company, for
$283.5 million
Acquired 100% of
Molfino Hermanos
S.A.,
the third largest dairy
processor in
Argentina,
for about $60 million
2001
Acquired the fluid
milk and cheese
operations of
Agrifoods
International
Co-operative Ltd.
(Canada),
with sales of
$1.4 billion,
for $407.3 million
2003
Acquired the
activities of Alto
Dairy
Cooperative
based in
Acquired SpezialitätenWaupun
Käserei De Lucia GmbH
Wisconsin for
(Germany) for
$160 million.
$7.1 million
Acquired Boulangerie
and Biscuit Rondeau
(Québec)
for $12.5 million
2005
2006
Acquired Fromage
Côté and
Distributions
Kingsey (Québec)
for $52.9 million
Acquired Schneider
Cheese (USA) for
$32.9 million
Acquired the
activities of
Neilson Dairy
based in Ontario
for $465 million
2007
2008
Acquired the
activities of Dansco
Dairy Products
Limited (UK) for
$12.2 million
Acquisition of
Land O’Lakes West
Coast industrial
cheese business
(USA) for
$254 million 4
Ownership and Management
H Ownership Structure
(As of March 31, 2008)
Gestion
Jolina
33,91%
Others
66,09%
H Operating Structure
Saputo Inc.
Dairy Products
Division
(Canada)
Dairy Products
Division
(Argentina)
Dairy Products
Division
(Europe)
Dairy Products
Division
(USA)
Bakery
Division
5
Saputo - Canada
Dairy Products Division (Canada)
H 4,700 employees
H 26 plants
6
Saputo - USA
Dairy Products Division (USA)
H 2,700 employees
H 16 plants
7
Saputo - Argentina
Dairy Products Division (Argentina)
H 850 employees
H 2 plants
8
Saputo - Europe
Dairy Products Division (Europe)
H 150 employees
H 2 plants
9
Saputo - Bakery
Bakery Division (Canada)
H 1,000 employees
H 2 plants
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Procurement
Over 6 billion litres, yearly
Canada: Supply management
USA: Market pricing. Milk sourced through long term contracts with
COOP’s and independant farmers
Argentina: Monthly negotiated pricing to reflect domestic and
export market conditions. Milk sourced through own farms and
independant farmers
Europe: Market price. Milk sourced through independant farmers
milk in UK and local milk brokers in Germany
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The Canadian Dairy Market
Priorities to
grow the
Canadian Dairy
market
12
Canadian Dairy market
Definition of the Canadian Dairy market
The sum of activities where Dairy products are consumed (Retail,
restaurants, further processing, export etc.) of which the Processing
industry is a part and the Producing industry is a sub-part.
Basic assumptions for growth
Every industry player wants to grow.
Market has to be profitable .
Dairy is competing with other foods
If PC consumption increase, some other food has to give up.
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Canadian Dairy market
Facts about growth
Real growth can be achieved with existing products if:
Increase in consumption per capita of within the market
Increase in internal market size
Increase through importing products (replacing existing products)
Real growth can be achieved with new products if:
Innovative Dairy based products, replacing other food.
Not exclusively all Dairy based
Individual growth does not guarantee real growth
Growing through customer expansion
Growing through new customer
Growing through market share
Growth in revenue is not market growth
Selling less items at inflated price does not insure long term viability.
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Canadian Dairy market
Facts about the Canadian Dairy market
Per capita consumption above average within developed countries at
over 257 L/capita
(avg. 100 L world)
Dairy products are part of daily diet, perceived healthy, of high quality
and safe
Supply of raw material highly regulated, complex, not competitive
with world pricing, mainly USA, our immediate neighbour in relation to
eventual WTO agreements
Protection on finished dairy product, and raw milk importations for
now
Very stable supply, has not grown in 30 years
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Canadian Dairy market
Facts about the Canadian Dairy market
Processing highly concentrated
• 3 processors average 5.0m L each…daily
• 380 remaining plants average 6.4 ml/each…yearly
• Processors are limited in their intake of milk
• Retail market high concentration -60% of Dairy market
• Store brands are increasing in share. Bulk dairy delivers low margin
• Food Service market fragmented - 30% of Dairy market
• Pizza cheese and Process are largest segments and not growing
• Industrial processing stable to declining -10% of Dairy market
• Imported finished products with dairy are growing
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Canadian Dairy market
Market Assessment
The processing industry is growing in certain segments using
approximately 1.5 BL milk equivalent or 20% of production
Dynamic growth as a result of investment and innovation (yogurts, fine
cheeses, specialty milk beverages…)
Modest growth due to lifestyle (cream, organic, green)
Modest growth in specialized dairy derivative exports
The processing industry is stagnant to declining in others
representing approximately 6.0 BL milk equivalent or 80% of
production
Basic core milk products, Cheddar and Mozzarella, Process, Butter, milk
powders
These products generate low to loss leader margins within the retail market
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Growth Priorities
Priorities to
grow the
Canadian Dairy
market
18
Growth Priorities
Under current SM producing industry
Need for innovation and new products (20%)
Need for competitive distribution of margin amongst players (80%)
Under a modified SM producing industry
Processing and Producing industry need to be competitive
Remove cost out of the system (simplify procurement)
Accept a fair premium cost for SM
Government may need to support dairy farming
Under an open system
Processing and Producing industry need to be competitive
Need access to foreign markets
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Growth Priorities
Under current SM producing industry
Need for innovation and new products (20%)
Need for competitive distribution of margin amongst players (80%)
Research and development
Flexibility in regulation
Investment in targeted marketing
Investment in Capital for new equipment
May not necessary rely only on raw milk
Make use of core dairy product competitive
Simple, transparent, targeted, equitable
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Growth Priorities
Under a modified SM producing industry
Processing and Producing industry need to be competitive
Capital investment
Specialization of processors
Align efficient production and processing
Remove cost out of the system (simplify procurement)
Reduce generic advertising
Direct contracts with farmers, coops
Reduce infrastructure to manage milk
Accept a fair premium cost for SM
Mechanism to manage supply, surplus, etc.
Government will need to support dairy farming
Quota value, transition, decoupling as per other countries
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Growth Priorities
Under an open system
Processing and Producing industry need to be competitive
Capital investment
Specialization of processors
Align efficient production and processing
Need access to foreign markets
Influx of imports, mainly USA
Extremely difficult transition for producing and processing industry
Need to develop export expertise
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Growth Priorities
CHARLES DARWIN:
DARWIN:
"It is not the strongest of
the species that survives,
nor the most intelligent, but
the one most responsive to
change".
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