Greetings, and welcome to the Saputo Inc. Fiscal 2020 Third Quarter Results. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. At the time you have a question, just press the one followed by the four on your telephone. If at any time the conference needs to reach an operator, you press the star followed by the zero. As a reminder, today's call is being recorded Thursday, February 6, 2020. Now, I would like to turn the call over to Lino Saputo Jr. Please go ahead.
Thank you very much, Tommy.
Good afternoon, everyone, and thank you for joining us today. A press release detailing our 2020 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. I would 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 and 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 legislation. Lino Saputo Jr., our Chair 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 2020, after which he, along with Maxime Therrien, our Chief Financial Officer, and Kai Bockmann, President and Chief Operating Officer of Saputo Inc. and the International Sector, will proceed to answer your questions.
Thank you, Marlene, and good afternoon to you all. We released our fiscal 2020 third-quarter record results this morning, and I am delighted. Despite challenges facing the industry, our team remained agile, proactively managing headwinds. Consolidated revenues increased by 8.8% related to the contribution of recent acquisitions, higher international selling prices of cheese and dairy ingredients, and active pricing initiatives to mitigate costs. Although we experienced lower sales volumes in the fluid milk category in Canada and in the cheese category in the U.S., as well as reduced raw milk availability in Australia, our results are solid. Adjusted EBITDA reached CAD 417 million, a growth of 29.8% for the third quarter. In Canada, the landscape remains competitive. We steadfastly continue to focus on profitability, not volume, and to service our customers in the best way possible with a long-term perspective in mind.
This sector will control the controllables by focusing on operational efficiencies and right-sizing the business as required. Though never an easy decision to make, this includes the upcoming closures of our facilities in Trenton, Ontario, and Saint John, New Brunswick, which we announced today. The U.S. sector posted improved results this quarter despite challenging domestic commodity market conditions. Specifically, the Cheese division is focused on optimizing product mix and growing its specialty and value-added business while supplying customer orders in our commodity products. The Dairy Foods division delivered another outstanding performance. In Australia, the recent bushfires have been devastating to many, and in response, we've put in place a number of support initiatives to assist affected farmer suppliers. So far, these events have had minimal impact on our business, and we've been able to continue operations as usual. Strong competition for milk as raw material persists.
However, we've put in place measures to mitigate this, such as co-packing and third-party sourcing. Moreover, we're benefiting from synergies related to our recent acquisitions and our newly broadened product range. In Argentina, we're seeing unsettled economic conditions. However, our seasoned management team is in place and has the experience to take the right decisions in a volatile landscape. In both Australia and Argentina, we intend to remain nimble and flexible, leveraging both platforms to develop additional international markets. We will maintain efforts on controlling costs, evaluating overall activities, and maximizing operational flexibility to mitigate the effects of market fluctuations. In the Europe sector, the Dairy Division U.K. is performing as expected and milk intake is strong. For the remainder of fiscal 2020, we will continue the integration process. The Saputo Promise also remains a key priority for us and the future of our business.
We're focused on the execution of our three-year plan, which we launched in 2019. We're ramping up our commitment to responsible environmental practices with a central focus on climate, water, and waste. We're also dedicated to diversifying our product portfolio and pursuing more plant-based opportunities. In this regard, we plan to leverage a common customer base, technology, manufacturing expertise, assets, and supply chain in order to benefit from this important consumer trend. As you can see, it's been a very busy yet rewarding time for Saputo. With immense pride felt by our entire organization, we were named the Dairy Foods Magazine 2019 Processor of the Year at the IDFA's Annual Dairy Forum last week. I'd like to congratulate our entire team for this outstanding accomplishment. Their dedication, expertise, and passion continue to elevate our company. We are leading the dairy industry. I am tremendously proud of what we've achieved together.
I'm also bullish about the long-term prospects for the dairy industry. I'm certain we have the right people, the right focus, and the right infrastructure in place to capitalize on growing markets and evolving trends. The appointments in senior management announced today reflect this sentiment as we lay the groundwork for future success in the industry. With that, we will now proceed to answer your questions. Tommy?
Thank you. If you would like to register any question, just press the one followed by the four on your telephone keypad. You'll hear three tone prompts to acknowledge your request. If this question has been answered, to draw your registration, enter the one followed by the three. One moment please for our first question. We'll get to our first question on the line from Irene Nattel with RBC Capital Markets. Go right ahead.
Thanks, Tommy. Good afternoon, everyone. I was looking at the appointment of the senior VP Business Development, plant-based food, and clearly that's a sign to me at least that you're making a serious commitment to this category. Can you walk us through what we can expect in terms of presence, footprint, and the magnitude of the investment you're thinking about?
Yeah, that's a very good question. The plant-based business for us, as we defined it in previous conference calls, is not that different from the dairy infrastructure that we use to process milk. We need to be where consumers are, and we need to leverage all of the expertise that we have, including manufacturing expertise. The facilities that we have within our infrastructure have the capacity to be able to process more fluid products, whether that would be dairy or non-dairy products. As long as we've got a long-term commitment at fair transformation revenues, we are prepared to make those investments for the long haul and the long-term viability of our business. As an example, our plant in Port Coquitlam in British Columbia is being built with the opportunity and the ability to segregate non-dairy products from dairy products and process efficiently.
We're looking for volume to fill that up. Similarly, we have other plants within our system, within our structure, in the U.S., and also in Argentina, where we can leverage our know-how and our expertise and the manufacturing footprint that we have. The naming of a senior VP is really another step forward for us to become more active in discussions with industry players as well as non-industry players about us being able to provide a good resource for them as a co-packer for their products. We've had some very good, very fruitful discussions. We have some volume that's already entering our system that is non-dairy oriented. We believe that there is even further opportunity along those lines. I'm going to hand it off to Kai and see maybe if he's got anything else he wanted to add on that strategy.
Hi, Irene. In terms of the specific segments retail-wise, we've got a pretty strong private label business with our SDF platform. We'll look to leverage those relationships with the key accounts. The toll manufacturing is going to be another big one for us. We also have great experience on the cheese side in terms of non-dairy cheeses in our Vitalite brands in the U.K. We'll be looking to take advantage of the innovation center we have in the U.K. in terms of the resources and know-how there to look at developing some products that have a better taste, better performance in food service, and better nutritional attributes because the stuff that's out there today is pretty blah. We think it's a tremendous opportunity for the group.
I just want to specify that we are still and will always be a very focused organization. Why not use our expertise and innovation capabilities to be able to go where consumers are going? I think that we're on the right track here.
That's great. Thank you. Just to be absolutely crystal clear, there's no intention at this time to invest heavily in brand building in the plant-based segment?
No, that's not our focus at this stage. Ultimately, if there's an opportunity for us to make an acquisition of brands, we would seriously consider it. At this stage, we are looking at partnering with folks that are already in that space and being a great partner for them.
That's very helpful. Thank you. Just wondering if you could talk a little bit about what's happening right now in Australia in terms of the success that you're having on the milk intake side and where you might be along the process of improving the capacity utilization in your facilities there?
Sure. This is Kai, I'll take that question. First off, just to give you some perspective in terms of what's going on in Australia, we've heard a lot about the fires and Lino in his opening comments talked about the minimal impact on our operations. When you look at the overall milk production developments that are occurring there because of the severe weather and the high input costs that producers have to deal with lower water and less feed availability. It's causing some strain in the system, which is leading to a lot of culling of cows, reduction in farm sizes, people getting out of the farming business. What we've seen in terms of national production, if you look at a couple of years ago, total production was at about 9.3 billion liters of milk.
Two years later, it's now projected to land at 8.3 billion liters of milk for this current milk year. We feel that this is going to be the new normal, and there's going to be continued intensified competition around milk supply. I think we mentioned it in previous calls, but for us, it's really about looking for opportunities to process more milk. Working closely with other companies in Australia around toll manufacturing opportunities. We're also taking advantage of milk supplied by third-party milk brokers, and we're also taking a page off of our playbook in North America in terms of how do we extend the milk, how do we use our technology and recipe optimization to produce more of the products that we make with less milk. Those are the things that we're tackling.
If we look at the milk intake numbers that we had called out a few years ago, we're probably about 10% down from what we called out in terms of our ambition as we move forward. A lot of the milk that we've lost, again, is as a result of the decline in the milk pool and that intensified competition. We have recouped the majority of the milk that's been lost to competition through those arrangements that I talked to, the third-party milk brokers, the toll manufacturing, and those types of arrangements. We feel pretty confident that we're in pretty good shape at this point when it comes to our milk intake and fully utilizing our assets. On the asset utilization, we just announced that one of our facility would move to a seasonal facility, so operating only five months of the year. This is our Maffra site.
By doing so, it allows us to make sure that we move our milk to those facilities and those products that generate the highest variable rate of return per liter of milk.
That's very helpful. Thank you for that color.
You're welcome.
Thank you very much. We'll get to our next question on the line from Michael Van Aelst with TD Securities. Go right ahead.
Thanks. I just want to continue on those two topics first. You mentioned that you feel good about your utilization rates right now in Australia. Can you give us a sense as to how much co-packing you've actually taken on or toll manufacturing, whatever you want to call it, how much you've actually taken on, how many different companies you're doing it for right now?
For competitive reasons, I can't divulge the number of companies we're working with, but I would say that we're working with some of the largest enterprises in the dairy space in Australia. If you follow the news, you'll have seen that some of these major players have shuttered some of their facilities and would have taken the milk that was originally processed in those facilities. A lot of that milk has been diverted to us, and we have been manufacturing products for those two majors. We have a lot of opportunities in the pipeline as well as it pertains to our fluid milk business as antiquated assets get taken out of the system. There are ongoing talks with not only larger players, but also some of the smaller ones as well.
Mike, if I can add maybe just a bit of color there to give you some satisfaction. If you recall, when we first acquired the Australian platform, we were targeting after the sale of Koroit around 3.1 billion liters of milk. That new normal is 2.7 billion liters of milk. The reason for that is really the decline in production in the country. Anything we lost to competition, we picked up from third party. We're still very confident that all the third-party discussions and negotiations we're having are going to be fruitful, in addition to co-packing arrangements that we believe will be fruitful. The new normal for us from the historic number of 3.1 is 2.7. With the partial closure of Maffra, we still think we're going to be around the 95%-98% capacity utilization.
Just to add to that point as well, our most recent acquisition was the Lion Specialty business. The great thing about being in Tasmania is that it is the highest milk-producing region from a growth perspective. Getting more milk in that part of the country is not going to be an issue for us.
Okay, great. That's helpful. When you look at the international business, you had a pretty big, I think, CAD 14 million increase in the EBITDA year-over-year. Can you give us an idea of the biggest drivers between, if you want to break it up between the Lion acquisition something, Argentina and what the factors were there and then Australia?
Yeah, I can provide you with some details. I would say the major contributor to that would be the prices that were higher on the international market, whether it's on the cheese or on the powder side. That would be the main driver. Obviously, the contribution of the specialty cheese for a couple of months during the quarter helped on that as well. I would say definitely would be the impact of the prices on the international market.
Okay, great. On the plant-based side, are you willing to discuss the brands that you're producing for?
No. That is for really confidential reasons. As we get into these discussions with some of the partners that we are dealing with, out of respect to them, we will not talk about their brands without their consent.
You said you are already starting to process. Is that true?
That is correct. Yes. We've got some installations going on. Plant City in Florida has set up a new line that is in the process of being commissioned. Volume will be going through that very shortly. In addition to some other capacities that we had in the U.S. that are now doing some non-dairy products. Wherever our customers have a requirement, we will find the capacity to be able to service them effectively as long as we're working on long-term contracts and long-term relationships.
You didn't mention Australia as one of the targets for plant-based. Is there a reason for that?
Yes, I did. In one of my statements, I said we do have the capacity to be able to do that in Australia. Again, there too, we're in preliminary discussions for that. We are not doing any non-dairy products in Australia, but we certainly do have the square footage and the capacity to do it.
Okay. It's Australia. I think you mentioned Argentina as well, though, didn't you?
If I said Argentina, I meant to say Australia.
All right, that's great.
The three geographies that we're looking at would be Australia, United States, and Canada as plant-based capacities that we can co-pack for others or perhaps look at acquisitions.
The plant-based cheese already we're doing that in the U.K., but in terms of plant-based beverages, it would be the three regions that Lino mentioned.
Plant-based cheese, is that something you could make in Canada, for example?
Eventually, yes. Right now, we are marketing that product in the U.K. Our innovation center is looking at improving on that product and when we think we've got something that is appropriate for either Canada or for the U.S., we will definitely roll that out.
I'll get back in the queue. Thank you.
All right.
Thank you very much. Looking for the next question on the line from Peter Sklar of BMO. Go right ahead.
On the bushfires, I understand a lot of the center of gravity for the bushfires is in New South Wales and Victoria where you have a lot of your plants located, a lot of your dairy is located. How is it that you're not being disrupted in terms of procuring milk by the bushfires?
I'll answer that question. In terms of the bushfires, they're largely focused in the area of New South Wales, south of Sydney, and also in the eastern part of Victoria. If you look at a map of Victoria and New South Wales, you'll see their facilities are on sort of the fringe areas of those fires. If we look at the impact to Saputo since the bushfires started, we had impact of about 700,000 liters of milk on a base of 2.3 billion liters of milk on an annualized basis. You can see that that's a minimal impact and we don't expect any further losses as we move forward. We had a total of 33 farms that were impacted, but they've since gotten back online. Again, the impact has been minimal.
Peter, just on that note, we have assisted some of our competitors in the industry either to collect milk in regions where they couldn't collect or perhaps to take on some additional capacity when they were not able to take on that capacity. I think the industry itself has locked arms and supported each other in this very difficult time.
Meaning you're collecting on their behalf?
Yes.
You're processing it or you're delivering it to their dairies?
Both. Depends on if their plant was affected by the bushfire, we would process the milk. If not, we can collect the milk and send it to their facilities. At this stage, we're putting competition on the side and we're looking really at what's in the best interest of the dairy industry.
Okay. Different topic. In your commentary in the press release, you indicated that you're expecting volatility in the dairy ingredients market, like when you're discussing international commodity prices. At the same time, you're expecting stability in terms of cheese price and I'm just wondering why you're expecting that volatility for dairy ingredients. Is that because of the China situation?
Yeah. China is an unknown factor. Just as you had the lifting of some of the tariffs and the trade war getting better, you've got the coronavirus. The reality is a lot of our dairy ingredients are going into that part of the world. That's the volatility that is unknown to us even though we're seeing the numbers tell us that the consumption is firming up and the supply is also very stable. It's perhaps a tale of two different cities here.
At a macro level, we're definitely seeing better equilibrium in the global dairy markets from a demand and supply standpoint. We project that demand will actually exceed supply for calendar 2020.
Okay. Just lastly on the Canada, U.S., Mexico trade agreement, when do you expect the allocation of the import licenses? Maybe, Lino, if you'd be a little more specific on how you did in CPTPP. Could you maybe quantify, did you get your fair share in the new CPTPP and what are you expecting for this trade agreement?
Yeah, that's a very good question. I think that especially with a minority government. This will not be ratified in Canada until sometime later this summer, probably by June or July. Probably in effect for the month of August. I think August is an important milestone, especially for the dairy farmers, because it's a new milk year. The easiest way to trigger these allocations will be at the beginning of a new milk year. I don't suspect anything will happen before August in terms of ratification and implementation. On the quota side or TRQs, so we had discussions with government related to the initial CETA allocations. Unfortunately, the CETA allocations in large part went to people outside of the processing dairy industry. As it turned out, the majority in the first year of those allocations were not used.
That created a difficulty for Canada, because their trading partners were saying, "Well, that's really not in the spirit of the trade agreement itself." I think at the time, under 50%, maybe something like 46% or 48% of the total quotas were used. With that information, we went to government and we said, "Look, under this new deal, the CPTPP, if these quotas were allocated to processors, then we would have the ability to bring in either raw material or finished goods that we can bring into our system and create value in the dairy space." Effectively, that's exactly what we did. We used 100% of the allocation of the quotas that we had, and we brought in value-added products and created great value here in Canada.
My discussion now with government is related to Canada, U.S., and Mexico's trade deal, that we would like to see more of the same with the CPTPP, where over 80% of the allocation went to processors, pro rata by their production capability numbers. That's what we would like to see with Canada, U.S., and Mexico. I'm optimistic that that's what will happen. I did indicate to government that we'd like to be held to account so that if we're not using those licenses, then they have the right to take them away from us and give them to others, perhaps distributors and retailers. For the time being, as long as we're honoring the commitments that we made, we believe that we should be in a position to control our own destiny.
Okay. That's all I have. Thank you.
All right. Thank you, Peter.
We'll get to our next question on the line from Vishal Shreedhar from the National Bank. Go right ahead.
Hi. Thanks for taking my question. Just wanted to circle back to this plant-based announcement that you made. Just looking at your business and the nature of the activities you indicate you want to get involved with, it seems like this opportunity, in reference to the scale of your current business, will be incremental for now. Is that a fair way of thinking about it?
That is exactly the way we should look at it, because let me make one general statement that I hope everybody will hear. Dairy is not dead. There is still great life in dairy. Dairy continues to grow at a rate of 1.5% to 2% per year, and we're still very bullish on dairy. However, if we have the expertise and we have the infrastructure to leverage our capabilities to do products other than dairy, something as simple as beverages that will go into our stream and create an opportunity for us to mitigate some overhead expenses, then we will do that. That's very entrepreneurial. I want to again reiterate my comment that we are and will be a dairy-focused organization. Anything we do in plant-based is going to be an add-on to be able to leverage some of our expenses.
Okay, thanks for that. Just on the back of the comment that you made about you seeing a lot of opportunity in dairy for the foreseeable future. Throughout the release, there were several markets that experienced a little bit of softness in volume outside of Australia, which had a specific issue. Just wondering if you can comment on that and when you see that volume growth turning around?
If you look at the general market, there is growth in the emerging markets much greater than the domestic markets. I would say that the emerging markets are growing at a rate of maybe 3% or 4% per year. Domestically, we might have 1.5% or 2% growth in very specific categories like cheese and value-added ingredients. The opportunities that we see in the markets are global as well as domestic, outside of some key areas like Australia because of the fires. In general terms, on the non-fluid products, we see that there's growth in just about every single one of those categories. Kai, you want to add to that?
Yeah, sure. If I look at the different geographies our SDF platform is performing very well across all segments, so volume is very strong in that division. In our cheese division in the U.S., our volumes have been pretty strong in most segments except the industrial segment, where we've seen a lot of bottom feeders. There's a race to the bottom from a pricing standpoint. In Canada, we've done pretty well from a volume standpoint. We have talked about in previous calls where we've walked away from accounts or business that was unprofitable for us. It's really about profitable growth and not just chasing volume for the sake of volume. We have made decisions to walk away from business opportunities when the margin structure doesn't make sense.
The first thing we do before walking away when the cost structure doesn't make sense, is we take proactive pricing initiatives. If they stick, we'll continue with that customer. If they don't stick, well, we'll walk away from that business. I would say that sometimes we walk away from business only to capture it back three or six months later at favorable pricing. It's a question of having the right discipline to know when to walk away and when to service your customers.
Okay. Thank you for that color. In the industry in the U.S., there have been high-profile announcements from milk players regarding the viability of their business. I'm wondering, number one, if there are any adjacent impacts that Saputo will experience because of those players. Number two, if you could just help us give us some sense of the materiality of your fluid business, just given that it's so topical recently.
Yeah. Let me just say that within the U.S. platform, we don't do any commodity traditional fluid milk. If we are going to be in the fluid milk space, it will be value-add, like the lactose-free products and some other products that we bring to market generating a better return than just commodity products. The adjacent impacts to us is minimal. We have a good working relationship with Dean Foods, but we don't have any liability with respect to accounts receivable or any operational liability. Our team really has been managing that division extremely well. We made sure that we get paid when we were supposed to get paid. There isn't much negative impact related to either the bankruptcy of Dean Foods or the bankruptcy of Borden.
It's actually created an environment to make dairy more economically sustainable, and it's resonating with our key stakeholders, and we're seeing that across both sides of the border. They don't want to see another major fluid manufacturer go out of business if the economics aren't right. It's actually been helpful in the situation.
Okay. Thanks for your color.
Thank you so much. We'll get to our next question on the line from Patricia Baker with Scotiabank. Please go right ahead.
Thank you very much. I have two questions, and actually both are related to your most recent acquisition. Firstly, going to Australia and looking at Lion Dairy & Drinks Specialty Cheese, can you talk a little bit about the positioning of the portfolio of brands there and what the experience has been in the last little while of whether these brands are gaining market share and how well they're positioned in the marketplace?
Yeah. It's pretty fresh. It's our last acquisition, but we're seeing real strong growth in the category. It's actually the fastest-growing category in the cheese space in Australia. We've got a strong market share position already out of the gates, obviously, with the brands that we've picked up. We're also looking at some opportunities to leverage some of the pages from our playbook in our North American platform because we have the largest goat cheese business in Scusa, in our Saputo Cheese USA division. We have a history with specialty cheeses in our Canadian division. We're looking to take some of those experiences and some of those product ideas over to Australia to continue to build that category. The assets that we picked up as well, again, we're trying to implement the processing systems that we have in our other facilities. It's early going.
There's a lot of available capacity when it comes to the hard cheeses, so the Parmesan-style cheeses, which will open up opportunities for us on the export side as well.
Okay, that's very helpful. Then secondly, with respect to Dairy Crest. You're going to continue on with the integration, but you do note that you're going to be making some capital investments there to improve the cheese-making capabilities. Can you talk about exactly what you're going to be doing and what we can expect to see over the course of the next two years with respect to all the investments?
Yeah. Dairy Crest model is going to follow the WCB model, and I'll take you back in time. We acquired in WCB a platform that was very efficient. At the time, Warrnambool Cheese & Butter was processing about 750 million liters of milk when we acquired. We thought that the only way that we were able to reduce the expenses there was to bring in more volume. We made an appeal to the different dairy farmers that were in the area, and we said, "If you will sell us your milk, we will grow the capacity at that plant." Sure enough, we had about 200 or so million liters of milk that was offered to us. We spent CAD 40 million to increase the manufacturing footprint.
We executed that, I think it was in about 18 months or so. We then leveraged that new volume to the existing overhead costs and reduced our cost per kilo of production. When we took a tour for the very first time at Dairy Crest through the due diligence process, we realized it was a very similar setup. A plant that was running very close to 98% capacity utilization, very efficient operation producing a high-quality product. We saw that the only way that we can reduce some of the expenses on a per-kilo cost was to increase capacity.
At that point in time, Kai and I met with the dairy group that's representing the dairy farmers, and we appealed to them about us wanting to increase the capacity and the footprint of the plant, but we would only do so if their milk was available. They made a commitment to us that the milk would be available, and in short order, we picked up, this year alone, 50 million liters of milk incremental. We have the potential to increase another 150 or close to 200 million liters of milk, but that would now require further CapEx allocation and some more time to get that installed. What we're doing at the Dairy Crest plant in Davidstow is not so much changing what they're doing, but rather adding more capacity so we can lower our cost per kilo operational efficiency.
That's tremendously, Lino. It makes me understand much better what you're doing there. Thanks.
Alright.
Thank you very much. We'll get to our next question on the line from Mark Petrie with CIBC. Go right ahead.
Hi, this is actually Krishna Ruthnum on the line for Mark.
Yes, I didn't think Mark was going to be here today.
My first question is on Dairy Foods. You called out higher volumes in the U.S. Dairy Foods business. Can you speak to the competitive dynamics in the Dairy Foods segment and highlight the drivers behind your improved performance? While we're on the subject, can you also give us an update on the stage of recovery of the Dairy Foods business following the ERP rollout?
Sure. A pleasure. First of all, there's limited capacity in the system when it comes to the product that SDF produces. Also, we're the only player that has a national footprint from coast to coast. With the proven track record that we've had with a lot of these large-scale players, whether it's food service or retail, that's really helped us out in terms of when they're looking at new products, new formats, we tend to be that first phone call. When you look at our supply chain side of the business as well, our fill rates and our customer service levels are back to, if not better than historical levels.
Especially now that we've had time to digest the Harmoni or ERP deployment that did cause a lot of noise for us in that platform, but that's far behind us at this point.
Okay, great. I had another question on Dairy Crest, just to follow up on Patricia's question. Can you highlight any of the benefits that you're seeing in Dairy Crest, particularly on the byproduct side? Have you been able to leverage any of the learnings from Dairy Crest, particularly from their investments in demineralized whey across the rest of the Saputo platform?
That's a good question. The D90 product that you're referring to is a capability that we did not have in the system. We have actually been able to leverage that capability to grow our business with some of the majors that are in the infant formula space. There's limited capacity in the world when it comes to D90. We're able to leverage that limited capacity to try and gain more business with some of these large multinational players.
Great. That's all I had. Thank you.
Excellent. Thank you very much, Krishna.
Thank you. We'll get our next question on the line from Chris Li with Desjardins. Go right ahead.
Hi, good afternoon, everyone. Just a couple of quick questions. Lino, last quarter, you mentioned Argentina, in terms of potential increase in export taxes as a potential headwind. It seems like you guys kind of dodged a bullet on that one, looking at some of the taxes applied to other agricultural products. Do you have an update on that situation?
Sure. This is Kai. In terms of the taxes, they've only been imposed on a few items, primarily whole milk powder, and the rate's 5%. The impact to our export business has been minimal at this point.
Maybe Max might have something to add on that.
Well, there's some price control mechanism on the domestic side as well, just to keep some of the products affordable for the consumer in Argentina. Ultimately with the cost of milk that we're seeing there, we remain absolutely competitive and yeah, so minimal impact to us as well.
As I mentioned in my opening statement, we've got a very seasoned management team in Argentina. They know how to navigate through those waters better than anybody else. Whatever governments throw at them, they know how to deal with it very effectively.
Okay, that's great. That's helpful. Then just one question on CapEx. Are you still on track to achieve or spend the target that you expect? I think just over CAD 600 million for the full fiscal year. It seems like you're now sort of a bit below that run rate.
Well, good question, Chris. Yeah, our target for the year was CAD 611 million. We do anticipate a strong Q4 in terms of investment in our capital expenditure. Will we get to the CAD 600 million? We'll be close to that. We certainly have a good quarter currently proceeding on CapEx.
How about the outlook for next fiscal year? Is that too early to talk about that, or directionally, do you expect to be similar?
Well, this year is the last year of our three-year cycle, so next year is going to be the first year of a new cycle. We expect to have quite a bit of a CapEx. Will that be the CAD 600 million? Probably not, but that's too early to give you a number at this time.
Okay, my last question, just with respect to some of the cost savings from the plant closures in Canada. Is the way to think about the savings is that they'll be reinvested to continue to drive top-line growth, or will we see some of that flowing to the earnings line?
Well, typically, those savings will provide us basically those plant closure is to get more efficient. This will be starting late this current calendar year and the following year. We do have investment plans in other facilities to be able to transfer the volume.
Essentially, Chris, if I can elaborate on that, most of the monies to accommodate that additional capacity has already been spent through these last few fiscal years. We had a project in Saskatoon that we were able to increase capacity to be able to accommodate more volume and shifting volume from Trenton over to other facilities and ultimately into Saskatoon. We also have a major CapEx allocation that is underway right now in our Saint-Léonard facility also to accommodate more capacity here. We weren't waiting for the plant closure savings to ultimately spend the money in new CapEx capacity. The new CapEx capacity was built into previous CapEx budgets.
I think the saving from your question, Chris, the saving is more around the capital that will not be spent in those facilities that we're shutting down, that, yes, will be invested throughout the rest of our network.
Okay, I understand. Thank you for your helpful answers.
All right. Thank you, Chris.
Before proceed, once again on the phone, press star one four to register your question. We do have another follow-up question on the line from Michael Van Aelst from TD. Go right ahead.
I have a few quick ones. Your depreciation jumped in Q3 versus Q2, and a lot of it, I think CAD 8 million, was in the U.K. sequentially. Was there some purchase price allocation adjustment or something in the quarter that caused it to pop temporarily?
Yeah. Right on. Brand value, final assumption were concluded during the quarter, increasing our depreciated asset base. That's why the number is up as compared to, let's say, Q2. If you compare to last year, you also have to figure out the IFRS 16, the lease accounting that has an impact on the depreciation.
Right. The number in Q3, does that include some retroactive catch-up for the first half of the year?
There's a bit of that, and you have that also in Q4. In terms of going forward, let's say for FY 2021, the mid-20% is going to be the number for U.K. It all depends on the CapEx project evolution, and there's also an FX consideration to that number, but the mid-20% would be a number that would make sense.
Dairy Foods USA, I think in the press release you say that you increased some capacity or added capacity. When did that kick in?
The capacity that we're looking at was over the course of this fiscal year, and it will bring us right to the end of this fiscal year with the Plant City startup, which is going to be happening in Q4. This is ongoing throughout this fiscal year and will continue to the end of this fiscal year.
Just finally, for that division, it seems like it's taking a long time to find a permanent replacement to lead that business. What's the challenge there?
There's no challenge. As a business that continues to evolve, we need to see where the right structure will be. Again, with Carl as the lead of the North American platform, he thought that it would be the right opportunity for him to immerse himself in that business so that he can understand exactly where the key points are and eventually have a North American platform that will be that much more effective and that much more efficient. That was actually Carl's decision to step into the Dairy Foods platform, to better assess where the potential is going to be in the future for a synergistic North American operation.
Okay. Thank you. One last question, actually. The demineralized whey that you're doing in the U.K., is that something that you would be able to do as well in Canada or the U.S. or another market where, do you have the capacity to do that or the technology at this time?
We do not have the technology, and it would require significant capital to build that capability at this point.
The other thing we need to keep in mind, Michael, is we don't want to over-inundate the market with overcapacity of a product that's creating value. Even before we would spend that money, we need to see if there's a market for it, first and foremost. Oversupply is not good for any category of product. We'll be very careful about the places we invest money to produce additional capacity.
Perfect. Thank you.
Thank you very much. Mr. Saputo, I have no further questions on the line. I'll now turn the call back to you.
Thank you very much, Tommy.
We thank you for taking part in this conference call. We hope you'll join us for the presentation of our fiscal 2020 fourth quarter and year-end results on June 4th. Have a nice day.
Thank you. That does conclude the conference call for today. We thank you for your participation. As we disconnect your lines, have a good rest of your day.