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Saputo Inc.: Financial Results for the Third Quarter of Fiscal 2008, Ended December 31, 2007

Posted on: Wednesday, 6 February 2008, 09:00 CST

Saputo Inc. (TSX: SAP) released today its financial results for the third quarter of fiscal 2008, which ended December 31, 2007.

- Net earnings for the quarter totalled $82.0 million ($0.40 basic per share), an increase of $17.9 million compared to $64.1 million ($0.31 basic per share) for the same quarter last fiscal year. Included in the results of the current quarter is a one-time tax reduction to adjust future tax balances of approximately $6.5 million due to a reduction in Canadian federal tax rates. Excluding this adjustment, net earnings would have been $75.5 million, an increase of $11.4 million or 17.8% in comparison to the same quarter last fiscal year.

- Consolidated revenues for the quarter ended December 31, 2007 amounted to $1.277 billion, an increase of $260.0 million or 25.6% over the $1.017 billion for the corresponding quarter last fiscal year. This increase is due mainly to our US Dairy Products Sector, whose revenues increased by approximately $219 million. The acquisition of the activities of Land O'Lakes West Coast industrial cheese business in the United States (Land O'Lakes West Coast Acquisition) and a higher average block market(1) per pound of cheese explain the revenue increase. Revenues from our Canadian and Other Dairy Products Sector increased by approximately $43 million. Higher selling prices in accordance with the increase in the cost of milk as raw material, increased sales volume from our Canadian fluid milk activities and the inclusion of our United Kingdom (UK) operations, acquired on March 23, 2007, are the main factors explaining the revenue increase. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. During the third quarter of fiscal 2008, the appreciation of the Canadian dollar eroded approximately $56 million in the Company's revenues compared to the same quarter last fiscal year.

- Consolidated EBITDA(2) totalled $137.0 million, an increase of $22.0 million or 19.1% in comparison to $115.0 million for the same quarter last fiscal year. This increase is due to higher EBITDA in the US Dairy Products Sector of approximately $13 million and an increase in EBITDA of approximately $11 million in the Canadian and Other Dairy Products Sector. The EBITDA of our Grocery Products Sector decreased by approximately $2 million in comparison to the same quarter last fiscal year.

- EBITDA for the Canadian and Other Dairy Products Sector amounted to $95.6 million, an increase of 13.1% in comparison to the same quarter last fiscal year. This increase is due to benefits derived from rationalization activities undertaken in our Canadian operations, sales volume increase in our Canadian fluid milk activities and benefits derived from capital investments made in the previous years in our Argentinean operations.

- EBITDA for the US Dairy Products Sector totalled $37.2 million, an increase of 55.2% compared to the same period last fiscal year. This increase is due to the contribution of the Land O'Lakes West Coast Acquisition, a more favourable relationship between the average block market per pound of cheese and the cost of milk as raw material.

- EBITDA for the Grocery Products Sector amounted to $4.2 million, a $2.4 million decrease compared to the corresponding quarter last fiscal year. The decrease is attributed to higher raw material and other costs, and lower sales volume.

- Cash generated by operating activities amounted to $109.6 million, compared to $85.6 million for the same period last fiscal year.

- In the third quarter, the Company issued shares for a cash consideration of $2.2 million, as part of the Stock Option Plan, repaid $73.9 million of bank loans and paid $24.7 million in dividends.

For more information on the results of the third quarter of fiscal 2008, please read the attached interim report for the quarter ended December 31, 2007, which forms an integral part of this press release.

Dividends

The Board of Directors declared on February 6, 2008, a quarterly dividend of $0.12 per share payable on March 21, 2008 to common shareholders of record on March 10, 2008, as per its fiscal 2008 dividend policy.

Conference Call

A conference call to discuss the third quarter results of fiscal 2008 will be held on Wednesday, February 6, 2008, at 10:30 AM, Eastern time. To participate in the conference call, dial 1.888.241.0326, ID number 31122555. To ensure your participation, please dial in approximately five minutes before the call.

To listen to this call on the web, please enter http://events.onlinebroadcasting.com/saputo/020608/index.php in your web browser.

For those unable to participate, an instant replay will be available until midnight, Tuesday, February 13, 2008. To access the replay, dial 1.800.695.2814, ID number 31122555. A replay of the conference call will also be available on the Company's web site at www.saputo.com.

About Saputo

Saputo, a whole world to discover. With its distinctive array of products and its commitment to growth, Saputo continues to explore and seize new opportunities while maintaining the best of tradition. Through product innovations, global expansion and unwavering employee dedication, Saputo produces, markets and distributes products of the highest quality. Saputo is one of the top twenty dairy processors in the world, the largest dairy processor in Canada, among the top five cheese producers in the United States, the third largest dairy processor in Argentina and the largest snack-cake manufacturer in Canada. Success stems from the passion and expertise of the 8,900 men and women who work in its numerous locations worldwide. Well-known brands such as Saputo, Alexis de Portneuf, Armstrong, Baxter, Dairyland, Danscorella, De Lucia, Dragone, DuVillage de Warwick, Frigo, Kingsey, La Paulina, Nutrilait, Princesse, Ricrem, Sir Laurier d'Arthabaska, Stella, Treasure Cave, HOP&GO!, Rondeau and Vachon have earned the trust of consumers in over thirty countries. Saputo Inc. is a public company whose shares are traded on the Toronto Stock Exchange under the symbol SAP.

Message to Shareholders

We are pleased to present the results for the third quarter of fiscal 2008, which ended on December 31, 2007.

Net earnings for the quarter ended December 31, 2007 totalled $82.0 million, an increase of $17.9 million or 28.0% compared to $64.1 million for the same quarter last fiscal year. Included in the results of the current quarter is a one-time tax reduction to adjust future tax balances of approximately $6.5 million due to a reduction in Canadian federal tax rates. Excluding this adjustment, net earnings would have been $75.5 million, an increase of $11.4 million or 17.8% in comparison to the same quarter last fiscal year.

Earnings before interest, income taxes, depreciation and amortization (EBITDA(3)) amounted to $137.0 million, an increase of $22.0 million or 19.1% in comparison to $115.0 million for the same quarter last fiscal year. The EBITDA of our US Dairy Products Sector increased by approximately $13 million over the same quarter last fiscal year. The contribution of the Land O'Lakes West Coast industrial cheese business in the United States (Land O'Lakes West Coast Acquisition) and a more favourable relationship between the average block market(4) per pound of cheese and the cost of milk as raw material are the main factors explaining the EBITDA increase. The EBITDA of our Canadian and Other Dairy Products Sector increased by approximately $11 million in comparison to the same quarter last fiscal year. This increase is due to benefits derived from rationalization activities undertaken in our Canadian operations, sales volume increase in our Canadian fluid milk operations and benefits derived from capital investments made in the previous years in our Argentinean operations. The EBITDA of our Grocery Products Sector decreased by approximately $2 million in comparison to the same quarter last fiscal year. The decrease is attributed to higher raw material and other costs, and lower sales volume. During the quarter, the appreciation of the Canadian dollar eroded approximately $5 million of the Company's EBITDA in comparison to the same quarter last fiscal year.

Revenues for the quarter ended December 31, 2007 amounted to $1.277 billion, an increase of $260.0 million or 25.6% in comparison to the $1.017 billion for the corresponding quarter last fiscal year. The increase is due mainly to our US Dairy Products Sector, whose revenues increased by approximately $219 million. The Land O'Lakes West Coast Acquisition and a higher average block market per pound of cheese explain the revenue increase. Revenues from our Canadian and Other Dairy Products Sector increased by approximately $43 million. Higher selling prices in accordance with the increase in the cost of milk as raw material, increased sales volume from our Canadian fluid milk activities and the inclusion of our United Kingdom (UK) operations, acquired on March 23, 2007, are the main factors explaining the revenue increase. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. During the third quarter of fiscal 2008, the appreciation of the Canadian dollar eroded approximately $56 million in the Company's revenues compared to the same quarter last fiscal year.

On January 29, 2008, the Company announced that it had entered into an agreement to acquire the activities of Alto Dairy Cooperative based in Waupun, Wisconsin. The transaction is subject to certain conditions and is expected to close during March 2008.

Outlook(5)

In the Dairy Products Division (Canada), we continue to invest in our facilities as part of our commitment to be a low cost producer. We are finalizing our automation project for our cutting and packaging operations, which we believe will give us a competitive advantage and therefore generate opportunities. We continue to launch new and innovative products to meet our consumers' everyday needs, which should allow us to increase our sales volume. In an effort to optimize our facilities, we continue to review every aspect of our day-to-day operations. The Federal Government of Canada has introduced, in December 2007, amended regulations establishing new standards of composition for cheese manufactured in and imported to Canada. The Federal Government has provided a one-year transition period to allow the industry to be in compliance with the new requirements. Saputo has always met the Canadian and International standards for its manufactured products. Consequently, we will be in compliance with these new Canadian requirements, notwithstanding that this amended regulation is different from the international cheese standards. We intend to mitigate the impact that these new standards will have on our results, while trying our utmost to minimize the effect on our customers.

In Argentina, government regulations imposed in the first quarter of fiscal 2008 that limit selling prices on the export market were modified in the current quarter, which should improve our results. In addition, we maintain our focus on increased efficiencies in order to improve our operations on both domestic and international markets.

In Germany, milk prices have begun to stabilize. We anticipate that the previously increased selling prices to our customers will remain at the current level. In addition, we expect that the experienced employees from our Canadian operations transferred in the previous quarter will help the division achieve better efficiencies.

In the UK, the integration is progressing well. The information systems integration was successfully completed in the third quarter. We have started certain capital expenditure programs in an effort to improve efficiencies. We believe these changes should improve the Division's profitability in the following fiscal year.

In the US, the integration of the Land O'Lakes West Coast Acquisition is progressing well. Several capital projects have commenced which should result in enhanced operating efficiency and improved financial performance. The Consolidated Stabilization and Marketing Plan Hearings in California, held on October 10 and 11, 2007, resulted in a decision to alter the dry whey factor and increase the manufacturing allowance for cheese. These changes to the manufacturing milk price were made effective December 1, 2007, and should have a positive impact on operating margins in California. The magnitude of the positive impact will depend largely on the future market value of dry whey. The US market continues to constitute a key aspect of our growth strategy.

In the Bakery Division, we are facing various challenges, such as higher ingredient and packaging costs, and pension fund expenditures, while the category is seeing aggressive promotional prices and the introduction of private label products. Even if sales in the category were stagnant for the last two years and our market share in volume decreased, we were able to retain our market share in dollars. In light of these market conditions, we are looking at ways to offset the loss of volume which implies revisiting our market approach in order to better execute our sales initiatives. Our manufacturing performance was impacted this fiscal year by the integration process of the Biscuits Rondeau inc. operations in our existing Ste-Marie, Quebec facility and certain capital expenditure projects that all together are not generating the expected yields and performance. Therefore, an action plan is being implemented in the fourth quarter in order to mitigate the negative factors affecting this division.

Dividends

The Board of Directors declared on February 6, 2008 a quarterly dividend of $0.12 per share(6) payable on March 21, 2008 to common shareholders of record on March 10, 2008, as per its fiscal 2008 dividend policy.

Management's Analysis(4)

The goal of the management report is to analyse the results of and the financial position for the quarter ended December 31, 2007. It should be read while referring to our consolidated financial statements and accompanying notes for the three- and nine-month periods ended December 31, 2007, and 2006. The Company's accounting policies are in accordance with Canadian generally accepted accounting principles of the Canadian Institute of Chartered Accountants. All dollar amounts are in Canadian dollars unless otherwise indicated. This report takes into account material elements between December 31, 2007, and February 6, 2008, the date of this report, on which it was approved by the Board of Directors of Saputo Inc. (Company or Saputo). Additional information about the Company, including the annual report and the annual information form for the year ended March 31, 2007 can be obtained on Sedar at www.sedar.com.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This report, including the "Outlook" section, contains forward-looking information within the meaning of securities laws. These statements are based on our current assumptions, expectations and estimates, regarding projected revenues and expenses, the Canadian, US, Argentinean, German and UK economic environments, our ability to attract and retain clients and consumers, our operating costs and raw materials and energy supplies which are subject to a number of risks and uncertainties. Actual results could differ materially from the conclusion, forecast or projection stated in such forward-looking information. As a result, we cannot guarantee that any forward-looking statements will materialize. Assumptions, expectations and estimates made in the preparation of forward-looking statements and risks that could cause our actual results to differ materially from our current expectations are discussed throughout this MD&A and in our most recently filed annual report which is available on SEDAR at www.sedar.com. Forward-looking information contained in this report, including the "Outlook" section, is based on management's current estimates, expectations and assumptions, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time.

Operating Results

Consolidated revenues for the quarter ended December 31, 2007 amounted to $1.277 billion, an increase of $260.0 million or 25.6% in comparison to the $1.017 billion for the corresponding quarter last fiscal year. Revenues from our US Dairy Products Sector increased by approximately $219 million. The increase is due mainly to the Land O'Lakes West Coast Acquisition, completed at the beginning of fiscal 2008, and a higher average block market per pound of cheese of US$1.99 compared to US$1.31 for the same quarter last fiscal year. The revenues from our Canadian and Other Dairy Products Sector increased by approximately $43 million in comparison to the same quarter last fiscal year. Higher selling prices in our Canadian and Argentinean operations in accordance with the increase in the cost of milk as raw material, increased sales volume from our Canadian fluid milk activities, and the inclusion of our UK operations, acquired on March 23, 2007, are the main factors explaining the revenue increase. These positive factors were slightly offset by reduced sales volumes from our Argentinean operations. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. During the third quarter of fiscal 2008, the appreciation of the Canadian dollar eroded approximately $56 million in the Company's revenues in comparison to the same quarter last fiscal year.

For the nine-month period ended December 31, 2007, revenues totalled $3.793 billion, an increase of $800.5 million or 26.8% in comparison to the $2.992 billion for the corresponding period last fiscal year. Revenues from our US Dairy Products Sector increased by approximately $687 million, due mainly to the Land O'Lakes West Coast Acquisition and a higher average block market per pound of cheese. Revenues from our Canadian and Other Dairy Products Sector increased by approximately $115 million, due mainly to higher selling prices in accordance with the increase in the cost of milk as raw material, higher sales volume in our Canadian fluid milk operations, and the inclusion of our UK operations, acquired on March 23, 2007. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same period last fiscal year. For the nine-month period ended December 31, 2007, the appreciation of the Canadian dollar eroded approximately $94 million in the Company's revenues in comparison to the same period last fiscal year.

Consolidated earnings before interest, income taxes, depreciation and amortization (EBITDA), for the third quarter of fiscal 2008 amounted to $137.0 million, an increase of $22.0 million or 19.1% in comparison to $115.0 million for the same quarter last fiscal year. The EBITDA of our US Dairy Products Sector increased by approximately $13 million compared to the same quarter last fiscal year. The contribution of the Land O'Lakes West Coast Acquisition and a more favourable relationship between the average block market per pound of cheese and the cost of milk as raw material are the main factors explaining the EBITDA increase. The EBITDA of our Canadian and Other Dairy Products Sector increased by approximately $11 million in comparison to the same quarter last fiscal year. This increase is due to benefits derived from rationalization activities undertaken in our Canadian operations, sales volume increase in our Canadian fluid milk operations and benefits derived from capital investments made in the previous years in our Argentinean operations. Our German and UK operations had a minimal effect on EBITDA in the third quarter of fiscal 2008. The EBITDA of our Grocery Products Sector decreased by $2.3 million in comparison to the same quarter last fiscal year. The decrease is attributed to higher raw material and other costs, and lower sales volume. During the quarter ended December 31, 2007, the appreciation of the Canadian dollar eroded approximately $5 million of the Company's EBITDA in comparison to the same quarter last fiscal year.

For the nine-month period ended December 31, 2007, EBITDA totalled $388.5 million, an increase of $73.6 million or 23.4% in comparison to the same period last fiscal year. Increased EBITDA from our US Dairy Products Sector of approximately $44 million and from our Canadian and Other Dairy Products Sector of approximately $36 million, offset a reduction of approximately $6 million from our Grocery Products Sector. Since the beginning of the fiscal year, the appreciation of the Canadian dollar eroded approximately $8 million of the Company's EBITDA in comparison to the same period last fiscal year.

Other Consolidated Results Items

Depreciation expense for the third quarter of fiscal 2008 totalled $19.7 million, an increase of $1.0 million compared to the same quarter last fiscal year. For the nine-month period ended December 31, 2007, depreciation expense amounted to $59.6 million, an increase of $5.1 million in comparison to the $54.5 million for the same period last fiscal year. In both cases, the increase is due mainly to the Land O'Lakes West Coast Acquisition completed on April 2, 2007. Capital investments undertaken by all divisions in the prior fiscal year also contributed to increase depreciation expense throughout the current fiscal year. These factors offset reduced depreciation from our foreign subsidiaries due to the appreciation of the Canadian dollar.

Net interest expense increased by $1.3 million to $5.9 million for the quarter ended December 31, 2007 and increased by $5.1 million to $19.7 million for the nine-month period ended December 31, 2007, in comparison to the corresponding quarter and period of last fiscal year. Other interest increased during the current fiscal year due mainly to the reduction of excess cash on hand, which was a source of interest revenue in fiscal 2007, and higher levels of bank loans drawn throughout fiscal 2008. This usage of cash can be explained by the Land O'Lakes West Coast Acquisition in addition to other financing activities undertaken in fiscal 2008. Interest on long-term debt decreased due to the repayment of US$30.0 million of long-term debt during the third quarter of fiscal 2007, as well as the appreciation of the Canadian dollar, thus reducing the interest expense on our US dollar debt.

Income taxes for the third quarter of fiscal 2008 totalled $29.3 million, reflecting an effective tax rate of 26.3%, compared to 30.1% for the same quarter last fiscal year. The Company reduced its future income tax liabilities by approximately $6.5 million to reflect the reduction in the Canadian Federal tax rates sanctioned in December 2007. This reduction results in a one-time tax benefit included in the current quarter. Income taxes for the nine-month period ended December 31, 2007 totalled $96.2 million, reflecting an effective tax rate of 31.1%, compared to 28.5% for the same period last fiscal year. During the first quarter of fiscal 2007, the Company benefited from a one-time tax reduction of approximately $4 million to adjust future tax balances, due to a reduction in Canadian federal tax rates. In the second quarter of fiscal 2008, the Company recorded a tax charge of approximately $3 million due to a reduction of future income tax assets recorded in previous fiscal years for its Argentinean Division. Excluding these adjustments, the effective tax rate for the nine-month period ended December 31, 2007 would be 32.2%, compared to 30.2% for the nine-month period ended December 31, 2006. Our income tax rates vary and could increase or decrease based on the amount of taxable income derived and from which source, any amendments to tax laws and income tax rates and changes in assumptions and estimates used for tax assets and liabilities by the Company and its affiliates.

Net earnings reached $82.0 million for the quarter ended December 31, 2007 compared to $64.1 million for the same quarter last fiscal year. For the nine-month period ended December 31, 2007 net earnings totalled $213.0 million compared to $175.6 million for the corresponding period last fiscal year. These reflect the various factors analyzed above.

Cash and Financial Resources

For the three months ended December 31, 2007, cash generated by operating activities before changes in non-cash working capital items amounted to $93.9 million, an increase of $4.8 million in comparison to the $89.1 million for the corresponding quarter last fiscal year. Since the beginning of the fiscal year, this figure amounted to $277.7 million, an increase of $42.7 million in comparison to the $235.0 million for the same period last fiscal year. Non-cash working capital items generated $15.7 million for the third quarter of fiscal 2008, compared to using $3.5 million for the third quarter of fiscal 2007. For the nine-month period ended December 31, 2007, non--cash working capital items used $73.4 million, compared to generating $16.6 million for the same period last fiscal year. The difference is mainly attributed to higher working capital items in our US Division due to the increase in the average block market per pound of cheese during the current fiscal year in comparison to our fiscal year ended March 31, 2007.

Investing activities comprised of additions to fixed assets of $27.7 million and $69.3 million for the three- and nine-month periods ended December 31, 2007 respectively. For the nine-month period ended December 31, 2007, the Company also used $253.2 million, mainly for the Land O'Lakes West Coast Acquisition completed on April 2, 2007.

Financing activities for the third quarter of fiscal 2008 consisted of a decrease in bank loans of $73.9 million, the issuance of shares for a cash consideration of $2.2 million, as part of the Stock Option Plan, and the payment of $24.7 million in dividends. For the nine-month period ended December 31, 2007, the Company purchased share capital totalling $81.5 million.

As at December 31, 2007, working capital stood at $353.6 million, a decrease from the $521.1 million as at March 31, 2007. The decrease is mainly attributed to the previously available funds disbursed for the Land O'Lakes West Coast Acquisition.

As at December 31, 2007, our interest bearing debt-to-equity ratio stood at 0.20, in comparison to 0.08 as at March 31, 2007.

The Company currently has available bank credit facilities of approximately $620 million, $90.7 million of which are drawn, essentially for our US and Argentinean operations. Following the second quarter, an additional $300.0 million was added to our existing credit facilities. Should the need arise, the Company can make additional financing arrangements to pursue growth through acquisitions.

Balance Sheet

With regards to balance sheet items as at December 31, 2007 that varied compared to those as at March 31, 2007, we should note that the variation in most items is mainly due to the Land O'Lakes West Coast Acquisition. The continued appreciation of the Canadian dollar reduced the balance sheet items reported for our foreign subsidiaries. From an operational perspective, the higher average block market per pound of cheese for this fiscal year has caused an increase in our Cheese Division (USA) working capital items as at December 31, 2007 in comparison to March 31, 2007. The Company's total assets stood at $2.487 billion as at December 31, 2007 compared to $2.488 billion as at March 31, 2007.

Share Capital Information

Share capital authorized by the Company is comprised of an unlimited number of common and preferred shares. The common shares are voting and participating. The preferred shares can be issued in one or more series, and the terms and privileges of each series must be determined at the time of their creation.

                       Authorized          Issued as at         Issued as at                                      December 31, 2007     January 29, 2008 --------------------------------------------------------------------------- Common shares          Unlimited           205,546,868          205,583,108 Preferred shares       Unlimited                  None                 None Stock options                                9,360,298            9,306,446 

In the first three quarters of fiscal 2008, we purchased 3,705,240 common shares at prices ranging from $21.73 to $22.00 per share as part of the normal course issuer bid initiated on November 13, 2006. No common shares were purchased under the normal course issuer bid which became effective as of November 13, 2007.

Follow-up on Certain Specific Items of the Analysis

For an analysis of off-balance sheet arrangements, guarantees, contractual obligations, related party transactions, accounting standards, critical accounting policies and use of accounting estimates as well as risks and uncertainties, we encourage you to consult the comments provided in the 2007 annual report on pages 28 to 33 of the management's analysis, since there were no notable changes during the first three quarters of fiscal 2008.

Internal Controls over Financial Reporting

The Chief Executive Officer and the Chief Financial Officer, together with management, have concluded after having conducted an evaluation and to the best of their knowledge that, as of December 31, 2007, no change in the Company's internal control over financial reporting occurred that could have materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.

Information by Sector

Canadian and Other Dairy Products Sector

For the quarter ended December 31, 2007, revenues from the Canadian and Other Dairy Products Sector amounted to $754.8 million, an increase of $42.5 million in comparison to the $712.3 million for the same quarter last fiscal year. Higher selling prices in our Canadian and Argentinean operations, in accordance with the increase in the cost of milk as raw material, increased sales volume from our Canadian fluid milk activities, and the inclusion of our newly acquired operations in the UK are the main factors explaining the revenue increase. This increase offsets lower sales volume from our Argentinean operations. Revenues from our Dairy Products Division (Germany) showed a slight decrease in comparison to the same quarter last fiscal year. During the quarter, the appreciation of the Canadian dollar eroded approximately $9 million of revenues from the sector, essentially from our Argentinean operations.

Since the beginning of the fiscal year, revenues from the Canadian and Other Dairy Products Sector amounted to $2.220 billion, an increase of $114.6 million in comparison to the $2.106 billion for the same period last fiscal year. The increase is mainly attributable to higher selling prices in our Canadian and Argentinean operations, in accordance with the increase in the cost of milk as raw material, higher by-products sales due to more favourable by-product market conditions, increased sales volume from our Canadian fluid milk activities, and the inclusion of our newly acquired operations in the UK. Since the beginning of the fiscal year, the appreciation of the Canadian dollar eroded approximately $15 million of the sector's revenues, essentially from our Argentinean operations.

For the quarter ended December 31, 2007, EBITDA for the Canadian and Other Dairy Products Sector totalled $95.6 million, an increase of $11.1 million or 13.1% compared to the $84.5 million for the corresponding quarter last fiscal year. The EBITDA margin for the quarter increased to 12.7% in comparison to 11.9% for the same quarter last fiscal year. During the quarter, the appreciation of the Canadian dollar eroded approximately $1 million of EBITDA from the sector.

Our Dairy Products Division (Canada) continued to perform well in the third quarter. Additional EBITDA was derived from better efficiencies in our manufacturing facilities as well as our warehousing and logistic activities. These efficiencies increased EBITDA by approximately $3 million in comparison to the corresponding quarter last fiscal year. Higher sales volumes from our fluid milk activities also increased EBITDA. Although the by-product market conditions are volatile, the impact of these conditions on EBITDA was minimal compared to the same quarter last fiscal year.

The EBITDA of our Dairy Products Division (Argentina) increased in comparison to the same quarter last fiscal year. This increase is due to an improvement in milk supply conditions in Argentina as well as continued benefits from capital investments made in the previous fiscal years.

For the quarter ended December 31, 2007, our Dairy Products Division (Germany) and our Dairy Products Division (UK) combined had a minimal effect on EBITDA. In our German Division, we continue to implement various measures to counteract difficult milk supply conditions.

Since the beginning of the fiscal year, EBITDA totalled $269.2 million, an increase of $36.4 million or 15.6% in comparison to the $232.8 million for the same period last fiscal year. The EBITDA margin increased from 11.1% last fiscal year to 12.1% for the current fiscal year. Since the beginning of the fiscal year, the appreciation of the Canadian dollar eroded approximately $1 million of the sector's EBITDA.

US Dairy Products Sector

Revenues for the US Dairy Products Sector totalled $480.2 million for the quarter ended December 31, 2007, an increase of $218.8 million or 83.7% from the $261.4 million for the corresponding quarter last fiscal year. The Land O'Lakes West Coast Acquisition completed on April 2, 2007, as well as selling price increases contributed approximately $184 million in additional revenues. An average block market per pound of cheese of US$1.99 for the current quarter, US$0.68 higher than the average block market per pound of cheese for the same quarter last fiscal year, increased revenues by approximately $81 million. The appreciation of the Canadian dollar eroded approximately $47 million in revenues. The sales volume for the quarter was 66% higher compared to the same quarter last fiscal year due almost entirely to the Land O'Lakes West Coast Acquisition. The retail segment accounted for 29% of our total sales volume, the foodservice segment 47% and the industrial segment 24%. Various promotional initiatives were undertaken in the current quarter to support our retail brands.

Since the beginning of the fiscal year, revenues totalled $1.446 billion, an increase of $686.8 million in comparison to the $759.4 million for the same period last fiscal year. The Land O'Lakes West Coast Acquisition, increased selling prices, as well as higher sales volumes contributed approximately $544 million in additional revenues. The higher average block market per pound of cheese increased revenues by approximately $221 million. The appreciation of the Canadian dollar eroded approximately $78 million in revenues since the beginning of the fiscal year.

For the quarter ended December 31, 2007, the EBITDA totalled $37.2 million, an increase of $13.2 million in comparison to the $24.0 million for the same quarter last fiscal year. The average block market per pound of cheese continued to remain at high levels during the third quarter of fiscal 2008. An increase of US$0.68 in the average block market per pound of cheese, in comparison to the same quarter last fiscal year, created a positive effect on both the absorption of our fixed costs as well as the realization of our inventories. The relationship between the average block market per pound of cheese and the cost of milk as raw material was more favourable in the current quarter in comparison to the same quarter last fiscal year, which takes into account the benefits from the reduced manufacturing milk prices as a result of governmental decisions announced in the current quarter and last fiscal year. These market factors combined had a positive impact of approximately $9 million on EBITDA. The EBITDA also improved due to the Land O'Lakes West Coast Acquisition, along with initiatives undertaken in the prior and current fiscal years with regards to improved operational efficiencies and increased selling prices. These factors offset increased promotional and other costs incurred in the current quarter in comparison to the same quarter last fiscal year. EBITDA increased by approximately $8 million due to these factors. The appreciation of the Canadian dollar eroded approximately $3 million in EBITDA.

For the nine-month period ended December 31, 2007, EBITDA totalled $105.3 million, an increase of $43.7 million in comparison to the $61.6 million for the corresponding period last fiscal year. The Land O'Lakes West Coast Acquisition and initiatives undertaken in the prior and current fiscal years increased EBITDA by approximately $44 million. The reduction in the manufacturing milk price from both the State of California and the United States Department of Agriculture since the beginning of the fiscal year in comparison to the same period last fiscal year, contributed approximately $5 million in additional EBITDA. The negative market factors and the appreciation of the Canadian dollar created a shortfall in EBITDA of approximately $2 million and $6 million, respectively, in comparison to the same period last fiscal year.

Grocery Products Sector

Revenues for the Grocery Products Sector totalled $42.0 million for the quarter, a $1.3 million decrease compared to the same quarter last fiscal year. This decrease is mainly due to our Canadian sales volume which declined by 2.6% compared to the same quarter last fiscal year. Part of this decrease is due to the price increase that took effect in mid-November 2007. Sales volume from our American co-packing activities also showed a decrease compared to the same quarter last fiscal year. During the quarter, the Division slightly increased its market share in Canada despite the loss in sales volume.

Since the beginning of fiscal 2008, revenues for the Grocery Products Sector totalled $126.5 million, a 0.7% decrease compared to the corresponding period last fiscal year. This decrease is mainly due to lower sales volume resulting from the price increase that took effect in mid-November 2007.

EBITDA for the Grocery Products Sector amounted to $4.2 million, a $2.4 million decrease compared to the same quarter last fiscal year. EBITDA margin went from 15.2% last fiscal year to 10.0% this fiscal year. The division was affected by two main factors: the increase in its operating costs stemming from higher ingredients, packaging, labor and energy costs, and lower sales volume from its Canadian activities, resulting in a $2.0 million decrease in EBITDA. On an annual basis, the division is spending an additional $0.9 million towards the development of its brands, $0.2 million of which was spent this quarter. Finally, an additional $0.3 million was spent on the pension plan as a result of an annual increase over last fiscal year of approximately $1.1 million.

Since the beginning of the fiscal year, EBITDA totalled $14.1 million, a $6.4 million decrease compared to the same period last fiscal year. This decrease was the result of additional ingredients, packaging, labor and energy costs, combined with lower sales volume, which totalled $4.8 million. In addition, the division incurred $0.9 million in higher pension costs and $0.7 million in additional marketing expenditures.

 (signed)                              (signed)  Lino Saputo                           Lino Saputo, Jr.  Chairman of the Board                 President and                                        Chief Executive Officer February 6, 2008 

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(1) "Average block market" is the average daily price of a 40 pound block of Cheddar traded on the Chicago Mercantile Exchange (CME), used as the base price for the cheese.

(2)(3) Measurement of results not in accordance with generally accepted accounting principles

The Company assesses its financial performance based on its EBITDA, this being earnings before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of performance as defined by generally accepted accounting principles in Canada, and consequently may not be comparable to similar measurements presented by other companies.

(4) "Average block market" is the average daily price of a 40 pound block of Cheddar traded on the Chicago Mercantile Exchange (CME), used as the base price for the cheese.

(5) We refer you to the cautionary statement regarding forward-looking information set forth below under "Management Analysis".

(6) All references to number of common shares and prices of common shares made herein have been adjusted to reflect the stock dividend declared on November 6, 2007 and paid on December 21, 2007 to shareholders of record as of the close of business on December 10, 2007, which had the same effect as a two-for-one stock split of the Company's outstanding Common shares.

 NOTICE The consolidated financial statements of Saputo Inc. for the three- and the nine-month periods ended December 31, 2007 and 2006 have not been reviewed by an external auditor. CONSOLIDATED STATEMENTS OF EARNINGS (in thousands of dollars, except per share amounts) (unaudited)                                     For the three-           For the nine-                                      month periods           month periods                                  ended December 31       ended December 31 --------------------------------------------------------------------------                                   2007        2006        2007        2006 -------------------------------------------------------------------------- Revenues                    $1,277,037  $1,016,989  $3,792,754  $2,992,276 Cost of sales,  selling and  administrative expenses     1,140,081     901,955   3,404,211   2,677,398 -------------------------------------------------------------------------- Earnings before  interest, depreciation  and income taxes              136,956     115,034     388,543     314,878 Depreciation  of fixed assets                19,669      18,732      59,607      54,513 -------------------------------------------------------------------------- Operating income               117,287      96,302     328,936     260,365 Interest on long-term debt       4,494       5,594      14,218      16,919 Other interest, net              1,468        (959)      5,499      (2,264) -------------------------------------------------------------------------- Earnings before  income taxes                  111,325      91,667     309,219     245,710 Income taxes                    29,307      27,609      96,230      70,102 -------------------------------------------------------------------------- Net earnings                   $82,018     $64,058    $212,989    $175,608 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Earnings per share (Note 7)   Net earnings     Basic                        $0.40       $0.31       $1.03       $0.85     Diluted                      $0.39       $0.31       $1.02       $0.84 -------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (in thousands of dollars) (unaudited)                                     For the nine-month periods                                                          ended December 31 --------------------------------------------------------------------------                                                      2007             2006 -------------------------------------------------------------------------- Retained earnings, beginning of period         $1,085,081         $971,131 Net earnings                                      212,989          175,608 Dividends                                         (69,745)         (60,003) Excess of purchase price of  share capital over carrying value                (72,258)         (43,796) -------------------------------------------------------------------------- Retained earnings, end of period               $1,156,067       $1,042,940 -------------------------------------------------------------------------- -------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands of dollars) (unaudited)                                                 For the nine-month periods                                                          ended December 31 --------------------------------------------------------------------------                                                      2007             2006 -------------------------------------------------------------------------- Net earnings                                     $212,989         $175,608 Net change in unrealized losses  on translation of financial  statements of self-sustaining operations         (86,885)           1,370 -------------------------------------------------------------------------- Comprehensive income                             $126,104         $176,978 -------------------------------------------------------------------------- -------------------------------------------------------------------------- SEGMENTED INFORMATION (in thousands of dollars) (unaudited)                               For the three-month       For the nine-month                                     periods ended            periods ended                                       December 31              December 31 --------------------------------------------------------------------------                                 2007         2006        2007         2006 -------------------------------------------------------------------------- Revenues Dairy Products   Canada and Other          $754,812     $712,292  $2,220,069   $2,105,538   United States              480,205      261,429   1,446,206      759,384 --------------------------------------------------------------------------                            1,235,017      973,721   3,666,275    2,864,922 Grocery Products              42,020       43,268     126,479      127,354 --------------------------------------------------------------------------                           $1,277,037   $1,016,989  $3,792,754   $2,992,276 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Earnings before  interest, depreciation  and income taxes Dairy Products   Canada and Other           $95,576      $84,525    $269,198     $232,778   United States               37,162       23,952     105,250       61,559 --------------------------------------------------------------------------                              132,738      108,477     374,448      294,337 Grocery Products               4,218        6,557      14,095       20,541 --------------------------------------------------------------------------                             $136,956     $115,034    $388,543     $314,878 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Depreciation  of fixed assets Dairy Products   Canada and Other            $9,108       $9,515     $27,405      $27,581   United States                8,262        7,559      26,318       22,071 --------------------------------------------------------------------------                               17,370       17,074      53,723       49,652 Grocery Products               2,299        1,658       5,884        4,861 --------------------------------------------------------------------------                              $19,669      $18,732     $59,607      $54,513 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Operating income Dairy Products   Canada and Other           $86,468      $75,010    $241,793     $205,197   United States               28,900       16,393      78,932       39,488 --------------------------------------------------------------------------                              115,368       91,403     320,725      244,685 Grocery Products               1,919        4,899       8,211       15,680 --------------------------------------------------------------------------                             $117,287      $96,302    $328,936     $260,365 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Interest                       5,962        4,635      19,717       14,655 -------------------------------------------------------------------------- Earnings before  income taxes                111,325       91,667     309,219      245,710 Income taxes                  29,307       27,609      96,230       70,102 -------------------------------------------------------------------------- Net earnings                 $82,018      $64,058    $212,989     $175,608 -------------------------------------------------------------------------- -------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) (unaudited)                              For the three-month        For the nine-month                                          periods                   periods                                ended December 31         ended December 31 --------------------------------------------------------------------------                                2007         2006         2007         2006 -------------------------------------------------------------------------- Cash flows related to the  following activities:   Operating     Net earnings            $82,018      $64,058     $212,989     $175,608     Items not affecting cash       Stock based        compensation           2,089        1,951        6,246        5,953       Depreciation of        fixed assets          19,669       18,732       59,607       54,513       Loss (gain) on        disposal of        fixed assets              99         (160)        (326)        (165)       Future income taxes    (9,843)       4,910         (276)         309     Funding of employee      plans in excess      of costs                  (177)        (409)        (521)      (1,227) --------------------------------------------------------------------------                              93,855       89,082      277,719      234,991     Changes in non-cash      operating working      capital items           15,740       (3,517)     (73,442)      16,634 --------------------------------------------------------------------------                             109,595       85,565      204,277      251,625 --------------------------------------------------------------------------   Investing     Business acquisitions     (Note 10)                     -            -     (253,188)     (19,085)     Portfolio investment      1,648            -        1,648            -     Additions to      fixed assets           (27,667)     (17,851)     (69,252)     (59,544)     Proceeds on disposals      of fixed assets            394        3,417        2,376        3,739     Other assets             (4,976)      (2,137)      (2,793)      (6,207) --------------------------------------------------------------------------                             (30,601)     (16,571)    (321,209)     (81,097) --------------------------------------------------------------------------   Financing     Bank loans              (73,919)      (5,289)     (37,329)      (5,429)     Repayment of      long-term debt               -      (33,828)           -      (33,828)     Issuance of      share capital            2,202        1,671       23,801        9,875     Repurchase of      share capital                -      (17,730)     (81,472)     (50,677)     Dividends               (24,661)     (20,634)     (69,745)     (60,003) --------------------------------------------------------------------------                             (96,378)     (75,810)    (164,745)    (140,062) -------------------------------------------------------------------------- (Decrease) increase in  cash and cash equivalents  (17,384)      (6,816)    (281,677)      30,466 Effect of exchange  rate changes on cash  and cash equivalents         2,487         (504)       7,417       (1,187) Cash and cash equivalents,  beginning of period         17,531      128,132      276,894       91,533 -------------------------------------------------------------------------- Cash and cash equivalents,  end of period               $2,634     $120,812       $2,634     $120,812 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Supplemental information Interest paid               $10,560      $10,639      $24,050     $20,856 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Income taxes paid           $10,962      $20,188      $71,923     $60,377 -------------------------------------------------------------------------- -------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (in thousands of dollars) --------------------------------------------------------------------------                                                   December 31     March 31                                                          2007         2007                                                    (unaudited)    (audited) -------------------------------------------------------------------------- -------------------------------------------------------------------------- ASSETS Current assets   Cash and cash equivalents                            $2,634     $276,894   Receivables                                         430,722      324,702   Inventories                                         501,930      445,992   Income taxes                                          2,005        6,413   Future income taxes                                  10,190       13,045   Prepaid expenses and other assets                    20,885       23,939 --------------------------------------------------------------------------                                                       968,366    1,090,985 Portfolio investment                                   41,343       42,991 Fixed assets (Note 4)                                 845,639      691,226 Goodwill                                              515,797      547,379 Trademarks and other intangibles                       37,651       32,340 Other assets (Note 5)                                  72,320       73,726 Future income taxes                                     5,875        9,720 --------------------------------------------------------------------------                                                    $2,486,991   $2,488,367 -------------------------------------------------------------------------- -------------------------------------------------------------------------- LIABILITIES Current liabilities   Bank loans                                          $90,733     $139,001   Accounts payable and accrued liabilities            417,503      343,911   Income taxes                                        103,463       85,644   Future income taxes                                   3,114        1,294   Current portion of long-term debt                         -           21 --------------------------------------------------------------------------                                                       614,813      569,871 Long-term debt                                        218,086      254,012 Other liabilities                                      14,010       16,413 Future income taxes                                   102,131      115,053 --------------------------------------------------------------------------                                                       949,040      955,349 -------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital (Note 8)                                531,783      511,737 Contributed surplus (Note 9)                           19,650       18,864 Retained earnings                                   1,156,067    1,085,081 Accumulated other comprehensive loss (Note 3)        (169,549)     (82,664) --------------------------------------------------------------------------                                                     1,537,951    1,533,018 --------------------------------------------------------------------------                                                    $2,486,991   $2,488,367 -------------------------------------------------------------------------- -------------------------------------------------------------------------- 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts are in thousands of dollars except information on options and shares) (unaudited)

1 - Accounting Policies

The unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and applied in the same manner as the most recently audited financial statements. During the fiscal year, the Company adopted the following accounting policies: section 1530, Comprehensive Income, section 3855, Financial Instruments - Recognition and Measurement, and section 3865, Hedges. The unaudited consolidated financial statements do not include all the information and notes required according to generally accepted accounting principles for annual financial statements, and should therefore be read in conjunction with the audited consolidated financial statements and the notes included in the Company's annual report for the year ended March 31, 2007.

2 - Foreign Currency Translation

The balance sheet accounts of the self-sustaining companies operating in the United States, Argentina, Germany and the United Kingdom are translated into Canadian dollars using the exchange rates at the balance sheet dates. Statement of earnings accounts are translated into Canadian dollars using the average monthly exchange rates in effect during the periods. The unrealized losses on translation of the financial statements of self-sustaining operations account presented in accumulated other comprehensive loss represents accumulated foreign currency losses on the Company's net investments in companies operating in the United States, Argentina, Germany and the United Kingdom. The change in the unrealized losses on translation of the financial statements of self-sustaining operations account for the period resulted mainly from the increase in value of the Canadian dollar as compared to the US dollar.

Foreign currency accounts of the Company and its subsidiaries are translated using the exchange rates at the balance sheet date for monetary assets and liabilities and the prevailing exchange rates at the time of transactions for income and expenses. Gains or losses resulting from this translation are included in the statement of earnings.

                               For the three-month       For the nine-month                                           periods                  periods                                 ended December 31        ended December 31                                    2007      2006          2007       2006 -------------------------------------------------------------------------- Foreign exchange gain (loss)       $232      $(23)         $847       $471 -------------------------------------------------------------------------- 3 - Accumulated Other Comprehensive Loss                                                          December 31, 2007 -------------------------------------------------------------------------- Accumulated other comprehensive  loss, beginning of period                                        $(82,664) Other comprehensive loss                                           (86,885) -------------------------------------------------------------------------- Accumulated other comprehensive loss, end of period              $(169,549) -------------------------------------------------------------------------- -------------------------------------------------------------------------- 4 - Fixed Assets                            December 31, 2007                 March 31, 2007 ---------------------------------------------------------------------------                             Accumu-                       Accumu-                               lated      Net                lated       Net                              depre-     book               depre-      book                       Cost  ciation    value       Cost   ciation     value --------------------------------------------------------------------------- Land               $33,237       $-  $33,237    $27,666        $-   $27,666 Buildings          312,332   68,603  243,729    278,463    68,750   209,713 Furniture,  machinery  and equipment     963,244  407,508  555,736    824,427   383,350   441,077 Rolling stock       13,178    7,974    5,204     12,928     7,156     5,772 Held for sale        7,733        -    7,733      6,998         -     6,998 ---------------------------------------------------------------------------                 $1,329,724 $484,085 $845,639 $1,150,482  $459,256  $691,226 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 

Fixed assets held for sale represent mainly machinery, equipment and buildings that will be disposed of as a result of certain plant closures.

The net book value of fixed assets under construction, that are not being amortized, amounts to $55,662,000 as at December 31, 2007 ($22,518,000 as at March 31, 2007), and consists mainly of machinery and equipment.

 5 - Other Assets                                        December 31, 2007    March 31, 2007 -------------------------------------------------------------------------- Net accrued pension plan asset                   $56,213           $54,326 Taxes receivable                                   8,780            12,626 Other                                              7,327             6,774 --------------------------------------------------------------------------                                                  $72,320           $73,726 -------------------------------------------------------------------------- -------------------------------------------------------------------------- 

6 - Employee Pension and Other Benefit Plans

The Company provides defined benefit and defined contribution pension plans as well as other benefit plans such as health insurance, life insurance and dental plans to eligible employees and retired employees. Pension and other benefit plan obligations are affected by factors such as interest rates, adjustments arising from plan amendments, changes in assumptions and experience gains or losses. The costs are based on a measurement of the pension and other benefit plan obligations and the pension fund assets.

Total benefit costs for the three- and nine-month periods ended December 31 are as follows:

                            For the three-month          For the nine-month                      periods ended December 31   periods ended December 31                             2007          2006          2007          2006 -------------------------------------------------------------------------- Pension plans             $5,123        $4,867       $15,340       $14,547 Other benefits plans         304           370           904         1,092 --------------------------------------------------------------------------                           $5,427        $5,237       $16,244       $15,639 -------------------------------------------------------------------------- -------------------------------------------------------------------------- 7 - Earnings per Share Earnings per share were retroactively restated to reflect the stock dividend (see Note 8).                               For the three-month        For the nine-month          

Source: MARKET WIRE

	
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