Sollio Cooperative Group’s 100th anniversary will go down in our collective memory as a time fraught with significant challenges, as reflected by our financial results for the past fiscal year.

 

With consolidated sales of over $8 billion, Sollio Cooperative Group recorded a loss before patronage refunds and income taxes of $18.7 million.

 

The previous year’s strong results generated significant returns in cash and share redemptions, in addition to putting us on the right foot to head into the new fiscal year.

 

That being said, 2021 brought a series of negative events with a cascade of adverse effects, disrupting our annual planning and forecasts.

 

We were targeted in the surge of systems hacking that is threatening every organization worldwide. Olymel and BMR Group faced logistics issues due to COVID-19, such as high container prices and supply disruptions. Volatile commodity prices significantly impacted inventory values, particularly in the grain and lumber sectors.

 

Olymel’s hog business clearly faced the most adverse environment. I refer to the severe labour shortages associated with the demographic mismatch in the labour market, on top of the health restrictions resulting from the COVID-19 pandemic.

 

The labour shortage resulted in prioritizing the pace of slaughter and producing low-margin primary cuts, at the expense of processing value-added cuts. The detrimental impact on margins was even greater for certain of our plants whose export permits to China were suspended due to geopolitical circumstances. Note that China is a unique world market for the utilization of hog by-products.

 

Québec's pork pricing formula puts us at a disadvantage compared with our Canadian and North American competitors. The formula’s impact was even greater in 2021, given our inability to fully process cuts and the loss of the Chinese market to move primary cuts.

 

The volume of hogs awaiting slaughter in Québec rose to record levels during the fiscal year, compounded by the months-long strike at the Vallée-Jonction plant. Olymel made every effort to avoid President’s message Ghislain Gervais 2021 last resort solutions such as compassionate slaughter. Slaughter volume was given priority over processing. Piglets and hogs were shipped outside Québec. All of these actions helped to reduce pressure, but they also led to additional losses of revenue.

 

Sollio Agriculture’s grain sector faced a difficult-to-predict reverse market. Steps were taken to correct the situation, but the financial consequences were substantial.

 

On the positive side, several of our operating sectors performed very well despite the difficult environment. BMR Group recorded excellent results, benefiting from the impact of the pandemic and the rage for renovation, among other things. I would like to also highlight Olymel’s poultry operations, Sollio Agriculture’s animal and crop production, and the energy sector. All of these sectors generated gains in line with or well above expectations.

 

Our network of cooperatives is the picture of health. The financial strength of our agricultural cooperatives grows deeper year by year. Our far-reaching network reorganization plan, Vision Plus, has certainly played a part in this.

 

These outcomes illustrate the importance of diversifying our operations. Some of our sectors deliver stable results year after year, which helps to maintain Sollio Cooperative Group’s resilience.

 

And once again during the year, our financial partners showed their continued confidence in us by making equity investments and renewing our credit facility. We would like to thank them warmly for their support for our organization and cooperative business model.

 

We achieved another important milestone during the year by completing a generational leadership transition at Sollio Cooperative Group and across all divisions. The implementation of our succession plan involved a rigorous and orderly process rolled out over many months.

 

In that regard, I want to reflect on the departure in the past year of two of our organization’s stalwart champions, Mr. Gaétan Desroches and Mr. Réjean Nadeau.

 

Gaétan Desroches, CEO of Sollio Cooperative Group, retired last September after a career of 40 years within our network. Under his leadership, Sollio Cooperative Group consistently grew and consolidated its position as a frontrunner in Canada’s agri-food chain and retail industry.

 

And we were deeply saddened by the sudden death of Réjean Nadeau, President and CEO of Olymel, on October 14, 2021. During the 25 years of his stewardship, Olymel, which now numbers over 14,000 employees, grew from sales of some hundreds of millions of dollars to $4.2 billion.

 

On behalf of the members of our Board of Directors, our employees and our members, I want to thank them wholeheartedly for their remarkable work, their tireless dedication and their high esteem for agricultural producers.

 

I would also like to take this opportunity to congratulate their successors, both from within our organization. Mr. Pascal Houle, as CEO of Sollio Cooperative Group and Mr. Yanick Gervais, as President and CEO of Olymel. And I want to congratulate Mr. Casper Kaastra, the new CEO of Sollio Agriculture, and Mr. Alexandre Lefebvre, the new CEO of BMR Group, who joined us during the year.

 

The members of the Board of Directors of Sollio Cooperative Group and Olymel are confident that they will successfully carry on their predecessors’ work and leverage their skills to continue building our organizations.

 

And I want to extend my thanks to their respective teams and to our more than 16,000 employees, who have shown such commitment to our organization as we continued to adapt to the many demands made by COVID-19.

 

A thriving network

 

Our network of cooperatives is the picture of health. The financial strength of our agricultural cooperatives grows deeper year by year. Our far-reaching network reorganization plan, Vision Plus, has certainly played a part in this.

 

You’ll recall that Vision Plus supports the consolidation of our agricultural cooperatives and business partnerships with our Sollio Agriculture division. Launched in 2016, the initiative was in response to a desire by our elected officials to modernize our business model to better meet producers’ needs and ensure network sustainability in a highly consolidated market environment.

 

Today, it is clear that the consolidation of the agricultural cooperatives, which is already well underway, has generated significant leverage in securing their sustainability. It is also clear that our consolidated businesses are in a much stronger position to face the major challenges of today and tomorrow.

 

Further of note, Agiska Coopérative launched formally on November 1, 2021 consolidating cooperatives in the Montérégie region under a robust new regional umbrella. Avantis Coopérative has gained new strength through the inclusion of La Coop Alliance in its fold.

 

The business partnerships that we have formed with our consolidated cooperatives are also giant steps towards a stronger network. These combinations make us even more competitive and enhance the common bond that defines us.

 

Today, it is clear that the consolidation of the agricultural cooperatives, which is already well underway, has generated significant leverage in securing their sustainability.

 

The development of regional partnerships continued to gain momentum this year, with the official launches of Sollio & Agiska Agriculture Coopérative and Sollio & Uniag Agriculture Coopérative. Note also that Agriscar Coopérative and Novago Coopérative recently united within Sollio & Grains Québec Agriculture Coopérative.

 

Other consolidation projects are underway and will take shape over the coming years. Vision Plus is a dynamic, scalable project, and that is what will ensure its long-term success. Our network’s landscape has evolved significantly over the past few years and demonstrates the soundness of our vision and ambition. Together, we will go farther.

 

Sollio for tomorrow

 

Over its 100-year history, Sollio Cooperative Group has reaped abundant success and faced down many crises.

 

After many years of growth and given the financial results of the past fiscal year, an asset optimization project is currently underway. This is essential to putting Sollio Cooperative Group and Olymel back on stable footing. Furthermore, Olymel initiated a plan to improve hog operations, which will be fully implemented in the coming months.

 

Beyond economic considerations, we continued our work on the cornerstones of our cooperative model. Among other things, the Board of Directors approved the recommendations of the ad hoc Governance Committee, which addressed Board of Directors succession strategy, Board representation and composition, and the integration of women into our decision-making bodies.

 

In that regard, we continued to deploy the Action Plan for the Equitable Representation of Women in Network Governance. Among other things, in 2021 we reached our target of three women on the Board of Directors. However, work remains to be done to reach our target of 30% by 2025.

 

We also maintained our structured approach to corporate responsibility. Together, we must continue to seek solutions to the different environmental and social challenges. The builders of yesteryear left us a unique heritage. Those who came before us were farsighted in creating a broad-based cooperative network to provide mutual services, support and sharing. They could never have imagined the scale their cooperative would achieve 100 years down the road.

 

According to the World Cooperative Monitor, Sollio Cooperative Group ranks 104th among the world’s 300 largest cooperatives. Its contribution to driving the Canadian and regional economies has been significant from its very beginnings in 1922.

 

Sollio Cooperative Group’s direct and induced benefits contribute over $4 billion to Canada’s GDP and generate nearly 40,000 full-time jobs. Its operations generate annual tax revenues of about $1 billion per year for federal and provincial governments. Those are numbers that would make our forerunners proud.

 

But the heritage those builders left to us carries its own weight of responsibilities. It’s our turn to nurture it. It’s our turn to make it sustainable. It’s our turn to leave an enduring heritage for future generations of farm cooperators. And you can be sure that those responsibilities and our values guide our actions and decisions day after day.

 

In its 100 years of growing, this is not the first time our cooperative has faced down major challenges. And it’s pretty much a sure thing that it won’t be the last.

 

But as in the past, when times get tough, we do what we need to do to get ourselves into a better position for the future. Our history has shown us time and time again that our cooperative model is durable and resilient, just like our farming members.

 

To conclude, I would like to extend my thanks to my colleagues on the Board of Directors for their solidarity, their professionalism, and their trust in me. And I applaud all of the directors across the network. It is your commitment and determination that give real meaning to our collective action!

Coming on the eve of Sollio Cooperative Group’s 100th anniversary, fiscal 2021 will surely go down as one of the most tumultuous years in our history. During the second consecutive year of the COVID-19 pandemic, Sollio Cooperative Group was sorely tested by particularly challenging business conditions in two of its sectors..

 

For the fiscal year ended October 30, 2021, Sollio Cooperative Group recorded sales of $8.3 billion and a loss of $18.7 million before patronage refunds and taxes, including a loss from discontinued operations. In 2020, sales totalled $7.6 billion, while earnings before patronage refunds and income taxes amounted to $201.0 million. The decrease was mostly attributable to the Sollio Food and Sollio Agriculture divisions.

 

Sollio Food

 

Sollio Food (Olymel) posted a $60.2 million loss before patronage refunds and income taxes, including corporate expenses, compared with earnings of $215.4 million in 2020. The lower results were largely attributable to the Eastern and Western fresh pork sectors. For the Eastern fresh pork sector, the closure of market access to China severely impacted sales of by-products. Furthermore, compounding the strike at the Vallée-Jonction plant, the pandemic intensified the labour shortages, reducing the Group’s capacity for boning, an essential step in driving improved margins. These circumstances also compelled the division to outsource slaughtering, which represented substantial additional costs. Profitability in the Western fresh pork sector was mainly impacted by a stronger Canadian dollar and higher supply costs, as well as an 11-day forced closure at the Red Deer plant due to COVID-19.

 

Sollio Agriculture

 

The Sollio Agriculture division posted a loss before patronage refunds and income taxes of $22.0 million, compared with earnings before patronage refunds and income taxes of $8.2 million in fiscal 2020, for a $30.2 million decrease, resulting mainly from unfavourable results in the grains sector. As markets did not react as expected, we had to adjust our positions to adequately align with market conditions and observable values, generating significant losses. Conversely, the crop production sector saw a record year, owing to a favourable market position for crop inputs and the launch of global sourcing in the sector, which enabled it to leverage higher prices for those commodities. Moreover, weather conditions in Eastern Canada and grain prices stimulated growth in demand for crop protection products. Results for the animal production sector were up slightly, reflecting local sourcing of ingredients and favourable purchasing positions in a strongly rising market for one of our networks.

 

Sollio Retail

 

Lastly, the Sollio Retail Division (BMR Group) reported earnings before taxes, including corporate expenses, totalling $28.2 million, compared with $28.7 million for the previous fiscal year, representing a $0.5 million decline. Despite fairly stable earnings before patronage refunds and taxes compared with the previous fiscal year, several significant factors shaped fiscal 2021.

 

Following this past fiscal year and after ten consecutive years of sustained growth, Sollio Cooperative Group is embarking on a period of consolidation where we must solidify our bases.;

 

The $374.8 million increase in sales in 2021 was primarily due to increased demand for building and renovation products stemming from widespread lockdowns between December and June 2021, and a historic surge in commodity prices through June 2021. That being said, a sharp drop in market prices occurred in July 2021, coinciding exactly with a slowdown in store traffic that lasted through the end of the year. Consequently, gross margin as a percentage of sales declined, owing partly to the significantly higher cost of importing products from abroad and partly to the fact that, prior to the sudden drop in commodity prices, inventory levels were high in anticipation of rising demand, which proved to be considerably below expectations.

 

Energy sector results are reported as a share of results of a joint arrangement owing to a 50% interest held via a subsidiary. The share recorded for the year amounted to $12.3 million compared with $13.9 million a year earlier.

 

Operating expenses Cost of sales and selling and administrative expenses totalled $8.4 billion compared with $7.3 billion for the previous year. This increase was relatively consistent across the divisions. Net financial expenses decreased to $34.7 million in fiscal 2021 from $55.6 million for the previous fiscal year, owing primarily to the lower average interest rate compared with the year before.

 

Including the results of its divisions, Sollio Cooperative Group reported a consolidated operating loss of $61.6 million, compared with operating income of $184.1 million in fiscal 2020.

 

Other income and expenses includes the share of results of joint arrangements, namely businesses in which Sollio Cooperative Group has joint control. This share totalled $57.4 million in fiscal 2021 compared with $50.7 million for fiscal 2020, with the increase arising primarily from Sollio Agriculture’s agricultural input distribution and marketing segment. The segment posted record results in 2021, which were partially offset by lower results attributable to Sollio Food’s hog breeding, slaughtering and pork further processing segment.

 

Share of results of entities subject to significant influence — entities in which Sollio Cooperative Group has less than a 50% investment — amounted to $13.8 million in 2021, compared with $4.7 million in 2020, an increase due mainly to the acquisition by Sollio Food during the year of an interest in a business in the slaughterhouse by-product valorization sector.

 

Investment income, which represents interest and dividend income from investments, totalled $1.9 million in fiscal 2021 compared with $3.1 million for the prior fiscal year.

 

Net losses on disposal and remeasurement of assets amounted to $10.3 million in fiscal 2021 compared with $1.2 million in fiscal 2020. The loss in 2021 stemmed mainly from the disposal of property, plant and equipment in Sollio Food and the disposal and remeasurement of investments in Sollio Agriculture. The 2020 loss was generated primarily by the sale of units held in subsidiaries and joint arrangements of Sollio Agriculture, offset by gains on disposals of property, plant and equipment.

 

Gains (losses) on remeasurement of interest rate swaps represented a gain of $26.3 million in fiscal 2021 compared with a $35.0 million loss for fiscal 2020. The gains arose from the remeasurement of interest rate swaps that declined significantly in value in 2020 following a decrease in interest rates resulting from the COVID-19 pandemic.

 

In 2021, Gains arising from insurance benefits, a new line item, which represents amounts received from insurance claims, amounted to $5.7 million.

 

For the fiscal year ended October 30, 2021, taking into account a tax recovery of $8.4 million, net loss amounted to $10.3 million, compared with earnings of $141.0 million in 2020. Net loss attributable to members of the Group amounted to $4.3 million, compared with earnings of $117.7 million in fiscal 2020, while net loss attributable to non-controlling interests totalled $6.0. million, compared with earnings of $23.3 million in fiscal 2020.

 

Through cooperation, our network has been one of the driving forces behind the modernization of Québec agriculture. Let’s make this year a time to be proud of our heritage and the lasting impact we continue to make in the communities we operate in.

 

Parent company

 

The parent company’s earnings before patronage refunds and income taxes totalled $34.0 million compared with a $81.1 million loss for fiscal 2020. The improvement arose partly from the $26.3 million gain on remeasurement of interest rate swaps, and partly from the $10.3 million gain related to the remeasurement of employee future benefits in 2021, compared with an expense of $25.1 million in 2020. The difference reflected the solid performance of pension plan assets in 2021, whereas the purchase of annuities in 2020 for certain defined benefit pension plans resulted in an actuarial loss in the Group’s books. Lastly, a $5.5 million gain from insurance benefit also contributed to the increase.

 

Year 2 of the COVID-19 pandemic

 

For a second consecutive year, COVID-19 continued to spread around the world with a host of spin-off effects. Like many other businesses at home and abroad, Sollio Cooperative Group’s operations and results were impacted once again, and this time to a greater degree. While we were optimistic as the new year began, all our divisions were ultimately impacted by the unpredictability of fiscal 2021 . Price volatility, supply chain vulnerability issues and heightened labour shortages were only a few of the unexpected challenges that arose during the year. Following this past fiscal year and after ten consecutive years of sustained growth, Sollio Cooperative Group is embarking on a period of consolidation where we must solidify our bases. For 100 years now, Sollio has worked to secure sustainabilityand prosperity for the local agricultural producers that its network of cooperatives belongs to. We have a responsibility to them to generate profit, and as such we have a duty to quickly regain our sound financial footing. We will make this our priority, building on the asset optimization plan we developed during the year.

 

As recognized by the prestigious Canada’s Best Managed Companies ranking awarded to us in 2021, Sollio Cooperative Group’s business model is strong, our mission, vision and values are rooted in our day-to-day operations and our strategic planning is rigorous — and we will soon return to growth.

 

Human resources

 

I officially assumed my role as CEO of Sollio Cooperative Group in September 2021, at the end of the fiscal year. With Casper Kaastra, Alexandre Lefebvre and Yanick Gervais being appointed during the year as CEO of Sollio Agriculture, CEO of BMR Group, and President and CEO of Olymel, respectively, a full and unprecedented changing of the guard took place seamlessly and harmoniously.

 

Working through a pandemic

 

Keeping an organization’s culture alive and mobilizing teams during a pandemic is a major challenge, but we continued to be proactive and adaptable at all levels throughout the year. Continuous situation updates around the pandemic and sharing best practices across the organization gave visibility over the health and safety of our employees, while simultaneously safeguarding our operations. And we introduced a new remote working policy that supports a hybrid working model, among other things. The pandemic without a doubt accelerated the adoption of technology tools that enable employees to stay connected remotely, and also enjoy an enhanced work-life balance.

 

Health and well-being

 

As the mental and physical health of our employees is of key importance to us, we launched a new activity last year, the Sollio Challenge, to encourage people to get moving and to raise funds for the From Us to You initiative. Through it, employees of Sollio Cooperative Group, the divisions and the network were urged to set personal mileage goals and to raise a minimum sum of money to donate to the cause. When the Challenge came to a close, over 40,000 km had been walked, run or cycled, and donations amounted to $54,000. Through the second edition of From Us to You, that amount complemented the $510,000 donated to food banks by Sollio Cooperative Group and eighteen cooperatives in its network.

 

100 years... and counting

 

The year ahead is a very special one for Sollio Cooperative Group — our 100th anniversary. A century ago, the founding of La Coopérative fédérée de Québec gave Québec farmers the means to realize their ambitions by empowering them to market their products both locally and abroad, and to access the training they needed to increase their yields. Through cooperation, our network has been one of the driving forces behind the modernization of Québec agriculture. Let’s make this year a time to be proud of our heritage and the lasting impact we continue to make in the communities we operate in. 

 

Our mission is a great and honourable one, and it comes with responsibilities. We are committed to going forward building a sustainable future for our Canadian farming families and for consumers at home and abroad. We’re 100 years young... and counting!

 

In closing, I would like to extend my sincere thanks to the President and members of Sollio Cooperative Group’s Board of Directors for their welcome and support since I stepped into my role. I also want to express my gratitude to Gaétan Desroches, our cooperative’s former CEO, whose collaboration throughout this smooth transition was greatly appreciated, and say a special thanks to my colleagues on the Executive Committee, and the division leaders, for their dedicated work and invaluable collaboration. I would also like to applaud the presidents and general managers of the cooperatives for their involvement, their openness, and their solidarity in this very challenging year.

 

My final words are for all of the employees of Sollio Cooperative Group, our divisions, and our network. The conditions your teams have had to navigate through, with a pandemic that recently picked up steam instead of tapering off, were particularly challenging. Hats off to each and every one of you and I thank you from the bottom of my heart for supporting our network every day.