Ghislain Gervais

Over the past fiscal year, La Coop fédérée (“La Coop”) continued and to a large extent completed the ambitious growth strategy it launched a few years ago, and with that strategy as its springboard, La Coop is very well positioned for the future.

 

Several major projects which grew out of the strategic thinking exercise around the model for “La Coop fédérée of tomorrow” were completed during the past fiscal year — La Coop’s governance was strengthened, a new section of members created and the name of La Coop fédérée will be changed in march 2020. 

 

The Vision 2020 project continues to move forward. The network spared no effort to pursue and integrate cooperative consolidation and prepare to implement regional and sectoral partnerships. 

 

Driven by its growth strategy, La Coop’s consolidated sales in 2019 exceeded $7 billion for the first time in its history. Earnings before patronage refunds and income taxes totalled $79 million, down from previous years. 

 

This result stemmed mainly from a particularly difficult business environment in 2019. Geopolitical and trade tensions between the United States and China, which also caused turmoil in Canada, disrupted agricultural markets. Temporary closure of the Chinese market to Canadian meat products, our largest export market by volume, significantly affected our results. 

 

Looking at growth for La Coop and its divisions, the Competition Bureau at the end of 2019 greenlighted acquisition of the assets of F. Ménard, a leading Québec pork sector business. Producing over 1 million hogs and employing 1,200, the business will enable Olymel to maintain its position as one of the largest pork processing companies in North America.

 

Additionally, completion of the work to upgrade the Yamachiche plant will consolidate pork processing activities in Québec and enhance the efficiency of our operations in the sector.

 

In the retail sector, BMR Group set up partnerships with businesses in promising market segments and acquired shares in Lefebvre & Benoit, a distributor of construction materials for commercial buildings and multi-unit housing, a high-growth sector. BMR Group also acquired an interest in Équipements d’érablière CDL, a leader in the maple syrup industry, another growth sector.

 

Sollio Agriculture moved forward with construction and installation work on the grain terminal at the Port of Québec, a project that will provide agricultural producers access to the international grain export market. Sollio Agriculture also continued with the integration of its recent investments, Standard Nutrition 

 

Sollio Cooperative Group, La Coop fédérée’s new name, is a brand that reflects our core business and renews our identity 

 

Canada in the Prairies, and Maizex and Cargill in Ontario.

La Coop’s growth would not have been possible without the support of its financial institutions. Again this year, our financial partners provided backing for us by investing in preferred shares, renewing our credit facility and granting term loans. We would like to thank our financial partners for their strong vote of confidence in our organization and the cooperative business model.

 

On behalf of the Board of Directors, I would like to extend my thanks to Gaétan Desroches, Réjean Nadeau, Sébastien Léveillé, Pascal Houle and their teams for successfully completing all of these projects. And I would like to thank our some 15,000 employees who helped deliver these results — We can’t say it often enough, but the strength of an organization depends first and foremost on the quality of its human resources.

 

La Coop fédérée of tomorrow

 

During the past fiscal year, the Board of Directors launched a strategic thinking exercise to define the model for “La Coop fédérée of tomorrow.” Planning focused on key areas such as our growth strategy, governance, financial model, patronage refunds, talent and brand image, and is far advanced if not completed on several of them. 

 

Actions have been initiated or carried out to strengthen governance. At the last Annual General Meeting, delegates adopted regulations to promote La Coop’s long-term sustainability, maintain the cooperative model’s specific democratic process and ensure that La Coop remains under the control of Québec agriculture producers. Adopting these regulations limits demutualization risk and ensures that agricultural producers have a majority of votes on governance issues. 

 

To promote continuous improvement, the Board of Directors also conducted a review of the functioning and current structure of the various Board committees and changes were made to maximize their value creation and operational efficiency. An IT committee was also formed as information technology is fundamental to developing La Coop’s operations, products and services and cybersecurity.

 

The past fiscal year saw succession planning for two members of the Board of Directors, Me. Jean-François Harel, General Secretary, and Mr. Paul Noiseux, Chief Financial Officer, who together have over 50 years’ experience in the organization.

 

Over the years, Me. Harel and Mr. Noiseux have shown unwavering dedication to La Coop, to sound governance for the Board of Directors and to our organizational and cooperative values. On behalf of the Board of Directors and myself, I would like to express my warmest thanks for their invaluable contribution to La Coop’s development.

 

I am pleased to welcome their successors, Me. Josée Létourneau, General Secretary, who will be the first woman to serve as an officer of La Coop, and Alexandre St-Jacques, Chief Financial Officer, La Coop’s youngest ever officer.

 

As regards branding, delegates authorized changing the organization’s name at the last Annual General Meeting. Accordingly, La Coop fédérée will become Sollio Cooperative Group at its 98th Annual General Meeting. That will be its fourth change of name in its almost 100-year history. 

 

Sollio Cooperative Group is a simple and modern brand with universal appeal – a brand that reflects our core business and renews our identity. “Sollio” evokes words like “soil,” “sun,” “solidarity,” “solicitude,” which aptly represent what we are.

 

The Sollio Cooperative Group name will secure us recognition as the leading brand in the Canadian agriculture and agri-food sector and as a great, world-class cooperative. And the network has already made the name its own over the past year, with Sollio Agriculture branded agricultural activities.

 

Finally, another element that emerged clearly from the strategic thinking exercise around “La Coop fédérée of tomorrow” was the need to create new sections of members. Acquisitions in recent years diluting sales represents an immense challenge to maintaining our cooperative identity. Our cooperative model has to evolve in certain areas as we expand into new regions and sectors. 

 

Accordingly, we have the pleasure of welcoming some 60 independent BMR Group stores which became affiliated with La Coop this year and will now enjoy the benefits of the cooperative model.

 

Vision 2020

 

Work on transforming the network to align with Vision 2020 moved forward this year. A wide-ranging project, it will enable the network to adapt to new contemporary challenges and respond to the specific agricultural reality of each region. The two components of the transformation process are being rolled out simultaneously. 

 

The first component of Vision 2020 aims to consolidate cooperatives in the regions into larger groups whose strength, investment capacity and value will drive growth for the consolidated cooperatives. And that goal in fact prompted the decision of four cooperatives in southern Québec in early 2020 to come together in a single entity, Agiska Coopérative (previously the Triomphe project). That decision ties in with the move to consolidate already well underway in other regions.

 

The second component of Vision 2020 aims to combine the strengths of the consolidated cooperatives and La Coop to offer agricultural producers even more efficient services. We have made progress on creating regional partnerships with cooperatives Avantis and Unifrontières with a view to ensuring the success of their operations from day one. 

 

The Sollio & Vivaco Agriculture coopérative partnership celebrated its first anniversary in style with resultsexceeding expectations and structural investments planned to better serve the region’s agricultural producers.

 

Concurrently, work continued on forming a new grain marketing partnership. The mission of the new entity, Sollio & Grains Québec Agriculture coopérative, is to offer better marketing opportunities for Québec grain producers. The partnership aligns seamlessly with the Vision 2020 objectives of generating greater administrative and operational efficiency, leveraging high-level expertise, and ensuring better market access and risk management.

 

A world of potential, important challenges 

 

The agri-food sector has high potential with stable growth expected for the coming decades. But the challenges are many. 

 

Agri-food sector consolidation has created robust international competition, a concentration of influential players and ongoing modernization of business models. The uncertain geopolitical climate can lead to a sudden loss of lucrative markets. Health crises, such as African swine fever, can create unprecedented market imbalances.

 

La Coop fédérée had the pleasure of welcoming some 60 independent BMR stores which became affiliated with La Coop this year and will now enjoy the benefits of the cooperative model. 

 

The challenges are not only economic but environmental and social as well. 

 

The last decade was the planet’s warmest since temperatures began to be measured, and it’s difficult to avoid making a connection with the last growing season’s disappointing harvest. The agricultural sector will have to identify solutions to adapt quickly to the vagaries of climate change and help to mitigate its effects. 

 

Our production models are also being challenged. The parliamentary commission on pesticides, in which La Coop participated, clearly showed that our sector is polarized around our agricultural models, just as society is increasingly divided on a widening range of issues. 

 

Beyond this sometimes highly emotional debate, we cannot ignore that consumers’ expectations and concerns are very real and many, and that they must be addressed. 

 

We must also give thought to young people, our next generation, who will take up the torch of cooperation. Many young people are taking a stand on social issues that concern them – the environment, climate change, animal welfare, pesticides, etc. 

 

We cannot ignore their concerns. We must demonstrate transparency and integrity, and inspire trust. We must continue to seek solutions to the different environmental and social challenges. Sollio Cooperative Group is firmly resolved to move forward on that path. 

 

Sollio Cooperative Group has formally adhered to the United Nations’ sustainable development goals and an action plan is being developed to follow up on that commitment. The year also saw the launch of a structured approach to corporate responsibility. 

 

Our cooperative model addresses another fundamental need. We play a role in regional prosperity and drive local development and economic vitality. This unique feature is highly valued by our members, who wish above all to prosper where they live. 

 

To better reflect all of these realities, the Board of Directors has decided to update the mission of Sollio Cooperative Group: “Rooted in local communities and leveraging their collective strength, we contribute to feeding people by creating prosperity for farming families and building a sustainable future for the world.” 

 

To conclude, I would like to extend my thanks to my colleagues on the Board of Directors for their vision and energy, 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! 

 

La Coop fédérée (now Sollio Cooperative Group) topped the $7 billion level in sales in fiscal 2019. This is more than just a symbolic milestone; we are now part of a select group of large national organizations in Québec and Canada.

 

La Coop fédérée (“La Coop”) generated $7.282 billion in sales and $79.4 million in earnings before patronage refunds and income taxes for the fiscal year ended October 26, 2019, compared with $6.516 billion and $210.7 million, respectively, for fiscal 2018. Several non-recurring items impacted current year results.

 

Meat Division results were negatively affected by several important events. Olymel’s earnings before income taxes attributable to members amounted to $67.1 million, down $100.8 million from $167.9 million in fiscal 2018. The suspension of Canadian meat exports to China from late June to early November 2019 had a drastic impact on performance. The start-up of a plant to increase slaughtering capacity and added value, as well as the new hog marketing agreement, weighed on results. The poultry sector also posted lower results due to unfavourable market conditions, putting pressure on prices. Integration of the acquired poultry business also proved to be difficult initially. Meat Division sales were up $297.9 million, driven mainly by the recognition of over 11 months’ sales of an acquired poultry slaughtering and processing business. The higher sales also stemmed from the recognition of a full year’s sales generated by a business specializing in the marketing of processed pork acquired in fiscal 2018. 

 

The Agri-business Division reported earnings attributable to members of $36.4 million, up $3 million from $33.4 million. Businesses acquired in 2018 and 2019 drove earnings growth in fiscal 2019, offset by the costs of projects and commissioning of the new Québec City maritime terminal, integration expenses, launch of the Sollio Agriculture brand and IT project amortization. Discontinuation of the urea plant project also reined in earnings. Agri-business Division’s external sales were up $451.7 million, stemming essentially from multiple acquisitions carried out during fiscal 2018 and 2019, particularly in the grain and crop production sectors. Input prices also increased in spring following floods in Midwestern United States. Inclement weather was also reflected in grain prices while higher volumes from acquired businesses helped drive sales growth.

 

The Retail Division, excluding corporate expenses, generated earnings before income taxes attributable to members of $16.7 million, down marginally by $0.2 million from $16.9 million in fiscal 2018. The margin improved following tighter controls and better marketing agreements. However, earnings were reined in by increases in certain operational costs such as for transportation resulting from the labour shortage, and for warehousing to meet the need for extra space. 

 

The Retail Division’s external sales were up $7.6 million from fiscal 2018, driven by the recognition of sales of a business acquired as of September 1, 2019, offset by lower building material sales stemming from the fall in commodity prices. 

 

Corporate expenses, which are charged expenses, amounted to $18.4 million compared with $17.4 million for fiscal 2018. 

 

While our previous years’ reforms and acquisitions were falling into place and yielding results, tensions suddenly flared, with negative impacts for the pork sector in particular. 

 

Because of a 50% interest held via a subsidiary, energy sector results are reported as a share of results of a joint arrangement. The share of results, net of administrative expenses, attribuable to members was $7.7 million compared with $7.3 million in fiscal 2018. In 2019, La Coop remeasured the note receivable recorded during La Coop’s business combination transaction in the energy sector and recognized an impairment loss of $30.8 million to reflect the note’s collectibility.

 

Cost of sales and selling and administrative expenses totalled $7.183 billion compared with $6.346 billion for the previous year. The increase resulted mainly from sales growth, higher prices for certain raw materials, the integration of the businesses acquired during the year and direct costs related to higher sales stemming from this growth.

 

Financial expenses for fiscal 2019 increased to $51.5 million from $22.6 million for the previous fiscal year, owing to the combination of increases in average debt and interest rates.

 

Including the results of its divisions, La Coop reported consolidated operating income of $48.1 million, compared with $146.9 million in fiscal 2018.

 

The other contributions to earnings included the share of results of joint arrangements, namely businesses in which La Coop has joint control. This share decreased to $34.9 million from $47.2 million for the previous fiscal year, stemming mainly from the recording of the share of losses of a meat processing business.

 

The share of results of entities subject to significant influence, entities in which we have less than a 50% interest, amounted to a $2.5 million loss compared with a loss of $0.1 million in fiscal 2018. This deterioration is attributable to the decision to discontinue the construction project for an integrated urea and methanol plant.

 

Income from other investments, which represent interest and dividend income from other investments, totalled $2.2 million compared with $1.7 million for the prior fiscal year.

 

Net gains (losses) on disposal and remeasurement of assets amounted to a loss of $3.3 million in fiscal 2019 compared with a $9.6 million gain in fiscal 2018. The loss resulted from the remeasurement of a note receivable in the energy sector, partly offset by gains on the disposal of property, plant and equipment, particularly a gain from the sale of the building housing the head office and a gain on the acquisition of assets of an agriculture sector business. In fiscal 2018, the gain was essentially generated by the remeasurement of an investment held as a result of acquisition of control.

 

The recovery arising from an insurance benefit, related to an insurance recovery at a Meat Division facility, totalled $5.5 million in fiscal 2018.

 

Earnings before patronage refunds and income taxes totalled $79.4 million compared with $210.7 million for fiscal 2018.

 

For the year ended October 26, 2019, after deducting $17.6 million in declared patronage refunds and $13.1 million in income taxes, La Coop reported net earnings of $48.6 million compared with $135.4 million in fiscal 2018. Net earnings attributable to members of La Coop and included in the reserve amounted to $38.4 million, compared with $115.6 million in fiscal 2018, while net earnings attributable to non-controlling interests totalled $10.2 million, compared with $19.8 million in fiscal 2018.

 

In light of fiscal 2019 results, the Board of Directors resolved on January 15, 2020, to pay a $2.4 million dividend to holders of shares in the Cooperative Pork Chain.

 

The year was filled with political upheaval, culminating in the eleventh hour signature of a new trade agreement between Canada and the United States, the Canada-United States-Mexico Agreement (CUSMA). 

 

Parent company 

 

The parent company’s net expenses decreased to $9.0 million from $27.4 million for the previous fiscal year, stemming from the recording of a gain on disposal and the very favourable return on actuarial assets. 

 

Human resources 

 

Human resources play a key role in La Coop’s successes and fiscal 2019 was no exception. 

 

Talent and Culture project 

 

Amid labour scarcity, generational transition and technology revolution, talent management is undoubtedly a critical competitiveness issue. That’s why the Talent and Culture project, which grew out of the Board of Director’s strategic thinking exercise last year, was launched to support actions in three areas: succession planning, implementing a culture of mobility between divisions and developing executive capacity through a leadership path. 

 

Pension fund 

 

A key milestone was reached this year with the inclusion of BMR Group in the pension fund master trust which now has over $600 million in assets. Leveraging this network strength, we now have access to more competitive fees and innovative investments. 

 

Overall health 

 

Overall health is a genuine concern for our employees. Having a financially, physically and psychologically healthy workforce provides remarkable benefits, in terms of both productivity and mobilization. In the area of health, the cooperative prevention mutual has experienced renewed growth while several other initiatives have been carried out, including the implementation of a wellness account with our insurer, and telemedicine. 

 

Visibility 

 

For the third consecutive year, La Coop won the Women in Governance Parity Certification, gold certification this time. As integration of women is an important objective, an equity awareness workshop gender was held during the semi-annual meeting. We are continuing our involvement in l’Effet A, an organization which aims to advance engagement professional women with a fourth cohort from various divisions. 

 

Once again, La Coop made the prestigious Montreal’s Top Employers list which recognizes employers offering exceptional places to work. 

 

A year of growth and tensions 

 

The year was filled with political upheaval, culminating in the eleventh hour signature of a new trade agreement between Canada and the United States, the Canada-United States-Mexico Agreement (CUSMA), replacing the former North American Free Trade Agreement (NAFTA). The new agreement affects numerous practices in our industry, particularly supply management, and impacts the gains made by our agricultural entrepreneurs. We will be monitoring this issue. 

 

The year that began with a robust economic recovery and the announcement of high growth quickly turned into one of geopolitical tensions. While our previous years’ reforms and acquisitions were falling into place and yielding results, tensions suddenly flared, with negative impacts for the pork sector in particular. 

 

These tensions were compounded by citizen consumers’ environmental concerns, not to mention technological changes, and in some cases, early warning signs of agribashing. 

 

Demographers have long told us that the aging population and retirements will put pressure on the workforce. That’s where we are at now and everyone is affected. With our reforms and transformations over the last decade in all our operating sectors, we have been able to face these difficult times. 

 

We will also remember 2019 as the year of a cold and late spring, a dry summer and a difficult fall for crop production. Let us also keep in mind the difficulties experienced by our members of the dairy industry. 

 

Some fiscal 2019 highlights: 

 

Implementation of our 2020 Vision. The first agricultural partnership was formed. 

 

93% approval vote at the General Meeting for our branding strategy and new identity, Sollio Cooperative Group. 

 

Launch of the Sollio Agriculture brand name for our Agri-business Division, which has been strengthening its position in the market since then. 

 

Vote at the General Meeting of a regulation to reduce demutualization risk for our organization. 

 

La Coop submitted a brief to the Commission nationale de l’agriculture, des pêcheries et des ressources naturelles (CAPERN) which has a mandate from the Québec government to study the impacts of pesticides on public health and the environment as well as the available innovative alternative practices. La Coop subscribes to sustainable agriculture principles by incorporating technological advances and by respecting the know-how of the organization and its members. 

 

This year, following the Board of Directors’ strategic thinking exercise, we also created the section of independent BMR retailers, which allows us to position our business model in the market and capitalize on market opportunities. The planned creation of the Western pork chain resulted from the same thinking exercise. 

 

Name recognition of our organization is growing rapidly. Our communication and advertising initiatives, our media relations, mindful use of social media combined with our communications with governments bring us recognition as a key player in our field. Our culture, our values and our working conditions are recognized everywhere. 

 

We also honoured our values, namely our community and social commitments. With the creation of a foundation, our philanthropic activity will have a stronger organizational basis. It will focus on niche areas of interest to our organization and our owners. 

 

The management committee and I would like to extend a thank you to all the members of the Board of Directors and the President Ghislain Gervais for their support and advice during the past year. We are grateful for the commitment and dedication you showed during the past fiscal year. 

 

We also wish to thank all the presidents and general managers of the affiliated cooperatives for their excellent collaboration. 

 

I would like to express my deep appreciation for all the personnel of our organization and my colleagues on the management committee. 

 

To conclude, I thank our divisions and management teams as well as all the employees in Québec and Canada, for their loyalty and their commitment.