Stay the course

After multiple years of growth, fiscal 2021–2022 was a transitional year. The goal of this transition is clear: to return Sollio Cooperative Group to a strong footing.

With consolidated sales of over $8.9 billion, Sollio Cooperative Group recorded a loss before income taxes, including disconti­nued operations, of $337.5 million. The loss included $248 million in impairment of intangible assets and goodwill.

In turbulent times, staying the course is more important than ever. And that is what we did. Management marshalled forces across the organization primarily to continue executing the vast project launched last year: the asset and operational efficiency optimization plan.

Such an undertaking is performed over a long horizon, with a slate of actions to be completed in the coming year. The results are not immediate but are promising in the long term.

A major project goal is to restore financial health and better position ourselves for the future. This will allow us to start investing again in strategic projects, where expedient, to ensure the continuity of Sollio Cooperative Group.

Just as importantly, the optimization plan does not fundamentally alter the organization’s core operations. We are not touching our core lines of business.

This project involves all our divisions. I would like to point out that throughout the year, the senior executives and their teams were creative and agile in implementing the best turnaround and operational efficiency solutions, while staying true to our core lines of business.

In addition to championing this project, our executives and their teams have faced a mixed business environment with headwinds in some sectors and tailwinds in others.

On a brighter note, BMR Group enjoyed a record year while Sollio Agriculture’s crop production exceeded expectations. In particular, these two sectors benefited from high commodity prices, including fertilizers and softwood lumber. But they also had to manage the risks associated with the volatility of these markets, with highly granular ongoing inventory management, and they did so successfully.

We would also like to highlight the impact of the conflict in Ukraine, which began at the height of the Eastern European fertilizer procurement season. The Sollio Agriculture team worked hard to ensure all orders were available and delivered to the network for the planting period, in spite of complex logistics.

Meanwhile, Olymel’s processed pork and poultry sectors reported outstanding results, driven primarily by higher prices and the mix of products sold.

Once again this year, Olymel’s fresh pork operations generated negative results. Our fresh pork plants are particularly affected by labour shortages as the working conditions are tougher than in many other employment sectors.

Labour shortages resulted in prioritizing slaughter and producing low-margin primary cuts. In addition, COVID-19 health restric­tions were still in place for a few months of the fiscal year, which weighed on operational effectiveness.

Québec pork pricing continues to put us at a disadvantage compared with our Canadian and North American compe­titors. The impact of this pricing is even greater due to our inability to fully process cuts. The challenge is to strike the right pricing balance to achieve a win-win approach for both producers and processors.

Even though the past two years have been difficult in the fresh pork sector, the outlook is encouraging. Olymel continues to execute on its plan to improve pork operations and results continue to recover.

Another bright spot is the government’s temporary program allowing agri-food processors to raise the threshold for temporary workers in their plants.

This allows us to onboard and train new workers expected to arrive in the coming months. With the new thresholds authorized under the government program, assuming they become permanent, Olymel stands to meet its labour needs to a large extent for the next few years.

Lastly, in the shorter term, our plants regained the right to export to China a few months ago. China is a unique global market for consumption of pork by-products.

The other sector that reported unfavou­rable results was Sollio Agriculture’s Grains Department. Yet, even in this sector, the outlook is encouraging. Our withdrawal from grain export operations is largely complete, as are the losses associated with this exit.

Again, the contrasts in sector results show how significant diversification is for our business operations. Some of our sectors deliver stable results year after year, which helps to maintain Sollio Cooperative Group’s resilience.

In this more challenging environment, we were able to count on the continued trust of our financial partners as we set up temporary term financing, amended preferred shares and renewed our credit facility. I extend my heartfelt thanks to these partners for supporting our organi­zation and cooperative business model.

I would also like to thank senior management, their respective teams and our 16,000+ employees for their enga­gement and dedicated service to our organization.

The strength of our network

Also on the bright side, our network of cooperatives enjoys a solid bill of health, with the financial position of our agricul­tural cooperatives strengthening year after year. Our vast network restructuring project, Vision Plus, is well underway.

Note that Vision Plus supports the conso­lidation of our agricultural cooperatives and business partnerships with our Sollio Agriculture division. This project has modernized the network’s business model, in particular to better meet producers’ needs. Without a doubt, the consolidated cooperatives are strongly positioned to face the major challenges of today and tomorrow. These large cooperative businesses are powerhouses of the regional economy.

In this regard, we would like to highlight the official launch of Unoria Coopérative on November 1, 2022, which resulted from the amalgamation of the Purdel and Agriscar cooperatives. This consolidation initiative will allow Unoria Coopérative to remain a major economic driver and ensure sustainable agriculture in the Lower St. Lawrence and Gaspé regions. This most recent amalgamation rounds up the consolidation phase initially targeted during implementation of Vision Plus.

At the same time, a partnership between Unoria Coopérative and Sollio Agriculture was forged to bring together all of the cooperative’s agricultural operations. These business partnerships between the cooperatives and Sollio Agriculture help strengthen our network, making us more competitive and bolstering the customary ties that make us stand out.

Vision Plus remains a dynamic, scalable project, which stands to ensure its long-term success. Vision Plus is not static, and the structures put in place can evolve and improve continuously, as needed.

Beyond organizational structures, it is the human factor that makes the difference. And it is often in adversity that we show are true colours. I salute the exceptional solidarity shown by the network’s elected officers and leaders in rising to the challenges of a turbulent year.

Throughout this past year, your solidarity made all the difference in our various meetings and concrete operational actions to support Sollio Cooperative Group, such as in updating the pre-purchasing program. We can all be proud of this outpouring of solidarity, which underpins the unparalleled strength and resilience of our network. Solidarity is the beating heart of our cooperative movement. For that, you have my deepest gratitude. We have no doubt this is an essential value to pass on to future generations of agricultural cooperators to ensure our network continuity.

100 years and counting

As in the past, we will adapt successfully and continue to generate value for our members through our durable and resilient cooperative model.

We will stay the course in the coming months, delivering on our asset and operational efficiency optimization plan. For improved guidance in the coming years, strategic planning will be completed.

We will also continue our work on the cornerstones of our cooperative model, including continuous improvement of our governance structure. New this year: an Annual Board Matrix was developed to provide the network with an accurate representation of the Board’s profile and characteristics, as well as a portrait of the Board’s directors.

With respect to government affairs, we will continue to defend and represent the interests of Sollio Cooperative Group, the network and members on issues with major ramifications, such as the temporary foreign worker program, government tariffs on fertilizers or Bill 41, An Act to amend the Agrologists Act.

We are maintaining our structured approach to corporate responsibility. As in the past, we intend to improve our environmental performance, help our producers deal with the challenges related to climate change and be part of the solution. This year, we under­took, among other initiatives, a detailed assessment of each division’s greenhouse gas emissions and water consumption in order to set realistic targets for the future.

This is also the first year under the crop production research farm’s new mandate. The research farm now works to equip Sollio Agriculture and its network to help agricultural producers meet the challenges of sustainable agriculture.

These concrete actions show our resolve to take part in finding solutions to various environmental and social challenges. I am proud to see we are making sustained efforts to ensure a robust and sustainable future for our network and society at large through our footprint in communities.

Sollio Cooperative Group celebrates a century of existence—a one-of-kind legacy. Our responsibility is to ensure the Cooperative’s continuity and leave a lasting legacy for future generations of agricultural cooperators. Those responsi­bilities and our values are what guide the actions and decisions we take every day.

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. In my name and on behalf of the Board of Directors, I would also like to express my gratitude to Pascal Houle, Chief Executive Officer, and his teams for their sustained efforts and for having stayed the course in the organization’s major projects. And I applaud all the directors across the network. It is your commitment and determination that give real meaning to our collective action.

Our priority: Return to profitability

Every year has its lot of challenges and unexpected developments but undoubtedly the year that ended will go down as one of the most turbulent years in Sollio Cooperative Group’s history. For the fiscal year ended October 29, 2022, Sollio Cooperative Group recorded sales of $8.9 billion and a loss before taxes of $337.5 million, including a loss from discontinued operations. In fiscal 2021, sales totalled $7.9 billion with a loss before income taxes of $21.5 million. The deterioration was mainly attributable to the Sollio Food division.

Sollio Agriculture

The Sollio Agriculture division posted earnings before income taxes of $19.6 million, compared with a loss before income taxes of $24.8 million in fiscal 2021, representing an improvement of $44.4 million. This increase was mainly driven by the crop production sector, which was able to deal with volatile market prices while benefitting from a favourable positioning for available inventories. Despite the favourable economic conditions, fertilizer prices were greatly affected by the conflict in Ukraine since the second quarter of fiscal 2022. More specifically, the Canadian government imposed a 35% tariff on all imports from Russia. These tariffs proved very expensive for our partners and network members, and significant efforts were made not only to find new suppliers but also to influence the Canadian government’s stance. As for the grain sector, its repositioning plan led to better results, despite having to pay penalties during the fiscal year related to the performance of contracts with different terminals across Québec and Ontario as well as provisions for such penalties on contracts in the medium and long term, following the discontinuation of export activities.

Sollio Retail

The Sollio Retail division (BMR Group) reported earnings before taxes, including corporate expenses, totalling $53.8 million, compared with $28.2 million for the previous fiscal year, representing a $25.6 million increase. This record financial performance resulted from extraordinary economic conditions coupled with several operational challenges. The division`s results were driven partly by higher sales resulting from commo­dity price increases during the first half of the year, combined with inflation and the addition of new vendors to the network. Commodity prices dipped at mid-year, but the decline was less than last year. The mechanisms put in place, such as the close monitoring of inventory combined with longer term strategic positioning, made it possible to maintain favourable profitability despite price volatility and achieve this historic result.

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 $17.0 million compared with $12.3 million a year earlier.

Sollio Food

Sollio Food (Olymel) posted a $445.7 million loss before income taxes, including corporate expenses, compared with a loss of $71.8 million in fiscal 2021. The deterioration was mainly attributable to the pork sector and a significant write-down of goodwill. The beginning of the fiscal year was particularly difficult for the Eastern pork sector as the labour shortage and the number of hogs awaiting slaughter forced the division to resort to external slaughtering, giving rise to significant additional costs. As a result, our plants experienced difficulties in producing fully deboned prime cuts and the division did not earn the margins expected from this added value opera­tion. In addition, fiscal 2022 was marked by a significant rise in labour and supply costs. The Western pork sector also posted lower results than in fiscal 2021, which were significantly impacted by higher grain, labour and transportation costs, as well as the closure of the Chinese market in the first three quarters of the fiscal year for a second consecutive year.

However, the further processed pork and bacon sector posted excellent results, following higher sales volume stemming from the reopening of restaurants and the elimination of distancing measures, as well as optimization of products sold. The poultry sector generated record results, driven by a favourable market environ­ment and investments in automation that had a positive impact on margins.

Expenses

Cost of sales and selling and administrative expenses totalled $9.0 billion compared with $7.9 billion for the previous year. The increase was mainly attributable to the Sollio Food and Sollio Agriculture divisions.

Net financial expenses increased to $84.0 million in fiscal 2022 from $35.7 million for the previous fiscal year, owing primarily to the higher interest rates during the fiscal year and an increase due to the Cooperative’s financial results.

Including the results of its divisions, Sollio Cooperative Group reported a consolidated operating loss of $227.5 million, compared with a loss of $50.9 million in fiscal 2021.

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 $60.0 million in fiscal 2022 compared with $57.4 million for fiscal 2021. This increase was mainly driven by the record 2022 results of the agriculture division’s agricultural input distribution and marketing sector, partly offset by a decrease in results posted by the food division’s pork sector.

The share of results of entities subject to significant influence – entities in which the Cooperative has an investment of less than 50% – amounted to $12.4 million in fiscal 2022, compared with $13.8 million in 2021. This decline was once again mainly attributable to the pork sector.

Investment income, which represents interest and dividend income from invest­ments, totalled $2.8 million in fiscal 2022 compared with $2.0 million for the prior fiscal year.

Net losses on disposal and remeasure­ment of assets amounted to $161.4 million in fiscal 2022 compared with $12.6 million in fiscal 2021. The 2022 loss resulted mostly from the remeasurements of intangible assets and goodwill in the food division. The loss in 2021 stemmed from the disposal of property, plant and equip­ment in Sollio Food and the disposal of investments in Sollio Agriculture.

Gains (losses) on remeasurement of interest rate swaps represented a gain of $22.3 million in fiscal 2022 compared with a $26.3 million gain for fiscal 2021. The gains resulted from the sharp rise in interest rates.

In fiscal 2022, gains arising from insurance benefits amounted to $2.1 million, compared with $6.9 million in 2021. These are amounts received from insurance claims.

Lastly, in 2022, the Cooperative decided to divest certain grain marketing activities in Ontario, as well as grain export activities, generating a net loss from discontinued operations of $48.2 million in 2022, compared with $64.3 million for the previous year.

For the fiscal year ended October 29, 2022, taking into account a tax recovery of $0.7 million, the net loss amounted to $336.9 million, compared with $10.3 million in fiscal 2021. Net loss attri­butable to members of the Cooperative amounted to $278.4 million, compared with $4.3 million in fiscal 2021, while net loss attributable to non-controlling interests totalled $58.5 million, compared with $6.0 million in fiscal 2021.

Fiscal 2022: another year marked by turbulence

Sollio Cooperative Group’s 100th anni­versary will be remembered for many reasons – not only for having reached an important milestone that very few organizations have achieved, but also for continuing to demonstrate our business model’s relevance and strength. We have said it before, but it’s in difficult times that our model makes the most sense.

Fiscal 2022 was another year of much turbulence; the labour shortage was exacerbated by the pandemic while Russia’s war in Ukraine led to conside­rable upheaval. Meanwhile, the situation was compounded by severe disruptions in global markets with price volatility, high inflation, and challenges arising from supply chain fragility plus ongoing geopolitical risks resulting from tense relations between the Canadian and Chinese governments. Accordingly, more than ever, it was necessary to be agile and adapt to overcome challenges.

We spent most of the year carrying out our optimization plan, which continues, without affecting our core business and our level of service to members. This optimization plan is already showing results. We are in a much better position today than we were last year. We have been hard hit, and thanks to our business model, whose resilience is now well es­tablished, and to our strong cooperative values that are part of our DNA, we are gradually returning to profitability.

Over the past 100 years, we have weathered many storms while remaining focused on our mission of serving our members and getting involved in our communities.

Among our priorities, we maintain our main areas of action, namely actively encouraging and developing the next generation, continuing to implement our corporate responsibility approach and consistently supporting the community and our members. The land is the bread and butter of producers: that is why we encourage best practices, to leave a quality environment to the next generations.

Human resources

Agility, which is at the heart of our day-to-day decisions, requires a high degree of adaptability, as well as a strong organizational culture. While this year was the first full year in our roles for me and my colleagues Casper Kaastra, Alexandre Lefebvre and Yanick Gervais, CEOs of our divisions, we had the opportunity to observe how our values and vision are integrated on a daily basis. The Cooperative’s strength takes on its full meaning.

Diversity, equity and inclusion

We are very sensitive to issues of diversity, equity, and inclusion. This led us to put in place last fall a formal program to promote the representativeness of several minority groups and to offer an inclusive workplace. In the coming years, we will be able to assess the success of this new program in our divisions.

Leadership development

Since we are all working together to create the Sollio of tomorrow, we give importance to leadership development within the organization and the network. In particular, we have set up a program targeting emerging leaders (Altitude program), a discussion forum for current leaders (Leadership Forum), as well as a townhall meeting for human resources professionals.

Health and well-being

Health and well-being of employees is one of our priorities. Sollio Cooperative Group is committed in several ways to promote physical health, for example, with the Défi Sollio, our sports and charitable activity par excellence, held in the Montérégie region. Employees of Sollio Cooperative Group, divisions and the network were encouraged to walk, run and bike to raise funds for charities. A total of $99,000 was donated to local organizations.

100 years and counting

For an organization that just passed the 100-year mark, the year that has ended is special. Not all companies can boast of such longevity, and Sollio Cooperative Group is the perfect example of a strong, resilient and relevant model for its members.

Celebrating a 100th anniversary means keeping alive the rich history of our great cooperative while allowing those who wrote it to live the experience and share their pride. It’s a job well done!

Before officially closing this chapter in our history and moving on to the next, I would like to warmly thank our President, as well as all the members of the Board of Directors of Sollio Cooperative Group for their constant support. I also want to thank my colleagues on the Executive Committee, and the division leaders, for their support, unwavering collaboration and precious work. I would also like to applaud the presidents and general managers of the cooperatives for their spirit of cooperation and invaluable solidarity in the face of hardship.

Finally, a special thank you to the employees of Sollio Cooperative Group and the divisions for their trust and dedication to our organization, to our big family.

We draw our strength from our network, from our values; we salute the past and are creating the future together. We’re 100 years and counting!