Outgoing President's message
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.
Dividends paid to the Cooperative Pork Chain
Earnings before patronage refunds and income taxes
Preferred shares and Sollio's Group equity
Management discussion and analysis
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.
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.
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 (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.
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.
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.
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!
Creating value in three industries
For the 2021–2022 fiscal year, Sollio Agriculture’s net sales continued to increase to $2.929 billion, compared to $2.357 billion in 2020–2021. This $572 million increase, excluding discontinued operations, is mainly due to high input prices, particularly for fertilizers, but also to higher commodity costs in animal feed.
Net sales in the Livestock Production Sector were up 14.9% owing to an increase in ingredient costs that boosted the average selling price by $86 per tonne. However, the significant increase in production costs and squeeze on margins and volumes saw the sector end the year with lower results than expected.
The Crop Production Sector had another record year, with net sales up 37.6%. This was mainly due to the increase in the value of fertilizers. Our joint ventures performed well, with good management of operating costs and position gains following the sharp rise in input prices throughout the year. In a challenging environment arising from the introduction of tariffs on Russian imports, the Crop Production managed to secure supplies for all networks.
The Grain Sector continued to implement its repositioning plan over the past year, with an orderly exit from several business segments and reported net sales down 27.2% from last year. In connection with the plan, results are affected by penalties on contractual commitments and provision related to future commitments.
Highlights of the year
Our networks of crop production retail partners benefited from the upward trend in the value of fertilizers, which is reflected in the associated shares. With inflation, sales of crop protection products also hit a record high this year. Seeds saw a decline in sales of forage crops but an increase in Maizex soybeans and corn, up 8.9% from last year, mainly due to increased market shares in the different regions. Lastly, regional partnerships with cooperatives in Québec showed very positive results.
The sharp rise in commodity prices proved more challenging for the Livestock Production Sector, where merchandised volumes are in decline. The reduced number of hogs waiting for slaughter also contributed to the decline. In addition, our production and other costs have significantly increased this year. However, some of our subsidiaries performed well and benefited from value gains on their supply positions. The poultry sector remains a concern, with recurring challenges in chick quality and labour shortages as well as the hatching egg shortage, exacerbated by the avian flu outbreak and the fire at the Michaudville breeding farm. In light of these issues, major efforts are being made to regain profitability, restore performance to its expected level, and rebuild customer satisfaction.
The results of the previous year led to a repositioning plan for the Grain Sector, which involved making some difficult decisions. In the West, the end of merchandising activities led to an orderly wind-down of remaining positions and contracts and an integration of grain activities in mill supply. In Ontario, recurring losses also led to an orderly exit from the business and we initiated the sale of our assets. In Québec, commercial operations are already integrated into the Sollio & Grains Québec partnership. Finally, in Atlantic Canada, the merchandising activities were integrated into the mill supply function. Following the shutdown of export operations, the grain terminal was put up for sale, and its profitability was affected by the reduced export volumes as well as by exceptional operational challenges. The terminal was not sold, but in response to strong interest in using the facility, Sollio Agriculture restarted its operation, focusing on handling volumes for third parties. In short, the Grain Sector’s results are below expectations but the outlook for the future is positive.
Sollio Agriculture is continuing to develop its technology, with a particular focus on improving cybersecurity. The initial phase of the business intelligence project, which is designed to consolidate and simplify data management and improve the decision-making process, is currently being delivered. The technology infrastructure was further optimized, and the AgConnexion platform was further developed and rolled out. With 20,000 farms now connected and over five million acres mapped, a major milestone was reached in the adoption of the platform.
The Corporate Responsibility (CR) process gained momentum this year with the creation of an action plan that includes eight commitments and 20 targeted results to improve Sollio Agriculture’s CR performance by 2025. The goal of the CR process, which is central to Sollio Agriculture’s strategic plan, is to put in place best practices in corporate responsibility. A crucial step in setting targets was taken with the inventory of greenhouse gas emissions and water consumption completed at all sites.
On the human resources front, Sollio Agriculture continued to implement its new organizational model. In the area of occupational health and safety, an integrated management technology platform was rolled out for incident reporting, audits, and risk analysis. We put in place a wide range of solutions to acquire talent and address the labour shortage.
The new CRF Agritech fertilizer coating plant is still under construction and will be commissioned in spring 2023. Given our objectives of reducing the impact of agriculture on the environment, particularly through the use of coated fertilizers, the plant’s local production will be much welcomed.
Over the past year, Sollio Agriculture has been working on setting up a fifth agricultural partnership, Sollio & Unoria Agriculture coopérative. This business model continues to be successfully developed to benefit farmers.
In 2021–2022, the organization was significantly impacted by the unstable geopolitical conditions. With rising prices, product and labour shortages, and supply chain issues, Sollio Agriculture took on many challenges this year to fulfil its mandate as the gradual resumption of operations following the pandemic was disrupted by the invasion of Ukraine and the imposition of tariffs on Russian fertilizers. However, these obstacles highlighted the agility of the organization and its networks. The year ended with good financial results.
In closing, I would like to thank our Chief Executive Officer, Pascal Houle, for coordinating the Cooperative’s efforts through these turbulent times. I would also like to thank the Board of Directors for its support, which made it possible for Sollio Agriculture to contribute to the organization’s debt reduction initiatives through its divestment plan. Lastly, thank you to our employees across the country. It is truly because of the efforts made by everyone that our repositioning plan was successful. We are entering the new fiscal year with cautious optimism and in a better position than last year, and we are committed to pursuing our efforts to generate value for farmers and for our organization.
Fiscal 2022 was marked by growth and prosperity for BMR Group. Clients kept coming back throughout the year, four new vendors from Québec and Ontario joined the organization, and once again, exceptional financial results demonstrated that BMR Group is more than ever an industry leader.
A well-known, constantly evolving brand
During the last fiscal year, the BMR Group team launched a number of initiatives to ensure its brand remained influential, expand its footprint and strengthen the quality of the client experience.
Among others, four main product categories were entirely reviewed – flooring, finishing plumbing, outdoor and gardening – to offer consumers a wider range of up-to-date products. Twelve stores in Québec and Ontario underwent significant renovations, thus standardizing the BMR Group brand and greatly improving the quality of the client experience. Concurrently, we made changes to several functionalities of the BMR.ca website, improving browsing and making it a must-see showcase for our vendors and an inspiring shopping platform for our customers. We also developed several products under our private brands namely Architek, Bota Flora, Opaz and Splendi.
We continued to increase the involvement of our vendors in our decision-making process by setting up vendor committees in the paint, flooring, plumbing, outdoor and building materials departments. The goal of these committees is to listen to what network members have to say and benefit from our vendors’ expertise and ideas.
A brand new initiative named Programme Excellence Marchand (Vendor Excellence Program) was launched across the BMR network to improve the client experience in our stores, increase the number of visits by consumers and contractors, standardize our banners and reinforce our image through outstanding business training. During the year, our representatives reviewed a number of stores based on specific criteria, and the achievements of our vendors were highlighted during the Salon d’achats BMR.
Thanks to our team’s strength, we improved our logistics capabilities and optimized our supply chain, notably by increasing the delivery frequency at vendors and by reducing the number of storage and pick-up locations. We also worked on consolidating our leadership position in the contractor segment, mainly through Lefebvre & Benoît, which expanded its footprint in the industry.
Finally, this last year brought back the excitement associated with attending large events in person, especially with the return of the popular Salon d’achats BMR, which took place on November 10 and 11 at the Québec City Convention Centre under the theme “Together, wall-to-wall.” In a happy and upbeat ambiance, nearly 1,200 visitors discovered the latest trends and novelties from more than 200 construction and renovation industry suppliers.
During the last fiscal year, the BMR Group team launched a number of initiatives to ensure its brand remained influential, expand its footprint and strengthen the quality of the client experience.
Solid foundations to support growth
While certain headwinds are expected in 2023, mainly stemming from the current and future economic context, BMR Group can rely on its solid foundations, an experienced team and its network vendors and partners to support its growth and face the challenges ahead. Throughout the year, we will continue to deploy a number of initiatives to increase our competitiveness and productivity, improve the client experience and reinforce our position of leader in the contractor market. It is therefore with great confidence and enthusiasm that we view the future and our business development.
BMR Group also made a significant contribution to Sollio Cooperative Group’s turnaround plan, not only with its excellent profitability but also with its very rigorous inventory management and active optimization of its distribution network. BMR Group’s actions generated significant financial benefits for the entire group, thereby providing it with greater flexibility.
Lastly, I would like to thank our vendors, network cooperatives and Sollio Cooperative Group, all of which made possible what we achieved last year. Our numerous past and future achievements would not be possible without our team members, which is why I would like to conclude by extending my warmest thanks to them for their dedication to ensure BMR Group remains the great organization it is today.
BMR, welcome home!
As in last year, Olymel reported a loss for fiscal 2022. Difficult conditions, particularly in the fresh pork sector, were largely responsible for the disappointing results and the decline compared with the previous year. However, sales increased by $373.9 million to $4.6 billion, mainly driven by the Western fresh pork and poultry sectors.
The poultry, processed pork and bacon sectors all contributed positively to the year’s results. Fiscal 2022 ended with an increase of 33.6 million kilos sold compared to the previous year, which is the best performance in our history.
In the previous fiscal year, the coronavirus pandemic, labour shortages, rising costs related to inflation and supply chain disruptions, and a four-month strike at our Vallée-Jonction plant were factors that made up a perfect storm. The repercussions of this unfavourable economic situation were also felt in 2022. Despite the overall decline in performance, there were some encouraging signs during the fiscal year, including the restoration of export accreditations to the Chinese market for all our plants toward the end of the year. In addition, the significant turnaround measures announced since fall 2021, particularly in the fresh pork sector, began to produce results, allowing us to look forward to better days.
The Eastern hog production sector posted a loss for the second consecutive year. The sector was affected by high prices for grains such as corn and soybeans amid soaring world prices and by lower prices for hogs sold to slaughterhouses and one-off costs related to restructuring operations.
Also during fiscal 2022, as part of the restructuring of the production sector, Olymel sold all the intellectual property of its AlphaGene genetics division to PIC, a division of GENUS plc, a global leader in swine genetics.
Unlike the previous fiscal year, the Western hog production sector posted a loss mainly owing to the unfavourable impact of higher raw material costs on the margin, as well as to the increase in labour costs. This sector produced over 1.2 million hogs in 2022.
Lastly, Olymel, in collaboration with the industry and public authorities, continued to implement monitoring measures to guard against an outbreak of African swine fever.
Eastern fresh pork
The Eastern fresh pork sector’s results were even more negative than last year. The shortage of labour in hog slaughterhouses and the partial closure of the Chinese market for most of the year were two factors that prevented Olymel from achieving the expected margins. External slaughtering costs for pigs awaiting slaughter and the need to favour prime cuts over value-added cuts due to the labour shortages also weighed on the sector’s results.
To overcome the labour shortage, several collective agreements in the sector were renewed and enhanced, resulting in a significant increase in labour costs. The war in Ukraine also caused grain prices to soar, pushing up supply costs. The hog purchase price formula based on a U.S. price index continued to disadvantage Olymel compared to its North American competitors.
All these factors contributed to the Eastern fresh pork sector’s poor performance throughout fiscal 2022. However, following the equally negative results of fiscal 2021, Olymel had developed a robust turnaround plan for the sector, the main components of which were implemented at the beginning of fiscal 2022. Measures such as reducing hog purchases and slaughtering, cutting back on shifts, reallocating labour, discontinuing slaughter operations at the Princeville plant to convert it into a value-added cutting centre and recruiting temporary foreign workers are all beginning to yield positive results. Nonetheless, the sector is being closely monitored, in order to return it to profitability.
Amid these difficult circumstances, Québec hog producing partners have kept in mind the importance of the issues. The discounts they have given to buyers are a testament to their commitment to the industry and we are very grateful.
Fiscal 2023 should see the end of ongoing negotiations with Les Éleveurs de porcs du Québec to renew the pork marketing agreement. Olymel’s goal, like that of other buyers, is to reach an agreement under which supply conditions are comparable to those elsewhere in Canada and the United States. This is a realistic and essential objective for the viability of the entire Québec hog industry.
In fall 2022, chilled fresh pork products in the domestic chilled category for mass distribution were launched under the Olymel brand. This line of six products proudly bears the Porc du Québec logo and their retail availability aims to make consumers rediscover high-quality meats produced here.
Western fresh pork
The Western fresh pork sector reported negative results for the second consecutive year. Despite significant growth in exports of chilled pork products, and a higher slaughter volume compared with last fiscal year, the meat margin in the Western fresh pork sector was affected by higher hog prices, fluctuations in the Canadian and U.S. currencies, and the increase in labour costs. Note that the hog slaughtering and cutting plant in Red Deer, Alberta regained its export licence to China during the fourth quarter of 2022 after it was suspended in April 2019.
Further processed pork
The further processed pork sector posted positive results, well exceeding fiscal 2021 performance. Despite a decline in sales volume, this result was driven by higher selling prices, a factor that contributed to the increase in the meat margin. Fiscal 2022 presented several challenges, including the reduction of production capacities related to labour shortages and workforce management. In addition, high inflation in transportation, ingredient and packaging costs also led Olymel to review its pricing formulas and tightly control its costs. The integration of temporary foreign workers, workforce training and improvement of our manufacturing processes will remain the priorities for this sector in 2023.
For fiscal 2022, the bacon sector bettered its own record, which is all the more remarkable since the bacon plants had to deal with a labour shortage and reduced production capacity, as well as price volatility in the flank market and selling prices entirely determined by a formula.
The primary poultry processing sector posted positive results that more than doubled since the previous year. Along with the sharp increase in the meat margin, this remarkable performance was driven in particular by the higher selling prices and the increase in the number of kilos sold, while the price of livestock rose for the fourth consecutive year. As in other sectors, the fresh poultry sector had to cope with inflation in raw material, equipment and energy costs, as well as rising recruitment and training expenses. However, very strong demand for fresh chicken products continued to drive up selling prices, generating an exceptional contribution to fiscal 2022 results.
Note that a new marketing agreement is pending for this sector.
Olymel’s interests in Sunnymel, New Brunswick and in Volaille Giannone, Québec generated positive contributions to fiscal 2022 results, higher than in the previous year for both cases.
The turkey sector had one of its best years with positive results driven in large part by the improved meat margin, higher sales volumes and sound inventory management. These positive results are all the more creditable as the Unidindon plant experienced a labour shortage throughout the year. The quality of male turkeys is still an issue in this sector.
Fiscal 2022 also saw the spread of avian flu across Canada and the efforts made by the industry and its partners to promote enhanced biosecurity measures around farms. Most experts expect this virus, carried by migrating birds, to re-emerge in spring 2023.
Further processed poultry
The processed poultry sector reported positive results for fiscal 2022, higher than in fiscal 2021. Despite higher raw material prices, the margin improved, driven by the increase in selling prices. Unlike fiscal 2021, which was heavily impacted by the pandemic and weak food services sales, Olymel benefitted from the resumption of restaurant activities nationwide. In fiscal 2022, it was mainly the labour shortage that disrupted operations on some production lines. In fiscal 2023, this sector will have to deal with the dual challenges of controlling costs amid widespread inflation, and training and integrating large groups of foreign workers.
Review of business model
Fiscal 2022 was my first full year at Olymel’s helm. Given the economic context and turbulence affecting the organization over the past two years, we had to make heartbreaking choices at times, introduce and apply difficult measures, all to ensure Olymel’s continuity.
I would like to thank all our employees for their trust and dedication, regardless of their role. They are our strength and contribute to our organization’s resilience in the face of adversity.
I would also like to express my deep gratitude to all members of management who shared this essential responsibility to review our business model and optimize our overall operations.
Reviewing our business model means demonstrating that we have the agility necessary to adapt to changing circumstances and questioning ourselves. It’s a mindset that applies to all our activities and is focused on innovation. Whether it’s human resources, welcoming and integrating employees we want to retain, our manufacturing processes, animal well-being, respect for the environment or the quality of our products, this ability to review our ways of doing things is essential.
Sollio: 100 years of history
For more than 30 years, Olymel has taken pride in large part from being part of the large Sollio Cooperative Group family. Inspired by what Sollio and its partners have sown over the years in the poultry and the meat processing sectors, Olymel has derived its growth and passion for, as our mission dictates, feeding the world. Undoubtedly, the support of generations of agricultural producers and entrepreneurs, committed to this great cooperative organization for a century, is an integral part of our success. At the dawn of a second century of activities and on behalf of all Olymel employees, I wish Sollio Cooperative Group a bright and prosperous future.
In conclusion, I would like to express my gratitude to Pascal Houle, Chief Executive Officer of Sollio Cooperative Group, for his consistent support. I would also like to express my warmest appreciation for Ghislain Gervais, Chair of our Board of Directors, as well as to all Board members for their support.