ENGAGED GALVANIZED CONNECTED SOCIALLY RESPONSIBLE

ANNUAL REPORT 2020 Every day, our member farmers and employees dedicate themselves to the same goal: producing and processing of the highest quality.

BETTER TASTE.

TABLE OF CONTENTS BETTER Message from the President 22 Message from the CEO 26 in numbers 30 FOR THE PLANET. Financial review 32 Risks and uncertainties 38 Consolidated financial statements 42 Our brands 74

2 Agropur Annual Report 2020 Agropur Cooperative Annual Report 2020 3 INTRODUCTION

1 2

1 Agropur employee Haoliang Ye works at the Don Mills, plant.

2 Marina and her daughters love to cook with lactose‑free .

BETTER BETTER DAIRY. WORLD.

The importance of Agropur’s role has never month after month as they worked to feed In short, today more than ever, the been more evident than it was during the the population. Agropur was also sustained Cooperative is in a position to uphold its past year, when we were suddenly struck by its members, who continued providing promise: Better dairy. Better world. This by a pandemic. As a supplier of foods quality milk to consumers and customers renewed commitment is aligned with consumers trust, Agropur did all in its who are proud to support local buying and Agropur’s positioning as the largest dairy power to provide healthy and nutritious processing cooperative in and food self-sufficiency. products while maintaining a safe work amongst the top 20 players in the global environment for its employees. In this time of upheaval, the Cooperative dairy industry*, demonstrating that reached out to help the vulnerable with corporate responsibility goes hand in hand A review of our operating model and with sustainability and success. management mechanisms enabled us to major donations of dairy products. To respond promptly and effectively to the safeguard the legacy of future generations, challenges of the crisis. For their part, the Cooperative increased its commitment employees stepped up and demonstrated to sustainable growth that is respectful of exceptional adaptability and motivation ecosystems, communities and animals.

* Source: Rabobank, 2020

4 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 5 MEMBERS

AN ENGAGED COOPERATIVE

The dairy industry plays a vital role by supplying healthy food products. During the pandemic, Agropur has shown leadership by working with all of its partners to quickly implement appropriate measures to safeguard employee health and safety, maintain the industry’s viability, and sustain food security.

In February 2020, Agropur President participation by its members, enhance Roger Massicotte met with Canadian access and improve information-sharing. Prime Minister Justin Trudeau and Consequently, when the pandemic struck, Our members Minister of Agriculture and Agri-Food Agropur already had the tools to cultivate Marie‑Claude Bibeau to discuss the impacts close connections with its members and make a difference of international agreements on the dairy used them to switch two activities that industry and the compensatory measures are central to the life of the Cooperative to needed to enable the industry to continue digital format: the Summer meeting and the by supplying its development. facilitators’ meeting in the Fall.

The Cooperative seized every opportunity Between meetings, communication was high‑quality to highlight its distinctive business model. maintained through numerous digital The unprecedented situation created by messages to members. The extranet, the the COVID-19 crisis again underscored milk from key link between Agropur and its members, the importance of to the was also upgraded and updated. In addition, development of communities across major strides were taken towards electronic well‑treated cows. North America. transmission of official documents such as notices of meetings and tax slips. The A digital year Vicky St-Hilaire of Ferme St-Hilaire is In 2020, the Cooperative pushed its digital inclusion of Atlantic members in the digital keeping alive the torch of a deep-rooted transition further to promote greater transition process also continued. family tradition.

6 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 7 MEMBERS

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Supporting members during the pandemic Celebrating excellence Improving governance Love of a job well Agropur redoubled its efforts to maintain The 31st Club of Excellence Gala, an event The Cooperative’s recently created its member support services despite the that showcases best practices in milk Governance Committee began its work to pandemic. The Cooperation team continued quality, was held in City. Ferme support the adoption of sound governance done, producing to help members preserve the supply of Pierlie in Saint-Adelphe-de-Champlain practices and effective processes. In its first quality milk, a product deemed essential was crowned Grand Champion and year, the committee identified the skills during the COVID-19 crisis. 16 regional winners were also honoured. and competencies needed for the Board’s In June, Agropur introduced the new Club better dairy. proper functioning, improved training and In addition, a new training program designed of Excellence Animal Welfare Award. The onboarding programs for directors, and to integrate and support foreign workers Grand Champion will be unveiled at the undertook an evaluation of each committee. (FIATÉ) was deployed to assist the many Annual General Meeting in February 2021. Spanish-speaking employees who work The award recognizes the concrete actions Grooming the next generation on Agropur member farms. This proved an taken by members to provide their animals 1 Three generations of the St-Hilaire family pitch in on As part of its effort to make room for young important opportunity to explain the best with exemplary care and comfort. the family farm. Lisette Boucher (front row centre, practices needed to ensure milk quality, people, Agropur filled the newly created wearing pink) and Alain St-Hilaire (light blue) are demonstrate correct milking techniques and Toolkit for future directors Young Director position in February 2020. parents, grandparents and proud Agropur members. improve animal care during cattle handling. To assist prospective candidates for The goal is to create a springboard for young 2 Vicky St-Hilaire is on the job at the crack of dawn. This collaborative initiative with Lactanet, the Cooperative’s Board of Directors, farmers to get involved in the Cooperative’s launched in 2020, was successful in its first Agropur has produced an information and highest governing body. 3 Francis Gilbert (left) and Ali St-Hilaire also work on year, with 14 farms and some 30 workers preparation toolkit. Among other things, the St-Hilaire farm, which has made animal welfare taking part. it contains information about the steps its priority. in the electoral process and the key roles, responsibilities and skills of directors.

8 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 9 EMPLOYEES

Our front‑line employees are essential workers. A GALVANIZED COOPERATIVE

The pandemic disrupted all workplaces. At the plants, at the office and across its supply chain, the Cooperative redefined and implemented new protocols based on the public health guidance in order to protect the health and safety of its employees.

Essential workers ended the year without a lost-time injury Employees throughout our supply chain, (LTI). In all, LTIs were down more than who are all considered essential workers, 48% from the previous year. Notably, the have had to rearrange their workplaces to Lethbridge, plant logged 3,000 days protect their safety, while maintaining the without an LTI. production and distribution of essential Working from home products for the population. The pandemic At the request of public health, telework has shone a spotlight on the essential work was quickly introduced for employees who of food industry employees. are able to work from home. The results At our industrial sites, a series of measures have been very positive. Telework, when have been implemented to prevent the appropriate, will be part of the way we work in the future. spread of COVID-19, such as wearing personal protective equipment, installation Physical distancing requirements led to of separator panels and reorganization extensive reliance on virtual training. There of work shifts to limit contact. In a fine are now more than 350 training videos example of collaboration and excellence, on Agropur’s online platform, in addition Agropur even manufactured its own hand to the LeadR and MentoR professional sanitizer. The cafeterias and lounges were development programs. LeadR cultivates Neville Hemmings checking stocks also rearranged. As a result, despite the our managers’ leadership and team-building at the warehouse disruptions, 76% of Agropur’s Canadian sites skills, while MentoR promotes contact

10 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 11 EMPLOYEES

1 2 3

between experienced managers and Novel recruitment campaigns members of the next generation. Specific At a time when recruitment in the agri-food training on how to cope with the COVID-19 sector is challenging because of labour context and telework was also offered shortages, Agropur continued its efforts to to equip managers to lead their teams attract new talent. The talent acquisition remotely and help employees adjust to team needed a healthy dose of creativity to 1 The Don Mills, Ontario plant is one working from home. conduct effective recruitment campaigns during the pandemic. In one ingenious idea, The pandemic of many Agropur facilities across This situation in the workplace also the Saint-Hyacinthe plant organized two North America. illustrated the importance of regular and rounds of drive-up interviews. 2 Winslous Simon loves a challenge, sustained internal communications, which has shone a spotlight which is what attracted him to Inclusive leadership was already the practice at Agropur prior to pasteurization. the spring of 2020 but was expanded during For years, Agropur has been working to make its workplaces inclusive. This the pandemic. Respondents to an employee on our employees’ 3 Lise Létourneau, organizer year, another step forward was taken extraordinaire, analyzes our survey expressed satisfaction with the with the launch of the Inclusive Women’s customers’ needs and plans frequency and quality of messaging Leadership program, which aims to adaptability and production at the plant. from management. increase the representation of women on the Cooperative leadership teams, promote their advancement and support their creativity. professional development.

12 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 13 CLIENTS AND CONSUMERS

Milk, cream or : Agropur meets the needs of families and businesses.

Agropur is proud of its close relationships with the customers and consumers who place their trust in it year after year.

Trusting relationships customers commented on the dedication Agropur is a major supplier to , of our staff and our proactive approach to industrial and foodservice clients. Our delivering quality products. customers include major restaurant chains, An extra touch of Natrel hospitals and leading distributors. Agropur The Natrel brand made a splash with the is a preferred supplier of milk and cream launch of 10 new products. Natrel Plus, across Canada, and is also a major cheese a high-protein dairy beverage, contains processor in North America, supplying all 18 grams of protein per serving, twice as distribution channels with block, grated and much as regular milk. The response to A COOPERATIVE THAT sliced cheese. The commissioning of the its arrival on store shelves was strongly Lake Norden plant in 2019 and the ramping positive: Natrel Plus now dominates the up of its operations in 2020 enabled us to dairy protein beverage segment in Quebec. increase our market presence and meet Natrel also launched the first fine-filtered the demand for cheese and whey products cream in Canada that contains only two CONNECTS from domestic and international customers. ingredients: fine-filtered milk and cream, WITH PEOPLE During the pandemic, many of our with no stabilizers.

14 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 15 CLIENTS AND CONSUMERS

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1 Little Jaymie takes her job seriously.

2 Comfort food: pizza topped with the mozzarella that is Agropur’s pride.

3 Kaycee enjoys a glass of chocolate milk.

Awards for our media campaign emphasized buying In addition to extending its track record of local: OKA, made in Quebec for more than innovation, Agropur picked up numerous 125 years, tastes best when accompanied by distinctions for its products in 2020. traditional local products. Agropur’s posts Thirteen of our cheeses won awards at the on Instagram and Facebook in the summer prestigious World Championship Cheese of 2020 drew an enthusiastic response and Contest in Wisconsin. The Agropur winners logged more than 7.8 million impressions. included our cheddars, provolone, feta and A watershed year for ice cream low-fat cheeses, which each took first prize Pandemic-related health restrictions in their category and were recognized as prompted consumers to turn to the simple the best in the world. Meanwhile, at the 2019 The pleasures of life are pleasures of life, triggering an historic surge Sélection Caseus contest, Champfleury and in ice cream sales in early summer. Natrel Agropur Grand Cheddar 5 years each took mochis, the bite-sized treats now available enhanced by dairy products that first prize in their category. across Canada, also won new fans. OKA ad wins award Fruitful collaboration with Dairy Farmers The “It’s OK if it’s OKA – Good Morning” Finally, Agropur established new are recognized as among the spot told consumers they don’t have to partnerships during the year. The feel guilty about enjoying OKA cheese Cooperative joined forces with the Dairy any time of day. It was viewed more than Farmers associations in various Canadian best in the world. 2.5 million times and was the winner of provinces to launch joint marketing the Bronze medal among 100 entries in initiatives for dairy products. the Advertising Creation category at the 2020 Idéa competition. A parallel social

16 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 17 CORPORATE SOCIAL RESPONSIBILITY

A SOCIALLY RESPONSIBLE COOPERATIVE

Corporate social responsibility is at the heart of our promise. We are committed to delivering quality products to our customers and consumers every day. We are also proud of our ambitious economic, social and environmental initiatives, which spring naturally from our community roots.

Targeted commitments New environmentally responsible In an indication of the Cooperative’s packaging policy commitment to a long-term vision, the The Cooperative has made considerable Environment Committee’s mandate was efforts to reduce its environmental expanded and it became the Sustainable footprint, and its new packaging policy Development Committee. Its purpose is has led to many improvements. Agropur Supporting to make the Cooperative a key player in has reduced the use of plastic, optimized sustainable development, with a focus on the sizes of some of its containers and our priorities: packaging, environment, shifted towards post-consumer fibre. The communities animal welfare, sustainable products, and project was funded in part by Quebec’s food involvement in our communities. processing development fund (FDTA). by donating In the , Agropur has undertaken Sustained commitment to animal welfare an evaluation of its performance according Agropur plays an influential role in animal to environmental, social and governance welfare. In 2015, it adopted an Animal dairy products. (ESG) criteria, in conjunction with its Welfare Statement that sets out the stakeholders. After the process has been Cooperative’s expectations regarding the An employee of the Second Harvest completed, an action plan adapted to the treatment of dairy cattle and has since been food rescue organization picks up milk U.S. context will be developed. putting this statement into action. donated by Agropur.

18 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 19 CORPORATE SOCIAL RESPONSIBILITY Environment Responsible Animal Welfare Benefits of Milk Community Packaging Involvement

Agropur is an active associate member of Internationally, Agropur is involved in the standards, the Cooperative is constantly In line with its new approach to donations the National Farm Animal Care Council and International Dairy Federation’s Standing working to improve their nutritional and sponsorships, Agropur supported the is participating in the review of the Code of Committee on Animal Health and Welfare. properties. In 2020, Agropur innovated once Olo Foundation, the Moisson foodbank Practice for the Care and Handling of Dairy again by introducing a new high-protein network and several college and university This year, to promote the animal welfare Cattle. The Code serves as the foundation milk as well as dairy products containing foundations in North America. In the actions taken by its members, the for Dairy Farmers of Canada’s proAction 25% less sugar. United States, donations were made to Cooperative launched the first edition of initiative, the on-farm assurance program South Dakota State University, Iowa State the Club of Excellence Animal Welfare that is mandatory for dairy producers in Strong community presence University, and the Lake Area Technical Award. This Award recognizes dairy farmer Canada. Agropur is also a stakeholder in While the pandemic has affected all Institute Foundation. members who have implemented initiatives Novalait, an organisation created by Quebec segments of society, the impact has to promote herd comfort and health. By been particularly hard for the most True to its roots, Agropur continued to dairy farmers and processors, invested in sharing its members’ concrete actions, the disadvantaged. In Quebec, the Cooperative participate in the cooperative movement’s research programs and innovative projects Cooperative celebrates their commitment to showed its support by donating the flagship organizations, such as the for the industry. treating their animals with care and helps equivalent of more than a million litres Conseil québécois de la coopération raise awareness of their efforts among In the U.S., Agropur requires its milk of milk in dairy products, together with et de la mutualité, Co-operatives and peers and the public. shippers to participate in the National Dairy Les Producteurs de lait du Québec. Major Mutuals Canada, the Institut de recherche et d’éducation pour les coopératives Farmers Assuring Responsible Management Offering ever healthier products donations of milk, and cheese were program (FARM) and serves as a 2nd party Dairy products are an excellent source of also made in Ontario, Nova Scotia and New et les mutuelles de l’Université de Sherbrooke, and SOCODEVI. Cheesemaking auditor. The FARM program is an on-farm protein and essential nutrients. They are Brunswick. Feed Ontario presented Agropur equipment donated by the Cooperative continuous improvement process centered beneficial to health and part of a healthy with the 2020 Paul Mistele Memorial Award to SOCODEVI was given a second life in on evaluating animal care and quality diet for all age groups. In addition to for its contribution to reducing hunger developing countries. assurance. manufacturing its products to the highest in Ontario. Finally, to support the next generation, Agropur granted scholarships to interns, 4-H club members and students enrolled in agricultural and food science programs.

1 2 3 1 Animal welfare. In 2020, Agropur created a new prize, the Club of Excellence Animal Welfare Award. Photo shows Agropur member Véronique Lévesque, the owner of Ferme Morine.

2 Responsible packaging. Agropur has reduced the use of plastic, optimized the sizes of some of its containers and shifted towards post-consumer fibre.

3 Benefits of milk. Dairy products are beneficial to health and part of a healthy diet for people of all ages.

20 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 21 MESSAGE FROM THE PRESIDENT

Agropur experienced a series of exceptional events in 2020. First, there was the collapse of the U.S. market in the first quarter; then, the coming into force of the Canada-U.S.-Mexico Agreement (CUSMA) earlier than expected; and finally, of course, the COVID-19 pandemic. Despite these circumstances, the Cooperative demonstrated a remarkable ability to adapt. In fact, earnings improved significantly over the previous year, and even while rising to the immediate challenges, Agropur continued positioning itself for the future.

Major strategic issues Business environment The main objective we had set for In addition to these internal issues, Agropur 2020 was to improve the Cooperative’s had to deal with the new rules of the game operational performance by simplifying in the North American market. Under the its business model. We wanted to reduce CUSMA, Canada ceded new import quotas our debt burden in order to improve our to foreign manufacturers and compromised positioning and be able to make strategic its food sovereignty. Together, the three investments in our high-growth segments. trade agreements – CUSMA, the Canada- EU agreement and the Trans-Pacific Roger Massicotte Two divestments announced after the Partnership (TPP) – represent concessions end of fiscal 2020 – the sale of the Grand President totalling 8% of the Canadian market, or the Rapids, Michigan plant and the sale of our output of 1,200 dairy farms. yogurt business in Canada – are in line with our goal of strengthening our balance With the CUSMA, the industry had to sheet and positioning the Cooperative for eliminate Class 7 and Canada agreed to future growth. cap exports of milk protein concentrates and skim milk powder at levels lower than In both the U.S. and Canada, our people our current exports. The ceiling applies not fixed their attention on operations, worked only to exports to the United States and to minimize the impacts of COVID-19 Mexico, but worldwide. These conditions on employees and customers alike, and are forcing us and the entire industry to improved the operational performance of restructure much of our dairy ingredients our activities. manufacturing operations.

22 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 23 BOARD OF DIRECTORS 2020

1 2 3 “The Cooperative demonstrated a remarkable

ability to adapt.” 4 5 6 7

The industry will need government support core assets. Increasingly, consumers are to pursue strategic solutions for continued turning to products and suppliers that have 10 11 growth. While pressing ahead with meaning for them. Agropur’s cooperative 8 9 modernization, the Cooperative will have to spirit and deep roots in many communities make massive investments to adjust to the are valuable assets for the future. new rules, despite a very limited horizon for its exports. In another innovation, we elected our first Young Director to help secure our On these and other issues, we have organization’s future. The pandemic forced vigorously advocated for the measures us to postpone the strategic consultation needed to facilitate our adaptation to the with members we had planned for 2020 but new landscape. We also spoke out on the we will conduct it in 2021 in order to chart 12 13 14 15 issue of food self-sufficiency and our efforts our path to our future destination. succeeded in moving the agri-food sector up on the list of government priorities. Throughout Agropur’s history, each period Finally, our representations regarding has brought its share of challenges. We tax deferred cooperative shares yielded have responded collectively and risen to results and we were very pleased when every challenge with courage and creativity. the federal government announced at the The COVID-19 crisis has provided a striking end of November that the program will be demonstration of our ability to make the maintained for five additional years, to the benefit of our members. best of unforeseen difficulties. 1 Roger Massicotte 4 Michel Couture 8 Roger Beaulieu 12 Martial Lemire Governance and cooperative life I am confident that Agropur will emerge President Chaudière-Appalaches, 2001 Eastern Quebec, 2014 Nicolet - Bois-Francs, 2019 stronger from adversity once again. I thank Mauricie-Portneuf, 2003 More than 80 years ago, Agropur’s 5 Jean-Pierre Lacombe 9 Stéphanie Benoit 13 Alex Berthiaume founders chose the cooperative model. all the people who make up Agropur’s 2 Alain Forget Salaberry-Richelieu, 2007 Presented and elected by Young Director, presented and ecosystem: our members, employees, Vice-President universal suffrage, 2015 elected by universal suffrage The organization has held to that structure Laurentides-Lanaudière, 2014 6 Céline Delhaes to this day. It promotes collaboration and suppliers and management. They have Presented and elected by 10 Claude Cressier 14 Pierre Lessard fairness. Above all, it gives us control adapted to the circumstances of the past 3 Jeannie van Dyk universal suffrage, 2011 Érable-Seigneuries, 2015 Guest member of the Board Vice-President over our own future. Indeed, Agropur’s year with aplomb. I am proud of what we Atlantic, 2013 7 Valère Lieutenant 11 Michel Boisvert 15 Estelle Métayer cooperative status has become one of its have accomplished together. Estrie-Granby, 2012 Montérégie, 2017 Guest member of the Board

24 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 25 MESSAGE FROM THE CEO

When I took the helm at Agropur a little over a year ago, I was given a clear mandate: to bring the Cooperative’s profitability up to potential and strengthen its balance sheet. My priority has therefore been to implement a transformation plan to set Agropur on this path.

The renewed management team moved EARNINGS FROM OPERATIONS quickly to streamline our decision-making (In millions of dollars) and management structures, and we refocused on our growth segments. % The new approach is already producing tangible results. Despite the turbulent 25.6 environment during this year dominated 459.2 by a pandemic and unprecedented market volatility, Agropur posted record earnings from operations of $459.2 million, a earnings from operations, despite price 25.6% improvement over the previous volatility on U.S. markets and the impact of year. Earnings before income taxes and the pandemic. All other plants continued to patronage dividends were $69.6 million. perform well. And we made debt repayments of $305.9 million. While much remains to In Canada, we embarked on a number be done, we can look to the future with of changes. The decision-making optimism. The positive results were due process has been streamlined for greater in no small part to some of the initiatives agility and some expenses have been we launched during the year. Here are rationalized. We have also taken a much some highlights. more strategic approach in order to better Émile Cordeau position ourselves in a market that has Improving profitability been disrupted by the pandemic and Chief Executive Officer Start-up of the Lake Norden plant began international agreements. These initiatives in the spring of 2019 and production contributed to a significant increase in was steadily ramped up in 2020. The profitability. Our earnings are improving in increased pace of production contributed both Canada and the U.S., but we still have significantly to the improvement in work to do to achieve our goals.

26 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 27 2020 SENIOR MANAGEMENT COMMITTEE

1 2 3

“Our earnings are improving.”

4 5 6 7

Strengthening the balance sheet through its responsiveness to customers’ Debt reduction is another priority. Between needs, its lean business model and its focus 2012 and 2019, Agropur invested $3.6 billion on its most promising lines of business. in property, plant and equipment, and acquisitions. Those investments quickly Corporate social responsibility

pushed up revenue but earnings did not The Cooperative undertook these major 8 9 10 keep pace. During the same period, the changes in 2020 without sacrificing its Cooperative also paid out $500 million to its commitment to social responsibility. members. Meanwhile, operations provided Throughout the pandemic, Agropur has $1.9 billion in cash flow. Therefore, we added helped families in need by donating more $2.2 billion to our debt during those years than one million litres of milk to food banks and it has become a burden we need to and other organizations to support our lighten. On this front, our work is far from communities. At the initiative of a group done, but with the efforts made in 2020 the of female employees, the Cooperative Cooperative is on the right track. launched the Inclusive Women’s Leadership Defining Agropur’s future program. It also laid the foundations for its In addition to the progress on our short- future sustainable development strategy. term goals, we continued planning for the future. The series of mergers and Agropur’s success rests first and foremost on the dedication of its competent, 1 Émile Cordeau 4 Doug Simon 8 Marco De Palma acquisitions not only increased Agropur’s Chief Executive Officer President, General Manager, size and sales volume, but also the motivated people. The Cooperative can US Operations Fresh Products, Yogurt & Ice Cream, complexity of its business model. count on talented employees and dynamic 2 Stéphane Tremblay Canada Operations Senior Vice-President and 5 Carlos Buss members who enrich its associative life. Chief Financial Officer Chief Transformation and 9 Éric Boulé A thorough review of operations was In the surreal situation created by the Information Officer Vice-President, therefore undertaken in order to target 3 Diane Bertrand Operations, pandemic, I am deeply grateful to Agropur’s priority segments for the Cooperative. The Vice-President, 6 Dominique Benoit Canada Operations employees for their outstanding work. We Legal Affairs & Cooperation Senior Vice-President, sale of certain assets after the end of the Institutional Affairs and 10 Stéphane Le Gal still have much to do but our efforts of fiscal year followed from this process. Communications Vice-President, the past year are bearing fruit and we are Sales, 7 Pierre Corriveau Canada Operations To ensure profitable growth in strategic determined to stay the course. Senior Vice-President, segments, Agropur will distinguish itself Human Capital

28 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 29 AGROPUR IN NUMBERS

SALES EARNINGS FROM OPERATIONS (1) NET EARNINGS (In millions of dollars) (In millions of dollars) (In millions of dollars)

2016 5,952.2 2016 411.7 2016 98.6

2017 6,412.4 2017 444.1 2017 174.9

(1) 2018 6,714.4 2018(2) 362.1 2018(1) 67.7

2019 7,255.2 2019 365.4 2019 39.1

2020 7,713.3 2020 459.2 2020 38.8

(1) Fiscal year including 53 weeks (1) Earnings before interest, income taxes, depreciation, amortization, (1) Fiscal year including 53 weeks restructuring costs, integration and other non-recurring costs (2) Fiscal year including 53 weeks

DECLARED PATRONAGE MILK PROCESSED DIVIDENDS MEMBERS’ EQUITY (In millions of litres) (In millions of dollars) (In millions of dollars)

(1) 2016 5,940.5 2016 60.1 2016 1,358.9

(1) 6,062.3 2017 2017 65.2 2017 1,490.0

2018(2) 6,228.3 2018 65.2 2018 1,535.2

2019 6,516.9 2019 30.0 2019 1,479.4

2020 6,627.3 2020 43.5 2020 1,558.4

(1) Milk processed includes joint venture (2) Fiscal year including 53 weeks

30 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 31 FINANCIAL REVIEW

“We will continue Our activities during the 2020 financial year were conducted against transforming Agropur the backdrop of the COVID-19 pandemic. While the Cooperative’s operations were deemed an essential public service, Agropur was still affected by government restrictions designed to control the to unlock its full pandemic. Fiscal 2020 also saw unprecedented volatility in U.S. cheese prices; our earnings were negatively impacted by two potential and ensure sharp price drops in the first half of the year. However, results were favourable in the second half of the year, with rising cheese prices its sustainability.” and improved profitability of Canadian operations.

Despite the turbulent environment, our SALES financial results improved significantly. (In millions of dollars) Sales increased by $458.0 million or 6.3% to $7.7 billion in 2020. Earnings from operations, or EBITDA, reached a % record $459.2 million, a year-over-year 6.3 increase of $93.7 million or 25.6%. Agropur closed fiscal 2020 with net earnings of 7,713 $38.8 million. It should be noted that in 2019, an extraordinary gain on disposal of the The volume of milk processed at our St. Paul facility, United States, was recorded. Canadian plants decreased by 1.9% to Net earnings increased by $46.6 million 2.6 billion litres. In the U.S., volume rose in 2020, on a comparable basis. As a result 4.2% to 4.0 billion litres due to increased of this financial performance, combined capacity at the Lake Norden plant, which with reduced capital expenditures, the was commissioned in 2019. Cooperative was able to reduce its debt levels and strengthen its balance sheet. MILK PROCESSED BY AGROPUR Profitability improved significantly during IN 2020 the year but we need to continue our efforts on this front. Higher profitability will allow us to continue improving our balance sheet and afford us flexibility to reinvest in growth. Cheese, ingredients 80% and butter Our plants processed a total of 6.6 billion Yogurt and litres of milk in 2020, an increase of 2% frozen products 110.4 million or 1.7% over 2019. 80% of the Stéphane Tremblay milk processed by Agropur in 2020 was 18% Senior Vice-President and used to make cheese, ingredients and Fresh dairy products Chief Financial Officer butter, 18% to make fresh dairy products and 2% for yogurt and frozen products.

32 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 33 FINANCIAL REVIEW FINANCIAL REVIEW

U.S. sales volume also increased due to surplus butterfat, which we resell on the Governance BUTTER MARKET PRICE USA US$/lb The financial statements were prepared in higher volume from the Lake Norden plant market. The selling price is determined by Average accordance with International Financial in 2020. COVID-related restrictions in the an index that began to decline in late 2019 price: $2.20 $2.29 $2.26 $2.28 $1.69 Reporting Standards and reviewed by the U.S. had a negative impact on sales, cutting and the decline continued throughout 2020. $3.00 Audit Committee. On the Committee’s into sales to customers in the HRI segment (hotels, restaurants and institutions). The following graph shows the drop in recommendation, the Board of Directors Finally, the appreciation of the U.S. dollar butter prices in fiscal year 2020. approved the 2020 financial statements. against the Canadian dollar contributed to In Canada, despite stable sales, earnings $2.00 the increase in U.S. sales when translated from operations increased by 50.5% year into Canadian currency. REVIEW OF 2020 FINANCIAL over year. Excluding the effect of the STATEMENTS Canadian operations’ sales were stable adoption of IFRS 16, adjusted earnings from compared with 2019 at $4.0 billion. operations increased by 45.3%, due in part $1.00 Financial results Oct. Oct. Oct. Oct. Oct. Oct. Canadian sales were also impacted by to improved profitability of products sold. 2015 2016 2017 2018 2019 2020 Consolidated sales amounted to a restrictive measures. HRI sales were down Also, expenses were reduced in all sectors of record $7.7 billion in 2020, an increase of significantly but the decrease was offset by the organization. The pandemic resulted in $458.0 million or 6.3% compared with 2019. increased retail sales. increased costs related to health measures, U.S. operations accounted for the entirety which were partially offset by savings in of the increase. The chart on page 30 shows consolidated areas such as travel. sales for the past five years. They amounted related to disposal of a portion of an U.S. sales totalled $3.7 billion in 2020, a to $7.7 billion in 2020 compared with The chart on page 31 shows the evolution of investment in an associated company. year-over-year increase of $469.0 million $6.0 billion in 2016, a 29.6% increase and an earnings from operations for the past five In 2019, a $64.1 million gain was recorded, or 14.4%. The 2019 numbers included the average compound annual growth rate of years. Earnings from operations rose from mainly in connection with the disposal of sales of the St. Paul plant, which was sold 6.7%. The growth was mainly due to mergers $411.7 million in 2016 to $459.2 million in our St. Paul plant. In addition, the carrying in October 2019. On a comparable basis, and acquisitions, as well as numerous 2020, an increase of $47.5 million and an amount of certain assets was reduced by average compound annual rate of 2.8%. U.S. sales increased by 20.5% in 2020, due capital projects aimed at increasing $2.0 million in 2020. In 2019, we recognized production capacity. primarily to higher average cheese prices. Net earnings were down $0.3 million or a $16.1 million asset impairment in The following chart shows the cheese price connection with the announced closure of The Cooperative’s earnings from operations 0.7% to $38.8 million in 2020. In addition trend in the U.S. and the unprecedented our plant in Lachute, Quebec and a review of (EBITDA) amounted to $459.2 million, for an to earnings from operations, net earnings volatility seen in 2020. EBITDA margin on sales of 6.0%. This result reflect the following items. our brand portfolio. Lastly, the income taxes represents a year-over-year increase of of subsidiaries was $36.4 million for the The average U.S. cheese price in fiscal 2020 The depreciation and amortization expense $93.7 million or 25.6%. fiscal year. was US$2.02/lb, 19.5% higher than in 2019. increased $27.1 million to $243.9 million, U.S. operations posted a 14.4% increase in essentially because of depreciation Therefore, the Cooperative’s earnings before earnings from operations compared with of the Lake Norden plant, which was patronage dividends and income taxes (1) USA CHEESE PRICE US$/lb 2019. Excluding the results of the St. Paul commissioned in 2019. totalled $69.6 million in 2020 compared with Average plant in 2019 and the effect of the adoption $47.2 million in 2019. Restructuring costs, integration and price: $1.53 $1.65 $1.58 $1.69 $2.02 of IFRS 16 (the new accounting standard for other non-recurring costs decreased by $3.00 the recognition of leases which increase After reviewing the earnings, the Board of $6.1 million to $35.7 million in 2020. They EBITDA) in 2020, EBITDA increased by 17.9%. Directors declared patronage dividends consist in large part of restructuring costs Factors that contributed to the increase in of $43.5 million, issued entirely in Class A for our Canadian operations. U.S. earnings included improved margins on investment shares in order to help reduce $2.00 whey products and the contribution of the Financial expenses were $79.3 million the Cooperative’s indebtedness. new Lake Norden plant. These favourable in 2020. It should be noted these costs factors were partially offset by lower sales include a financial expense of $4.4 million After deduction of patronage dividends, volumes to HRI customers and lower butter attributable to the new accounting standard the Cooperative recorded $12.7 million in $1.00 Oct. Oct. Oct. Oct. Oct. Oct. prices. It should be noted that our cheese for leases (IFRS 16). A $9.3 million gain income tax recovery. Agropur therefore 2015 2016 2017 2018 2019 2020 production in the United States generates on disposal was recorded in 2020, mainly generated net earnings of $38.8 million. (1) Cheddar cheese 40 pounds block price USA

34 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 35 FINANCIAL REVIEW FINANCIAL REVIEW

Comprehensive income totalled Additions to property, plant and equipment Over the past five years, inflows have USE OF FUNDS $36.0 million in fiscal 2020, broken down and intangible assets were $136.0 million totalled nearly $2.3 billion. The following 2016 TO 2020 as follows: net earnings of $38.8 million in 2020 compared with $291.4 million in chart shows the use of the inflows during (In millions of dollars) plus the items recorded under accumulated 2019. To strengthen our balance sheet, we the period. Since 2016, $1.2 billion has been other comprehensive income, including kept capital expenditures to a minimum in invested in property, plant and equipment Property, plant and equipment a $10.6 million unrealized net loss on 2020, after making significant investments and intangible assets and $140 million has and intangible assets financial instruments and recognition of in 2018 and 2019, including at the Lake been spent on mergers and acquisitions. a $10.3 million net gain to account for the Norden plant in the U.S. Expenditures $179 million has been paid out to members Mergers and acquisitions effect of depreciation of the Canadian dollar in 2020 included multiple plant projects. as patronage dividends in cash and capital on consolidation of the assets and liabilities The breakdown of capital expenditures redemptions. Payments in the amount of our US subsidiaries and on translation of was 62% in Canada and 38% in the U.S. of $242 million were made to repay long- 140 Members and capital long-term debt into Canadian dollars. These The Cooperative received $13.4 million in term debt, net of the issuance of preferred accounting gains and losses will continue consideration of the disposal of a portion shares. Finally, $495 million was used for 1,214 179 to fluctuate with interest rate variances of its interest in an associated company. interest payments and dividends on first and the fluctuations of the Canadian dollar Finally, proceeds from disposal of assets of preferred shares. against the U.S. dollar. Lastly, the other $5.0 million include amounts received for 242 Repayments of debts, net of components of comprehensive income two milk transportation routes and unused Balance sheet preferred shares issuance (loss) are the items transferred to the lands and buildings. Assets totalled $4.7 billion, a $115.7 million reserve, consisting of net actuarial losses increase from 2019 stemming mainly from on the defined benefit pension plans in the The table below shows the aforementioned accounts receivable due to higher cheese 495 amount of $2.5 million. inflows and outflows of funds during prices. The increase in assets was reduced the year. by depreciation of property, plant and Cash flows equipment and intangible assets. Finally, Interest and dividends Cash flows from operating activities totalled INFLOWS 2020 recognition of a right-of-use asset in $418.1 million in 2020, an increase that Outlook (In millions of dollars) accordance with IFRS 16 also contributed reflects the marked improvement in results. to the increase in assets. An almost This year’s financial performance enabled Changes in non-cash items contributed Operations 418 equal counterpart entry was recorded us to generate positive cash flow, allowing $77.0 million; the increase was mainly under liabilities. us to reduce our debt and putting us attributable to an increase in accounts Working capital 77 in a stronger position to face market payable, including milk payable, partially Proceeds from disposal 18 Total liabilities amounted to $2.4 billion, a fluctuations in what remains a highly offset by an increase in accounts receivable $36.7 million increase from November 2, volatile environment. We need to improve (essentially due to the increase in the price 2019 due mainly to an increase in accounts profitability and reduce debt in order to TOTAL of cheese in the U.S.). 513 payable, particularly milk payable, partially generate the income needed to reinvest OUTFLOWS 2020 offset by the reduction in long-term debt. in our strategic activities and offer our With respect to financing activities, (In millions of dollars) members an acceptable return, while $305.9 million was used for debt As of October 31, 2020, total equity keeping debt to a healthy level. The two Interest repayments. In view of the high debt level, (including effect of exchange rate on cash position) 76 was $2.3 billion. Excluding the first transactions we announced in December we suspended dividend payments to preferred shares, members’ equity stood (Grand Rapids facility, United States and holders of first preferred shares. Interest Lease payments 15 at $1.6 billion, a $79.0 million increase. our yogurt activities in Canada) are in line payments were $72.9 million. Following Property, plant and equipment It should be noted that given the debt with this debt-reduction objective. The the adoption of the new IFRS 16 accounting and intangible assets 136 level in 2020, no dividend payments on measures implemented during the year to standard in 2020, we are now required to first preferred shares were made during improve the Cooperative’s profitability are report lease payments that meet the criteria TOTAL 227 the year. Under our agreements with the yielding results. The profitability achieved in the new accounting rule as financing holders of these shares, we are allowed (6.0% EBITDA margin on sales) is only one activities. Lease payments in the amount Cash flows generated 286 to defer dividend payments. Without the step forward because it is still insufficient. of $14.9 million were made under long-term Repayments of long-term debts (306) deferral, the amount paid would have been In the coming years, we will continue leases, which were previously reported $62.8 million and member’s equity would transforming Agropur to unlock its full under operating activities. Change in cash position (20) have been reduced by the same amount. potential and ensure its sustainability.

36 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 37 RISKS AND UNCERTAINTIES

Risks related to the COVID-19 pandemic guard against the rising risk of cyberattack. In the context of a competitive market in the dairy industry and the possible In the context of the COVID-19 pandemic, Those measures include continuously environment and a pandemic, the impact of arrival of new competitors in the market. the Cooperative’s activities have been updated computer controls, staff training a price increase in inputs will depend on the Business combinations in the dairy considered an essential public service. sessions, strict rules for the suppliers Cooperative’s ability to convert this increase industry in recent years have intensified The Cooperative’s facilities have therefore whose services we use, and a disaster into a comparable increase in the selling international competition. In Canada, the remained in operation. recovery plan. Despite these safeguards, the prices of its products. dairy industry is dominated by three main Cooperative is not immune to the threat. A players, including the Cooperative. In the cyberattack could affect our operations and United States, we face numerous regional, However, there are pandemic-related risks Supplier risks such as the possibility of an outbreak at therefore have negative financial impacts. national and international competitors. The one of our facilities, forcing a temporary The concentration of suppliers means that competitors seeking to strengthen their shutdown; employee absenteeism due to market position could force the Cooperative Risks related to unplanned disruption of for some goods and services, our supplies the virus; and problems obtaining supplies to grant additional discounts on its products operations are restricted to a limited number of of the inputs used in the manufacture of our suppliers. Problems may also arise in the in order to maintain its market share. finished products. Major events such as a fire, equipment supply chain, particularly with logistics failure, epidemic, natural disaster, etc. may suppliers. Insufficient quantities, quality At the beginning of the pandemic, the Market risks occur and cause harm to employees or or timeliness could negatively impact Cooperative set up a crisis unit to put in damage to property, which could lead to an our earnings. Prices for milk and whey products on place measures to prevent an outbreak at unplanned disruption of the Cooperative’s international markets and cheese prices its facilities. This unit refined a business operations. The impact would depend on in the United States are dependent on continuity plan in the event of a pandemic Customer-related risks the Cooperative’s ability to manage the fluctuations in supply and demand, which and took a number of specific measures, crisis. The Cooperative has Increasing concentration in the food in turn are influenced by global economic including implementation of strict health coverage to reduce its exposure to some distribution industry in recent years has conditions. This high volatility can have and safety protocols for employees, business interruption-related risks. resulted in a more limited number of significant impacts on our results. a teleworking policy, and intensified customers and an increase in the relative monitoring of the evolving situation and importance of some customers. Since the of the decisions made by the various Product-related risks Risks associated with tariff rules Cooperative serves this industry, such authorities. The Cooperative also increased concentration could lead some distributors communication with its employees and its Given its processing activities, the The Cooperative operates in the dairy to exert pressure on prices, causing an various partners. Cooperative is exposed to the risk of industry, in which imports are subject to contamination of its ingredients or products adverse effect on operating earnings. tariff rules. International trade rules may be Despite all these measures, the Cooperative by internal or external agents. If this modified by international treaties, which is not immune to the aforementioned risks, should occur, a product recall could prove Consumption trend risks could have the effect of changing the which could result in financial losses and to be costly and have a negative impact competitive environment in the markets damage to its reputation. on our reputation and, by extension, on Changing consumption trends could in which the Cooperative operates. The future sales. affect demand for our products and thus Cooperative’s future profitability will affect the earnings of the Cooperative. The depend on its ability to adapt to new rules Cyberattack risks repercussions of such changes will depend by innovating and offering its customers Raw material risks To conduct its business, the Cooperative on our ability to meet consumers’ needs, products that are competitive in quality relies on properly functioning computer Price volatility and the availability of the develop new products and innovate. and price. applications, including internal networks, raw materials used in the manufacture of integrated systems, cloud services and goods (particularly milk, which represents Competition risks Regulatory risks external data centres. In order to protect the major cost component) and of the its data and systems, the Cooperative has necessary packaging materials could The Cooperative is exposed to risks The Cooperative is subject to multiple implemented various security measures to have a negative impact on product costs. associated with heightened competition governmental and tax laws, regulations

38 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 39 RISKS AND UNCERTAINTIES

and policies. Amendments to, or tightening in interest rates on these financial Ethical risks We make the necessary efforts to maintain of, those laws and regulations could affect instruments. The cash flow impact will be good relations with the unions. our operations or lead to additional costs negative if interest rates rise and positive To maintain lasting relationships of trust with all stakeholders, Agropur expects for compliance with such new obligations, if interest rates fall. In keeping with its Personnel risks particularly with respect to the production, risk management strategy and in order ethical behaviour that is above reproach labelling and distribution of food products. to reduce its exposure to interest rate of all employees. Agropur has adopted an The Cooperative’s success is dependent We attach great importance to compliance fluctuations on a portion of a term loan, the Ethics and Trust Code that applies to all on its people’s efforts and skills. Workforce with applicable laws and regulations in Cooperative swaps floating-rate interest employees. Agropur has also an ethics line availability and engagement, as well as all jurisdictions where we do business, as payments for fixed-rate payments at that employees can use to report a concern occupational health and safety, present breaches can lead to sanctions, penalties specified intervals. or a sensitive situation in the workplace, on risks to our ability to achieve our growth or fines. a confidential basis. objectives. Each of our workplaces has a health and safety plan. The Cooperative Information system risks The Cooperative is also concerned about conducts an annual review of its Business environment risks animal welfare. Agropur and its members succession management plan and ensures The integration of computer applications consider that dairy cattle must be properly that contingency plans exist for all Demand for our products could be affected into the Cooperative’s operations makes raised, kept and cared for at every stage of critical positions. by an economic slowdown, market the Cooperative more dependent on such their lives in order to keep them healthy, recession or restrictive government applications. Computer service availability, comfortable and safe. To properly support In a tight labour market, the Cooperative is measures, which would impact completeness and confidentiality are its members, Agropur has an animal welfare under pressure to attract and retain the best our earnings. the main risks associated with the use of advisor on staff. talent. Agropur fully and actively supports such applications. A system malfunction the professional development and wellness Despite these efforts, ethical breaches Debt risks could lead to poor decisions or affect of its employees by offering competitive production levels. may occur and could not only compromise working conditions and through various The Cooperative’s level of indebtedness Agropur’s reputation but also lead to programs that promote continuing training. limits its flexibility in managing cash, extraordinary charges arising from We ensure that we are competitive with Risks related to sensitive information and penalties or fines. as large amounts must be set aside for data protection the market. principal and interest payments. The debt agreements also contain restrictive In the normal course of business, we Environmental risks Risks related to employee future benefits covenants that could limit the amounts that gather sensitive information about our can be allocated to capital expenditures, customers, employees, members, partners The Cooperative is subject to a number The Cooperative offers some groups patronage dividends and dividends on and suppliers. The Cooperative applies of environmental protection laws and of employees defined benefit pension first preferred shares. The Cooperative’s a computer security policy designed to regulations concerning, in particular, plans. Changes in long-term interest level of indebtedness could also limit its protect confidential information. Agropur wastewater discharge, air pollution, the rates, volatility of returns and regulations ability to invest in growth opportunities. also has security measures, including use of toxic chemicals, and the clean-up governing such plans could potentially However, the Cooperative has financial computer controls, to prevent unauthorized of contaminated sites. Any amendments require the Cooperative to make controls in place to ensure that it meets its access to personal information. Despite to such laws and regulations could involve contributions which are significantly financial commitments. these controls, we are not immune to the additional outlays for compliance. different from those currently paid. A dissemination of sensitive information review of the Cooperative’s obligations under these plans was completed and most Interest rate risks by employees or people with ill intent. A Labour relations risks system malfunction or unauthorized access of them are now closed to new participants. As a result of the investments made in could lead to loss of customers, tarnish Several groups of employees at our various recent years, long-term debts have been our reputation in the market or result in worksites are unionized. Negotiating contracted. The Cooperative is therefore legal action, investigations by regulatory collective agreements can create conflicts exposed to risk arising from fluctuations authorities, and/or penalties. resulting in work stoppages or slowdowns.

40 Agropur Cooperative Annual Report 2020 Agropur Cooperative Annual Report 2020 41 OUR BRANDS

OUR BRANDS, A STANDARD OF EXCELLENCE

74 Agropur Cooperative Annual Report 2020 Head office

4600 Armand-Frappier Street, Saint-Hubert QC J3Z 1G5 Canada Tel.: 450-878-2333 Toll free: 1-844-878-2333

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3500 East Destination Drive, Appleton WI 54915 USA Tel.: 920-944-0990 agropur.com

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