Agropur Cooperative Annual Report 2018 Agropur

Better World. Better Dairy. DAIRY COOPERATIVE DAIRY

AGROPUR COOPERATIVE

ANNUAL REPORT 2018 1938

For 80 years.

We are dedicated to achieving better dairy

and a better world. COOPERATIVE DAIRY Our goal has not changed since the day, 80 years ago, when a group of far-sighted farmers who wanted to take control of their own future founded Agropur: to make a difference for our community.

AGROPUR COOPERATIVE

ANNUAL REPORT 2018 2018

Table of contents

Introduction 2 Message from the President 8 Message from the CEO 10 Board of Directors 12 Senior Management Committee 14

Pillars

Brand Strategy 16 Innovation 22 Cost Leadership 26 Human Capital 30 National and International Development 34

Corporate Social Responsibility 38 Financial Review 42 Consolidated Financial Statements 52

Derny and Araya on their way home with Brie L’Extra, drinkable iÖGO nanö and Natrel 2% milk in the basket. INTRODUCTION 2 Introduction 3 INTRODUCTION - and the environment. To deliver that deliver experi To and the environment. employees 8,800 Cooperative’s the ence, dairy make to pride every with day strive products that meet of the expectations consumers and the of those future. today’s

Model The Cooperative Cooperative The

all their savings joined forces and Agropur was born. 87 Quebec farmers and all their hopes. formed a cooperative a cooperative formed In 1938, in the midst in the midst In 1938,

in which they invested invested they which in of the Great Depression, better world. The 3,161 member dairy member farmers 3,161 The world. better owners are thewho are Cooperative’s offering consumerscommitted to unique a welfare animal about caring while experience, For 80 years, Agropur hasAgropur been building years, 80 For a 3 INTRODUCTION - and the environment. To deliver that deliver experi To and the environment. employees 8,800 Cooperative’s the ence, dairy make to pride every with day strive products that meet of the expectations consumers and the of those future. today’s

better world. The 3,161 member dairy member farmers 3,161 The world. better owners are thewho are Cooperative’s offering consumerscommitted to unique a welfare animal about caring while experience, For 80 years, Agropur hasAgropur been building years, 80 For a INTRODUCTION 2 Introduction model cooperative the of strength The their businesses.” their to develop tools best the to acquire farmers dairy enables which system, payment fair their to support democracy. When I buy Agropur products, it’s partly and performance quality, of aguarantee is process decision-making the in engaged are they that fact the Ithink and members, by its owned is Agropur “I’m happy to a business sustainable model. support other.” any like abusiness just we’re not but other, any as a business much as it, just “We’re put members our As life. associative its of dynamism the maintained and values core to its true stayed has Agropur years, recent in accelerated has growth its as Even proud. and high cooperation ambitious modern, of standard the bears Agropur questioned, being are models economic traditional when At a time

FONTABEL FARM WEEDON, QC

Better Dairy. Better World.

Agropur, one of North America’s largest dairy processing cooperatives, is proud of its distinctive business model, one that lets it help share the wealth everywhere it operates. 5 INTRODUCTION 2 1 2 Maude starting her day day her starting Maude at the crack of dawn. In the freestallTailgate barn, can move around as she pleases.

During the past Agropur year, reaped initiatives focused on the welfare of communities. animals and fruits the of its efforts: was 2018 a banner year in termsof awards and distinctions. Forbes magazine American leading The ranked Agropur first in theagri-food industry on its list of Canada’s best The Cooperativeemployers. picked medals,up 10 including five gold, at the World Championship Cheese Contest,in Wisconsin, winning for best Camembert, best mozzarella, best mozzarella, best Camembert, best takes environmental, social and economic and social environmental, takes productmeans contributing the to local For customers and consumers alike, alike, consumers and customers For well extends experience Agropur the beyond the product: buying an Agropur That cooperative model,rooted in sharing the and democracy solidarity, of resources, has servedas powerful a empowerment dairy farmer for vehicle for 80 years. Two years ago,Two Agropur proudly annual distributes also Agropur economy and making a difference in the community. became the first major processor in Canada commit to displaying to the logo certification-of-origin cow blue Canadianfor 100% milk, the seal of quality Canadian milk, on all the dairy brands. own its under sold products Itremains the only national processor Created do Dairy by to so. Farmers of Canada, the logo certifies that all of the in used dairy ingredients and/or milk the product are sourcedin Canada. members its to dividends patronage and contributes the to vitality of rural In keeping valuescommunities. its with of mutual assistance,it allocates significant amounts its to donations and sponsorships program.asAnd, a Agropur business, responsible socially smoked provolone, best shredded shredded best provolone, smoked cheese and best feta in the world in a field of 3,400 products from countries. 26 Mercuriades prestigious Quebec’s At businessAgropur wonawards, in the Enterprise of the andYear Successful categories. Strategy Business INTRODUCTION 6 7 INTRODUCTION

1 2 3 4 Maxime and daughter Ariane. cleaning Maude the gestation area. With the robotic milking machine, the Ferme Fontabel’s new buildings on the right, with the old onesthe to left. cow decides when she wants be to milked. 3 4 We madeWe very significant investments in infrastructure, notably at Lake Norden, Southlaying Dakota, the groundwork for our next organic growth phase. As oneof the largest top 20 dairy processors inthe world and the one offering the most extensive line of dairy products leading a remain to intends Cooperative the Canada, in player that stands out virtue by of its values. Agropur,At we knowthat Better Dairy means a Better World.

2 ation, cost leadership, leadership, cost ation, development. humancapital, as well as national and international and investing for thelong term was evident. pressed We ahead with our business strategy, which revolves around innov strategy, brand our five pillars: This year more than the ever, importance of planning As these honours demonstrate,our transformative actions are earning recognition from our peers.

MESSAGE FROM THE PRESIDENT 8

René Moreau René Message from the President President the from Message 21 years, including five as vice-president as five 21 including years, past the for history rich this of part had the exceptional privilege of being Ihave Board, Agropur’s of amember As of our sustainability. them into the indis solidarity and profitability, weaving members have successfully combined Agropur years, 80 For success. our of remain life the cornerstonesassociative our cooperative rich our and model hand. in destiny Today, their to take tool apowerful created and forces joined founders our ago, years Eighty active role in Agropur’s transformation Agropur’s in role active this time, I have been able to play to play able been Ihave time, this During president. as two last the and sociableelements an an

investments of the past 10 years, and 10 and past years, the of investments However, Canada. in markets our competitive particularly and prices whey and cheese by lower industry, entire the of those were as affected, negatively were front, earnings our financial the On all. to us are resilience and strength Cooperative’s our vital how again once showed year 2018 financial progress. The for a catalyst and interests shared our to promote instrument apowerful once at is Cooperative our to which extent the to see opportunities many had I have market recovery when it occurs. occurs. it when recovery market the of advantage to take position ideal an in us put year, have last the of our unprecedented capital expenditures

9 MESSAGE FROM THE PRESIDENT

pay tribute the to skills anddedication of our senior managers.particular, In I am very grateful Robert to Coallier, and I thank the 8,800 Agropur employees who pursue both the cooperative values excellence. operational and I am confident that we have established winning strategiesfor our Cooperative’s We future must development. continue growto andin develop investing by our facilities and systems,product in We haveWe amplydemonstrated the value and robustness of our cooperative model. areWe where we are today because those who came before us understood long ago that secure to our future and control our destiny,we had grow. to I am counting on colleagues my and the next generation continue to our work. After all these years of active involvement in the Cooperative,I have decidedto pass the torch and retire. As I take my leave of the Board and the president’s office, I would like thankto my fellow directors,past andpresent, and to René Moreau René President innovation, in cutting costs and promoting preserve for future generations. future for preserve which we can be proud and must our brands. brands. our In these uncertain times, being a member of Agropur is a tremendous privilege of

strongly but all needs of consumers, who consumers, of needs product packaging. We did We packaging. product our milk suppliers to follow best practices practices best follow to suppliers milk our with regard animal to In welfare. practical with members our provide we terms, training and support help to them meet the highest standards of care in the treatment of their“Better herds.Our signatureDairy. states Better World.” our reality, from one end of the supply chainPrograms the to other. such as on practices best promote proAction® the farmand, most importantly, they help position Canadian milk in the eyes of consumers as milk of the highest standard that is among the best inthe world. Given the current environment, animal and proAction® supporting welfare has never been more vital. areWe always privileged be to part of Agropur but never more so than in environment business challenging a such as the one we are facing now. areWe the owners of a world-class Cooperative. It serves as kind a of insurance policy andstabilizes our incomes absorbingby most of the markets. world in fluctuation cyclical encourage not only our members our only not encourage so meet to the want be to able to identify and buy products. local In addition where to their food comes consumersfrom, want know to howit was produced, andparticularly how the animals are treated.Therefore, we logo on its the wiser. In 2016, wethe decided In wiser. 2016, offer to Canadian products made with 100% Canadian milk. Agropur became the first major dairy processor use to the Dairy certification-of-origin Canada of Farmers dairy policies andstrategies that will, among other things, help the entire value chainadjust sustainably the to new market of series therecent by created realities concessions.There is an urgent need for representatives of the entire dairy industry sit to down with government officials at the same table and redefine strategies and dairy policies Canada’s along those lines.Agropur intends to be player a key in any such discussions. In light of the current situation,some of our decisions of recent years appearall

and is necessary, what Canada’s dairy Against this background,it is all the more surprising that thegovernment has grantedmultinational a US a licence importto into Canada,a duty-free, dairyproduct of which an equivalent other countries ofthe world,a dangerous Canada agreed Moreover, precedent. eliminateto which Class is needed 7, to a dairy processors Canadian ensure supply of milk ingredients at competitive prices,as well as manage to our structural surpluses of skim milk powder. is already available on the Canadian pendingmarket, the completion of its plantThis preferential in Ontario. treatment gives the multinational a significant advantage over the pro cessors that are already established in Canada,even though Agropur is making much more substantial invest ments—$153 million this year alone. keeps government the federal And yet repeating that it believes in supply must It it. defend will and management be said that there is a disconnect between words and deeds at the inconsistency The government. federal uncertainty considerable creating is and increasing the complexity of planning investments in our Canadian Mexico signed on November2018, 30, infrastructure. While financial compen financial While infrastructure. sation CUSMAlimits some of our dairy exports to Onthe trade Canada,thefront, US the Canada–United-States–Mexico In addition the to market access,the Agreement (CUSMA), which will replace replace will which (CUSMA), Agreement the agreement, the Under NAFTA. Canadian government has sacrificed a system supply-management our of piece for the third time in just a few years. agreement trade Canada-EU the After the Partnership,Trans-Pacific and the Canadiandairy industry has been used as a bargaining chip in yet another round of international trade negotiations.On all concessions Canada’s occasions, three were described as minor, but once all the treatieshave come into effect, those concessions will of the10% add up to CanadianThat is milk market. that will not be processed at our plants. industry needs is more consistent

MESSAGE FROM THE CEO 10

Robert Coallier Robert Message from the CEO CEO the from Message industrial products, grew our share share our grew products, industrial and ingredients for market US the in footprint our expanded progress, our continued we Nevertheless, exception. no was Agropur operating income for processors. lower and margins to narrower led has cycle economic industry’s the in phase this world, the in Everywhere States. United the in price block cheese the in adrop and prices whey world in decrease a significant 2018: in landscape industry dairy the dominated Two developments related cheese and fresh products segments. segments. products fresh and cheese the in growth our and Foods Ultima of inclusion the part in reflecting 11.7%, up were sales Our Canadian exchange rates. 2018, fiscal in constant 5.5%year at or 4.7% over year increased sales Our increased our operating efficiency. and market consumer Canadian the of whey prices. whey especially and prices block cheese in 2.4%, decrease by only the despite expressed States, sales, our United the In in US US in down were dollars, 11 MESSAGE FROM THE CEO the e PROTEIN ÖGO Robert Coallier CEO innovation is more important than ever Agropur’s to front this on successes major scored We sustainability. Canadian in consumers 2018. ranked i Product of the and portion Year OKA L’Artisan packs the Best New Product. launchedWe Inno Accel,North America’s first dairy business Inno program, Agropur Inno the of offshoot An accelerator. Accel matches Agropur’s knowledge and know-how with the dynamism of high-potential start-ups. The first cohort of five start-upsfrom Canada and the US has graduated from Inno Accel. These young businesses are reinventing dairy with us in a brand-new co-working space at our head office. I cannot leave unmentioned thefact that Agropur won two Mercure awards in for Successful 2018, Business Strategy and Enterprise of the in the Year large business category. The coveted Quebec business awards are recognition of the invaluable andunstinting work of everyone at Agropur. I thank the members of the Board and particularly our members: Agropur all thank I And Moreau. René president, their support and solidarity are the basis of the Cooperative’s sustainability. and success In conclusion, I would like salute to the entire management team andall Agropur employees for their outstanding work. Day after they day, translate our strategy into reality and into successes on the ground. On the other hand, in Canada, wasEBITDA stable year On both sidesour of cost-reduction the border, program The decrease in our was EBITDA essentially due lower to Between andwe invested 2018, 2014 billion $1.3 in our facilities,of it56% inAfterCanada. years 80 of existence, In the US, we are pressing ahead with the expansion of our cheese plant in LakeSouth Norden,which Dakota, will triple its capacity. It is the largest capital investment project in Agropur’s history.The plant will be commissioned in phases in the second quarter of 2019. Duringwe signedthe year, or renewed major contracts with a number of customers. Our vast national network enabled us land to these contracts and increase ourmarket share from coast coast, to which should make a positive contribution to our results in 2019. There are other developments specific Agropur to that should help boost our salesand our earningsOur in 2019. market share continues grow to on both sides of the border. Our progress is being driven innovativeby and effective marketing and, most importantly,the intrinsic quality of our products.This as inyear, years past, the excellence of our products won wide recognition. the At World Championship Cheeseour Camembert Contest, L’Extra was named the made-in-USA our of Camembert four and Best world’s cheeses took top honours.InQuebec, we won a Caseus award for our OKA L’Artisan. Projectsin progress We remain We confident that themoves we have made in recent years will accelerate our growth going forward. 3. hasbeen very successful.Three years ago, we set a $100-million target for annual costsavings the by end million,of which million are $28.9 We at 2018. of $117.9 was realized now We’re targeting in 2018. an additional $50 million in annual savings as of 2019. 2. over year even though the aggressive competition continued exerting pressure on dairyThe prices. addition of Ultima Foods and the full-year contributionfrom Scotsburn’s activities werepositive factors, as were the growth in our market share and theshift in our salestowards a higher mix. product value-added 1. cheese and whey prices, which had a $109-million negative impact on theoperations. ofour EBITDA US Ourearnings can picture be in threesummed points: up BOARD OF DIRECTORS 12 Directors of Board Mauricie–Portneuf 2003 Mauricie–Portneuf Vice-President Massicotte Roger Nicolet–Bois-Francs 1998 President René Moreau Atlantic 2013 Vice-President Dyk Jeannie van Montérégie 2017 Boisvert Michel Laurentides–Lanaudière 2014 Forget Alain 4 3 2 5 1

by universal suffrage 2011 suffrage by universal elected and Presented Jean-Pierre Lacombe Érable–Seigneuries 2015 Cressier Claude Céline Delhaes Chaudière-Appalaches 2001 Executive the of Member Second Couture Michel 2012Estrie–Granby Executive the of Member Third Lieutenant Valère 2007 Salaberry–Richelieu Executive the of Member First 10 6 9 8 7

Eastern Quebec 2014 Roger Beaulieu 2015 suffrage by universal elected and Presented Benoit Stéphanie 2014 Board the of Guest member Jim Walker 2013 Board the of Guest member Ralph Ballam 2015 Board the of Guest member Blanchet Suzanne 13 14 12 15 11

13 BOARD OF DIRECTORS 8

/ 15 13

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/ 14 12 6

/ 11 5 2

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/ 9 SENIOR MANAGEMENT COMMITTEE 14 Committee Management Senior Cooperation and Governance Vice-President, Veilleux Marie-France Human Capital Vice-President, Senior CorriveauPierre 2 1

1 and Chief Financial Officer Vice-President Senior Émile Cordeau and Corporate Secretary Legal Affairs, Member Relations Vice-President, Senior Outgoing Bédard Lorraine 4 3

2 Officer Executive Chief Robert Coallier and Communications and Affairs Institutional Vice-President, Senior Dominique Benoit 6 5 4 /

5 6 3 15 SENIOR MANAGEMENT COMMITTEE 9 13

/ 11 12 13 Christine Forget Vice-President, Sourcing Strategic Global Michael Aucoin President, Operations Canada Simon Doug President, Operations US 11 8

/ 7 9 10 Benoît Zolnaï Benoît Senior Vice-President, Quality and Excellence Operational Serge Fortier Senior Vice-President, Technology Information

7 8 Simon Olivier Senior Vice-President, Innovation and Strategy Senior Vice-President and Cream Ice Manager, General Nicolas Marie

PILLAR BRAND STRATEGY 16 Brand Strategy 17 PILLAR BRAND STRATEGY with consumers. In the US, we continued continued we consumers. In with the US, the branddeveloping Agropur and completed operations,the integration of Davisco’s acquired in 2014. which we

we performedwe well and our brands strong our relationship close by boosted were Our brands continued to grow, picking up picking Our grow, brands to continued In Canada, share duringmarket the year. PILLAR BRAND STRATEGY 18 19 PILLAR BRAND STRATEGY Created in Brother by 1893 Alphonse OKAJuin, is an iconic Canadian cheese this itsteeped is still day, To in history. made according the to original recipe. tookWe the opportunity conduct to a bold campaign,and we were active on social media, posting anecdotes and authentic photos past. fromOKA’s The campaign shared the love story between OKA cheese and its devotees, andshowed that OKA is much more thana cheese: it is a storehouse memories! of The anniversary was also marked by the launch cheese of OKA L’Artisan portion packs, which won the 2018 Best New Product Award in its As well, category. OKA distinguished itself the prestigious at Sélection Caseus awards for fine cheese in 2018, wherewon first OKA L’Artisan prize in category. its remains OKA cheese surprisingly, Not consumers’ Canadian of one cheeses. favourite In the spring cheesebar.ca, of 2018, a new Web platform featuring Agropur’s entire selection of fine cheeses,as well as recipes, tips and detailed descriptions, With its newwent cheese live. site, Agropur is taking the lead in developing a fine cheese culture. 125 years of OKA years 125 of history eldest the cheese, OKA Legendary member of the Agropurcele- family, bratedits 125th birthday this year. accompanied were celebrations The a Canada-wideby mediacampaign. After the success of its first campaign revolving around the theme of pride Agropur conductedin 2017, a second campaign featuring new a ad high- buying of advantages the lighting Canadian products,which ran from Thecoast campaign coast to in 2018. awareness brand Agropur increased intentions. buying consumer and Marketleader Natrel innovates Natrel held its status as the Canadian lactose-free fine-filtered, the in leader categories. organic and Natrel continued differentiating itself expandingby its product line in 2018. The addition of new offerings such as lactose-free cheese, cottage whipped cheese and lactose-free ice cream position. leading its strengthened Natrel’s the segment, in lactose-free Also lactose-free chocolate milk earned a ConvenienceNACDA InnovationAward in“Better thecategory. Beverage” for You Strong brands brands Strong that appeal to consumers 1 Stephen’s son with iÖGOnanö in hand,all set for daycare! PILLAR BRAND STRATEGY 20 of new products in 2018: in i products new of i innovation, for drive constant its of part As the of Year the “Dairy” in category. 2018 voted Product was and Canada in yogurt Greek fastest-growing segment. I segment. favourite brand of millennials in its the become year, has the during IÖGO, which celebrated its sixth birthday of millennials I ÖGO , the preferred brand Canadian consumers’ consumers’ Canadian ÖGO favourite cheeses. ÖGO PROTEIN OKA, one of one OKA, introduced a string e ÖGO was the the was nanö’s nanö’s

100% natural yogurt. 100% natural centres on healthy, superior-quality, Western Canada. Its brand promise in yogurt Greek fastest-growing the has also Olympic segment. yogurt organic the in leader national the as out to stand continued brand Olympic The rapid growth registers Olympic all delighted young consumers. packs portion cheese and sugar refined smoothies, with yogurt no added

a promoter of the biPro line’s benefits. benefits. line’s biPro the of a promoter also endorsed the brand and became MacDonald Rory artist martial Mixed Team. National the of sponsor protein official the Team (USABS), becoming Skeleton and Bobsled States United the with a partnership formed BiPro water. protein caffeinated first the of introduction the as such moves with development its continued biPro States, United the In BiPro expands

2 1 21 PILLAR BRAND STRATEGY 1 2 3 Wine and cheese with friends on the deck,always a treat when the cheese Cheddar. Grand Agropur is celebrated cheese OKA legendary The its 125th birthday this year. Skateboarders burn up a lot of energy! Derny and Charles always pack biPro protein water to quench their thirst and restore their strength. 3 - Cooperative’s profile with American American with profile Cooperative’s thiscustomers. end,To the Agropur packaging the to added been has logo internationally. sold ingredients all of recent Cooperative’s the Following acquisitions, the research and develop ment teams have been consolidated development the spearheading are and of new products.

Agropur strengthens While Agropur’s brands already have a Canada, in reputation established firmly its marketing teams are raising the its presence in the US in the presence its The biPro brand, already well known known well already brand, biPro The in the US, isin now the available US, in Canada, where it issupported athletes by Mikaël Kingsbury and BenoîtHuot, brand’s The ambassadors. Canadian its Amazon, on increasing is popularity a new platform for Agropur. PILLAR INNOVATION 22 Innovation 23 PILLAR INNOVATION internal and external platform dedicated to to dedicated platform and external internal consumers offer to dairy order in reinventing Through Inno we Agropur new experiences. a unique ecosystem. created have

Innovation dairy products. Inno anAgropur, therefore createdtherefore Innovation is key innovation process process innovation to Agropur’s future. designed to reinvent The Cooperative has Cooperative The Innovation is a core element of Agropur’s element Agropur’s core a of is Innovation com In an increasingly business strategy. petitive market, innovation is a necessity a necessity is innovation market, petitive survive and to thrive. the Cooperative for an launched we Inno Agropur, In2016, 23 PILLAR INNOVATION internal and external platform dedicated to to dedicated platform and external internal consumers offer to dairy order in reinventing Through Inno we Agropur new experiences. a unique ecosystem. created have

Innovation is a core element of Agropur’s element Agropur’s core a of is Innovation com In an increasingly business strategy. petitive market, innovation is a necessity a necessity is innovation market, petitive survive and to thrive. the Cooperative for an launched we Inno Agropur, In2016, PILLAR INNOVATION 22 Innovation the world the are changing that Ideas we consume and renew the dairy industry.” dairy the renew and consume we products dairy the to reimagine possible it make will that solutions original to find crowdsourcing using of idea the Ilike itself. reinventing and offering its of quality the enhancing in succeeded “Agropur has platform. the out rounds fund, a co-investment Capital, Inno dairy. reinventing is Agropur which with start-ups promising the for accelerator an is Accel, Inno addition, latest The products. new of testing market up speeds that process a development Boutique, Inno and showcased, are trends latest the where selected prototyped concepts compete and and externally (Inno Challenge), as well as Inno Expo, anisms for generating ideas internally (Inno Fabrik) mech include components Its Agropur. at innovation drives that platform integrated the is Agropur Inno

- PILLAR INNOVATION 24 25 PILLAR INNOVATION

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products or products North American is invest to in innovative companies thatoffer dairy du QuébecIts objective basis. on a 50/50 AI SCALE we process, innovation our Alongside leadership Canada’s bolstering and artificialin intelligence. Inno Capital Inno Inno Capital,a logical extension of Inno Agropur, stepped up its activities The $40-million in 2018. joint invest the of member founding a became Supercluster, Chains Supply AI-Powered The Montreal-based AI. SCALE innova tion superclusterannounced initiative, in February is dedicated 2018, building to platform chain supply global new a ment platform is funded Agropur by placement et dépôt de Caisse the and dairy-related technologies. technologies. dairy-related

a successful successful a

—

along with some some with along

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Agropur’s resources resources Agropur’s extensive access the to creativity. In thesecreativity. ways, potential start-ups in order twenty coaches who support them in an entrepreneur and a member of Agropur Agropur of member a and entrepreneur management senior with high- with to quicklyto bring the most exciting innovations market. to world andthe agri-foodTheindustry. first cohort also gets a hand from OSMO Foundation, FoodBytes! by RaboBank pillars l’innovation, de Quartier the and ecosystem. entrepreneurial the of In addition, theselected participantsIn addition, haveenjoyed Cooperative’s research and development matches Accel Inno InnoAccel Inno Accel is a four-month program that offers start-ups customized members The support. and guidance of the first cohort were announced in October Each company 2018. has been mentors two assigned environment that simulates the business teamand pilot plant.A co-working space has been created promote to collab oration and

the expectations of our customers andconsumers. customers our of expectations the Today, Inno Agropur is the largest open innovation innovation open largest the is Agropur Inno Today,

initiative in the North American dairy industry. Our goal Our goal American dairy North in the industry. initiative is to solidify our status as an industry leader by exceeding exceeding by as status an our solidify to industry leader is 1 Entrepreneur Stefano Amelio of of Amelio Stefano Entrepreneur Sweetaly points out the merits of his artisanal desserts based on traditional Italian recipes at the Inno Accel launch. a springboard for innovation.It was born of a desire reinvent to dairy through thinkers Innovative collaboration. open challenged are world the around from submitto new dairy-related products, oppor consumption and packaging platform innoagropur.com The tunities. launched in fall serves 2018 as a meeting place wherecreative thinkers and start-ups can team upwith Agropur. In thea large winter of number 2018, of start-ups entered the second edition promising 11 and Challenge Inno of young businesses fromCanada, the US andEurope were selected pitch to their innovations at Agropur’s head office in a “Dragons’ Den” format, in the spring. They showcased their products and offered tastings a jury to composed of Agropur executives and partners. Five outside-the-box concepts passed the test and the selected teams moved on Inno to Accel, the first dairy business America. North in accelerator Inno Challenge was created in 2016 as as 2016 in created was Challenge Inno InnoChallenge PILLAR COST LEADERSHIP 26 Cost LeadershipCost 27 PILLAR COST LEADERSHIP deploy a common IT platform and improve platforma common deploy and IT improve These changes equipour us plant operations. in the marketplace newrealities respondto to our customersand and provide consumers deserve.with the service they

Agropur has Agropur comprehensive a developed synergies, maximize itsreduce costs, to strategy and dramatically increase its agility. To carry To and dramatically its agility. increase the necessarytaken have we outthis strategy, our management processes, optimize to steps PILLAR COST LEADERSHIP 28 Reducing costs Reducing sharing and better cost management. improvedsupporting information database, asingle and ized processes harmon Agropur give will platform the Among other things, implementation of way. under is Canada in sites Agropur completed and deployment at many Fresh Products operations, has been some at payments to depositing taking order- from processes covered which 2, phase of rollout The IT platform. asingle on processes operational its of majority vast the to manage system (ERP) Planning Resource Enterprise an In 2013, Agropur began implementing processes Optimizing management customers. its for choice of partner abusiness Agropur to make departments business practices will enable these best and synergies ments. Capturing service, and operations planning depart for the logistics, distribution, customer appointed to this position is responsible 2018. person summer The Chain, in Supply position, a new Vice-President, created Agropur effectively, more Canada in chain supply entire its To manage annually. structure cost our from $50 million additional an to cut year, plan we fiscal next the in Starting efforts. our however, to relax plans, no 2013. We since have $200 million than by more costs its reduced has nization orga the margin. total, In by awide it exceeded but objective this achieved years, only not three have we After target. cost-reduction year, $100 million costs. 2016,to reduce In athree- set we efforts its continued has ciency, Agropur effi of importance the of aware Ever ripening room. 110 in days, the least at aged cheese, ash-ripened 75 Agropur 1

Three-year target In millions of dollars THREE operational-excellence system. organization’s the as program Evolution System, which will gradually replacethe Operating Agropur the of introduction the with practices in-plant its of all to review 2018, decided fall In Agropur Quebec. Saint-Hyacinthe, in plant the at the packaging and boxing operations efficiency of many operations, such as the improved also has automation Plant exponentially agility Increasing - YEAR COST YEAR 2016 2018 2017

- 48M 29M 41M REDUCTION TARGETREDUCTION

in the plant. the in employee every of empowerment the promote also will time, and real in decision-making and problem-solving with knowledge and tools to facilitate operations will help provide employees This integrated system for managing tasks. their enriching and workplace the of ownership to take employees enabling further, even go us let will Agropur Operating System demands new the that approach dynamic indicators. The quality its improve and costs its reduce its productivity, to increase Agropur enabled program 2014From Evolution to 2018, the 100M 118M

29 PILLAR COST LEADERSHIP PILLAR HUMAN CAPITAL 30 Human Capital Human 31 PILLAR HUMAN CAPITAL

the Cooperative. achieving a common goal: manufacturing common a achieving goal: dairytop-quality products and building

Agropur’s 8,800 employees play a primary play employees 8,800 Agropur’s objectives. in pursuingrole the organization’s andOur united committed are to employees PILLAR HUMAN CAPITAL 32 Our employeesOur recruitment the and Canada in campaign United States. SeptemberIn 2018, Agropur launched afar-reaching young people into Agropur workplaces. internship program that brings talented arobust have we and States, United the in Agropur with careers for graduates Leaders program prepares recent on succession management. Our Future emphasis astrong places also Agropur leadership skills. team and communication solving, problem- organizational, their develop Canada and the US, helps managers in introduced being is program, which The LeadR team management training talent. best our of retention increased has and responsibility more with participants to entrust possible it made has VisionR Agropur, at implemented was it amentor. of Since support the access to a leadershipprogram and The campaign highlights the benefits benefits the highlights campaign The who serve as Agropur’s ambassadors. employees, our around revolving and brand employer anew on based States the United and Canada in campaign recruitment afar-reaching launched we best candidates. In September 2018, the to attract methods innovative to use us forcing are shortage labour the and The increasingly competitive market Recruiting the best talent objectives development professional their achieve employees high-potential helps program VisionR The generation next the grooming and development Skills the arrival of new generations of employees who demand specific recruitment, training and job enrichment measures. measures. enrichment job and training recruitment, specific demand who employees of generations new of arrival the by wrought changes the reflect and market labour to abustling tailored are practices management capital human Our by giving them them by giving

employees to translate the the Cooperative’s to translate employees enables it places, meeting informal and formal 80 its With environment. work outstandingly healthy and stimulating head office building provides an LEED silver-certified new Agropur’s while standardized, and improved been has environment plant the addition, In work. employees’ enrich helps injury. of approach risks This higher pose and repetitive are that tasks mated auto has year, Agropur past the Over environment working and Enriching employees’ jobs spring 2018 with the creation of the the of creation the 2018 with spring management was also reached in our approach to capital/payroll human of revamp the in milestone A major human capital/payroll. to managing approach a new introduces and platform one on together tools brings capital human management that Kronos) and IT (Workday system state-of-the-art anew implementing continued year, past Agropur the Over livesdaily easier employees’Making into reality on a daily basis. basis. adaily on reality into integrity, excellence and collaboration— communication,values—boldness, five internally and externally. 2019, in continue will It themselves. employees by the articulated proudly and defined as Agropur, at working of

alignment with corporate objectives. corporate with alignment know-how more effectively and maintains and effectively more know-how ment structure leverages each team’s Canada Operations. The new manage at yogurt) and products fresh cheese, fine cheese, cream, (ice leadership Agropur also introduced category structure governance New work. the do who people the of eyes the in important most are that opportunities improvement the prioritize and to target serves which tee, commit safety and health occupational ajoint sites, have we our of At each safety and Health human capital or payroll. or capital human about questions or requests with help need who employees for contact of point asingle Centre, Service Employee

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33 PILLAR HUMAN CAPITAL 2 3 1

1 2 3 At Head Office: Michelle Demers Demers Michelle Office: Head At and Lavigne Tommy discuss the merits of Natrel naturally lactose-free medium white cheddar and Natrel lactose-free 2% milk. Alexandra Demers at Head Office, Office, Head at Demers Alexandra Luc Chartrand on the job atthe Oka plant. perusing a document. a perusing PILLAR NATIONAL AND INTERNATIONAL DEVELOPMENT 34 International Development International and National 35 PILLAR NATIONAL AND INTERNATIONAL DEVELOPMENT has picked up the pace of its up of the investments, pace has picked but has Agropur been a leader in this regard million $733 capitalwith totalling expenditures millionin Canada in the States. United and $565

80 years 80 to realize it. realize to

“The Cooperative “The Cooperative

knows no borders,” said the founders of ambitious dream lives dream lives ambitious

who continue working working continue who on today, thanks to the thanks the to today, on

Agropur. Their modern, members and employees Complex market conditions, changing changing conditions, market Complex consumer habits and the shifting social and demographic landscape prompted have development. its accelerate to Agropur industrythe entire Over the years, past five National and International Development 35 PILLAR NATIONAL AND INTERNATIONAL DEVELOPMENT has picked up the pace of its up of the investments, pace has picked but has Agropur been a leader in this regard million $733 capitalwith totalling expenditures millionin Canada in the States. United and $565

Complex market conditions, changing changing conditions, market Complex consumer habits and the shifting social and demographic landscape prompted have development. its accelerate to Agropur industrythe entire Over the years, past five National and International Development PILLAR NATIONAL AND INTERNATIONAL DEVELOPMENT 34 International Development International and National the more we can help build a better world.” a better build help can we more the values, these share who are there us of more The world. equitable more a fairer, to build helping is it acooperative, as because Agropur “I choose standards. quality highest the maintaining while of pride years 80 its lineup of yogurt, ice cream, cheese and milk brands milk and cheese cream, ice yogurt, of lineup its offerings by expanding its wide range of products and its diversifying been has Agropur years, 80 For alike. customers and by consumers valued promise aquality make that products with out stands Agropur marketplace, competitive ahighly in Operating growth. on understood that its long-term survival would depend processing cooperatives, it is because its founders dairy largest world’s the of one now is Agropur If model. cooperative its of strength and value the Over the decades, Agropur has clearly demonstrated

PILLAR NATIONAL AND INTERNATIONAL DEVELOPMENT 36 Strong growth Strong than 145than mergers acquisitions. and completed more has Agropur Since its founding 1938, in 1938 provolone, Parmesan and cheddar Currently, the plant makes mozzarella, States. United the in plant and faster support development largest Agropur’s Norden Lake make 2017 fall in began will that project region. The dairy a fast-growing of heart the in Dakota, South Norden, Lake in plant its of expansion the in USD 255 million invested has Agropur plant’s capacity Triplingthe Lake Norden 52K 1948 4.2M

of 2019. of quarter second the for planned is commissioning 2018 in and schedule on proceeded project expansion The Dakota. South in akey player as position Agropur’s consolidates investment This 100 jobs. than new more to create day. per expected is powder project The whey of 540,000 pounds and cheese of pounds 1million nearly to produce 9 million pounds of milk, enabling it to over capacity processing daily its triple will expansion cheeses. The

1958

17M

certain tasks will increase their capacity capacity their increase will tasks certain Adding new equipment and automating aseptic lines. the of capacity overall the expand will USD 22 million over of investment An needs. customers’ its to meet capacity production the to provide initiatives with ahead pressed plant Michigan Rapids, Grand to Agropur’s grow, continues As the aseptic beverage dairy industry for protein drinks Meeting the demand 1968 61M

1978 328M

37 PILLAR NATIONAL AND INTERNATIONAL DEVELOPMENT 2018 6,714M 2008

2,824M UltimaFoods Agropur acquired all of the shares of Ultima Foods Inc. at the start of year. fiscal the Like the acquisition of Scotsburn, the acquisition of Ultima Foods has helped increase Agropur’s sales in Canada. With this acquisition,Agropur has become the dairy processorthe with largest product line in Canada and the only major yogurt maker that is Canadian-owned. Canadian-owned. 1998 1,445M

ments 1988 in Agropur’s Canadian infrastructure Canadian Agropur’s in Capital expendituresin Canada In Canada,despite the signing of international trade agreements agreements trade international that increase uncertainty and make long-term planning of invest by 144%, making 144%, by it possible increase to high-protein of manufacturing contract increasingly an beverages, dairy-based consumers. with category popular morecomplex, Agropur invested close million $153 to over the past year. SALES 796M CORPORATE SOCIAL RESPONSIBILITY 38 Responsibility Corporate Social 39 CORPORATE SOCIAL RESPONSIBILITY - facturing process, the product’s impact, and facturing the product’s process, impact, want They it. with associated the experience be held account. businesses to to concerned aboutconcerned the production and manu

Environment Environment Animal Welfare and and Welfare Animal

from well-treated responsible manner animals all at times. dairy products made dairy made products using top-grade milk top-grade using in an environmentally

Agropur is committed to offering high-quality At Agropur, we always strive to manufacture to strive always we Agropur, At dairy with products that consistent is in a way the values our of customers and consumers. Consumers demanding more are when it especially are accountability: they to comes 39 CORPORATE SOCIAL RESPONSIBILITY - facturing process, the product’s impact, and facturing the product’s process, impact, want They it. with associated the experience be held account. businesses to to concerned aboutconcerned the production and manu

At Agropur, we always strive to manufacture to strive always we Agropur, At dairy with products that consistent is in a way the values our of customers and consumers. Consumers demanding more are when it especially are accountability: they to comes CORPORATE SOCIAL RESPONSIBILITY 38 Responsibility Corporate Social cooperative responsibleA I am convinced that it’s a cause-and-effect relationship: acause-and-effect it’s that convinced I am hand. in hand go quality product and “Animal welfare World.” Better Dairy. “Better vision: its to achieve does it everything describes that Report Responsibility Social Corporate afull published year, Agropur This reused. are materials waste its that ensure emissions, manage its water consumption and gas greenhouse its to reduce steps including initiatives, of aseries taking is and practices best applies Agropur environment, the regards As members. to its it promotes and Welfare Animal on aStatement produced has Cooperative the receives. why is That animal every attention viable depends industry dairy on the care and Agropur and its members know that a prosperous, members. our are who farmers dairy the of value a fundamental been always has animals for Respect a well-treated cow gives high-quality milk.” high-quality gives cow a well-treated

CORPORATE SOCIAL RESPONSIBILITY 40 the members who provide the the provide who members the Agropur Club of Excellence recognizes the farm, the on directly standards production highest the To maintain performance monitoring. effective and ingredients) and traceability (including packaging access to information, enhanced quality management through improved supplier optimized 2018, In further we business. do we which with companies to the to excellence commitment own our extend thus and suppliers 565 our from buy we that products and ents packaging,compon ingredients, dairy the of conformity and the traceability supplier-quality program to ensure 2017,In acomprehensive launched we standards. compliance and safety food highest the meet that products quality offer will we that is consumers and customers to our promise Our Products trends.industry based on best practices and agri-food responsibility encompasses five areas, social to corporate approach Agropur’s

witness to our social, witness build a better world. better a build full social corporate social full report, which bears bears report, which published its first first its published initiatives to help help to initiatives In 2018, Agropur Agropur 2018, In Agropur’s main environmental environmental commitments. economic and and economic responsibility It describes

to the Cooperative’s democratic life. democratic Cooperative’s to the 17 people introduced young Program of the Young Cooperative Leaders edition 11th The requirements. program’s proAction® the meet and goals their achieve members to help ready now are they and welfare, animal in expertise extensive acquired have Advisors storage. Since 2018, the Cooperative production process, from milking to milk the of stage every at members assists Advisors Cooperative of A team members. its for network support important an also is Cooperative The the management team. and discuss Agropur’s priorities with ideas to exchange opportunity an with life. Those gatherings provide members associative our nourished sessions training and courses meetings, 95 than more 2018, In 3,161 by its members. sustained is life democratic Cooperative’s Our Members row. a in year second the for award top the received Quebec, Saint-Moïse, in Inc. farm Holstein dairy Jolipré milk. year, best-quality the This

41 CORPORATE SOCIAL RESPONSIBILITY

2 in North America.Agropur was also part ofAcademos’ Coalition for Agropur provides financial assistance assistance financial provides Agropur theto BreakfasttheClub, Canadian foundations university and college Retention. Student Last but not least, Agropur funds students outstanding for scholarships sciences food and agricultural in enrolled colleges American North at programs and universities. Red Cross, the Quebec Make-A-Wish Foundation, Fondation Institut OLO, Pacifique,the Moisson network of foodand banks, many hospital,

Community By virtueof its cooperative nature, Agropur hasclose ties the to com munities in whichThrough it operates. ourmember farmers and ourplants, our activities strengthenthe and social economic fabric of communities across NorthAmerica. In fiscal more 2018, than $65.2 million was distributed in the supporting dividends, patronage communities where our members live. that support organizations also We work for the common In good. 2018, we provided more than million$1.5 sponsorships. and donations in 2016 and 2017. areWe also making efforts with respect of optimization consumption, water to our and management waste packaging, consumption. energy buildings’ about ourDuring initiatives.the year, greenhouse our tracking continued we processing from emissions, gas plant transport to Our carbon truck. inventory, prepared a third by party, showed a 1.3% reduction in our between milk of litre per emissions

1 2 to reduceto the environmental impact of our activities and we are transparent Environment efforts wide-ranging making are We On the health and safety front, In the vast majority of jurisdictions where we operate, ourcom workers’ in Canada andwork the day US by daygrow to the business. Ourorgan izational structure and human resource support must practices management our haveWe ambitions.therefore embarked on a majoreffort improve to and agile more become practices, our synergies. internal capture implementation of a prevention program based on safe behaviours continued. Each plant has developed action plans and tools promote to to approach tolerance zero a industrial accidents. the than lower are premiums pensation industry average, an indication of our forward stance on health and safety. Agropur’s team of 8,800 employees HumanCapital Urban joggers admire the light. early-morning Derny quenches his thirst with biPro protein water. FINANCIAL REVIEW 42 Financial Review Financial 43 FINANCIAL REVIEW FINANCIAL REVIEW 44 277.7 4,662.3 2014 Agropur in numbers In millions of dollars EARNINGS FROM OPERATIONS In millions of dollars SALES 2014 (1) (3) (2) (1) Fiscal year including 53 weeks. 53 including year Fiscal Fiscal year including 53 weeks. weeks. 53 including year Fiscal costs, integration and other non-recurring costs and joint ventures. ventures. joint and costs non-recurring other and integration costs, Earnings before interest, income taxes, depreciation, amortization, restructuring Excluding the impact of Davisco's inventories accounting treatment. accounting inventories Davisco's of impact the Excluding (2) 306.0 2015 (2) 411.7 2016 5,874.9 2015 444.1 2017 ( 1 ) 362.1 2018 (3) 5,952.2 2016 In millions of dollars EARNINGS NET 44.0 2014 ( (1) 2 )

Excluding the impact of Davisco’s inventories accounting treatment, taxes. income of treatment, net accounting inventories Davisco’s of impact the Excluding Fiscal year including 53 weeks. weeks. 53 including year Fiscal (1) 2015 54.1 (1) 6,412.4 2017 2016 98.6 174.9 2017

6,714.4 2018 2018 7.7 6 (2) (1) 45 FINANCIAL REVIEW 65.2 2018 2018 1,537.8 1,537.8 65.2 2017 60.1 2016 2017 1,490.0 40.6 2015 92.3 2014 PATRONAGE DIVIDENDS PATRONAGE dollars of millions In 2016 1,358.9 (2) 2018 6,228.3 2017 6,062.3 ) 2015 1 1,291.4 ( 2016 5,940.5 EQUITY ’ 2015 5,658.9 Fiscal year including 53 weeks. Milk processed includes joint ventures. joint includes processed Milk (2) (1) MEMBERS dollars of millions In 2014 2014 MILK PROCESSED litres of millions In 1,230.4 3,831.5

FINANCIAL REVIEW 46

Chief Financial Officer Émile Cordeau Émile Officer Financial Chief

Senior Vice-President and and Vice-President Senior

the from Message was $92.6 million or 51.3%. or $92.6was million impair asset and to acquisitions related adjustments price purchase and gains one-time year. Excluding previous the from 48.5% of $120.9 or million a decrease $128.2 million, totalled taxes income threeyears.after Earnings before patronage dividends and the Cooperative’s to $117.9 savings total million cumulative the 2018, in bringing cost structure our of out $28.9 removed million initiatives our years; three over $100 million of target its exceeded program cost-reduction Our expectations. of short fell earnings our gains share market significant despite and competitive, highly remained also markets 2017. with Canadian compared by $109us million impacted negatively US, the which in environment market unfavourable to the mainly 18.5% due or $82.0 of million a decrease to $362.1 million, amounted operations from 2.7%. was Earnings increase the weeks, 53 had year 2018 fiscal our as effects, by calendar for 4.7% year. over Adjusted increased year Sales combination. abusiness and projects, improvement efficiency expansion, capacity on spent was dollars a billion half than year, more the during year. Also previous the with compared impact negative a $109-million had markets whey international of and market cheese the of state The US. the in conditions market by challenging characterized was year However, the $6.7 to a record billion. 2018, rising in to grow continued sales Cooperative’s The ment, the decrease decrease the ment,

47 FINANCIAL REVIEW

$41.8 million $41.8 due lower to US earnings and the reduction in tax rates following the passage Cuts andTax ofthe Jobs Act Lastly, the subsidiaries’ income tax expenses decreased by in the US, commonly referred as to the US tax reform. totalled therefore dividends patronage before Earnings million,$128.2 a decrease million or $120.9 of 48.5% We thenWe deduct costs related restructuring, to integration and other non-recurring costs, which million were $39.1 and fall into three major categories: restructuring costs, including the following operations Canadian our of restructuring the integration of Ultima Foods, which amounted million; $11.4 to start-upcosts for major projects, which amounted to a $7.4-million asset impairment charge was recognized. from the previous Excluding year. one-time gains and $21.1 million;$21.1 and costs caused events by that gaverise expensesto outside the normal course of business, which million. $6.5 totalled Financial expensesincreased from theprevious mainly year, asresult a of higher interest rates and,lesser a to degree, recognized was gain $47.7-million A indebtedness. increased duringthe year in connection with the acquisition of all shares of UltimaAs Foods. required accounting by standards, we remeasured the fair value of the interest held in the joint venture prior the to acquisition, giving rise the to gain. plant a of 2018 September in announcement the Following closure,the Cooperative performed an impairment test determineto whether there had been any loss of value and purchase price adjustments related acquisitions to and asset impairment, the decrease million. was$92.6 The Board of Directors approved patronage dividends of $65.2 million. As in the past, the patronage dividends were payable in cash 25% and in investment 75% shares. After recorded Cooperative the dividends, patronage of deduction $4.7 million$4.7 in income tax recovery. Agropur therefore added were which million, $67.7 of earnings net generated theto reserve. Earnings from US operations decreased from 2017. 30.6% While cheese and whey product sales volumesincreased, the unfavourable impactof the cheese block price/cost of milkratio and the significant decrease in world prices for whey products negatively impacted earnings. Positive factors included the savings generated the by various initiatives in our cost-reduction program and the decrease in the cost of milk compared due with abundant to 2017 supply. milk One of thecharts onpage 44 shows the decrease in earnings from operationsexplainedOver in the2018, past above. however, earnings years, from operationsfive have increased million $84.4 by for compound a annual growth rate of 6.9%, driven primarily business by combinations and organic growthin the US. Overall, earnings million rose from $277.7 million $362.1 to in in 2014 2018. $183.0-million a subtract we operations, from earnings From increase $14.9-million a expense, amortization and depreciation essentially due the to addition of the assets of Ultima Foods

week the in increase 2018, rd week). The growth was due in part the to mergers rd neutralized the gains listed above. Earnings from operationsamounted million,$362.1 to and acquisitions carried out during as well the as year, expanded production capacity as result a of significant expenditures. capital Earnings from Canadian operations were stable compared compared stable were operations Canadian from Earnings with theprevious The year. addition of the activities of Ultima Foods and the full-year contribution from Scotsburn’sactivities were positive factors.As well, the savings generated the by various initiatives in our cost-reduction program reduced our operating costs inCanada million $22.8 by during the year. Cheese sales increasedas a result of new contracts. However, the extremely competitive Canadian market remains a reality. As such, price erosion had an unfavourable effect and a year-over-year decreasea year-over-year million of $82.0 or 18.5%. The first chart on page44 shows the evolution of average cheese price and lower international prices for whey products.Our US operations of accounted42.7% for consolidated sales in compared 2018, in 2017. with 46.6% consolidated sales over the pastThe increase five years. billion billion$4.7 $6.7 to from today in amounts 2014 a compoundto annual growth (excluding rate of 9.0% Canadian sales increased billion,$3.8 to 11.7% mainly as a result of the acquisition of alloutstanding sharesof Ultima Foods and in 2018 the full-year contribution from the oper US operations recorded billion $2.9 in sales, decrease. a 4.0% While cheese and whey product sales volumes increased, the value of sales declined becausedecrease ofa 4.3% in the was $173.0 million.was $173.0 ations of ScotsburnSales acquired were in January2017. also up at most of our Canadian operations, including fresh dairy products andThe cheese. increases were due primarily customerto acquisitions and market share gains. the 53 The Cooperative’s sales continued grow, increasing to million$302.0 pass to billion the$6.7 mark in fiscal 2018. Adjusted for the effect of the 53 increased, while in theUS, volume was relatively stable. and Standards Reporting Financial International with reviewed the by Audit On Committee. the Committee’s recommendation, the Board of Directors approvedthe statements. financial 2018 STATEMENTS FINANCIAL OF 2018 REVIEW Earnings The financial statements were prepared in accordance accordance in prepared were statements financial The Governance More than 6.2 billion litres of milk were processed at our plants in 2018,increase a 2.7% from theprevious year. The volume of milk processed at our Canadian plants FINANCIAL REVIEW 48 Operations Liquidities Borrowings and others Working capital In millions of dollars 2018 INFLOWS totalled $464.3 million, including ongoing spending on the in property, plant and equipment and intangible assets Investment investments. of acquisition the and combination business to the allocated was $76.8 million amount, that Of activities. investing for used 2018, was In $539.7 million by $271.4 million. increased Debt $47.0 were million. payments year. Interest previous the from increase a $10.6-million shares, preferred first on paid were $58.0 of million dividends activities, to financing respect With to the financial statements. 8 note in detailed as $31.0 million, totalled items by non-cash non-cash items, totalled $323.5 million. Funds generated in change the before activities, operating from flows Cash flows Cash 2018. in taxes, income of net $0.5 million, of amount the in plans pension benefit defined the on gains actuarial of consist which reserve, to the transferred items are income comprehensive of elements other The future. the in fluctuating continue will variances translation accounting These sheet. balance $97.7 the on million of gain net acumulative of recognition in resulted instruments financial derivative on gains unrealized the and dollar Canadian 28, the of 2017.October depreciation The US$0.78 US$0.76, with C$1 for at was as rate compared exchange 2018, 3, the November at As dollars. Canadian into debt long-term of translation of net subsidiaries, US our of liabilities and assets the of consolidation the on dollar Canadian the of depreciation the of impact positive $14.5 the million and hedges, flow cash as designated instruments financial derivative on taxes, income of net gains, unrealized in $14.8 of million primarily consisting items, $67.7 of other and earnings million net including 2018, $97.7 fiscal in totalled million income Comprehensive

Total 702 Total 271 32 75 324

ation of the Canadian the of ation 3, November at As Cooperative’s 2018, the sheet Balance largest the Dakota, South Norden, Lake in plant our of expansion intangible assets, and the favourable favourable the and assets, intangible Foods, additions to property, plant and equipment and Ultima of acquisition the from primarily resulting increase $4.6 billion, a $384.0-million totalled $2.3Assets billion. and intangible assets. equipment and plant property, in investments for disbursed was $1.3 billion addition, In $1.7 billion. nearly totalled disposal and acquisitions to mergers, related Outflows as patronage dividends in cash and capital redemptions. 8.1%,or to members out $278 million, paid was which of $3.4 billion, totalled have inflows years, five past the Over to million. $40.3 amounted indebtedness of certificates and shares of $16.2Redemption was million. 2018 in 2017 in paid and declared dividends patronage the of portion cash the activities, to member respect With and improve operational efficiencies. assets our maintain capacity, to increase projects other of anumber included also investments Our productivity. its capacity plant’s and the increase triple will project The $40.3 million paid for redemption of shares and certificates certificates and shares of redemption for paid million $40.3 deduct we balance, 2017 the From closing capital. share of details provides statements 17 financial Note to the combination. abusiness in and assets, intangible and equipment and plant property, in investments our finance to used were which debt, to long-term to additions mainly due year-over-year a $336.1-million increase to $2.3 billion, subsidiaries’ assets into Canadian dollars. Liabilities amounted In millions of dollars 2018 OUTFLOWS intangible assets and equipment and plant Property, of investments acquisition and combination Business and dividends Interest Members and capital capital investment in a plant in Agropur’s history. history. Agropur’s in aplant in investment capital

dollar on the translation of the US US the of translation the on dollar To tal 702 tal To 77 105 impact of the depreci 56 net assets were were assets net 464

49 FINANCIAL REVIEW 1,663 140 Total 3,425 Total 278 46 1,298

prices in and disposals and Dividends, liquidities and others and liquidities Dividends, capital Working Property, plant equipment and assets intangible and acquisitions Mergers, Members and capital and Members competition in the Canadian sive

the US and persistent aggres persistent and US the Émile Cordeau Émile Vice-PresidentSenior and FinancialChief Officer Outlook The decrease inour earnings reflects in 2018 unfavourable international markets for wheyproducts, low cheese of indebtedness As at November in 2018. total 3, 2018, equity was nearly billion. $2.3 Excluding the first preferred shares, members’ equity stood at more than billion, $1.5 million fromup 2017. $47.8 USE OF FUNDS OFUSE FUNDS dollars of millions In 2014TO 2018 (approximately C$330 million) investment approved last In this regard, the expansion of our plant in Lake Norden, South Dakota, is on schedule and commissioning is slated for the second quarter The US$255-million of 2019. The Cooperative has a sound financial position. Despite the decrease in Agropur’s 2018, earnings from operations are up over 30.4% the past five years. Our milk processing capacity is increasing as a result of significant investments that have been completed or are in progress. are We therefore strongly positioned continue to our growth in the coming years. market. Underthe circumstances,market. we are pressing ahead with ourefforts integrationprogram, cost-reduction on our of our acquisitions, and organic growth. year will eventually triple the plant’s processing capacity, enabling us step to up our development incapture the US, a share of thegrowth in US cheese consumption, and strengthen our position as player key a in the dairy processing industry. FINANCIAL REVIEW 50 on operating earnings. effect adverse an causing prices, on pressure to exert distributors some lead industry, such concentration could this serves Cooperative the Since customers. some of importance relative the in increase an and customers of number limited amore in resulted has years recent in industry distribution Increasing concentration in the food Customer products. its of prices selling the in increase comparable a into increase this to convert ability inputs will depend on the Cooperative’s in increase aprice of impact the ment, environ market a competitive In costs. product on impact anegative have could and the necessary packaging materials, component, cost major the represents milk, which particularly goods, of manufacture the in used materials raw the of availability the and volatility Price risks Raw material sales. future on by extension, and, reputation our on impact negative a have and costly to be prove could recall occur, a product should this If products by internal or external agents. or ingredients its of contamination of risk to the exposed is Cooperative the activities, processing its Given Product- develop new products and innovate. and products new develop needs, consumers’ to meet ability such changes will depend on our Cooperative. The repercussions of the of earnings the affect thus and products our for demand affect Changing consumption trends could Consumption trend risks Risks and Uncertainties and Risks eae risks related rltd risks -related

impact ourimpact earnings. negatively could timeliness or quality quantities, suppliers. logistics Insufficient with particularly chain, supply the in arise also may Problems suppliers. of to number a limited restricted are supplies our services, and goods some for that means suppliers of concentration The risks Supplier consequently earnings. impact would which recession, market or slowdown economic by an affected be could products our for Demand risks environment Business economic conditions. by global influenced are turn in which on fluctuations in supply and demand, in the United States are dependent international markets and cheese prices on products whey and milk for Prices risks Market share. market its to maintain order in additional discounts on its products to grant Cooperative the force could position market their to strengthen and international competitors seeking national competitors. Regional, national and regional numerous face we States, United the In Cooperative. the including players, main by three dominated is competition. In Canada, the industry dairy recent years have intensified international combinations in in the industry dairy changing consumer needs. Business and market, the on competitors new of arrival possible the industry, dairy the in competition associated with heightened to risks exposed is Cooperative The risks Competition

at specified intervals. at intervals. specified interest for payments fixed-rate payments loan, the Cooperative trades floating-rate term its of aportion on fluctuations rate to interest exposure its to reduce order positive if interest rates fall. In In fall. rates interest if positive and rise rates interest if negative be will interruption-related risks. business to some exposure its to reduce Cooperative has insurance coverage crisis. the The to manage ability would depend on the Cooperative’s Cooperative’s operations. The impact the of disruption unplanned to an lead or damage to property, which could to employees harm cause and occur may failure, epidemic,disaster,natural etc. equipment a fire, as such events Major disruption of operations Risks related to unplanned financial instrument. The cash flow impact this on rates interest in fluctuations from arising to risk exposed therefore is It out. carried has it combinations business numerous the of aresult as debt The Cooperative has assumed long-term risks rate Interest markets. capital the in liquidity to access acooperative, as ability, our of this strategy will also depend on the expected synergies. The success achieve and businesses, acquired the to integrate needed resources the place in put value, fair their determine acquisitions, strategic to identify ability future. The impact will depend on our the in so doing to continue intends through business combinations and grown has Cooperative the industry, In a fast-consolidating global dairy risks Acquisition with its risk management strategy keeping and in in and

51 FINANCIAL REVIEW

Risks related to employee employee to related Risks The Cooperative offers some groups of employees defined benefit plans. rates, interest long-term in Changes volatility of returns and regulations governing such plans could potentially these under obligations Cooperative’s the futurebenefits require the Cooperative maketo contri butions which are significantly different from those currently paid. A review of planswas completed and most of them are now closed new to participants.

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Risks associated with associated tariff rules Risks dairy the in operates Cooperative The industry, in which imports are subject rules trade International rules. tariff to international by modified be may treaties,which could have theeffect of environment competitive the changing in the markets in which the Cooperative future Cooperative’s The operates. ability its on depend will profitability Personnel risks dependent is success Cooperative’s The on itspeople’s efforts and skills.Work as engagement, and availability force well as occupationalhealth and safety, present risks our to ability achieve to our growth objectives. Each of our plants has a healthand safety plan. The Cooperative conducts an annual review of its succession management contingency that ensures and plan plans exist for all critical positions. adaptto new to rules offering by its customers productsthat arecompetitive in quality and price. of contaminated sites. Any amendments Labourrelations risks Several groups of employees at our various worksites are unionized. Nego Environmentalrisks The Cooperative is subject a number to of environmental protection laws and particular, in concerning, regulations wastewater discharge,air pollution,the use of toxic chemicals, and the clean-up create can agreements collective tiating stoppages work in resulting conflicts makeWe or the slowdowns. necessary with relations good maintain efforts to the unions. to suchto laws and regulations could involve additional outlays for compliance.

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and policies. Amendments to, or or to, Amendments policies. and tightening those of, laws and regulations Regulatoryrisks The Cooperative is subject multiple to governmental and taxregulations laws, safeguards,the Cooperative is not immune Cyberattackrisks conduct To its business, the Cooperative computer functioning properly on relies networks, internal including applications, and services cloud systems, integrated protect to order In centres. data external its data and systems, the Cooperative has implemented various security measures guard to against the rising risk include measures Those cyberattack. of controls, computer updated continuously staff training sessions, strict rules for the suppliers whose servicesand we use, a disaster recovery plan. Despite these The integration of computer applications Informationsystem risks makes operations Cooperative’s the into on dependent more Cooperative the service Computer applications. such confi and completeness availability, dentiality are the main risks associated with the use ofsuch applications. A system malfunctioncould lead poor to decisions or affect production levels. to theto threat. A successful cyberattack could affect our operations and there fore have negative financial impacts. could affect our operations or lead to such with compliance for costs additional new obligations, particularly with respect theto production, labelling and distri bution of food products. Regulatory risks are growing duethe to current context combinations business through growth of in different countries, provinces and states. attach We great importance to compliance applicable with and laws regulations all in jurisdictionswhere we do business, as breaches can lead sanctions,to penalties or fines. CONSOLIDATED FINANCIAL STATEMENTS 52 Statements Financial Consolidated

53 CONSOLIDATED FINANCIAL STATEMENTS CPA auditor, accountancy CA, public permit A119427no. 1 Montréal, Quebec Quebec Montréal, International Financial Reporting Standards. Opinion In our opinion,the consolidated financial statements present fairly, in allmaterial respects, the financial position of Agropur cooperativeNovemberandas at2018 financial3, its performanceyearcashitsthe andthen ended, accordance flows forin with financial statements. We believe that the audit evidence we have obtainedin our audit is sufficient and appropriate to provide basisa for our audit opinion. considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to to order in statements financial consolidated the of presentation and fair preparation entity’s the to relevant control internal considers the on opinion an expressing of purpose the for not but circumstances, in the appropriate are that procedures audit design and used policies accounting of appropriateness the evaluating includes also audit An control. internal entity’s the of effectiveness consolidated the of presentation overall the evaluating as well as management, by made estimates accounting of reasonableness the An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial financial consolidated the in disclosures and amounts the about evidence audit obtain to procedures performing involves audit An material of risks the of assessment the including judgment, auditor’s the on depend selected procedures The statements. auditor the assessments, risk those making In error. or fraud to due whether statements, financial consolidated the of misstatement and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from from free are statements financial consolidated the whether about assurance reasonable obtain to audit the perform and plan and misstatement. material Auditor’s responsibility responsibility Auditor’s in audit our We conducted audit. our on based statements financial consolidated these on opinion an express to is responsibility Our requirements ethical with comply we that require standards Those standards. auditing accepted generally Canadian with accordance Managementisresponsible preparation for the andfair presentationtheseofconsolidated financialstatements accordance in with International FinancialReporting Standards,and for suchinternal control as management determinesis necessary to enable the preparation of consolidated financial statements thatare freefrom material misstatement, whetherdue to fraud orerror. other explanatory information. information. explanatory other statements financial consolidated the for responsibility Management’s We have audited the accompanying consolidated financial statements of Agropur cooperative, which comprise the consolidated consolidated the comprise which cooperative, Agropur of statements financial consolidated accompanying the audited have We of and flows cash of income, comprehensive of earnings, of statements consolidated and the 2018, 3, November at as sheet balance and policies accounting of significant a summary comprise which notes, related the and ended, then year the for equity in changes To the members of Agropur cooperative cooperative Agropur of To the members INDEPENDENT AUDITOR’S REPORT 2018 14, December CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS CONSOLIDATED CONSOLIDATED FINANCIAL STATEMENTS 54 (IN THOUSANDSOFCANADIANDOLLARS) Impairment ofassets Depreciation andamortization Loss (gain)ondisposalofassets restructuring costs,integrationandothernon-recurringcosts Earnings beforeinterest,incometaxes,depreciation,amortization, Patronage dividends Accounting gainsasaresultofbusinesscombinations Net financialexpenses Income taxesofsubsidiaries Net earnings Operating expensesexcludingdepreciationandamortization Cooperative's incometaxes Earnings beforepatronagedividendsandtheCooperative'sincometaxes Earnings beforepatronagedividendsandtheCooperative'sincometaxes Operating earnings Purchase priceadjustment Restructuring costs,integrationandothernon-recurringcosts Sales Years ended CONSOLIDATED EARNINGS (notes10et11) (note 6) (note 5) (note 5) (notes 10and11) (note 3) (note 4)

November3 (53weeks) ,5,1 6,352,218 ,1,6 6,714,365 4,5 140,056 8,2 183,025 2,3 128,236 128,236 6,4 362,147 (47,660) 46444,614 76667,686 90639,066 52965,219 (4,669) ,8 7,286 7,382 082018 9 198 -

October28 (52weeks) ,6,7 5,968,279 ,1,0 6,412,409 4,3 444,130 7,0 174,905 4,1 249,113 265,015 6,8 168,080 (55,156) (13,971) 56135,661 52665,236 49,042 11,035 ,7 8,972 072017 (212) 3 538 55 CONSOLIDATED FINANCIAL STATEMENTS - (417) 2017 14,417 42,109 (20,550) (76,659) (34,967) 174,905 154,355 (52 weeks) October 28 October

537 218 2018 30,05430,05430,054 97,74097,74097,740 67,686 14,764 33,087 29,517 (18,552) (53 weeks) November 3 November

(note 21) CONSOLIDATED COMPREHENSIVE COMPREHENSIVE CONSOLIDATED INCOME Net earnings Years ended Total other comprehensive income Total other comprehensive income Total other comprehensive income hedges, net of income tax expense of $5,547 (2017 income tax recovery – $426) tax expense of $5,547 (2017 income hedges, net of income Other comprehensive income Other comprehensive be reclassified to net earnings: Components that may as cash flow of derivative instruments designated Net change in fair value Total comprehensive income Total comprehensive income Total comprehensive income Change in foreign currency translation adjustment of foreign operations translation adjustment of foreign Change in foreign currency Change in foreign currency translation adjustment of long-term debts translation adjustment of long-term Change in foreign currency of a net investment in foreign operations designated as hedge Reversal of the share of other comprehensive income of joint ventures Reversal of the share of other comprehensive Components that will not be reclassified to net earnings: Components that will not be reclassified net of income tax expense Actuarial gains on the accrued benefit obligation, of $196 (2017 income tax expense – $5,229) (IN THOUSANDS OF CANADIAN DOLLARS) (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 56 (IN THOUSANDSOFCANADIANDOLLARS) Cash position–Beginningofyear Net changeincashpositionovertheyear Effect ofexchangeratefluctuationsoncashposition Redemption ofsharesandcertificates ofindebtedness Business combinations Investing activities Change innon-cashitems Items notinvolvinguseoffunds Property, plantandequipmentintangibleassets Issuance ofsharesandcertificates ofindebtedness Issuance andredemptionofmembers'sharescertificatesindebtedness Long-term debt,netofissuanceexpenses Patronage dividendspaid Acquisition ofinvestments Net financialexpenses Proceeds fromdisposalofassets Subordinated loantoajointventure Patronage dividendspaid Member andsharecapitalactivities Additional information: Cash position–Endofyear Dividends onfirstpreferredshares Interest paid Financing andsharecapitalactivities Earnings beforepatronagedividendsandtheCooperative'sincometaxes Operating activities CASH FLOWSFROM Years ended CONSOLIDATED CASHFLOWS Accounting gainsasaresultofbusinesscombinations Impairment ofassets Depreciation andamortization Deferred incometaxesofsubsidiaries Loss (gain)ondisposalofassets (note 3) (notes 10and11) (note 8) (note 8) (note 7) (note 8) (note15) (notes 10and11) (note 3)

November3 (53weeks) (539,744) (464,321) 8,2 183,025 2,6 126,365 2,4 323,547 2,3 128,236 3,2 338,328 7,0 271,407 (56,214) (40,286) (16,178) (40,036) (16,178) (57,967) (47,039) (47,660) (68,059) (75,357) 46444,614 45184,531 30,959 (8,767) ,5 7,752 ,0 1,403 ,8 7,382 ,7 9,174 082018 (306) 5 250 9 198 -

October28 (52weeks) (215,558) (227,171) (174,285) (102,586) 6,8 168,080 8,5 485,351 4,1 249,113 7,6 477,069 (55,191) (40,463) (40,245) (14,946) (14,946) (47,380) (36,960) (54,815) (13,971) 50435,004 65216,542 46,142 35,661 45184,531 49,527 (3,000) ,6 6,664 072017 (212) 6 664 1 218 3 538 - 57 CONSOLIDATED FINANCIAL STATEMENTS 379 2017 20172017 4,127 4,1274,127 2,226 5,083 2,2262,226 23,427 43,836 65,230 23,42723,427 64,741 89,614 25,386 17,280 50,251 43,83643,836 25,38625,386 840,513 449,142449,142449,142 795,706 770,000 629,508 806,732 337,146 791,215 4,216,158 4,216,1584,216,158 4,216,158 2,259,955 4,216,1584,216,158 1,956,203 1,373,100 1,022,906 1,433,223 1,005,158 October 28 October

2018 20182018 4,636 4,035 2,537 4,6364,636 4,0354,035 2,5372,537 9,014 83,575 26,53526,53526,535 44,54044,54044,540 76,337 25,05425,05425,054 94,258 35,709 25,54325,54325,543 792,866 407,941 717,155 804,739 770,000 638,789 358,207 777,234 407,941407,941 4,601,857 4,601,8574,601,857 2,307,7862,307,7862,307,786 4,601,8574,601,8574,601,857 2,294,0712,294,0712,294,071 1,199,230 1,395,779 1,845,385 1,056,712 November 3 November

, Director Roger Massicotte (note 18) (note 14) (note 21) (note 13) (note 15) (note 10) (note 16) (note 5) (note 7) (note 17) (note 11) (note 17) (note 15) (note 12) , Director (note 9) (note 11) CONSOLIDATED BALANCE SHEETS BALANCE CONSOLIDATED René Moreau Approved by the Board of Directors, on December 14, 2018. Long-term debt Bank overdrafts and lines of credit LIABILITIES Current liabilities EQUITY Members' capital Investments and loan Investments and loan Inventories ASSETS Current assets Cash Accumulated other comprehensive income First preferred shares Reserve Employee future benefits obligation Other long-term liabilities Deferred income taxes Accounts payable and accrued liabilities Accounts payable and accrued liabilities Income taxes Goodwill Other assets Property, plant and equipment Property, plant and Intangible assets Income taxes Accounts receivable Current portion of long-term debt Prepaid expenses (IN THOUSANDS OF CANADIAN DOLLARS) (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 58 (IN THOUSANDSOFCANADIANDOLLARS) shares includingincome Dividends onfirstpreferred dividends payment forpatronage Issuance ofsharesas suneo hrsfrcs 0 109 109 Issuance ofsharesforcash Issuance ofsharesforcash income (loss) Other comprehensive shares includingincome Dividends onfirstpreferred dividends payment forpatronage Issuance ofsharesas sa coe 9 07492 4,952 4,952 Net earnings 4,952 4,952 As atOctober29,2017 As atOctober29,2017 As atOctober28,2017 As atOctober28,2017 income (loss) Other comprehensive suneo hrsfrcs 0 105 Issuance ofsharesforcash Net earnings Net earnings sa coe 0 06419 4,199 4,199 As atOctober30,2016 As atOctober30,2016 in abusinesscombination certificates ofindebtedness (51) Issuance ofsharesand certificates ofindebtedness Redemption ofsharesand sa oebr3 08499 4,959 4,959 (98) As atNovember3,2018 As atNovember3,2018 certificates ofindebtedness Redemption ofsharesand 4 3 2 1 CONSOLIDATED CHANGES INEQUITY Accumulated othercomprehensiveincome (note18). Dividends onfirstpreferredsharesnet ofcurrentincometaxexpense$14,492anddeferredrecovery of$13,517. Par valueofthesharesandcertificates ofindebtednessissuedtoformershareholdersScotsburnCo-operative ServicesLtd. Dividends onfirstpreferredsharesnet ofcurrentincometaxexpense$11,845anddeferredrecovery of$11,044. 3 1 2 n ebrAadBContributed AandB and member 909 49,069

908 49,058 0,4 706,242 706,242 706,242 706,242

9,1 695,510 9,1 695,510

1,1 717,917 (38,435) 1,1 717,917 (37,539)

ls Classes Class M hrssae surplus shares shares 9 695 9 695 ------

0 109 109 4 145 4 145 ------

110 51,180 51,180 51,180 51,180 110 51,180 51,180 11051,180 11051,180 ------

6,7 762,374 762,374 6,7 762,374 762,374 5,8 750,889 750,889 7,5 774,056 774,056 (37,637) (38,486) (note 17) 90949,069 90849,058 shares Total 1 218 5 250 9 695 ------indebtedness

Certificates 53115,361 332 33,332 33,332 33,332 33,332 998 19,948 19,948 063 30,683 30,683 (2,649) (1,977) of ------

9,0 795,706 795,706 9,0 795,706 795,706 7,3 770,837 7,3 770,837 0,3 804,739 804,739 members' (40,286) (40,463) 90949,069 90849,058 60616,056 capital Total 1 218 5 250 ------

7,0 770,000 770,000 770,000 770,000 7,0 770,000 7,0 770,000 7,0 770,000 7,0 770,000 preferred (note 17) shares First ------

,6,0 1,565,706 1,565,706 ,6,0 1,565,706 1,565,706 ,4,3 1,540,837 ,4,3 1,540,837 ,7,3 1,574,739 1,574,739 (note 17) (40,286) (40,463) capital 90949,069 90849,058 60616,056 Total share 1 218 5 250 ------

957 29,517

7,0 174,905 7,0 174,905 2,0 629,508 629,508 629,508 629,508 8,6 488,367 8,6 488,367 3,8 638,789 3,8 638,789 (48,181) (48,181) (58,942) 76667,686 76667,686 44714,417 44714,417 Reserve 3 537 3 537 ------(note 3). Comprehensive

(34,967) (“AOCI”) 47164,741 64,741 47164,741 64,741 978 99,708 99,708 428 94,258 94,258 income ------4 ,5,5 2,259,955 2,259,955 ,2,1 2,128,912 ,0,8 2,307,786 7,0 174,905 (20,550) (40,286) (40,463) (58,942) (48,181) 90949,069 00430,054 90849,058 76667,686 60616,056 Total 1 218 5 250 59 CONSOLIDATED FINANCIAL STATEMENTS d. ds 30% 40 years Straight-line Diminishing balanceDiminishing balance 10% and 15% Buildings Equipment Rolling stock • • • NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES and rates: Property, plant and equipment are recorded at cost less accumulated depreciation and impairment losses, net of applicable Property, plant and equipment are recorded at cost less accumulated depreciation government grants. lives, mainly using the following metho Depreciation of property, plant and equipment is calculated over their estimated useful future cash flows and its fair value less costs to sell. PROPERTY, PLANT AND EQUIPMENT INVESTMENTS that the carrying amount may not be recovere Investments are tested for impairment by the Cooperative if there is an indication investment's value in use using discounted To establish the recoverable amount, the Cooperative determines the higher of an Borrowing costs attributable to mature inventories are included in the cost of the finished goods inventory. Borrowing costs attributable to mature inventories INVENTORIES valued valued at the lower of average cost and net realizable value. Raw materials are Finished goods and goods in process are cost being determined under the first-in, first-out method. at the lower of cost and net realizable value, CASH POSITION and lines of credit. Cash position consists of cash, bank overdrafts election of depreciation and amortization methods, the estimation of useful life of depreciable or amortizable assets, the election of depreciation and amortization of standard costs for finished goods and of employee future benefits. impairment tests of assets, and the valuation ESTIMATES to management to make estimates and assumptions, in particular with respect The preparation of financial statements requires combined and the consideration transferred as part of business combinations, the the fair value measurement of net assets CONSOLIDATION PRINCIPLES include the accounts of the Cooperative and its subsidiaries. These consolidated financial statements Reporting Standards (“IFRS”) in effect as at November 3, 2018, as issued by the International Accounting Standards Board as issued by the International Accounting (“IFRS”) in effect as at November 3, 2018, Reporting Standards (“IASB”). BASIS OF PRESENTATION Financial been prepared in accordance with International financial statements of the Cooperative have These consolidated Canada and the United States. The head office is located in Saint-Hubert, Canada. States. The head office is located in Canada and the United 2. SIGNIFICANT ACCOUNTING POLICIES Agropur cooperative (“the Cooperative”) was established on August 29, 1938, under the Act respecting Cooperative Agricultural respecting Cooperative 1938, under the Act on August 29, was established (“the Cooperative”) Agropur cooperative by the Canada Cooperatives Act. October 26, 2000, has been governed Associations and, since Facilities are located in processing and selling dairy products. its subsidiaries carry on the business of The Cooperative and 1. INFORMATION GENERAL (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 60 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) Goodwill isinitiallyrecognizedastheexcessoffairvalueconsiderationtransferredoverid GOODWILL in whichtheyareincurred. qualifying assetforitsintendeduseorsalearecompleted.Otherborrowingcostsrecognizedasanexpenseintheperiod of thatasset.TheCooperativeceasestocapitalizeborrowingcostswhensubstantiallyalltheactivitiesnecessaryprepare Borrowing coststhataredirectlyattributabletotheacquisition,construction,orproductionofaqualifyingassetparto BORROWING COSTS Intangible assetsunderconstructionarenotamortized. lowest levelforwhichthereareidentifiablecashflows. future cashflowsandthefairvaluelesscoststosell.Forimpairmenttestingpurposes,intangibleassetsaregroupedat recovered. Toestablishtherecoverableamount,Cooperativedetermineshigherofvalueinuseusingdiscounted Intangible assetswithdefiniteusefullivesaretestedforimpairmentifthereisanindicationthatthecarryingamountmayn with definiteusefullivesareamortized,mainlyusingthefollowingmethodsandrates: Intangible assetswithindefiniteusefullivesarenotamortized;theysubjecttoanannualimpairmenttest.ass cost methodlessaccumulateddepreciationandimpairmentlosses. Intangible assetsmainlyconsistofcustomerrelationships,trademarksandsoftware.Theseareaccountedforunderthe INTANGIBLE ASSETS Property, plantandequipmentunderconstructionarenotamortized. equipment aregroupedatthelowestlevelforwhichthereidentifiablecashflows. discounted futurecashflowsandthefairvaluelesscoststosell.Forimpairmenttestingpurposes,property,plant not berecovered.Toestablishtherecoverableamount,Cooperativedetermineshigherofvalueinuseusing Property, plantandequipmentaretestedforimpairmentbytheCooperativeifthereisanindicationthatcarryingamountm the contractorbasedonvolume specifiedinthecontract. Deferred chargesforprocurement contractsrelatedtocustomersareamortizedonastraight-line basisoverthetermof OTHER ASSETS assumption couldcauseanimportantimpactontherecoverable amount. and forecastsofmarketdevelopment.Thiscalculationisbased onkeyassumptionsmadebymanagement.Achangeina business plansapprovedbymanagement.Budgetedgrossmargins calculatedbymanagementarebasedonpreviousresults For everyreportingbusinessunit,therecoverableamountwas measuredusingcashflowprojectionsbeforeincometaxesfrom use. Ifthecarryingamountexceedsrecoverableamount, animpairmentlossisrecorded. business unitstotheircarryingamount.Therecoverableamount isthehigheroffairvaluelesscoststosellandvalu inflows. Toevaluateifthereisagoodwillimpairmentloss,the Cooperativecomparestherecoverableamountofreporting recovered. Reportingbusinessunitsaredeterminedaccording tothesmallestidentifiablegroupofassetsthatgeneratescash an impairmentloss.Antestisalsoperformedwhenthereindicationthatthecarryingamountmaynotbe Goodwill isnotamortized.testedannuallyforimpairmentbyreportingbusinessunitsinordertodetermineifther assets andliabilities. NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018 • • • Other rights Software Customer relationships tagtln 4to12years Straight-line tagtln 5to40years 5to15years Straight-line Straight-line entified f thecost ot be ets e in e is the ay 61 CONSOLIDATED FINANCIAL STATEMENTS n e e nce he in business NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES of accumulated other comprehensive income in equity. Foreign currency gains or losses are reduced by hedging operations of accumulated other comprehensive income in equity. Foreign currency gains or exchange rate for the month. using a bank loan in US dollars. Revenues and expenses are translated at the average Foreign operations at the exchange rate prevailing as at the All assets and liabilities of foreign operations are translated into Canadian dollars this translation are included as a component balance sheet date. Unrealized foreign currency gains and losses resulting from sheet date, while transactions denominated in foreign currencies are translated at the average monthly exchange rates during sheet date, while transactions denominated in foreign currencies are translated at translated at historical exchange rates. Th the year. Non-monetary assets and liabilities denominated in foreign currencies are are included in earnings. resulting foreign currency translation gains or losses, net of hedging operations, TRANSLATION OF FOREIGN CURRENCIES Foreign currency transactions bala in foreign currencies are translated at the exchange rate prevailing as at the Monetary assets and liabilities denominated combination and does not affect accounting nor tax earnings. Deferred income tax assets and liabilities are measured using the nor tax earnings. Deferred income tax assets and liabilities are measured using combination and does not affect accounting tax in the years when these temporary differences are expected to reverse. Income tax rates that are expected to be in effect than not that the asset will be realized. assets are recognized when it is more likely using enacted or substantively enacted income tax rates as at the balance sheet date. Deferred income taxes are measured using enacted or substantively enacted income o carrying amounts of assets and liabilities. However, deferred tax is not recognized from the difference between tax bases and initial recognition of assets and liabilities when the related transaction is not a the initial recognition of goodwill and the INCOME TAXES tax and deferred income tax expenses. Current income tax expenses are calculated Income tax expenses include current income market value. Actuarial gains (losses) are recorded in other comprehensive income. The cost of past services resulting from market value. Actuarial gains (losses) are when the plan amendment occurs or on the date when the related costs are changes to the plans is recognized in earnings recognized. bonds on the market as at the valuation date. The cost of pension and other retirement benefits earned by employees is bonds on the market as at the valuation method, prorated on years of service, based on management's best estimate calculated according to the projected benefit and the retirement ages of employees. The fair value of assets is determined using assumptions about the salary projections EMPLOYEE FUTURE BENEFITS EMPLOYEE FUTURE of the plan's assets. benefit plans and related costs, net for its obligations arising from employee The Cooperative accounts benefit obligation is determined according to the return of high quality corporat The discount rate used to measure the accrued Revenues are recognized when the significant risks and rewards of ownership of the goods are transferred to the buyer. of ownership of the goods are transferred when the significant risks and rewards Revenues are recognized contracts. net of annual amortization of procurement Revenues are recognized year in which they are incurred. year in which they are REVENUE RECOGNITION determines the fair value of the assets combined, the liabilities assumed, and the consideration transferred. The excess of the transferred. The and the consideration liabilities assumed, assets combined, the the fair value of the determines assumed is recorded of the assets combined and the liabilities transferred over the fair value fair value of the consideration in earnings during t Business combination costs are recognized is negative, it is recorded in earnings. goodwill. If the excess BUSINESS COMBINATIONS BUSINESS this method, the Cooperative Under for business combinations. method to account uses the acquisition The Cooperative (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 62 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) Subsequent Hedge ofnetinvestment in earnings. cessation ofhedgeaccounting,thecumulativegainorlossthat hasbeenrecordedinothercomprehensiveincomeisreclassified comprehensive income.Theineffectiveportionofthegainor lossonthehedginginstrumentisrecordedinearnings.Upon The portionofthegainorlossonhedginginstrumentthat isconsideredtobeaneffectivehedgerecordedinother until realizationofthehedgediteminordertomatchdesignations toearnings. instruments usedandthemethodofassessingeffectiveness.Realizedgainslossesonhedgesareconsequentlydeferred contract, managementdocumentsthehedgeditemasanasset,aliability,oranticipatedtransaction,detailsofhedging The Cooperativedocumentstheriskmanagementstrategyusedtoapplyhedgeaccounting.Atsigningofhedging Cash flowhedge HEDGING OPERATIONS In theeventofamaterialimpairmentanyfinancialassets,suchlossisrecordedinearnings. accounting Financial instruments financial instrumentwasclassifiedatinitialrecognition: Subsequently, theCooperativeaccountsforthesefinancialinstrumentsunderprescribedmethodofcategoryinwhich long-term debt. fair valueasatthebalancesheetdate,consideringtheirnatureandshort-termmaturity,variableinterestratefor The followingfinancialassetsandliabilitiesareaccountedforattheirinitialtransactionvalue,whichapproximates discharged, cancelledorexpired. case ofafactoringprogram.ThefinancialliabilitiesarederecognizedwhentheCooperative'scontractualobligations cash flowsfromtheassetexpireorwhencontractualrightstoaretransferredathirdparty,especially to thecontractualprovisionsofinstrument.TheCooperativederecognizesafinancialassetwhenrights The Cooperativeinitiallyrecognizesthefinancialassetsandliabilitiesattradedatewhichbecomesa Recognition orderecognitionoffinancialassetsandliabilities FINANCIAL INSTRUMENTS as againorlossarisingfromthe disposal. investment, theaccumulatedexchangedifferencesrecorded inequityshallbereclassifiedearningsandrecognized If thehedgeisineffective,thesecurrencyexchangedifferences arerecordedinearnings.Atthedisposalofahedgedforeign a foreignoperationarerecordedinothercomprehensiveincome andarepresentedinequityaslongthehedgeiseffective. Currency exchangedifferencesresultingfromthetranslation ofafinancialliabilitydesignatedashedgenetinvestment NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018 1 instrument. Gains andlossesarisingfromchangesinfairvalueareincludednetearnings,unlessthefinancialinstrumentisdesignated Fair value  contracts  held fortrading Assets andliabilities  Interestrateswaps Commodityfutures Exchangecontracts 1 effective interestmethod   Loans andreceivables Amortized costusingthe  Subordinatedloan Accountsreceivable Cash effective interestmethod Amortized costusingthe  liabilities   Other liabilities Long-termdebt Accountspayableandaccrued Bankoverdraftsandlinesofcredit asahedging in the party in the 63 CONSOLIDATED FINANCIAL STATEMENTS f nt ill have upon applying IFRS 9, other than a change in the classification, without impact of the valuation, of a portion of the accounts upon applying IFRS 9, other than a change to a financial institution valued at $61.5 million as at November 3, 2018. These receivable under agreements to sell its rights o and receivables" will be classified as "at faire value through earnings" as a result accounts receivable classified as "loans the transition to IFRS 9. on hedge accounting provided in IFRS 9,the Cooperative will continue to apply the In accordance with transition provisions instead of adopting the guidance of IFRS 9. hedge accounting requirements of IAS 39 The Cooperative did not identified any changes to the classification and measurement of the existing financial instruments The Cooperative did not identified any changes • • NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES The Cooperative will adopt this new standard as at the first quarter of its 2020 fiscal year and has not completed its assessme The Cooperative will adopt this new standard as at the first quarter of its 2020 fiscal of the impact of these changes on its consolidated financial statements. and finance leases. This new standard is effective for the years beginning on or after January 1, 2019. Leases "Leases". The new standard introduces a On January 13, 2016, the IASB issued IFRS 16, "Leases", which replaces IAS 17, eliminate the distinction between operating single on-balance sheet recognition and measurement model for lessees and will in previous standards, and will result in additional notes disclosures. in previous standards, and will result in additional w as at the first quarter of its 2019 fiscal year, and believes that this standard The Cooperative will adopt this new standard financial statements. no significant impact on its 2019 consolidated On May 28, 2014, the IASB issued IFRS 15, "Revenue from Contracts with Customers", a new standard on revenue recognition, On May 28, 2014, the IASB issued IFRS 11, "Construction Contracts and Related Interpretations". superseding IAS 18, "Revenue" and IAS revenue recognition. It introduces more prescriptive guidelines than those included The standard defines the requirements for Revenue from contracts with customers The Cooperative will adopt this new standard as at the first quarter of its 2019 fiscal year. The Cooperative will adopt this new standard of the impact of these changes on its 2019 consolidated financial statements, The Cooperative has completed its assessment of this standard will not be significant. Among others: and believes that the impact of the adoption On July 24, 2014, the IASB issued the final version of IFRS 9, "Financial Instruments", which replaces IAS 39, "Financial "Financial Instruments", which replaces IASB issued the final version of IFRS 9, On July 24, 2014, the Instruments: Disclosures" the IASB modified IFRS 7, "Financial and Measurement". At the same time, Instruments: Recognition statements as part of the initial IFRS 9 adoption. to include disclosure items in the financial The IASB issued new standards that are not yet effective for the year ended November 3, 2018. standards that are not yet effective for The IASB issued new Financial instruments statements. A reconciliation of long-term debt is presented in note 15. of long-term debt is presented in statements. A reconciliation POLICIES FUTURE ACCOUNTING On January 29, 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", to improve information provided to to improve information of Cash Flows", to IAS 7, "Statement issued amendments 29, 2016, the IASB On January about financing activities. users of financial statements consolidated financial of 2018 had no significant impact on the amended standard in the first quarter The application of this NEW ACCOUNTING STANDARD ADOPTED DURING THE YEAR ADOPTED DURING STANDARD NEW ACCOUNTING of cash flows Statement (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 64 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) is notexpected$45. represent agrossamountof$31,053.Attheacquisitiondate, thebestestimateofcontractualcashflowsforwhichcollect The currentassetsincludeaccountsreceivablewithafairvalue of$38,321,includingaccountsreceivableundercontractswhic Fair valueofnetassetscombined Employee futurebenefitsobligation Long-term debt Subordinated loan Deferred incometaxes Accounts payableandaccruedliabilities Bank overdraft Other assets Goodwill Intangible assets Property, plantandequipment Current assets The fairvalueofnetassetscombinedisdetailedasfollows: The considerationtransferredtotalled$95,756. accounting gainasaresultofbusinesscombination. rise toagainof$47,660netreversal$218fromothercomprehensiveincome.Thiswasrecordedinearnings asan The 50%interestalreadyheldatthetimeoftransactionwasdeemedtobedisposedafairvalue$47,878,which gave plants inCanada,onelocatedQuebec,andBritishColumbia. Ultima Foodsoperatesinthefieldofmanufacturingandcommercializationyogurtsfreshdairydesserts,runs two equally byAgropurcooperativeandAgrifoodsInternationalCooperativeLtd.,becametheexclusivepropertyofCooperative. On October29,2017,theCooperativeacquiredallsharesofUltimaFoodsjointventure.Foods,whichwasowned BUSINESSCOMBINATIONS 3. no significantimpactonits2020consolidatedfinancialstatements. The Cooperativewilladoptthisnewstandardasatthefirstquarterofits2020fiscalyear,andbelievesthatw These amendmentsareeffectiveforfiscalyearsbeginningonorafterJanuary1,2019,andearlyapplicationispermitted. IAS 12"IncomeTaxes"toclarifytheincometaxconsequencesofdividendsonfinancialinstrumentsclassifiedasequity. On December12,2017,theIASBissued"AnnualImprovementstoIFRSStandards2015-2017Cycle",amending,amongothers, Income taxes of theimpactthesechangesonitsconsolidatedfinancialstatements. The Cooperativewilladoptthisnewstandardasatthefirstquarterofits2020fiscalyearandhasnotcompletedassessme This newstandardiseffectivefortheyearsbeginningonorafterJanuary1,2019. uncertainty inincometaxesprescribedbyIAS12"IncomeTaxes". On June7,2017,theIASBissuedIFRIC23,"UncertaintyoverIncomeTaxTreatments",whichclarifiesaccountingfor Uncertainty overincometaxtreatments NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018

3,4 134,245 (52,142) (81,907) (34,244) (15,033) 57695,756 38,449 59,691 50,891 (2,078) (3,059) 082018 4 943 ill have ion nt h 65 CONSOLIDATED FINANCIAL STATEMENTS 1, a joint on r (626) (626) (626) 2017 2018 2,655 3,059 (4,750) 39,142 12,977 14,741 87,622 47,878 95,756 47,878 17,122 68,059 40,98540,98540,985 47,87847,87847,878 (17,502) (17,502) (17,502) the yea Acquisition of Acquisition

that have been allocated to the combined assets and liabilities of Scotsburn and Reliant are based on a allocated to the combined assets and liabilities of Scotsburn and Reliant been that have NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES is not expected is $175. Cash Bank overdraft assumed Current assets include accounts receivable with a fair value of $10,365, including accounts receivable under contracts which Current assets include accounts receivable with a fair value of $10,365, including the contractual cash flows for which collecti represent a gross amount of $7,544. At the acquisition date, the best estimate of Employee future benefits obligation Employee future benefits obligationEmployee future benefits obligation Fair value of net assets combined Intangible assets Accounts payable and accrued liabilities Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities Deferred income taxes Current assets Investments Property, plant and equipmentProperty, plant and equipmentProperty, plant and equipment The fair value of net assets combined is detailed as follows: The fair value of net assets combined is since they are higher than the price paid, this results in negative goodwill amounts. These differences, which amount to $13,97 since they are higher than the price paid, gains as a result of business combinations. These gains are attributable to the were recorded in earnings as accounting to further optimize the use of the combined assets. synergies, so the Cooperative will be able venture. Fair values internal estimates. Fair values of the consolidated net assets total $87,622 and, combination of independent valuations and The consideration transferred for this acquisition totalled $73,651. The consideration transferred for this acquisition now owns 100% of the shares of Reliant Transport Ltd. ("Reliant"), previously As a result of this acquisition, the Cooperative BUSINESS COMBINATIONS IN 2017 frozen dairy product assets from Scotsburn Co-operative Services Limited On January 31, 2017, the Cooperative acquired in Nova Scotia. ("Scotsburn"), a dairy cooperative established Redemption of subordinated loan from Agrifoods International Ltd. loan from Agrifoods International Redemption of subordinated Cash flows from business combination Cash consideration Fair value of the consideration Fair value of the consideration Cash flows from combination: Cash ventureventureventure 50% interest in the shares of the joint 50% interest in the shares of the joint 50% interest in the shares of the joint Fair value of the initialFair value of the initialFair value of the initial The fair value of the consideration transferred is detailed as follows: transferred is detailed of the consideration The fair value (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 66 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) The followingitemsareincludedintherestructuringcosts,integrationandothernon-recurringcosts: Interest onlong-termdebt Salaries andemployeebenefits Income taxesofsubsidiaries The Cooperative'sincometaxes Comprised of: Deferred incometaxes Current incometaxes The incometaxexpenseisdetailedasfollows: INCOMETAXES 5. Other non-recurringcosts Integration andstart-upcosts Restructuring andseverancecosts Raw materialsandotherinputs The followingitemsareincludedintheconsolidatedearnings: EARNINGS 4. Cash flowsfrombusinesscombinations Cash consideration Cash acquired Cash flowsfromcombinations: The businessacquisitioncostsrecognizedinearningsduringtheyear2017amountedto$653. Fair valueoftheconsiderationtransferred Investment Shares andcertificatesofindebtedness Cash The fairvalueoftheconsiderationtransferredisdetailedasfollows: NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018

Acquisition of (53weeks) (53weeks) (53weeks) ,7,5 4,178,457 the yea 4,7 745,574 60616,056 46444,674 48554,815 57,470 73,651 57,470 90639,066 21,119 11,446 (4,669) (2,655) ,1 2,617 7,286 2,617 3,083 6,501 082018 072017 082018 2018 (466) 2 125 r

(52weeks) (52weeks) (52weeks) ,4,6 4,146,061 8,1 682,212 25432,554 80458,014 49,042 58,014 55,114 11,035 ,7 8,972 2,900 4,331 2,844 3,860 072017 072017 2017 67 CONSOLIDATED FINANCIAL STATEMENTS ------45 670 201720172017 2017 2017 4,782 (1,688) (1,080) (3,689) 58,014 19,147 62,068 97,849 (65,230) (65,230) (65,230) (65,230) (65,230) (65,230) (65,230) (65,230) (96,770) (40,323) (48,227) (52 weeks)

------(43) 166166166166 663663663663 (998) 2018 2,617 (3,914) (3,914) (3,914) (3,914) (4,750) (4,750) (4,750) (4,750) (4,750) (4,750) (4,750) (4,750) (1,665) (1,665) (1,665) (1,665) (1,240) (1,130) 18,718 (12,690) (53 weeks)

- - - - 9,9129,9129,9129,912 6,1086,1086,1086,108 (9,844) (9,844) (9,844) (9,844) (5,229) (5,229) (5,229) (5,229) 30,11430,11430,11430,114 68,44468,44468,44468,444 13,76813,76813,76813,768 43,28243,28243,28243,282 (65,472) (65,472) (65,472) (65,472) (28,409) (28,409) (28,409) (28,409) 118,712118,712118,712118,712 income Business October 28

Comprehensive ------33333333 (469) (469) (469) (469) (6,726) (6,726) (6,726) (6,726) (1,361) (1,361) (1,361) (1,361) (1,376) (1,376) (1,376) (1,376) (55,114) (55,114) (55,114) (55,114) (55,114) (55,114) (55,114) (55,114) (23,133) (23,133) (23,133) (23,133) (22,082) (22,082) (22,082) (22,082) EarningsEarningsEarnings and Others and Others and Others combinations combinations combinations Earnings and Others combinations (111,554) (111,554) (111,554) (111,554) (14,334) (14,334) (14,334) (14,334)

(37,174) (37,174) (37,174) (37,174) 20162016 9,8449,8449,844 2,6522,6522,652 1,2191,2191,219 9,8129,8129,812 (1,219) (1,219) (1,219) 37,17437,17437,174 10,61110,61110,611 14,33414,33414,334 (11,474) (11,474) (11,474) (48,648)(48,648) (30,114) (30,114) (30,114) (68,444) (68,444) (68,444) (22,907) (22,907) (22,907) (48,816) (48,816) (48,816) 111,554111,554111,554

October 29

Others Accounting gain as a result of a business combination Accounting gain as a deferred tax rates Impact of change in and provincial allocation Changes in tax rates Difference in tax rates of foreign subsidiaries Difference in tax rates NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES Intangible assets and other assetsIntangible assets and other assetsIntangible assets and other assets Accounts payable, accrued liabilities and othersand others and others Deferred tax assets GoodwillGoodwillGoodwill Tax losses carry forwardTax losses carry forward Tax losses carry forward Property, plant and equipmentProperty, plant and equipmentProperty, plant and equipment The income tax consequences of temporary differences that result in deferred tax assets and liabilities are as follows: result in deferred tax assets and liabilities of temporary differences that The income tax consequences Income taxes Total deferred tax assets (liabilities)(liabilities)(liabilities) Accounts payable, accrued liabilities and othersand othersand others Intangible assets and other assetsIntangible assets and other assetsIntangible assets and other assets Outside basis difference on investment in subsidiariesin subsidiariesin subsidiaries Property, plant and equipmentProperty, plant and equipment Property, plant and equipment Income taxes, calculated at Canadian statutory rates of 26.63% (2017 – 26.65%) at Canadian statutory rates of 26.63% Income taxes, calculated to the following: Differences attributable Reconciliation of income taxes: Reconciliation GoodwillGoodwillGoodwill Tax losses carry forwardTax losses carry forwardTax losses carry forward Employee future benefits obligationEmployee future benefits obligationEmployee future benefits obligation Deferred tax liabilities (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 68 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) Subordinated loantoajointventure, bearinginterestatarateof7.00% INVESTMENTSANDLOAN 7. through theissuanceofinvestmentshares. Patronage dividendsarepaidouttomembersasfollows:$16,150 (2017–$16,178)incashand$49,069$49,058) PATRONAGEDIVIDENDS 6. repatriated inaforeseeablefuture. related totheinvestmentsinsubsidiaries.Suchunremittedearnings arereinvestedinthesubsidiariesandwillnotbe No deferredincometaxliabilitiesisrecognizedonunremittedearningsof$224,087asatNovember3,2018(2017-$185,226) nature of$115,775forwhichnodeferredincometaxassetisrecognized.Thenon-capitallosseshaveexpiryday. The Cooperativehasnoncapitallosscarryforwardsof$100,535aswellotherdeductibletemporarydifferencesin $1,130. of of thischangeintaxrateresultedareductionthedeferredliabilitiesandincomeexpensesubsidiaries the UStaxreform.EffectiveJanuary1,2018,statutoryfederalincomeratewasreducedfrom35%to21%.The impact On December22,2017,theUStaxauthoritiesenacted"TaxCutsandJobsAct",whichhasbeencommonlyreferred toas Others (liabilities) Total deferredtaxassets Employee futurebenefitsobligation Tax lossescarryforward and others Accounts payable,accruedliabilities Intangible assetsandother Property, plantandequipment Tax lossescarryforward Goodwill Deferred taxassets Goodwill Deferred taxliabilities and others Accounts payable,accruedliabilities Property, plantandequipment in subsidiaries Outside basisdifferenceoninvestment Intangible assetsandother NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018

October28

(48,227) (96,770) (65,230) (65,230) (40,323) 97,849 19,147 (1,688) 4,782 2017 2017 ------

annsadOhr combinations andOthers Earnings (45,225) 50,898 (3,083) (2,318) (3,083) (7,217) 1,341 (746) 184 ------Comprehensive

noeBsns November3 Business income 13,515 (6,086) 7,009 7,009 (205) (196) (43) 24 ------

(15,033) (15,033) (21,538) (14,568) 18,609 9,0149,014 1,909 2018 555 ------

(50,750) (76,337) (76,337) (55,613) (67,453) 17,280 17,122 84,748 7,753 5,325 2017 2018 (347) 158 ------69 CONSOLIDATED FINANCIAL STATEMENTS 2017 2017 2017 2017 6,664 (5,083) (4,604) 89,614 84,531 23,342 (17,813) (67,483) (19,866) (14,246) 649,091 157,641 806,732 130,676 (52 weeks) (52 weeks)

2018 2018 2018 2018 9,174 8,686 1,105 (9,327) (9,989) 35,709 46,771 30,959 (26,535) 598,249 178,985 777,234 130,903 (128,504) (53 weeks) (53 weeks)

NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES Finished goods Raw materials, goods in process and supplies The cost of goods sold amounting to $5,838,863 (2017 – $5,488,917) is mainly composed of the amount of inventories The cost of goods sold amounting to $5,838,863 (2017 – $5,488,917) is mainly composed accounted for in expenses, including an impairment loss of $42,795. 9. INVENTORIES Cash Bank overdrafts and lines of credit Income taxes paid The cash position is detailed as follows: Income taxes paid are detailed as follows: Income taxes paid are detailed as follows: Prepaid expenses accrued liabilities Accounts payable and Other assets Accounts receivable Inventories Income taxes Cash flows related to non-cash items have increased (decreased) as follows: items have increased related to non-cash Cash flows 8. CASH FLOWS (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 70 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) Disposals Business combinations Transfers Disposals Business combinations Transfers Translation adjustment Impairment Depreciation andamortization Translation adjustment Impairment Depreciation andamortization Net carryingamoun Accumulated depreciationandimpairment Cost Balance asatNovember3,2018 Additions Year 2018 Net carryingamount Accumulated depreciationandimpairment Cost Balance asatOctober28,2017 Following plantclosures,theCooperativerecordedanimpairment ofitsproperty,plantandequipment$7,018(2017–$538). Buildings andequipmentincludemajorworksinprogressof which anamountof$254,309(2017–$7,279)isunamortized. Additions Year 2017 Net carryingamount Accumulated depreciationandimpairment Cost As atOctober29,2016 PROPERTY,PLANTANDEQUIPMENT 10. NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018 1 2.80% to4.36%. Additions ofproperty,plantandequipmentincludeanamount$4,488 (2017–$45)ofcapitalizedinterest,atanannualrate 1 1 t

ulig qimn stock Equipment buildings Land and (178,313) (154,631) (138,358) 8,7 782,073 6,8 960,386 7,7 677,971 832,602 677,971 6,1 662,519 800,877 8,7 782,073 (20,267) (19,068) (11,927) 46434,664 17,547 12131,211 63986,339 (2,311) (2,628) ,3 6,331 (317) (20) - -

,3,4 1,039,744 ,3,0 2,039,108 1,039,744 1,604,545 ,2,8 1,523,483 (109,727) (119,821) (999,364) (874,428) (786,421) 2,7 324,977 3,1 730,117 3,1 730,117 3,6 737,062 (14,671) 27322,723 95,711 94799,487 (4,390) ,9 9,998 (478) (562) (532) (62) 929

Rolling (73,792) (71,201) (65,160) 35823,568 73097,360 23,568 96,336 86088,670 51525,135 35023,510 51525,135 (7,410) (7,821) ,8 8,681 ,5 6,852 (269) (798) 1 715 (57) (29) 494 424 282 (6) -

ranging from (1,251,469) (1,100,260) ,9,5 3,096,854 2,533,483 ,1,3 2,413,030 ,4,8 1,845,385 ,4,8 1,845,385 1,433,223 1,433,223 ,2,9 1,423,091 (147,909) (136,205) (989,939) Total 3,4 134,245 418,168 135,603 (26,655) 09540,985 63316,353 (7,018) (1,677) (3,058) (538) - - 71 CONSOLIDATED FINANCIAL STATEMENTS ------2017 13,10513,10513,10513,105 38,44938,44938,44938,449 50,362 (28,933) (28,933) (28,933) (28,933) (30,177) (30,177) (30,177) (30,177) (30,718) (30,718) (30,718) (30,718) (31,372) (31,372) (31,372) (31,372) 279,649 675,147 1,005,1581,005,1581,005,1581,005,158 1,056,7121,056,7121,056,7121,056,712 1,005,1581,005,1581,005,1581,005,158 1,035,3351,035,3351,035,3351,035,335 1,087,4301,087,4301,087,4301,087,430 1,065,4631,065,4631,065,4631,065,463 1,034,0911,034,0911,034,0911,034,091 1,056,7121,056,7121,056,7121,056,712 1,005,158 .80% to 4.36%.

(364)(364)(364) 2018 1,0761,076 (2,970)(2,970) 51,266 46,15346,15346,153 59,69159,691 38,68238,68238,682 14,74114,74114,741 (35,761)(35,761)(35,761) (32,357)(32,357)(32,357) 337,146337,146337,146337,146 407,941407,941407,941407,941 337,146337,146337,146337,146 319,050319,050319,050319,050 407,941407,941407,941407,941 318,185 687,261 486,098486,098 594,739594,739 451,684451,684 (148,952)(148,952) (186,798)(186,798) (132,634)(132,634) 1,056,712

266266266266 (364) (364) (364) (364) (454) (454) (454) (454) 6,5346,5346,5346,534 46,15346,15346,15346,153 38,68238,68238,68238,682 57,55057,55057,55057,550 (75,257) (75,257) (75,257) (75,257) (22,874) (22,874) (22,874) (22,874) (98,732) (98,732) (98,732) (98,732) (19,087) (19,087) (19,087) (19,087) (68,767) (68,767) (68,767) (68,767) 343,626343,626343,626343,626 268,369268,369268,369268,369 349,100349,100349,100349,100 447,832447,832447,832447,832 268,369268,369268,369268,369 311,461311,461311,461311,461 242,694242,694242,694242,694 349,100349,100349,100349,100 Trademarks, Total

------810810810 8,2078,2078,207 2,1412,1412,141 (2,516) (2,516) (2,516) 58,84158,841 68,77768,77768,777 68,77768,77768,777 76,35676,35676,356 58,84158,84158,841 (13,270) (13,270) (13,270) (73,695) (73,695) (73,695) (12,887) (12,887) (12,887) (88,066) (88,066) (88,066) (63,867) (63,867) (63,867) 146,907146,907146,907 142,472142,472142,472 140,223140,223140,223 Customer software and intangible relationships other rights assets Goodwill

t 1 1 Additions of intangible assets include an amount of $915 (2017 – $547) of capitalized interest at an annual rate ranging from 2 Additions of intangible assets include an amount 1 NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES Business sector – Canada Operations Business sector – United States Operations Business sector – Natrel United States The impairment tests performed as at July 28, 2018 and July 29, 2017 did not result in the recognition of any impairment loss. The impairment tests performed as at July 28, 2018 and July 29, 2017 did not result Net carrying amoun CostCostCost Accumulated depreciation and impairmentAccumulated depreciation and impairmentAccumulated depreciation and impairment ImpairmentImpairmentImpairment Translation adjustmentTranslation adjustmentTranslation adjustment Balance as at November 3, 2018Balance as at November 3, 2018Balance as at November 3, 2018 Additions Business combinationsBusiness combinationsBusiness combinations Depreciation and amortizationDepreciation and amortizationDepreciation and amortization Accumulated depreciation and impairmentAccumulated depreciation and impairmentAccumulated depreciation and impairment Net carrying amountNet carrying amountNet carrying amount Year 2018 Balance as at October 28, 2017Balance as at October 28, 2017Balance as at October 28, 2017 CostCostCost Business combinationsBusiness combinationsBusiness combinations Depreciation and amortizationDepreciation and amortizationDepreciation and amortization Translation adjustmentTranslation adjustmentTranslation adjustment Following plant closures, the Cooperative recorded an impairment of its intangible assets of $364 (2017 – $0). Following plant closures, the Cooperative recorded an impairment of its intangible The carrying amount of goodwill is allocated to the reporting business units as follows: Software includes a major work in progress of which an amount of $20,181 (2017 – $40,944) is unamortized. Software includes a major work in progress Net carrying amountNet carrying amountNet carrying amount Year 2017 Additions As at October 29, 2016 CostCostCost and impairment and impairment and impairment Accumulated depreciationAccumulated depreciationAccumulated depreciation 11. AND GOODWILL INTANGIBLE ASSETS (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 72 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) 2 OTHERASSETS 12. 4 ACCOUNTSPAYABLEANDACCRUEDLIABILITIES 14. are renewableannually. not exceedingtheprimerateplus1.50%.NoassetsofCooperativearepledged.Ingeneral,Cooperative'slines credi The Cooperativeanditssubsidiarieshavelinesofcreditamaximum$59,884,bearinginterestatvariableratesgenerally Lines ofcredit Bank overdraftsandlinesofcreditaredetailedasfollows: BANKOVERDRAFTSANDLINESOFCREDIT 13. Income taxcreditsreceivable Procurement agreementsandothers Bank overdrafts to themilkpaymentcalendar. The decreaseoftheaccountspayabletomembersasatNovember3,2018comparedpreviousyearismainlyattributable Joint ventures Third parties Members NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018

1,5 717,155 624,842 65526,535 24,423 83,575 18,442 65,133 23392,313 ,1 2,112 082018 082018 082018 -

9,1 791,215 648,593 4,8 140,182 02150,251 14,947 35,304 ,8 5,083 5,083 ,4 2,440 072017 072017 072017 t - 73 CONSOLIDATED FINANCIAL STATEMENTS - 368 2017 in a 43,836 889,602 176,772 yable in revolving tios nused 1,066,742 1,022,906 ty in

300 (507) (507) (507) 2018 2018 1,7061,7061,706 85,182 44,540 18,557 81,90781,90781,907 (56,658) 271,407271,407271,407 102,170102,170102,170 849,104 505,733 328,572328,572328,572 1,440,319 1,440,319 1,395,779 1,066,7421,066,7421,066,742

2 1 46,319 46,325 46,31446,31446,314 46,31946,319 46,32546,325 1,307,602 1,307,6021,307,602 2

3 1 2 Long-term debt repayments other than the revolving term loan. Net of capitalized issuance expenses of $6,241 (2017 – $7,740). portion of this loan is subject to standby fees. The revolving term loan is not secured by any of the Cooperative's assets. portion of this loan is subject to standby fees. (2017 – US$0) of the revolving loan was designated as hedge of a net investment As at November 3, 2018, an amount of US$65,000 foreign operation. at a rate of 3.85% and maturing in May 2022. Obligation under finance lease, bearing interest August 2022. The term loan is not secured by any of the Cooperative's assets and the Cooperative must meet certain financial ra August 2022. The term loan is not secured by which are respected as at November 3, 2018. as hedge of a net investment in a foreign operation. As at November 3, 2018, the term loan was designated is used as at November 3, 2018, bearing interest at a rate of 3.99% and repa Revolving term loan of $850,000, of which $590,915 submitted to the lenders and accepted by them. Should the remaining amount of the August 2022 if no request for an extension is generally exceed the prime rate plus 1.50% or the US base rate plus 1.50%. The u term loan be used, the interest rate would not US dollar term loan bearing interest at an average variable rate of 4.36% and refundable at 5% per year on average until maturi and refundable at 5% per year on average interest at an average variable rate of 4.36% US dollar term loan bearing 2 1 3 2 1 NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES Term loan (2018 – US$652,686 and 2017 – US$696,786) Term loan (2018 – US$652,686 Long-term debt as at October 28, 2017 Long-term debt as at October 28, 2017Long-term debt as at October 28, 2017 Long-term debt repayments 2020 2021 2022 Obligation under finance lease Obligation under finance Reconciliation of long-term debt for the year: Reconciliation of long-term debt for the 20202020 20212021 20222022 Principal repayments of the long-term debt to be made over the next years are as follows: Principal repayments of the long-term debt 2019 20192019 Current portion Revolving term loan (2018 – US$65,000 and 2017 – US$0) Revolving term loan Revolving term loan 15. LONG-TERM DEBT Total non-cash long-term debt activity Total non-cash long-term debt activityTotal non-cash long-term debt activity Long-term debt as at November 3, 2018 Amortization of long-term debt issuance expensesAmortization of long-term debt issuance expensesAmortization of long-term debt issuance expenses Translation adjustment Long-term debt issuance expensesLong-term debt issuance expensesLong-term debt issuance expenses Total cash flow from long-term debt financing activitiesTotal cash flow from long-term debt financing activitiesTotal cash flow from long-term debt financing activities Long-term debt acquired in a business combination Long-term debt acquired in a business combinationLong-term debt acquired in a business combination Variation of the revolving term loan Variation of the revolving term loanVariation of the revolving term loan (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 74 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) 6 OTHERLONG-TERMLIABILITIES 16. April 1,2019. redeemed, inwholeorpart,furthertoaresolutionbytheBoard ofDirectors,undercertainconditions,witheffectfrom value andpayablesemi-annuallywhendeclaredbytheBoard ofDirectors.Theydonothaveamaturitydateandcanbe cash considerationof$300,000,000.Thesesharesareentitled toanannualcumulativeminimumdividendof6.55%thepar On December16,2015,theCooperativeissued3,000,000first preferredshares,Series2,foraparvalueof$100each, April 1,2017. redeemed, inwholeorpart,furthertoaresolutionbytheBoard ofDirectors,undercertainconditions,witheffectsince value andpayablesemi-annuallywhendeclaredbytheBoardofDirectors.Theydonothaveamaturitydatecanbe cash considerationof$470,000,000.Thesesharesareentitledtoanannualcumulativeminimumdividend5.9%the par On December17,2014,theCooperativeissued4,700,000firstpreferredshares,Series1,foraparvalueof$100each, for a short andlong-termtreasuryneeds. are redeemableundercertainconditionsattheirparvaluefurthertoaresolutionbytheBoardofDirectors,dependingon shares, whicharelimitedto10shareseach.MemberClassAinvestmentaswellcertificatesofindebtedness Share capitalisvariableandunlimitedastothenumberofsharesineachclass,exceptforClassesB,CDinvestment Plan, theCooperativeInvestmentandtaxdeferral. an itemofmembers'equity,canbetransferredtoauxiliarymembersandarenoteligiblefortheRegisteredRetirementSavings Dairy Limited,DairytownProductsLtd.andScotsburnCo-operativeServicesLimited.Certificatesofindebtedness,presented as Scotsburn Co-operativeServicesLimited,certificatesofindebtednesswereissuedtoformermembersFarmers In theCooperative'srecentcombinationswithFarmersCo-operativeDairyLimited,DairytownProductsLtd.and conditions, fortheRegisteredRetirementSavingsPlan,CooperativeInvestmentandtaxdeferral. same basis.TheClassAinvestmentsharescanbetransferredtoauxiliarymembersandarealsoeligible,undercertain varies from$5to$10perhectolitre,accordingtheapplicationdateandcanbemodifiedbyBoardofDirectorson from theredemptionofcapital,andmilkdeliveries,wherenecessary.Theminimumthresholdcapitalpermember hectolitre ofproducedmilkfailtobereached,deductionsshallmadefromthecashpaymentpatronagedividends, Class Ainvestmentsharesareissuedinconsiderationofpatronagedividends.Shouldaminimumthresholdcapitalper could beissuedlater,furthertoaresolutionbytheBoardofDirectors. Series 2foraparvalueof$1,000,accordingtothemembershipapplicationdate.OtherClassMinvestmentsharesseries Furthermore, eachmembersubscribesto10ClassMinvestmentshares,whetherSeries1foraparvalueof$20or Voting rightsarerestrictedtoonevotepermember.Eachmembersubscribesshare,foraparvalueof$100. can bemadetothestatutesofCooperativeforfulltext. The followingconstitutesasummaryofcertainprivileges,rightsandconditionsrelatedtotheCooperative'sshares.Reference SHARECAPITAL(indollars) 17. Deferred incometaxcredits NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018

,3 4,035 082018

,2 4,127 072017 75 CONSOLIDATED FINANCIAL STATEMENTS on it ion. (244) (218) 2017 s 64,741 309,024 (243,821) of the ization of

- 2018 94,258 14,520 342,111 (262,373)

NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES (retailers, wholesalers, manufacturers, food services), and the extent of the Cooperative's geographical activities reduce cred (retailers, wholesalers, manufacturers, food services), and the extent of the Cooperative's the relatively fast cycle of product consumpt risk. Moreover, credit risk is reduced by the terms of payment in connection with than 30 days. At year-end, 5% of accounts receivable exceeded normal terms of payment by more Accounts receivable mainly relate to trade receivables generated in the normal course of business. Although some major Accounts receivable mainly relate to trade receivables generated in the normal course diversification of customer market segments accounts are derived from a certain volume concentration in the food industry, the under these agreements and the Cooperative continues to act as a collection agent. under these agreements and the Cooperative CREDIT RISK new sources of funding to maximize its capital structure. In particular, the Cooperative has entered into agreements to sell it structure. In particular, the Cooperative has entered into agreements to sell new sources of funding to maximize its capital CA$160,000 and US$100,000. The Cooperative also reduces this risk by maintaining rights to certain accounts receivable up to long-term plans. If there is a surplus of liquidity, it is applied to the repayment detailed financial forecasts and strategic LIQUIDITY RISK will encounter difficulty in meeting its financial obligations on time. Central Liquidity risk is the risk that the Cooperative for the Cooperative to reduce liquidity risk. The Cooperative is also on the lookout treasury and financing management allows The estimated fair value of the long-term debt, according to current market conditions, approximates the carrying amount as at debt, according to current market conditions, approximates the carrying amount The estimated fair value of the long-term the balance sheet date. debt. As at November 3, 2018, accounts receivable valued at the equivalent of CA$166,800 had been sold to a financial instituti receivable valued at the equivalent of CA$166,800 had been sold to a financial debt. As at November 3, 2018, accounts liability in an orderly transaction between market participants at the measurement date. The carrying amount of short-term liability in an orderly transaction between their fair value due to their short-term maturity. These financial instruments financial instruments is assumed to approximate bank overdrafts and lines of credit, and accounts payable and accrued liabilities. generally include cash, accounts receivable, FAIR VALUE a to the price that would be received to sell an asset or paid to transfer The fair value of a financial instrument corresponds 19. FINANCIAL INSTRUMENTS risks associated with financial instruments as at November 3, 2018: The following analysis explains the financial Share of accumulated other comprehensive loss of joint ventures Share of accumulated Foreign currency translation adjustment of term loan designated as hedge of a net adjustment of term loan designated Foreign currency translation operations investment in foreign Gains (losses) on financial instruments designated as cash flow hedges instruments designated as cash flow Gains (losses) on financial adjustment of foreign operations Foreign currency translation 18. INCOME TAXES INCOME, NET OF COMPREHENSIVE OTHER ACCUMULATED (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 76 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) interest rateswaps,theCooperativehasagreedtoexchangevariablepaymentsagainstfixedatspecified swaps onJuly10,2017,foratermof10years.ThenotionalamountthecorrespondstoUS$275,000,andunderthese rate To guardagainsttheimpactofinterestratefluctuationsonaportiontermloan,Cooperativeenteredinto combinations. decrease ininterestrates,theimpactwouldbeopposite.Theuseoflong-termdebtisprimarilyrelatedtobusiness a rates couldhaveanegativeeffectoncashflows;theimpactwouldbepositivewithrespecttoitsbalances.Incaseof instruments bearinginterestatvariablerates.Withrespecttolong-termdebt,anincreaseinthebenchmarkrateandpreferential The Cooperativeisexposedtocashflowriskassociatedwithinterestpaymentsdueratefluctuationsonfinancial debt. Financial assetsandfinancialliabilitiesdonotbearinterest,exceptforcash,bankoverdrafts,linesofcredit,long-term INTEREST RATERISK influenced, amongotherthings,byglobaleconomicconditions. Milk pricesaswellwheyproductandcheeseinthe UnitedStatesdependonfluctuationsinmarketsupplyanddemand, US MARKETRISK Sales of425eurosagainstCA$ Purchases of8,005eurosagainstCA$ Sales ofUS$2,266againstCA$ Purchases ofUS$19,128againstCA$ are asfollows: expiry ofthecontracts.Asatreportingdate,foreignexchangecontracts,spreadoutoverperiodsnotexceedingone year, Unrealized foreignexchangegainsandlossesarerecordedinitiallyincomprehensiveincomereversedearningsat the foreign exchangerisksforprojectedfuturetransactionsbymeansofcurrencyforwardcontracts,mainlyinUSdollarsand euros. The Cooperativealsocarriesoncertainpurchasingandsellingactivitiesinforeigncurrencies.hedgesagainst impact oncomprehensiveincomewouldhaveresultedinanincreaseof$5,006. variables remainedconstant,theimpactofthisincreaseonearningsbeforeincometaxeswouldhavebeenmarginal,and the As atNovember3,2018,iftheUSdollarhadincreasedby$0.01comparedtoCanadiandollar,andassumingallother Cooperative isexposedtorisksdueexchangeratefluctuationsaffectingitsnetinvestmentinforeignsubsidiaries. The CooperativecarriesonactivitiesoutsideofCanada,mainlyintheUnitedStates,viasubsidiaries.Consequently, FOREIGN EXCHANGERISK decreased by$12,596. all othervariablesremainedconstant,earningsbeforepatronagedividendsandtheCooperative'sincometaxeswouldhave The termloanissubjecttomarketinterestratefluctuationrisk.Iftheaveragehadbeenhigherby1%,andassuming Sensitivity analysisforinterestraterisk (net ofincometaxes$5,902)wasrecordedinothercomprehensiveincome. As atNovember3,2018,thecashflowhedgeofinterestrateriskwasassessedtobeeffective.Anunrealizedgain$16,244 interest rateriskonthetermloan. intervals. Inaccordancewithitsriskmanagementstrategy,theCooperativehasdesignatedtheseswapsascashflowhedgeof NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018 77 CONSOLIDATED FINANCIAL STATEMENTS 65 836 2017 (1,294) be

194 201820182018 (2,035) 22,146

------

- - - - 194194194194

------(2,035) (2,035) (2,035) Level 1Level 1Level 1 Level 2 Level 2 Level 2 Level 3 Level 3 Level 3

22,146 22,146 22,146 22,146 Level 1: Fair value based on quoted prices in active markets for identical assets. on quoted prices in active markets Level 1: Fair value based in Level 1. indirectly, other than the quoted prices on data observable either directly or Level 2: Fair value based based on observable market data. Level 3: Fair value not The Cooperative is committed for an amount of $89,033 to purchase property, plant and equipment and intangible assets as of $89,033 to purchase property, plant and equipment and intangible assets The Cooperative is committed for an amount part of major projects. the normal course of business. Even if the outcome of these litigations cannot be The Cooperative is party to litigations in is recorded when it is likely that it will result in a loss and the amount can expressed with certainty, the related liability that the losses that could result from these litigations are negligible. estimated. Furthermore, management estimates Commitments relating to operating leases are as follows: $21,759 for the following year, $49,431 for 2020 to 2023, Commitments relating to operating leases and $30,222 thereafter. NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS FINANCIAL TO THE NOTES Interest rate swapsInterest rate swapsInterest rate swaps Foreign exchange contractsForeign exchange contractsForeign exchange contracts Commodity futures contractsCommodity futures contracts Commodity futures contracts c) a) b) MEASUREMENT RISK MEASUREMENT to the following hierarchy: according at fair value are classified recognized Financial instruments Other long-term benefits are not capitalized and are presented under other plans. three years. The most recent valuations were performed in December 2017. three years. The most recent valuations other long-term benefits that provide for the payment of life insurance The Cooperative also offers to certain employees The Cooperative also has a deferred compensation plan covering a few employees. and health insurance premiums for retirees. Employee future benefits relate mainly to pension plans. The obligations of the defined benefit plans are based on the Employee future benefits relate mainly to a of the last employment years. The pension benefits can be adjusted according to employee's length of service and salary every and the consumer price index. Actuarial valuations of the plans are performed formula based on the return on plan assets 21. EMPLOYEE FUTURE BENEFITS c) b) 20. COMMITMENTS AND CONTINGENCIES a) The commodity futures contracts, mainly cheese futures contracts, designated as fair value hedges are of a nominal value designated as fair value hedges are contracts, mainly cheese futures contracts, The commodity futures 14 months. of $39,858, and their maturities do not exceed (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 78 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) Interest onassetceilingimpact Interest costonaccruedbenefitobligation Past servicecost Administrative costs Current servicecost Defined benefitplans Net expense Defined contributionplans The netexpenseisasfollows: 20% (2017–2%)oftotalplanassetsinvestedmainlyinCanada.Thefairvalueisbasedoninputsotherthanquotedprices. Equity securitiesrepresented36%(2017–54%),obligations25%34%)andbuy-inannuities The informationondefinedbenefitplansisasfollows: Net expense Projected returnonplanassets Balance –Endofyea Actuarial losses(gains) Benefits paid Employee contributions Past servicecost Interest cost Current servicecost Business combination Balance –Beginningofyear Accrued benefitobligation Fair value–Endofyea Actuarial gains(losses) Benefits paid Employee contributions Employer contributions Projected returnonplanassets Administrative costs Business combination Fair value–Beginningofyear Plan assets NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018 r r

(53weeks) 7,3 277,938 270,839 7,9 272,994 265,955 (13,262) (14,429) (10,255) (14,429) 03410,364 26,296 03410,364 16,890 14,792 (9,968) (1,629) (1,629) ,8 5,486 ,9 5,294 ,2 1,524 5,486 1,524 4,010 9,968 082018 082018 2018 (726) 1 315 726

(52weeks) 7,9 272,994 265,955 8,2 283,120 248,245 (15,563) (12,675) (12,675) 30923,049 22012,290 (8,101) ,6 9,267 6,625 ,8 9,081 ,4 1,647 9,267 6,625 1,647 9,047 8,101 072017 2017 2017 (700) 7 573 700 7 573 717 - - 79 CONSOLIDATED FINANCIAL STATEMENTS 900900900 2017 2017 2017 e of (8,207) (9,894) (7,039) (8,749) (7,639) 3.25% 4.00% 3.60% 4.00% 19,646 27,853 10,58510,58510,585 (29,540) (15,788) (23,427)

733 2018 2018 2018 3,118 3.90% 4.00% 3.60% 4.00% (9,894) (9,161) (2,385) (7,099) (6,506) (25,054) (25,054) (25,054) (11,449) (18,548) 0.25%0.25%0.25% 0.25%0.25%0.25% Change in in Increase assumption obligation

NOTES TO THE FINANCIAL STATEMENTS AS AT NOVEMBER 3, 2018 3, NOVEMBER AS AT STATEMENTS THE FINANCIAL TO NOTES Increase in long-term inflation rate of salary expenseIncrease in long-term inflation rate of salary expenseIncrease in long-term inflation rate of salary expense Decrease in discount rate value of the defined benefit obligation as at November 3, 2018. The significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate and the rat The significant actuarial assumptions for the determination of the defined benefit in these actuarial assumptions on the future compensation increase. The following table summarizes the effect of a change The Cooperative expects to make contributions of $6,932 to defined benefit plans in the next financial year. The Cooperative expects to make contributions of $6,932 to defined benefit plans SENSITIVITY ANALYSIS The Cooperative participates in multi-employer defined benefit plans for certain unionized employee groups. Based on available The Cooperative participates in multi-employer as defined contribution plans. Contributions for the year amounted to $5,783. information, these plans are accounted for Net benefit expense for the year Discount rate (opening rate) Long-term inflation rate of salary expense Accrued benefit obligation Discount rate (closing rate) Long-term inflation rate of salary expense Weighted average assumptions Balance – Beginning of year Balance – End of year Amount accounted for in other comprehensive income Amount accounted for in other comprehensive Actuarial gains for the year Impact of asset ceiling test Actuarial gains (losses) are accounted for in other comprehensive income and are as follows: are accounted for in other comprehensive Actuarial gains (losses) For pension plans with an accrued benefit obligation that is in excess of the asset, the accrued benefit obligation is $137,299 excess of the asset, the accrued benefit an accrued benefit obligation that is in For pension plans with the asset is $118,128 (2017 – $112,149). (2017 – $129,936) and Other plans obligation obligation obligation Employee future benefitsEmployee future benefitsEmployee future benefits Funding status – Plan assets net of obligation (deficit) – Plan assets net Funding status test Impact of asset ceiling Pension plan obligation Pension plan obligation Pension plan (IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) UNLESS OTHERWISE DOLLARS, CANADIAN OF (IN THOUSANDS CONSOLIDATED FINANCIAL STATEMENTS 80 (IN THOUSANDSOFCANADIANDOLLARS,UNLESSOTHERWISEINDICATED) Other benefitsrelatedtodepartures Other benefits Post-employment benefits Short-term andlong-termincentivecompensation Salaries Senior ManagementCommittee Attendance fees Salaries Board ofDirectors The mainsubsidiariesandjointventuresoftheCooperativeareasfollows: SUBSIDIARIES ANDJOINTVENTURES RELATEDPARTIES 22. is basedonthevaluegrowthof theCooperativeoverfive-yearcycles. the performanceofcurrent yearcomparedtothepreviousaswellfinancialtargets. Asecondpart,whichislong-te Variable incentivecompensation hastwocomponents.Thefirstpart,whichisshort-term, basedoncertaincriteriarelating on thefinancialperformanceof theCooperative. Management compensationconsists ofbasecompensation,certainbenefitsandvariableincentive compensationdepending Ultima FoodsInc. compensation toreflecttheresponsibilitiesandrisksassociatedwithCooperative'sroleasadirector. than $1billion.TheremunerationoftheBoardDirectorsisalsoperiodicallyreviewedastoamountsandmethod Board ofDirectors,abenchmarkingexerciseisconductedperiodicallywithconsumergoodscompaniessalesmore to attract,motivateandretainemployeestheCooperativeneedsachieveitsgoals.Toestablishcompensationfor during theyearendedNovember3,2018.Thepurposeofcommitteeistoestablishcompetitivetotalcompensation offering compensationconsultingservices,assiststhecommitteeinitswork.TheHumanResourcesCommitteemetfour times addition, theChiefExecutiveOfficerandSeniorVice-President,HumanCapitalattendmeetings.Aswell,anexternal fi namely thePresident,Vice-President,FirstandSecondMemberofExecutiveaswellGuestmember. In which issupportedbyaHumanResourcesCommittee.ThiscommitteecomposedoffourmemberstheBoardDirectors, Management Committee(12positions).KeymanagementpersonnelcompensationisestablishedbytheBoardofDirectors, Key managementpersonnelofAgropurcooperativearethemembersBoardDirectors(15seats)aswell Senior KEY MANAGEMENTPERSONNELCOMPENSATION ingredients. The mainactivitiesofthesesubsidiariesandjointventuresaremilkprocessingexportationdairyproductsfood Agropur ExportGroupInc. Agropur inc. NOTES TOTHEFINANCIALSTATEMENTSASATNOVEMBER3,2018 United States Country ofincorporation Canada Canada

(53weeks) 28312,873 ,6 9,969 1,434 1,414 6,939 1,982 1,117 100% 100% 100% 082018 082018 2 922 8 182 865 %owned

(52weeks) 82418,214 60726,037 ,0 1,602 9,909 6,573 1,822 1,098 ,0 6,001 100% 100% 072017 072017 50% to 3 130 724 rm, rm

Agropur Communications Exergue

Cooperative HEAD OFFICE AND OPERATIONS CANADA 4600 Armand-Frappier Street J3Z 1G5 Saint-Hubert, QC Canada Tel.: 450-878-2333 1-844-878-2333 free: Toll OPERATIONS US Drive Destination 3500 East WI 54915 Appleton, USA 920-944-0990 Tel.: agropur.com Graphic Lee design:Sid Graphic production: M&H Lee StudioProduction: Sid GaëllePhotographer: Leroyer Writing: and Larouche Consultant Analogos Translation: Printed in Canada