AGROPUR COOPERATIVE Better dairy. Better world. ANNUAL REPORT 2017 TABLE OF CONTENTS 03 — Introduction 10 — Message from the President 12 — Message from the CEO 14 — Board of Directors 16 — Senior Management Committee Ferme Rodrigue et fils inc. 19 — PILLAR Brand Strategy 41 — Corporate Social Responsibility 25 — PILLAR Innovation 45 — Financial Review 29 — PILLAR Cost Leadership 58 — Consolidated Financial Statements 33 — PILLAR Human Capital 37 — PILLAR National and International Development 02 Introduction Our Cooperative fared well during the past year, posting $6.4 billion in sales, a 7.7% year-over-year increase, and $444 million in earnings from operations, a 7.9% increase, despite continuing aggressive competition in the Canadian market and still-volatile global markets. Caroline Guimond, Mégane, Justin, Jacob, Jean-Philippe and Élyse Rodrigue, from Ferme Rodrigue et fils inc., Saint-Anaclet, Est du Québec 03 INTRODUCTION Better dairy. Better world. At a time when the sharing economy is meeting growing needs and is being embraced as a win-win solution, our cooperative model supports fair, structural wealth distribution and makes a difference for the community. Our model has been contributing to the social fabric, to local development and to the health of rural communities for nearly 80 years. Agropur held its course and stepped embraced as a win-win solution, When consumers purchase Agropur up the pace of its transformation. our cooperative model supports fair, products, they not only obtain products Our strategy organized around five structural wealth distribution and makes of the highest quality but they also growth pillars was adopted in 2012 a difference for the community. Our contribute to better distribution of and remains appropriate today, as model has been contributing to the wealth across rural communities. this report will show. social fabric, to local development and the health of rural communities The year was punctuated by major for nearly 80 years. changes. We followed up by introducing new structures that Agropur owes its sustainability to its reflect our desire to take an even members vision and its ability to more customer- and consumer- adapt to the needs of its customers focused approach. and consumers. The new genera- tion of consumers has very different Agropur is now the first dairy expectations than did previous processing Cooperative in North generations. We need to incorporate America,* and the 20th largest dairy the new demographic realities into processor in the world for the our strategies. Our corporate posi- second year in a row. It was ranked tioning has therefore been redefined Canada’s most trusted dairy brand by and we have articulated a new the University of Victoria’s Gustavson promise: “Better dairy. Better world.” Index for a third year in a row. We are therefore committed to tak- At a time when the sharing economy ing meaningful action and trying to is meeting growing needs and is being change the world in our own way. *Source: www.dairyfoods.com 04 INTRODUCTION Better dairy. Better world. Réjean Rodrigue, Ferme Rodrigue et fils inc. 05 INTRODUCTION Ferme Rodrigue et fils inc. Jean-Philippe Rodrigue, Ferme Rodrigue et fils inc. Together, our 3,290 dairy-producer members and 8,300 employees bring out the best in dairy. 06 Réjean and his grandson, Jacob INTRODUCTION We are 13,000 families strong seeking better dairy. Our quest for perfection leads us to innovate and improve constantly, on the farm and at the processing plant alike. Réjean and his grandchildren, Justin and Mégane Réjean and his grandson, Jacob 07 INTRODUCTION BETTER FOR THE COMMUNITY We are engaged with the community because, as a cooperative, we come from the community. We contribute to the vitality of rural communities. Jacob and Justin Anne Routhier, Élyse, Mégane, Justin and Caroline 08 Our values spur us to pursue a shared mission: Better dairy. Better world. Jacob 09 MESSAGE FROM THE PRESIDENT René Moreau Message from the President CONTINUING OUR DEVELOPMENT We continued our strategy of combining During the year, we invested more organic growth with mergers and than $174 million in our facilities, We posted a robust performance in acquisitions. During the year, Agropur fiscal 2017 in a persistent environment including $133 million in Canada. acquired Scotsburn, consisting of two of strong competition in Canada and We also approved a US$255 million volatile prices in the United States. frozen dairy product plants in Truro, investment in our Lake Norden, South My first year as president of Agropur Nova Scotia and Lachute, Quebec, as Dakota plant. The project will triple was a year of growth: the volume of milk well as the Scotsburn brand. After the the plant’s capacity and accelerate processed rose to nearly 6.1 billion end of the 2017 fiscal year, we became our development in the US Midwest. litres, a 2.0% increase from last year. the owners of all shares of Ultima Foods Sales, earnings from operations and by acquiring the interest that our As a result of our financial results, net earnings were also up significantly. partner Agrifoods held for 24 years. our Cooperative was able to declare 10 MESSAGE FROM THE PRESIDENT a $65.2 million patronage dividend in In Canada, the marketplace remains In this critical time for you and your 2017 and will also make a redemption extremely competitive, and our Cooperative, your Board of Directors of members’ capital and debt certifi- competitors are multinationals that continues to play a frontline role in cates in the amount of $39.9 million, are up to four times our size. We have informing stakeholders about the notwithstanding considerable upcoming therefore stepped up the pace of our potential impacts of trade agreements capital expenditures. expansion in recent years. Today, that undermine our supply management nearly 50% of our sales are south of system. At the same time, we are THE COOPERATIVE MODEL: the border. We must grow with our holding the strategic course charted THE KEY TO EMPOWERMENT customers and seize opportunities several years ago. for profitable business development. Our results to date show those Nearly 80 years ago, our founders decisions were sound. I am grateful joined together to face the challenges SUPPLY MANAGEMENT HAS to my fellow directors for their of a tough business environment. STOOD THE TEST OF TIME dedication and engagement. I also They chose the cooperative model and want to thank you, the members of that was no trivial decision. A coope- We are also concerned about the Agropur Cooperative, for your trust rative is more than a legal status; it is global environment, particularly and support. an instrument of empowerment, a way the renegotiation of international to take our future into our hands. trade agreements. In conclusion, on behalf of all our members, I would also like to thank A cooperative is also imbued with On the sidelines of the trade talks our CEO Robert Coallier, the entire values rooted in solidarity and sharing. between Canada, Asia and particu- management team and Agropur’s Our business model contributes to larly the US, we have heard voices 8,300 employees. Their skills and the economic vitality of local commu- challenging Canada’s supply mana- vision sustain our Cooperative’s nities. Cooperatives are by no means gement system. performance and success, day a thing of the past; they constitute after day. a form of organization that resonates Since it was created nearly 50 years with young people who want their ago, this system has guaranteed economic endeavours to be consistent farmers a fair and predictable with human values. income, while eliminating shortages and surpluses. It has been adapted Agropur creates wealth and also and modernized to meet changing redistributes it. Over the past five years, market needs. It has accomplished the Cooperative has declared nearly its mission by putting food on the $369 million in patronage dividends. tables of Canadian consumers at René Moreau a reasonable price. President For employees, Agropur is an employer of choice that offers attractive job For decades the retail price of dairy opportunities and career prospects. products in Canada has been increasing For suppliers, Agropur is not only in tandem with consumer goods gene- a business opportunity but also an rally – neither faster nor slower. Today, opportunity to build partnerships and retail prices for Canadian dairy products grow their own business. compare favourably with those in most countries around the world. CHALLENGES AHEAD All countries support their dairy Today, we must follow the example industry. In most cases, they do it of our predecessors: we need to through large direct subsidies. In other demonstrate leadership and boldness cases, government intervention takes to secure our cooperative’s future the form of regulatory support. and rise to the challenges we face. Canada has chosen supply management, In the US as in Canada, our markets are a system that has withstood the test changing fast. We must continue and of time, promotes competition and indeed accelerate our transformation. requires no subsidies. 11 MESSAGE FROM THE CEO Robert Coallier Message from the CEO Our Cooperative registered another EBITDA increased 7.9% to $444 million. growth in sales and earnings from year of strong increases in sales, During the year, we became the largest operations, which was however efficiency and profitability. Against dairy processing cooperative in tempered by lower sales of industrial a backdrop of fierce competition in North America. cheese and fluid milk. Canada and wide market fluctuations in The increase in our earnings was due We had a productive year in terms of the US, we continued our development to, among other things, higher cheese national and international development. on the basis of our five strategic pillars. prices and higher whey and cheese The acquisition of Scotsburn has Our sales and earnings hit sales volumes in the US.