La Coop fédérée (“La Coop”) generated $6.516 billion in sales and $210.7 million in earnings before patronage refunds and income taxes for the fiscal year ended October 27, 2018, compared with $6.272 billion and $351.2 million, respectively, for fiscal 2017.
The Meat Division (Olymel L.P.) had a good year, but results fell short of the record fiscal 2017 performance. Olymel’s earnings before income taxes attributable to members amounted to $167.9 million, down $122.5 million from $290.4 million in fiscal 2017. The record performance in 2017 was driven by a highly favourable market, bolstered by strong sustained demand from China. Also, the stronger Canadian dollar had a downward impact on the industry’s meat margins during the year. Meat Division sales were up $5.6 million, driven by increases in processed poultry volumes and selling prices. The higher sales also resulted from the addition of four months’ sales generated by the acquired assets of a business specializing in the marketing of processed pork. This increase was partly offset by the decline in fresh pork selling prices.
The Agri-business Division reported earnings before income taxes attributable to members of $33.4 million, down $8.4 million from $41.8 million. Business acquisitions made in recent months triggered an increase in acquisition and integration costs as well as higher financial expenses resulting from greater use of financing. Performance of day-to-day operations improved in the Animal Production Sector, particularly for animal feed, and in the Eastern and Western crop production sectors. Agri-business Division’s external sales were up $192.1 million from last year, stemming essentially from multiple acquisitions carried out during fiscal 2018, particularly in the animal and crop production sectors. Higher sales in the Animal Production Sector was driven by growth and gains in market shares in the ruminant and dairy segment, and by the addition of six months ’ sales of an acquired business operating in the animal nutrition sector. In addition, higher fertilizer sales volumes, particularly in Western Canada, bolstered crop production sales. Sales growth in the Grains Sector stemmed from spiking prices in early summer.
“At La Coop, we gave ourselves clear orientations as well as the means to implement them. We succeeded!”
The Retail Division posted earnings before taxes, including corporate expenses, of approximately $1.3 million, up $0.2 million from $1.1 million last year. The Division’s sales growth more than offset the increase in direct costs related to higher sales. The widespread labour shortage in the market led to additional costs in the distribution sector and higher transportation costs. A $1.8 million loss on the disposal of a subsidiary’s total assets was recorded, giving rise to a $513,000 loss for the year in consolidated results. BMR’s external sales were up $34.9 million from fiscal 2017, driven by higher material sales stemming from Ontario market development efforts, increased market share in the dimensional lumber sector and higher average material selling prices. Retail stores recorded higher sales, attributable to the hiring of sales representatives, corporate store renovations and Montréal market development. It should also be mentioned that sales declined as a result of the discontinuation of farm machinery distribution operations, which was completed in May 2018.
Because of a 50% interest held via a subsidiary, Energy Sector results are reported as a share of results of a joint arrangement. The share recorded for fiscal 2018 was $10.1 million compared with $5.6 million in 2017. The increase comes from growth in sales volume, the inclusion of profits for a full year from a business acquired last year, the addition of new corporate sites and procurement synergies.
Cost of sales and selling and administrative expenses amounted to $6.346 billion, compared with $5.935 billion in the previous year. The increase resulted mainly from sales growth, higher prices for certain raw materials, the integration of the businesses acquired during the year and direct costs related to higher sales driving growth.
Financial expenses for fiscal 2018 increased to $22.6 million from $17.8 million for the previous fiscal year, owing to the combination of increases in average debt and interest rates.
Including the results of its divisions, La Coop reported consolidated operating income of $146.9 million, compared with $318.7 million in fiscal 2017.
The other contributions to earnings included the share of results of joint arrangements, namely businesses in which La Coop has joint control. This share increased to $47.2 million from $34.4 million for the previous fiscal year, following the change in the business model for allocating results of Agri-business Division’s joint arrangements and improved Energy Sector performance.
The share of results of entities subject to significant influence – entities in which we have less than a 50% interest – amounted to a loss of $0.1 million compared with a profit of $0.7 million in fiscal 2017. The decline in this share is due to the change in presentation method of an entity which is considered a subsidiary since the beginning of the year.
Other investments, which represent interest and dividend income from other investments, totalled $1.7 million compared with $2.1 million for the prior fiscal year.
Net gains (losses) on disposal and remeasurement of assets amounted to a gain of $9.6 million in 2018 compared with a $4.8 million loss in 2017. The gain was essentially generated by the remeasurement of an investment held as a result of acquisition of control. In 2017, the loss stemmed from the impairment of long-lived assets, namely the impairment of an interest in an entity under significant influence, and the recognition of losses on disposal of property, plant and equipment.
The gain arising from an insurance benefit, related to an insurance recovery at a Meat Division facility, totalled $5.5 million in 2018.
Earnings before patronage refunds and income taxes totalled $210.7 million compared with $351.2 million for fiscal 2017.
For the year ended October 27, 2018, after deducting $42.4 million in declared patronage refunds and $32.9 million in income taxes, La Coop reported net earnings of $135.4 million compared with $197.9 million in fiscal 2017. Net earnings attributable to members of La Coop and included in the reserve amounted to $115.6 million in fiscal 2018 and $168.3 million in fiscal 2017 while net earnings attributable to non-controlling interests amounted to $19.8 million and $29.6 million, respectively.
Note also that in light of fiscal 2018 results, the Board of Directors resolved on January 16, 2019, to pay an $11.2 million dividend to holders of shares in the Cooperative Pork Chain.
The parent company’s net expenses, including the real estate subsidiary’s results, increased to $27.4 million from $15.2 million for the previous fiscal year, owing to the recording of the actuarial expense and unfavourable return on actuarial assets.
“We should be proud that our achievements, programs and organizational culture are resonating in our business communities and among the general public.”
All of the network’s human resources teams worked together to address current issues, during another important year of transformation and modernization marked by labour recruitment challenges . Each division has a strong and dedicated human resources team that ensures harmonious growth and innovative practices.
Major projects were carried out as part of the Vision 2020 project to facilitate the operationalization of the business models of cooperatives under consolidation. Multiple workshops were offered to ensure employee engagement and buy-in, and alignment of conditions for new cooperatives. Change management is clearly the key to success for this kind of transformation.
Human resources program
As the nation-wide expansion continued, a number of employee programs were reviewed to align them with target markets, including revamping the pension plan and bonus program and introducing Canada-wide salary scales. Amid a labour shortage, attracting and retaining talent was at the heart of our thinking.
Performance management has also been under review by the parent company and certain divisions. The focus of this review was to put discussions between employees and their manager back at the core of the performance management process and to encourage frequent meetings for ensuring continuous monitoring and eliminating bureaucracy as much as possible.
Numerous training management tools were implemented and improved to deliver virtual content to employees. We have also developed internal expertise in creating training capsules, which facilitates the digital shift in training, to the benefit of the entire network. We’re pleased to have received subsidies to make this shift a success and we continue to develop our digital expertise.
Awards and competitions
Groupe BMR, the Agri-business Division and Olymel have all won numerous awards in different competitions the parent company and the divisions have taken part in to raise La Coop’s profile and make it more attractive to talent.
Looking ahead at the coming year, we have numerous challenges to face and projects to carry out. Data management, which will facilitate proactive strategic decision-making, will be a priority in the coming years. In collaboration with the entire network, we will undertake an analysis of our human resource management systems. An ambitious project to revamp corporate policies is also in the cards. Finally, with regards to talent and culture, strategic planning will focus on three important areas: succession planning, leadership development and internal mobility. This will allow us to develop an avant-garde internal culture and a capacity to execute our projects throughout the organization, thereby consolidating our positioning as an employer of choice.
A year of transformation that sets the stage for future growth
While La Coop further improved its competitiveness in fiscal 2018, it will have to keep forging ahead.
Despite a tense political climate owing to trade agreements, a more difficult business environment for several of our sectors (agriculture, meat and retail), and the initial signs of a demographic shift with the shortage of labour and succession issues, we successfully completed our five-year 2013-2018 plan. Mission accomplished! We stuck to the plan and delivered.
At La Coop, we gave ourselves clear orientations as well as the means to implement them. We succeeded! At the time of writing, our pilot project, namely the partnership between La Coop and VIVACO groupe coopératif, has been carried out. This partnership is part of Vision 2020, the modernization project for La Coop network’s business model. La Coop’s network transformation in Québec accelerated with the creation of La Coop Novago and Avantis Coopérative during the year.
The strategic framework in the 2017-2018 master plan for achieving growth is in place. We firmly intended to reach a critical mass in order to improve our competitiveness and grow faster than the market in line with our strategic drivers. Given market consolidation, we had to move faster to seize business opportunities. With our great agility, we’re ahead of our initial plan for certain items.
I would like to take this opportunity to acknowledge the efforts made by our teams, both in the parent company and in the divisions. Despite a few setbacks, La Coop and its divisions have earned prestigious recognitions and distinctions and won major awards. We should be proud that our achievements, programs and organizational culture are resonating in our business communities and among the general public.
In Québec, probably more than elsewhere in Canada, people’s awareness of the food they consume, sustainable development and environmental protection has grown very strongly. This should make us very proud!
During fiscal 2018, we injected $217 million in capital expenditures into the Québec and Canadian economy. La Coop plays the role of leader in its industry, for the benefit of families, rural life, regions and agricultural producers.
Having initiated the next strategic session on La Coop fédérée of tomorrow, the outcome of this exercise, once adopted, will set the stage for La Coop’s 100 th anniversary in 2022.
We have carried out at least three strategic planning exercises over the past fifteen years. We have developed an operating model that have proved its mettle. La Coop and its network have demonstrated that when we work together, we can move mountains.
This year again, our economic tour, our meetings with politicians, the public and media, confirmed that La Coop is a key player in the Québec and Canadian agricultural community for food and health security, protection of the lands, promoting agricultural interests and the survival of our regions.
Let’s continue to cherish our roots in agricultural cooperatives. La Coop and its divisions continue to provide a humane environment where talented people can enjoy rewarding careers. Our employees - our human resources - are among our most valuable assets and are key to our success. We must keep attracting new employees in order to meet the challenges of the 5.0 era.
La Coop has a brand strategy that will enable it to proudly enter the 21 st century. Between 1922 and now, we have changed names three times and the logo and symbol at least five teams. Each change has propelled forward the cooperative as well as its federation, activities and members. The goal of our television and web campaigns is to establish the presence of La Coop and its members among consumers and inform them of its plans. As highlighted last year, this exceptional, widely acclaimed campaign is the prelude to our positioning for modernizing the brand image of La Coop and its network. To be recognized, we need to be known. By taking actions on several fronts, we can optimize our growing popularity and also maintain our good reputation.
If we wish to leave our mark on our times, as our founders did, La Coop must have a structuring influence on society. We cannot be satisfied with the status quo. La Coop must become a powerful symbol for all the generations interested in agriculture and food. Leveraging its current heritage, La Coop must build a global and inclusive brand.
The management committee and I would like to extend special thanks to all the members of the Board of Directors and the President Ghislain Gervais for their support and advice during the past year. We are thankful for the commitment and dedication you showed during the past fiscal year.
We would also like to thank our financial partners, our joint ventures and in particular our partners in the Energy Sector, which contribute to the success of La Coop and the network. We especially wish to thank all the general managers of the affiliated cooperatives for their excellent collaboration.
I would like to express my deep appreciation for all the personnel of our organization and my colleagues on the management committee.
To conclude, I thank our divisions and management teams as well as all the employees in Québec and Canada, for their loyalty, their commitment and their support in achieving the year’s results.
Gaétan Desroches, agr., MBA
Chief Executive Officer