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Annual Report 2018

Financial Position

PAUL NOISEUX, CPA, CGA
Chief Financial Officer

 

LA COOP'S CONSOLIDATED BALANCE SHEET SHOWED TOTAL ASSETS OF OVER $3.2 BILLION AS AT OCTOBER 27, 2018, COMPARED WITH $2.7 BILLION AT THE END OF THE PREVIOUS FISCAL YEAR.

 

As at October 27, 2018, the consolidated balance sheet of La Coop fédérée showed assets totalling more than $3.2 billion compared with $2.7 billion as at the end of the previous fiscal year. This growth in total assets resulted primarily from business acquisitions made in the Agri-business and Meat Divisions, and significant capital investments in the Meat Division.

La Coop reported a consolidated debt/equity ratio of 31:69 at the end of fiscal 2018 compared with 23:77 at the end of the previous fiscal year.

Preferred shares, share capital, contributed surplus and reserve totalled $1.481 billion as at year-end compared with $1.285 billion as at the end of fiscal 2017. These items represented 45.4% of total assets in 2018 compared with 48.2% as at the previous fiscal year-end. La Coop’s reserve and contributed surplus as at October 27, 2018 amounted to $791.2 million, representing 53.4% of preferred shares and equity.

Liquidity and capital resources

As at October 27, 2018, La Coop fédérée had access to the capital resources it needed through agreements with Canadian financial institutions. The agreement with a syndicate of financial institutions comprises an overall credit facility of $1 billion. Also, an additional $250 million was made available under an accordion feature. The maturity date was extended to June 2021 following an amendment to the agreement made in July 2018. Drawdowns amounted to $466.8 million at the end of fiscal 2018 compared with $196.7 million in fiscal 2017.

La Coop has other borrowing arrangements and mortgages payable, including a balance of purchase price payable in annual payments of $20 million. La Coop fédérée also has three term credit facilities, comprising a fixed-rate $60 million facility repayable in three annual payments starting in July 2020, a $25 million facility bearing interest at a 6.5% fixed- rate repayable in December 2019, and a $23.4 million drawdown on a facility bearing interest at fixed interest rates, repayable in monthly payments, and maturing in 2033.

To reduce its borrowing requirements, La Coop manages working capital prudently and determines its capital in- vestment capacity based on cash flows from each of its divisions. For each quarter of fiscal 2018, La Coop met its financial obligations and complied with the financial covenants set out in its financing agreements.

In the course of business, La Coop is exposed to risks that could have an unfavourable impact on the achievement of its objectives, reputation and financial position.

Competition and competitiveness risks

La Coop operates in the agricultural, meat and retail indus- tries with a presence in dynamic, competitive and chan- ging regional, national and international markets. Industry consolidation in recent years and the entry of new players have heightened competition for La Coop. Market trends, changes in consumer buying habits and new technologies all have an impact on its financial performance and market shares. As a result, La Coop must closely monitor changes in its market and competitive environment while retaining the capacity to innovate and develop new products. Agile operations, optimized costs and an extended value chain are key assets in achieving a competitive edge.

Human resources risks

La Coop’s success is built on the hard work and skills of its employees. To achieve its objectives, La Coop must attract, engage, train and retain talent with the appropriate skills and expertise. Maintaining compe- titive and fair compensation and employee benefits is imperative for La Coop. It offers training and pro- fessional development programs at all levels. La Coop makes every effort to maintain positive employee and union relations. A succession management plan is in place to ensure La Coop business continuity and success. Occupational health and safety is a risk for La Coop and is mitigated by policies, training, audits and best practices.

Growth and transformation risks

Continuous growth is vital for La Coop to remain an agri- food leader in Québec and across Canada, develop ade- quate critical mass worldwide and maintain its capacity to create wealth and extend its value chain. La Coop makes acquisitions and enters into strategic partnerships. The success of this strategy is dependent on La Coop’s capacity to identify strategic acquisitions, determine fair value, deploy the resources required to integrate acquisi- tions and achieve the expected synergies, improvements and benefits to generate target returns.

By transforming its business model and network, La Coop is able to fulfil its aspirations, keep the network relevant and better meet member expectations.

Supply risks

Due to supplier consolidation in recent years, supply sources are more limited. La Coop has every interest in forging solid and long-lasting relationships with its suppliers to ensure supplies at competitive prices while maintaining supply quality, quantities and lead times. It is also important to invest in and strive toward greater integration in order to build a network of partners to achieve strategic objectives.

Market risks

Macroeconomic conditions are extremely volatile and cyclical. Raw material price volatility, exchange rate fluc- tuations, global inventories, weather conditions, and sociopolitical and economic stability are all factors that could have a significant impact on La Coop’s capacity to achieve its objectives. Diversifying its business allows it to manage market volatility and reduce its exposure to these factors. Financial risk management policies have also been adopted to minimize exposure to the risk of significant losses and ensure effective financial risk ma- nagement. Lack of control over supply prices and costs can be offset by market intelligence and stringent pro- duction cost controls.

Product risks

La Coop is exposed to raw material and product de- terioration and contamination risks in the meat and agricultural sectors. La Coop complies with govern- ment requirements by applying strict food safety procedures and controls. La Coop holds accredita- tions such as Hazard Analysis and Critical Control Point (HACCP) and Safe Quality Food (SQF).

Livestock health and well-being risks

Livestock contamination and epidemics are significant risk factors for La Coop. Epidemics can significantly ham- per production and raw material supply at processing plants. Quality management is of utmost importance to La Coop. Animal well-being is a priority for La Coop; animals must not be subject to abuse or ill treatment that could be detrimental to their health.

Legal, regulatory and compliance risks

La Coop is subject to a wide range of laws, regula- tions and standards, including those relating to the environment, workplace health and safety, intellec- tual property, privacy and taxation. As a responsible corporate citizen, La Coop incurs operating expenses to ensure compliance with laws, regulations and stan- dards. La Coop is also bound by international trade agreements governing its business. It closely monitors regulatory developments to anticipate any business or member impacts.

Information technology risks

La Coop depends on various IT systems that are key to its operations. It is exposed to IT security risks, including cyber attacks, that could compromise system availabi- lity and integrity or data privacy. La Coop and all of its divisions deploy resources to improve and increase the effectiveness and efficiency of the systems, tools and methods in place.

Environmental risks

La Coop implements measures to reduce its environ- mental footprint and risks arising from its operations, products and services. Its environmental policy also de- monstrates the commitments made by La Coop with res- pect to prevailing government regulatory requirements and best practices in its operating sectors. La Coop mo- nitors legislative and regulatory developments. La Coop demonstrates social responsibility through its actions to protect the environment and its commitment to sustai- nable development.