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2019
ANNUAL
REPORT
Saputo produces, markets, and distributes a wide array of dairy products of the utmost quality, including cheese, fl uid milk, extended shelf-life
milk and cream products, cultured products and dairy ingredients. Saputo is one of the top ten dairy processors in the world, a leading cheese
manufacturer and fl uid milk and cream processor in Canada, the top dairy processor in Australia and the second largest in Argentina. In the USA,
Saputo ranks among the top three cheese producers and is one of the largest producers of extended shelf-life and cultured dairy products.
In the United Kingdom, Saputo is the largest manufacturer of branded cheese and a top manufacturer of dairy spreads. Our products are sold in
several countries under well-known brand names such as Saputo, Alexis de Portneuf, Armstrong, Cathedral City, Clover, COON, Cracker Barrel*, Dairyland,
DairyStar, Devondale, Friendship Dairies, Frigo Cheese Heads, Joyya, La Paulina, Liddells, Milk2Go/Lait’s Go, Montchevre, Murray Goulburn Ingredients,
Neilson, Nutrilait, Scotsburn*, Stella, Sungold, Treasure Cave and Woolwich Goat Dairy. Saputo Inc. is a publicly traded company and its shares are
listed on the Toronto Stock Exchange under the symbol “SAP”.
* Trademark used under licence.
FINANCIAL HIGHLIGHTS
Fiscal years ended March 31 (in millions of CDN dollars)
REVENUES
ADJUSTED EBITDA*
NET EARNINGS
ADJUSTED NET EARNINGS*
2019
2018
2017
Fiscal 2019(1)
Since 2017
CAGR(2)
$13,501.9
$ 11,542.5
$ 11,162.6
+17.0%
+10.0%
For the fiscal year ended March 31, 2019
$1,221.3
$ 1,264.7
$ 1,289.5
– 3.4%
– 2.7%
$755.3
$ 852.5
$ 731.1
–11.4%
+1.6%
$623.6
$ 704.2
$ 731.1
–11.4%
– 7.6%
SECTOR
NUMBER OF PLANTS**
NUMBER OF EMPLOYEES**
% OF TOTAL REVENUES
Canada Sector
USA Sector
International Sector
Europe Sector***
Products sold
in over
50
countries
21
27
12
5
65
plants
SEGMENT
% OF TOTAL REVENUES
CLIENTELE
5,600
6,400
3,700
1,100
30%
48%
22%
n/a
Approx.
16,800
employees
RETAIL
FOODSERVICE
INDUSTRIAL
47%
Sales are made to supermarket chains, mass-merchandisers, convenience
stores, independent retailers, warehouse clubs and specialty cheese boutiques
under Company-owned or customer brand names.
35% Sales are made to broadline distributors, as well as to restaurants,
18% Sales are made to manufacturers and processors who use Saputo’s products
as ingredients in the preparation of other food items or nutritional products.
hotels and institutions, under Company-owned or customer brand names.
* Non-IFRS measures described in the “Glossary” section on page 37 of the Management’s Discussion and Analysis.
** Taking into account the Dairy Crest Acquisition completed on April 15, 2019.
*** Starting in fiscal 2020, Saputo intends to report the business of Dairy Crest, now known as the Dairy Division (UK), under a new Europe Sector.
(1) As compared to fiscal 2018.
(2) CAGR, Compound Annual Growth Rate is defined as the year-over-year growth rate over a specified amount of time.
THE
SAPUTO
PROMISE
The Saputo Promise is our commitment to live up to the values on which
our business was founded in 1954. It consists of 7 Pillars, forming the backbone
to our approach to social, environmental and economic performance.
We believe the future is created by what we do today. And our promise is
to never stop building the future we believe in. Here is a summary report
of our Promise for the 2019 fiscal year (FY2019).
Our FY2019 Saputo Promise Factsheet – including further details on our non-financial performance –
will be published in August 2019.
FOOD SAFETY AND QUALITY
Our safety-first culture includes
our support for food safety training
workshops, which we developed and
executed in collaboration with Dairy
Management Inc. and the International
Dairy Foods Association. These
workshops have taken place since
2011 across multiple Saputo locations.
Since their inception,
approximately
1,900
dairy industry
employees
have attended the
training workshops.
+ Read more at www.saputo.com/our-promise/case-studies
OUR PEOPLE
We are pleased
to report a significant
increase in the number
of women promoted
in FY2019.
% of internal promotions
that went to women
30%
29%
37%
Our global Health and
Safety Committee,
established in FY2018,
helped ensure a
consistent and global
approach to safety,
resulting in improved
performance in FY2019.
Lost time
injury frequency rate
1.57
1.96
1.77
FY2017
FY2018
FY2019
FY2017
FY2018
FY2019
BUSINESS ETHICS
We want the everyday conduct of our employees
to be driven by the values we share
and promote. Our Code of Ethics formalizes
these values. We have started the periodic
review process of our current Code of Ethics.
A revamped version will be launched in FY2020.
RESPONSIBLE SOURCING
We launched our Saputo Supplier
Code of Conduct in FY2019.
Our Code sets the minimum standards of
business conduct we expect from our suppliers.
Through aligned standards, we aim to create
an environment where we can build strong,
sustainable and long-term relationships with
our suppliers.
ENVIRONMENT
As a result of the acquisition
of the activities of Murray
Goulburn, our energy intensity
increased by 9% and our CO2 intensity
increased by 23%. This was mainly due
to energy-intensive production and the
fact that CO2 emissions associated with
electricity production are significantly
higher in Australia as compared to the
other countries where we operate.
Energy intensity(1)
(in GJ/ton of products)
CO2 intensity(1)
(ton CO2e/ton of products)
2.75
2.85
3.10
0.1872
0.1927 0.2365
FY2017
FY2018
FY2019
FY2017
FY2018
FY2019
NUTRITION AND HEALTHY LIVING
We continuously look for ways to enhance our
products to help consumers make healthier choices.
In FY2019, our Dairy Foods Division (USA)
successfully transitioned our
Friendship Dairies cottage cheese
to a ‘clean label’, simplifying its ingredients
while maintaining the same taste and texture
consumers love.
+ Read how at www.saputo.com/our-promise/case-studies
COMMUNITY
We delivered on our commitment to invest 1%
of our annual pre-tax profits in the communities
where we operate. Through our national
partnerships, Legacy projects, volunteerism
and local donations, we contributed to
building healthier communities
globally.
(1) Due to the timing of the Annual Report, these numbers are based on estimates. The final numbers will be published in August 2019, as part of the Saputo Promise Factsheet.
MESSAGE FROM THE CHAIR OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Lino A. Saputo, Jr.
As added pressures weighed heavily
on the industry and its players,
a solid foundation allowed us to expand
our business and solidify our position
as a leading dairy processor.
Fiscal 2019 was both an exciting and a challenging year.
The difficult global dairy conditions that began in fiscal 2018
persisted throughout fiscal 2019, which inevitably impacted
our results. However, with these obstacles came opportunities.
As added pressures weighed heavily on the industry and its
players, a solid foundation allowed us to expand our business
and solidify our position as a leading dairy processor.
As always, we were able to count on the passion and loyalty of
our employees and the knowledge of our leadership group, with
oversight from our Board of Directors. As Chair of the Board,
I am privileged to see first-hand their dedication and diligence.
All directors – eight independent and two non-independent –
were reelected in fiscal 2019, providing continuity of stewardship
and maintaining gender parity. Our Board of Directors provides
prudent guidance that complements the experience of our
management team and ensures sound decision-making.
The Board firmly believes in applying corporate governance
best practices and upholding a culture of integrity. After
each Board meeting, the independent directors hold a
separate meeting chaired by the Lead Director. Also, only
independent directors sit on the Audit Committee and the
Corporate Governance and Human Resources Committee.
I invite you to refer to our Management Information Circular
dated June 6, 2019 for additional information regarding our
governance practices and Board nominees.
As part of its focus on profitability enhancement and
shareholder value creation, the Board reviewed Saputo’s
dividend policy in fiscal 2019, increasing the quarterly dividend
by 3.1% to $0.165 per share.
In fiscal 2019, we announced changes to our management
team aimed at further supporting our operations and growth
strategy. As of April 1, 2019, Carl Colizza was appointed
President and Chief Operating Officer (North America),
having previously been responsible for our Dairy Divisions
(Canada and Argentina). As such, Frank Guido, who has been
with our Company since 2015, was appointed to oversee
our Canadian operations while Kai Bockmann retained the
Dairy Division (Argentina) as part of his role as President and
Chief Operating Officer, Saputo Inc. and International Sector.
Martin Gagnon, who has been at Saputo since 2016, was
named Chief Acquisition and Strategic Development Officer.
Lastly, as we further expanded our international presence in
early fiscal 2020, we appointed Tom Atherton as President
and Chief Operating Officer of our new Dairy Division (UK).
Growing through acquisitions is a fundamental
part of our long-term strategy, underpinned by
our financial flexibility and a disciplined approach.
In fiscal 2019, we were well positioned to take
advantage of the right opportunities at the
right time.
We became the largest dairy processor in Australia following
our acquisition of the activities of Murray Goulburn (“MG”).
We also announced the now completed acquisition of Dairy
Crest, becoming the UK’s largest manufacturer of branded
cheese and a top manufacturer of dairy spreads. Additionally,
we broadened our product portfolio by acquiring the activities
of Shepherd Gourmet in Canada and F&A Dairy Products in
the USA, the latter of which gave us access to a new milk pool
in New Mexico. Over the last two years, we have completed
six acquisitions, bringing our total to 31 since our IPO in 1997,
and our pipeline of potential acquisitions remains full. In fact,
fiscal 2020 started with an agreement to acquire the specialty
cheese business of Lion-Dairy & Drinks Pty Ltd in Australia,
pending foreign investment approval and clearance by the
Australian Competition and Consumer Commission. As is our
usual practice, we will seek to maintain a well-balanced capital
structure in order to keep pursuing growth opportunities.
This year, we also continued to plan and execute capital
expenditure projects to reinforce our position within the global
dairy industry, including the ongoing implementation of our
new enterprise resource planning (“ERP”) system. The Dairy
Foods Division (USA) became the third of our divisions to
implement ERP, following successful deployments in Argentina
and within our Warrnambool Cheese and Butter platform
in Australia. In fiscal 2020, we plan to migrate the rest of our
Australian activities to ensure alignment under a single system.
Afterwards, our Cheese Division (USA) and Dairy Division
(Canada) will proceed with their ERP implementations, with
completion expected in fiscal 2022. As a result of recent
acquisitions, the scope and duration of this project has increased,
which in turn has raised the expected total investment. While
this may continue to vary as a function of our growth through
acquisitions, the Dairy Division (UK) will keep operating
under its current system and therefore is not included in
the present scope of our ERP program. Although the global
implementation has been one of the factors impacting our
results, we remain certain it is the right investment to support
our long-term growth.
Looking back on fiscal 2019, each of our platforms had its share
of accomplishments, but we were not immune to the volatility
and competition within our industry. We continued to face
strong headwinds on a global scale. Weak dairy ingredient and
cheese markets, competitive conditions, and elevated costs, such
as those related to warehousing and logistics, put downward
pressure on profitability.
While we may not always have control over
the challenges we face, we choose a proactive
approach to mitigating this adversity. As such, we
continued to carefully monitor the markets and
explored additional opportunities to maximize
efficiencies and control costs whenever possible.
In Canada, we maintained our commitment to profitable
sales volumes and kept focusing on continuous improvement to
leverage best practices and improve efficiency throughout our
manufacturing and supply chain activities. As we look to uphold
a leadership position in an increasingly competitive Canadian
market, we regularly review and invest in our operations to
optimize our platform. To that end, we began the construction
of a new state-of-the-art fluid milk manufacturing facility in
Port Coquitlam (British Columbia) that will enable us to better
serve the Western Canadian market. Accordingly, our Burnaby
(British Columbia) property has been sold and will continue
to operate under a lease agreement until activities can be
transferred. We closed our Courtenay (British Columbia) facility,
a difficult yet necessary step towards right-sizing our business.
Fiscal 2019 also saw the launch of our JOYYA ultrafiltered milk,
a line of innovative low-lactose protein-rich beverages designed
to meet evolving consumer needs. Finally, we further expanded
our product range in value-added categories by completing
the integration of the activities of Shepherd Gourmet.
Our Cheese Division (USA) continued to contend with
depressed dairy commodity prices and competitive market
conditions, and was impacted by the Federal Milk Marketing
Order implementation in California. Hence, we remained
focused on reviewing our cost structure and our approach to
customer pricing, and gaining operational efficiencies. As part
of our plans to solidify our position within the blue cheese
category, we have been intensifying efforts to achieve greater
efficiencies at our newly-constructed Almena (Wisconsin) facility.
We also completed the planned closure of our Fond du Lac
(Wisconsin) facility with production successfully transferred to
Almena. In fiscal 2019, we benefitted from the Montchevre
platform being fully integrated and we began the integration of
the activities of F&A Dairy Products, thereby broadening the
Division’s offering in specialty cheeses and natural cheeses,
respectively. Since the beginning of fiscal 2020, we took another
step towards right-sizing our business with the closure of our
Dresser (Wisconsin) facility, recently acquired as part of the
F&A Acquisition. Production has already been redirected to
other facilities and employees were given the opportunity
to relocate within our network.
Our Dairy Foods Division (USA) continued to invest
in new capabilities, innovative technology, and network
enhancements aimed at delivering the production capacity
needed to meet increased demand and growth. We further
capitalized on our customer value proposition, working
together to meet consumer demands in response to current
market trends, including health and wellness, organic, and
“clean labelling”. Concurrent to the ERP implementation, we
focused on sustaining and optimizing our supply chain activities
to ensure the satisfaction of our customers as we continue to
prioritize these relationships.
The International Sector pursued additional sales volumes
within existing markets and developed new international
markets, while navigating ongoing volatility in the export
landscape.
In Australia, we are in the final stages of the integration
of MG with our Dairy Division (Australia) now operating
as one platform known as Saputo Dairy Australia (“SDA”).
We leveraged top talent from both groups to form a new
leadership team capable of driving execution as SDA continues
to grow. On the manufacturing side, following our review of
SDA’s activities, operations remained active at our facility in
Kiewa (Victoria). Pursuant to the undertaking entered into
with the Australian Competition and Consumer Commission
in connection with the MG acquisition, we completed the sale
of the Koroit (Victoria) plant in August 2018. We stabilized our
milk intake and continued to demonstrate our commitment
to fostering long-term relationships with our farmer suppliers.
Despite tough weather and economic conditions at the farm
level, our focus remains to process more milk and optimize
our expanded Australian network.
In Argentina, we commissioned key capital investments to
boost our annual milk intake and production capacity. In fact,
with an increased milk intake and investments in automation,
the Division raised its industry-leading rate of litres processed.
Despite a steep and sustained devaluation of the Argentine
peso, we adapted to ever-changing economic conditions and
successfully launched new products into the domestic market,
including string cheese and blue cheese. We also optimized our
product mix and customer portfolio, both domestically and
internationally.
On the regulatory front, we are confident the Government
of Canada’s interim decision to allocate a significant portion of
dairy import licences under the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (“CPTPP”) to Canadian
dairy stakeholders will have a positive outcome for consumers
and the Canadian dairy industry. We intend to continue using
our allocated quotas effectively to import dairy products
that add to and complement our current offering while also
seeking to take advantage of export opportunities within our
network. As for the United States-Mexico-Canada Agreement
(“USMCA”), which is still to be ratified and implemented by
each signatory country, we do not foresee significant impacts
on our operations once formalized, assuming the allocation
of import licences is similar to that of the CPTPP.
As a global dairy processor with a proven track
record, it is incumbent upon us to ensure we
create value for all our stakeholders while
demonstrating good corporate citizenship in
everything we do. We have a responsibility to lead
by example and have made great strides under
the Saputo Promise this year.
Our people have always been the driving force behind our
success. Therefore, we ramped up our efforts to improve
employee health and safety and launched the Saputo Diversity
and Inclusion Global Council to further promote a diverse work
environment where all employees feel valued. We continued to
lead the charge in regards to animal welfare. Most notably, we
funded an expert-led dairy goat welfare research project at Iowa
State University’s College of Veterinary Medicine to improve
practices and procedures within the industry. Beyond the farm,
our new Supplier Code of Conduct outlines our expectations
for suppliers across the value chain, engaging them to achieve
our objectives in promoting good business practices. Giving back
to the communities in which we operate remains an important
commitment. In fiscal 2019, we invested 1% of our annual
pre-tax profits through healthy living partnerships and programs.
Looking ahead, we will build on the successes of the past year
and face the market-driven challenges that remain by applying
our high standards of execution and responsible approach to
both our existing operations and our newly acquired businesses.
I firmly believe the dairy industry still provides
an abundance of growth opportunities for
us to capture as we continue to develop our
complementary platforms.
With fiscal 2020 now underway, I am optimistic about what
we can further achieve, by growing organically and through
acquisitions.
Lino A. Saputo, Jr.
Chair of the Board and Chief Executive Officer
Saputo Inc.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
—
CONSOLIDATED
FINANCIAL STATEMENTS
2019
June 6, 2019
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS
NON-IFRS MEASURES
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
SELECTED FINANCIAL INFORMATION
FINANCIAL ORIENTATION
FINANCIAL INFORMATION
HIGHLIGHTS
OUTLOOK
CONSOLIDATED RESULTS
QUATERLY FINANCIAL INFORMATION BY SECTOR
CANADA SECTOR
USA SECTOR
INTERNATIONAL SECTOR
LIQUIDITY, FINANCIAL AND CAPITAL RESOURCES
CONTRACTUAL OBLIGATIONS
FINANCIAL POSITION
GUARANTEES
RELATED PARTY TRANSACTIONS
ACCOUNTING STANDARDS
CRITICAL ACCOUNTING POLICIES AND USE OF ACCOUNTING ESTIMATES
EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS NOT YET IMPLEMENTED
CONSIDERATIONS FOR THE IMPLEMENTATION OF IFRS 16
EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED DURING THE YEAR
RISKS AND UNCERTAINTIES
DISCLOSURE CONTROLS AND PROCEDURES
INTERNAL CONTROL OVER FINANCIAL REPORTING
SENSITIVITY ANALYSIS OF INTEREST RATE AND US CURRENCY FLUCTUATIONS
QUARTERLY FINANCIAL INFORMATION
ANALYSIS OF EARNINGS FOR THE YEAR ENDED MARCH 31, 2018 COMPARED TO MARCH 31, 2017
MEASUREMENT OF RESULTS NOT IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
GLOSSARY
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
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5
5
7
8
10
12
14
15
18
19
21
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32
34
35
37
38
46
Management’s Discussion and Analysis
The goal of the management report is to analyze the results of, and the financial position of Saputo Inc. (Saputo or the
Company), for the year ended March 31, 2019. It should be read while referring to the audited consolidated financial
statements and accompanying notes. The accounting policies of the Company for financial years ended March 31, 2019,
2018 and 2017, are in accordance with International Financial Reporting Standards (IFRS). All dollar amounts are in
Canadian dollars, unless otherwise indicated. This report takes into account material elements between March 31, 2019
and June 6, 2019, the date on which this report was approved by Saputo’s Board of Directors. The information in this
MD&A is being presented as of March 31, 2019, unless otherwise specified. Additional information about the Company,
including the annual information form for the year ended March 31, 2019, can be obtained on SEDAR at www.sedar.com.
NON-IFRS MEASURES
The Company reports its financial results in accordance with IFRS. However, in this Management’s Discussion and
Analysis, the following non-IFRS measures are used by the Company: adjusted EBITDA; adjusted net earnings; and
adjusted net earnings per share. These measures are defined in the “Glossary” section on page 37 of this Management’s
Discussion and Analysis. Refer to ‘‘Measurement of Results not in Accordance with International Financial Reporting
Standards’’ on page 35 of this Management’s Discussion and Analysis for the reconciliations to IFRS measures.
Management of the Company believes that these non-IFRS measures provide useful information to investors regarding
the Company’s financial condition and results of operations as they provide key metrics of its performance. These non-
IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS and may
differ from similar computations as reported by other issuers, and accordingly may not be comparable. These measures
should not be viewed as a substitute for the related financial information prepared in accordance with IFRS.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements which are forward-looking statements within the meaning of applicable securities laws.
These forward-looking statements include, among others, statements with respect to the Company’s objectives, outlook,
business projects and strategies to achieve those objectives, statements with respect to the Company's beliefs, plans and
expectations, and statements other than historical facts. The words “may”, “should”, “will”, “would”, “believe”, “plan”,
“expect”, “intend”, “anticipate”, “estimate”, “foresee”, “objective”, “continue”, “propose” or “target”, or the negative of these
terms or variations of them, the use of conditional or future tense or words and expressions of similar nature, are intended
to identify forward-looking statements. All statements other than statements of historical facts included in this report may
constitute forward-looking statements within the meaning of applicable securities laws.
These statements are based, among other things, on Saputo’s assumptions, expectations, estimates, objectives, plans,
business strategy and intentions as of the date hereof regarding the projected revenues and expenses, the economic,
industry, competitive and regulatory environments in which the Company operates or which could affect its activities, its
ability to attract and retain customers and consumers, as well as the availability and cost of milk and other raw materials
and energy supplies, its operating costs and the pricing of its finished products on the various markets in which it carries
on business. Such forward-looking statements are intended to provide shareholders with information regarding the
Company, including its assessment of future financial plans, and may not be appropriate for other purposes.
By their nature, forward-looking statements are subject to a number of inherent risks and uncertainties. Actual results
could differ materially from the conclusion, forecast or projection stated in such forward-looking statements. As a result,
the Company cannot guarantee that any forward-looking statements will materialize, and the Company warns readers
that these forward-looking statements are not fact or guarantees of future performance in any way. Assumptions,
expectations and estimates made in the preparation of forward-looking statements and risks that could cause actual
results to differ materially from current expectations are discussed in the Company’s materials filed with the Canadian
securities regulatory authorities from time to time, including the "Risks and Uncertainties" section of the Company's
Management’s Discussion and Analysis dated June 6, 2019, available on SEDAR under the Company's profile at
www.sedar.com.
Forward-looking statements are based on Management’s current estimates, expectations and assumptions, which
Management believes are reasonable as of the date hereof, and, accordingly, are subject to changes after such date.
Undue importance should not be placed on forward-looking statements, and the information contained in such forward-
looking statements should not be relied upon as of any other date.
Except as required under applicable securities legislation, Saputo does not undertake to update or revise these forward-
looking statements, whether written or verbal, that may be made from time to time by itself or on its behalf, whether as a
result of new information, future events or otherwise.
ANNUAL REPORT 2019
- 3 -
SELECTED FINANCIAL INFORMATION
Years ended March 31
(in millions of CDN dollars, except per share amounts and ratios)
Revenues
Adjusted EBITDA*
Adjusted EBITDA margin*
Net earnings
Net earnings margin
Adjusted net earnings*
Adjusted net earnings margin*
PER SHARE DATA
Net earnings per share
Diluted net earnings per share
Dividends declared per share
Book value
FINANCIAL POSITION DATA
Working capital**
Total assets
Net debt**
Total non-current financial liabilities
Equity
FINANCIAL RATIOS
Net debt / Equity
Net debt to adjusted EBITDA*
Adjusted return on average equity**
Earnings coverage ratio**
STATEMENT OF CASH FLOWS DATA
Net cash generated from operations
Amount of additions to property, plant and equipment,
intangible assets, net of proceeds on disposal
Business acquisitions
Proceeds on divestiture
Dividends
2019
2018
2017
13,501.9
11,542.5
11,162.6
1,221.3
9.0 %
1,264.7
11.0 %
1,289.5
11.6 %
755.3
5.6 %
623.6
4.6 %
852.5
7.4 %
704.2
6.1 %
1.94
1.93
0.66
13.89
1,201.3
9,885.6
2,285.0
1,943.9
5,420.5
0.42
1.87
14.2 %
12.69
884.5
274.2
1,471.7
(239.7 )
254.6
2.21
2.18
0.64
12.38
1,129.6
8,003.0
1,496.4
1,432.6
4,797.7
0.31
1.18
18.3 %
20.83
809.1
337.4
385.1
-
243.5
731.1
6.5 %
731.1
6.5 %
1.86
1.84
0.60
11.19
1,187.1
7,596.6
1,343.3
1,504.5
4,322.9
0.31
1.04
20.7 %
25.83
1,073.6
316.7
-
-
228.3
* Non-IFRS measures described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
** Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
ANNUAL REPORT 2019
- 4 -
FINANCIAL ORIENTATION
Saputo’s primary objective is the creation of shareholder value through profitability enhancement and long-term growth.
The Company maintains its focus on cost management and operational efficiency to remain a strong operator with
disciplined financial management while navigating a competitive and challenging dairy industry. Saputo is also focused on
growth, both organic and through acquisitions, in order to develop new markets and expand existing ones in addition to
reinforcing its presence in emerging markets. The Company remains proactive in evaluating possible acquisitions and
potential growth markets. Saputo benefits from a solid financial position and capital structure, supplemented by a high
level of cash generated by operations. Saputo’s financial flexibility allows growth through targeted acquisitions and enables
the Company to overcome possible economic challenges. In fiscal 2019, the Company completed strategic acquisitions,
continued to invest in capital projects, and increased its dividend.
FINANCIAL INFORMATION
(in millions of CDN dollars)
STATEMENT OF EARNINGS
Revenues
Canada
USA
International
Operating costs excluding depreciation and amortization
Canada
USA
International
Adjusted EBITDA*
Canada
USA
International
For the three-month periods
ended March 31
2018
2019
For the years
ended March 31
2018
2019
924.8
1,616.6
695.1
3,236.5
834.8
1,482.4
644.2
2,961.4
90.0
134.2
50.9
275.1
980.9
1,435.1
328.4
2,744.4
872.8
1,306.8
303.1
2,482.7
108.1
128.3
25.3
261.7
4,043.1
6,507.7
2,951.1
13,501.9
3,629.4
5,963.0
2,688.2
12,280.6
413.7
544.7
262.9
1,221.3
4,069.9
6,132.8
1,339.8
11,542.5
3,594.0
5,483.4
1,200.4
10,277.8
475.9
649.4
139.4
1,264.7
Adjusted EBITDA margin
8.5 %
9.5 %
9.0 %
11.0 %
Depreciation and amortization
Canada
USA
International
Gain on disposal of assets
Acquisition and restructuring costs
(Gain) loss on hyperinflation
Interest on long-term debt
Other financial charges
Earnings before incomes taxes
Income taxes
Net earnings
Net earnings margin
19.5
41.7
19.9
81.1
-
2.2
0.9
16.7
4.8
169.4
14.5
42.3
7.9
64.7
-
1.2
-
8.3
4.6
182.9
73.9
162.3
76.8
313.0
(194.5)
51.4
(18.5)
66.6
17.7
985.6
55.9
138.4
32.0
226.3
-
40.6
-
33.8
14.1
949.9
45.2
124.2
3.8 %
52.9
130.0
4.7 %
230.3
755.3
5.6 %
97.4
852.5
7.4 %
* Non-IFRS measure described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
ANNUAL REPORT 2019
- 5 -
(in millions of CDN dollars, except per share amounts and ratios)
Net earnings
Gain on disposal of assets1
Acquisition and restructuring costs1
USA tax reform benefit**
Adjusted net earnings*
Adjusted net earnings margin*
PER SHARE DATA
Net earnings per share
Diluted net earnings per share
Adjusted net earnings per share*
Adjusted diluted net earnings per share*
1 Net of income taxes.
For the three-month periods
ended March 31
For the years
ended March 31
2019
124.2
-
1.6
-
125.8
2018
130.0
-
5.3
-
135.3
2019
2018
755.3
(167.8)
36.1
-
623.6
852.5
-
30.6
(178.9)
704.2
3.9 %
4.9 %
4.6 %
6.1 %
0.32
0.32
0.32
0.32
0.34
0.33
0.35
0.35
1.94
1.93
1.60
1.59
2.21
2.18
1.82
1.80
* Non-IFRS measures described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
** Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
ANNUAL REPORT 2019
- 6 -
HIGHLIGHTS
Fourth Quarter 2019:
• Revenues reached $3.237 billion, up 17.9% as compared to the same quarter last fiscal year, mainly due to the
contribution of recent acquisitions.
• Earnings before interest, income taxes, depreciation, amortization, gain on disposal of assets, acquisition and
restructuring costs, and gain on hyperinflation (adjusted EBITDA*) totalled $275.1 million, up $13.4 million or 5.1% as
compared to the same quarter last fiscal year.
• Net earnings totalled $124.2 million, down 4.5% as compared to the same quarter last fiscal year.
• Adjusted net earnings* totalled $125.8 million, down 7.0% as compared to the same quarter last fiscal year.
• Net cash generated from operations totalled $240.6 million, down 24.3% as compared to the same quarter last fiscal
year.
• The combined effects of USA Market Factors**, as well as higher international selling prices of cheese and dairy
ingredients, positively impacted adjusted EBITDA by approximately $19 million, as compared to the same quarter last
fiscal year.
• All recent acquisitions contributed positively to adjusted EBITDA.
• Higher warehousing and logistical expenses negatively impacted adjusted EBITDA by approximately $10 million.
• The fluctuation of the Canadian dollar versus foreign currencies had a negative impact on revenues of approximately
$26 million, as compared to the same quarter last fiscal year. This fluctuation positively impacted adjusted EBITDA by
approximately $2 million, as compared to the same quarter last fiscal year.
Fiscal 2019:
• Revenues reached $13.502 billion, up 17.0% as compared to last fiscal year, mainly due to the contribution of recent
acquisitions.
• Adjusted EBITDA totalled $1.221 billion, down $43.4 million or 3.4% as compared to last fiscal year.
• Net earnings totalled $755.3 million, down 11.4% as compared to last fiscal year.
• Adjusted net earnings totalled $623.6 million, down 11.4% as compared to last fiscal year.
• Net cash generated from operations totalled $884.5 million, up 9.3% as compared to last fiscal year.
• The fluctuation of the average block market** per pound of cheese and the average butter market** price per pound, as
well as lower international selling prices of cheese and dairy ingredients, decreased revenues by approximately
$103 million.
• Higher warehousing and logistical expenses of approximately $91 million negatively impacted consolidated adjusted
EBITDA.
• The combined effects of USA Market Factors and lower international selling prices of cheese and dairy ingredients
negatively impacted adjusted EBITDA by approximately $33 million, as compared to last fiscal year.
• All recent acquisitions contributed positively to adjusted EBITDA.
• On October 17, 2018, the Company completed the sale of the facility in Burnaby, British Columbia and realized a gain
of $194.5 million ($167.8 million after tax). The Company entered into a lease agreement for that same facility until the
construction of the new facility in Port Coquitlam, British Colombia is completed.
• The fluctuation of the Canadian dollar versus foreign currencies had a negative impact on revenues of approximately
$181 million, as compared to last fiscal year. This fluctuation negatively impacted adjusted EBITDA by approximately
$5 million, as compared to last fiscal year.
• The Company successfully completed the acquisitions of the activities of Murray Goulburn Co-Operative Co. Limited (Murray
Goulburn) (Murray Goulburn Acquisition) in Australia on May 1, 2018, the activities of Shepherd Gourmet Dairy (Ontario) Inc.
(Shepherd Gourmet Acquisition) in Canada on June 19, 2018, and the activities of F&A Dairy Products, Inc. (F&A Acquisition)
in the USA on November 30, 2018.
Subsequent Events to Year End:
• On April 15, 2019, the Company completed the acquisition of Dairy Crest Group plc (Dairy Crest Acquisition), based in the
United Kingdom, for a total consideration of approximately $2.1 billion (£1.2 billion), which includes a purchase price of
$1.7 billion (£975 million) for the entire issued ordinary share capital paid in cash, and $445 million (£256 million) of assumed
debt.
• On April 26, 2019, the Company announced that it had entered into an agreement to acquire the specialty cheese business
of Lion-Dairy & Drinks Pty Ltd (Specialty Cheese Business) based in Australia. The purchase price for the transaction is
approximately $265 million (AU$280 million). The transaction is expected to close in the second half of calendar year 2019.
• The Board of Directors approved a dividend of $0.165 per share payable on June 27, 2019, to common shareholders of
record on June 18, 2019.
________________________
Non-IFRS measures described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
** Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
ANNUAL REPORT 2019
- 7 -
OUTLOOK
Saputo benefits from a solid financial position and capital structure, supplemented by a high level of cash generated by
operations, which allows the Company to continue to grow through targeted acquisitions and organically through strategic
capital investments. Profitability enhancement and shareholder value creation remain the cornerstones of the Company’s
objectives. Saputo has a long-standing commitment to manufacture quality products and will remain focused on
operational efficiencies.
The Company reports its business under the Canada Sector, the USA Sector and the International Sector, and intends
to report the business of Dairy Crest as part of a new Europe Sector. The Canada Sector consists of the Dairy Division
(Canada), the USA Sector consists of the Cheese Division (USA) and the Dairy Foods Division (USA), the International
Sector consists of the Dairy Division (Australia) and the Dairy Division (Argentina), and the Europe Sector would consist
of the Dairy Division (UK).
Canada Sector
While competitive market conditions are anticipated to persist in fiscal 2020, the Dairy Division (Canada) will focus on
profitable sales volumes. It will continue reviewing overall activities to further improve operational efficiencies in order
to mitigate low growth, competitive market conditions and consistently high warehousing, logistical and transportation
costs, which will continue to pressure the Division's financial performance. The Division will undertake capital projects
aimed at increasing efficiencies and maximizing its manufacturing footprint in order to maintain a leadership position.
As part of the Company’s capital expenditure plan, it has commenced construction of a new state-of-the-art facility, in
Port Coquitlam, British Columbia to better serve the fluid market in Western Canada.
The Division will also continue to benefit from the integration of the Shepherd Gourmet Acquisition, which enables the
Company to increase its presence in specialty cheeses and yogurts in Canada.
USA Sector
We expect the imbalance between supply and demand of dairy products stemming from the current approach to tariff
policies to continue in fiscal 2020, resulting in challenging domestic commodity market conditions. The USA Sector will
continue to focus on increasing operational efficiencies and controlling costs in order to mitigate the impacts of dairy
commodity market fluctuations, competitive market conditions and consistently high warehousing, logistical and
transportation costs, which will continue to affect its financial performance.
During fiscal 2020, the Company expects improved cheese and dairy ingredient market conditions which should lead
to increased selling prices of cheese and dairy ingredients. However, market volatility is expected until the end of fiscal
2020.
During the upcoming quarters, the Cheese Division (USA) will continue its intensified efforts to achieve blue cheese
manufacturing efficiencies at its newly constructed Almena, Wisconsin facility. The Company remains confident that the
capital expenditure project will allow the Division to continue to strengthen its position within this category. The Division
will also focus on further broadening its presence in the specialty cheese category in the USA. The Division will continue
to benefit from the integration of the F&A Acquisition. This acquisition adds to and complements the activities of the
Division and also provides access to a new milk pool in New Mexico (USA). As part of the integration of the F&A
Acquisition, and consistent with the Company’s continual analysis of its overall activities, the Division closed its facility
in Dresser, Wisconsin in May 2019 and the production was integrated into other Saputo facilities.
The Dairy Foods Division (USA) will continue to pursue additional efficiencies and decrease costs while strengthening
its market presence. The Division will focus on its supply chain planning and warehousing and logistics activities to
increase efficiencies and meet customer demand. Also, it will further optimize and invest in its existing network in order
to benefit from new production capabilities.
International Sector
The International Sector will continue to pursue sales volume growth in existing markets, as well as develop additional
international markets. The Sector will continue to focus on controlling costs, evaluating overall activities to improve
efficiencies and aim to maximize its operational flexibility to mitigate fluctuations in market conditions and their impact
on the Sector's financial performance.
The Dairy Division (Australia) is in the final stages of the integration of Murray Goulburn and now operates as one
platform under a single management team. For fiscal 2020, in light of the decrease in Australian milk production, the
Division expects increased competition in the sourcing of raw milk, which will continue to put pressure on margins. It
will remain focused on processing more milk, reviewing operations and optimizing the network at its disposal.
ANNUAL REPORT 2019
- 8 -
On April 26, 2019, the Company announced that it had entered into an agreement to acquire the Speciality Cheese
Business of Lion-Dairy & Drinks Pty Ltd, based in Australia. The Company will continue to work towards the completion
of this acquisition, which would add to and complement the current activities of the Dairy Division (Australia). The
transaction is subject to foreign investment approval and clearance by the Australian Competition and Consumer
Commission and is expected to close in the second half of calendar year 2019. The Specialty Cheese Business
produces, markets and distributes a variety of specialty cheeses under a wide portfolio of Australian brands, including
South Cape, Tasmanian Heritage, Mersey Valley and King Island Dairy.
Despite a steep and sustained devaluation of the Argentine peso, the Dairy Division (Argentina) will continue to adapt
to changing economic conditions, focus on innovation, and optimize its product mix and customer portfolio, both
domestically and internationally.
During fiscal 2020, the Company expects an improvement in the international selling prices of cheese and dairy
ingredients. However, market volatility is expected until the end of fiscal 2020.
Europe Sector
On April 15, 2019, the Company completed the Dairy Crest Acquisition, which is now operating as the new Dairy
Division (UK). This transaction has enabled the Company to enter the UK market by acquiring and investing in a well-
established and successful industry player with a solid asset base and an experienced management team, now led by
Tom Atherton, the new President and Chief Operating Officer of the Dairy Division (UK). Mr. Atherton, who has worked
for Dairy Crest since 2005, was appointed as an Executive Director and Group Finance Director in 2013 and held the
position of Deputy Chief Executive since January 2018. As a result of the Dairy Crest Acquisition, in the United
Kingdom, Saputo manufactures and markets cheese, butter, spreads and oils under leading British brands, such as
Cathedral City, Clover, Country Life, Davidstow and Frylight, and value-added dairy ingredients. Dairy Crest's attractive
platform fits with the Company's growth strategy, and for fiscal 2020, the Company intends to review Dairy Crest's
operations and continue to pursue growth opportunities.
Enterprise Resource Planning (ERP) Program
The Company will continue planning, designing and implementing activities for the migration to the new ERP system,
which has been implemented in Argentina, at Warrnambool Cheese and Butter in Australia and in the Dairy Foods Division
(USA). During fiscal 2020, the Company plans to deploy its ERP program within the recently acquired activities of Murray
Goulburn, which will ensure the Dairy Division (Australia) is aligned under a single system. The Cheese Division (USA)
and Dairy Division (Canada) will proceed thereafter with their ERP implementations, which are expected to be completed
in fiscal 2022.
As at March 31, 2019, the Company had invested approximately $257 million and expects the cost of the implementation
of its baseline ERP program to represent, in the aggregate, approximately $290 million, an increase of $40 million over
the initial estimate. With recent acquisitions, namely Betin, Inc., doing business as Montchevre (Montchevre Acquisition),
the Murray Goulburn Acquisition, the Shepherd Gourmet Acquisition and the F&A Acquisition, the Company has increased
the scope of its ERP program and the duration by approximately two years, increasing the expected total investment to
approximately $370 million. In light of the new deployment schedule and recent acquisitions, the Company's investment
in its ERP program is expected to be approximately $51 million in fiscal 2020, approximately $37 million in fiscal 2021 and
the remainder in fiscal 2022. The total investment and duration of the ERP program will vary in function of the Company's
growth through acquisitions. However, the Dairy Division (UK) is currently not in the scope of the Saputo global ERP
program as its business will continue to be run under its existing ERP system.
Trade Agreements
In November 2018, the Government of Canada announced that it would allocate, on an interim basis, a significant portion
of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) dairy import licences to dairy
processors in Canada. Saputo believes this development will be favourable for consumers and the dairy industry in
Canada. The Company expects to continue making an effective use of the quotas it is allocated under the various trade
agreements and intends to focus on importing dairy products that complement the current Canadian offering. Provided
final allocations of CPTPP dairy import licences are handled in a manner similar to the initial allocation, the Company does
not foresee the CPTPP having significant impacts on its operations and will seek to take advantage of export opportunities
arising from Australia and Canada to other signatory countries.
The renegotiated North American Free Trade Agreement, now known as the United States-Mexico-Canada Agreement
(USMCA), was announced on September 30, 2018, and is still to be ratified and implemented by each signatory country.
Until the USMCA is ratified and implemented by all parties, the North American Free Trade Agreement will remain in force.
The Company does not foresee significant impacts on its operations upon formal adoption of the USMCA, assuming the
bulk of the import licences is allocated to dairy processors in Canada, as they were under the CPTPP.
Finally, the goal remains to continue to improve overall efficiencies in all sectors, pursue growth organically and through
acquisitions, and always strive to be a stronger and better operator.
ANNUAL REPORT 2019
- 9 -
CONSOLIDATED RESULTS
Consolidated revenues for the three-month period ended March 31, 2019, totalled $3.237 billion, an increase of
approximately $492 million or 17.9%, as compared to $2.745 billion for the corresponding quarter last fiscal year.
Revenues increased due to the inclusion of the Murray Goulburn Acquisition, the Shepherd Gourmet Acquisition and
the F&A Acquisition, as compared to the same quarter last fiscal year. Also, higher international selling prices of cheese
and dairy ingredients positively impacted revenues. During the quarter, revenues were negatively impacted by lower
sales volumes in Canada, mainly in the fluid milk category, due to competitive market conditions. A lower average block
market per pound of cheese, partially offset by a higher average butter market price per pound, decreased revenues
by approximately $4 million, as compared to the same quarter last fiscal year. Also, the fluctuation of the Canadian
dollar versus foreign currencies decreased revenues by approximately $26 million.
Consolidated revenues totalled $13.502 billion in fiscal 2019, an increase of approximately $1.959 billion or 17.0% in
comparison to $11.543 billion in fiscal 2018. Higher sales volumes, mainly due to recent acquisitions, increased
revenues, as compared to last fiscal year. Revenues were negatively impacted by lower international selling prices of
cheese and dairy ingredients. Also, a lower average block market per pound of cheese and a lower average butter
market price per pound decreased revenues by approximately $53 million. Finally, the fluctuation of the Canadian dollar
versus foreign currencies decreased revenues by approximately $181 million, mainly due to the devaluation of the
Argentine peso.
Selected factors positively (negatively) affecting financial performance
(in millions of CDN dollars)
For the three-month periods ended
March 31
2018
2019
For the years ended
March 31
2018
2019
USA Market Factors*,1
Inventory write-down
Foreign currency exchange1,2
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 As compared to same quarter of previous fiscal year for the three-month periods; as compared to the previous fiscal year for the years ended March 31.
2 Foreign currency exchange includes effect on adjusted EBITDA of conversion of US dollars, Australian dollars and Argentine pesos to Canadian
(25)
(17)
(18)
(20)
(3)
(5)
(3)
(11)
(5)
4
(2)
2
dollars.
Consolidated adjusted EBITDA for the three-month period ended March 31, 2019, totalled $275.1 million, an increase
of $13.4 million or 5.1% in comparison to $261.7 million for the same quarter last fiscal year. The combined effects of
USA Market Factors and higher international selling prices of cheese and dairy ingredients positively impacted adjusted
EBITDA by approximately $19 million, as compared to the same quarter last fiscal year. While adjusted EBITDA was
negatively impacted by competitive market conditions, the contribution of recent acquisitions, as well as the fluctuation
of the Argentine peso and the Australian dollar versus the US dollar in export markets, had a positive impact on adjusted
EBITDA, as compared to the same quarter last fiscal year. These increases were partially offset by higher warehousing,
logistical and transportation costs of approximately $10 million, negatively impacting adjusted EBITDA. As a result of
the decrease in certain market selling prices, inventory was written down by approximately $2 million, as compared to
approximately $11 million for the same quarter last fiscal year. The fluctuation of the Canadian dollar versus foreign
currencies had a positive impact on adjusted EBITDA of approximately $2 million.
Consolidated adjusted EBITDA in fiscal 2019 totalled $1.221 billion, a decrease of approximately $44 million or 3.5%,
as compared to $1.265 billion in fiscal 2018. Higher warehousing and logistical costs of approximately $91 million
related to additional external storage expenses and higher transportation costs negatively impacted adjusted EBITDA.
During the year, adjusted EBITDA was also negatively impacted by competitive market conditions and increased
operational costs relative to the integration of operations in the recently built facility in Almena, Wisconsin. Furthermore,
the combined effects of USA Market Factors and lower international selling prices of cheese and dairy ingredients
decreased adjusted EBITDA by approximately $33 million, as compared to last fiscal year. These decreases were
partially offset by the favourable impact of adjusted EBITDA generated from recent acquisitions, as well as the
fluctuation of the Argentine peso and the Australian dollar versus the US dollar in export markets. Higher sales volumes
and a favourable product mix positively impacted adjusted EBITDA. As a result of the decrease in certain market selling
prices, inventory was written down by approximately $3 million, as compared to approximately $17 million for last fiscal
year. Lastly, the fluctuation of the Canadian dollar versus foreign currencies had an unfavourable impact on adjusted
EBITDA of approximately $5 million, as compared to last fiscal year.
The consolidated adjusted EBITDA margin decreased to 9.0% in fiscal 2019, as compared to 11.0% in fiscal 2018,
reflecting lower adjusted EBITDA margins in the USA Sector and Canada Sector as compared to the prior fiscal year.
ANNUAL REPORT 2019
- 10 -
Depreciation and amortization for the three-month period ended March 31, 2019, totalled $81.1 million, an increase of
$16.4 million, in comparison to $64.7 million for the same quarter last fiscal year.
In fiscal 2019, depreciation and amortization expenses amounted to $313.0 million, an increase of $86.7 million, as
compared to $226.3 million for fiscal 2018.
These increases were mainly attributed to additional depreciation and amortization expenses related to recent
acquisitions, additions to property, plant and equipment and intangibles related to the ERP initiative, which increased the
depreciable base, and trademarks for which amortization started in fiscal 2019.
In fiscal 2019, the Company realized a gain on disposal of assets of $194.5 million ($167.8 million after tax) relating
to the sale of its facility in Burnaby, British Columbia. The Company sold the facility for $209.0 million, of which
$50.0 million will be received in fiscal 2022. As part of its capital expenditure plan, the Company is building a new state-
of-the-art facility, in Port Coquitlam, British Columbia, to better serve the market in Western Canada. The Company has
entered into a lease agreement for the Burnaby facility until the construction of the new facility is completed, which is
expected to be in fiscal 2021.
Acquisition and restructuring costs amounted to $2.2 million for the three-month period ended March 31, 2019, and
$51.4 million for fiscal 2019. A portion of the acquisition costs related to the Dairy Crest Acquisition were incurred during
the quarter. Restructuring costs were related to the plant closure in Courtenay, British Columbia.
In fiscal 2019, acquisition costs were related to the Murray Goulburn Acquisition, including approximately $39 million in
stamp duty taxes, as well as to the Dairy Crest Acquisition, the Shepherd Gourmet Acquisition and the F&A Acquisition.
Also, restructuring costs were related to the plant closure in Courtenay, British Columbia.
In accordance with IAS29, Financial Reporting in Hyperinflationary Economies, Argentina was required to be
considered a hyperinflationary economy, effective July 1, 2018. For the three-month period ended March 31, 2019, the
loss on hyperinflation totalled $0.9 million. The loss is derived from the devaluation of the Argentine peso that was
higher than the indexation of non-monetary assets and liabilities. In fiscal 2019, the gain on hyperinflation totalled
$18.5 million. The gain was derived from the indexation of non-monetary assets and liabilities.
Net interest expense for the three-month period and fiscal year ended March 31, 2019, increased by $8.6 million and
$36.4 million, respectively, in comparison to the same periods last fiscal year. These increases were mainly attributed
to additional debt related to the Murray Goulburn Acquisition and higher interest rates on debt denominated in Argentine
peso.
Income taxes for the three-month period ended March 31, 2019, represented an income tax expense of $45.2 million,
reflecting an effective tax rate of 26.7%, as compared to 28.9% for the same quarter last fiscal year. This decrease of
the effective tax rate by 2.2% was mainly due to the reduction of the US federal tax rate.
In fiscal 2019, income taxes totalled $230.3 million, compared to $97.4 million in fiscal 2018, reflecting an effective tax
rate of 23.4%, compared to 10.3% last fiscal year. Excluding the USA tax reform benefit, income tax expense in fiscal
2018 would have totalled $276.3 million, reflecting an income tax rate of 29.1%. This decrease of the effective rate by
5.7% was mainly due to the reduction of the US federal tax rate and the fact that a portion of the gain realized on
disposition of assets during the third quarter of fiscal 2019 was not taxable. The income tax rate varies and could
increase or decrease based on the amount and source of taxable income, amendments to tax legislations and income
tax rates, changes in assumptions, as well as estimates used to determine income tax assets and liabilities by the
Company and its affiliates.
Net earnings for the three-month period ended March 31, 2019, totalled $124.2 million, a decrease of $5.8 million or
4.5% in comparison to $130.0 million for the same quarter last fiscal year. In fiscal 2019, net earnings totalled
$755.3 million, a decrease of $97.2 million or 11.4%, as compared to $852.5 million last fiscal year.
These decreases were due to the above-mentioned factors.
Adjusted net earnings for the three-month period ended March 31, 2019, totalled $125.8 million, a decrease of
$9.5 million or 7.0% in comparison to $135.3 million for the same quarter last fiscal year. In fiscal 2019, adjusted net
earnings totalled $623.6 million, a decrease of $80.6 million or 11.4% as compared to $704.2 million last fiscal year.
These decreases were due to the above-mentioned factors.
ANNUAL REPORT 2019
- 11 -
QUATERLY FINANCIAL INFORMATION BY SECTOR
CANADA SECTOR
(in millions of CDN dollars)
Fiscal years
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Revenues
924.8
1,059.6
1,047.7
1,011.0
980.9
1,057.2
1,032.6
Adjusted EBITDA*
90.0
113.8
104.4
105.5
108.1
127.9
122.9
* Non-IFRS measure described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
The Canada Sector consists of the Dairy Division (Canada).
Q1
999.2
117.0
USA SECTOR
(in millions of CDN dollars)
Fiscal years
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenues
1,616.6
1,678.5
1,618.0
1,594.6
1,435.1
1,591.3
1,528.1
1,578.3
Adjusted EBITDA*
134.2
122.4
133.8
154.3
128.3
153.9
170.7
196.5
* Non-IFRS measure described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
Selected factors positively (negatively) affecting financial performance
(in millions of CDN dollars)
Fiscal years
USA Market Factors*,1
Inventory write-down
US currency exchange1
Q4
4
-
7
2019
Q3
(19)
-
6
Q2
(7)
-
7
Q1
Q4
2
-
(8)
(3)
(7)
(6)
2018
Q3
(19)
-
(9)
Q2
Q1
(6)
-
(7)
3
-
8
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 As compared to same quarter of previous fiscal year.
Other pertinent information
(in US dollars, except for average exchange rate)
Fiscal years
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Block market* price
Opening
Closing
Average
Butter market* price
Opening
Closing
Average
1.430
1.645
1.520
1.690
1.430
1.453
1.555
1.690
1.605
1.530
1.555
1.603
1.540
1.530
1.524
1.735
1.540
1.627
1.525
1.735
1.660
2.218
2.255
2.264
2.320
2.218
2.238
2.268
2.320
2.264
2.215
2.268
2.339
2.208
2.215
2.160
2.315
2.208
2.254
2.643
2.315
2.568
1.520
1.525
1.575
2.108
2.643
2.312
Average whey powder market
price per pound*
Spread*
US average exchange rate to
Canadian dollar1
0.443
0.054
0.452
0.021
0.387
0.095
0.279
0.135
0.241
0.148
0.310
0.072
0.403
0.066
0.465
0.039
1.330
1.321
1.307
1.290
1.268
1.270
1.256
1.344
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 Based on Bloomberg published information.
The USA Sector consists of the Cheese Division (USA) and the Dairy Foods Division (USA).
ANNUAL REPORT 2019
- 12 -
INTERNATIONAL SECTOR
(in millions of CDN dollars)
Fiscal years
Revenues
Adjusted EBITDA*
Q4
695.1
50.9
2019
Q3
839.1
85.0
Q2
754.7
79.3
Q1
662.2
47.7
Q4
328.4
25.3
2018
Q3
373.3
36.2
Q2
323.5
36.2
Q1
314.6
41.7
* Non-IFRS measure described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
Selected factors positively (negatively) affecting financial performance
(in millions of CDN dollars)
Fiscal years
Inventory write-down
Foreign currency exchange1
Q4
(2)
(3)
2019
Q3
(1)
(5)
Q2
-
-
Q1
-
(7)
Q4
(4)
2
2018
Q3
(2)
(4)
Q2
(3)
(1)
Q1
(1)
1
1 As compared to same quarter of previous fiscal year.
The International Sector consists of the Dairy Division (Australia) and the Dairy Division (Argentina).
ANNUAL REPORT 2019
- 13 -
CANADA SECTOR
(in millions of CDN dollars)
Revenues
Adjusted EBITDA*
For the three-month periods ended
March 31
2018
2019
924.8
90.0
980.9
108.1
For the years ended
March 31
2018
4,069.9
475.9
2019
4,043.1
413.7
* Non-IFRS measure described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
The Canada Sector consists of the Dairy Division (Canada).
Revenues
Revenues for the Canada Sector totalled $924.8 million for the three-month period ended March 31, 2019, a decrease of
approximately $56.1 million or 5.7%, as compared to $980.9 million for the corresponding quarter last fiscal year. During
the quarter, revenues were negatively impacted by lower sales volumes in the fluid milk category, due to Canada’s
competitive environment. This decrease was partially offset by an increase in selling prices in accordance with the higher
cost of milk as raw material, a favourable product mix and the contribution of the Shepherd Gourmet Acquisition.
Revenues for the Canada Sector in fiscal 2019 totalled $4.043 billion, a decrease of $26.8 million or 0.7% in comparison
to $4.070 billion in fiscal 2018. In fiscal 2019, revenues were negatively impacted by lower sales volumes in the fluid milk
category, due to Canada’s competitive environment, and lower selling prices of ingredients sold in the export market.
These decreases were partially offset by a favourable product mix, an increase in selling prices in accordance with the
higher cost of milk as raw material and the contribution of the Shepherd Gourmet Acquisition.
In fiscal 2019, cheese, butter, value-added milk and cream per capita consumption increased, while that of fluid milk
decreased, as compared to the previous fiscal year. The retail segment of the Dairy Division (Canada) represented
approximately 60% of revenues in line with continued demand for dairy products, particularly in the cheese and added-
value categories. The Division responded to evolving consumer preferences by launching Joyya, an innovative, protein-
rich ultrafiltered milk produced using state of the art manufacturing equipment. In addition, efforts within the retail segment
focused on communicating a newly refreshed image of the Armstrong and Woolwich Goat Dairy brands while continuing
to increase the exposure of the Division’s entire portfolio of brands through marketing activities that included targeted
brand awareness campaigns, themed trade promotions at various retailers, digital advertising and influencer
collaborations.
The foodservice segment represented approximately 35% of revenues in the Dairy Division (Canada) and Saputo
continues to be a supplier of choice by offering high quality ingredients, partnership and channel expertise. Through
continued investment in research, the Division was able to provide foodservice operators with insights and innovations to
enhance menus and deliver on consumer preferences. Recent investments were made to bolster online communications
tools, including a newly designed foodservice-specific business-to-business website to improve customer experience.
The industrial segment represented approximately 5% of revenues in the Dairy Division (Canada).
Adjusted EBITDA
Adjusted EBITDA for the Canada Sector totalled $90.0 million for the three-month period ended March 31, 2019, a
decrease of $18.1 million or 16.7%, as compared to $108.1 million for the corresponding quarter last fiscal year. During
the quarter, adjusted EBITDA was negatively impacted by lower sales volumes of fluid milk as a result of Canada’s
competitive environment. This decrease was partially offset by the positive impact of a favourable product mix, higher
international selling prices of dairy ingredients and the contribution of the Shepherd Gourmet Acquisition. Also,
warehousing and logistical costs were relatively stable, as compared to the same quarter last fiscal year. The fluctuation
of the Canadian dollar versus foreign currencies had a negative impact on adjusted EBITDA of approximately $2 million.
Adjusted EBITDA in fiscal 2019 totalled $413.7 million, a decrease of $62.2 million or 13.1%, as compared to
$475.9 million in fiscal 2018. During the year, adjusted EBITDA was negatively impacted by lower sales volumes of fluid
milk as a result of Canada’s competitive environment and lower international selling prices of dairy ingredients.
Contributing to the adjusted EBITDA decrease by approximatively $22 million were higher warehousing and logistical
costs related to increased transportation and fuel expenses, as well as higher administrative expenses related to the ERP
initiative. This decrease was partially offset by the positive impact of a favourable product mix and the contribution of the
Shepherd Gourmet Acquisition. The fluctuation of the Canadian dollar versus foreign currencies had a negative impact
on adjusted EBITDA of approximately $1 million.
ANNUAL REPORT 2019
- 14 -
USA SECTOR
(in millions of CDN dollars)
For the three-month periods ended
March 31
2018
2019
For the years ended
March 31
2018
2019
Revenues
Adjusted EBITDA*
* Non-IFRS measure described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1,435.1
128.3
1,616.6
134.2
6,507.7
544.7
6,132.8
649.4
Selected factors positively (negatively) affecting financial performance
(in millions of CDN dollars)
USA Market Factors*,1
For the three-month periods ended
March 31
2018
2019
4
(3)
For the years ended
March 31
2018
2019
(20)
-
(25)
Inventory write-down
US currency exchange1
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 As compared to same quarter of previous fiscal year for the three-month periods; as compared to the previous fiscal year for the years ended March 31.
(7)
(14)
(7)
(6)
12
7
-
Other pertinent information
(in US dollars, except for average exchange rate)
Block market price*
Opening
Closing
Average
Butter market price*
Opening
Closing
Average
Average whey powder market price*
Spread*
US average exchange rate to
Canadian dollar1
For the three-month periods ended
March 31
2018
2019
1.430
1.645
1.520
2.218
2.255
2.264
0.443
0.054
1.330
1.540
1.530
1.524
2.208
2.215
2.160
0.241
0.148
1.268
For the years ended
March 31
2018
1.520
1.530
1.597
2.108
2.215
2.324
0.357
0.081
1.288
2019
1.530
1.645
1.545
2.215
2.255
2.276
0.392
0.076
1.311
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 Based on Bloomberg published information.
The USA Sector consists of the Cheese Division (USA) and the Dairy Foods Division (USA).
ANNUAL REPORT 2019
- 15 -
Revenues
Revenues for the USA Sector totalled $1.617 billion for the three-month period ended March 31, 2019, an increase of
approximately $182 million or 12.7%, as compared to $1.435 billion for the corresponding quarter last fiscal year. Higher
sales volumes, as well as the contribution of the F&A Acquisition, increased revenues. Higher selling prices in the dairy
ingredient market also positively affected revenues. However, a lower average block market per pound of cheese
partially offset by a higher average butter market price per pound decreased revenues by approximately $4 million, as
compared to the same quarter last fiscal year. Finally, the fluctuation of the Canadian dollar versus the US dollar
increased revenues by approximately $75 million.
In fiscal 2019, revenues for the USA Sector totalled $6.508 billion, an increase of approximately $375 million or 6.1% in
comparison to $6.133 billion last fiscal year. Higher sales volumes, as well as the contribution of the Montchevre
Acquisition for the full fiscal year and the F&A Acquisition for four months, increased revenues. These increases were
partially offset by lower selling prices in the dairy ingredient market. Also, a lower average block market per pound of
cheese and a lower average butter market price per pound, as compared to last fiscal year, decreased revenues by
approximately $53 million. Lastly, the fluctuation of the Canadian dollar versus the US dollar increased revenues by
approximately $139 million.
The retail segment represented approximately 42% of total USA Sector revenues. Three of its retail brands, Frigo
Cheese Heads, Treasure Cave and Montchevre, maintained leading market share positions in string cheese, blue
cheese and goat cheese, respectively. The Cheese Division (USA) continued to support these leading retail brands
through promotional activities and trade incentives in fiscal 2019. Strengthening its position in the snacking category,
the Cheese Division (USA) added line extensions to its Frigo Cheese Heads brand within the stick and cubes snack
cheese segments. Products launched in the convenience channel under this brand continue to perform well. Stella, the
Division’s Italian-style deli brand, also launched a line of new flavour-rubbed wheels which includes distinctive options
marketed under the Fontinella name. Stella has continued to expand its fresh mozzarella, blue cheese and organic
offerings as well. The Dairy Foods Division (USA) continues to outpace market growth in core categories, including
extended shelf-life (ESL) creams/creamers and cultured products. The growth is driven by strong relationships with key
customers, positive trends in private label, and targeted customer solutions, such as quality programs, formula updates
and innovation.
The foodservice segment represented approximately 49% of total USA Sector revenues. In fiscal 2019, the Cheese
Division (USA) continued to focus on growing this channel through continued emphasis on pizza chain restaurants and
growing its premium Saputo Gold brand. In addition to focusing on organic growth within its existing customer base, the
foodservice channel also sought to grow incrementally through an increased focus on specialty cheese, including
expanding the product offering under the Great Midwest pressed cheese brand while also integrating Montchevre goat
cheese into the product portfolio. The Cheese Division (USA) has adapted to current trends by adding new exciting
flavours, increasing its digital spend and developing a more interactive website to further engage customers. The
foodservice segment for the Dairy Foods Division (USA) consists of two main customer segments: chain restaurants
and broadline distributors. Distribution gains and menu innovation are driving the chain restaurant segment with its core
portfolio of ice cream mix and bulk-size ESL dairy products. A focus on private label dairy products is driving growth for
broadline distributors in core categories, such as ESL cream/creamers and sour cream.
The industrial segment includes cheese sales and accounted for approximately 9% of revenues.
ANNUAL REPORT 2019
- 16 -
Adjusted EBITDA
Adjusted EBITDA for the USA Sector totalled $134.2 million for the three-month period ended March 31, 2019, an
increase of $5.9 million or 4.6%, as compared to $128.3 million for the corresponding quarter last fiscal year. During the
quarter, adjusted EBITDA was negatively impacted by competitive market conditions. Contributing to the adjusted
EBITDA decrease by approximately $9 million were higher warehousing and logistical expenses due to increased
handling and transportation costs. Higher dairy ingredient market prices had a positive effect on adjusted EBITDA. Also,
the fluctuation of the average block market per pound of cheese and the average butter market price per pound during
the quarter versus the corresponding quarter last fiscal year had a favourable impact on both the realization of inventories
and the absorption of fixed costs. However, the relation between the average block market per pound of cheese and the
cost of milk as raw material had an unfavourable impact on adjusted EBITDA due to the implementation of the Federal
Milk Marketing Order in California, effective November 1, 2018. These combined USA Market Factors positively impacted
adjusted EBITDA by approximately $4 million, as compared to the same quarter last fiscal year. Additional sales
volumes, mainly due to recent acquisitions, had a favourable impact on adjusted EBITDA. As a result of the decrease in
certain market selling prices last fiscal year, inventory was written down by approximately $7 million. No such inventory
write-down was required this quarter. Finally, the fluctuation of the Canadian dollar versus the US dollar had a positive
impact on adjusted EBITDA of approximately $7 million.
In fiscal 2019, adjusted EBITDA totalled $544.7 million, a decrease of $104.7 million or 16.1%, as compared to
$649.4 million for last fiscal year. During fiscal 2019, adjusted EBITDA was negatively impacted by competitive market
conditions and increased operational costs relative to the integration of operations in the recently built facility in Almena,
Wisconsin. Contributing to the adjusted EBITDA decrease by approximately $78 million were higher warehousing and
logistical expenses due to increased handling and transportation costs. Lower dairy ingredient market prices had a negative
effect on adjusted EBITDA. Also, a lower average block market per pound of cheese and a lower average butter market
price per pound, as compared to last fiscal year, had an unfavourable impact on both the realization of inventories and the
absorption of fixed costs. The relation between the average block market per pound of cheese and the cost of milk as raw
material had a favourable impact on adjusted EBITDA. This increase was partially offset by the implementation of the
Federal Milk Marketing Order in California, effective November 1, 2018, which had an impact of approximately $7 million.
These USA Market Factors negatively impacted adjusted EBITDA by approximately $20 million, as compared to last fiscal
year. As a result of the decrease in certain market selling prices last fiscal year, inventory was written down by
approximately $7 million. No such inventory write-down was required this fiscal year. Additional sales volumes, mainly
due to recent acquisitions, had a favourable impact on adjusted EBITDA. Lastly, the fluctuation of the Canadian dollar
versus the US dollar had a positive impact on adjusted EBITDA of approximately $12 million.
ANNUAL REPORT 2019
- 17 -
INTERNATIONAL SECTOR
(in millions of CDN dollars)
For the three-month periods ended
March 31
2018
2019
For the years ended
March 31
2018
2019
Revenues
Adjusted EBITDA*
* Non-IFRS measure described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
328.4
25.3
695.1
50.9
2,951.1
262.9
1,339.8
139.4
Selected factors positively (negatively) affecting financial performance
(in millions of CDN dollars)
For the three-month periods ended
March 31
2018
2019
For the years ended
March 31
2018
2019
(10)
Inventory write-down
US currency exchange1
(2)
1 As compared to same quarter of previous fiscal year for the three-month periods; as compared to the previous fiscal year for the years ended March 31.
(3)
(15)
(4)
2
(2)
(3)
The International Sector consists of the Dairy Division (Australia) and the Dairy Division (Argentina).
Revenues
Revenues for the International Sector totalled $695.1 million for the three-month period ended March 31, 2019, an
increase of $366.7 million or 111.7%, as compared to $328.4 million for the corresponding quarter last fiscal year. The
Murray Goulburn Acquisition was the main contributor to the increase in revenues during this quarter. Also, additional
revenues derived from the fluctuation of the Argentine peso and Australian dollar versus the US dollar in export markets,
as well as higher international selling prices of cheese and dairy ingredients, increased revenues, as compared to the
same quarter last fiscal year. Excluding the Murray Goulburn Acquisition, revenues remained stable, as compared to
last fiscal year. The impact of lower sales volumes in both domestic and export markets was offset by a favourable
product mix. The fluctuation of the Canadian dollar versus the functional currencies used in the International Sector
had a negative impact on revenues of approximately $102 million, as compared to the same quarter last fiscal year.
In fiscal 2019, revenues for the International Sector totalled $2.951 billion, an increase of approximately $1.611 billion or
120.3% in comparison to $1.340 billion last fiscal year. The Murray Goulburn Acquisition was the main contributor to the
increase in revenues in fiscal 2019. Higher sales volumes in the Dairy Division (Argentina), a favourable product mix, as
well as additional revenues derived from the fluctuation of the Argentine peso and Australian dollar versus the US dollar
in export markets, increased revenues. However, lower international selling prices of cheese and dairy ingredients
decreased revenues, as compared to last fiscal year. Finally, the fluctuation of the Canadian dollar versus the functional
currencies used in the International Sector had a negative impact on revenues of approximately $320 million, as compared
to last fiscal year.
Adjusted EBITDA
Adjusted EBITDA for the International Sector totalled $50.9 million for the three-month period ended March 31, 2019,
an increase of $25.6 million or 101.2%, as compared to $25.3 million for the corresponding quarter last fiscal year. The
Murray Goulburn Acquisition positively impacted adjusted EBITDA during this quarter. The fluctuation of the Argentine
peso and Australian dollar for export sales in US dollars, as well as higher international selling prices of cheese and
dairy ingredients had a positive effect on adjusted EBITDA. Excluding the sales volumes resulting from the Murray
Goulburn Acquisition, a favourable product mix positively impacted adjusted EBITDA. As a result of the decrease in
certain market selling prices, inventory was written down by approximately $2 million for the quarter, as compared to
approximately $4 million for the same quarter last fiscal year. The fluctuation of the Canadian dollar versus functional
currencies used in the International Sector had a negative impact on adjusted EBITDA of approximately $3 million, as
compared to the same quarter last fiscal year.
In fiscal 2019, adjusted EBITDA for the International Sector totalled $262.9 million, an increase of $123.5 million or
88.6%, as compared to $139.4 million last fiscal year. The fluctuation of the Argentine peso and Australian dollar for
export sales in US dollars, as well as the inclusion of the Murray Goulburn Acquisition, had a positive impact on adjusted
EBITDA. Also, higher sales volumes in the Dairy Division (Argentina), a favourable product mix in the Dairy Division
(Australia), as well as lower administrative expenses related to the ERP initiative, favourably impacted adjusted
EBITDA. These increases were partially offset by the decline of international selling prices of cheese and dairy
ingredients, and the fact that the cost of milk as raw material did not follow this decrease as compared to last fiscal
year. As a result of the decrease in certain market selling prices, inventory was written down by approximately $3 million
during the fiscal year, as compared to approximately $10 million last fiscal year. Lastly, the fluctuation of the Canadian
dollar versus functional currencies used in the International Sector had a negative impact on adjusted EBITDA of
approximately $15 million, as compared to last fiscal year.
ANNUAL REPORT 2019
- 18 -
LIQUIDITY, FINANCIAL AND CAPITAL RESOURCES
The intent of this section is to provide insight into the cash and capital management strategies and how they drive
operational objectives, as well as to provide details on how the Company manages its liquidity risk to meet its financial
obligations as they come due.
The Company’s liquidity needs are funded from cash generated by operations, unsecured bank credit facilities and
unsecured senior notes. These funds are used principally for capital expenditures, dividends, debt repayments, business
acquisitions and share repurchases, and are expected to be sufficient to meet the Company’s liquidity requirements. The
Company does not foresee any difficulty in securing financing beyond what is currently available through existing
arrangements to fund possible acquisitions and to refinance debt obligations.
The Company’s cash flows are summarized in the following table:
(in millions of CDN dollars)
For the three-month periods ended
March 31
2018
2019
For the years ended
March 31
2018
2019
Cash generated from operating activities
Net cash generated from operating activities
Cash used for investing activities
Cash (used) generated for financing activities
Decrease in cash and cash equivalents
284.6
240.6
(141.8)
(133.6)
(34.8)
358.1
317.9
(90.4)
(228.9)
(1.4)
1,112.6
884.5
(1,506.6)
606.1
(16.0)
1,155.8
809.1
(722.9)
(204.1)
(117.9)
For the three-month period ended March 31, 2019, cash generated from operating activities amounted to
$284.6 million in comparison to $358.1 million for the same quarter last fiscal year, a decrease of $73.5 million. In fiscal
2019, cash generated from operating activities amounted to $1.113 billion in comparison to $1.156 billion last fiscal year,
a decrease of $43.2 million.
Net cash generated from operating activities for the three-month period ended March 31, 2019, amounted to
$240.6 million in comparison to $317.9 million for the corresponding quarter last fiscal year. This decrease of $77.3 million
is due to changes in non-cash operating working capital items of $84.3 million driven by fluctuations in receivables in line
with the fluctuation of market prices and higher interest paid of $8.8 million. The decrease was partially offset by an
increase in adjusted EBITDA of $13.4 million and lower income tax paid of $5.0 million. In fiscal 2019, net cash generated
from operating activities amounted to $884.5 million in comparison to $809.1 million last fiscal year. This increase of
$75.4 million is due to lower income tax paid of $154.3 million. The increase was partially offset by a decrease in adjusted
EBITDA of $43.4 million, higher interest paid of $35.7 million and higher acquisition and restructuring costs of $10.8 million.
Investing activities for the three-month period ended March 31, 2019, consisted of $128.4 million for additions to
property, plant and equipment, and $13.9 million for intangibles, mainly related to the ERP program. In fiscal 2019,
investing activities consisted mainly of the Murray Goulburn Acquisition, the Shepherd Gourmet Acquisition and the F&A
Acquisition totalling $1.472 billion, additions to property, plant and equipment of $370.5 million and additions to intangibles
of $65.5 million related to the ERP initiative. Of these additions, 50% went into the replacement of property, plant and
equipment and 50% was used to implement new technologies and to expand and increase certain manufacturing
capacities. Finally, the Company received $239.7 million from the sale of the Koroit, Australia1 plant and $157.3 million
from the sale of the facility in Burnaby, British Columbia.
Financing activities for the three-month period ended March 31, 2019, consisted of a $32.7 million reimbursement of
long-term debt mainly related to the reimbursement of unsecured bank term loan facilities. Also, the Company paid
$64.3 million in dividends and bank loans were decreased by $63.6 million. Finally, shares were issued as part of the stock
option plan for $27.0 million. Financing activities in fiscal 2019 consisted mainly of additional long-term debt of
$1.634 billion related to the Murray Goulburn Acquisition and the Series 5 medium term notes. The net proceeds from the
issuance of the Series 5 medium term notes and the sale of the facilities in Burnaby, British Columbia and Koroit, Australia,
were mainly used to reimburse unsecured bank term loan facilities. Also, the Company paid $254.6 million in dividends
and bank loans were decreased by $45.6 million. Lastly, shares were issued as part of the stock option plan for
$60.4 million.
_________________________
1 This divestiture was required pursuant to the undertaking entered into with the Australian Competition and Consumer Commission in connection
with the Murray Goulburn Acquisition.
ANNUAL REPORT 2019
- 19 -
Liquidity
(in millions of CDN dollars, except ratio)
Fiscal years
Current assets
Current liabilities
Working capital
Working capital ratio
2019
3,133.8
1,932.5
1,201.3
1.62
2018
2,422.4
1,292.8
1,129.6
1.87
The working capital ratio is an indication of the Company’s ability to cover short-term liabilities with short-term assets,
without having excess dormant assets. The decrease in the working capital ratio is mainly attributed to the upcoming
maturity of a series of medium term notes.
Capital management
The Company’s capital strategy requires a well-balanced financing structure in order to maintain the flexibility required to
implement growth initiatives, while allowing it to pursue disciplined capital investments and maximize shareholder value.
The Company targets a long-term leverage of approximately 2.0 times net debt to adjusted EBITDA. From time to time,
the Company may deviate from its long-term leverage target to pursue acquisitions and other strategic opportunities.
Should such a scenario arise, the Company expects to deleverage over a reasonable period of time in order to seek to
maintain its investment grade ratings.
(in millions of CDN dollars, except ratio and number of shares and options)
Fiscal years
Long-term debt
Bank loans
Cash and cash equivalents
Net debt*
Adjusted EBITDA**
Net debt to adjusted EBITDA**
Number of common shares
Number of stock options
2019
2,267.3
130.4
112.7
2,285.0
1,221.3
1.87
2018
1,425.3
193.3
122.2
1,496.4
1,264.7
1.18
390,198,386 387,407,403
19,510,123
20,374,871
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
** Non-IFRS measures described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
As at March 31, 2019, the Company had $112.7 million of cash and cash equivalents and available bank credit facilities
of approximately $1.338 billion, $130.4 million of which were drawn. See Note 9 to the consolidated financial statements
for details of the Company’s bank loans.
During fiscal 2019, the Company renewed its medium term note program and filed a short form base shelf prospectus
qualifying an offering of medium term notes for distribution to the public in the provinces of Canada over a 25-month period,
expiring in January 2021.
Share capital authorized by the Company is comprised of an unlimited number of common shares. The common shares
are voting and participating. As at May 28, 2019, 390,842,673 common shares and 22,887,996 stock options were
outstanding.
Considering the Dairy Crest Acquisition and the amounts drawn under the DC Acquisition Facility (as defined below), the
pro forma net debt to adjusted EBITDA ratio for fiscal 2019 would have been 3.23. In a manner consistent with its capital
management strategy, the Company intends to deleverage over a reasonable period of time in order to return to a long-
term leverage of approximately 2.0 times net debt to adjusted EBITDA.
Normal course issuer bids
Under the normal course issuer bid (Bid) covering the period between November 17, 2017 and November 16, 2018, the
Company did not repurchase any common shares under the Bid.
In November 2018, the Company renewed its normal course issuer bid (New Bid) to purchase up to 8,000,000 common
shares, which represented approximately 2% of its issued and outstanding common shares, over a 12-month period
beginning on November 19, 2018 and ending on November 18, 2019. No shares were purchased under the New Bid.
During the fiscal year ended March 31, 2019, the Company did not purchase any common shares under the bids. During
the fiscal year ended March 31, 2018, the Company purchased 654,900 common shares at prices ranging from $43.42 to
$44.99 per share, for an aggregate consideration of approximately $29.0 million.
ANNUAL REPORT 2019
- 20 -
CONTRACTUAL OBLIGATIONS
The Company manages and continually monitors its commitments and contractual obligations to ensure that these can
be met with funding provided by operations and capital structure optimization.
The Company’s contractual obligations consist of commitments to repay certain long-term debts in addition to leases of
premises, equipment and rolling stock as well as purchase obligations for capital expenditures to which the Company is
committed. Note 10 to the consolidated financial statements describes the Company’s commitment to repay long-term
debt and Note 18 to the consolidated financial statements describes its lease commitments.
(in millions of CDN dollars)
Less than 1 year
1–2 years
2–3 years
3–4 years
4–5 years
More than 5 years
March 31, 2019
Long-term
debt
Leases
Purchase
obligations
323.4
3.9
502.1
300.0
787.9
350.0
110.4
85.6
62.7
49.7
39.3
183.5
154.1
-
-
-
-
-
March 31, 2018
Long-term
debt
Leases
Purchase
obligations
4.4
520.9
-
300.0
300.0
300.0
29.1
24.6
20.0
15.8
14.2
27.1
91.8
-
-
-
-
-
Total
587.9
89.5
564.8
349.7
827.2
533.5
Total
125.3
545.5
20.0
315.8
314.2
327.1
2,267.3
531.2
154.1
2,952.6
1,425.3
130.8
91.8
1,647.9
Long-term debt
The Company’s long-term debt is described in Note 10 to the consolidated financial statements. Under the MTN program,
the Company issued series of medium term notes for a total of $1.550 billion, with annual interest rates varying from 1.94%
to 3.60% and maturities ranging from November 2019 to August 2025.
In connection with the Murray Goulburn Acquisition, the Company entered into a credit agreement providing for a non-
revolving term facility (MG Acquisition Facility), consisting of three tranches: a 1-year tranche of $400.0 million, which has
been repaid; a 3-year tranche of $300.0 million, of which $100.0 million has been repaid; and a 5-year tranche of
AU$600.0 million ($568.4 million), of which AU$85.0 million ($80.5 million) has been repaid. The MG Acquisition Facility
bears interest at lenders’ prime rates plus a maximum of 1.00%, or bankers’ acceptance rates or Australian Bank Bill Rate
plus 0.80% up to a maximum of 2.00%, depending on the Company’s credit ratings.
In connection with the Dairy Crest Acquisition, the Company entered into a new credit agreement on February 21, 2019,
providing for a non-revolving term facility denominated in pound sterling in the aggregate amount of £1.265 billion
($2.202 billion) (DC Acquisition Facility), consisting of three tranches: a 1-year tranche of £400.0 million ($697.0 million);
a 2-year tranche of £265.0 million ($461.5 million); and a 3-year tranche of £600.0 million ($1,045.5 million). The DC
Acquisition Facility bears interest at lenders’ prime rates plus a maximum of 1.00% or LIBOR or bankers’ acceptance
rates plus 0.80% up to a maximum of 2.00%, depending on the Company’s credit ratings. No amounts had been drawn
on the DC Acquisition Facility as at March 31, 2019. As at the date of this report, an aggregate amount of £1.174 billion
($2.045 billion) was drawn on the DC Acquisition Facility.
FINANCIAL POSITION
The main financial position items as at March 31, 2019, varied mainly due to recently completed acquisitions.
The conversion rate of the US operations’ financial position items in US currency was CDN$1.3349 per US dollar as at
March 31, 2019, compared to CDN$1.2900 per US dollar as at March 31, 2018. The conversion rate of the Australian
operations’ financial position items in Australian currency was CDN$0.9473 per Australian dollar as at March 31, 2019,
compared to CDN$0.9914 per Australian dollar as at March 31, 2018. The conversion rate of the Argentinian operations’
financial position items in Argentinian currency was CDN$0.0308 per Argentine peso as at March 31, 2019, compared to
CDN$0.0640 per Argentine peso as at March 31, 2018. The fluctuation of the Canadian dollar versus the US dollar, partially
offset by the fluctuation of the Australian dollar and the Argentine peso, resulted in higher values recorded for the financial
position items of the foreign operations.
The net cash (cash and cash equivalents less bank loans) position increased from negative $71.1 million as at
March 31, 2018, to negative $17.7 million as at March 31, 2019, mainly resulting from a decrease in bank loans. The
change in foreign currency translation adjustments recorded in other comprehensive income varied mainly due to the
fluctuation of the Canadian dollar versus foreign currencies.
ANNUAL REPORT 2019
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GUARANTEES
From time to time, the Company enters into agreements in the normal course of its business, such as service
arrangements and leases, and in connection with business or asset acquisitions or disposals, agreements, which by nature
may provide for indemnification to third parties. These indemnification provisions may be in connection with breach of
representations and warranties and for future claims for certain liabilities. The terms of these indemnification provisions
vary in duration. See Note 18 to the consolidated financial statements that discuss the Company’s guarantees.
RELATED PARTY TRANSACTIONS
In the normal course of business, the Company receives services from and provides goods to companies subject to
control or significant influence through ownership by its principal shareholder. These goods and services are of an
immaterial amount and compensated by a consideration equal to their fair value, comparable to similar arms’ length
transactions. The services that are received consist mainly of travel, publicity, lodging, office space rental and
management services. The goods that are provided consist mainly of dairy products. Transactions with key
management personnel (Management defines key management personnel as all the executive officers who have
responsibility and authority for controlling, overseeing and planning the activities of the Company, as well as the
Company’s Directors) are also considered related party transactions and consist of short-term employee benefits, post-
employment benefits, stock-based compensation and payments under the deferred share unit plan. Refer to Note 19
to the consolidated financial statements for further information on related party transactions.
ACCOUNTING STANDARDS
CRITICAL ACCOUNTING POLICIES AND USE OF ACCOUNTING ESTIMATES
The preparation of the Company’s financial statements requires Management to make certain judgements and
estimates about transactions and carrying values that are fulfilled at a future date. Judgements and estimates are
subject to fluctuations due to changes in internal and/or external factors and are continuously monitored by
Management. A discussion of the judgements and estimates that could have a material effect on the financial
statements is provided below.
Income Taxes
The Company is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining
the consolidated provision for income taxes. During the ordinary course of business, there are many transactions and
calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax
audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters
differs from the amounts that were initially recorded, such differences will impact the results for the reporting period and
the respective current income tax and deferred income tax provisions in the reporting period in which such
determination is made.
Deferred Income Taxes
The Company follows the liability method of accounting for deferred income taxes. Deferred income tax assets and
liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income
in the years in which temporary differences are expected to be recovered or settled. As a result, a projection of taxable
income is required for those years, as well as an assumption of the ultimate recovery or settlement period for temporary
differences. The projection of future taxable income is based on Management’s best estimates and may vary from
actual taxable income. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realized. Canadian, US and international tax rules and regulations
are subject to interpretation and require judgement on the part of the Company that may be challenged by taxation
authorities. The Company believes that it has adequately provided for deferred tax obligations that may result from
current facts and circumstances. Temporary differences and income tax rates could change due to fiscal budget
changes and/or changes in income tax laws.
ANNUAL REPORT 2019
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Goodwill, Intangible Assets and Business Combinations
Goodwill, trademarks and customer relationships have principally arisen as a result of business combinations. The
acquisition method, which also requires significant estimates and judgements, is used to account for these business
combinations. As part of the allocation process in a business combination, estimated fair values are assigned to the
net assets acquired, including trademarks and customer relationships. These estimates are based on forecasts of
future cash flows, estimates of economic fluctuations and an estimated discount rate. The excess of the purchase price
over the estimated fair value of the net assets acquired is then assigned to goodwill. In the event that actual net assets
fair values are different from estimates, the amounts allocated to the net assets, and specifically to trademarks and
customer relationships, could differ from what is currently reported. This would then have a pervasive impact on the
carrying value of goodwill. Differences in estimated fair values would also have an impact on the amortization of definite
life intangibles.
Property, Plant and Equipment
Critical judgement is necessary in the selection and application of accounting policies and useful lives as well as the
determination of which components are significant and how they are allocated. Management has determined that the
use of the straight-line method of amortization is the most appropriate as its facilities are operating at a similar output
potential on a year to year basis, which indicates that production is constant (please refer to the estimated useful lives
table for further details on the useful lives of productive assets). It is Management’s best estimate that the useful lives
and policies adopted adequately reflect the flow of resources and the economic benefits required and derived in the
use and servicing of these long-lived productive assets.
Impairment of Assets
Significant estimates and judgements are required in testing goodwill, intangible assets and other long-lived assets for
impairment. Management uses estimates or exercises judgement in assessing indicators of impairment, defining a
CGU, forecasting future cash flows and in determining other key assumptions such as discount rates and earnings
multipliers used for assessing fair value (less costs of disposal) or value in use. Estimates made for goodwill and
intangible assets can be found in Note 7. Other long-lived assets are tested only when indicators of impairment are
present.
Employee Future Benefits
The Company is the sponsor to both defined benefit and defined contribution plans, which provide pension and other
post-employment benefits to its employees. Several estimates and assumptions are required with regards to the
determination of the defined benefit expense and its related obligation, such as the discount rate used in determining
the carrying value of the obligation and the interest income on plan assets, the expected health care cost trend rate,
the expected mortality rate, expected salary increase, etc. Actual results will normally differ from expectations. These
gains or losses are presented in the consolidated statements of comprehensive income.
ACCOUNTING STANDARDS
EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS
NOT YET IMPLEMENTED
The International Accounting Standards Board (IASB) made revisions as part of its continuing improvements project.
Below is a summary of the relevant standards affected and a discussion of the amendments.
The following standards, amendments to standards and interpretations have been issued and are applicable to the
Company for its annual periods beginning on and after April 1, 2019, with an earlier application permitted:
IFRS 3, Business Combinations
In October 2018, the IASB issued an amendment to IFRS 3 to clarify the definition of a business, to resolve the
difficulties that arise when an entity determines whether it has acquired a business or a group of assets. In December
2017, the IASB issued an amendment to IFRS 3 to clarify that when an entity obtains control of a business that is a
joint operation, it remeasures previously held interests in that business.
IFRS 9, Financial Instruments
In October 2017, the IASB further amended IFRS 9 to address concerns about how this standard classifies particular
prepayable financial assets.
IFRS 11, Joint Arrangements
In December 2017, the IASB issued an amendment to IFRS 11 to clarify that when an entity obtains joint control of a
business that is a joint operation, the entity does not remeasure previously held interests in that business.
ANNUAL REPORT 2019
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IFRS 16, Leases
In January 2016, the IASB published a new standard, IFRS 16 ‘‘Leases’’, which will replace IAS 17 ‘‘Leases’’. The new
standard will eliminate the distinction between operating and finance leases and will bring most leases on the statement
of financial position for lessees, except with respect to lease that meet limited exception criteria. For lessors, the
accounting remains mostly unchanged and the distinction between operating and finance leases is retained.
IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Estimates
and Errors
In October 2018, the IASB issued an amendment to IAS 1 and IAS 8 to clarify the definition of ‘material’ and to align
the definition used in the Conceptual Framework and the standards themselves.
IAS 19, Employee Benefits
In February 2018, the IASB issued an amendment to IAS 19 to specify how an entity shall determine pension expenses
when changes to a pension plan occur. When an amendment, curtailment or settlement to a plan takes place, IAS 19
requires an entity to remeasure its net defined benefit liability or asset. The amendments require an entity to use the
updated assumptions from this remeasurement to determine the current service cost and net interest for the remainder
of the reporting period after the change to the plan. In addition, amendments have been included to clarify the effect of
a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.
IAS 23, Borrowing Costs
In December 2017, the IASB issued an amendment to IAS 23 clarifying that if any specific borrowing remains
outstanding after the related asset is ready for its intended use or sale, it becomes part of the funds that an entity
borrows generally when calculating the capitalization rate on general borrowings.
IAS 28, Investments in Associates
In October 2017, the IASB issued an amendment to IAS 28 to clarify that an entity should apply IFRS 9 to long-term
interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to
which the equity method is not applied.
IFRIC 23, Uncertainty Over Income Tax Treatments
In June 2017, the IFRS Interpretations Committee issued IFRIC 23 which clarifies how the recognition and
measurement requirements of IAS 12, Income Taxes, are applied where there is uncertainty over income tax
treatments.
Except as disclosed in ‘‘Considerations for the implementations of IFRS 16’’, the adoption of these standards,
amendments and interpretation will not have a significant impact on the Company’s financial statements.
CONSIDERATIONS FOR THE IMPLEMENTATION OF IFRS 16
IFRS 16 is required to be applied for the annual reporting period beginning on April 1, 2019.
IFRS 16 can be applied using one of the following two methods: retrospectively to each prior reporting period presented
in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, or retrospectively with the
cumulative effect of applying IFRS 16 recognized at the date of initial application. The Company will apply the second
method as its transition method as prescribed under IFRS 16.
The adoption of IFRS 16 will lead to the recognition of operating leases on the statement of financial position. As a
result, the Company expects to record right-of-use assets of approximately $405 million and lease liabilities of
approximately $415 million. In addition, the Company has existing capital leases of approximately $29 million that are
recorded as long-term debt and that will be reclassified as lease liabilities on April 1, 2019. The Company does not
expect a significant impact on deferred tax balances. Management is currently assessing the impact of the Dairy Crest
Acquisition, completed on April 15, 2019, as it relates to IFRS 16.
IFRS 16 will be applied in fiscal year 2020 using the modified retrospective approach and the Company will therefore
not be restating comparative information.
The Company also expects a decrease in operating lease expenses, offset by a corresponding increase in depreciation
and amortization and financial expenses resulting from the changes in the recognition, measurement, and presentation
requirements. However, no significant impact on net earnings is expected at this time.
ANNUAL REPORT 2019
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EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS
ADOPTED DURING THE YEAR
The following standards, amendments to existing and interpretation of standards were adopted by the Company on or
after April 1, 2018:
IFRS 2, Share-Based Payment
In June 2016, the IASB issued an amendment to clarify how to account for certain types of share-based payment
transactions. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net
settlement feature for withholding tax obligations and a modification to the terms and conditions of a share-based
payment that changes the classification of the transaction from cash-settled to equity-settled.
This amendment did not impact the Company’s financial statements for the fiscal year ended March 31, 2019.
IFRS 9, Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments with the goal of replacing IAS 39,
Financial Instruments: Recognition and Measurement. IFRS 9 provides revised guidance regarding the classification
and measurement of financial assets, including a new impairment model for the recognition of expected credit losses
and a new hedge accounting model. IFRS 9 is applicable retrospectively in accordance with IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors, subject to certain exemptions and exceptions. Under IFRS 9, impairment
is measured by either the twelve-month expected credit losses or lifetime expected credit losses. The Company applies
the simplified approach to recognize lifetime expected credit losses under IFRS 9.
Classification and measurement IFRS 9 contains a new classification and measurement for financial assets which
consists of the following categories: amortized cost, fair value through other comprehensive income, and fair value
through profit and loss (FVTPL). The new classification of financial assets provided by IFRS 9 is generally based on
the business model in which a financial asset is managed and its contractual cash flow characteristics. Financial
liabilities are classified and measured based on two categories: amortized cost or FVTPL.
The following table presents the classification impacts on the financial assets and liabilities upon the adoption of
IFRS 9. There was no significant impact with regards to the measurement of the financial assets and liabilities.
Asset/Liability
Classification under IAS 39
Classification under IFRS 9
Cash and cash equivalents
Receivables
Other assets
Bank Loans
Accounts payable and accrued liabilities
Long-term debt
Derivatives
Loan and receivables
Loan and receivables
Loan and receivables
Other liabilities
Other liabilities
Other liabilities
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Impairment IFRS 9 provides a new impairment model that requires the recognition of expected credit losses
(ECL model) that replaced the ‘incurred loss’ model in IAS 39. The ECL model applies to financial assets measured at
amortized cost.
Hedge accounting, under IFRS 9, introduced a new hedge accounting model that requires the Company to ensure that
hedge accounting relationships are aligned with the Company’s risk management objectives and strategy and to apply
a more qualitative and forward-looking approach to assessing hedge effectiveness. The Company completed these
changes to its internal documentation to meet the requirements of IFRS 9. In accordance with the transitional provisions
in IFRS 9, the Company has applied the IFRS 9 hedge accounting prospectively from the date of initial application.
The adoption of this standard did not significantly impact the Company’s financial statements for the fiscal year ended
March 31, 2019.
ANNUAL REPORT 2019
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EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS
ADOPTED DURING THE YEAR (CONT’D)
IFRS 15, Revenue from Contracts with Customers
The IASB issued IFRS 15, Revenue from Contracts with Customers with its goal to provide a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers. This new standard supersedes
revenue recognition guidance in IAS 18, Revenue, IAS 11, Construction Contracts and IFRIC 13, Customer Loyalty
Programs.
This standard provides a five-step approach to revenue recognition that includes identifying contracts with customers,
identifying performance obligations, determining transaction prices, allocating transaction prices to performance
obligations and recognizing revenue when performance obligations are satisfied. The standard also expands current
disclosure requirements.
IFRS 15 can be applied using one of the following two methods: retrospectively to each prior reporting period presented
in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, or retrospectively with the
cumulative effect of applying IFRS 15 recognized at the date of initial application. The Company decided to use the
second method as its transition method as prescribed under IFRS 15.
As per IFRS 15, the Company must define its role as principal or agent in shipping and handling activities. With respect
to this standard, the Company’s shipping and handling activities are considered as principal and are presented on a
gross basis.
The adoption of IFRS 15 impacted the timing of revenue recognition, where revenues are recognized at a point in time
when control of the asset is transferred to the customer, generally upon shipment of products. Also, some contracts
with customers provide incentive programs, including discounts, promotions, advertising allowances, and other volume-
based incentives are impacted. Such incentives give rise to variable consideration, which are also estimated at contract
inception. Lastly, IFRS 15 affected the classifications of certain amounts paid to customers in the income statements,
where payments to the customer for distinct goods or services has been classified as selling, general and administrative
expenses and payments not for distinct goods or services have been classified as a component of sales.
The adoption of this standard did not significantly impact the Company’s financial statements for the fiscal year ended
March 31, 2019. No adjustment was recorded on the opening balance of equity upon the adoption of IFRS 15.
IAS 40, Investment Property
In December 2016, the IASB issued an amendment to IAS 40 clarifying when assets are transferred to, or from,
investment properties. The amendment clarified that to transfer to, or from, investment properties there must be a
change in use. To conclude if a property has changed use there should be an assessment of whether the property
meets the definition. This change must be supported by evidence.
This amendment did not impact the Company’s financial statements for fiscal year ended March 31, 2019.
IFRIC 22, Foreign Currency Transactions and Advance Consideration
In December 2016, the IASB issued IFRIC 22 which provides an interpretation on how to determine the date of the
transaction when applying the standard on foreign currency transactions, IAS 1. The interpretation applies where an
entity pays or receives consideration in advance for foreign currency-denominated contracts. The date of the
transaction determines the exchange rate to be used on initial recognition of the related asset, expense or income. This
interpretation provides guidance for when a single payment or receipt is made, as well as for situations where multiple
payments or receipts are made and aims to reduce diversity in practice.
This interpretation did not impact the Company’s financial statements for the fiscal year ended March 31, 2019.
ANNUAL REPORT 2019
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EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS
ADOPTED DURING THE YEAR (CONT’D)
IAS 29, FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES
In July 2018, the Argentine Federation of Professional Councils in Economic Sciences (F.A.C.P.C.E.) issued a release
mentioning that, effective July 1, 2018, entities reporting under IFRS are required to apply the inflation adjustment since
the applicable conditions for such application have been satisfied.
IAS 29 requires that the financial statements of an entity whose functional currency is the currency of a hyperinflationary
economy be adjusted based on an appropriate general price index to express the effects of inflation, and shall be stated
in terms of the measuring unit current at the end of the reporting period.
Non-monetary assets and liabilities are adjusted by applying the relevant index and the effect of inflation on the Dairy
Division (Argentina) is presented in the consolidated income statements as a gain on hyperinflation. The gain is derived
from the indexation of non-monetary assets and liabilities.
The main impacts at the beginning of the first period of application of this standard are an increase of $57.0 million in
non-monetary assets, such as inventory, property, plant and equipment and intangible assets, and an increase of
$13.9 million in deferred income taxes liabilities. Therefore, as at July 1, 2018, a one-time gain of $43.1 million was
included in the consolidated statements of comprehensive income.
ANNUAL REPORT 2019
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RISKS AND UNCERTAINTIES
The main risks and uncertainties the Company is exposed to are presented hereafter. The Board of Directors (the Board)
delegated to the Audit Committee and in the case of the human resources risk factor, the Corporate Governance and
Human Resources Committee the responsibility to study and evaluate the risk factors inherent to the Company and ensure
that appropriate measures are in place to enable Management to identify and manage these risk factors effectively. The
Audit Committee and Corporate Governance and Human Resources Committee receive regular reports from Management
on these matters. The Audit Committee and the Board have also adopted and implemented certain policies and procedures
relating to risk assessment and management which are reviewed at least annually. An annual detailed presentation on all
risk factors identified, as well as periodic presentations, are made by Management to the Audit Committee or the Corporate
Governance and Human Resources Committee, as the case may be, and, as required, to the Board.
While risk management is part of the Company’s transactional, operational and strategic decisions, as well as the
Company’s overall management approach, risk management does not guarantee that events or circumstances will not
occur which could negatively affect the Company’s financial condition and performance.
Product liability
Saputo’s operations are subject to certain dangers and risks of liability faced by all food processors, such as the potential
contamination of ingredients or products by bacteria or other external agents that may be introduced into products or
packaging. The occurrence of such a problem could result in a costly product recall and serious damage to Saputo’s
reputation for product quality.
Supply of raw materials
Saputo purchases raw materials that may represent up to 85% of the cost of products. It processes raw materials into
finished edible products intended for resale to a broad range of customers. Availability of raw materials as well as variations
in the price of foodstuffs can therefore influence the Company’s results upwards or downwards, and the effect of any
increase of foodstuff prices on results depends on the Company’s ability to transfer those increases to its customers and
this, in the context of a competitive market.
USA and international markets
The price of milk as raw material and the price of our products in the USA, Australia, Argentina and the United Kingdom,
as well as in international markets, are based on market supply and demand forces. The prices are tied to numerous
factors, such as the health of the economy and supply and demand levels for dairy products in the industry. Price
fluctuations may affect the Company’s results. The effect of such fluctuations on results will depend on the Company’s
ability to implement mechanisms to reduce them.
Competition
The food processing industry is extremely competitive. The global dairy industry is highly competitive and Saputo
competes on a national and international basis with national and multinational competitors. The Company’s performance
in all the countries in which it does business will be dependent on its ability to continue to offer quality products at
competitive prices.
Consolidation of clientele
During the last few years, there has been important consolidation in the food industry in all market segments. Given
that Saputo serves these segments, the consolidation within the industry has resulted in a decrease in the number of
customers and an increase in the relative importance of some customers. For fiscal 2019, no customer represented
more than 10% of total consolidated revenues. The Company’s ability to continue to service its customers in all the
markets that it serves will depend on the quality of its products and services as well as price.
Supplier concentration
The Company purchases goods and services from a limited number of suppliers as a result of consolidation within the
industries in which these suppliers operate. Furthermore, issues with suppliers regarding pricing or performance of the
goods and services they supply or the inability of suppliers to supply the required volumes of such goods and services in
a timely manner could impact the Company’s financial condition and performance. Any such impact will depend on the
effectiveness of the Company’s contingency plan.
Unanticipated business disruption
Major events, such as systems and equipment failure, health pandemics and natural disasters, could lead to unanticipated
business disruption of any or certain of the Company’s manufacturing facilities. The effect would be more significant if the
Company’s larger manufacturing facilities are affected, in which case, the failure to find alternative suppliers or to replace
lost production capacity in a timely manner could negatively affect the Company’s financial condition and performance.
ANNUAL REPORT 2019
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Economic environment
The Company’s operations could be affected by the economic context should the unemployment level, interest rates or
inflation reach levels that influence consumer trends and consequently, impact the Company’s sales and profitability.
Environment
Saputo’s business and operations are subject to environmental laws and regulations, including those relating to permitting
requirements, wastewater discharges, air emissions (greenhouse gases and other), releases of hazardous substances
and remediation of contaminated sites. The Company believes that its operations are in compliance, in all material
respects, with such environmental laws and regulations, except as disclosed in the Annual Information Form dated
June 6, 2019, for the fiscal year ended March 31, 2019. Compliance with these laws and regulations requires that the
Company continue to incur operating and maintenance costs and capital expenditures, including to control potential
impacts of its operations on local communities. Future events such as changes in environmental laws and regulations or
more vigorous regulatory enforcement policies could have a material adverse effect on the financial position of Saputo
and could require additional expenditures to achieve or maintain compliance.
Information systems
The Company relies upon information technology applications and systems for its business and the reporting of its
results. These applications and systems are subject to an increasing number of constantly evolving cyber threats which
are becoming more sophisticated. The Company is mainly exposed to risks relating to confidentiality, data integrity and
business disruptions. Therefore, any unavailability or failure, due to security incidents or otherwise, may impede or slow
down production, delay or taint certain decisions and result in financial losses for the Company. In addition, any
unauthorised access to information systems, proprietary, sensitive or confidential information or malicious use could
compromise the Company’s data integrity or result in disclosure or loss of data which may have adverse effects on the
Company’s activities, results, and reputation, including loss of revenues due to a disruption of the business, diminished
competitive advantage, litigation or other legal procedures, or liability for failure to comply with privacy and information
security laws. Although the Company has measures to reduce the likelihood of disruptions to its information technology
applications and systems and to identify and respond to and manage cybersecurity incidents, there is no assurance
that any of these measures will be successful. Also, the Company is currently undertaking technology initiatives
regarding an ERP system. There is no guarantee that the implementation of the ERP system will not disrupt or reduce
the efficiency of the Company’s operations.
Human resources
Saputo’s success depends on its ability to identify, attract and retain qualified individuals and to execute appropriate
succession planning for Management and key personnel. Although the Company believes that it has good relationships
with its employees and a significant number of the Company’s workforce is unionized, a lengthy strike or work stoppage
could impact the Company’s operations and performance. The Company’s operations are also subject to health and
safety risks as well as laws and regulations in this regard. Notwithstanding Saputo’s existing health and safety systems,
serious injury or death of any employee could have a serious impact on Saputo’s reputation and require the Company
to incur compliance costs.
Growth by acquisitions
The Company plans to grow both organically and through acquisitions. Historically, the Company has grown through
acquisitions and plans to continue to rely on new acquisitions to pursue its growth. The ability to properly evaluate the fair
value of the businesses being acquired and to properly devote the time and human resources required to successfully
integrate their activities with those of the Company constitute inherent risks related to acquisitions. The inability to
adequately integrate an acquired business in a timely and efficient manner may affect the Company's ability to realize
synergies, improvements and to achieve anticipated returns, as well as resulting in higher integration costs and loss of
business opportunities. In connection with acquisitions made by the Company, there may also be liabilities and
contingencies that the Company discovered after closing, or was unable to quantify in the due diligence conducted prior
to closing of an acquisition and which could have a negative effect on the Company’s business, and financial condition
and performance.
Consumer trends
Demand for the Company’s products is subject to changes in consumer trends. These changes may affect earnings. The
impact of these changes will depend on the Company’s ability to innovate and develop new products.
Intellectual property
As the Company is involved in the production, sale and distribution of food products, it relies on brand recognition and
loyalty from its clientele in addition to relying on the quality of its products. Also, as innovation forms part of the Company’s
growth strategy, its research and development teams develop new technologies, products and process optimization
methods. The Company therefore takes measures to protect, maintain and enforce its intellectual property. Any
infringement to its intellectual property could damage its value and limit the Company’s ability to compete. In addition,
Saputo may have to engage in litigation in order to protect its rights which could result in significant costs.
ANNUAL REPORT 2019
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Financial risk exposures
Saputo has financial risk exposure to varying degrees relating to the currency of each of the countries where it operates.
In fiscal 2019, approximately 30% of sales were realized in Canada, 48% in the USA, and 22% internationally. Cash flows
from operations in each of the countries where Saputo operates act, in part, as a natural hedge against the currency
exchange risks related to debt denominated in such countries’ currency. The level of the financial risk exposure related to
currency fluctuations will depend on its ability to maintain appropriate protection mechanisms.
Pension plans
The Company operates both defined benefit and defined contribution plans (collectively, the “Plans”). Contributions to fund
the Company's defined benefit Plans are based on actuarial valuations, which themselves are based on assumptions and
estimates about the long-term operations of the Plans, including assumptions on inflation, mortality and the discount rates
used to determine the liabilities of the Plans. Actual results of actuarial valuations may differ from expectations. The
Company cannot predict whether changing markets or economic conditions, changes to pension legislation and
regulations or other factors will increase the Company's pension expenses or liabilities or its funding obligations, diverting
funds the Company would otherwise apply to other uses. Increases in net pension liabilities or increases in future cash
contributions could adversely affect the Company's business, financial condition, results from operations and cash flows.
Interest rate and access to capital market
A portion of Saputo’s interest-bearing debt is subject to interest rate fluctuations. The impact on the Company’s results
will depend on its ability to maintain adequate protections against such interest rate fluctuations. The Company’s growth
is driven mainly by acquisitions and is dependent on access to liquidity in the capital markets. Similarly, the Company
may be required to access liquidity in the capital markets in order to refinance or retire existing indebtedness. The
impact of such financing transactions on the Company’s results will depend on the Company’s ability to secure liquidity
in a timely manner and on terms and conditions acceptable to it.
Credit risk
The Company grants credit to its customers in the normal course of business. Credit valuations are performed on a regular
basis and the financial statements take into account an allowance for bad debts. The Company considers that it has low
exposure to concentration of credit risk with respect to accounts receivable from customers due to its large and diverse
customer base operating in three segments, retail, foodservice and industrial, and its geographic diversity. There are no
accounts receivable from any individual customer that exceeded 10% of the total balance of accounts receivable as at
March 31, 2019. The allowance for bad debts and accounts receivable due is reviewed regularly by Management. The
Company updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability of
accounts receivable balances of each customer taking into consideration historic collection trends of past due accounts.
Legislative, regulatory, normative and political considerations
The Company is subject to local, provincial, state, federal and international laws, regulations, rules and policies as well as
to social, economic and political contexts prevailing in places where Saputo conducts its activities. Consequently, the
modification or change of any of these elements may have an unfavourable impact on Saputo’s results and operations
and may require that important expenses be made in order to adapt or comply. More specifically, the production and
distribution of food products are subject to federal, state, provincial and local laws, rules, regulations and policies and to
international trade agreements, all of which provide a framework for Saputo’s operations. The impact of new laws and
regulations, stricter enforcement or interpretations or changes to enacted laws and regulations will depend on the
Company’s ability to adapt thereto, comply therewith, and mitigate. Saputo is currently in compliance in all material
respects with all applicable laws and regulations and maintains all material permits and licenses in connection with its
operations.
Tariff protection
Dairy-producing industries in Canada and the United States are still partially protected from imports by tariff-rate quotas
which permit a specific volume of imports at a reduced or zero tariff and impose significant tariffs for greater quantities of
imports. There is no guarantee that political decisions or amendments to international trade agreements will not result in
the removal of tariff protection in the dairy market, resulting in increased competition. The Company’s performance will be
dependent on its ability to continue to offer quality products at competitive prices.
ANNUAL REPORT 2019
- 30 -
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) are responsible for establishing and maintaining
disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide
reasonable assurance that material information relating to the Company is made known to Management in a timely manner
to allow the information required to be disclosed under securities legislation to be recorded, processed, summarized and
reported within the time periods specified in securities legislation.
The CEO and the CFO, along with Management, after evaluating the effectiveness of the Company’s disclosure controls
and procedures as at March 31, 2019, have concluded that the Company’s disclosure controls and procedures were
effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The CEO and the CFO are responsible for establishing and maintaining internal control over financial reporting. The
Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
The Company is taking a phased approach to its migration to a new ERP system, which is expected to be completed in
fiscal 2022. The appropriate changes to internal controls over financial reporting in relation to divisions which have
migrated to the new ERP system have been made in order to continue to maintain appropriate internal controls over
financial reporting. Other than these changes, there were no changes to the Company’s internal control over financial
reporting that occurred during the period beginning on January 1, 2019 and ended on March 31, 2019, that have materially
affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
SENSITIVITY ANALYSIS OF INTEREST RATE AND US CURRENCY FLUCTUATIONS
The debt subject to interest rate fluctuations was $818.3 million as at March 31, 2019. A 1% change in the interest rate
would lead to a change in net earnings of approximately $6.3 million. Canadian and US currency fluctuations may affect
net earnings, adjusted EBITDA and revenues. Appreciation of the Canadian dollar compared to the US dollar would have
a negative impact on net earnings, adjusted EBITDA and revenues. Conversely, a decrease in the Canadian dollar
compared to the US dollar would have a positive impact on net earnings. During the fiscal year ended March 31, 2019,
the average US dollar conversion was based on US$1.00 for $1.311. A fluctuation of $0.10 of the Canadian dollar would
have resulted in a change of approximately $14.8 million in net earnings, $41.5 million in adjusted EBITDA and
$496.0 million in revenues.
ANNUAL REPORT 2019
- 31 -
QUARTERLY FINANCIAL INFORMATION
2019 quarterly financial information – consolidated income statement
(in millions of CDN dollars, except per share amounts and ratios)
Q4
Q3
Q2
Q1 Fiscal 2019
Revenues
Operating costs excluding depreciation and amortization
Earnings before interest, income taxes, depreciation,
amortization, gain on disposal of assets, acquisition and
restructuring costs, and gain on hyperinflation
Margin
Depreciation and amortization
Gain on disposal of assets
Acquisition and restructuring costs
(Gain) loss on hyperinflation
Interest on long-term debt
Other financial charges
Earnings before income taxes
Income taxes
Net earnings
Net margin
Gain on disposal of assets1
Acquisition and restructuring costs1
Adjusted net earnings**
Adjusted net earnings margin**
Per Share
Net earnings
Basic
Diluted
Adjusted net earnings**
Basic
Diluted
3,236.5
2,961.4
3,577.2
3,256.0
3,420.4
3,102.9
3,267.8
2,960.3
13,501.9
12,280.6
275.1
8.5 %
321.2
317.5
9.0 %
9.3 %
307.5
9.4 %
1,221.3
9.0 %
81.1
-
2.2
0.9
16.7
4.8
169.4
45.2
124.2
80.7
(194.5)
0.3
(18.4)
16.4
4.7
432.0
90.0
342.0
77.0
-
-
(1.0)
18.4
4.0
219.1
56.0
163.1
3.8 %
9.6 %
-
1.6
125.8
3.9 %
(167.8)
0.2
174.4
4.9 %
4.8 %
-
-
163.1
4.8 %
74.2
-
48.9
-
15.1
4.2
165.1
39.1
126.0
3.9 %
-
34.3
160.3
4.9 %
313.0
(194.5)
51.4
(18.5)
66.6
17.7
985.6
230.3
755.3
5.6 %
(167.8)
36.1
623.6
4.6 %
0.32
0.32
0.32
0.32
0.88
0.87
0.45
0.44
0.42
0.42
0.42
0.42
0.32
0.32
0.41
0.41
1.94
1.93
1.60
1.59
Earnings coverage ratio*
12.69
14.20
12.57
15.37
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
** Non-IFRS measures described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 Net of income taxes.
Selected factors positively (negatively) affecting financial performance
(in millions of CDN dollars)
Fiscal year
USA Market Factors*,1
Inventory write-down
Q4
4
(2)
2019
Q3
(19)
(1)
Q2
(7)
-
Q1
2
-
Foreign currency exchange1,2
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 As compared to same quarter of previous fiscal year.
2 Foreign currency exchange includes effect on adjusted EBITDA of conversion of US dollars, Australian dollars and Argentine pesos to Canadian dollars.
(13)
2
5
1
ANNUAL REPORT 2019
- 32 -
2018 quarterly financial information – consolidated income statement
(in millions of CDN dollars, except per share amounts and ratios)
Q4
Q3
Q2
Q1
Fiscal 2018
Revenues
Operating costs excluding depreciation and
amortization
Earnings before interest, income taxes, depreciation,
amortization, acquisition and restructuring costs
Margin
Depreciation and amortization
Acquisition and restructuring costs
Interest on long-term debt
Other financial charges
Earnings before income taxes
Income taxes
Net earnings
Net margin
Acquisition and restructuring costs1
USA tax reform benefit*
Adjusted net earnings**
Adjusted net earnings margin**
Per Share
Net earnings
Basic
Diluted
Adjusted net earnings**
Basic
Diluted
2,744.4
3,021.8
2,884.2
2,892.1
11,542.5
2,482.7
2,703.8
2,554.4
2,536.9
10,277.8
261.7
9.5 %
64.7
1.2
8.3
4.6
182.9
52.9
130.0
4.7 %
5.3
-
135.3
4.9 %
318.0
10.5 %
56.1
39.1
8.6
4.0
210.2
(126.8)
337.0
11.2 %
25.1
(178.9)
183.2
6.1 %
0.34
0.33
0.35
0.35
0.87
0.86
0.47
0.47
329.8
11.4 %
355.2
12.3 %
1,264.7
11.0 %
51.8
0.3
9.1
3.4
265.2
80.0
185.2
6.4 %
0.2
-
185.4
6.4 %
0.48
0.47
0.48
0.47
53.7
-
7.8
2.1
291.6
91.3
200.3
6.9 %
-
-
200.3
6.9 %
0.52
0.51
0.52
0.51
226.3
40.6
33.8
14.1
949.9
97.4
852.5
7.4 %
30.6
(178.9)
704.2
6.1 %
2.21
2.18
1.82
1.80
Earnings coverage ratio*
20.83
23.34
26.69
28.51
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
** Non-IFRS measures described in the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
1 Net of income taxes.
ANNUAL REPORT 2019
- 33 -
ANALYSIS OF EARNINGS FOR THE YEAR ENDED MARCH 31, 2018 COMPARED TO
MARCH 31, 2017
Consolidated revenues totalled $11.543 billion in fiscal 2018, an increase of approximately $380 million or 3.4% in
comparison to $11.163 billion in fiscal 2017. Higher sales volumes and higher selling prices of cheese and dairy
ingredients in both domestic and export markets increased revenues, as compared to fiscal 2017. The fluctuation of
the average butter market price per pound and the average block market per pound of cheese increased revenues by
approximately $97 million. Additionally, the inclusion of revenues from the extended shelf-life dairy product activities of
Southeast Milk, Inc. acquired on September 29, 2017 (SMI Acquisition), and the Montchevre Acquisition acquired on
December 12, 2017, positively impacted revenues by approximately $78 million. Conversely, the fluctuation of the
Canadian dollar versus foreign currencies decreased revenues by approximately $211 million.
Consolidated adjusted EBITDA in fiscal 2018 totalled $1.265 billion, a decrease of approximately $25 million or 1.9%,
as compared to $1.290 billion in fiscal 2017. Higher warehousing and logistical costs related to additional external
storage expenses and higher transportation costs of approximately $30 million, as well as higher ERP expenses of
approximately $32 million, decreased adjusted EBITDA, as compared to fiscal 2017. Additionally, the USA Market
Factors decreased adjusted EBITDA by approximately $25 million. As a result of the decrease in certain market selling
prices, inventory was written down by approximately $17 million during fiscal 2018, as compared to approximately
$4 million for fiscal 2017. These decreases were partially offset by operational efficiencies through raw material
optimization and higher international selling prices of cheese and dairy ingredients. Higher sales volumes and a
favourable product mix, as well as the inclusion of the SMI Acquisition and the Montchevre Acquisition, positively
impacted adjusted EBITDA. Finally, the fluctuation of the Canadian dollar versus foreign currencies had an
unfavourable impact on adjusted EBITDA of approximately $18 million, as compared to fiscal 2017.
The consolidated adjusted EBITDA margin decreased to 11.0% in fiscal 2018, as compared to 11.6% in fiscal 2017,
reflecting lower adjusted EBITDA in the USA Sector as compared to fiscal 2017.
Depreciation and amortization in fiscal 2018 amounted to $226.3 million, an increase of $19.0 million, as compared
to $207.3 million for fiscal 2017.
These increases were mainly attributed to additions to property, plant and equipment and intangibles related to the
ERP initiative, increasing the depreciable base, as well as the additional depreciation and amortization expenses
related to the SMI Acquisition and the Montchevre Acquisition.
Acquisition costs and restructuring costs amounted to $40.6 million for fiscal 2018. Acquisition costs were related
to the SMI Acquisition, the Montchevre Acquisition and the Murray Goulburn Acquisition. In connection with the
restructuring costs relating to a plant closure in Fond du Lac, Wisconsin, the Company incurred $23.1 million in
severance and closure costs and $10.6 million in impairment charges to property, plant and equipment.
Net interest expense for fiscal 2018 increased by $6.0 million, as compared to fiscal 2017. These increases were
mainly attributed to higher bank loans denominated in Argentine peso, which bear higher interest rates, and financing
for the SMI Acquisition and the Montchevre Acquisition.
Income taxes totalled $97.4 million in fiscal 2018, compared to $309.2 million in fiscal 2017, reflecting an effective tax
rate of 10.3%, compared to 29.7% in fiscal 2017. During fiscal 2018, the Company recorded an income tax benefit of
$178.9 million to adjust for future tax balances of $169.2 million and current fiscal year provisions of $9.7 million, due
to the reduction of the US federal tax rate. Excluding the benefit of the US federal tax rate reduction, income tax expense
in fiscal 2018 would have totalled $276.3 million, reflecting an effective tax rate of 29.1% compared to 29.7% for fiscal
2017. This reduction is mainly due to an income tax recovery of $8.3 million following a positive settlement in a tax file.
The income tax rate varies and could increase or decrease based on the amount and source of taxable income,
amendments to tax legislations and income tax rates, changes in assumptions, as well as estimates used for tax assets
and liabilities by the Company and its affiliates.
Net earnings for fiscal 2018 totalled $852.5 million, an increase of $121.4 million or 16.6%, as compared to
$731.1 million in fiscal 2017. The increase in net earnings was due to the above-mentioned factors.
Adjusted net earnings totalled $704.2 million in fiscal 2018, as compared to $731.1 million in fiscal 2017.
The decrease in adjusted net earnings was due to the above-mentioned factors.
ANNUAL REPORT 2019
- 34 -
MEASUREMENT OF RESULTS NOT IN ACCORDANCE WITH INTERNATIONAL
FINANCIAL REPORTING STANDARDS
In certain instances, the Company makes references to terms in evaluating financial performance measures, such as
adjusted EBITDA, adjusted net earnings and adjusted net earnings per share that hold no standardized meaning under
IFRS. These non-IFRS measurements are therefore not likely to be comparable to similarly titled or described measures
in use by other publicly traded companies nor do they indicate that excluded items are non-recurring. The Company uses
earnings before interest, income taxes, depreciation, amortization, gain on disposal of assets, acquisition and restructuring
costs, and gain on hyperinflation (adjusted EBITDA) as a performance measure as it is a common industry measure and
reflects the ongoing profitability of the Company’s consolidated business operations.
Adjusted net earnings is defined by the Company as net earnings prior to the inclusion of a gain on disposal of assets,
acquisition and restructuring costs, net of applicable income taxes, if any. Adjusted net earnings per share is defined as
adjusted net earnings per basic and diluted common share. The most comparable IFRS financial measures to the ones
used by the Company are earnings before income taxes, as well as net earnings and net earnings per share (basic and
diluted).
Adjusted EBITDA, adjusted net earnings and adjusted net earnings per share, as used by Management, provide precision
and comparability with regards to the Company’s ongoing operation. They also provide readers with a representation of
the activities considered of relevance to the Company’s financial performance through the inclusion of additional financial
information that can be used to identify trends or additional disclosures that provide information into the manner in which
the Company operates. They also provide comparability to the Company’s prior year results.
The definitions provided above are used in the context of the results and activities for the three-month period and for the
year ended March 31, 2019. They are subject to change based on future transactions and as deemed necessary by
Management in order to provide a better understanding and comparability of future results and activities of the Company.
A reconciliation of earnings before income taxes, net earnings and net earnings per share to adjusted EBITDA, adjusted
net earnings and adjusted net earnings per share for the three-month periods and the fiscal years in which Management
has presented these measures is provided below.
(in millions of CDN dollars)
Earnings before income taxes
Other financial charges
Interest on long-term debt
(Gain) loss on hyperinflation
Acquisition and restructuring costs
Gain on disposal of assets
Depreciation and amortization
Adjusted EBITDA
For the three-month periods ended
March 31
2018
2019
For the years ended
March 31
2018
2019
169.4
4.8
16.7
0.9
2.2
-
81.1
275.1
182.9
4.6
8.3
-
1.2
-
64.7
261.7
985.6
17.7
66.6
(18.5)
51.4
(194.5)
313.0
949.9
14.1
33.8
-
40.6
-
226.3
1,221.3
1,264.7
ANNUAL REPORT 2019
- 35 -
(in millions of CDN dollars, except per share amounts)
For the three-month periods ended March 31
2019
Per Share
Basic
Diluted
0.32
-
0.32
0.32
-
0.32
Total
124.2
1.6
125.8
Total
130.0
5.3
135.3
2018
Per Share
Basic
Diluted
0.34
0.01
0.35
0.33
0.01
0.35
Net earnings
Acquisition and restructuring costs1
Adjusted net earnings
1 Net of income taxes
(in millions of CDN dollars, except per share amounts)
For the years ended March 31
2019
Per Share
Basic
Diluted
1.94
(0.43)
0.09
-
1.60
1.93
(0.43)
0.09
-
1.59
Total
852.5
-
30.6
(178.9)
704.2
2018
Per Share
Basic
2.21
-
0.08
(0.46)
1.82
Diluted
2.18
-
0.08
(0.46)
1.80
Total
755.3
(167.8)
36.1
-
623.6
Net earnings
Gain on disposal of assets1
Acquisition and restructuring costs1
USA tax reform benefit*
Adjusted net earnings
1 Net of income taxes
* Refer to the ‘‘Glossary’’ section on page 37 of this Management’s Discussion and Analysis.
ANNUAL REPORT 2019
- 36 -
GLOSSARY
Adjusted EBITDA
"Adjusted EBITDA" means earnings before interest, income taxes, depreciation, amortization, gain on disposal of
assets, acquisition and restructuring costs, and gain on hyperinflation.
Adjusted EBITDA margin
"Adjusted EBITDA margin" means adjusted EBITDA expressed as a percentage of revenues.
Adjusted net earnings
"Adjusted net earnings" means net earnings prior to the inclusion of a gain on disposal of assets, acquisition and
restructuring costs and USA tax reform benefit, net of applicable income taxes.
Adjusted net earnings margin
"Adjusted net earnings margin" means adjusted net earnings expressed as a percentage of revenues.
Adjusted net earnings per share
"Adjusted net earnings per share" (basic and diluted) means adjusted net earnings per basic and diluted common
share.
Adjusted return on average equity
"Adjusted return on average equity" means adjusted net earnings divided by average total equity not considering the effect
of annual fluctuations in foreign currency translation.
Average whey powder market price
"Average whey powder market price" means the average daily price for extra grade dry whey published on Dairy Market
News.
Block market
"Block market" means the price of a 40 pound block of cheddar traded on the Chicago Mercantile Exchange (CME),
used as the base price for cheese.
Butter market
"Butter market" means the price for Grade AA Butter traded on the CME, used as the base price for butter.
Earnings coverage ratio
"Earnings coverage ratio" means net earnings (before interest on long-term debt and other financial charges and
income taxes) for the applicable period divided by interest on long-term debt and other financial charges for the
applicable period for the fiscal year.
Net debt
"Net debt" means long-term debt and bank loans, including the current portion thereof, net of cash and cash equivalents.
Net debt to adjusted EBITDA
"Net debt to adjusted EBITDA" means net debt divided by adjusted EBITDA for the fiscal year.
Spread
"Spread" means the average block market per pound of cheese less the result of the average cost per hundredweight
of Class III and/or Class 4b milk price divided by 10 in the USA market.
USA Market Factors
"USA Market Factors" include, for the USA Sector, the average block market per pound of cheese and its effect on the
absorption of fixed costs and on the realization of inventories, the effect of the relationship between the average block
market per pound of cheese and the cost of milk as raw material, the market pricing impact related to sales of dairy
ingredients, as well as the impact of the average butter market price related to dairy food products.
USA tax reform benefit
"USA tax reform benefit" means the one-time benefit of the Company related to the adjustment for futures tax balances
and tax provisions in the third quarter of fiscal 2018 due to the reduction of the US federal tax rate pursuant to the
enactment of the Tax Cuts and Jobs Act on December 22, 2017.
Working capital
"Working capital" means the Company’s current assets minus current liabilities.
Working capital ratio
"Working capital ratio" means the Company’s current assets divided by current liabilities.
ANNUAL REPORT 2019
- 37 -
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation and presentation of the consolidated financial statements and the financial
information presented in this annual report. This responsibility includes the selection of accounting policies and practices
and making judgments and estimates necessary to prepare the consolidated financial statements in accordance with
International Financial Reporting Standards.
Management has also prepared the financial information presented elsewhere in this annual report and has ensured that
it is consistent with the consolidated financial statements.
Management maintains systems of internal control designed to provide reasonable assurance that assets are safeguarded
and that relevant and reliable financial information is being produced.
The Board of Directors is responsible for ensuring that Management fulfills its responsibilities for financial reporting and is
responsible for reviewing and approving the consolidated financial statements. The Board of Directors carries out this
responsibility principally through its Audit Committee, which is comprised solely of independent directors. The Audit
Committee meets periodically with Management and the independent auditors to discuss internal controls, auditing matters
and financial reporting issues. It also reviews the annual report, the consolidated financial statements and the independent
auditors’ report. The Audit Committee recommends the independent auditors for appointment by the shareholders. The
independent auditors have unrestricted access to the Audit Committee. The consolidated financial statements have been
audited by the independent auditors Deloitte LLP, whose report follows.
(signed) Lino A. Saputo, Jr.
Lino A. Saputo, Jr.
Chair of the Board
and Chief Executive Officer
June 6, 2019
(signed) Maxime Therrien
Maxime Therrien, CPA, CA
Chief Financial Officer
and Secretary
ANNUAL REPORT 2019
- 38 -
INDEPENDENT AUDITOR’S REPORT
To the shareholders and the Board of Directors of Saputo Inc.
Opinion
We have audited the consolidated financial statements of Saputo Inc. (the “Company”), which comprise the
consolidated statements of financial position as at March 31, 2019 and 2018, and the consolidated income statements,
consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and
notes to the consolidated financial statements, including a summary of significant accounting policies (collectively
referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of
the Company as at March 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended
in accordance with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are independent of the Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express any
form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to
read the other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We obtained Management’s Discussion and Analysis and the Annual Report prior to the date of this auditor’s report. If,
based on the work we have performed on this other information, we conclude that there is a material misstatement of
this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with
IFRS, and for such internal control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
ANNUAL REPORT 2019
- 39 -
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Company to express an opinion on the financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during
our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Daniel Viboux.
/s/ Deloitte LLP 1
June 6, 2019
Montréal, Québec
____________________
1 CPA auditor, CA, public accountancy permit No. A114871
ANNUAL REPORT 2019
- 40 -
CONSOLIDATED INCOME STATEMENTS
(in millions of CDN dollars, except per share amounts)
Years ended March 31
Revenues
Operating costs excluding depreciation and amortization (Note 5)
$
2019
13,501.9
12,280.6
$
2018
11,542.5
10,277.8
Earnings before interest, income taxes, depreciation, amortization, gain on disposal
of assets, acquisition and restructuring costs, and gain on hyperinflation
Depreciation and amortization (Notes 6 and 7)
Gain on disposal of assets (Note 6)
Acquisition and restructuring costs (Note 22)
Gain on hyperinflation
Interest on long-term debt
Other financial charges (Note 13)
Earnings before income taxes
Income taxes (Note 14)
Net earnings
Net earnings per share (Note 15)
Basic
Diluted
1,221.3
313.0
(194.5)
51.4
(18.5)
66.6
17.7
985.6
230.3
$
755.3
$
1,264.7
226.3
-
40.6
-
33.8
14.1
949.9
97.4
852.5
$
$
1.94
1.93
$
$
2.21
2.18
The accompanying notes are an integral part of these consolidated financial statements.
ANNUAL REPORT 2019
- 41 -
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions of CDN dollars)
Years ended March 31
Net earnings
Other comprehensive income:
Items that may be reclassified to net earnings:
Exchange differences arising from foreign currency translation
Inflation effect arising from the application of hyperinflation
Net unrealized (losses) gains on cash flow hedges1 (Note 20)
Reclassification of losses (gains) on cash flow hedges to net earnings2
Items that will not be reclassified to net earnings:
Actuarial losses3 (Note 17)
Other comprehensive income
Total comprehensive income
1 Net of income taxes of $4.6 (2018 – $2.0).
2 Net of income taxes of $5.1 (2018 – $2.8).
3 Net of income taxes of $0.8 (2018 – $1.1).
2019
2018
$
755.3
$
852.5
3.2
29.3
(10.6)
12.1
34.0
(2.1)
(2.1)
31.9
$
787.2
$
(168.2)
-
6.0
(6.8)
(169.0)
(4.1)
(4.1)
(173.1)
679.4
The accompanying notes are an integral part of these consolidated financial statements.
ANNUAL REPORT 2019
- 42 -
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions of CDN dollars, except common shares)
For the year ended March 31, 2019
Share capital
Reserves
Common
Shares
Amount
Foreign
Currency
Translation
Cash
Flow Hedges
Stock Option
Plan
Total
Reserves
Retained
Earnings
Total
Equity
Balance, beginning of year
387,407,403
$
918.9 $
549.6 $
(3.8) $
116.6 $
662.4 $
3,216.4
$
4,797.7
Net earnings
Other comprehensive income
Total comprehensive income
Dividends declared
Stock option plan (Note 12)
-
-
-
-
-
-
-
-
Shares issued under stock option plan
2,790,983
60.4
Amount transferred from reserves to share
capital upon exercise of options
Excess tax benefit that results from the excess
of the deductible amount over the
compensation cost recognized
-
-
12.4
-
32.5
-
1.5
-
-
-
755.3
34.0
(2.1)
-
-
-
-
-
-
-
-
25.1
-
-
25.1
-
-
(12.4)
(12.4)
755.3
31.9
787.2
(254.6)
25.1
60.4
-
4.7
(254.6)
-
-
-
-
-
-
-
4.7
4.7
Balance, end of year
390,198,386
$
991.7 $
582.1 $
(2.3) $
134.0 $
713.8 $
3,715.0
$
5,420.5
For the year ended March 31, 2018
Share capital
Reserves
Common
Shares
Amount
Foreign
Currency
Translation
Cash
Flow Hedges
Stock Option
Plan
Total
Reserves
Retained
Earnings
Total
Equity
Balance, beginning of year
386,234,311
$
871.1 $
717.8 $
(3.0) $
97.9 $
812.7 $
2,639.1
$
4,322.9
Net earnings
Other comprehensive income
Total comprehensive income
Dividends declared
Stock option plan (Note 12)
-
-
-
-
-
-
-
-
Shares issued under stock option plan
1,827,992
41.0
Amount transferred from reserves to share
capital upon exercise of options
Excess tax benefit that results from the excess
of the deductible amount over the
compensation cost recognized
Shares repurchased and cancelled
-
-
(654,900)
8.2
-
(1.4)
-
(168.2)
-
(0.8)
-
-
-
(169.0)
852.5
(4.1)
-
-
-
-
-
-
-
-
-
-
24.1
-
-
24.1
-
-
(8.2)
(8.2)
(243.5)
-
-
-
-
-
2.8
-
2.8
-
-
(27.6)
852.5
(173.1)
679.4
(243.5)
24.1
41.0
-
2.8
(29.0)
Balance, end of year
387,407,403
$
918.9 $
549.6 $
(3.8) $
116.6 $
662.4 $
3,216.4
$
4,797.7
The accompanying notes are an integral part of these consolidated financial statements.
ANNUAL REPORT 2019
- 43 -
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions of CDN dollars)
As at
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories (Note 4)
Income taxes receivable (Note 14)
Prepaid expenses and other assets
Property, plant and equipment (Note 6)
Goodwill (Note 7)
Intangible assets (Note 7)
Other assets (Note 8)
Deferred income taxes (Note 14)
Total assets
LIABILITIES
Current liabilities
Bank loans (Note 9)
Accounts payable and accrued liabilities
Income taxes payable (Note 14)
Current portion of long-term debt (Note 10)
Long-term debt (Note 10)
Other liabilities (Note 11)
Deferred income taxes (Note 14)
Total liabilities
EQUITY
Share capital (Note 12)
Reserves
Retained earnings
Total equity
Total liabilities and equity
March 31, 2019 March 31, 2018
$
$
$
$
$
$
112.7 $
1,248.2
1,681.0
34.1
57.8
3,133.8
3,095.4
2,597.6
876.2
131.6
51.0
9,885.6 $
130.4 $
1,442.2
36.5
323.4
1,932.5
1,943.9
86.4
502.3
4,465.1 $
991.7
713.8
3,715.0
5,420.5 $
9,885.6 $
122.2
944.9
1,234.5
52.0
68.8
2,422.4
2,220.0
2,417.3
823.1
85.7
34.5
8,003.0
193.3
1,068.6
26.5
4.4
1,292.8
1,420.9
66.7
424.9
3,205.3
918.9
662.4
3,216.4
4,797.7
8,003.0
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board,
(signed) Lino A. Saputo, Jr.
Lino A. Saputo, Jr.
Chair of the Board
and Chief Executive Officer
(signed) Tony Meti
Tony Meti
Director
ANNUAL REPORT 2019
- 44 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of CDN dollars)
Years ended March 31
Cash flows related to the following activities:
Operating
Net earnings
Adjustments for:
Stock-based compensation
Interest and other financial charges
Income tax expense
Depreciation and amortization
Gain on disposal of property, plant and equipment and asset held for sale
Impairment charges related to plant closure
Share of joint venture earnings, net of dividends received
Monetary effect on hyperinflation
Underfunding of employee plans in excess of costs
Changes in non-cash operating working capital items
Cash generated from operating activities
Interest and other financial charges paid
Income taxes paid
Net cash generated from operating activities
Investing
Business acquisitions, net of cash acquired
Proceeds on divestiture
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of asset held for sale
Proceeds on disposal of property, plant and equipment
Other
Financing
Bank loans
Proceeds from issuance of long-term debt
Repayment of long-term debt
Issuance of share capital
Repurchase of share capital
Dividends
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Effect of inflation
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents, end of year
2019
2018
$
755.3
$
852.5
41.0
84.3
230.3
313.0
(195.1)
0.2
1.0
(18.5)
0.3
1,211.8
(99.2)
1,112.6
(83.1)
(145.0)
884.5
(1,471.7)
239.7
(370.5)
(65.5)
157.3
4.5
(0.4)
(1,506.6)
(45.6)
1,633.6
(787.7)
60.4
-
(254.6)
606.1
(16.0)
122.2
15.8
(9.3)
$
112.7
$
34.3
47.9
97.4
226.3
(0.7)
10.6
0.9
-
1.8
1,271.0
(115.2)
1,155.8
(47.4)
(299.3)
809.1
(385.1)
-
(277.8)
(66.2)
-
6.6
(0.4)
(722.9)
129.6
300.0
(402.2)
41.0
(29.0)
(243.5)
(204.1)
(117.9)
250.5
-
(10.4)
122.2
The accompanying notes are an integral part of these consolidated financial statements.
ANNUAL REPORT 2019
- 45 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended March 31, 2019 and 2018
(Tabular amounts are in millions of CDN dollars except information on options, units and shares.)
NOTE 1 CORPORATE INFORMATION
Saputo Inc. (the Company) is a publicly traded company incorporated and domiciled in Canada. The Company’s shares
are listed on the Toronto Stock Exchange under the symbol “SAP.” The Company produces, markets and distributes a
wide array of dairy products from Canada, the United States, Australia and Argentina. The address of the Company’s
head office is 6869, Metropolitain Blvd. East, Montréal, Québec, Canada, H1P 1X8. The consolidated financial
statements (financial statements) of the Company for the year ended March 31, 2019, comprise the financial results of
the Company and its subsidiaries.
The financial statements for the year ended March 31, 2019, have been authorized for issuance by the Board of
Directors on June 6, 2019.
NOTE 2 BASIS OF PRESENTATION
STATEMENT OF COMPLIANCE
The consolidated annual financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (IFRS).
BASIS OF MEASUREMENT
The Company’s financial statements have been prepared on a going concern basis and applied based on the historical
cost principle except for certain assets and liabilities as described in the significant accounting policies section.
FUNCTIONAL AND PRESENTATION CURRENCY
The Company’s financial statements are presented in Canadian dollars, which is also the consolidated entity’s
functional currency. All financial information has been rounded to the nearest million unless stated otherwise.
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company and entities under its control. Control exists
when an entity is exposed, or has rights, to variable returns from its involvement with investees and has the ability to affect
those returns through its power over them. All intercompany transactions and balances have been eliminated. Investments
over which the Company has effective control are consolidated. The operating results of acquired businesses, from their
respective acquisition dates, are included in the consolidated income statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash and short-term investments having an initial maturity of three
months or less at the time of acquisition.
INVENTORIES
Finished goods, raw materials and work in process are valued at the lower of cost and net realizable value, cost being
determined under the first in, first out method.
ANNUAL REPORT 2019
- 46 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses and are
depreciated using the straight-line method over their estimated useful lives as described below:
Buildings
Furniture, machinery and equipment
Rolling stock
Assets under finance lease
15 to 40 years
3 to 20 years
5 to 10 years based on estimated kilometers traveled
Shorter of term of lease or estimated useful life
Where components of an item of building or furniture, machinery and equipment are individually significant, they are
accounted for separately within the categories described above.
Assets held for sale are recorded at the lower of their carrying amount or fair value less costs to sell, and no depreciation
is recorded. Assets under construction are not depreciated. Borrowing costs are capitalized to qualifying property, plant
and equipment where the period of construction of those assets takes a substantial period of time to get ready for their
intended use. Borrowing costs, if incurred, are added to the cost of those assets until such time as the assets are
substantially ready for their intended use.
For the purposes of impairment testing, property, plant and equipment are tested at the cash-generating unit (CGU) level.
Write-downs are included in “depreciation and amortization” presented on the consolidated income statements.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the consideration transferred in a given acquisition over the fair value of the
identifiable net assets acquired and is initially recorded at that value. Goodwill is subsequently carried at cost less any
impairment.
Intangible assets include trademarks, customer relationships and software that is not an integral part of the related
hardware. Intangible assets are initially recorded at their transaction fair values. Definite life intangible assets are
subsequently carried at cost less accumulated amortization and less impairment losses, if any. Indefinite life intangible
assets, including goodwill, are not amortized. However, they are tested for impairment annually or more frequently if
events or changes in circumstances indicate that the assets might be impaired.
When testing goodwill for impairment, the carrying values of the CGU’s or group of CGU’s including goodwill are
compared with their respective recoverable amounts (higher of fair value less costs of disposal and value in use) and
an impairment loss, if any, is recognized for the excess.
Trademarks are considered to be definite life intangible assets and are amortized using the straight-line method over
their useful lives of 20 years and are reviewed for indicators of impairment at each reporting period.
Customer relationships and software are considered to be definite life intangible assets and are amortized using the
straight-line method over their useful lives which vary from 5 to 15 years and are reviewed for indicators of impairment
at each reporting period.
Refer to “Impairment Testing of Cash-Generating Units” in Note 7 for a discussion of the CGU levels at which goodwill
and intangible assets are tested.
IMPAIRMENT OF OTHER LONG-LIVED ASSETS
Other long-lived assets are subject to an “indicators of impairment” test at each reporting period. In the event of an
indication of impairment, the asset or group of assets (referred to as CGU’s), for which identifiable cash flows that are
largely independent of the cash inflows from other assets or group of assets exist, are tested for impairment. An
impairment loss is recorded in net earnings when the carrying value exceeds the recoverable amount. The recoverable
amount is defined as the greater of fair value less costs of disposal and value in use.
BUSINESS COMBINATIONS
The Company accounts for its business combinations using the acquisition method of accounting. Under this method,
the Company allocates the purchase price to tangible and intangible assets acquired and liabilities assumed based on
estimated fair values at the date of acquisition, with the excess of the purchase price amount allocated to goodwill.
Significant debt issuance costs directly related to the funding of business acquisitions are included in the carrying value
of the debt and are amortized over the related debt term using the effective interest rate method. Acquisition costs are
expensed as incurred.
ANNUAL REPORT 2019
- 47 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
EMPLOYEE FUTURE BENEFITS
The cost of defined benefit pension and other post-retirement benefits is actuarially determined annually on March 31
using the projected benefit method prorated based on years of service and using Management’s best estimates of rates
of compensation increases, retirement ages of employees and expected health care costs. Current service costs and
interest on obligations offset by interest income on plan assets are expensed in the year. Actuarial gains or losses, the
effect of an adjustment, if any, on the maximum amount recognized as an asset and the impact of the minimum funding
requirements, are recorded in other comprehensive income (loss) and immediately recognized in retained earnings
without subsequent reclassification to the consolidated income statements. The net pension expenditure under defined
contribution pension plans is generally equal to the contributions made by the employer.
REVENUE RECOGNITION
The Company recognizes revenue when control of the asset is transferred to the customer, the vast majority upon
shipment of products. The Company recognizes revenue for all sales at the fair value of the consideration received or
receivable. Sales are net of a provision for variable consideration of estimated allowances and sales incentives provided
to customers, such that it is highly probable that a significant reversal will not occur once the uncertainty related to the
variable consideration is subsequently resolved.
The value of sales incentives provided to customers are estimated using historical trends and are recognized at the
time of sale as a reduction of revenue. Sales incentives include discounts, promotions, advertising allowances, and
other volume-based incentives. In subsequent periods, the Company monitors the performance of customers against
agreed upon obligations related to sales incentive programs and makes any adjustments to both revenue and sales
incentive accruals as required.
FOREIGN CURRENCY TRANSLATION
The Company’s functional currency is the Canadian dollar. Accordingly, the financial position accounts of foreign
operations are translated into Canadian dollars using the exchange rates at the financial position dates and income
statements accounts are translated into Canadian dollars using the average monthly exchange rates in effect during
the periods. The foreign currency translation adjustment (CTA) reserve presented in the consolidated statements of
comprehensive income and the consolidated statements of changes in equity, represents accumulated foreign currency
gains (losses) on the Company’s net investments in companies operating outside Canada. The change in the
unrealized gains (losses) on translation of the financial statements of foreign operations for the periods presented
resulted from the fluctuation in value of the Canadian dollar as compared to the US dollar, the Australian dollar and the
Argentine peso.
Foreign currency accounts of the Company and its subsidiaries are translated using the exchange rates at the financial
position dates for monetary assets and liabilities, and at the prevailing exchange rates at the time of transactions for
income and expenses. Non-monetary items are translated at the historical exchange rates. Gains or losses resulting
from this translation are included in operating costs.
STOCK-BASED COMPENSATION
The Company offers an equity settled stock option plan to certain employees within the organization pursuant to which
options are granted over a five-year vesting period with a ten-year expiration term. The fair value of each instalment of
an award is determined separately and recognized over the vesting period. When stock options are exercised, any
consideration paid by employees and the related compensation expense recorded as a stock option plan reserve are
credited to share capital.
The Company allocates deferred share units (DSU) to eligible Directors of the Company which are based on the market
value of the Company’s common shares. DSUs are granted on a quarterly basis, vest upon award and entitle Directors
to receive a cash payment for the value of the DSUs they hold following cessation of functions as a Director of the
Company. The Company recognizes an expense in its consolidated income statements and a liability in its consolidated
statement of financial positions for each grant. The liability and related expense is subsequently re-measured at each
reporting period.
The Company offers performance share units (PSU) to senior management which are based on the market value of
the Company’s common shares. The PSU plan is non-dilutive and is settled in cash. These awards are considered
cash-settled share-based payment awards. A liability is recognized for the employment service received and is
measured initially, on the grant date, at the fair value of the liability. The liability is then subsequently remeasured at
each reporting period with any change in value recorded in net earnings. The compensation expense is recognized
over the three-year performance cycle.
ANNUAL REPORT 2019
- 48 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
JOINT VENTURES
Joint ventures are accounted for using the equity method and represent those entities in which the Company exercises
joint control over and for which it is exposed to variable returns from its involvement in the arrangement. Joint control
is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control.
INCOME TAXES
Income tax expense represents the sum of current and deferred income tax and is recognized in the consolidated
income statements with the exception of items that are recognized in the consolidated statements of comprehensive
income or directly in equity.
Current income taxes are determined in relation to taxable earnings for the year and incorporate any adjustments to
current taxes payable in respect of previous years.
The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax
assets and liabilities are determined based on temporary differences between the carrying amount of an asset or liability
in the consolidated statement of financial position and its tax basis. They are measured using the enacted or
substantively enacted tax rates that are expected to apply when the asset is realized or the liability is settled. A deferred
income tax asset is recognized to the extent that it is probable that taxable profit will be available against which the
deductible temporary difference can be used.
FINANCIAL INSTRUMENTS
Financial assets and liabilities are initially measured at fair value. Subsequently, financial instruments classified as Fair
Value through Profit or Loss (FVTPL) and fair value through other comprehensive income, part of a hedging relationship
or not, continue to be measured at fair value on the statement of financial position at each reporting date, whereas
other financial instruments are measured at amortized cost using the effective interest method.
The Company has made the following classifications:
- Cash and cash equivalents are classified as amortized cost and are subsequently measured at amortized cost.
- Receivables are classified as amortized cost and are subsequently measured at amortized cost.
- Other assets that meet the definition of a financial asset are classified as amortized cost and are subsequently
measured at amortized cost.
- Bank loans, accounts payable and accrued liabilities, other liabilities and long-term debt are classified as amortized
cost and are measured at amortized cost, with the exception of the liability related to DSUs and PSUs which is
measured at the fair value of common shares on the financial position dates.
Certain derivative instruments are utilized by the Company to manage exposure to variations in interest rate payments
and to manage foreign exchange rate risks, including foreign exchange forward contracts, currency swaps and interest
rate swaps. Derivatives are initially recognized at fair value at the date the derivative contracts and currency swaps are
entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or
loss is immediately recognized in net earnings unless the derivative is designated as a hedging instrument.
HEDGING
The Company designates certain financial instruments as cash flow hedges. At the inception of the hedging relationship,
the Company designates and formally documents the relationship between the hedging instrument and the hedged item,
the risk management objective, and its strategy for undertaking the hedge.
For derivatives instruments designated as cash flow hedges, the change in fair value related to the effective portion of
the hedge is recognized in other comprehensive income (loss), and the accumulated amount is presented as a hedging
reserve in the consolidated statement of equity. Any ineffective portion is immediately recognized in net earnings. Gains
or losses from cash flow hedges included in other components of equity are reclassified to net income, when the hedging
instrument has come due or is settled, as an offset to the losses or gains recognized on the underlying hedged items.
The Company formally assesses at inception and quarterly thereafter, the effectiveness of the hedging instruments
ability to offset variations in the cash flow risks associated with the hedged item. Where a hedging relationship is no
longer effective, hedge accounting is discontinued and any subsequent change in the fair value of the hedging
instrument is recognized in net earnings.
ANNUAL REPORT 2019
- 49 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
FAIR VALUE HIERARCHY
All financial instruments measured at fair value are categorized into one of three hierarchy levels, described below, for
disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
Each level reflects the inputs used to measure the fair values of assets and liabilities:
Level 1 – Inputs are unadjusted quoted prices of identical instruments in active markets.
Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level 3 – One or more significant inputs used in a valuation technique are not based on observable market data in
determining fair values of the instruments.
Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available.
The classification of a financial instrument in the hierarchy is based upon the lowest level of input that is significant to the
measurement of fair value.
USE OF ESTIMATES AND JUDGEMENTS IN THE APPLICATION OF ACCOUNTING POLICIES
The preparation of the Company’s financial statements requires Management to make certain judgements and
estimates about transactions and carrying values that are fulfilled at a future date. Judgements and estimates are
subject to fluctuations due to changes in internal and/or external factors and are continuously monitored by
Management. A discussion of the judgements and estimates that could have a material effect on the financial
statements is provided below.
SIGNIFICANT ESTIMATES AND JUDGEMENTS
Income Taxes
The Company is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining
the consolidated provision for income taxes. During the ordinary course of business, there are many transactions and
calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax
audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters
differs from the amounts that were initially recorded, such differences will impact the results for the reporting period and
the respective current income tax and deferred income tax provisions in the reporting period in which such
determination is made.
Deferred Income Taxes
The Company follows the liability method of accounting for deferred income taxes. Deferred income tax assets and
liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income
in the years in which temporary differences are expected to be recovered or settled. As a result, a projection of taxable
income is required for those years, as well as an assumption of the ultimate recovery or settlement period for temporary
differences. The projection of future taxable income is based on Management’s best estimates and may vary from
actual taxable income. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realized. Canadian, US and international tax rules and regulations
are subject to interpretation and require judgement on the part of the Company that may be challenged by taxation
authorities. The Company believes that it has adequately provided for deferred tax obligations that may result from
current facts and circumstances. Temporary differences and income tax rates could change due to fiscal budget
changes and/or changes in income tax laws.
Goodwill, Intangible Assets and Business Combinations
Goodwill, trademarks and customer relationships have principally arisen as a result of business combinations. The
acquisition method, which also requires significant estimates and judgements, is used to account for these business
combinations. As part of the allocation process in a business combination, estimated fair values are assigned to the
net assets acquired, including trademarks and customer relationships. These estimates are based on forecasts of
future cash flows, estimates of economic fluctuations and an estimated discount rate. The excess of the purchase price
over the estimated fair value of the net assets acquired is then assigned to goodwill. In the event that actual net assets
fair values are different from estimates, the amounts allocated to the net assets, and specifically to trademarks and
customer relationships, could differ from what is currently reported. This would then have a pervasive impact on the
carrying value of goodwill. Differences in estimated fair values would also have an impact on the amortization of definite
life intangibles.
ANNUAL REPORT 2019
- 50 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Property, Plant and Equipment
Critical judgement is necessary in the selection and application of accounting policies and useful lives as well as the
determination of which components are significant and how they are allocated. Management has determined that the
use of the straight-line method of amortization is the most appropriate as its facilities are operating at a similar output
potential on a year to year basis, which indicates that production is constant (please refer to the estimated useful lives
table for further details on the useful lives of productive assets). It is Management’s best estimate that the useful lives
and policies adopted adequately reflect the flow of resources and the economic benefits required and derived in the
use and servicing of these long-lived productive assets.
Impairment of Assets
Significant estimates and judgements are required in testing goodwill, intangible assets and other long-lived assets for
impairment. Management uses estimates or exercises judgement in assessing indicators of impairment, defining a
CGU, forecasting future cash flows and in determining other key assumptions such as discount rates and earnings
multipliers used for assessing fair value (less costs of disposal) or value in use. Estimates made for goodwill and
intangible assets can be found in Note 7. Other long-lived assets are tested only when indicators of impairment are
present.
Employee Future Benefits
The Company is the sponsor to both defined benefit and defined contribution plans, which provide pension and other
post-employment benefits to its employees. Several estimates and assumptions are required with regards to the
determination of the defined benefit expense and its related obligation, such as the discount rate used in determining
the carrying value of the obligation and the interest income on plan assets, the expected health care cost trend rate,
the expected mortality rate, expected salary increase, etc. Actual results will normally differ from expectations. These
gains or losses are presented in the consolidated statements of comprehensive income.
EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS
NOT YET IMPLEMENTED
The International Accounting Standards Board (IASB) made revisions as part of its continuing improvements project.
Below is a summary of the relevant standards affected and a discussion of the amendments.
The following standards, amendments to standards and interpretations have been issued and are applicable to the
Company for its annual periods beginning on and after April 1, 2019, with an earlier application permitted:
IFRS 3, Business Combinations
In October 2018, the IASB issued an amendment to IFRS 3 to clarify the definition of a business, to resolve the
difficulties that arise when an entity determines whether it has acquired a business or a group of assets. In December
2017, the IASB issued an amendment to IFRS 3 to clarify that when an entity obtains control of a business that is a
joint operation, it remeasures previously held interests in that business.
IFRS 9, Financial Instruments
In October 2017, the IASB further amended IFRS 9 to address concerns about how this standard classifies particular
prepayable financial assets.
IFRS 11, Joint Arrangements
In December 2017, the IASB issued an amendment to IFRS 11 to clarify that when an entity obtains joint control of a
business that is a joint operation, the entity does not remeasure previously held interests in that business.
IFRS 16, Leases
In January 2016, the IASB published a new standard, IFRS 16 ‘‘Leases’’, which will replace IAS 17 ‘‘Leases’’. The new
standard will eliminate the distinction between operating and finance leases and will bring most leases on the statement
of financial position for lessees, except with respect to lease that meet limited exception criteria. For lessors, the
accounting remains mostly unchanged and the distinction between operating and finance leases is retained.
IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Estimates
and Errors
In October 2018, the IASB issued an amendment to IAS 1 and IAS 8 to clarify the definition of ‘material’ and to align
the definition used in the Conceptual Framework and the standards themselves.
ANNUAL REPORT 2019
- 51 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
IAS 19, Employee Benefits
In February 2018, the IASB issued an amendment to IAS 19 to specify how an entity shall determine pension expenses
when changes to a pension plan occur. When an amendment, curtailment or settlement to a plan takes place, IAS 19
requires an entity to remeasure its net defined benefit liability or asset. The amendments require an entity to use the
updated assumptions from this remeasurement to determine the current service cost and net interest for the remainder
of the reporting period after the change to the plan. In addition, amendments have been included to clarify the effect of
a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.
IAS 23, Borrowing Costs
In December 2017, the IASB issued an amendment to IAS 23 clarifying that if any specific borrowing remains
outstanding after the related asset is ready for its intended use or sale, it becomes part of the funds that an entity
borrows generally when calculating the capitalization rate on general borrowings.
IAS 28, Investments in Associates
In October 2017, the IASB issued an amendment to IAS 28 to clarify that an entity should apply IFRS 9 to long-term
interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to
which the equity method is not applied.
IFRIC 23, Uncertainty Over Income Tax Treatments
In June 2017, the IFRS Interpretations Committee issued IFRIC 23 which clarifies how the recognition and
measurement requirements of IAS 12, Income Taxes, are applied where there is uncertainty over income tax
treatments.
Except as disclosed in ‘‘Considerations for the implementations of IFRS 16’’, the adoption of these standards,
amendments and interpretation will not have a significant impact on the Company’s financial statements.
CONSIDERATIONS FOR THE IMPLEMENTATION OF IFRS 16
IFRS 16 is required to be applied for the annual reporting period beginning on April 1, 2019.
IFRS 16 can be applied using one of the following two methods: retrospectively to each prior reporting period presented
in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, or retrospectively with the
cumulative effect of applying IFRS 16 recognized at the date of initial application. The Company will apply the second
method as its transition method as prescribed under IFRS 16.
The adoption of IFRS 16 will lead to the recognition of operating leases on the statement of financial position. As a
result, the Company expects to record right-of-use assets of approximately $405 million and lease liabilities of
approximately $415 million. In addition, the Company has existing capital leases of approximately $29 million that are
recorded as long-term debt and that will be reclassified as lease liabilities on April 1, 2019. The Company does not
expect a significant impact on deferred tax balances. Management is currently assessing the impact of the acquisition
of Dairy Crest Group plc (Dairy Crest Acquisition), completed on April 15, 2019, as it relates to IFRS 16.
IFRS 16 will be applied in fiscal year 2020 using the modified retrospective approach and the Company will therefore
not be restating comparative information. In addition, the Company has applied the following exemptions and practical
expedients on adoption of IFRS 16:
The use of a single discount rate for a portfolio of leases with reasonably similar characteristics;
•
• Exemption from recognizing a right-of-use asset and a lease liability when the lease term ends within
12 months of the date of initial application;
• Exemption from recognizing a right-of-use asset and a lease liability when the underlying asset is of low value;
The exclusion of initial direct costs from the measurement of the right-of-use assets at the date of initial
•
application;
The Company also expects a decrease in operating lease expenses, offset by a corresponding increase in
depreciation and amortization and financial expenses resulting from the changes in the recognition, measurement,
and presentation requirements. However, no significant impact on net earnings is expected at this time.
ANNUAL REPORT 2019
- 52 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Effect of new accounting standards, interpretations and amendments adopted during the period:
IFRS 2, Share-Based Payment
In June 2016, the IASB issued an amendment to clarify how to account for certain types of share-based payment
transactions. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net
settlement feature for withholding tax obligations and a modification to the terms and conditions of a share-based
payment that changes the classification of the transaction from cash-settled to equity-settled.
This amendment did not impact the Company’s financial statements for the fiscal year ended March 31, 2019.
IFRS 9, Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments with the goal of replacing IAS 39,
Financial Instruments: Recognition and Measurement. IFRS 9 provides revised guidance regarding the classification
and measurement of financial assets, including a new impairment model for the recognition of expected credit losses
and a new hedge accounting model. IFRS 9 is applicable retrospectively in accordance with IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors, subject to certain exemptions and exceptions. Under IFRS 9, impairment
is measured by either the twelve-month expected credit losses or lifetime expected credit losses. The Company applies
the simplified approach to recognize lifetime expected credit losses under IFRS 9.
Classification and measurement IFRS 9 contains a new classification and measurement for financial assets which
consists of the following categories: amortized cost, fair value through other comprehensive income, and FVTPL. The
new classification of financial assets provided by IFRS 9 is generally based on the business model in which a financial
asset is managed and its contractual cash flow characteristics. Financial liabilities are classified and measured based
on two categories: amortized cost or FVTPL.
The following table presents the classification impacts on the financial assets and liabilities upon the adoption of
IFRS 9. There was no significant impact with regards to the measurement of the financial assets and liabilities.
Asset/Liability
Classification under IAS 39
Classification under IFRS 9
Cash and cash equivalents
Receivables
Other assets
Bank Loans
Accounts payable and accrued liabilities
Long-term debt
Derivatives
Loan and receivables
Loan and receivables
Loan and receivables
Other liabilities
Other liabilities
Other liabilities
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Impairment IFRS 9 provides a new impairment model that requires the recognition of expected credit losses
(ECL model) that replaced the ‘incurred loss’ model in IAS 39. The ECL model applies to financial assets measured at
amortized cost.
Hedge accounting, under IFRS 9, introduced a new hedge accounting model that requires the Company to ensure that
hedge accounting relationships are aligned with the Company’s risk management objectives and strategy and to apply
a more qualitative and forward-looking approach to assessing hedge effectiveness. The Company completed these
changes to its internal documentation to meet the requirements of IFRS 9. In accordance with the transitional provisions
in IFRS 9, the Company has applied the IFRS 9 hedge accounting prospectively from the date of initial application.
The adoption of this standard did not significantly impact the Company’s financial statements for the fiscal year ended
March 31, 2019.
ANNUAL REPORT 2019
- 53 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
IFRS 15, Revenue from Contracts with Customers
The IASB issued IFRS 15, Revenue from Contracts with Customers with its goal to provide a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers. This new standard supersedes
revenue recognition guidance in IAS 18, Revenue, IAS 11, Construction Contracts and IFRIC 13, Customer Loyalty
Programs.
This standard provides a five-step approach to revenue recognition that includes identifying contracts with customers,
identifying performance obligations, determining transaction prices, allocating transaction prices to performance
obligations and recognizing revenue when performance obligations are satisfied. The standard also expands current
disclosure requirements.
IFRS 15 can be applied using one of the following two methods: retrospectively to each prior reporting period presented
in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, or retrospectively with the
cumulative effect of applying IFRS 15 recognized at the date of initial application. The Company decided to use the
second method as its transition method as prescribed under IFRS 15.
As per IFRS 15, the Company must define its role as principal or agent in shipping and handling activities. With respect
to this standard, the Company’s shipping and handling activities are considered as principal and are presented on a
gross basis.
The adoption of IFRS 15 impacted the timing of revenue recognition, where revenues are recognized at a point in time
when control of the asset is transferred to the customer, generally upon shipment of products. Also, some contracts
with customers provide incentive programs, including discounts, promotions, advertising allowances, and other volume-
based incentives are impacted. Such incentives give rise to variable consideration, which are also estimated at contract
inception. Lastly, IFRS 15 affected the classifications of certain amounts paid to customers in the income statements,
where payments to the customer for distinct goods or services has been classified as selling, general and administrative
expenses and payments not for distinct goods or services have been classified as a component of sales.
The adoption of this standard did not significantly impact the Company’s financial statements for the fiscal year ended
March 31, 2019. No adjustment was recorded on the opening balance of equity upon the adoption of IFRS 15.
IAS 40, Investment Property
In December 2016, the IASB issued an amendment to IAS 40 clarifying when assets are transferred to, or from,
investment properties. The amendment clarified that to transfer to, or from, investment properties there must be a
change in use. To conclude if a property has changed use there should be an assessment of whether the property
meets the definition. This change must be supported by evidence.
This amendment did not impact the Company’s financial statements for fiscal year ended March 31, 2019.
IFRIC 22, Foreign Currency Transactions and Advance Consideration
In December 2016, the IASB issued IFRIC 22 which provides an interpretation on how to determine the date of the
transaction when applying the standard on foreign currency transactions, IAS 1. The interpretation applies where an
entity pays or receives consideration in advance for foreign currency-denominated contracts. The date of the
transaction determines the exchange rate to be used on initial recognition of the related asset, expense or income. This
interpretation provides guidance for when a single payment or receipt is made, as well as for situations where multiple
payments or receipts are made and aims to reduce diversity in practice.
This interpretation did not impact the Company’s financial statements for the fiscal year ended March 31, 2019.
ANNUAL REPORT 2019
- 54 -
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
IAS 29, Financial Reporting in Hyperinflationary Economies
In July 2018, the Argentine Federation of Professional Councils in Economic Sciences (F.A.C.P.C.E.) issued a release
mentioning that, effective July 1, 2018, entities reporting under IFRS are required to apply the inflation adjustment since
the applicable conditions for such application have been satisfied.
IAS 29 requires that the financial statements of an entity whose functional currency is the currency of a hyperinflationary
economy be adjusted based on an appropriate general price index to express the effects of inflation, and shall be stated
in terms of the measuring unit current at the end of the reporting period.
Non-monetary assets and liabilities are adjusted by applying the relevant index and the effect of inflation on the Dairy
Division (Argentina) is presented in the consolidated income statements as a gain on hyperinflation. The gain is derived
from the indexation of non-monetary assets and liabilities.
The main impacts at the beginning of the first period of application of this standard are an increase of $57.0 million in
non-monetary assets, such as inventory, property, plant and equipment and intangible assets, and an increase of
$13.9 million in deferred income taxes liabilities. Therefore, as at July 1, 2018, a one-time gain of $43.1 million was
included in the consolidated statements of comprehensive income.
NOTE 4
INVENTORIES
Finished goods
Raw materials, work in progress and supplies
Total
March 31, 2019 March 31, 2018
$
$
1,134.1
546.9
$
835.2
399.3
1,681.0
$
1,234.5
The amount of inventories recognized as an expense in operating costs for the year ended March 31, 2019 is
$10,676.9 million ($9,175.1 million for the year ended March 31, 2018).
NOTE 5 OPERATING COSTS EXCLUDING DEPRECIATION AND AMORTIZATION
Changes in inventories of finished goods and work in process
Raw materials and consumables used
Foreign exchange loss
Employee benefits expense
Selling costs
Other general and administrative costs
$
2019
(25.4) $
9,204.2
11.9
1,577.7
648.8
863.4
2018
(56.5)
8,018.0
2.7
1,314.1
429.1
570.4
Total
$
12,280.6 $
10,277.8
During fiscal 2019, a write-down of $3.2 million ($16.9 million for the year ended March 31, 2018) was included as an
expense in “Operating costs excluding depreciation and amortization” under the caption “Changes in inventories of finished
goods and work in process” presented in the table above, as a result of the decrease in certain market selling prices.
ANNUAL REPORT 2019
- 55 -
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Furniture,
machinery
and
Land Buildings
equipment
Rolling
stock
Held for
Lease
sale
Total
For the year ended March 31, 2019
65.0
$
906.5
$
2,678.5
$
17.7 $
29.6
$
23.1
$ 3,720.4
0.2
12.2
59.3
0.3
-
54.1
0.6
(0.5)
(1.2)
245.7
85.9
(22.7)
(20.1)
402.4
282.6
(90.2)
8.6
1.4
1.4
(1.0)
(0.8)
-
11.5
-
(3.1)
-
-
-
(17.8)
12.3
72.0
703.6
382.0
(132.2)
(4.3)
(0.4)
8.8
48.5
(0.3)
1.1
-
57.7
Cost
As at March 31, 2018 $
Adjustment on initial
application - IAS 29
Business acquisitions
(Note 16)
Additions
Disposals
Transfers
Foreign currency and
hyperinflation
adjustments
As at March 31, 2019 $
117.8
$ 1,216.3
$
3,389.7
$
18.7 $
39.1
$
17.6
$ 4,799.2
Accumulated
depreciation
As at March 31, 2018
Adjustment on initial
application - IAS 29
Depreciation
Disposals
Transfers
Impairment charges
related to plant
closure
Foreign currency and
hyperinflation
adjustments
As at March 31, 2019 $
-
-
-
-
-
-
-
-
303.4
1,178.2
8.9
1.1
8.8
1,500.4
4.3
41.4
(24.6)
(8.1)
0.2
6.9
32.0
195.2
(85.3)
0.4
0.3
2.9
(1.4)
-
-
3.8
-
(0.4)
-
-
(4.3)
8.1
36.6
243.3
(115.6)
-
-
-
-
32.1
(0.2)
0.1
-
-
0.2
38.9
$
323.5
$
1,352.6
$
10.5 $
4.6
$
12.6
$ 1,703.8
Net book value at
March 31, 2019
$
117.8
$
892.8
$
2,037.1
$
8.2 $
34.5
$
5.0
$ 3,095.4
The net book value of property, plant and equipment under construction amounts to $276.9 million as at March 31, 2019
($109.1 million as at March 31, 2018), and consists mainly of machinery and equipment.
For fiscal 2019 and 2018, the assets held for sale relate mainly to land and building in Canada as a result of the closure
of certain facilities and have been recorded at the lower of carrying value and fair value less costs to sell.
In the third quarter of fiscal 2019, the Company realized a gain on disposal of assets of $194.5 million ($167.8 million
after tax) relating to the sale of its facility in Burnaby, British Columbia. The Company sold the facility for $209.0 million,
and provided a vendor take-back (VTB) mortgage in the amount of $50.0 million (Note 8). The VTB mortgage bears
interest at a rate of 3% per annum and matures in fiscal 2022 where the full amount of capital will be repaid. The
Company has entered into a lease agreement for the Burnaby facility until the construction of the new facility is
completed, which is expected to be in fiscal 2021.
ANNUAL REPORT 2019
- 56 -
NOTE 6
PROPERTY, PLANT AND EQUIPMENT (CONT’D)
Furniture,
machinery
and
Land
Buildings
equipment
Rolling
stock
Lease
Held for
sale
Total
For the year ended March 31, 2018
69.2
$
854.9
$
2,638.3
$
16.9 $
-
$
-
$ 3,579.3
2.4
0.2
(0.8)
(5.2)
20.6
83.3
(11.5)
(17.8)
3.4
193.6
(85.2)
(0.1)
1.0
0.7
(0.4)
-
28.7
-
-
-
-
-
-
23.1
56.1
277.8
(97.9)
-
(0.8)
(23.0)
(71.5)
65.0
$
906.5
$
2,678.5
$
(0.5)
17.7 $
0.9
29.6
$
-
23.1
(94.9)
$ 3,720.4
-
-
-
-
-
-
290.5
33.0
(8.6)
(8.8)
6.1
1,115.9
166.1
(83.1)
-
4.5
7.4
1.9
(0.3)
-
-
(8.8)
(25.2)
(0.1)
-
1.1
-
-
-
-
-
-
-
8.8
1,413.8
202.1
(92.0)
-
-
-
10.6
(34.1)
Cost
As at March 31, 2017 $
Business acquisitions
(Note 16)
Additions
Disposals
Transfers
Foreign currency
adjustments
As at March 31, 2018 $
Accumulated
depreciation
As at March 31, 2017
Depreciation
Disposals
Transfers
Impairment charges
related to plant
closure
Foreign currency
adjustments
As at March 31, 2018 $
-
$
303.4
$
1,178.2
$
8.9 $
1.1
$
8.8
$ 1,500.4
Net book value at
March 31, 2018
$
65.0
$
603.1
$
1,500.3
$
8.8 $
28.5
$
14.3
$ 2,220.0
ANNUAL REPORT 2019
- 57 -
NOTE 7
GOODWILL AND INTANGIBLE ASSETS
For the year ended March 31, 2019
Definite Life
Goodwill
Trademarks1
Customer
relationships2
Software3
Total Intangible
Assets
$
2,417.3
$
433.5 $
303.7
$
195.6
$
932.8
Cost
As at March 31, 2018
Adjustment on initial application -
IAS 29
Business acquisitions (Note 16)
Additions
Transfer
Foreign currency and
hyperinflation adjustments
-
127.8
-
-
52.5
-
27.5
-
-
3.4
-
10.5
-
-
5.2
2.9
6.1
65.5
4.3
(0.6)
As at March 31, 2019
$
2,597.6
$
464.4 $
319.4
$
273.8
$
Accumulated Amortization
As at March 31, 2018
Adjustment on initial application -
IAS 29
Amortization
Foreign currency and
hyperinflation adjustments
-
-
-
-
As at March 31, 2019
$
-
$
-
-
21.6
0.1
21.7 $
Net book value at March 31, 2019 $
2,597.6
$
442.7 $
102.5
-
21.1
1.9
125.5
$
193.9
$
7.2
0.6
27.0
(0.6)
34.2
$
239.6
$
2.9
44.1
65.5
4.3
8.0
1,057.6
109.7
0.6
69.7
1.4
181.4
876.2
Indefinite Life
Definite Life
For the year ended March 31, 2018
Goodwill
Trademarks1
Customer
relationships2
Software3
Total Intangible
Assets
Cost
As at March 31, 2017
$
Business acquisitions (Note 16)
Additions
Foreign currency adjustments
$
2,240.5
233.8
-
(57.0)
354.7 $
81.7
-
(2.9)
$
260.1
49.9
-
(6.3)
$
135.9
-
66.2
(6.5)
As at March 31, 2018
$
2,417.3
$
433.5 $
303.7
$
195.6
$
Accumulated Amortization
As at March 31, 2017
Amortization
Foreign currency adjustments
As at March 31, 2018
$
-
-
-
-
-
-
-
$
- $
Net book value at March 31, 2018 $
2,417.3
$
433.5 $
1 Trademarks are amortized straight-line over a period of 20 years.
2 Customer relationships are amortized straight-line over a period of 15 years.
3 None of the additions were internally generated.
87.2
17.7
(2.4)
1.2
6.5
(0.5)
102.5
$
201.2
$
7.2
$
188.4
$
750.7
131.6
66.2
(15.7)
932.8
88.4
24.2
(2.9)
109.7
823.1
ANNUAL REPORT 2019
- 58 -
NOTE 7
GOODWILL AND INTANGIBLE ASSETS (CONT’D)
IMPAIRMENT TESTING OF CASH-GENERATING UNITS
Goodwill
In determining whether goodwill is impaired, the Company is required to estimate the recoverable amount of CGUs or
groups of CGUs to which goodwill is allocated. Management considers the sectors below to be CGUs or groups of
CGUs as they represent the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows form other assets or groups of assets.
The Company reports its operations under three geographic sectors. The Canada Sector consists of the Dairy Division
(Canada). The USA Sector includes the Cheese Division (USA) and the Dairy Foods Division (USA). Finally, the
International Sector combines the Dairy Division (Australia) and the Dairy Division (Argentina).
Goodwill has been allocated to each CGU or group of CGUs as follows:
Allocation of goodwill
Canada
USA
Cheese Division (USA)
Dairy Foods Division (USA)
International
Dairy Division (Australia)
Dairy Division (Argentina)
March 31, 2019
$
401.5 $
March 31, 2018
323.2
1,327.7
638.8
220.1
9.5
2,597.6 $
1,247.3
617.3
219.6
9.9
2,417.3
$
Recoverable amounts for Dairy Division (Canada), Cheese Division (USA) and Dairy Foods Division (USA) have been
estimated using an earnings multiplier valuation model (fair value less costs of disposal). The key assumptions used in
these models consist mainly of earnings multipliers for market comparables that are applied to the results of each CGU
or group of CGUs tested.
Recoverable amounts for Dairy Division (Australia) and Dairy Division (Argentina) have been estimated using a
discounted cash flow (value in use) model based on the following key assumptions:
• Cash flows: Cash flow forecasts for a given CGU are based on earnings before interest, income taxes,
depreciation and amortization and are adjusted for a growth rate and income tax rates. The cash flow forecast
does not exceed a period of five years with a terminal value calculated as a perpetuity in the final year.
Terminal growth rate: Management uses a terminal growth rate to adjust its forecasted cash flows based on
expected increases in inflation and revenue for the CGU.
•
• Discount rate: Cash flows are discounted using pre-tax discount rates.
The Company performed its annual impairment test and in all cases the recoverable amounts exceeded their respective
carrying values including goodwill. The Company has designated December 31 as the date for the annual impairment
test. As at December 31, 2018, goodwill was not considered to be impaired.
Trademarks
Trademarks are included in the following CGU or group of CGUs:
Allocation of trademarks
Neilson – Dairy Division (Canada)
Other
March 31, 2019
$
March 31, 2018
223.2
210.3
433.5
212.0 $
230.7
442.7 $
$
The assessment of the useful life of trademarks is reviewed annually to determine whether the indefinite life continues
to be supportable, if not, the change in useful life from indefinite to definite is made on a prospective basis. Following
the completion of the annual assessment, all trademarks have been reclassified from indefinite to definite-lived and are
amortized using the straight-line method over their useful lives of 20 years since the beginning of the fiscal 2019
ANNUAL REPORT 2019
- 59 -
NOTE 8 OTHER ASSETS
Joint ventures
Financial loan (Note 6)
Other
March 31, 2019
March 31, 2018
$
$
$
45.2
50.0
36.4
131.6
$
47.9
-
37.8
85.7
The Company has three joint ventures and holds a 50% interest in two of them and a 49% interest in the third. In all three
joint ventures, the terms of the agreements require the unanimous consent of all parties in order to direct the significant
operations of the joint ventures. Two of those joint ventures have a June 30th year-end and one has a December 31st year-
end. All joint ventures are accounted for under the equity method. The Company recognized $8.5 million in net earnings,
representing its share of earnings in the joint ventures for the year ended March 31, 2019 ($7.3 million for the year ended
March 31, 2018). Dividends received from the joint ventures amounted to $9.5 million for the year ended March 31, 2019
($8.2 million for the year ended March 31, 2018), and an amount of $4.6 million was declared but unpaid as at
March 31, 2019 ($0.7 million for the year ended March 31, 2018).
NOTE 9 BANK LOANS
The Company has available bank credit facilities providing for unsecured bank loans as follows:
Credit Facilities
North America-USA
North America-Canada
Argentina
Argentina
Australia
Australia
Maturity
December 20231
December 20231
Yearly2
Yearly3
Yearly4
Yearly4
Available for use
Amount drawn
Canadian
Currency
Equivalent
400.5
267.0
148.2
90.2
298.4
133.5
1,337.8
Base Currency
March 31, 2019
March 31, 2018
$
300.0 USD
200.0 USD
111.0 USD
2,930.0 ARS
315.0 AUD
100.0 USD
$
-
-
45.4
23.2
38.0
23.8
71.0
-
41.3
42.2
7.9
30.9
$
130.4
$
193.3
1 Bears monthly interest at rates ranging from lender’s prime rates plus a maximum of 1.00% or LIBOR or banker’s acceptance rate plus 0.80% up to
a maximum of 2.00% depending on the Company credit ratings.
2 Bear monthly interest at local rate and can be drawn in USD.
3 Bear monthly interest at local rate and can be drawn in ARS.
4 Bear monthly interest at LIBOR or Australian Bank Bill Rate plus 0.70% and can be drawn in AUD or USD.
NOTE 10 LONG-TERM DEBT
Unsecured bank term loan facilities
Obtained December 2012 ($850.0 million)1
Obtained April 2018 ($300.0 million) and due in April 20212
Obtained April 2018 (AU$600.0 million) and due in April 20232
Unsecured senior notes3,4
2.65%, issued in November 2014 and due in November 2019 (Series 1)
2.20%, issued in June 2016 and due in June 2021 (Series 2)
2.83%, issued in November 2016 and due in November 2023 (Series 3)
1.94%, issued in June 2017 and due in June 2022 (Series 4)
3.60%, issued in August 2018 and due in August 2025 (Series 5)
Finance lease obligations
Current portion
March 31, 2019
March 31, 2018
$
- $
200.0
487.9
300.0
300.0
300.0
300.0
350.0
$
$
29.4
2,267.3
323.4
$
1,943.9
$
200.0
-
-
300.0
300.0
300.0
300.0
-
25.3
1,425.3
4.4
1,420.9
1 Bear monthly interest at rates ranging from lender's prime plus a maximum of 1.00% or LIBOR or bankers’ acceptance rates plus 0.80% up to a
maximum of 2.00%, depending on the Company’s credit ratings, and can be drawn in CAD or USD.
2 Bear monthly interest at rates ranging from lender's prime plus a maximum of 1.00%, or banker’s acceptance rates or Australian Bank Bill Rate plus
0.80% up to a maximum of 2.00%, depending on the Company’s credit ratings. Interest is paid every one, two, three or six months, as selected by
the Company.
Interest payments are semi-annual.
3
4 On December 12, 2018, the Company renewed its medium term note program and filed a short form base shelf prospectus qualifying an offering of
medium term notes for distribution to the public in the provinces of Canada over a 25-month period.
ANNUAL REPORT 2019
- 60 -
NOTE 10
LONG TERM DEBT (CONT’D)
Principal repayments are as follows:
Less than 1 year
1-2 years
2-3 years
3-4 years
4-5 years
More than 5 years
March 31, 2019
March 31, 2018
$
$
323.4
3.9
502.1
300.0
787.9
350.0
4.4
520.9
-
300.0
300.0
300.0
$
2,267.3
$
1,425.3
In connection with the Dairy Crest Acquisition, the Company entered into a new credit agreement on February 21, 2019,
providing for a non-revolving term facility denominated in pound sterling in the aggregate amount of £1.265 billion
($2.202 billion) (DC Acquisition Facility), consisting of three tranches: a 1-year tranche of £400.0 million ($697.0 million);
a 2-year tranche of £265.0 million ($461.5 million); and a 3-year tranche of £600.0 million ($1,045.5 million). The DC
Acquisition Facility bears interest at lenders’ prime rates plus a maximum of 1.00% or LIBOR or bankers’ acceptance
rates plus 0.80% up to a maximum of 2.00%, depending on the Company’s credit ratings. No amounts had been drawn
on the DC Acquisition Facility as at March 31, 2019.
On May 1, 2018, the Company had drawn in full a non-revolving term facility in the aggregate amount of $1.284 billion
(MG Acquisition Facility) to finance the acquisition of the business of Murray Goulburn Co-Operative Co. Limited (MG)
(Note 16).
On August 14, 2018, the Company issued $350.0 million Series 5 medium term notes with an annual interest rate of
3.60% payable in equal semi-annual instalments, maturing on August 14, 2025, pursuant to its medium term note
program. The Company used the proceeds of the Series 5 medium term notes, available cash and credit facilities to
reimburse $400.0 million of the MG Acquisition Facility.
In addition, the Company used the proceeds from the Koroit plant divestiture (Note 16), available cash and credit
facilities to reimburse $200.0 million of an unsecured bank term loan, as well as $100.0 million and AU$85.0 million
($79.7 million) of the MG Acquisition Facility.
On June 12, 2017, the Company issued $300.0 million Series 4 medium term notes with an annual interest rate of
1.94% payable in equal semi-annual instalments, maturing on June 13, 2022, pursuant to its medium term note
program.
NOTE 11 OTHER LIABILITIES
Employee benefits (Note 17)
Derivative financial liabilities (Note 20)
Performance share unit liabilities and related fringe benefits
Other
March 31, 2019
March 31, 2018
$
$
36.6 $
-
21.8
28.0
86.4
$
33.1
11.7
18.5
3.4
66.7
ANNUAL REPORT 2019
- 61 -
NOTE 12
SHARE CAPITAL
AUTHORIZED
The authorized share capital of the Company consists of an unlimited number of common shares. The common shares
are voting and participating.
Issued
390,198,386 common shares (387,407,403 common shares in 2018)
$
991.7 $
918.9
March 31, 2019
March 31, 2018
During the year ended March 31, 2019, 2,790,983 common shares (1,827,992 in 2018) were issued for an amount of
$60.4 million ($41.0 million in 2018) pursuant to the share option plan. For the year ended March 31, 2019, the amount
transferred from stock option plan reserve was $12.4 million ($8.2 million in 2018).
Pursuant to the normal course issuer bid which began on November 17, 2017, and expired on November 16, 2018, as
amended, the Company was authorized to repurchase for cancellation up to 8,000,000 of its common shares. Under the
normal course issuer bid that became effective on November 19, 2018, and expiring on November 18, 2019, the Company
is authorized to repurchase, for cancellation purposes, up to 8,000,000 of its common shares. During the year ended
March 31, 2019, the Company did not repurchase any common shares.
SHARE OPTION PLAN
The Company has an equity settled share option plan to allow for the purchase of common shares by key employees and
officers of the Company. The total number of common shares which may be issued pursuant to this plan cannot exceed
45,698,394 common shares. As at March 31, 2019, 20,704,548 common shares are available for future grants under this
plan and 20,374,871 common shares are underlying options outstanding. During fiscal 2019, a total of 2,790,983 common
shares were issued following the exercise of options. Options may be exercised at a price not less than the weighted
average market price for the five trading days immediately preceding the date of grant. The options vest at 20% per year
and expire ten years from the grant date.
Options issued and outstanding as at year end are as follows:
Granting
period
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Exercise
price
$ 13.91
$ 10.70
$ 14.66
$ 21.61
$ 21.48
$ 25.55
$ 27.74
$ 35.08
$ 41.40
$ 46.29
$ 41.02
March 31, 2019
March 31, 2018
Number of
options
Number of exercisable
options
Number of
options
Number of exercisable
options
-
11,728
576,714
637,317
1,271,036
1,706,074
2,282,620
2,362,317
3,663,707
3,607,186
4,256,172
20,374,871
-
11,728
576,714
637,317
1,271,036
1,706,074
1,688,226
1,293,545
1,429,421
728,176
-
9,342,237
62,600
652,202
853,430
838,875
1,684,832
2,174,840
2,734,958
2,699,555
3,986,625
3,822,206
-
19,510,123
62,600
652,202
853,430
838,875
1,684,832
1,589,320
1,430,240
949,431
769,556
-
-
8,830,486
ANNUAL REPORT 2019
- 62 -
NOTE 12
SHARE CAPITAL (CONT’D)
Changes in the number of outstanding options are as follows:
Balance, beginning of year
Options granted
Options exercised
Options cancelled
Balance, end of year
2019
2018
Number of
options
19,510,123
4,536,208
(2,790,983)
(880,477)
Weighted
average
exercise
price
$ 32.95
$ 41.02
$ 21.62
$ 42.71
Number of
options
17,850,014
3,908,023
(1,827,992)
(419,922)
Weighted
average
exercise
price
$ 29.00
$ 46.29
$ 22.41
$ 35.07
20,374,871
$ 35.96
19,510,123
$ 32.95
The exercise price of the options granted in fiscal 2019 is $41.02, which corresponds to the weighted average market
price for the five trading days immediately preceding the date of grant ($46.29 in fiscal 2018).
The weighted average fair value of options granted in fiscal 2019 was estimated at $7.12 per option ($7.68 in fiscal 2018),
using the Black Scholes option pricing model with the following assumptions:
March 31, 2019
March 31, 2018
Weighted average:
Risk-free interest rate
Expected life of options
Volatility1
Dividend rate
1 The expected volatility is based on the historic share price volatility over a period similar to the life of the options.
18.42 %
1.54 %
1.95 %
5.6 years
1.10 %
5.4 years
18.89 %
1.26 %
A compensation expense of $25.1 million ($22.7 million net of taxes) relating to stock options was recorded in the
consolidated income statements for the year ended March 31, 2019, and $24.1 million ($20.8 million net of taxes) was
recorded for the year ended March 31, 2018.
Options to purchase 3,319,450 common shares at a price of $45.30 per share were granted on April 1, 2019.
DEFERRED SHARE UNIT PLAN FOR DIRECTORS
In accordance with the DSU plan, all eligible Directors of the Company are allocated an annual retainer payable 50% in
DSUs and 50% in cash or DSUs, at the election of the Director. Until the ownership threshold is met by the Director, the
Director must receive the entire compensation in DSUs. The number of DSUs granted quarterly to each Director is
determined based on the market value of the Company’s common shares at the date of each grant. When they cease to
be a Director of the Company, a cash payment equal to the market value of the accumulated DSUs will be disbursed. The
liability relating to these units is adjusted by taking the number of units outstanding multiplied by the market value of
common shares at the Company’s year-end. The Company includes the cost of the DSU plan in “Operating costs excluding
depreciation and amortization”.
Balance, beginning of year
Annual retainer
Dividends reinvested
Payment to directors
Variation due to change in stock price
2019
2018
Units
294,630
50,047
4,971
-
-
Liability
$
12.2
2.1
0.2
-
1.4
Units
367,918
48,782
4,794
(126,864)
-
Liability
$ 17.6
2.1
0.2
(5.6)
(2.1)
Balance, end of year
349,648
$
15.9
294,630
$
12.2
The Company enters into equity forward contracts in order to mitigate the compensation costs associated with its DSU
plan. As at March 31, 2019, the Company had equity forward contracts on 320,000 common shares (320,000 as of
March 31, 2018) with a notional value of $13.5 million ($13.9 million as of March 31, 2018). The net compensation
expense related to the DSU plan was $2.9 million for the year ended March 31, 2019 ($2.2 million for March 31, 2018),
including the effect of the equity forward contracts.
ANNUAL REPORT 2019
- 63 -
NOTE 12
SHARE CAPITAL (CONT’D)
PERFORMANCE SHARE UNIT PLAN
The Company offers senior management a performance share unit (PSU) plan to form part of long-term incentive
compensation, together with other plans discussed within this financial statements. The PSU plan is non-dilutive and is
settled in cash only. Under the PSU plan, each performance cycle shall consist of three fiscal years of the Company. At
the time of the grant of a PSU, the Company determines the performance criteria which must be met by the Company.
Following completion of a three-year performance cycle, the PSUs for which the performance criteria have been achieved
will vest and the value that will be paid out is the price of the common shares at such time, multiplied by the number of
PSUs for which the performance criteria have been achieved. The amount potentially payable to eligible employees is
recognized as a payable and is revised at each reporting period. The expense is included in employee benefits under the
“Operating costs excluding depreciation and amortization” caption.
Balance, beginning of year
Annual grant
Cancelled
Payment
Balance, end of year
2019
Units
771,707
298,819
(30,809)
(268,795)
770,922
2018
Units
814,571
263,637
(6,592)
(299,909)
771,707
As at March 31, 2019, a long-term obligation related to PSUs of $17.9 million was recorded ($15.5 million as at
March 31, 2018) in addition to $10.7 million that was recorded in short-term liabilities ($10.9 million as at March 31, 2018).
On April 1, 2019, 313,273 PSUs were granted at a price of $45.30 per unit ($41.02 in 2018).
The Company enters into equity forward contracts in order to mitigate the compensation costs associated with its PSU
plan. As at March 31, 2019, the Company had equity forward contracts on 770,000 common shares (770,000 as of
March 31, 2018) with a notional value of $34.7 million ($32.9 million as of March 31, 2018). The net compensation expense
related to PSUs was $10.8 million for the year ended March 31, 2019 ($11.3 million for the year ended March 31, 2018),
including the effect of the equity forward contracts.
RESTRICTED SHARE UNIT PLAN
In fiscal 2019, the Company established a restricted share unit (RSU) plan to form part of long-term incentives
compensation, together with other plans discussed within this financial statements. The RSU plan is non-dilutive and is
settled in cash only. Under the RSU plan, each restriction period shall consist of three fiscal years of the Company. At the
time of the grant of a RSU, the Company determines the vesting criteria which must be met by the participants. Such
criteria may include, without limitation, continuing employment through all or part of the restriction period. Following
completion of a three-year restriction period, the RSUs for which the vesting criteria have been achieved will vest and the
value that will be paid out is the price of the common shares at such time, multiplied by the number of RSUs for which the
vesting criteria have been achieved. The amount potentially payable to eligible employees will be recognized as a payable
and will be revised at each reporting period. The expense will be included in employee benefits under the “Operating costs
excluding depreciation and amortization” caption.
No RSUs were granted during fiscal 2019. On April 1, 2019, 132,967 RSUs were granted at a price of $45.30 per unit.
NOTE 13 OTHER FINANCIAL CHARGES
Finance costs
Finance income
$
$
2019
23.1 $
(5.4)
17.7
$
2018
17.4
(3.3)
14.1
ANNUAL REPORT 2019
- 64 -
NOTE 14
INCOME TAXES
On December 22, 2017, the United States (US) enacted the “Tax Cuts and Jobs Act” which has been commonly referred
to as USA tax reform benefit. A significant change under this reform was the reduction of the US Federal tax rate from
35.0% to 21.0%, effective January 1, 2018. This change resulted in the Company recording an income tax benefit of
$178.9 million in last year tax expense.
Income tax expense is comprised of the following:
Current tax expense
Deferred tax expense (recovery)
Income tax expense
$
$
2019
177.4 $
52.9
230.3
$
2018
198.0
(100.6)
97.4
RECONCILIATION OF THE EFFECTIVE TAX RATE
The effective income tax rate was 23.4% in 2019 (10.4% in 2018). The Company’s income tax expense differs from the
one calculated by applying Canadian statutory rates for the following reasons:
Earnings before tax
Income taxes, calculated using Canadian statutory
income tax rates of 26.4% (26.4% in 2018)
Adjustments resulting from the following:
Effect of tax rates for foreign subsidiaries and other deductions
Changes in tax laws and rates
Benefit arising from investment in subsidiaries
Manufacturing and processing deduction
Stock-based compensation
Disposal of asset held for sale
Tax losses for which no deferred income tax asset was recognized
Recognition of previously unrecognized deferred tax assets
Adjustments in respect of prior years and other
$
2019
985.6 $
260.4
1.8
2.4
(13.9)
(0.4)
4.0
(25.8)
0.8
-
1.0
Income tax expense
$
230.3
$
During the year, there was no significant change in the statutory tax rate.
INCOME TAX RECOGNIZED IN OTHER COMPREHENSIVE INCOME
Income tax on items recognized in other comprehensive income in 2019 and 2018 were as follows:
2018
949.9
250.4
29.5
(163.4)
(12.8)
(9.5)
3.9
-
-
-
(0.7)
97.4
Deferred tax benefit on actuarial losses on employee benefit obligations
Deferred tax (expense) benefit on cash flow hedge
Total income tax recognized in other comprehensive income
$
$
2019
0.8 $
(0.5)
0.3
$
2018
1.1
0.8
1.9
ANNUAL REPORT 2019
- 65 -
NOTE 14
INCOME TAXES (CONT’D)
INCOME TAX RECOGNIZED IN EQUITY
Income tax on items recognized in equity in 2019 and 2018 were as follows:
Excess tax benefit that results from the excess of the deductible amount over the
stock-based compensation recognized in net earnings
Total income tax recognized in equity
CURRENT TAX ASSETS AND LIABILITIES
Income taxes receivable
Income taxes payable
Income taxes (payable) receivable (net)
DEFERRED TAX BALANCES
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities (net)
2019
2018
4.7
$
4.7
$
2.8
2.8
2019
$
34.1
(36.5)
(2.4) $
2019
$
51.0
(502.3)
(451.3) $
2018
52.0
(26.5)
25.5
2018
34.5
(424.9)
(390.4)
$
$
$
$
$
$
DEFERRED TAX ASSETS AND LIABILITIES
The movement of deferred tax assets and liabilities are shown below:
Deferred tax asset
Deferred tax liabilities
Accounts
payable and
accrued
liabilities
Income
tax
losses
Net
assets of
pension
plans
Total
Inventories
Property,
plant and
equipment
Other
Total
For the year ended March 31, 2019
$
45.7
$
6.4
$
8.1
$
60.2
$
(2.4) $
241.6
$
211.4
$
450.6
(2.7)
(5.3)
-
16.7
(1.6)
-
-
-
0.3
0.8
-
0.1
(7.7)
0.8
16.7
(1.5)
0.2
-
-
1.0
6.7
-
7.5
19.0
38.3
45.2
0.5
(5.9)
1.9
0.5
1.6
21.9
Balance, beginning
of the year
Charged/credited to net
earnings
Charged/credited to other
comprehensive income
Acquisitions
Translation and other
Balance, end of the year
$
58.1
$
1.1
$
9.3
$
68.5
$
( 1.2) $
274.8
$
246.2
$
519.8
Deferred tax asset
Deferred tax liabilities
Accounts
payable and
accrued
liabilities
Income
tax losses
Net
assets of
pension
plans
Total
Inventories
Property,
plant and
equipment
Other
Total
For the year ended March 31, 2018
$
56.8
$
15.4
$
9.9
$
82.1
$
8.5
$
323.7
$
213.2
$
545.4
(8.6)
(8.7)
(2.8)
(20.1)
(10.3)
(70.4)
(40.0)
(120.7)
-
-
(2.5)
-
-
(0.3)
1.1
-
(0.1)
1.1
-
(2.9)
-
-
(0.6)
-
-
(11.7)
(0.8)
51.0
(12.0)
(0.8)
51.0
(24.3)
Balance, beginning
of the year
Charged/credited to net
earnings
Charged/credited to other
comprehensive income
Acquisitions
Translation and other
Balance, end of the year
$
45.7
$
6.4
$
8.1
$
60.2
$
( 2.4) $
241.6
$
211.4
$
450.6
ANNUAL REPORT 2019
- 66 -
NOTE 15 NET EARNINGS PER SHARE
Net earnings
Weighted average number of common shares outstanding
Dilutive options
Weighted average diluted number of common shares outstanding
Basic net earnings per share
Diluted net earnings per share
2019
$
755.3 $
2018
852.5
388,554,458
2,696,750
386,561,315
4,610,594
391,251,208
391,171,909
$
$
1.94 $
1.93 $
2.21
2.18
When calculating diluted net earnings per share for the year ended March 31, 2019, 7,270,893 options (3,822,206
options for the year ended March 31, 2018) were excluded from the calculation because their exercise price is higher
than the average market value for the year.
Shares purchased under the normal course issuer bid were excluded from the calculation of net earnings per share as
of the date of purchase.
NOTE 16 BUSINESS ACQUISITIONS
F&A DAIRY PRODUCTS, INC.
On November 30, 2018, the Company completed the acquisition of the activities of F&A Dairy Products, Inc. (F&A). Its
activities were conducted at two manufacturing facilities located in Las Cruces, New Mexico, and activities no longer
conducted at Dresser, Wisconsin (USA). F&A manufactures a variety of natural cheeses, including mozzarella and
provolone, which are distributed in the United States and Mexico.
The purchase price of $108.1 million (US$81.4 million), on a debt-free basis, was paid in cash from cash on hand and
available credit facilities.
Recognized goodwill reflects the value assigned to expected future synergies and an assembled workforce within the
Cheese Division (USA) CGU.
The purchase price allocation will be completed during fiscal 2020.
SHEPHERD GOURMET DAIRY (ONTARIO) INC.
On June 19, 2018, the Company completed the acquisition of the activities of Shepherd Gourmet Dairy (Ontario) Inc.
(Shepherd Gourmet). Its activities are conducted at one manufacturing facility located in St. Marys, Ontario (Canada).
Shepherd Gourmet manufactures, markets and distributes a variety of specialty cheeses, yogurt, as well as Skyr
Icelandic-style yogurt in Canada.
The purchase price was $99.8 million, on a debt-free-basis, of which $89.8 million was paid in cash from cash on hand
and available credit facilities and $10.0 million represents a balance payable to the vendor.
Recognized goodwill reflects the value assigned to expected future synergies and an assembled workforce within the
Dairy Division (Canada) CGU.
The purchase price allocation was completed in the third quarter of fiscal 2019.
ANNUAL REPORT 2019
- 67 -
NOTE 16 BUSINESS ACQUISITIONS (CONT’D)
MURRAY GOULBURN CO-OPERATIVE CO. LIMITED
On May 1, 2018, the Company completed the acquisition of the business of Murray Goulburn Co-Operative Co. Limited
(Murray Goulburn or MG), based in Australia. The MG acquisition complements the activities of the Dairy Division
(Australia) and enables the Company to strengthen its presence in Australia. MG produces a full range of dairy foods,
including fluid milk, milk powder, cheese, butter and dairy beverages, as well as a range of ingredient and nutritional
products, such as infant formula. MG supplies the retail and foodservice industries globally with its flagship Devondale,
Liddells and Murray Goulburn Ingredients brands.
The purchase price for the transaction was $1.276 billion (AU$1.311 billion) on a debt-free basis and was financed
through the MG Acquisition Facility (Note 10). Included in the purchase price, the Company assumed liabilities of
$76.7 million.
On August 17, 2018, the Company completed the sale of the Koroit plant in Victoria for a selling price of $239.7 million
(AU$250.9 million). This divestiture was required pursuant to the undertaking entered into with the Australian
Competition and Consumer Commission in connection with the acquisition of the activities of MG. The assets held for
sale of the Koroit plant included inventory, property, plant and equipment and intangible assets. These assets were
valued at fair value less costs to sell. There was no gain or loss related to this transaction.
Recognized goodwill reflects the value assigned to expected future synergies and an assembled workforce within the
Dairy Division (Australia) CGU.
The purchase price allocation was completed in the fourth quarter of fiscal 2019.
The allocation of each purchase price is presented below.
Assets acquired
Liabilities assumed
Cash
Receivables
Inventories
Prepaid expenses and other assets
Assets held for sale
Property, plant and equipment
Goodwill
Intangible assets
Other assets
Deferred income taxes
Accounts payable and accrued liabilities
Other liabilities
Deferred income taxes
Murray
Goulburn
Shepherd
Gourmet
$
7.4 $
- $
F&A
- $
244.8
382.9
10.4
240.3
632.1
10.5
38.9
3.9
16.6
(280.9)
(30.6)
-
5.1
3.2
0.5
-
12.8
78.3
5.2
-
-
(3.7)
-
(1.6)
18.5
8.7
0.1
-
58.7
39.0
-
-
-
(15.4)
(1.5)
-
2019
Total
7.4
268.4
394.8
11.0
240.3
703.6
127.8
44.1
3.9
16.6
(300.0)
(32.1)
(1.6)
Net assets acquired and total consideration
$
1,276.3 $
99.8 $
108.1 $
1,484.2
BETIN, INC.
On December 12, 2017, the Company completed the acquisition of Betin, Inc., doing business as Montchevre (Betin
or Montchevre). The purchase price of $348.1 million, on a debt free basis, was paid in cash.
Montchevre manufactured, marketed and distributed goat cheese in the USA, mainly under the Montchevre brand. Its
activities are conducted at one manufacturing facility located in Belmont, Wisconsin (USA).
Recognized goodwill reflects the value assigned to expected future synergies and an assembled workforce within the
Cheese Division (USA) CGU.
ANNUAL REPORT 2019
- 68 -
NOTE 16 BUSINESS ACQUISITIONS (CONT’D)
EXTENDED SHELF-LIFE (ESL) DAIRY PRODUCT ACTIVITIES OF SOUTHEAST MILK, INC. (SMI)
On September 29, 2017, the Company acquired the ESL dairy product activities of SMI. The purchase price of
$63.6 million, on a debt free basis, included cash consideration of $37.0 million.
Its activities are conducted at one manufacturing facility located in Plant City, Florida (USA).
Recognized goodwill reflects the value assigned to expected future synergies and an assembled workforce within the
Dairy Foods Division (USA) CGU.
The purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the fair values
presented below.
Assets acquired
Liabilities assumed
Working capital
Property, plant and equipment
Goodwill
Intangibles
Finance lease obligations
Deferred income taxes
$
Betin
38.4 $
17.5
211.6
131.6
-
(51.0)
SMI
2.8 $
38.6
22.2
-
(26.6)
-
2018
Total
41.2
56.1
233.8
131.6
(26.6)
(51.0)
Net assets acquired and total consideration
$
348.1 $
37.0 $
385.1
ANNUAL REPORT 2019
- 69 -
NOTE 17
EMPLOYEE POST-EMPLOYMENT BENEFITS PLANS
The Company sponsors various post-employment benefit plans. These include pension plans, both defined contribution
and defined benefit plans, and other post-employment benefits. Post-employment benefit plans are classified as either
defined contribution plans or defined benefit plans.
DEFINED CONTRIBUTION PLANS
The Company offers and participates in defined contribution pension plans of which 99% of its active employees are
members. The net pension expense under these types of plans is generally equal to the contributions made by the
employer and constitutes an expense for the year in which they are due. For fiscal 2019, the defined contribution
expenses for the Company amounted to $63.4 million compared to $47.8 million for fiscal 2018. The Company expects
to contribute approximately $65.3 million to its defined contribution plans for fiscal 2020.
DEFINED BENEFIT PLANS
The Company participates in defined benefit pension plans in which the remaining active employees are members. Under
the terms of the defined benefit pension plans, pensions are based on years of service and the retirement benefits are
equal to 2% of the average eligible earnings of the last employment years multiplied by years of credited service.
The registered pension plans must comply with statutory funding requirements in the province or state in which they
are registered. Funding valuations are required on an annual or triennial basis, depending on the jurisdiction, and
employer contributions must include amortization payments for any deficit, over a period of 5 to 15 years. Contribution
holidays are allowed and subject to certain thresholds. Other non-registered pension plans and benefits other than
pension are not subject to any minimum funding requirements.
The cost of these pension benefits earned by employees is actuarially determined using the projected benefits method
prorated on services and using a discount rate based on high quality corporate bonds and Management’s assumptions
bearing on, among other things, rates of compensation increase and retirement age of employees. All of these
estimates and assessments are formulated with the help of external consultants. The plan assets and benefit
obligations were valued as at March 31 with the assistance of the Company’s external actuaries. The Company also
offers complementary retirement benefits programs, such as health insurance, life insurance and dental plans to eligible
employees and retired employees. The Company expects to contribute approximately $4.1 million to its defined benefit
plans in 2020. The Company’s net liability for post-employment benefit plans comprises the following:
Present value of funded obligation
Fair value of assets
Present value of net obligations for funded plans
Present value of unfunded obligations
Present value of net obligations
Asset ceiling test
Accrued pension/benefit cost as at March 31
March 31, 2019
March 31, 2018
$
$
71.2
66.3
4.9
30.9
35.8
0.8
36.6
72.2
67.0
5.2
27.1
32.3
0.8
33.1
Employee benefit amounts on the statement of financial position as net liability
$
36.6
$
33.1
The changes in the present value of the defined benefit obligations are as follows:
March 31, 2019
March 31, 2018
Defined benefit obligation, beginning of year
Current service costs
Interest cost
Actuarial losses from change in experience
Actuarial losses from change in economic assumptions
Actuarial (gains) losses from change in demographic assumptions
Effects of settlement1
Exchange differences
Benefits paid
$
$
99.3
5.2
3.5
0.1
3.3
(0.1)
(5.6)
0.5
(4.1)
Defined benefit obligation, end of year
1 Annuities were purchased to release the plan from its liability with regards to retirees.
$
102.1
$
102.8
5.0
3.6
2.2
2.8
0.4
(1.2)
(0.3)
(16.0)
99.3
ANNUAL REPORT 2019
- 70 -
NOTE 17 EMPLOYEE POST-EMPLOYMENT BENEFITS PLANS (CONT’D)
The changes in the fair value of plan assets are as follows:
March 31, 2019
March 31, 2018
Fair value of plan assets, beginning of year
Interest income on plan assets
Return on plan assets, excluding interest income
Administration costs
Contributions by employer
Effects of settlement1
Exchange differences
Benefits paid
$
$
67.0
2.3
0.5
(0.3)
6.4
(5.7)
0.2
(4.1)
Fair value of plan assets, end of year
1 Annuities were purchased to release the plan from its liability with regards to retirees.
$
66.3
$
64.9
2.5
-
(0.3)
17.6
(1.6)
(0.1)
(16.0)
67.0
Actual return on plans assets amounted to a gain of $2.5 million in fiscal 2019 compared to a gain of $2.2 million in
fiscal year 2018.
The fair value of plan assets, which do not include assets of the Company, consist of the following:
Bonds
Equity instruments
Cash and short–term investments
March 31, 2019
March 31, 2018
75 %
24 %
1 %
100 %
48 %
45 %
7 %
100 %
The expenses recognized below are included in "Operating costs excluding depreciation and amortization" within
employee benefits expense (refer to Note 5) and are detailed as follows:
March 31, 2019
March 31, 2018
Employer current service cost
$
5.2
$
Effect of settlement
Administration costs
Interest costs
Interest income on plan assets
Defined benefits plans expense
0.1
0.3
3.4
(2.3)
$
6.7
$
5.0
0.5
0.3
3.6
(2.5)
6.9
The Company recognizes actuarial gains and losses in the period in which they occur, for all its defined benefit plans.
These actuarial gains and losses are recognized in other comprehensive income and are presented below:
Net losses during the year
Effect of the asset ceiling test
Amount recognized in other comprehensive income
March 31, 2019
March 31, 2018
$
$
$
(2.9)
-
(2.9)
$
(5.4)
0.2
(5.2)
Weighted average assumptions used in computing the benefit obligations at the financial position date are as follows:
Discount rate
Duration of the obligation
Future salary increases
Mortality table
March 31, 2019
March 31, 2018
3.36 %
18.40
3.00 %
3.59 %
18.13
3.00 %
2014 Private Sector Canadian
Pensioners’ Mortality Table, projected
generationally using Scale MI-2017
2014 Private Sector Canadian
Pensioners’ Mortality Table, projected
generationally using Scale MI-2017
The impact of an increase and a decrease of 1% on the discount rate would be $16.1 million and $19.3 million
respectively. Also, an increase or a decrease of 1% on the future salary assumptions would be approximately
$3.5 million on the obligation and a 10% increase in life expectancy would represent approximately $1.6 million.
ANNUAL REPORT 2019
- 71 -
NOTE 17
EMPLOYEE POST-EMPLOYMENT BENEFITS PLANS (CONT’D)
Weighted average assumptions used in computing the net periodic pension cost for the year are as follows:
Discount rate
Future salary increases
Mortality table
March 31, 2019
March 31, 2018
3.59 %
3.00 %
3.77 %
3.00 %
2014 Private Sector Canadian
Pensioners’ Mortality Table, projected
generationally using Scale MI-2017
2014 Private Sector Canadian
Pensioners’ Mortality Table, projected
generationally using Scale CPM-B
For measurement purposes, a 2.5% to 7.0% annual rate of increase was used for health, life insurance and dental plan
costs for the fiscal years 2019 and 2018.
Assumed medical cost trend rates have an effect on the amounts recognized in profit or loss. A one percentage point
change in the assumed medical cost trend rates would have marginal impact on cost and obligations.
NOTE 18 COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The table and paragraphs below show the future minimum payments for our contractual commitments that are not
recognized as liabilities for the next fiscal years:
Less than 1 year
1-2 years
2-3 years
3-4 years
4-5 years
More than 5 years
Leases
Purchase obligations1
$
$
110.4 $
85.6
62.7
49.7
39.3
183.5
531.2 $
154.1 $
-
-
-
-
-
154.1 $
Total
264.5
85.6
62.7
49.7
39.3
183.5
685.3
1 Purchase obligations are the contractual obligations for capital expenditures to which the Company is committed.
The Company carries on some of its operations in leased premises and has also entered into lease agreements for
equipment and rolling stock. If the market value of leased assets, at the end of the respective operating lease term, is
inferior to the guaranteed residual value, the Company is obligated to indemnify the lessors, specific to certain
conditions, for the shortfall up to a maximum value. The Company believes that the potential indemnification will not
have a significant effect on the financial statements.
CLAIMS
The Company is a defendant to certain claims arising from the normal course of its business. The Company is also a
defendant in certain claims and/or assessments from tax authorities in various jurisdictions. The Company believes that
the final resolution of these claims and/or assessments will not have a material adverse effect on its consolidated
income statements or consolidated statement of financial position.
INDEMNIFICATIONS
The Company from time to time offers indemnifications to third parties in the normal course of its business, in connection
with business or asset acquisitions or disposals. These indemnification provisions may be in connection with breach of
representations and warranties, and for future claims for certain liabilities. The terms of these indemnification provisions
vary in duration. At March 31, 2019, given that the nature and amount of such indemnifications depend on future events,
the Company is unable to reasonably estimate its maximum potential liability under these agreements. The Company
has not made any significant indemnification payments in the past, and as at March 31, 2019 and March 31, 2018, the
Company has not recorded any significant liabilities associated with these indemnifications.
LETTERS OF CREDIT
As at March 31, 2019, the Company had issued letters of credit in an aggregate amount of $58.4 million pursuant to a
banking facility authorizing the issuance of letters of credit in an aggregate amount of $109.5 million (as at March 31,
2018, the Company had issued letters of credit in an aggregate amount of $43.8 million pursuant to a banking facility
authorizing the issuance of letters of credit in an aggregate amount of $100.0 million).
ANNUAL REPORT 2019
- 72 -
NOTE 19 RELATED PARTY TRANSACTIONS
The Company receives services from and provides goods to companies subject to control or significant influence
through ownership by its principal shareholder. These transactions, which are not significant to the Company’s financial
position or financial results, are made in the normal course of business and have been recorded at the fair value,
consistent with market values for similar transactions. The services that are received consist mainly of travel, publicity,
lodging, office space rental and management services. The goods that are provided consist mainly of dairy products.
Transactions with key management personnel (short-term employee benefits, post-employment benefits, stock-based
compensation and payments under the DSU plan) are also considered related party transactions. Management defines
key management personnel as all the executive officers who have responsibility and authority for controlling, overseeing
and planning the activities of the Company, as well as the Company’s Directors.
Transactions with related parties are as follows:
Entities subject to control or significant influence through ownership by its principal shareholder $
Key management personnel
Directors
Executive officers
2019
5.9 $
2.4
26.0
$
34.3 $
2018
6.3
2.6
28.1
37.0
Dairy products provided by the Company were the following:
2019
2018
Entities subject to control or significant influence through ownership by its principal shareholder $
0.3 $
0.3
Outstanding receivables and accounts payable and accrued liabilities for the transactions above are the following:
Entities subject to control or significant influence
through ownership by its principal shareholder $
0.1 $
0.1 $
0.2 $
0.5
Receivables
Accounts payable and
accrued liabilities
March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018
Key management personnel
Directors
Executive officers
-
-
-
-
15.9
33.7
$
0.1 $
0.1 $
49.8 $
12.2
27.8
40.5
The amounts payable to the Directors consist entirely of balances payable under the Company’s DSU plan. Refer to
Note 12 for further details. The amounts payable to executive officers consist of short-term employee incentives, share-
based awards and post-retirement benefits.
ANNUAL REPORT 2019
- 73 -
NOTE 19 RELATED PARTY TRANSACTIONS (CONT’D)
KEY MANAGEMENT PERSONNEL COMPENSATION
The compensation expense for transactions with the Company’s key management personnel, including annual fees of the
executive Chairman who retired in August 2017, consists of the following:
Directors
Cash-settled payments
Stock-based compensation
Executive officers
Short-term employee benefits
Post-employment benefits
Stock-based compensation
Total compensation
2019
2018
0.1 $
2.3
2.4 $
12.1
3.3
10.6
0.3
2.3
2.6
13.5
3.5
11.1
26.0 $
28.1
28.4 $
30.7
$
$
$
$
SUBSIDIARIES
All the Company’s subsidiaries are wholly owned. The following information summarizes the Company’s significant
subsidiaries which produce a wide array of dairy products including cheese, fluid milk, extended shelf-life milk and cream
products, cultured products and dairy ingredients:
Saputo Dairy Products Canada G.P.
Saputo Cheese USA Inc.
Saputo Dairy Foods USA, LLC
Saputo Dairy Australia Pty LTD
Warrnambool Cheese and Butter Factory Company Holdings Limited
Molfino Hermanos S.A.
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
Percentage Owned
Location
Canada
USA
USA
Australia
Australia
Argentina
NOTE 20
FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses various financial instruments which by their nature involve risk,
including credit risk, liquidity risk, interest rate risk, foreign exchange risk and price risk (including commodity price risk).
These financial instruments are subject to normal credit conditions, financial controls and risk management and
monitoring strategies.
Occasionally, the Company may enter into derivative financial instrument transactions in order to mitigate or hedge
risks in accordance with risk management strategies. The Company does not enter into these arrangements for
speculative purposes.
CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash equivalents
and receivables.
Cash equivalents consist mainly of short-term investments. The Company has deposited these cash equivalents in
reputable financial institutions.
The Company also offers credit to its customers in the normal course of business for trade receivables. Credit valuations
are performed on a regular basis and reported results take into account allowances for potential bad debts.
Due to its large and diverse customer base and its geographic diversity, the Company has low exposure to credit risk
concentration with respect to customer’s receivables. There are no receivables from any individual customer that exceeded
10% of the total balance of receivables as at March 31, 2019 and March 31, 2018. No customer represented more than 10%
of total consolidated revenues for the year ended March 31, 2019 (one customer with 10.4% in 2018).
ANNUAL REPORT 2019
- 74 -
NOTE 20
FINANCIAL INSTRUMENTS (CONT’D)
Allowance for doubtful accounts and past due receivables are reviewed by Management at each financial position date.
The Company updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability
of trade receivables with each customer base, taking into account historical collection trends of past due accounts and
current economic conditions. The accounts receivable from our export sales benefit from payment terms that are longer
than our standard payment terms applicable to domestic sales.
The amount of the allowance for doubtful accounts is sufficient to cover the carrying amount of receivables considered
past due and at risk. The amount of the loss is recognized in the consolidated income statements within operating
costs. Subsequent recoveries of amounts previously written off are credited against operating costs in the consolidated
income statements. However, Management does not believe that these allowances are significant.
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company
manages liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 21
relating to capital disclosures. It also manages liquidity risk by continuously monitoring actual and projected cash flows.
The Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material
transactions out of the normal course of business.
Contractual maturities for the significant financial liabilities as at March 31, 2019, are as follow: accounts payable and
accrued liabilities, bank loans and long-term debt. All items included in accounts payable and accrued liabilities are less
than one year. For maturities on bank loans and the long-term debt, please refer to Note 9 and Note 10 respectively.
INTEREST RATE RISK
The Company is exposed to interest rate risks through its financial obligations that bear variable interest rates. Bank
loans and unsecured bank term loans facilities bear interest at fluctuating rates and thereby expose the Company to
interest rate risk on cash flows associated to interest payments. The senior notes bear interest at fixed rates and, as a
result, no interest rate risk exists on these cash flows.
For the fiscal year ended March 31, 2019, the interest expense on long-term debt totalled $66.6 million ($33.8 million
in fiscal 2018). The interest accrued as at March 31, 2019, was $11.0 million ($9.7 million as at March 31, 2018).
As at March 31, 2019, the net amount exposed to short-term rates fluctuations was approximately $705.6 million. Based
on this exposure, an assumed 1% increase in the interest rate would have an unfavourable impact of approximately
$4.9 million on net earnings with an equal but opposite effect for an assumed 1% decrease.
ANNUAL REPORT 2019
- 75 -
NOTE 20
FINANCIAL INSTRUMENTS (CONT’D)
FOREIGN EXCHANGE RISK
The Company operates internationally and is exposed to foreign exchange risk resulting from various foreign currency
transactions. Foreign exchange transaction risk arises primarily from future commercial transactions that are
denominated in a currency that is not the functional currency of the Company’s business unit that is party to the
transaction, as well as the unsecured bank term loan facilities that can be drawn in US dollars, Australian dollars and
Argentine Peso.
The Company entered into forward exchange contracts to sell US dollars and buy Australian dollars in order to mitigate
market fluctuations in the USD/AUD exchange rates on receivables. During the fiscal year, the cash flow hedges were
highly effective and accordingly, the Company recognized an unrealized loss of $10.9 million (net of tax of $4.7 million)
in other comprehensive income as a result. A loss of $9.9 million (net of tax of $4.2 million) was reclassified to net
earnings during fiscal 2019 related to these forward exchange contracts. These cash flow hedges were also deemed
to be highly effective on March 31, 2018, and an unrealized gain of $2.8 million (net of tax of $1.2 million), was recorded,
during last fiscal year, in other comprehensive income. A gain of $6.0 million (net of tax of $2.6 million) was reclassified
to net earnings during fiscal 2018 related to these forward exchange contracts.
During last fiscal year, the Company entered into forward exchange contracts in order to offset market fluctuations in
the USD/CAD exchange rates for the US dollars intercompany financing. This intercompany financing from our US to
Canada divisions for the foreign exchange hedge will settle in November 2019 for US$250.0 million. This cash flow
hedges were highly effective and accordingly, the Company recognized an unrealized gain of $1.7 million (net of tax of
$0.3 million) in other comprehensive income. During fiscal 2019, a gain of $0.8 million (net of tax of $0.2 million) in
other comprehensive income was reclassified to net earnings related to this forward exchange contracts.
The Company’s largest exposure comes from the US dollar fluctuations. The following table details the Company’s
sensitivity to a CDN$0.10 weakening of the Canadian dollar against the US dollar on net earnings and comprehensive
income. For a CDN$0.10 appreciation of the Canadian dollar against the US dollar, there would be an equal and
opposite impact on net earnings and comprehensive income.
Change in net earnings
Change in comprehensive income
$
$
2019
14.8 $
310.6 $
2018
32.0
281.2
COMMODITY PRICE RISK
In certain instances, the Company enters into futures contracts to hedge against fluctuations in the price of
commodities. Outstanding contracts as at the financial position date had a positive fair value of approximately
$0.6 million (negative fair value of approximately $1.9 million at March 31, 2018).
The Company applies hedge accounting for certain of these transactions. During the fiscal year, these hedges
(designated as cash flow hedges) were assessed to be highly effective and accordingly, an unrealized loss of
$1.3 million (net of tax of $0.2 million) was recorded in other comprehensive income. The gains recorded in the
consolidated statement of comprehensive income are transferred to the consolidated statement of net earnings when
the related inventory is ultimately sold. These hedges (designated as cash flow hedges) were assessed to be highly
effective and accordingly, an unrealized gain of $0.6 million (net of tax of $0.4 million) was recorded, during last fiscal
year, in other comprehensive income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined that the fair value of its financial assets and financial liabilities with short-term maturities
approximates their carrying value. These financial instruments include cash and cash equivalents, receivables, bank
loans, accounts payable and accrued liabilities. The table below shows the fair value and the carrying value of other
financial instruments as at March 31, 2019 and March 31, 2018. Since estimates are used to determine fair value, they
must not be interpreted as being realizable in the event of a settlement of the instruments.
ANNUAL REPORT 2019
- 76 -
NOTE 20
FINANCIAL INSTRUMENTS (CONT’D)
Cash flow hedges
Commodity derivatives (Level 2)
Foreign exchange derivatives (Level 2)
Derivatives not designated in a formal
hedging relationship
Equity forward contracts (Level 2)
Commodity derivatives (Level 2)
Long-term debt (Level 2)
$
March 31, 2019
March 31, 2018
Fair value
Carrying value
Fair value
Carrying value
$
0.3 $
0.2
0.3 $
0.2
(1.4) $
(8.7)
(1.4)
(8.7)
1.8
0.3
2,266.9 $
1.8
0.3
2,267.3 $
(1.4)
(0.5)
1,410.0 $
(1.4)
(0.5)
1,425.3
The following table summarizes the financial instruments measured at fair value in the consolidated statement of
financial position as at March 31, 2019 and March 31, 2018, classified using the fair value hierarchy described in Note 3.
March 31, 2019
Commodity futures contracts
Foreign exchange contracts
Equity forward contracts
March 31, 2018
Commodity futures contracts
Foreign exchange contracts
Equity forward contracts
$
$
$
$
Level 1
Level 2
Level 3
- $
-
-
- $
0.6 $
0.2
1.8
2.6 $
- $
-
-
- $
Level 1
Level 2
Level 3
- $
-
-
- $
(1.9)
(8.7)
(1.4)
(12.0) $
- $
-
-
- $
Total
0.6
0.2
1.8
2.6
Total
(1.9)
(8.7)
(1.4)
(12.0)
For the years ended March 31, 2019 and 2018, there were no changes in valuation techniques and in inputs used in
the fair value measurements and there were no transfers between the levels of the fair value hierarchy.
Fair values of other assets, long-term debt and derivative financial instruments are determined using discounted cash
flow models based on market inputs prevailing at the financial position date and are also obtained from financial
institutions. Where applicable, these models use market-based observable inputs including interest-rate-yield curves,
volatility of certain prices or rates and credit spreads. If market based observable inputs are not available, judgement
is used to develop assumptions used to determine fair values. The fair value estimates are significantly affected by
assumptions including the amount and timing of estimated future cash flows and discount rates. The Company’s
derivatives transactions are accounted for on a fair value basis.
NOTE 21 CAPITAL DISCLOSURES
The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its growth strategies and undertake
selective acquisitions, while at the same time taking a conservative approach towards financial leverage and management
of financial risk. An additional objective includes a target for long-term leverage of 2.0 times net debt to earnings before
interest, income taxes, depreciation, amortization, gain on disposal of assets, acquisition and restructuring costs, and gain
on hyperinflation. From time to time, the Company may deviate from its long-term leverage target to pursue acquisitions
and other strategic opportunities. Should such a scenario arise, the Company expects to deleverage over a reasonable
period of time in order to seek to maintain its investment grade ratings. Also, the Company seeks to provide an adequate
return to its shareholders. The Company believes that the purchases of its own shares may, under appropriate
circumstances, be a responsible use of its capital.
ANNUAL REPORT 2019
- 77 -
NOTE 21 CAPITAL DISCLOSURES (CONT’D)
The Company’s capital is composed of net debt and equity. Net debt consists of long-term debt and bank loans, net of
cash and cash equivalents. The Company’s primary use of capital is to finance acquisitions.
The primary measure used by the Company to monitor its financial leverage is its ratio of net debt to earnings before
interest, income taxes, depreciation, amortization, gain on disposal of assets, acquisition and restructuring costs, and gain
on hyperinflation. The net debt-to-earnings before interest, income taxes, depreciation, amortization, gain on disposal of
assets, acquisition and restructuring costs, and gain on hyperinflation ratios as at March 31, 2019 and March 31, 2018,
are as follows:
Bank loans
Long-term debt, including current portion
Cash and cash equivalents
Net debt
Earnings before interest, income taxes, depreciation, amortization, gain on disposal of
assets, acquisition and restructuring costs, and gain on hyperinflation
$
$
Net debt-to-earnings before interest, income taxes, depreciation, amortization, gain on
disposal of assets, acquisition and restructuring costs, and gain on hyperinflation
2019
$
130.4 $
2,267.3
(112.7)
2,285.0 $
2018
193.3
1,425.3
(122.2)
1,496.4
1,221.3 $
1,264.7
1.87
1.18
The Company has existing credit facilities which require a quarterly review of financial ratios and the Company is not
in violation of any such ratio covenants as at March 31, 2019.
The Company is not subject to capital requirements imposed by a regulator.
NOTE 22 ACQUISITION AND RESTRUCTURING COSTS
Acquisition and restructuring costs are summarized as follows:
Restructuring costs
Acquisition costs
Total
$
$
2019
1.2 $
50.2
51.4 $
2018
33.7
6.9
40.6
RESTRUCTURING COSTS
In fiscal 2019, the Company announced the closure of one facility. The closure occured in March 2019.
Costs associated with the closure recorded regarding restructuring activities are summarized in the table below:
Write down of non-current assets
Closure costs
Total
$
$
2019
0.2 $
1.0
1.2 $
2018
10.6
23.1
33.7
The write down of non-current assets, recorded in fiscal 2019, consists of impairment charges to property, plant and
equipment to bring them to the lower of carrying value and recoverable amount. The total after tax costs for fiscal 2019 is
$0.8 million ($25.1 million in fiscal 2018).
The restructuring costs recorded in fiscal 2019 represent estimated expenses required to restructure these operations.
Liabilities related to severance expenditures have been grouped within current liabilities on the consolidated statement of
financial position.
ACQUISITION COSTS
In connection with the Murray Goulburn Acquisition, F&A Acquisition and Shepherd Gourmet Acquisition, (Note 16), the
Company incurred acquisition costs of $50.2 million ($35.3 million after tax) in fiscal 2019 of which approximately
$39 million represents stamp duties for the Murray Goulburn Acquisition. In fiscal 2018, acquisition costs incurred were
$6.9 million ($5.6 million after tax).
ANNUAL REPORT 2019
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NOTE 23 SEGMENTED INFORMATION
The Company reports under three geographic sectors. The Canada Sector consists of the Dairy Division (Canada).
The USA Sector consists of the Cheese Division (USA) and the Dairy Foods Division (USA). Finally, the International
Sector consists of the Dairy Division (Australia) and the Dairy Division (Argentina).
These reportable sectors are managed separately as each sector represents a strategic business unit that offers
different products and serves different markets. The Company measures geographic and sector performance based
on earnings before interest, income taxes, depreciation, amortization, gain on disposal of assets, acquisition and
restructuring costs, and gain on hyperinflation.
Management has aggregated the Cheese Division (USA) and the Dairy Foods Division (USA) due to similarities in long-
term average return and correlated market factors driving pricing strategies that affect the operations of both divisions.
The divisions within the International Sector have been combined due to similarities in global market factors and
production processes.
The accounting policies of the sectors are the same as those described in Note 3 relating to significant accounting
policies.
INFORMATION ON REPORTABLE SECTORS
Years ended March 31
Revenues
Canada
USA
International
Earnings before interest, income taxes, depreciation, amortization, gain on
disposal of assets, acquisition and restructuring costs, and gain on
hyperinflation
Canada
USA
International
Depreciation and amortization
Canada
USA
International
Gain on disposal of assets
Acquisition and restructuring costs
Gain on hyperinflation
Financial charges, net
Earnings before income taxes
Income taxes
Net earnings
2019
2018
$
4,043.1 $
6,507.7
2,951.1
4,069.9
6,132.8
1,339.8
$
13,501.9 $
11,542.5
$
413.7 $
544.7
262.9
475.9
649.4
139.4
$
1,221.3 $
1,264.7
$
73.9 $
162.3
76.8
$
313.0 $
(194.5)
51.4
(18.5)
84.3
985.6
230.3
$
755.3 $
55.9
138.4
32.0
226.3
40.6
47.9
949.9
97.4
852.5
ANNUAL REPORT 2019
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NOTE 23
SEGMENTED INFORMATION (CONT’D)
GEOGRAPHIC INFORMATION
Revenues
Canada
USA
Australia
Argentina
Net book value of property, plant and equipment
Canada
USA
Australia
Argentina
Intangibles
Canada
USA
Australia
Argentina
March 31, 2019 March 31, 2018
$
4,043.1 $
6,507.7
2,301.0
650.1
4,069.9
6,132.8
672.5
667.3
$
13,501.9 $
11,542.5
$
679.3 $
1,499.2
818.4
98.5
$
3,095.4 $
$
342.9 $
429.8
91.9
11.6
$
876.2 $
592.3
1,361.4
216.3
50.0
2,220.0
342.4
398.3
67.6
14.8
823.1
The following table presents revenues by market segmentation. Certain prior year’s figures have been reclassified to
conform to the current presentation.
Revenues
Retail
Foodservice
Industrial
NOTE 24 DIVIDENDS
March 31, 2019 March 31, 2018
$
6,342.3 $
4,794.7
2,364.9
5,688.1
4,481.9
1,372.5
$
13,501.9 $
11,542.5
During the year ended March 31, 2019, the Company paid dividends totalling $254.6 million, or $0.66 per share
($243.5 million, or $0.64 per share for the year ended March 31, 2018).
NOTE 25 SUBSEQUENT EVENTS
ACQUISITION OF DAIRY CREST GROUP PLC
On April 15, 2019, the Company completed the acquisition of Dairy Crest Group plc (Dairy Crest) based in the United
Kingdom. Dairy Crest manufactures and markets cheese, butter, spreads, oils and value-added dairy ingredients. The
acquisition enables Saputo to enter the UK market.
The total consideration of approximately £1.2 billion ($2.1 billion), which includes a purchase price for the entire issued
ordinary share capital of £975 million ($1.7 billion), paid in cash, and £256 million ($445 million) of assumed debt, was
financed through the DC Acquisition Facility (Note 10). Due to the recent closing of the acquisition of Dairy Crest, the
valuation and initial purchase price allocation for the business combination was not completed as at the date of release of
these financial statements. As a result, the Company has not provided amounts recognized as at the acquisition date for
major classes of assets acquired and liabilities assumed, including goodwill. The allocation of the total consideration will
be finalized after a comprehensive evaluation of the fair value of net assets acquired has been completed.
ANNUAL REPORT 2019
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NOTE 25
SUBSEQUENT EVENTS (CONT’D)
ACQUISITION OF THE SPECIALTY CHEESE BUSINESS OF LION-DAIRY & DRINKS PTY LTD
On April 26, 2019, the Company announced that it had entered into an agreement to acquire the specialty cheese business
of Lion-Dairy & Drinks Pty Ltd (Specialty Cheese Business), in Australia. The transaction is subject to foreign investment
approval and clearance by the Australian Competition and Consumer Commission and is expected to close in the second
half of calendar year 2019. The Specialty Cheese Business produces, markets and distributes a variety of specialty
cheeses under a wide portfolio of Australian brands, including South Cape, Tasmanian Heritage, Mersey Valley and King
Island Dairy.
The purchase price of approximately $265 million (AU$280 million), on a cash-free and debt-free basis, will be paid in
cash at closing from cash on hand and available credit facilities.
ANNUAL REPORT 2019
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CORPORATE HEADQUARTERS
INVESTOR RELATIONS
Saputo Inc.
6869 Métropolitain Blvd. East
Montréal, QC Canada H1P 1X8
Telephone: 514-328-6662
www.saputo.com
ANNUAL MEETING OF SHAREHOLDERS
Thursday, August 8, 2019, at 10 a.m.
Laval Room, Hotel Sheraton Laval
2440 Autoroute des Laurentides
Laval, QC Canada H7T 1X5
Sandy Vassiadis
Telephone: 1-514-328-3141
1-866-648-5902
Email: investors@saputo.com
STOCK EXCHANGE
Toronto Stock Exchange
Symbol: SAP
TRANSFER AGENT
Computershare Trust Company of Canada
1500, boul. Robert-Bourassa, Suite 700,
Montréal, QC Canada H3A 3S8
Telephone: 514-982-7888
EXTERNAL AUDITORS
Deloitte LLP
Montréal, QC Canada
DIVIDEND POLICY
Saputo Inc. declares quarterly cash dividends
on common shares at $0.165 per share,
representing a yearly dividend of $0.66 per share.
The Board of Directors reviews the Company’s
dividend policy from time to time, but at least
once annually, based on fi nancial condition,
fi nancial performance, capital requirements
and such other factors as are deemed relevant
by the Board in its sole discretion.
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