Saputo
Annual Report 2022

Plain-text annual report

ANNUAL R E P O R T 2022 Saputo produces, markets, and distributes a wide array of dairy products of the utmost quality, including cheese, fluid 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 fluid 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. In addition to its dairy portfolio, Saputo produces, markets, and distributes a range of dairy alternative cheeses and beverages. Saputo products are sold in several countries under market-leading brands, as well as private label brands. Saputo Inc. is a publicly traded company and its shares are listed on the Toronto Stock Exchange under the symbol “SAP”. Follow Saputo’s activities at saputo.com or via Facebook, LinkedIn and Twitter. All amounts in this Annual Report are in Canadian dollars (CDN), unless otherwise indicated. II SAPUTO.COM 2022 ANNUAL REPORTSAPUTO.COM III Financial Highlights Fiscal years ended March 31 (in millions of CDN dollars) REVENUES ADJUSTED EBITDA1 2020 2021 2022 $14,944 $14,294 $15,035 2020 2021 2022 $1,155 NET EARNINGS ADJUSTED NET EARNINGS1 2020 2021 2022 $274 $583 $626 2020 2021 2022 $485 $1,468 $1,471 $724 $715 1 Adjusted EBITDA is a total of segments measure, and adjusted net earnings is a non-GAAP financial measure. These financial measures do not have any standardized meaning under International Financial Reporting Standards (IFRS). Therefore, they are unlikely to be comparable to similar measures presented by other issuers. Refer to the section entitled “Non-GAAP measures” of our Management’s Discussion and Analysis for the fiscal year ended March 31, 2022, which is incorporated by reference herein, for more information on these measures, including a reconciliation to net earnings being the most comparable IFRS financial measure. IV SAPUTO.COM 2022 ANNUAL REPORTFor the fiscal year ended March 31, 2022 SECTOR Canada USA International Europe # OF PLANTS # OF EMPLOYEES % OF TOTAL REVENUES 18 29 13 7 5,800 7,300 4,000 1,500 28% 43% 23% 6% 50% 30% 20% RETAIL FOODSERVICE INDUSTRIAL Sales are made to supermarket chains, mass-merchandisers, convenience stores, independent retailers, warehouse clubs, and specialty cheese boutiques under Saputo-owned or customer brand names. Our products are also sold directly to consumers through our e-commerce channels. Sales are made to broadline distributors, restaurants, hotels, and institutions under Saputo-owned or customer brand names. Sales are made to manufacturers who use our dairy ingredients, cheeses, and other dairy products for further processing. Our products are used in the preparation of food items, nutritional products for all stages of life, and for various other applications. Products sold in over 60 countries 67 plants Approx. 18,600 employees SAPUTO.COM V The Saputo Promise Food Quality and Safety Our Approach Our People Business Ethics Responsible Sourcing Environment The Saputo Promise is an integral part of our business and a key component of our growth. As we seek to create shared value for all our stakeholders, it provides us with a framework that ensures we manage the Environmental, Social, and Governance (ESG) risks and opportunities successfully across our operations globally. Governance Our Board of Directors (the Board) is responsible for the stewardship of Saputo. As such, it oversees the management of our business to enhance the creation of long-term shareholder value while considering the interests of our various stakeholders. To better fulfill its mandate, the Board: Oversees the ESG factors and risks material to our business and the deployment of appropriate measures to manage them. Oversees our practices, guidelines, and policies related to the Saputo Promise. The Board delegates some of its ESG oversight responsibilities to the Audit Committee and the Corporate Governance and Human Resources Committee. The implementation of the Saputo Promise is led by a series of specific Management committees. Additional details on our ESG governance can be found in our 2022 Annual Information Form, published on June 9, 2022. Nutrition and Healthy Living Strategy With a clear ESG framework and governance, our focus since FY20 has been the execution of our first three-year plan for the Saputo Promise (FY20-FY22). Significant progress has been made across our seven pillars, and we’re proud to have achieved most of our three-year goals. Community VI SAPUTO.COM 2022 ANNUAL REPORTSelected Highlights (FY20-FY22) OUR PEOPLE Stepped up our diversity, equity, and inclusion (DE&I) initiatives, including: Joining Catalyst for Change; Launching a permanent workplace flexibility program; and Rolling out unconscious bias training globally. Increased the number of women in senior management, including at the C-suite level. Started seeing our health and safety (H&S) indicators trending positively again in FY22 after COVID-related challenges. 25% in FY22 % of women in senior management 1.37 in FY22 Lost Time Injury Frequency Rate (LTIFR) 16% in FY20 | 21% in FY21 1.36 in FY20 | 1.61 in FY21 ENVIRONMENT Launched our commitment to accelerate progress in our climate, water, and waste performance. Three-year investment of $50 million (FY21-FY23) to fund more than 65 projects globally to support our efforts. Estimated annual savings of: 58,000 t of CO2 484,000 GJ of energy From solar energy and water recovery systems to recycled content in our packaging and more efficient boilers — all these investments are getting us closer to achieving our targets. Signed our first renewable power purchase agreement in Australia, potentially reducing our global CO2 footprint by 5%. Finalized the installation of a water recovery system in one of our plants in California which has the potential to reduce our global water footprint by 2.3%. 1.9 m3 of water Replaced 33% of virgin plastic with PCR* material across a range of block cheese packaging in our Dairy Division (UK). RESPONSIBLE SOURCING Launched our Supply Chain Pledges to address sustainability challenges beyond the scope of our operations. Joined Pathways to Dairy Net Zero, an initiative to help accelerate climate efforts in the dairy industry. Committed to sourcing 100% RSPO*-certified palm oil. * PCR: Post-consumer recycled | RSPO: Roundtable on Sustainable Palm Oil Next Three-Year Plan Our FY23-FY25 Saputo Promise plan will build on the success of our first three-year plan. We carried out a materiality assessment in FY22 to ensure our plan remains focused on the most pressing ESG issues for our business and that we continue to deploy our efforts in the areas that matter most. Developed with our Global Strategic Plan in mind, our next Saputo Promise three-year plan is designed to drive, enable, and sustain our growth. Our 2022 Saputo Promise Report, including further details on our ESG performance and new three-year plan , will be published in August 2022. SAPUTO.COM VII 20 22 ANNUAL RE PORT A Message From Our Chair of the Board, President and CEO Fellow shareholders, Fiscal 2022 (FY22) was a year where significant challenges led to renewed focus for Saputo. We faced unprecedented obstacles that affected all our divisions to varying degrees as we sought to adapt and mitigate the impacts, reaping important learnings along the way. We also kept our sights on the longer-term by embarking on a new journey to deliver accelerated organic growth with the launch of our Global Strategic Plan, sharing our roadmap and an Adjusted EBITDA1 target. Rounding out our three-pronged approach to growth, we completed four strategic acquisitions, and we remained steadfast in progressing our Saputo Promise goals. Through it all, our people continue to be the backbone of our business, helping us navigate this uncertain environment with agility and resilience. I’m incredibly grateful to our teams who bring their best to the table each day, supporting one another and working together to uphold our tradition of care, quality, and passion through food. Adjusting our stride Our performance in FY22 reflected persistent supply chain headwinds stemming from COVID-19 and its related ongoing impacts, and this global reality presented one of the most challenging operating environments to date. Bottlenecks and shortages of everything from labour to materials to freight impeded supply across the world and created incremental costs and inefficiencies that were difficult to anticipate. A particularly tough dynamic was the acceleration of cost inflation to levels the industry hadn’t seen in a decade. We worked diligently to counter these effects, and keep doing so, by implementing and progressing on several mitigating measures, including responsible pricing initiatives, employee retention programs and enhanced compensation packages, and productivity and cost initiatives. 1 This financial measure is a total of segments measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. Refer to the section entitled “Non-GAAP measures” of our Management’s Discussion and Analysis for the fiscal year ended March 31, 2022, which is incorporated by reference herein, for more information on this measure, including a reconciliation to net earnings being the most comparable IFRS financial measure. Lino A. Saputo Chair of the Board, President and Chief Executive Officer Saputo Inc. VIII SAPUTO.COM In response to the widespread pressures, our Canadian, Argentinian, and UK businesses all adapted well, while our Dairy Division (Australia) also had to contend with a declining milk pool, an ongoing issue the team is tackling head-on and which significantly impacted productivity and costs in FY22. No doubt, our most challenged platform was our Dairy Division (USA), where we faced substantial commodity volatility — market factors beyond our control — but we feel confident about the activities we’re putting in place to respond to the new market dynamics and ensuing opportunities by increasing our branded retail offering and diversifying our product mix. In tandem, we’re making headway on the labour front and finding new ways of working with our supply chain partners. Despite the adversity, we generated $693 million in operational cash flows in FY22, a testament to our diversified global platform. Our financial flexibility enabled us to reinvest in our business, increase our dividend payout, and seize opportunities to deliver long-term shareholder value. During the year, our management team underwent some changes and key enhancements. Leanne Cutts joined us as President and Chief Operating Officer (International and Europe), while Lyne Castonguay took the lead as President and Chief Operating Officer in the USA. In light of Kai Bockmann retiring as our global President and Chief Operating Officer, I’ve been working directly with Leanne and Carl Colizza, President and Chief Operating Officer (North America). Moving forward with a results-oriented focus, the right talent, and a streamlined structure, I’m more invigorated than ever about being closer to our operations.  IX SAPUTO.COMA roadmap for growth Unveiling our Global Strategic Plan marked a true milestone for our Company. With one year under our belt, we remain laser-focused on building on our strengths and capturing opportunities as we aim to reach $2.125 billion in Adjusted EBITDA by the end of FY25. As we maintain our philosophy of pursuing profit over volume, we’re deploying our strategic initiatives under five key pillars. The cornerstone of our Plan is our Optimize and enhance operations pillar, which includes investments and consolidation initiatives aimed at increasing efficiency and productivity, building on the mindset that’s been intrinsic to our success as a high-quality, low-cost processor. As part of a first phase in the USA, we’re deploying $169 million to modernize and expand our cheese manufacturing facilities, and we’re consolidating our cut-and-wrap activities on the West Coast. We also announced plans to trim certain operations at two of our facilities in Australia. In the UK, we intend to outsource our Nuneaton facility’s warehouse and distribution activities. We will close our Frome facility and centralize cheese packing at Nuneaton, creating a centre of excellence and providing both operational and cost synergies while offering plenty of scope for growth. Beyond these plans, additional investments and network consolidation initiatives are currently under evaluation for execution over the next three years. Our Strengthen core business pillar is all about harnessing the power of our existing brands and products, while trading up lower-valued categories and rationalizing the number of SKUs we manufacture across multiple product lines. We’re also accelerating product innovation by introducing new products and formats. Our successful push into dairy alternatives is a prime example of how we’re adapting to meet evolving consumer preferences. The next piece involves increasing the value of our ingredients portfolio to build internal capacity and move up the value chain in a commoditized space as we’re doing with nutritionals. Finally, we’re creating enablers to fuel investments, which also means doing more with less. Temporarily pausing the final phase of the Harmoni deployment, our Enterprise Resource Planning (ERP) project, which was set to begin in Canada, has enabled us to reallocate resources towards our “One USA” journey and the execution of our Global Strategic Plan. Optimize and enhance operations Strengthen core business Accelerate product innovation Increase the value of our ingredients portfolio Create enablers to fuel investments X SAPUTO.COM 2022 ANNUAL REPORTAcquisitions as accelerators Complementing our organic growth strategy, acquisitions have been a catalyst for Saputo over the last 25 years. Our four recent acquisitions reinforce our efforts to strengthen our core business, drive product innovation, and increase the value of our ingredients portfolio. We acquired Scotland’s Bute Island Foods in May, bringing new dairy alternative capabilities in-house following a successful partnership to develop our plant-based mozzarella offering. In parallel, our acquisition of the Reedsburg facility of Wisconsin Specialty Protein positioned us to move up the value chain with specialized ingredients, such as goat whey protein concentrate and organic lactose, which we can leverage in the USA and internationally. In July, we expanded our portfolio of British cheeses by adding another leading UK brand to the roster with the acquisition of the activities of Wensleydale Dairy Products. Finally, in September, we welcomed the Carolina Aseptic and Carolina Dairy businesses based in North Carolina, cultivating key customer relationships by reinforcing our manufacturing presence in rapidly growing categories, including aseptic formats, nutritional beverages, and dairy snacking. Delivering on our Promise The Saputo Promise underpins everything we do and serves to drive, enable, and sustain our growth. We wrapped up our first three-year plan in FY22, and we’re heading into the next phase with a firm dedication to delivering on our ESG objectives. The execution of our projects and our performance under the Environment and Our People pillars weren’t immune to the current operating dynamics, adding a layer of complexity. Nevertheless, significant progress was made across our seven pillars, and we’re proud to have achieved most of our three-year goals. As we move towards achieving our targets around climate, water, and waste by 2025, we undertook 24 projects in FY22 that are going to bring productive wins, with a further 32 projects slated for FY23. Among other initiatives, our partner Lightsource bp completed the construction of a five-megawatt solar project to provide renewable power for our Davidstow plant in the UK. Our renewable power purchase agreement in Australia started to deliver benefits, contributing to a potential 5% reduction of our carbon intensity by 2025. We also worked with Wipak UK to replace 33% of the virgin plastic in certain cheese packaging with post-consumer recycled (PCR) material, an innovation we expect to roll out more widely as technology improves and the quantity of available materials increases.  XI SAPUTO.COMProudly standing behind our 2025 commitments, we amended our US$1 billion North American bank credit facility to introduce a sustainability-linked loan structure with an annual pricing adjustment tied to achieving our climate and water goals, and starting in FY23, these targets have been integrated into our long-term compensation structure. Beyond the scope of our operations, we believe we have a key role to play to ensure a sustainable and equitable food system, working in partnership with our farmers, suppliers, and industry partners. That’s why, in FY22, we launched and began executing on our Supply Chain Pledges, which include sourcing 100% of our principal ingredients sustainably and contributing $10 million to fund relevant projects by 2025. In addition, we signed on to Pathways to Dairy Net Zero alongside several industry players to stimulate climate efforts and drive action to reduce greenhouse gas (GHG) emissions across the dairy sector as we aim to help the transition to a net zero food system by 2050. Fostering diversity, equity, and inclusion (DE&I) remains at the forefront of our priorities. Over the past year, we took the time to understand our internal data to inform our next steps and identify potential opportunities for improvement. We’re taking a deeper look at our programs and processes to ensure a more inclusive and diverse workforce. Anchored in the most pressing ESG issues for our business, our next three-year plan (FY23-FY25) builds on the momentum of the past few years, with execution already underway. Responsible governance Looking to the future with confidence Saputo is fortunate to count on an engaged and experienced Board of Directors to support our activities. As Chair, my fellow members and I act as stewards on behalf of Saputo’s stakeholders to oversee the Company’s strategic direction and performance in all aspects, a role we take on with great responsibility. This sound guidance has been invaluable, particularly in the current economic context and with the launch and delivery of our Global Strategic Plan. Olu Fajemirokun-Beck, who brings over 30 years of experience in the consumer goods industry internationally, joined our ranks in FY22. Her successful track record of transformational growth and her broad leadership acumen further expand the breadth and depth of our directorship. Tony Meti, a valued member for the past 14 years, has chosen not to seek re-election during our upcoming annual meeting of shareholders — at which time the Board is expected to be composed once again of two non independent and eight independent directors. I’d like to recognize and offer my sincerest thanks to Tony for his innumerable contributions throughout his tenure. While the operating environment remains complex, we’re poised for a strong recovery in FY23. The success of our USA platform is our top priority, and we’re committed to improving margins, with progress anticipated this year. We expect to achieve our financial objectives through the significant pricing actions we’re taking in most of our divisions, combined with our ongoing measures to address labour challenges, inflationary pressures, and efficiencies. Over the past year, we’ve been laying the groundwork for the next chapter of sustained growth, and I’m optimistic about what lies ahead. We remain confident in our strategic target, and with strong underlying fundamentals, we’re focused on execution. We’re heading into the second year of our Plan with renewed determination. We’ve started leveraging the momentum of our strategic initiatives, and we’re deploying more of our resources to harness the full potential of our business. As we prepare to celebrate the fifth anniversary of the Saputo Promise later this year, its guiding principle of creating shared value is more relevant than ever to our strategy and our stakeholders. We extend our deepest thanks to our shareholders, employees, customers, suppliers, business partners, and the communities we serve for their enduring trust and support.  XI I SAPUTO.COM 2022 ANNUAL REPORTA Closer Look at Our FY22 Performance and Highlights by Sector CANADA The Dairy Division (Canada) delivered a strong performance. Results were driven by improved demand in the foodservice market segment in line with the easing of COVID-19 restrictions, price increases to offset rising cost inflation, as well as cost containment initiatives. Our operations were impacted by the devastating floods in British Columbia, and we incurred incremental logistics costs as we remained committed to serving our customers throughout. Our Canadian business continues to benefit from a diversified customer base and product mix, a stable commodity market, and an effective internal distribution network. Completed the capacity expansion for retail and industrial mozzarella production at our Saint-Léonard, QC, plant to accommodate additional volume and started benefiting from cost savings and synergies from the closure of our Trenton, ON, facility in FY21. As our new state-of-the-art fluid milk and dairy alternative beverage facility in Port Coquitlam, BC, came online, we closed our aging Burnaby plant nearby. This new plant allows us to capitalize on consumer interest in dairy alternatives, and we kicked off commercial production of plant- based beverages for our co-packing and private label partners. Completed automation projects at two plants to deliver packaging cost reduction, yield improvement, and employee health and safety benefits. Enhanced our supply chain activities across our network by implementing best industry practices, like optimizing our trailer utilization and space consumption, and reduced the complexity of our infrastructure, which allowed for product shipment consolidation, saving on transport and warehousing costs. Despite the complex market conditions, we continued to earn customer confidence as we solidified many long-term agreements with new and existing foodservice and retail partners. Our Dairyland and Neilson brands maintained their category-leading positions and were once again featured among Canada’s most trusted brands*. We expanded our assortment of on-the-go cheese snacks and introduced a convenient, protein-packed cheese and meat combo product under our leading Armstrong brand as consumers returned to school and the office. Launched Vitalite plant-based mozzarella shred, expanding distribution in pizzerias and other foodservice accounts from coast to coast, with a full range of Vitalite products for retail released just recently. Further invested in our e-commerce capabilities and our direct-to- consumer offering, now supported by a dedicated business team. We significantly grew our e-commerce volume and launched Nibbl., an innovative B2C platform for specialty cheese, in Ontario and Québec, with national expansion planned in the next few months. * Dairyland: #1 Most Trusted by Canadians in 2021 – West – in milk category; Neilson: #1 Most Trusted by Canadians in 2021 – Ontario – in milk category, based on 2021 BrandSpark Canadian Shopper Survey. SAPUTO.COM XIII 20 22 ANNUAL RE PORT USA Labour, inflation, and supply chain pressures, as well as commodity volatility, particularly in our legacy cheese business, weighed heavily on the Dairy Division (USA)’s performance. Our teams responded with a variety of mitigating measures, including ongoing pricing initiatives, and, on the labour front, we launched a referral and new hire incentive program, enhanced compensation packages, and aggressively expanded recruitment outreach. Production levels have started to recover, and our fill rates are improving. Consumer and customer demand for our products remained robust throughout the year while the foodservice segment showed signs of recovery. Further established the roadmap for our cheese network optimization strategy, designed to modernize, expand, and revitalize our cheese manufacturing footprint, positioning core categories for long-term growth. We announced our first phase, and an investment of $169 million, to upgrade facilities in Wisconsin and California and to support our retail ambitions. In parallel, we plan to consolidate our cut-and-wrap activities on the West Coast and right-size our footprint by closing our Bardsley St., Tulare, CA, facility in FY23. Made progress on our portfolio simplification journey, reducing SKUs across multiple product lines as we look to prioritize branded products that yield the greatest return, maximize capacity, and generate efficiency gains. Maintained category-leading positions for our Frigo Cheese Heads, Montchevre, Salemville, and Frigo retail brands. Introduced dairy alternative cheese under the Vitalite brand, securing distribution in the retail and foodservice market segments with a superior product. We also gained traction in the market as we commercialized dairy alternative beverages under major private label contracts for large and strategic retail customers as well as through co-manufacturing agreements. Began manufacturing aseptic nutritional products sold in the retail market under a partner’s well-known brand name. We further expanded our capabilities in this growing segment when we welcomed Carolina Aseptic to the fold, while also adding refrigerated yogurt pouches to our dairy snacking offering through Carolina Dairy. Completed the acquisition of the Reedsburg facility of Wisconsin Specialty Protein, expanding our capabilities to process and sell goat and specialty whey protein and increase the value of our whey solids, where demand continues to be strong. Finalized our ERP rollout in all facilities, a major win for transitioning systems to a single solution, with our energy now squarely focused on progressing our “One USA” journey to maximize alignment and leverage economies of scale and resources to support our future growth. XIV SAPUTO.COM INTERNATIONAL Sales volumes within the International Sector were impacted by significant supply chain constraints due to container and vessel availability issues and port inefficiencies, a situation that is expected to remain volatile in the coming year. The dairy commodity dynamics started improving with indications of higher international cheese and dairy ingredient market prices. DAIRY DIVISION (AUSTRALIA) Profitability in our Dairy Division (Australia) was hindered by a reduction in milk intake, compounded by an increase in costs. On the export side, we needed to fulfill unfavourable contracts secured in FY21 at depressed commodity prices. Domestically, we successfully engaged with retailers to manage input cost pressures, with demand for most products remaining strong, while COVID-19 restrictions continued to affect the foodservice market segment. We also began implementing continuous improvement initiatives within our operations to help offset the impact of cost increases. Announced the streamlining of operations at two of our plants to reduce complexity and realize savings: we permanently shut down one of two dryers in one location, and we’re closing our individually wrapped slices production area in another, with this work moving to an alternative manufacturing arrangement. Gained further efficiencies in plant utilization, supporting customers with private label products, including ultra-high temperature (UHT), butter, and cheese. Successfully completed the rebranding of CHEER cheese, launched into snacking cheese with bars and smaller portions across several brands, and expanded our fast-growing Liddells lactose-free range by introducing butter blends and prebiotic chilled milk. Focused on driving profitable growth by creating the right portfolio and partnering with key foodservice customers. We’re now selling an increased range through quick-serve restaurants (QSRs), and we delivered a consolidated dairy solution for our customers by offering a new 3L thickened cream product under the Devondale brand. Completed the ERP rollout in the remainder of the Division, now fully integrated into a single operating entity with a unified approach to customers and vendors that simplifies our business. DAIRY DIVISION (ARGENTINA) Led by an agile team, the Dairy Division (Argentina) delivered solid results, driven by price margin improvements, operational efficiencies, and a higher milk intake compared to FY21. The business is well-positioned to maximize production for the export market while maintaining the volumes needed to service the domestic market. Gained warehousing efficiencies that led to significant cost savings for dry products. * Omnibus Kantar February 2020 La Paulina marked its centenary with a campaign aimed at increasing brand equity and strengthening its leadership positioning — it was recognized as the most consumed cheese brand in Argentina*. In FY22, La Paulina also developed new easy-to-open, unique packaging for its soft cheese portions. Entered the local dairy alternative beverage category under the Vitalite brand in a growing market. XV SAPUTO.COM20 22 ANNUAL RE PORT EUROPE The Dairy Division (UK) maintained excellent service levels in FY22 despite COVID-19-related disruptions. While milk intake increased during the year, input cost increases and weaker returns in dairy ingredients, due to low global infant formula demand, pressured profitability. As planned, both the Bute Island and Wensleydale Dairy Products acquisitions contributed positively. The Sector is focused on leveraging value-added products through strong consumer brands and specialized dairy ingredients. Progressed our Davidstow cheese plant expansion, with ongoing investments to increase capacity. We also benefited from operational improvements and cost reduction following the transfer of Frylight spray oil production to another facility. Undertook plans to outsource the Nuneaton facility’s warehouse and distribution activities to a long-term partner, creating opportunities for consolidation within our network. We intend to close our Frome packing facility and establish Nuneaton as a centre of excellence in cheese packing. We’ve already installed equipment to deliver a new and unique block format to the marketplace this summer. Cathedral City maintained its position as the #1 cheddar brand in the UK, and we partnered with a major British grocery chain to launch a branded ready meal range, with initial sales exceeding expectations. Internationally, we kicked off our long-term exclusive distribution partnership with Hochland to sell Cathedral City into Germany, a large and growing cheddar market, and we also expanded the brand’s presence in the USA and Canada. Won new private label contracts in cheese and spreads, a testament to the high quality of our mature cheddar and the innovation driving our new spread recipes. Leveraged the extensive opportunities provided by our recent acquisitions to cross-fertilize products and brands. For example, we’re working with our Wensleydale team to produce new recipes for English territorial cheeses to be branded as Cathedral City. On the dairy alternatives side, we’re increasing our plant-based cheese capacity at Bute Island, and we’ve initiated development of a Cathedral City plant-based cheddar, which we intend to position as a category leader in terms of taste and quality. Established new demineralized whey supply contracts with global infant formula manufacturers, broadening our market access, which should generate opportunities to achieve improved returns. We’ve also started evolving our recipes and formats for value-added ingredients to better respond to customer demand. XVI SAPUTO.COM JUN E 9, 202 2 MANAGEMENT’S DISCUSSION & ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS FY2022 TABLE OF CONTENTS MANAGEMENT’S DISCUSSION AND ANALYSIS INTRODUCTION .............................................................................................................................................................................. 3 CAUTION REGARDING FORWARD-LOOKING STATEMENTS .......................................................................................... SELECTED FINANCIAL INFORMATION ................................................................................................................................... NON-GAAP MEASURES ............................................................................................................................................................... 4 5 6 STATEMENT OF EARNINGS ....................................................................................................................................................... 10 HIGHLIGHTS .................................................................................................................................................................................... 12 OUTLOOK ........................................................................................................................................................................................ 13 CONSOLIDATED RESULTS ........................................................................................................................................................ QUARTERLY FINANCIAL INFORMATION BY SECTOR ....................................................................................................... 15 19 CANADA SECTOR ..................................................................................................................................................................... 21 USA SECTOR .............................................................................................................................................................................. 23 INTERNATIONAL SECTOR ...................................................................................................................................................... 26 EUROPE SECTOR ..................................................................................................................................................................... 28 LIQUIDITY, FINANCIAL AND CAPITAL RESOURCES .......................................................................................................... 30 CONTRACTUAL OBLIGATIONS ................................................................................................................................................. 33 FINANCIAL POSITION .................................................................................................................................................................. 34 GUARANTEES ................................................................................................................................................................................ 34 RELATED PARTY TRANSACTIONS .......................................................................................................................................... 34 CRITICAL ACCOUNTING ESTIMATES ..................................................................................................................................... CHANGES IN ACCOUNTING POLICIES ................................................................................................................................... 35 36 RISKS AND UNCERTAINTIES ..................................................................................................................................................... 37 DISCLOSURE CONTROLS AND PROCEDURES ................................................................................................................... INTERNAL CONTROL OVER FINANCIAL REPORTING ....................................................................................................... SENSITIVITY ANALYSIS OF INTEREST RATE AND US CURRENCY FLUCTUATIONS .............................................. 43 43 43 QUARTERLY FINANCIAL INFORMATION ............................................................................................................................... CONSOLIDATED ANALYSIS OF EARNINGS FOR THE YEAR ENDED MARCH 31, 2021, COMPARED TO MARCH 31, 2020 ............................................................................................................................................................................. 46 44 GLOSSARY ...................................................................................................................................................................................... 49 CONSOLIDATED FINANCIAL STATEMENTS .............................................................................................................................. 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ........................................................................................... 63 MANAGEMENT’S DISCUSSION AND ANALYSIS INTRODUCTION The goal of this management's discussion and analysis (''MD&A'') is to analyze the results of, and the financial position of Saputo Inc. (we, Saputo or the Company), for the year ended March 31, 2022. It should be read while referring to the audited consolidated financial statements of the Company for the same period and accompanying notes, which are prepared in accordance with generally accepted accounting principles in Canada ("GAAP") as set out in the CPA Canada Handbook - Accounting under Part 1, which incorporates International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board. All dollar amounts are in Canadian dollars, unless otherwise indicated. The information in this report is being presented as at March 31, 2022, unless otherwise specified. In preparing this report, we have taken into account material elements between March 31, 2022, and June 9, 2022, the date on which this report was approved by the Company’s Board of Directors. Additional information about the Company, including its Annual Report and Annual Information Form for the year ended March 31, 2022, can be obtained on SEDAR at www.sedar.com. ANNUAL REPORT 2022 Page 3 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 our objectives, outlook, business projects, strategies, beliefs, expectations, targets, commitments, goals, ambitions and strategic plans including our ability to achieve these targets, commitments, goals, ambitions and strategic plans, and statements other than historical facts. The words “may”, “could”, “should”, “will”, “would”, “believe”, “plan”, “expect”, “intend”, “anticipate”, “estimate”, “foresee”, “objective”, “continue”, “propose”, “aim”, “commit”, “assume”, “forecast”, “predict”, “seek”, “project”, “potential”, “goal”, “target”, or “pledge”, 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 fact included in this report may constitute forward- looking statements within the meaning of applicable securities laws. By their nature, forward-looking statements are subject to a number of inherent risks and uncertainties. Actual results could differ materially from those stated, implied, or projected in such forward-looking statements. As a result, we cannot guarantee that any forward-looking statements will materialize, and we warn readers that these forward- looking statements are not statements of historical fact or guarantees of future performance in any way. Assumptions, expectations, and estimates made in the preparation of forward-looking statements and risks and uncertainties that could cause actual results to differ materially from current expectations are discussed in our materials filed with the Canadian securities regulatory authorities from time to time, including the "Risks and Uncertainties" section of this MD&A. Such risks and uncertainties include the following: product liability; the COVID-19 pandemic and related ongoing impacts; the availability of raw materials (including as a result of climate change, extreme weather, or global or local supply chain disruptions caused by the COVID-19 pandemic, geopolitical developments, military conflicts and trade sanctions) and related price variations, along with our ability to transfer those increases, if any, to our customers in competitive market conditions; supply chain strain and supplier concentration; the price fluctuation of our products in the countries in which we operate, as well as in international markets, which are based on supply and demand levels for dairy products; our ability to identify, attract, and retain qualified individuals; cyber threats and other information technology-related risks relating to business disruptions, confidentiality, data integrity business and email compromise-related fraud; the increased competitive environment in our industry; consolidation of clientele; unanticipated business disruption; changes in consumer trends; changes in environmental laws and regulations; the potential effects of climate change; increased focus on environmental sustainability matters; the failure to execute our Global Strategic Plan as expected or to adequately integrate acquired businesses in a timely and efficient manner; the failure to complete capital expenditures as planned; changes in interest rates and access to capital and credit markets. Forward-looking statements are based on Management’s current estimates, expectations and assumptions regarding, among other things; the projected revenues and expenses; the economic, industry, competitive, and regulatory environments in which we operate or which could affect our activities; our ability to identify, attract, and retain qualified and diverse individuals; our ability to attract and retain customers and consumers; our environmental performance; the results of our sustainability efforts; the effectiveness of our environmental and sustainability initiatives; the availability and cost of milk and other raw materials and energy supplies; our operating costs; the pricing of our finished products on the various markets in which we carry on business; the successful execution of our Global Strategic Plan; our ability to deploy capital expenditure projects as planned; our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; our ability to leverage our brand value; our ability to drive revenue growth in our key product categories or platforms or add products that are in faster-growing and more profitable categories; the contribution of recent acquisitions; the anticipated market supply and demand levels for our products; the anticipated warehousing, logistics, and transportation costs; our effective income tax rate; the exchange rate of the Canadian dollar to the currencies of cheese and dairy ingredients. Our ability to achieve our environmental targets, commitments, and goals is further subject to, among others, our ability to access and implement all technology necessary to achieve our targets, commitments, and goals, as well as the development and performance of technology, innovation and the future use and deployment of technology and associated expected future results, and environmental regulation. Our ability to achieve our 2025 Supply Chain Pledges is further subject to, among others, our ability to leverage our supplier relationships. Management believes that these estimates, expectations, and assumptions are reasonable as of the date hereof, and are inherently subject to significant business, economic, competitive, and other uncertainties and contingencies regarding future events, and are accordingly subject to changes after such date. Forward-looking statements are intended to provide shareholders with information regarding Saputo, including our assessment of future financial plans, and may not be appropriate for other purposes. 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. All forward-looking statements included herein speak only as of the date hereof or as of the specific date of such forward-looking statements. Except as required under applicable securities legislation, Saputo does not undertake to update or revise forward-looking statements, whether written or verbal, that may be made from time to time by itself or on our behalf, whether as a result of new information, future events, or otherwise. All forward-looking statements contained herein are expressly qualified by this cautionary statement. ANNUAL REPORT 2022 Page 4 SELECTED FINANCIAL INFORMATION Years ended March 31 (in millions of CDN dollars, except per share amounts and ratios) Revenues 15,035 14,294 14,944 Operating costs excluding depreciation, amortization, inventory revaluation resulting from a business acquisition, and restructuring costs 13,880 12,823 13,476 2022 2021 2020 Adjusted EBITDA1 Margin1 Net earnings Margin2 Adjusted net earnings1 Margin1 PER SHARE Net earnings per share (EPS) basic EPS diluted Adjusted EPS basic1 Adjusted EPS diluted1 Dividends Book value2 FINANCIAL POSITION Working capital2 Total assets Long-term debt, including current portion Net debt2 Total non-current financial liabilities2 Equity FINANCIAL RATIOS Net debt / Equity2 Net debt / adjusted EBITDA1 Adjusted return on average equity1 STATEMENT OF CASH FLOWS Net cash generated from operations Additions to property, plant and equipment, and intangible assets Business acquisitions Payment of dividends (Net of dividends paid through DRIP3 of $87 million in fiscal 2022 and $80 million in fiscal 2021) 1,155 7.7 % 1,471 10.3 % 1,468 9.8 % 274 1.8 % 485 3.2 % 0.66 0.66 1.17 1.17 0.72 626 4.4 % 715 5.0 % 1.53 1.52 1.74 1.74 0.70 583 3.9 % 724 4.8 % 1.46 1.45 1.81 1.80 0.68 15.61 15.63 16.05 1,515 13,683 3,375 4,080 3,461 6,505 1,802 13,123 3,578 3,806 3,667 6,444 1,576 13,793 3,542 4,166 3,890 6,559 0.63 3.53 6.4 % 0.59 2.59 10.5 % 0.64 2.84 12.3 % 693 498 371 209 1,078 434 — 1,037 576 1,930 205 270 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the "Glossary" section of this MD&A. 3 Effective as of the dividend paid on July 9, 2020, a dividend reinvestment plan (DRIP) was implemented. ANNUAL REPORT 2022 Page 5 NON-GAAP MEASURES We report our financial results in accordance with GAAP and generally assess our financial performance using financial measures that are prepared using GAAP. However, this MD&A also refers to certain non-GAAP and other financial measures which do not have a standardized meaning under GAAP, including the following. Term Used Adjusted EBITDA Adjusted net earnings1 Definition Net earnings before income taxes, financial charges, acquisition and restructuring costs, inventory revaluation resulting from a business acquisition, gain on disposal of assets, impairment of intangible assets, and depreciation and amortization. Net earnings before the UK tax rate change, acquisition and restructuring costs, inventory revaluation resulting from a business acquisition, gain on disposal of assets, impairment of intangible assets, and amortization of intangible assets related to business acquisitions, net of applicable income taxes. Adjusted EBITDA margin Adjusted EBITDA expressed as a percentage of revenues. Adjusted net earnings margin Adjusted net earnings expressed as a percentage of revenues. Adjusted EPS basic Adjusted net earnings per basic common share. Adjusted EPS diluted Adjusted net earnings per diluted common share. Adjusted return on average equity Net earnings before the UK tax rate change, acquisition and restructuring costs, inventory revaluation resulting from a business acquisition, gain on disposal of assets, and impairment of intangible assets, net of applicable income taxes, divided by average total equity, not considering the effect of annual fluctuations in foreign currency translation and adjusting items to net earnings identified above. Net debt / adjusted EBITDA Net debt divided by adjusted EBITDA. 1 In previous periods, adjusted net earnings included amortization of intangible assets related to business acquisitions, net of applicable income tax. Starting in the fourth quarter of fiscal 2022, adjusted net earnings excludes amortization of intangible assets related to business acquisitions, net of applicable income taxes, to provide a more effective measure to assess performance against the Company's peer group due to the application of various accounting policies in relation to the amortization of acquired intangible assets. Comparative periods included in this MD&A were aligned to meet the current presentation. We use non-GAAP measures and ratios to provide investors with supplemental metrics to assess and measure our operating performance and financial position from one period to the next. We believe that those measures are important supplemental metrics because they eliminate items that are less indicative of our core business performance and could potentially distort the analysis of trends in our operating performance and financial position. We also use non-GAAP measures to facilitate operating and financial performance comparisons from period to period, to prepare annual budgets and forecasts, and to determine components of management compensation. We believe these non-GAAP measures, in addition to the financial measures prepared in accordance with IFRS, enable investors to evaluate the Company's operating results, underlying performance, and future prospects in a manner similar to management. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution of GAAP results. These non-GAAP measures have no standardized meaning under GAAP and are not likely to be comparable to similar measures presented by other issuers. Our method of calculating these measures may differ from the methods used by others, and, accordingly, our definition of these non-GAAP financial measures may not be comparable to similar measures presented by other issuers. In addition, non-GAAP financial measures should not be viewed as a substitute for the related financial information prepared in accordance with GAAP. This section provides a description of the components of each non-GAAP measure used in this MD&A and the classification thereof. ANNUAL REPORT 2022 Page 6 NON-GAAP FINANCIAL MEASURES AND RATIOS A non-GAAP financial measure is a financial measure that depicts the Company's financial performance, financial position, or cash flow and either excludes an amount that is included in or includes an amount that is excluded from the composition of the most directly comparable financial measures disclosed in the Company's financial statements. A non-GAAP ratio is a financial measure disclosed in the form of a ratio, fraction, percentage, or similar representation and that has a non-GAAP financial measure as one or more of its components. Below are descriptions of the non-GAAP financial measures and ratios that we use as well as reconciliations to the most comparable GAAP financial measures, as applicable. Adjusted net earnings and adjusted net earnings margin We believe that adjusted net earnings and adjusted net earnings margin provide useful information to investors because this financial measure and this ratio provide precision with regards to our ongoing operations by eliminating the impact of non-operational or non-cash items. We believe that in the context of highly acquisitive companies, adjusted net earnings provides a more effective measure to assess performance against the Company's peer group, including due to the application of various accounting policies in relation to the amortization of acquired intangible assets. We also believe adjusted net earnings and adjusted net earnings margin are useful to investors because they help identify underlying trends in our business that could otherwise be masked by certain write-offs, charges, income, or recoveries that can vary from period to period. We believe that securities analysts, investors, and other interested parties also use adjusted net earnings to evaluate the performance of issuers. Excluding these items does not imply they are non-recurring. These measures do not have any standardized meanings under GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. The following table provides a reconciliation of net earnings to adjusted net earnings. (in millions of CDN dollars, except per share amounts) Net earnings UK tax rate change2 Acquisition and restructuring costs1 Gain on disposal of assets1 Impairment of intangible assets1 Amortization of intangible assets related to business acquisitions1 Adjusted net earnings Revenues Margin (in millions of CDN dollars, except per share amounts) Q4 37 — 51 — — 20 108 Q3 86 — — (8) 43 18 139 Q2 98 — (1) — — 19 116 Q1 53 50 1 — — 18 122 Fiscal 2022 274 50 51 (8) 43 75 485 3,957 3,901 3,689 3,488 15,035 2.7 % 3.6 % 3.1 % 3.5 % 3.2 % Net earnings Acquisition and restructuring costs1 Inventory revaluation resulting from a business acquisition Impairment of intangible assets1 Amortization of intangible assets related to business acquisitions1 Adjusted net earnings Revenues Margin Q4 103 2 — — 19 124 Q3 210 — — — 18 228 Q2 171 (5) — — 18 184 Q1 142 — — 19 18 179 Fiscal 2021 626 (3) — 19 73 715 Fiscal 2020 583 38 33 — 70 724 3,438 3,763 3,702 3,391 14,294 14,944 3.6 % 6.1 % 5.0 % 5.3 % 5.0 % 4.8 % 1 Net of income taxes. 2 On June 10, 2021, the UK Finance Act 2021 was enacted, increasing the UK tax rate from 19% to 25%, effective April 1, 2023. Refer to Note 15 to the consolidated financial statements for further information. ANNUAL REPORT 2022 Page 7 Adjusted EPS basic and adjusted EPS diluted Adjusted EPS basic and adjusted EPS diluted are non-GAAP ratios and do not have any standardized meaning under GAAP. Therefore, these measures are unlikely to be comparable to similar measures presented by other issuers. We define adjusted EPS basic and adjusted EPS diluted as adjusted net earnings divided by the basic and diluted weighted average number of common shares outstanding for the period. Adjusted net earnings is a non-GAAP financial measure. For more details on adjusted net earnings, refer to the discussion above in the adjusted net earnings and adjusted net earnings margin section. We use adjusted EPS basic and adjusted EPS diluted, and we believe that certain securities analysts, investors, and other interested parties use these measures, among other ones, to assess the performance of our business without the effect of the UK tax rate change, acquisition and restructuring costs, inventory revaluation resulting from a business acquisition, gain on disposal of assets, impairment of intangible assets, and amortization of intangible assets related to business acquisitions. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Adjusted EPS is also a component in the determination of long-term incentive compensation for management. Adjusted return on average equity Adjusted return on average equity is a component in the determination of long-term incentive compensation for management. The calculation of adjusted return on average equity uses adjusted net earnings including amortization of intangible assets related to business acquisitions, net of applicable income taxes, consistent with the composition of this non-GAAP financial measure prior to the fourth quarter of fiscal 2022. For more details on adjusted return on average equity, refer to the definition table above in the non-GAAP measures section. Adjusted net earnings including amortization of intangible assets related to business acquisitions, net of applicable income taxes, were as follows for the years ended March 31: Adjusted net earnings Amortization of intangible assets related to business acquisitions, 485 net of applicable income taxes Adjusted net earnings including amortization of intangible assets related to business acquisitions, net of applicable income taxes (75) 410 2022 2021 715 (73) 642 2020 724 (70) 654 Average total equity, not considering the effect of annual fluctuations in foreign currency translation and adjusting items to net earnings identified above, were as follows for the years ended March 31: Equity beginning of year Foreign currency translation beginning of year Adjusted net earnings items from prior year Adjusted equity beginning of year Equity end of year Foreign currency translation end year Adjusted net earnings items of the current year Adjusted equity end of year 2022 6,444 (210) 16 6,250 6,505 (66) 136 6,575 2021 6,559 (668) 71 5,962 6,444 (210) 16 6,250 2020 5,421 (582) (132) 4,707 6,559 (668) 71 5,962 Average total equity 6,413 6,106 5,335 Adjusted return on average equity 6.4 % 10.5 % 12.3 % Net debt to adjusted EBITDA Net debt to adjusted EBITDA is the primary measure used by the Company to monitor its financial leverage. For more details on net debt, refer to the "Glossary" section of this MD&A. For more details on adjusted EBITDA, refer to the discussion above in the adjusted EBITDA and adjusted EBITDA margin section. ANNUAL REPORT 2022 Page 8 TOTAL OF SEGMENTS MEASURES A total of segments measure is a financial measure that is a subtotal or total of two or more reportable segments and is disclosed within the notes to Saputo's consolidated financial statements, but not in its primary financial statements. Consolidated adjusted EBITDA is a total of segments measure. Consolidated adjusted EBITDA is the total of the adjusted EBITDA of our four geographic sectors. We report our business under four sectors: Canada, USA, International, and Europe. The Canada Sector consists of the Dairy Division (Canada), the USA Sector consists of the Dairy Division (USA), the International Sector consists of the Dairy Division (Australia) and the Dairy Division (Argentina), and the Europe Sector consists of the Dairy Division (UK). We sell our products in three different market segments: retail, foodservice, and industrial. Adjusted EBITDA and adjusted EBITDA margin We believe that adjusted EBITDA and adjusted EBITDA margin provide investors with useful information because they are common industry measures. These measures are also key metrics of the Company's operational and financial performance without the variation caused by the impacts of the elements itemized below and provide an indication of the Company's ability to seize growth opportunities in a cost-effective manner, finance its ongoing operations, and service its long-term debt. Adjusted EBITDA is the key measure of profit used by management for the purpose of assessing the performance of each sector and of the Company as a whole, and to make decisions about the allocation of resources. We believe that securities analysts, investors, and other interested parties also use adjusted EBITDA to evaluate the performance of issuers. Adjusted EBITDA is also a component in the determination of short-term incentive compensation for management. The following table provides a reconciliation of net earnings to adjusted EBITDA on a consolidated basis. (in millions of CDN dollars) Net earnings Income taxes Financial charges Acquisition and restructuring costs Gain on disposal of assets Impairment of intangible assets Depreciation and amortization Adjusted EBITDA Revenues Margin (in millions of CDN dollars) Q4 37 (12) 16 71 — — 148 260 Q3 86 26 17 — (9) 58 144 322 Q2 98 31 19 (2) — — 137 283 Q1 53 86 18 2 — — 131 290 Fiscal 2022 274 131 70 71 (9) 58 560 1,155 3,957 3,901 3,689 3,488 15,035 6.6 % 8.3 % 7.7 % 8.3 % 7.7 % Net earnings Income taxes Financial charges Acquisition and restructuring costs Inventory revaluation resulting from a business acquisition Impairment of intangible assets Depreciation and amortization Adjusted EBITDA Revenues Margin Q4 103 39 23 3 — — 135 303 Q3 210 67 26 — — — 128 431 Q2 171 57 22 (6) — — 126 370 Fiscal 2021 626 218 96 (3) — 19 Fiscal 2020 583 217 115 46 40 — 515 467 1,471 1,468 Q1 142 55 25 — — 19 126 367 3,438 3,763 3,702 3,391 14,294 14,944 8.8 % 11.5 % 10.0 % 10.8 % 10.3 % 9.8 % ANNUAL REPORT 2022 Page 9 STATEMENT OF EARNINGS (in millions of CDN dollars) Revenues Canada USA International Europe Operating costs excluding depreciation, amortization, inventory revaluation resulting from a business acquisition, and restructuring costs Canada USA International Europe Adjusted EBITDA Canada USA International Europe Total1 Adjusted EBITDA margin1 Depreciation and amortization Canada USA International Europe Impairment of intangible assets Gain on disposal of assets Acquisition and restructuring costs Financial charges Earnings before incomes taxes Income taxes Net earnings Net earnings margin2 For the three-month periods ended March 31 For the years ended March 31 2022 2021 2022 2021 1,055 1,743 922 237 3,957 938 1,701 860 198 3,697 117 42 62 39 260 6.6 % 27 57 34 30 148 — — 71 16 25 (12) 37 0.9 % 1,001 1,399 827 211 3,438 893 1,306 765 171 3,135 108 93 62 40 303 8.8 % 27 51 30 27 135 — — 3 23 142 39 103 4,281 6,409 3,453 892 4,135 6,122 3,221 816 15,035 14,294 3,806 6,121 3,205 748 3,688 5,555 2,916 664 13,880 12,823 475 288 248 144 447 567 305 152 1,155 7.7 % 1,471 10.3 % 103 210 132 115 560 58 (9) 71 70 405 131 274 99 200 112 104 515 19 — (3) 96 844 218 626 3.0 % 1.8 % 4.4 % 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 10 STATEMENT OF EARNINGS (CONT'D) (in millions of CDN dollars, except per share amounts and ratios) For the three-month periods ended March 31 For the years ended March 31 2022 2021 2022 2021 Adjusted net earnings1 Adjusted net earnings margin1 108 2.7 % 124 3.6 % 485 3.2 % 715 5.0 % PER SHARE DATA EPS basic EPS diluted Adjusted EPS basic1 Adjusted EPS diluted1 0.09 0.09 0.26 0.26 0.25 0.25 0.30 0.30 0.66 0.66 1.17 1.17 1.53 1.52 1.74 1.74 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. Selected factors positively (negatively) affecting financial performance (in millions of CDN dollars) For the three-month periods ended March 31 For the years ended March 31 2022 2021 2022 2021 USA Market Factors1,2 Foreign currency exchange2,3 1 Refer to the ‘‘Glossary’’ section of this MD&A. 2 Reflects the effect on adjusted EBITDA as compared to same quarter last fiscal year for the three-month periods; as compared to last fiscal year for the years ended March 31. Adjusted EBITDA is a total of segments measure. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. Foreign currency exchange includes the effect of the conversion of US dollars, Australian dollars, British pounds sterling, and Argentine pesos to Canadian dollars. (118) (72) (19) (12) (4) (2) (2) 57 3 ANNUAL REPORT 2022 Page 11 HIGHLIGHTS Fourth quarter of fiscal 2022 • Revenues amounted to $3.957 billion, up $519 million or 15.1%. • Net earnings totalled $37 million and EPS (basic and diluted) were $0.09, as compared to $103 million of net earnings and EPS (basic and diluted) of $0.25. • Adjusted EBITDA1 amounted to $260 million, down $43 million or 14.2%. • Adjusted net earnings1 totalled $108 million, as compared to $124 million, and adjusted EPS1 (basic and diluted) were $0.26, as compared to $0.30. • Net cash generated from operations amounted to $184 million, up $33 million or 21.9%. • Challenging market conditions, including labour shortages, supply chain disruptions, and inflationary pressures, continued to impact our sectors to varying degrees, with the USA Sector being the most impacted. • Input and logistics costs, mainly in North America, continued to be impacted by inflation. Pricing initiatives were not sufficient to mitigate these cost increases. • USA Market Factors2 negatively impacted adjusted EBITDA by $19 million, compared to the same quarter last fiscal year, mainly due to the effect of the negative spread2. • The Canada Sector continued to show improved results despite challenging market conditions. • The fluctuation of the Canadian dollar versus foreign currencies negatively impacted revenues and adjusted EBITDA by $35 million and $12 million, respectively. • Restructuring costs of $51 million after tax, which included non-cash fixed assets write-downs totalling $43 million, were incurred in connection with initiatives being undertaken under the Optimize and enhance operations pillar of our Global Strategic Plan. These initiatives include: ◦ Previously announced capital investments and consolidation initiatives intended to enhance and streamline our manufacturing footprint in the USA Sector and in the International Sector; and ◦ Plans to outsource warehouse and distribution activities in the Europe Sector, creating opportunities for network consolidation. • The Board of Directors approved a dividend of $0.18 per share payable on June 28, 2022, to common shareholders of record on June 21, 2022. Fiscal 2022 • Revenues amounted to $15.035 billion, an increase of $741 million or 5.2%. • Net earnings totalled $274 million and EPS (basic and diluted) were $0.66, as compared to $626 million of net earnings and EPS (basic and diluted) of $1.53 and $1.52. • Adjusted EBITDA1 amounted to $1.155 billion, down $316 million or 21.5%. • Adjusted net earnings1 totalled $485 million, as compared to $715 million, and adjusted EPS1 (basic and diluted) were $1.17, as compared to $1.74. • Net cash generated from operations totalled $693 million, down $385 million or 35.7%. • Challenging market conditions, including labour shortages, supply chain disruptions, and inflationary pressures, impacted our sectors to varying degrees, with the USA Sector being the most impacted. • Input and logistics costs, mainly in North America, continued to be impacted by inflation. Pricing initiatives were not sufficient to mitigate these cost increases. • USA Market Factors2 negatively impacted adjusted EBITDA by $118 million, compared to the last fiscal year, mainly due to the effect of the negative spread2. • The Canada Sector showed favourable results despite challenging market conditions. • Sales volumes were higher, mainly due to an increase in the foodservice market segment and, to a lesser extent, in the industrial market segment, partially offset by lower retail market segment sales volumes which returned to historical levels. • The fluctuation of the Canadian dollar versus foreign currencies negatively impacted revenues and adjusted EBITDA by $424 million and $72 million, respectively. • During the fiscal year, we completed the acquisitions of Bute Island Foods Ltd. (Bute Island Acquisition), the Reedsburg facility of Wisconsin Specialty Protein, LLC (Reedsburg Facility Acquisition), the business of Wensleydale Dairy Products Limited (Wensleydale Dairy Products Acquisition), and the Carolina Aseptic and Carolina Dairy businesses formerly operated by AmeriQual Group Holdings, LLC (Carolina Acquisition), (collectively, the Recent Acquisitions). • Saputo incurred restructuring costs totalling $51 million after tax. • As part of the continuous evaluation of our overall activities and to reallocate resources to support the growth ambitions of our Global Strategic Plan, we decided to temporarily pause for a minimum of three years the final phase of the Harmoni deployment, our Enterprise Resource Planning (ERP) project, which was set to begin in Canada. An impairment of intangible assets charge of $43 million after tax was recorded during the third quarter. The impairment charge also included the effect of the application of an agenda decision of the International Financial Reporting Interpretations Committee (IFRIC) related to the capitalization of cloud-based software costs. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 12 OUTLOOK • We anticipate that input and logistics costs such as consumables, packaging, transportation and fuel should remain at elevated levels, but we expect strong pricing contribution across all sectors following recently announced price increases. • We expect further price increases to be implemented over the course of the fiscal year, in line with our pricing protocols, if cost inflation continues to persist. • • Labour and operational initiatives are expected to improve our ability to supply ongoing demand and return to historical order fill rate levels, particularly in the USA. Current consumer trends in key categories remain positive and price elasticity will continue to be closely monitored as the year progresses. • We anticipate the retail market segment to remain strong as at-home food spending should remain elevated versus pre-pandemic levels, while the foodservice market segment is expected to remain competitive, particularly in the USA. • • • • • Constraints on service and volumes are expected through the first half of fiscal 2023, due to the continuing gap between supply and demand of trucking capacity and containers. Supply chain conditions remain challenging, and we expect the disruption from longer lead times for sourced products to continue. USA Market Factors2 will remain volatile although we adjust our pricing to reflect commodity prices. Despite the volatile nature of international cheese and dairy ingredient markets, our outlook on export prices remains cautiously positive. Volumes destined for export markets continue to recover; however, the pace and timing of the recovery to pre- pandemic levels will vary depending on the export market and supply chain improvements. • While inflation and supply chain disruptions are likely to persist, we expect a meaningful recovery in earnings in fiscal 2023, driven by the full impact of previously announced price increases, improved productivity and fixed cost absorption, a return to historical order fill rates, and benefits stemming from our Global Strategic Plan. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 13 GLOBAL STRATEGIC PLAN HIGHLIGHTS We will continue to leverage the momentum of our ongoing Global Strategic Plan initiatives to strengthen our position as a high-quality, low-cost processor with a relentless focus on productivity and efficiency. Beyond the previously announced capital investments and consolidation initiatives to enhance and streamline our manufacturing footprint in the USA Sector and International Sector, our UK business undertook plans to outsource our Nuneaton facility’s warehouse and distribution activities to a long-term partner. We will close our Frome facility and centralize cheese packing at Nuneaton over the next two years, creating a centre of excellence and providing both operational and cost synergies while offering plenty of scope for growth. The initiatives in the Europe Sector are expected to result in annual savings and benefits gradually, beginning in fiscal 2024, and reaching approximately $6 million after tax by the end of fiscal 2026. Restructuring costs associated with these initiatives are anticipated to be approximately $13 million after tax, which include a non-cash fixed assets write- down of approximately $4 million after tax. Restructuring costs of $6 million after tax were recorded in fiscal 2022 and the balance will be recorded in fiscal 2023. Capital expenditures associated with the initiatives are expected to be approximately $36 million. We are poised for a recovery in fiscal 2023, and we are well underway with the full-scale roll-out of our growth, cost, and productivity initiatives. Together, this should set the stage for accelerated growth in the back half of our Global Strategic Plan with a clear line of sight to our adjusted EBITDA1 target of $2.125 billion by the end of fiscal 2025. THE SAPUTO PROMISE The Saputo Promise, our approach to social, environmental, and economic performance, supports our strategic plans and allows us to pursue growth and create shared value for all stakeholders, ensuring the long-term sustainability of our business. During the fourth quarter of fiscal 2022: • We completed the capital allocation of our three-year $50 million investment (FY21-FY23) to accelerate our climate, water, and waste performance, dedicating approximately $20 million to an additional 32 environmental projects. • We completed the installation of four additional projects, which should deliver savings of 1,200 tonnes of CO2, 21,000 GJ of energy, and 18,000 m3 of water annually. • We joined the Sustainable Agriculture Initiative Platform, a non-profit network of over 160 members worldwide, working together to advance sustainable agricultural practices through pre-competitive collaboration. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. ANNUAL REPORT 2022 Page 14 CONSOLIDATED RESULTS FOR THE FOURTH QUARTER AND FISCAL YEAR ENDED MARCH 31, 2022 Revenues Revenues for the fourth quarter of fiscal 2022 totalled $3.957 billion, up $519 million or 15.1%, as compared to $3.438 billion for the same quarter last fiscal year. Revenues increased due to higher domestic selling prices, together with pricing initiatives implemented in all our sectors to mitigate increasing input costs, as well as higher international cheese and dairy ingredient market prices. The combined effect of the higher average block market price2 and of the higher average butter market price2 had a positive impact of $217 million. The effect of the fluctuation of the Argentine peso and the Australian dollar on export sales denominated in US dollars was favourable. Sales volumes were stable compared to those of the fourth quarter of fiscal 2021. Retail market segment sales volumes decreased as they returned to historical levels. The contributions of the Recent Acquisitions totalled $44 million. Finally, the fluctuation of foreign currencies versus the Canadian dollar had an unfavourable impact of $35 million. Revenues in fiscal 2022 totalled $15.035 billion, up $741 million or 5.2%, as compared to $14.294 billion for last fiscal year. Revenues increased due to higher domestic selling prices, together with pricing initiatives implemented in all our sectors to mitigate increasing input costs, as well as higher international cheese and dairy ingredient market prices. However, during the first six months of fiscal 2022, fulfilling the export sales contracts that had been entered into in fiscal 2021 at depressed commodity prices in the International Sector had an unfavourable impact. Sales volumes were higher than those of last fiscal year, mainly due to an increase in the foodservice market segment and, to a lesser extent, in the industrial market segment. However, sales volumes in the retail market segment were lower than last fiscal year, mainly due to the surge that occurred in the first quarter of fiscal 2021, although this surge began to level off starting in the second quarter of fiscal 2021. In the ongoing COVID-19 context, supply chain challenges, due to container and vessel availability issues and port inefficiencies, negatively impacted export sales volumes in our International Sector. The combined effect of the higher average butter market price2 and of the lower average block market price2 had a positive impact of $61 million. The effect of the fluctuation of the Argentine peso and the Australian dollar on export sales denominated in US dollars was favourable. The contributions of the Recent Acquisitions totalled $123 million. Finally, the fluctuation of foreign currencies, most particularly the US dollar, versus the Canadian dollar had an unfavourable impact of $424 million. Operating costs excluding depreciation, amortization, and restructuring costs Operating costs excluding depreciation, amortization, and restructuring costs for the fourth quarter of fiscal 2022 totalled $3.697 billion, up $562 million or 17.9%, as compared to $3.135 billion for the same quarter last fiscal year. In fiscal 2022, operating costs excluding depreciation, amortization, and restructuring costs totalled $13.880 billion, up $1.057 billion or 8.2%, as compared to $12.823 billion last fiscal year. These increases were due to higher input costs in all our divisions caused by inflationary pressures. Higher revenues, dairy commodity market volatility, and higher input costs contributed to the higher cost of raw materials and consumables used. Employee salary and benefit expenses increased due to inflation and wage increases. Net earnings Net earnings for the fourth quarter of fiscal 2022 totalled $37 million, down $66 million or 64.1%, as compared to $103 million for the same quarter last fiscal year. This decrease is primarily due to the factors that contributed to lower adjusted EBITDA1 of $43 million, as described below, restructuring costs of $51 million after tax, and higher depreciation and amortization, partially offset by a lower income tax expense and lower financial charges. In fiscal 2022, net earnings totalled $274 million, down $352 million or 56.2%, as compared to $626 million for last fiscal year. This decrease is primarily due to the factors that contributed to lower adjusted EBITDA1 of $316 million, as described below, a higher impairment of intangible assets charge of $24 million after tax, restructuring costs of $51 million after tax, a one-time non-cash expense of $50 million to adjust deferred income tax liability balances to reflect the increase in the corporate income tax rate in the United Kingdom, and higher depreciation and amortization, partially offset by a lower income tax expense, lower financial charges, and a gain on disposal of assets of $8 million after tax. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 15 Adjusted EBITDA1 Adjusted EBITDA1 for the fourth quarter of fiscal 2022 totalled $260 million, down $43 million or 14.2%, as compared to $303 million for the same quarter last fiscal year. We continued to face increasing input and logistics costs such as consumables, packaging, transportation and fuel in all our sectors due to inflationary pressures. Pricing initiatives undertaken were not sufficient to mitigate the ongoing impact of inflation on our costs, which included an increase of $41 million related to freight and logistics costs, mainly in North America. USA Market Factors2 had a negative effect of $19 million, as compared to the same quarter last fiscal year, mainly due to the effect of the negative spread2. The relation between international cheese and dairy ingredient market prices and the cost of milk as raw material in the International Sector had a positive impact. Labour shortages in some of our facilities, including those due to the outbreak of the Omicron COVID-19 variant, and supply chain disruptions put pressure on our ability to supply ongoing demand, which negatively impacted efficiencies and the absorption of fixed costs. The positive effects of lower administrative costs, such as travel and promotional activities, in the context of the COVID-19 pandemic, tapered off compared to the same quarter last fiscal year. The fluctuation of foreign currencies versus the Canadian dollar had an unfavourable impact of $12 million. Adjusted EBITDA1 in fiscal 2022 totalled $1.155 billion, down $316 million or 21.5%, as compared to $1.471 billion for last fiscal year. Input and logistics costs such as consumables, packaging, transportation, and fuel increased in all our divisions due to inflationary pressures. Pricing initiatives undertaken were not sufficient to mitigate the ongoing impact of inflation on our costs, which included an increase of $143 million related to freight and logistics costs, mainly in North America. In a volatile dairy commodity market, USA Market Factors2 had a negative effect of $118 million, as compared to last fiscal year, mainly due to the effect of the negative spread2. On the other hand, the relation between international cheese and dairy ingredient market prices and the cost of milk as raw material in the International Sector had a positive impact. However, in the first six months of fiscal 2022, the effect of fulfilling export sales contracts entered into last fiscal year at depressed commodity prices was unfavourable. Labour shortages in some of our facilities and supply chain disruptions put pressure on our ability to supply ongoing demand, which negatively impacted efficiencies and the absorption of fixed costs. The contributions of the Recent Acquisitions were positive. The positive effects of lower administrative costs, such as travel and promotional activities, in the context of the COVID-19 pandemic, tapered off compared to last fiscal year. The fluctuation of foreign currencies versus the Canadian dollar had an unfavourable impact of $72 million. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 16 Depreciation and amortization Depreciation and amortization for the fourth quarter of fiscal 2022 totalled $148 million, up $13 million, as compared to $135 million for the same quarter last fiscal year. In fiscal 2022, depreciation and amortization totalled $560 million, up $45 million, as compared to $515 million for last fiscal year. These increases were mainly attributable to additional depreciation and amortization related to the Recent Acquisitions, as well as additions to property, plant and equipment, which increased the depreciable base. Impairment of intangible assets In fiscal 2022, a non-cash impairment of intangible assets charge of $58 million ($43 million after tax) was recorded. The charge includes $50 million ($38 million after tax) related to software assets following the Company’s decision to pause the ERP implementation within the Dairy Division (Canada) for a minimum of three years and $8 million ($5 million after tax) as a result of the application of an agenda decision of the IFRIC related to the capitalization of cloud- based software costs. In fiscal 2021, a non-cash impairment of intangible assets charge of $19 million was incurred in relation to our decision to retire one of our cheese brand names from our Australian portfolio. Gain on disposal of assets In fiscal 2022, the Company recorded a gain on disposal of assets of $9 million ($8 million after tax) resulting mainly from the sale of a facility in the Canada Sector. Acquisition and restructuring costs Acquisition and restructuring costs for the fourth quarter of fiscal 2022 are comprised of restructuring costs of approximately $71 million ($51 million after tax) related to the announcement of several major capital investments and consolidation initiatives intended to enhance and streamline our manufacturing footprint in our USA Sector and International Sector as well as to our plans to outsource the Nuneaton facility's warehouse and distribution activities, creating opportunities for network consolidation within our Europe Sector. Restructuring costs included a non-cash impairment charge of property, plant and equipment of $60 million ($43 million after tax) and severance costs of $8 million ($6 million after tax). During the same quarter last fiscal year, acquisition and restructuring costs amounted to $3 million, which related to stamp duty taxes from a previous acquisition. Acquisition and restructuring costs in fiscal 2022 amounted to $71 million, which included restructuring costs of $71 million ($51 million after tax) as described above as well as acquisition costs incurred for the Recent Acquisitions that were offset by a favourable purchase price adjustment for a prior year acquisition amounting to nil. Last fiscal year, acquisition and restructuring costs amounted to $3 million, which included a gain on disposal of assets of $6 million ($5 million after tax) related to the sale of a closed facility in the Canada Sector and additional costs related to stamp duty taxes from a previous acquisition. Financial charges In the fourth quarter of fiscal 2022 and in fiscal 2022, financial charges totalled $16 million and $70 million, respectively, down $7 million and $26 million, respectively, mainly due to an increased gain on hyperinflation derived from the indexation of non-monetary assets and liabilities in Argentina. ANNUAL REPORT 2022 Page 17 Income tax expense Income tax recovery for the fourth quarter of fiscal 2022 totalled $12 million, compared to an income tax expense of $39 million for the same quarter last fiscal year. The decrease in income tax expense is mainly due to lower taxable earnings. The income tax recovery in the fourth quarter of fiscal 2022 and the income tax expense in the same quarter last fiscal year both reflect the tax effect of adjustments in respect of inflation in Argentina and the impact of the change in the geographic mix of quarterly earnings across the various jurisdictions in which we operate. Income tax expense in fiscal 2022 totalled $131 million, reflecting an effective tax rate of 32.3% as compared to 25.8% last fiscal year. The effective income tax rate for fiscal 2022 included the increase in deferred income tax liability balances to reflect the enactment in June 2021 of an increase from 19% to 25% of the corporate income tax rate in the United Kingdom, which will be effective as of April 1, 2023. As a result, we incurred a one-time non-cash income tax expense of $50 million. The effective tax rate also reflected the increase in the Argentine corporate income tax rate from 25% to 35%, enacted in June 2021, the non-taxable portion of the gain on disposal of assets in Canada, as well as the tax effect of adjustments in respect of inflation in Argentina. The effective tax rate for fiscal 2022 would have been 26.1% excluding the effects of these factors. The effective income tax rate for fiscal 2021 reflected the tax treatment of an impairment of intangible assets charge of $19 million and the tax effect of adjustments in respect of inflation in Argentina. Excluding the effects of those two factors, the effective tax rate for fiscal 2021 would have been 26.3%. The effective tax rate varies and could increase or decrease based on the geographic mix of quarterly and year-to- date earnings across the various jurisdictions in which we operate, the amount and source of taxable income, amendments to tax legislations and income tax rates, changes in assumptions, as well as estimates for tax assets and liabilities we use. Adjusted net earnings1 Adjusted net earnings1 for the fourth quarter of fiscal 2022 totalled $108 million, down $16 million or 12.9%, as compared to $124 million for the same quarter last fiscal year. This is mainly due to a decrease in net earnings of $66 million, as described above, excluding higher acquisition and restructuring costs of $49 million after tax. In fiscal 2022, adjusted net earnings1 totalled $485 million, down $230 million or 32.2%, as compared to $715 million for last fiscal year. This is mainly due to a decrease in net earnings of $352 million, as described above, excluding a higher impairment of intangible assets charge of $24 million after tax, a gain on disposal of assets of $8 million after tax, higher acquisition and restructuring costs of $54 million after tax, and a one-time non-cash expense of $50 million to adjust deferred income tax liability balances to reflect the increase in the corporate income tax rate in the United Kingdom. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. ANNUAL REPORT 2022 Page 18 QUARTERLY FINANCIAL INFORMATION BY SECTOR CANADA SECTOR (in millions of CDN dollars) Fiscal years Revenues Adjusted EBITDA Q4 1,055 117 2022 Q3 Q2 Q1 Q4 2021 Q3 Q2 Q1 1,112 121 1,081 124 1,033 113 1,001 108 1,089 118 1,063 117 982 104 Adjusted EBITDA margin 11.1 % 10.9 % 11.5 % 10.9 % 10.8 % 10.8 % 11.0 % 10.6 % USA SECTOR (in millions of CDN dollars) Fiscal years Revenues Adjusted EBITDA Q4 1,743 42 Adjusted EBITDA margin 2.4 % 2022 Q3 Q2 Q1 Q4 2021 Q3 Q2 Q1 1,627 1,533 1,506 83 5.1 % 67 4.4 % 96 6.4 % 1,399 93 1,657 171 1,649 140 1,417 163 6.6 % 10.3 % 8.5 % 11.5 % Selected factors positively (negatively) affecting financial performance (in millions of CDN dollars) Fiscal years 2022 2021 USA Market Factors1,2 US currency exchange2 Q4 (19) — Q3 (40) (6) Q2 (17) (8) Q1 (42) (18) Q4 (4) (5) Q3 34 (2) Q2 4 2 Q1 23 5 1 Refer to the ‘‘Glossary’’ section of this MD&A. 2 As compared to same quarter last fiscal year. Other pertinent information (in US dollars, except for average exchange rate) Fiscal years Q4 2022 Q3 Q2 Q1 Q4 2021 Q3 Q2 Q1 Block market price1 Opening Closing Average Butter market price1 Opening Closing Average Average whey powder market price1 Spread1 US average exchange rate to Canadian dollar2 1.980 2.250 2.005 1.873 1.980 1.805 1.553 1.873 1.706 1.738 1.553 1.657 1.650 1.738 1.687 2.573 1.650 2.129 2.640 2.573 2.249 1.330 2.640 1.778 2.453 2.700 2.692 1.760 2.453 1.975 1.740 1.760 1.716 1.818 1.740 1.805 1.420 1.818 1.480 1.510 1.420 1.444 1.765 1.510 1.571 1.335 1.765 1.500 0.759 0.622 0.522 0.626 (0.253) (0.099) (0.034) (0.164) 0.517 0.001 0.388 0.168 0.311 0.141 0.356 0.047 1.266 1.260 1.259 1.231 1.268 1.306 1.333 1.378 1 Refer to the ‘‘Glossary’’ section of this MD&A. 2 Based on Bank of Canada published information. ANNUAL REPORT 2022 Page 19 INTERNATIONAL SECTOR (in millions of CDN dollars) Fiscal years Revenues Adjusted EBITDA Q4 922 62 2022 Q3 Q2 Q1 Q4 2021 Q3 Q2 Q1 919 85 858 56 754 45 827 62 807 105 806 78 781 60 Adjusted EBITDA margin 6.7 % 9.2 % 6.5 % 6.0 % 7.5 % 13.0 % 9.7 % 7.7 % Selected factors positively (negatively) affecting financial performance (in millions of CDN dollars) Fiscal years 2022 2021 Foreign currency exchange1 Q4 (12) Q3 (13) Q2 (14) Q1 (4) Q4 3 Q3 4 Q2 (1) Q1 (9) 1 As compared to same quarter last fiscal year. EUROPE SECTOR (in millions of CDN dollars) Fiscal years Revenues Adjusted EBITDA Q4 237 39 2022 Q3 Q2 Q1 Q4 2021 Q3 243 33 217 36 195 36 211 40 210 37 Q2 Q1 184 35 211 40 Adjusted EBITDA margin 16.5 % 13.6 % 16.6 % 18.5 % 19.0 % 17.6 % 19.0 % 19.0 % ANNUAL REPORT 2022 Page 20 CANADA SECTOR (in millions of CDN dollars) Revenues Adjusted EBITDA Adjusted EBITDA margin For the three-month periods ended March 31 For the years ended March 31 2022 1,055 117 11.1 % 2021 1,001 108 10.8 % 2022 4,281 475 11.1 % 2021 4,135 447 10.8 % The Canada Sector consists of the Dairy Division (Canada). Revenues Revenues for the fourth quarter of fiscal 2022 totalled $1.055 billion, an increase of $54 million or 5.4%, as compared to $1.001 billion for the same quarter last fiscal year. Revenues increased due to higher selling prices in connection with the higher cost of milk as raw material and pricing initiatives implemented to mitigate increasing input costs caused by inflationary pressures. Sales volumes were lower in the retail market segment, mainly due to fluid milk sales volumes returning closer to pre- pandemic levels, partially offset by a rebound in sales volumes in the foodservice market segment. Retail market segment sales in the comparative quarter of fiscal 2021 had benefited from an uplift in consumer demand related to the COVID-19 pandemic. Revenues in fiscal 2022 totalled $4.281 billion, an increase of $146 million or 3.5%, as compared to $4.135 billion last fiscal year. Revenues increased due to higher selling prices in connection with the higher cost of milk as raw material and pricing initiatives implemented to mitigate increasing input costs caused by inflationary pressures. Sales volumes in the retail and industrial market segments were lower, although partially offset by a rebound in sales volumes in the foodservice market segment. Retail market segment sales in fiscal 2021 had benefited from an uplift in consumer demand related to the COVID-19 pandemic, mainly in the fluid milk category. The retail market segment represented approximately 59% of revenues (63% in fiscal 2021), whereas the foodservice market segment represented approximately 33% of revenues (29% in fiscal 2021). These fluctuations reflected the shift in consumer demand related to the COVID-19 pandemic as sales volumes in our market segments returned closer to pre-pandemic levels. The industrial market segment represented approximately 8% of revenues in both fiscal 2022 and 2021. To continue the expansion of our category-leading Armstrong cheese range, we launched several new and innovative products in high-growth and value-added formats, such as shreds, snacks, and slices. In terms of our other flagship brands, such as Saputo, Dairyland, and Neilson, we continued to support them through traditional, digital, and social media advertising as well as various trade activities. In the dairy alternatives category, our first commercial production of plant-based beverages occurred at our Port Coquitlam facility. This inaugural production marked the beginning of our co-manufacturing activities for various dairy alternative beverage companies and retailers in North America. With our e-commerce channels, we continued to expand the product offering on our direct-to-consumer website, The Saputo Fridge, and our newest e-commerce platform, Nibbl., which went live during the third quarter of fiscal 2022, with delivery available in Ontario and Québec. Nibbl. products will be available for delivery in additional Canadian provinces during fiscal 2023. ANNUAL REPORT 2022 Page 21 Adjusted EBITDA Adjusted EBITDA for the fourth quarter of fiscal 2022 totalled $117 million, an increase of $9 million or 8.3%, as compared to $108 million for the same quarter last fiscal year. The Canada Sector continued to show improved results despite challenging market conditions. Higher input and logistics costs caused by inflationary pressures continued to have an unfavourable impact. This included an amount of $7 million related to freight and logistics costs, which were offset by the positive effect of pricing initiatives. With fluid milk sales volumes decreasing to pre-pandemic levels, product mix had a favourable impact. Adjusted EBITDA in fiscal 2022 totalled $475 million, an increase of $28 million or 6.3%, as compared to $447 million last fiscal year. Higher input and logistics costs caused by inflationary pressures had an unfavourable impact, including $20 million related to freight and logistics costs. Pricing initiatives, as described above, contributed positively. With fluid milk sales volumes decreasing to pre-pandemic levels, the product mix was favourable. Also, the extreme weather event in British Columbia in November 2021 had a negative impact, mainly due to incremental freight and logistics costs required to service our customers. The positive effects of lower administrative costs, such as travel and promotional activities, in the context of the COVID-19 pandemic, tapered off compared to last fiscal year. ANNUAL REPORT 2022 Page 22 USA SECTOR (in millions of CDN dollars) Revenues Adjusted EBITDA Adjusted EBITDA margin For the three-month periods ended March 31 For the years ended March 31 2022 1,743 42 2.4 % 2021 1,399 93 6.6 % 2022 6,409 288 4.5 % 2021 6,122 567 9.3 % Selected factors positively (negatively) affecting financial performance (in millions of CDN dollars) For the three-month periods ended March 31 For the years ended March 31 USA Market Factors1,2 US currency exchange2 1 Refer to the ‘‘Glossary’’ section of this MD&A. 2 As compared to same quarter last fiscal year for the three-month periods; as compared to last fiscal year for the years ended March 31. (118) (19) (32) (4) (5) — 2022 2021 2022 2021 57 — Other pertinent information (in US dollars, except for average exchange rate) For the three-month periods ended March 31 For the years ended March 31 Block market price1 Opening Closing Average Butter market price1 Opening Closing Average Average whey powder market price1 Spread1 US average exchange rate to Canadian dollar2 1 Refer to the ‘‘Glossary’’ section of this MD&A. 2 Based on Bank of Canada published information. The USA Sector consists of the Dairy Division (USA). 2022 2021 2022 1.980 2.250 2.005 2.453 2.700 2.692 0.759 (0.253) 1.650 1.738 1.687 1.420 1.818 1.480 0.517 0.001 1.738 2.250 1.793 1.818 2.700 2.047 0.630 (0.137) 1.266 1.268 1.251 2021 1.330 1.738 1.961 1.335 1.818 1.498 0.393 0.090 1.326 ANNUAL REPORT 2022 Page 23 Revenues Revenues for the fourth quarter of fiscal 2022 totalled $1.743 billion, an increase of $344 million or 24.6%, as compared to $1.399 billion for the same quarter last fiscal year. The combined effect of the higher average block market price2 and of the higher average butter market price2 had a positive impact of $217 million. Sales volumes were stable in all our market segments and consumer demand for mozzarella continued to be subject to competitive market conditions. Revenues increased due to pricing initiatives implemented to mitigate increasing input costs caused by inflationary pressures. The contributions of the Reedsburg Facility Acquisition and the Carolina Acquisition totalled $26 million. The fluctuation of the US dollar versus the Canadian dollar had a favourable impact of $2 million. Revenues in fiscal 2022 totalled $6.409 billion, an increase of $287 million or 4.7%, as compared to $6.122 billion last fiscal year. The combined effect of the higher average butter market price2 and of the lower average block market price2 had a positive impact of $61 million. Higher sales volumes in the foodservice and industrial market segments contributed positively, but were partially offset by lower retail market segment sales volumes. Consumer demand for mozzarella continued to recover throughout the fiscal year, although it remained in flux and subject to highly competitive market conditions. Revenues increased due to pricing initiatives implemented to mitigate increasing input costs caused by inflationary pressures. The contributions of the Reedsburg Facility Acquisition and the Carolina Acquisition, for the ten-month and seven- month periods, respectively, since they were acquired, totalled $58 million. The fluctuation of the US dollar versus the Canadian dollar had an unfavourable impact of $307 million. The retail market segment represented approximately 44% of revenues (47% in fiscal 2021), whereas the foodservice market segment represented approximately 45% of revenues (43% in fiscal 2021). These year-over-year changes in percentages reflected the gradual return to historical levels, which had been affected by the shift in consumer demand related to the COVID-19 pandemic in fiscal 2021. The industrial market segment represented approximately 11% of revenues (10% in fiscal 2021). Our Frigo Cheese Heads and Montchevre retail brands continued to lead and grow in string and goat cheese, respectively. The UK’s #1 cheddar cheese brand, Cathedral City, which was successfully introduced to the USA market in fiscal 2021, continued to grow and gain new distribution and trial well with consumers. In the latter part of fiscal 2022, the Dairy Division (USA) entered into the dairy alternative cheese category with the launch of Vitalite into the foodservice and retail market segments. We also added new sales volumes in dairy alternative beverages. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 24 Adjusted EBITDA Adjusted EBITDA for the fourth quarter of fiscal 2022 totalled $42 million, a decrease of $51 million or 54.8%, as compared to $93 million for the same quarter last fiscal year. We continued to be challenged in the quarter with inflation, commodity market volatility, as well as labour availability issues. Higher input and logistics costs, such as consumables, packaging, transportation, and fuel, caused by inflationary pressures had a negative impact. Pricing initiatives undertaken were not sufficient to mitigate the ongoing impact of inflation on our costs, which included an increase of $33 million related to freight and logistics costs. USA Market Factors2 resulted in a negative net impact of $19 million, as compared to the same quarter last fiscal year. The following factors and their impact are included in USA Market Factors: • • • The spread2 (negative impact). The impact on the realization of inventories and the absorption of fixed costs from the combined effect of the fluctuation of the average block market price2 and of the average butter market price2 related to dairy food products (minimal impact). Higher dairy ingredient market prices (positive impact). Labour shortages in some of our facilities, including those due to the outbreak of the Omicron COVID-19 variant, and supply chain disruptions continued to put pressure on our ability to supply ongoing demand, which negatively impacted efficiencies and the absorption of fixed costs. The contributions of the Reedsburg Facility Acquisition and the Carolina Acquisition were minimal. The fluctuation of the US dollar versus the Canadian dollar had a minimal impact. Adjusted EBITDA in fiscal 2022 totalled $288 million, a decrease of $279 million or 49.2%, as compared to $567 million last fiscal year. USA Market Factors resulted in a negative net impact of $118 million, as compared to last fiscal year. The following factors and their impact are included in USA Market Factors: • • • The spread (negative impact). The impact on the realization of inventories and the absorption of fixed costs from the combined effect of the fluctuation of the average block market price and of the average butter market price related to dairy food products (negative impact). Higher dairy ingredient market prices (positive impact). Pricing initiatives undertaken were not sufficient to mitigate increasing costs caused by inflationary pressures, which included an increase of $119 million related to freight and logistics costs. Labour shortages in some of our facilities and supply chain disruptions put pressure on our ability to supply ongoing demand. These negative effects more than offset the positive effect of increased sales volumes, led by the foodservice market segment, on efficiencies and the absorption of fixed costs. The contributions of the Reedsburg Facility Acquisition and the Carolina Acquisition, for the ten-month and seven- month periods, respectively, since they were acquired, were minimal. The fluctuation of the US dollar versus the Canadian dollar had an unfavourable impact of $32 million. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 25 INTERNATIONAL SECTOR (in millions of CDN dollars) Revenues Adjusted EBITDA Adjusted EBITDA margin For the three-month periods ended March 31 For the years ended March 31 2022 922 62 6.7 % 2021 827 62 7.5 % 2022 3,453 248 7.2 % 2021 3,221 305 9.5 % Selected factors positively (negatively) affecting financial performance (in millions of CDN dollars) Foreign currency exchange1 For the three-month periods ended March 31 For the years ended March 31 2022 (12) 2021 3 2022 (43) 2021 (3) 1 As compared to same quarter last fiscal year for the three-month periods; as compared to last fiscal year for the years ended March 31. The International Sector consists of the Dairy Division (Australia) and the Dairy Division (Argentina). Revenues Revenues for the fourth quarter of fiscal 2022 totalled $922 million, an increase of $95 million or 11.5%, as compared to $827 million for the same quarter last fiscal year. Higher international cheese and dairy ingredient market prices and the effect of the fluctuation of the Argentine peso and the Australian dollar on export sales denominated in US dollars were favourable. Disrupted market conditions and supply chain challenges, due to container and vessel availability issues and port inefficiencies, negatively impacted export sales volumes. Revenues increased due to higher domestic selling prices in our Dairy Division (Argentina), as a result of the hyperinflationary economy, as well as pricing initiatives implemented in our Dairy Division (Australia), in response to the higher cost of milk as raw material and increasing input costs caused by inflationary pressures. The fluctuation of the functional currencies used in the International Sector versus the Canadian dollar had an unfavourable impact of $31 million. Revenues in fiscal 2022 totalled $3.453 billion, an increase of $232 million or 7.2%, as compared to $3.221 billion last fiscal year. Higher international cheese and dairy ingredient market prices had a positive impact. However, during the first six months of fiscal 2022, fulfilling the export sales contracts that had been entered into in fiscal 2021 at depressed commodity prices had an unfavourable impact. The effect of the fluctuation of the Argentine peso and the Australian dollar on export sales denominated in US dollars was favourable. Supply chain challenges due to container and vessel availability issues and port inefficiencies negatively impacted export sales volumes. The effect of higher domestic selling prices in our Dairy Division (Argentina), as a result of the hyperinflationary economy, continued to be positive. Revenues also increased due to pricing initiatives implemented in our Dairy Division (Australia) in response to the higher cost of milk and increasing input costs caused by inflationary pressures. The fluctuation of the functional currencies used in the International Sector versus the Canadian dollar had an unfavourable impact of $110 million. The retail market segment represented approximately 41% of total revenues (43% in fiscal 2021). The foodservice market segment represented approximately 8% of total revenues in fiscal 2022 (7% in fiscal 2021). The industrial market segment represented approximately 51% of total revenues in fiscal 2022 (50% in fiscal 2021). Industrial market segment sales were destined mostly for export markets. We continued to leverage our vast portfolio of brands inherited through acquisitions. The Dairy Division (Australia) launched its rebranded CHEER cheese, supported by a strong awareness campaign in its first year. The Devondale relaunch continued to grow brand awareness. Communication and innovation in smaller formats helped retain our position for the Tasmanian Heritage and Mersey Valley specialty cheese brands. In the Dairy Division (Argentina), La Paulina continued to be the leading local cheese brand. ANNUAL REPORT 2022 Page 26 Adjusted EBITDA Adjusted EBITDA for the fourth quarter of fiscal 2022 totalled $62 million, flat, as compared to $62 million for the same quarter last fiscal year. We continued to face higher input and logistics costs caused by inflationary pressures. Pricing initiatives undertaken in the domestic markets were not sufficient to mitigate increased input costs, notably the increased farmgate milk prices in Australia. In our export markets, the relation between international cheese and dairy ingredient market prices and the cost of milk as raw material had a positive impact. The fluctuation of the functional currencies used in the International Sector versus the Canadian dollar had an unfavourable impact of $12 million. In fiscal 2022, adjusted EBITDA totalled $248 million, a decrease of $57 million or 18.7%, as compared to $305 million last fiscal year. Higher input and logistics costs, including higher raw material costs due to the increased farmgate milk prices, and freight and logistics costs caused by inflationary pressures, had an unfavourable impact. Pricing initiatives undertaken in the domestic markets were not sufficient to mitigate increased input costs, notably farmgate milk prices in Australia. Reduced milk availability in our Dairy Division (Australia) from intensified competition for raw material negatively impacted efficiencies and the absorption of fixed costs. Lower export sales volumes resulting from supply chain challenges, due to container and vessel availability issues and port inefficiencies, negatively impacted adjusted EBITDA. In our export markets, the relation between international cheese and dairy ingredient market prices and the cost of milk as raw material had a positive impact. Fulfilling the export sales contracts entered into at depressed commodity prices last fiscal year had a negative impact in the first six months of fiscal 2022. The fluctuation of the functional currencies used in the International Sector versus the Canadian dollar had an unfavourable impact of $43 million. ANNUAL REPORT 2022 Page 27 EUROPE SECTOR (in millions of CDN dollars) Revenues Adjusted EBITDA Adjusted EBITDA margin For the three-month periods ended March 31 For the years ended March 31 2022 237 39 16.5 % 2021 211 40 19.0 % 2022 892 144 16.1 % 2021 816 152 18.6 % The Europe Sector consists of the Dairy Division (UK). Revenues Revenues for the fourth quarter of fiscal 2022 totalled $237 million, an increase of $26 million or 12.3%, as compared to $211 million for the same quarter last fiscal year. Revenues increased due to pricing initiatives implemented to mitigate higher input costs caused by inflationary pressures and the contributions of the Bute Island Acquisition and the Wensleydale Dairy Products Acquisition, which totalled $18 million. Sales volumes were stable as compared to the same quarter last fiscal year, although retail market segment sales volumes decreased as they returned to historical levels. The impact of the fluctuation of the British pound sterling versus the Canadian dollar had an unfavourable impact of $6 million. Revenues in fiscal 2022 totalled $892 million, an increase of $76 million or 9.3%, as compared to $816 million last fiscal year. Revenues increased due to pricing initiatives implemented to mitigate higher input costs caused by inflationary pressures and the contributions of the Bute Island Acquisition and Wensleydale Dairy Products Acquisition, which totalled $65 million for the ten-month and eight-month periods, respectively, since they were acquired. Sales volumes were higher as compared to those of last fiscal year, primarily due to higher industrial market segment sales volumes, mainly in the cheese and dairy ingredients categories. Although, international dairy ingredient market prices for our products in the industrial market segment were lower. Retail market segment sales volumes decreased as they returned to historical levels. The impact of the fluctuation of the British pound sterling versus the Canadian dollar had an unfavourable impact of $7 million. The retail market segment represented approximately 78% of revenues (87% in fiscal 2021), reflecting the effects of the COVID-19 pandemic in fiscal 2021 as sales volumes returned to historical levels. The foodservice market segment represented approximately 2% of revenues (1% in fiscal 2021). The industrial market segment represented 20% of revenues (12% in fiscal 2021) following an increase in sales volumes in this market segment. The Dairy Division (UK) maintained its position as the largest manufacturer of branded cheese in the United Kingdom, mainly with its category-leading Cathedral City brand, as well as its position as a top manufacturer of dairy spreads with its category-leading Clover brand. We continued to develop our export business for the Cathedral City brand, with a new distribution agreement in Europe and retail growth across Canada and the USA through our North American platforms. Our Wensleydale Dairy Products Acquisition enhanced the breadth of our cheese offering. Following the Bute Island Acquisition, we now have an established platform from which to develop our dairy alternative business, building on strong brand and private label market positions. ANNUAL REPORT 2022 Page 28 Adjusted EBITDA Adjusted EBITDA for the fourth quarter of fiscal 2022 totalled $39 million, a decrease of $1 million or 2.5%, as compared to $40 million for the same quarter last fiscal year. Decreased retail market segment sales volumes had a negative impact, while pricing initiatives were sufficient to offset higher input costs caused by inflationary pressures and increased commodity prices. The contributions of the Bute Island Acquisition and the Wensleydale Dairy Products Acquisition had a positive impact of $2 million. The impact of the fluctuation of the British pound sterling versus the Canadian dollar was minimal. Adjusted EBITDA in fiscal 2022 totalled $144 million, a decrease of $8 million or 5.3%, as compared to $152 million last fiscal year. Decreased retail market segment sales volumes had a negative impact. On the other hand, increased industrial market segment sales volumes, mainly in the cheese and dairy ingredients categories, had a positive impact on efficiencies. Lower international dairy ingredient market prices for our products in this market segment had an offsetting negative impact. We faced higher input costs caused by inflationary pressures and increased commodity prices, which had an unfavourable impact. However, pricing initiatives described above contributed positively to the mitigation of higher input costs. The contributions of the Bute Island Acquisition and the Wensleydale Dairy Products Acquisition, for the ten-month and eight-month periods, respectively, since they were acquired, had a positive impact of $8 million. The impact of the fluctuation of the British pound sterling versus the Canadian dollar was minimal. ANNUAL REPORT 2022 Page 29 LIQUIDITY, FINANCIAL AND CAPITAL RESOURCES The intent of this section is to provide insight into our cash and capital management strategies and how they drive operational objectives, as well as to provide details on how we manage our liquidity risk to meet Saputo's financial obligations as they come due. As we navigate through the lingering disruptions of the COVID-19 pandemic, inflationary pressures, geopolitical developments, and the related uncertainties, we are focused on our capital allocation priorities to support our Global Strategic Plan as well as cash flow generation. Our current capital allocation priorities are focused on investing to support organic growth, strategic acquisitions, and our Saputo Promise. The Company's cash and cash equivalents totalled $165 million as at March 31, 2022. In addition to these funds, we have unused credit facilities of $1.743 billion under our bank credit facilities as at March 31, 2022. We believe we are well positioned to face current market conditions given our flexible balance sheet. 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, and business acquisitions and are expected to be sufficient to meet the Company’s liquidity requirements. We do not foresee any difficulty in securing financing beyond what is currently available through existing arrangements or public offerings, when appropriate, to fund possible acquisitions and/or to refinance debt obligations. Saputo’s cash flows are summarized in the following table: (in millions of CDN dollars) Net cash generated from operating activities Cash used for investing activities Cash used for financing activities Decrease in cash and cash equivalents Operating Activities For the three-month periods ended March 31 For the years ended March 31 2022 184 (161) (32) (9) 2021 151 (158) (190) (197) 2022 693 (799) (72) (178) 2021 1,078 (387) (705) (14) Net cash generated from operating activities for the fourth quarter of fiscal 2022, amounted to $184 million, in comparison to $151 million for the same quarter last fiscal year. This increase of $33 million was mainly due to a decrease of $12 million in income taxes paid and an increase related to changes in non-cash operating working capital items of $68 million, driven by the fluctuations in accounts receivable, inventories, and accounts payable in line with the fluctuation of market prices as well as the timing of collections of accounts receivable and of payments of accounts payable. The increase was partially offset by a decrease in adjusted EBITDA1 of $43 million and a decrease of $10 million in non-cash foreign exchange gain on debt. In fiscal 2022, net cash generated from operating activities amounted to $693 million, in comparison to $1.078 billion for last fiscal year. This decrease of $385 million was mainly due to a decrease in adjusted EBITDA1of $316 million and an increase in non-cash foreign exchange gain on debt of $66 million. The decrease was also due to a decrease related to changes in non-cash operating working capital items of $19 million, driven by the fluctuations in accounts receivable, inventories, and accounts payable in line with the fluctuation of market prices as well as the timing of collections of accounts receivable and of payments of accounts payable. These decreases were partially offset by a decrease in income taxes paid of $17 million. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. ANNUAL REPORT 2022 Page 30 Investing Activities Investing activities for the fourth quarter of fiscal 2022 amounted to $161 million, which included $207 million used for additions to property, plant and equipment, additions to intangible assets totalling $7 million related to the ERP project, as well as the offsetting effect of proceeds from the disposal of assets in the amount of $51 million. Investing activities in fiscal 2022 amounted to $799 million, which included $371 million used for the Recent Acquisitions, $453 million used for additions to property, plant and equipment, additions to intangible assets totalling $45 million related to the ERP project, as well as the offsetting effect of proceeds from the disposal of assets in the amount of $70 million. Of these additions, 53% were allocated to base capital expenditures, investments to support the execution of our Saputo Promise, capex related to the ERP project, and other corporate capital expenditures, while 47% were allocated to strategic projects within the scope of our Global Strategic Plan. Financing Activities Financing activities for the fourth quarter of fiscal 2022 included an increase in bank loans of $21 million. Also, we paid $18 million and $50 million of lease liabilities and dividends, respectively, net of $25 million settled through the DRIP. Finally, shares were issued as part of the stock option plan for $16 million. Financing activities in fiscal 2022 included an increase in bank loans of $356 million, mainly relating to funds drawn in connection with our Recent Acquisitions. Financing activities also included the issuance, on June 22, 2021, of Series 9 medium term notes for an aggregate principal amount of $300 million. The net proceeds of the issuance were used to repay the $300 million aggregate principal amount of the Series 2 medium term notes due June 23, 2021. We repaid $187 million of term loan facilities incurred in connection with prior acquisitions. Also, $80 million of lease liabilities and $209 million in dividends were paid, net of $87 million settled through the DRIP. Finally, shares were issued as part of the stock option plan for $42 million. Liquidity (in millions of CDN dollars, except ratio) Fiscal years Current assets Current liabilities Working capital1 Working capital ratio1 1 Refer to the ‘‘Glossary’’ section of this MD&A. 2022 4,295 2,780 1,515 1.54 2021 3,948 2,146 1,802 1.84 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 was mainly due to a higher level of bank loans, which included funds drawn in connection with our Recent Acquisitions. ANNUAL REPORT 2022 Page 31 Capital Management Our capital strategy requires a well-balanced financing structure to maintain the flexibility needed to implement growth initiatives while allowing us to pursue disciplined capital investments and maximize shareholder value. We continue to target a long-term leverage of approximately 2.25 times net debt to adjusted EBITDA1. From time to time, we may deviate from our long-term leverage target to pursue strategic opportunities. (in millions of CDN dollars, except ratio and number of shares and options) Fiscal years Long-term debt Bank loans Lease Liabilities Less: Cash and cash equivalents Net debt2 Adjusted EBITDA1 Net debt to adjusted EBITDA1 Number of common shares Number of stock options 2022 3,375 419 451 (165) 4,080 1,155 3.53 2021 3,578 76 461 (309) 3,806 1,471 2.59 416,738,041 412,333,571 22,021,670 23,339,321 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the ‘‘Glossary’’ section of this MD&A. As at March 31, 2022, the Company had $165 million in cash and cash equivalents and available bank credit facilities of $2.162 billion, of which $419 million were drawn. See Notes 10 and 11 to the consolidated financial statements for additional information related to bank loans and long-term debt. Share capital authorized by Saputo is comprised of an unlimited number of common shares. The common shares are voting and participating. As at May 31, 2022, 416,890,118 common shares and 24,102,879 stock options were outstanding. Sustainability-linked loan (SLL) structure In fiscal 2020, we pledged to accelerate our global climate, water, and waste performance and announced clear targets and a formal commitment to make significant and sustainable progress by 2025. On August 5, 2021, we amended our US$1 billion North American bank credit facility to, among other things, introduce a sustainability-linked loan (SLL) structure. The SLL structure introduces an annual pricing adjustment based on whether the Company achieves key climate and water targets in line with its 2025 environmental commitments. On June 1, 2022, the Company extended the maturity date to June 1, 2027. During fiscal 2022, $354 million (US$ 283 million) were drawn, mainly to finance acquisitions, and $147 million (US$ 118 million) were repaid. As at March 31, 2022, a total of $207 million (US$ 165 million) was drawn on this bank credit facility. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable ANNUAL REPORT 2022 Page 32 CONTRACTUAL OBLIGATIONS We manage and continually monitor the Company's 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 long-term debt, payments for leased premises, equipment, and rolling stock, as well as purchase obligations for capital expenditures and service agreements to which we are committed. Note 11 to the consolidated financial statements describes the Company's commitment to repay long-term debt and Note 7 and 20 to the consolidated financial statements describes its lease commitments. (in millions of CDN dollars) March 31, 2022 March 31, 2021 Long-term debt Leases Purchase obligations & other 300 306 1,035 350 350 1,034 3,375 88 70 84 44 38 280 604 245 37 23 12 9 3 329 Long-term debt Leases Purchase obligations & other 300 759 685 400 350 1,084 3,578 98 76 58 73 33 284 622 164 33 12 10 7 8 234 Total 633 413 1,142 406 397 1,317 4,308 Total 562 868 755 483 390 1,376 4,434 Less than 1 year 1–2 years 2–3 years 3–4 years 4–5 years More than 5 years Long-term debt The Company’s long-term debt is described in Note 11 to the consolidated financial statements. Bank term loans In connection with the acquisition of the activities of Murray Goulburn Co-Operative Co. Limited (Murray Goulburn Acquisition) in April 2018, we entered into a credit agreement, providing for a non-revolving term facility comprised of three tranches. A total of $1.261 billion was drawn, of which $888 million has since been repaid and/or refinanced through our medium term notes program. The credit facility bears interest at lenders’ prime rates plus a maximum of 1.00%, or bankers’ acceptance rates or the Australian Bank Bill Rate plus a minimum of 0.80% and a maximum of 2.00%, depending on the Company's credit ratings. In connection with the acquisition of Dairy Crest Group plc (Dairy Crest Acquisition) in April 2019, we entered into a credit agreement providing for a non-revolving term facility comprised of three tranches. A total of $1.985 billion was drawn, of which $1.723 billion has since been repaid and/or refinanced through our medium term notes program. The credit facility bears interest at lenders’ prime rates plus a maximum of 1.00% or LIBOR or SONIA or bankers’ acceptance rates plus a minimum of 0.80% and a maximum of 2.00%, depending on the Company's credit ratings. On June 1, 2022, the Company extended the maturity dates of these bank term loans to June 1, 2025. Senior notes Long-term debt also includes seven series of unsecured senior notes outstanding under our medium term note program for a total of $2.700 billion, with annual interest rates varying from 1.42% to 3.60% and maturities ranging from June 2022 to June 2028. ANNUAL REPORT 2022 Page 33 FINANCIAL POSITION The main financial position items as at March 31, 2022, varied as compared to the balances as at March 31, 2021, principally due to the inclusion of the Recent Acquisitions completed during this fiscal year. The variation also reflected the strengthening of the Canadian dollar versus the US dollar, the Australian dollar, the Argentine peso, and the British pound sterling. The following table outlines the conversion rates of the respective local operations’ financial position items in foreign currencies as at March 31, 2022, and March 31, 2021. US dollar / Canadian dollar1 Australian dollar / Canadian dollar1 Argentine peso / Canadian dollar1 British pound sterling / Canadian dollar1 1 Based on Bank of Canada published information. As at March 31, 2022 As at March 31, 2021 1.2505 0.9351 0.0112 1.6441 1.2562 0.9545 0.0137 1.7315 The fluctuation of the Canadian dollar versus the US dollar, the Australian dollar, the Argentine peso, and the British pound sterling resulted in lower values recorded for the financial position items of the foreign operations. The net cash position (cash and cash equivalents less bank loans) decreased from positive $233 million as at March 31, 2021, to negative $254 million as at March 31, 2022, mainly resulting from the funding of the Recent Acquisitions and repayments of $187 million of the term loan facility incurred in connection with the Dairy Crest Acquisition. The change in foreign currency translation adjustments recorded in other comprehensive income (loss) varied mainly due to the fluctuation of foreign currencies versus the Canadian dollar. GUARANTEES From time to time, we enter into agreements in the normal course of business, such as service arrangements and leases, and in connection with business or asset acquisitions or disposals, 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 20 to the consolidated financial statements that discuss the Company’s guarantees. RELATED PARTY TRANSACTIONS In the normal course of business, we receive services from and provide goods and services to companies subject to control or significant influence through ownership by Saputo's principal shareholder. These transactions are entered into at fair value, consistent with market values for similar transactions. The services that are received consist mainly of travel, publicity, lodging, and office space rental. The goods that are provided consist mainly of dairy products. The services that are provided consist of management services. In fiscal 2022, these goods and services were of an immaterial amount. 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, 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 21 to the consolidated financial statements for further information on related party transactions. ANNUAL REPORT 2022 Page 34 CRITICAL ACCOUNTING ESTIMATES The preparation of the Company’s financial statements requires Management to make certain judgments and estimates about transactions and carrying values that are fulfilled at a future date. Judgments 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 judgments and estimates that could have a material effect on the financial statements is provided below. Economic Conditions and Uncertainties The Company continues to monitor and assess the impact of the lingering pandemic on the significant estimates and judgments used in the preparation of the consolidated financial statements. The Company is also continuously monitoring the geopolitical risk related to the evolving military conflict in Ukraine. This crisis did not have a significant impact on the Company’s consolidated financial statements. Income Taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment 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 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 judgment 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 judgments, 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. Impairment of Assets Significant estimates and judgments are required in testing goodwill, intangible assets, and other long-lived assets, including right-of-use assets, for impairment. Management uses estimates or exercises judgment 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. Goodwill is tested for impairment annually based on the December 31 balances and whenever there is an indication of impairment. Other long-lived assets are tested only when indicators of impairment are present. ANNUAL REPORT 2022 Page 35 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 duration of the obligation, inflation, the expected health care cost trend rate, the expected mortality rate, expected salary increase, etc. Changes in a number of key assumptions can have a material impact on the calculation of the obligation. Actual results will normally differ from expectations. These gains or losses are presented in the consolidated statements of comprehensive income. CHANGES IN ACCOUNTING POLICIES New accounting standards, interpretations, and amendments adopted during the year Please refer to Note 3 to the consolidated financial statements for the fiscal years ended March 31, 2022, and 2021, for more information regarding the effect of new accounting standards, interpretations, and amendments adopted during fiscal 2022. Recent standards, interpretations, and amendments not yet implemented Please refer to Note 3 to the consolidated financial statements for the fiscal years ended March 31, 2022, and 2021, for more information regarding the effect of new accounting standards, interpretations, and amendments not yet implemented. ANNUAL REPORT 2022 Page 36 RISKS AND UNCERTAINTIES The main risks and uncertainties Saputo is exposed to are presented below. The Board of Directors (the Board) delegated to the Audit Committee the responsibility to review, evaluate, and discuss with Management and Internal Audit the risk factors inherent to Saputo, including the applicable environmental, social, and governance (ESG) aspects of those risks, and ensure that appropriate measures are in place to enable Management to identify and manage these risks and uncertainties effectively. The Board also delegated to the Corporate Governance and Human Resources Committee the responsibility to oversee the risk management measures related to human resources risks, including related ESG aspects such as business ethics, diversity, equity, and inclusion, and health and safety. Saputo’s enterprise risk management program is overseen by the Audit Committee, and Saputo has also adopted and implemented policies and procedures relating to risk assessment and management. The Company’s risk management and related policies and procedures are reviewed regularly and at least annually. While risk management is part of our transactional, operational, and strategic decisions, and overall management approach, risk management does not guarantee that events or circumstances, including events or circumstances related to risks and uncertainties that may not be listed below, will not occur and negatively affect our financial performance and condition. 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 contamination could result in a costly product recall, destruction of product inventory, lost sales, or litigation. Further, negative publicity, whether or not warranted, concerning food safety, or allegations of product contamination, even when false or unfounded, may damage our brand image and corporate reputation and may cause consumers to choose other products. Alleged or actual contaminations could also result in government scrutiny, investigation, or intervention, resulting in increased costs. COVID-19 Pandemic and Related Ongoing Impacts The COVID-19 pandemic and the related actions by governments around the world to attempt to contain the spread of the virus have disrupted and will likely continue to disrupt our global supply chain, operations, logistics, and routes to market or those of our suppliers, their suppliers, or our distributors. These disruptions, or our failure to effectively respond to them, will likely continue to increase production or distribution costs, or cause delays or inability to deliver products to our customers. The COVID-19 pandemic has also significantly increased economic uncertainty, negatively impacting our business and financial performance and condition. While we continue to actively monitor the COVID-19 pandemic, the full extent of the pandemic’s impact on our business and financial performance and condition will depend on future developments that are highly uncertain and cannot be predicted, including, among others, new information which may emerge concerning the pandemic, vaccine adoption rates (including boosters), and the effectiveness of vaccines in limiting or stopping the spread of COVID-19, either over the long term or against new, emerging variants of COVID-19, and any related actions by governments worldwide. In addition, continuing economic and political uncertainties, such as decreases in disposable income, persistent inflationary pressures, declines in consumer confidence, or economic slowdowns or recessions in any of our major markets, may slow down or prevent the recovery of the demand for our products or may erode such demand. We and our suppliers may continue to face supply chain and workforce disruptions in the future, which may increase supply chain, packaging, and labour costs, or may result in an inability to secure key inputs, which could negatively impact our fulfillment rates, cause delays in delivering our products to our customers or consumers, and hinder our ability to achieve our goals and targets under our Global Strategic Plan or the Saputo Promise. In addition, the COVID-19 pandemic and related ongoing impacts may exacerbate other risks related to our business described in this section. ANNUAL REPORT 2022 Page 37 Supply of Raw Materials Saputo purchases raw materials that can represent up to 85% of the cost of products. We process 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 and energy, including as a result of climate change, extreme weather, natural disasters, water availability, fires or explosions, health pandemics, outbreaks affecting humans or livestock, transportation problems, and global or local supply chain disruptions caused by the COVID-19 pandemic, geopolitical developments, military conflicts, and trade sanctions, can impact production costs and capacity utilization and therefore affect our results. The effect of any variation or the volatility of foodstuff prices on our results depends on our ability to transfer those increases to our customers, and this in the context of a competitive market. Supply Chain Strain and Supplier Concentration In fiscal 2022, the cost of inputs such as packaging materials, energy, fuel, transportation, and logistics necessary for the production and distribution of our products has rapidly increased. We expect the inflationary pressures on input costs to continue to impact our business in fiscal 2023. We have implemented and may continue to implement initiatives to offset these cost pressures, such as price increases, but these may not be sufficient to offset higher costs adequately or in a timely manner. Even if such initiatives are effective, higher product prices may result in decreases in sales volume or market share. We purchase goods and services from a limited number of suppliers as a result of consolidation within the industries in which these suppliers operate. 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, as a result of labour shortages or otherwise, could impact our financial condition and performance. Risks related to supply chain may be further exacerbated by geopolitical developments such as the military conflict in Ukraine, which has and will likely continue to disrupt the global supply chain and contribute to economic uncertainty and increased prices of inputs and other costs. 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, and price fluctuations may affect our results. The effect of such fluctuations on our results will depend on our ability to implement mechanisms to reduce them. Human Resources Saputo’s success depends on our ability to identify, attract, and retain qualified and diverse individuals and to execute appropriate succession planning for Management and key personnel. Inflationary pressures, shortages, and competitiveness in the labour markets where we operate our facilities, increased employee turnover, and changes in the availability of our employees, including as a result of COVID-19-related absences, have resulted in, and could continue to increase labour, pension, and people-related costs, which could have a material adverse effect on our results or financial condition. In addition, these factors have impacted, and could continue to impact, our ability to meet consumer demand, which could negatively affect our financial condition, results, or cash flows. Although we believe we have good relationships with our employees and a significant number of our workforce is unionized, a lengthy strike or work stoppage could impact our operations and performance. Our 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, result in litigation, and require us to incur costs which may be significant. ANNUAL REPORT 2022 Page 38 Cybersecurity and Overall Management of Information Systems We rely on information technology applications and systems in all areas of our operations. These applications and systems, some of which are managed by third parties, are subject to an increasing number of sophisticated and constantly evolving cyber threats. The increase in the number of employees working in a distributed remote environment has also given rise to new security threats and risks of other cybersecurity attacks. We are mainly exposed to risks relating to business disruptions, confidentiality, data integrity, and business email compromise- related fraud. 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, including as a result of remediation costs. In addition, any unauthorized or malicious access to information systems containing proprietary, sensitive, or confidential information could compromise our data integrity or result in disclosure or loss of data which may have adverse effects on our 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 we have measures to reduce the likelihood, duration, and severity of disruptions to our information technology applications and systems, and maintain ongoing investments to protect, detect, respond to, and manage cybersecurity incidents, we have in the past been subject to cyber-attacks and expect that we will be subject to additional cyber-attacks in the future. Also, we have reprioritized certain ongoing technology initiatives and have taken the decision to temporarily pause the final phase of the Harmoni deployment, our Enterprise Resource Planning (ERP) implementation project. There is no guarantee that the implementation of Harmoni, or our decision to postpone the final phase of deployment, will not disrupt or reduce the efficiency of our operations. 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. Our performance in all countries where we do business depends on our ability to continue to offer quality products at competitive prices. Consolidation of Clientele As the consolidation in the food industry in all the market segments we serve continues, customers tend to grow larger, which results in a decrease in the number of customers and increase in the relative importance of some customers. For fiscal 2022, none of our customers represented more than 10% of total consolidated revenues. Our ability to continue to service our customers in all the markets that we serve will depend on the quality and price of our products, as well as the value proposition we offer to our customers. Unanticipated Business Disruption Major events, such as systems and equipment failure, cyberattacks, health pandemics (including the COVID-19 pandemic), geopolitical events, and natural disasters, or increased frequency or intensity of extreme weather conditions (including as a result of climate change), could lead to unanticipated business disruptions at any or certain of our facilities. The effect would be more significant if our larger manufacturing facilities were to be affected. The failure to mitigate business disruptions in a timely manner could negatively affect our financial performance and condition. ANNUAL REPORT 2022 Page 39 Consumer Trends Demand for our products is subject to changes in consumer trends. For example, increased consumer focus on environmental sustainability matters, including emissions associated with the production of animal milk, and on health-related concerns, could result in a financial risk if a growing number of consumers turn away from animal- related products in favour of dairy alternatives, which may lead to lower demand for dairy products. The impact of these changes will depend on our ability to adapt, innovate, and develop new products. If our product innovation efforts fail to deliver the expected benefits or if growth in demand for new products does not materialize as we expect, we may not reach our financial growth targets. Further, our operations are and could continue to be affected by the economic context should unemployment, interest rates, or inflation reach levels that influence consumer trends and consequently impact our sales and profitability. Should the inflationary pressures and global economic uncertainty we have seen in fiscal 2022 persist, consumers may increasingly purchase lower-priced offerings or may forgo some purchases altogether. To the extent that price increases are not sufficient to offset higher costs adequately or in a timely manner, and/or if they result in significant decreases in sales volume, our financial condition or operational performance may be adversely affected. In addition, technology-based systems, which give consumers the ability to shop through e-commerce websites and mobile commerce applications, are also significantly altering the retail landscape where we operate. If we are unable to adjust to developments in these changing landscapes, we may be disadvantaged in key channels and with certain consumers, which could materially and adversely affect our sales, financial condition, and operating performance. 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, releases of hazardous substances, and remediation of contaminated sites. We believe that our operations are in compliance, in all material respects, with such environmental laws and regulations, except as disclosed in the Annual Information Form dated June 9, 2022, for the fiscal year ended March 31, 2022. Compliance with these laws and regulations requires that we continue to incur operating and maintenance costs and capital expenditures, including to control potential impacts of our operations on local communities. Changes in environmental laws and regulations, evolving interpretation thereof, or more vigorous regulatory enforcement policies (including as a result of increased concern over climate change, water scarcity, waste management, plastic pollution, wastewater discharges, air emissions, greenhouse gases, or release of hazardous substances) could impose additional compliance costs, capital expenditures, as well as other financial obligations, which could have a material adverse effect on our financial position and performance. The potential effects of climate change could have a material impact on our business and operations, including a range of operational, financial, and reputational risks. Saputo has set environmental targets and has undertaken or planned capital expenditures and other projects to increase its energy efficiency, reduce its GHG emissions, reduce waste, and decrease water usage. There is no assurance that our environmental and sustainability initiatives will be economically viable, effective or that the anticipated environmental benefits will materialize. Our ability to achieve our environmental targets, commitments, and goals depends on the development and performance of technology, innovation, and the future use and deployment of technology. It is possible that the changes necessary to reduce emissions or waste will not be feasible or that the costs will be material, either of which could have a material adverse effect on Saputo’s reputation, operations, or financial position. In addition, there is an increased focus on environmental sustainability matters, including emissions associated with the production of animal milk. Any failure to achieve our environmental targets or other environment-related goals or a perception (whether or not valid) of our failure to act responsibly with respect to the evolving environmental issues, or to effectively respond to new, or changes in, legal or regulatory requirements concerning environmental matters, or increased operating or manufacturing costs due to increased regulation or environmental causes could adversely affect our business, our reputation, and our ability to attract capital from financial institutions and investors incorporating sustainability and ESG considerations as part of their portfolio, and increase the risk of litigation. Saputo’s reputation could be affected if we or other stakeholders in the dairy industry do not act, or are perceived not to act, responsibly. ANNUAL REPORT 2022 Page 40 Growth Strategy We plan to grow both organically and through acquisitions. Our organic growth strategy, which is outlined in our Global Strategic Plan, may fail to deliver results and our targeted organic growth may never materialize. Capital expenditure projects play a key role in Saputo’s organic growth strategy. The outcome and success of these projects often depend on several factors that are outside of our control, including disruptions caused by pandemics, new competing operational priorities, timing for completion, regulatory and governmental approvals, availability and cost of labour, materials, and equipment, contractor non-performance, cost of engineering, construction, and other consulting services and weather conditions. In the event of unanticipated delays or costs, business operations may be adversely affected. Other risks related to our business described in this section may impact our ability to grow organically and meet our strategic growth goals and targets. We plan to continue to rely on new acquisitions to pursue our growth. We may therefore incur costs and divert management's time and attention in connection with potential acquisitions that may never be consummated. 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 Saputo constitute inherent risks related to acquisitions. The inability to adequately integrate an acquired business in a timely and efficient manner may affect our ability to realize synergies or 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 Saputo, there may also be liabilities and contingencies that we discover after closing, or are unable to quantify in the due diligence conducted prior to closing, and which could have a negative effect on our business, financial performance, and condition. Intellectual Property As we are involved in the production, sale, and distribution of food products, we rely on brand recognition and loyalty from our clientele in addition to relying on the quality of our products. Also, as innovation forms part of Saputo’s growth strategy, our research and development teams develop new technologies, products, and process optimization methods. We, therefore, take measures to protect, maintain, and enforce our intellectual property. Any infringement to our intellectual property could damage our value and limit our ability to compete. In addition, we may have to engage in litigation in order to protect our rights, which could result in significant costs. Financial Risk Exposures Saputo has financial risk exposure to varying degrees relating to the currencies it uses for its business. 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 our ability to maintain appropriate protection mechanisms. Interest Rate and Access to Capital and Credit Markets A portion of Saputo’s interest-bearing debt is subject to interest rate fluctuations. The impact on our results will depend on our ability to maintain adequate protection against such interest rate fluctuations. Our growth by acquisitions is dependent on access to liquidity in the capital and credit markets. Similarly, we may be required to access liquidity in the capital and credit markets in order to refinance or retire existing indebtedness. The impact of such financing transactions on our results will depend on our ability to secure liquidity in a timely manner and on terms and conditions acceptable to us. Changes in the perceived creditworthiness of the Company or the credit rating of our medium term notes increase our borrowing costs. Uncertain economic conditions resulting from the COVID-19 pandemic and disruption in financial markets could adversely affect our financial performance and the availability and cost of capital, preventing us from continuing to access preferred sources of liquidity when desired. Further, volatility in the capital markets has been heightened and such volatility may continue, which may cause fluctuations in the price of the Company's shares or result in shareholder grievance or activism. Pension Plans We operate both defined benefit and defined contribution plans (collectively, the “Plans”). Contributions to fund our 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. We cannot predict whether changing markets or economic conditions, changes to pension legislation and regulations, or other factors will increase our pension expenses or liabilities, or funding obligations, diverting funds we would otherwise apply to other uses. Increases in net pension liabilities or increases in future cash contributions could adversely affect our business, financial condition, results from operations, and cash flows. ANNUAL REPORT 2022 Page 41 Credit Risk We grant credit to our 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 expected credit loss. We consider that our exposure to concentration of credit risk with respect to accounts receivable from customers is low due to our large and diverse customer base operating in three market segments, retail, foodservice, and industrial, and our 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, 2022. We regularly review the allowance for expected credit loss and accounts receivable due. We update our 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 We are 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 we conduct our activities. Consequently, the modification or change of any of these elements may have an unfavourable impact on our 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 our operations. Moreover, the legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. The impact of new laws and regulations, stricter enforcement or interpretations or changes to enacted laws and regulations will depend on our ability to adapt thereto and comply therewith. We are currently in compliance in all material respects with all applicable laws and regulations and maintain all material permits and licenses in connection with our operations. Tariff Protection Dairy-producing industries in Canada and the USA 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. Our performance will be dependent on our ability to continue to offer quality products at competitive prices. Reputation and Public Opinion We are committed to making progress on the Saputo Promise, our approach to social, environmental, and economic performance. Maintaining a positive reputation in the eyes of our customers, consumers, suppliers, communities, governments, regulatory bodies, and the general public is important to our continued success. The potential for deterioration of our reputation may arise in many contexts and for many different reasons. For example, the dairy industry is subject to the activities of animal activists. Activist activities may spread information and misinformation in a variety of ways, including through protests and attempts to disrupt operations, as well as through various communication strategies. The growing use of social and digital media increases the speed and extent that information or misinformation and opinions can be shared. Negative public opinions or shifts in opinion, negative publicity about Saputo, our brands, our products, or about the dairy industry could damage our reputation and negatively impact our sales and results. It may also diminish our ability to hire and retain the best talent, which could have an adverse impact on our overall business. Reputational risk intersects with many of the Company's other risks and may therefore exacerbate these risks. Inventory We are subject to inventory risks that may adversely affect our operating results as a result of variations in market selling prices for dairy products and ingredients, changes in consumer demand, seasonality, spoilage, limited product shelf life, changes in consumer tastes with respect to our products, and other factors. Excess or obsolete inventory which cannot be sold profitably, or increases in levels of inventory shrink could result in an inventory write-down or otherwise affect our financial performance. Impairment Charges We assess our goodwill and other intangible assets and long-lived assets as and when required by IFRS to determine whether they are impaired and, if they are, we record appropriate impairment charges. We have been required to record impairment charges in the past and it is possible that we may be required to record significant impairment charges in the future and, if we do so, our results could be materially adversely affected. ANNUAL REPORT 2022 Page 42 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, 2022, 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 CEO and the CFO, along with Management, evaluated the effectiveness of the Company’s internal control over financial reporting as at March 31, 2022, in accordance with the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, the CEO and the CFO, along with Management, have concluded that the Company’s internal control over financial reporting was effective. Saputo took a phased approach to its migration to a new ERP system, which project is now temporarily paused. In order to maintain appropriate internal controls over financial reporting in the divisions that have migrated to the new ERP system, relevant changes have been made. There were no other changes to Saputo’s internal control over financial reporting that occurred during the period beginning on January 1, 2022, and ended on March 31, 2022, 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 $1,054 million as at March 31, 2022. A 1% change in the interest rate would lead to a change in net earnings of approximately $7 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. However, 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, 2022, the average US dollar conversion was based on US$1.00 for $1.2510. A fluctuation of $0.10 of the Canadian dollar would have resulted in a change of approximately $2 million in net earnings, $23 million in adjusted EBITDA, and $511 million in revenues. ANNUAL REPORT 2022 Page 43 QUARTERLY FINANCIAL INFORMATION 2022 quarterly financial information – consolidated income statement (in millions of CDN dollars, except per share amounts and ratios) Revenues 3,957 3,901 3,689 3,488 15,035 Operating costs excluding depreciation, amortization, and Q4 Q3 Q2 Q1 Fiscal 2022 restructuring costs Adjusted EBITDA1 Adjusted EBITDA margin1 Depreciation and amortization Impairment of intangible assets Gain on disposal of assets Acquisition and restructuring costs Financial charges Earnings before income taxes Income taxes Net earnings Net earnings margin Adjusted net earnings1 Adjusted net earnings margin1 EPS basic EPS diluted Adjusted EPS Basic1 Adjusted EPS diluted1 3,697 260 6.6 % 3,579 322 8.3 % 3,406 283 7.7 % 3,198 290 8.3 % 13,880 1,155 7.7 % 148 — — 71 16 25 (12) 37 144 58 (9) — 17 112 26 86 137 — — (2) 19 129 31 98 131 — — 2 18 139 86 53 0.9 % 2.2 % 2.7 % 1.5 % 108 139 116 122 2.7 % 3.6 % 3.1 % 3.5 % 0.09 0.09 0.26 0.26 0.21 0.21 0.34 0.33 0.24 0.24 0.28 0.28 0.13 0.13 0.30 0.29 560 58 (9) 71 70 405 131 274 1.8 % 485 3.2 % 0.66 0.66 1.17 1.17 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. Quarterly financial information by sector Revenues Canada USA International Europe Total Net earnings (consolidated) Adjusted EBITDA Canada USA International Europe Total1 Q4 Q3 Q2 Q1 Fiscal 2022 1,055 1,743 922 237 3,957 37 1,112 1,627 919 243 1,081 1,533 858 217 1,033 1,506 754 195 4,281 6,409 3,453 892 3,901 3,689 3,488 15,035 86 98 53 274 Q4 Q3 Q2 Q1 Fiscal 2022 117 42 62 39 260 121 83 85 33 322 124 67 56 36 283 113 96 45 36 475 288 248 144 290 1,155 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. ANNUAL REPORT 2022 Page 44 2021 quarterly financial information – consolidated income statement (in millions of CDN dollars, except per share amounts and ratios) Q4 Q3 Q2 Q1 Fiscal 2021 Revenues 3,438 3,763 3,702 3,391 14,294 Operating costs excluding depreciation, amortization, and restructuring costs Adjusted EBITDA1 Adjusted EBITDA margin1 Depreciation and amortization Impairment of intangible assets Acquisition and restructuring costs Financial charges Earnings before income taxes Income taxes Net earnings Net earnings margin Adjusted net earnings1 Adjusted net earnings margin1 EPS basic EPS diluted Adjusted EPS basic1 Adjusted EPS diluted1 3,135 303 8.8 % 3,332 431 3,332 370 3,024 367 11.5 % 10.0 % 10.8 % 12,823 1,471 10.3 % 135 — 3 23 142 39 103 128 — — 26 277 67 210 126 — (6) 22 228 57 171 126 19 — 25 197 55 142 3.0 % 5.6 % 4.6 % 4.2 % 124 228 184 179 3.6 % 6.1 % 5.0 % 5.3 % 0.25 0.25 0.30 0.30 0.51 0.51 0.56 0.55 0.42 0.42 0.45 0.45 0.35 0.35 0.44 0.44 515 19 (3) 96 844 218 626 4.4 % 715 5.0 % 1.53 1.52 1.74 1.74 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. Quarterly financial information by sector Revenues Canada USA International Europe Total Net earnings (consolidated) Adjusted EBITDA Canada USA International Europe Total1 Q4 Q3 Q2 Q1 Fiscal 2021 1,001 1,399 827 211 3,438 103 1,089 1,657 807 210 3,763 210 1,063 1,649 806 184 3,702 171 982 1,417 781 211 3,391 142 4,135 6,122 3,221 816 14,294 626 Q4 Q3 Q2 Q1 Fiscal 2021 108 93 62 40 303 118 171 105 37 431 117 140 78 35 370 104 163 60 40 367 447 567 305 152 1,471 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. ANNUAL REPORT 2022 Page 45 CONSOLIDATED ANALYSIS OF EARNINGS FOR THE YEAR ENDED MARCH 31, 2021, COMPARED TO MARCH 31, 2020 Revenues Revenues totalled $14.294 billion, a decrease of $650 million or 4.3%, as compared to $14.944 billion in fiscal 2020. The global shift in consumer demand caused by the COVID-19 pandemic negatively impacted sales volumes in the foodservice market segment, mostly in the USA Sector, although partially offset by increased sales volumes in the retail and industrial market segments. Additional sales volumes in our export markets positively impacted revenues despite varying government-imposed restrictions throughout the fiscal year. Lower international cheese and dairy ingredient market prices negatively impacted revenues, despite the favourable net impact of the fluctuation of the Argentine peso and the Australian dollar versus the US dollar in the export markets. The combined effect of the lower average butter market price2 and the higher average block market price2 also decreased revenues by approximately $114 million. However, higher domestic selling prices in the Canada Sector and the International Sector, which increased due to the higher cost of milk as raw material, positively impacted revenues. The contributions of the acquisition of the specialty cheese business of Lion Dairy & Drinks PTY Ltd. (Specialty Cheese Business Acquisition) in the International Sector and the Dairy Crest Acquisition in the Europe Sector for the full fiscal year, as compared to partial contributions in fiscal 2020, positively impacted revenues. Lastly, the fluctuation of foreign currencies versus the Canadian dollar decreased revenues by approximately $183 million. Operating costs excluding depreciation, amortization, and restructuring costs Operating costs excluding depreciation, amortization, inventory revaluation resulting from a business acquisition, and restructuring costs totalled $12.823 billion, a decrease of $653 million or 4.8%, as compared to $13.476 billion for fiscal 2020. The decrease was consistent with lower revenues, as described above, and extreme dairy commodity market volatility, which, together, contributed to the lower cost of raw materials and consumables used. Employee salary and benefit expenses increased due to wage increases and the contributions of the Specialty Cheese Business Acquisition and the Dairy Crest Acquisition for the full fiscal year, as compared to partial contributions in fiscal 2020. Net earnings Net earnings totalled $626 million, an increase of $43 million or 7.3%, as compared to $583 million for fiscal 2020. These increases were primarily due to the factors that contributed to higher adjusted EBITDA1 of $3 million, as described below, lower acquisition and restructuring costs of $40 million after tax, a non-recurring inventory revaluation resulting from a business acquisition related to fiscal 2020 of $33 million after tax, partially offset by higher depreciation and amortization, an impairment of intangible assets charge of $19 million after tax, and a higher income tax expense. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 46 Adjusted EBITDA1 Adjusted EBITDA1 totalled $1.471 billion, an increase of $3 million or 0.2%, as compared to $1.468 billion in fiscal 2020. The unfavourable relation between international cheese and dairy ingredient market prices and the cost of milk as raw material had a negative impact on adjusted EBITDA. In an extremely volatile dairy commodity market, USA Market Factors2 had a positive impact on adjusted EBITDA of approximately $57 million. The contributions of the Specialty Cheese Business Acquisition and the Dairy Crest Acquisition for the full fiscal year, as compared to partial contributions in fiscal 2020, increased adjusted EBITDA. Lower administrative costs positively impacted adjusted EBITDA, with the continued ban on non-essential business travel, the reduction of promotional activity and other initiatives in the context of the COVID-19 pandemic, which mitigated the negative impacts on adjusted EBITDA of higher operational costs, including those related to additional supplies of personal protective equipment for employees and unproductive labour. The COVID-19 pandemic negatively affected adjusted EBITDA late in the fourth quarter of fiscal 2020. In fiscal 2021, overall lower sales volumes negatively impacted efficiencies and the absorption of fixed costs, particularly in the USA Sector. The effect of foreign currency fluctuations versus the Canadian dollar had an unfavourable impact on adjusted EBITDA of approximately $2 million. Depreciation and amortization Depreciation and amortization expenses amounted to $515 million, an increase of $48 million, as compared to $467 million in fiscal 2020. These increases were mainly attributable to additional depreciation and amortization related to recent acquisitions, as well as additions to property, plant and equipment, which increased the depreciable base. Impairment of intangible assets During the first quarter of fiscal 2021, an impairment of intangible assets charge of $19 million was incurred in relation to our decision to retire one of our cheese brand names from our Australian portfolio as part of our commitment to share in the responsibility to eliminate racism in all its forms. Acquisition and restructuring costs Acquisition and restructuring costs amounted to a net gain of $3.2 million, including a gain on disposal of assets of $6 million ($5 million after tax) relating to the sale of a facility in the Canada Sector and additional costs from a previous acquisition, as compared to $46 million for fiscal 2020, incurred mainly for the Dairy Crest Acquisition and the Specialty Cheese Business Acquisition. Financial charges Financial charges amounted to $96 million, a decrease of $19 million or 16.5%, as compared to $115 million last fiscal year. This included a decrease in interest expense of $29 million, mainly attributable to a lower debt level, lower interest rates, and a decreased gain on hyperinflation of $11 million. Income taxes Income tax expense totalled $218 million, reflecting an effective tax rate of 25.8% as compared to 27.1% for fiscal 2020. The fiscal 2021 income tax expense reflected the tax treatment of an impairment of intangible assets charge and an income tax benefit related to a tax inflation adjustment in Argentina. Income taxes during fiscal 2020 included an income tax expense of $17 million due to the increase in the corporate income tax rate in the United Kingdom. The effective tax rate for fiscal 2020 also reflected the income tax benefits related to a tax inflation adjustment pursuant to Argentine tax legislation and the decrease in provincial income taxes in Canada. Excluding the effects of the factors mentioned above, the effective tax rate for the fiscal years 2021 and 2020 would have been 26.3% and 26.2%, respectively. The effective tax rate varies and could increase or decrease based on the geographic mix of quarterly and year-to- date earnings across the various jurisdictions in which we operate, the amount and source of taxable income, amendments to tax legislations and income tax rates, changes in assumptions, as well as estimates for tax assets and liabilities we use. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. 2 Refer to the ‘‘Glossary’’ section of this MD&A. ANNUAL REPORT 2022 Page 47 Adjusted net earnings1 Adjusted net earnings totalled $715 million, a decrease of $9 million or 1.2%, as compared to $724 million for last fiscal year. This decrease was mainly due to higher net earnings of $43 million, excluding lower acquisition and restructuring costs of $40 million after tax, a non-recurring inventory revaluation resulting from a business acquisition related to fiscal 2020 of $33 million after tax, an impairment of intangible assets charge of $19 million after tax, and a higher income tax expense. 1 This is a total of segments measure, a non-GAAP financial measure, or a non-GAAP ratio. See the “Non-GAAP Measures” section of this MD&A for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the primary financial statements, as applicable. ANNUAL REPORT 2022 Page 48 GLOSSARY Average whey powder market price means the average daily price for a pound of extra grade dry whey published on Daily Dairy Report, used as the base price for whey. Block market price means the price per pound of a spot contract for cheddar cheese in 40-pound blocks traded on the Chicago Mercantile Exchange (CME) published in the Daily Dairy Report, used as the base price for cheese. Book value per share means total equity divided by the number of common shares outstanding. Butter market price means the price per pound of a spot contract for Grade AA Butter traded on the CME published in the Daily Dairy Report, used as the base price for dairy food products. Net Debt means long-term debt, lease liabilities, and bank loans, including the current portion thereof, net of cash and cash equivalents. Refer to Note 22 to the consolidated financial statements for more information. Net Debt / Equity means net debt divided by total equity. Refer to Note 22 to the consolidated financial statements for more information. Net earnings margin means net earnings expressed as a percentage of revenues. Non-current financial liabilities is composed of non-current long-term debt, lease liabilities, and derivative financial liabilities. Spread means the difference between the average block market price and the average cost of the corresponding quantity of Class III milk in the USA market based on the milk prices published by the United States Department of Agriculture. USA Market Factors include, for the USA Sector, the average block market price and its effect on the absorption of fixed costs and on the realization of inventories, the effect of the relation between the average block market price 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. Working capital means current assets minus current liabilities. Working capital ratio means current assets divided by current liabilities. ANNUAL REPORT 2022 Page 49 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 auditor to discuss internal controls, auditing matters and financial reporting issues. It also reviews the annual report, the consolidated financial statements and the independent auditor’s report. The Audit Committee recommends the independent auditor for appointment by the shareholders. The independent auditor have unrestricted access to the Audit Committee. The consolidated financial statements have been audited by the independent auditor KPMG LLP, whose report follows. (signed) Lino A. Saputo Lino A. Saputo Chair of the Board, President and Chief Executive Officer (signed) Maxime Therrien Maxime Therrien, CPA Chief Financial Officer and Secretary June 9, 2022 ANNUAL REPORT 2022 Page 50 KPMG LLP 600 de Maisonneuve Blvd. West Suite 1500, Tour KPMG Montréal (Québec) H3A 0A3 Canada Telephone Fax Internet (514) 840-2100 (514) 840-2187 www.kpmg.ca INDEPENDENT AUDITORS’ REPORT To the Shareholders of Saputo Inc. Opinion We have audited the consolidated financial statements of Saputo Inc. (the "Entity"), which comprise: • • • • • the consolidated statement of financial position as at March 31, 2022; the consolidated income statement and consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at March 31, 2022, and its consolidated financial performance and its consolidated cash flows for the year 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. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report. We are independent of the Entity 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. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended March 31, 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report. KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. ANNUAL REPORT 2022 Page 51 Assessment of the carrying amount of Goodwill for Dairy Division (Australia) and Dairy Division (UK) cash generating units (CGUs) Description for the matter We draw attention to Notes 3 and 8 of the financial statements. The goodwill balance is $3,188 million, of which $267 million and $605 million relate to the Dairy Division (Australia) and Dairy Division (UK), respectively. The Entity performs impairment testing annually for goodwill or more frequently if events or changes in circumstances indicate that it might be impaired. When testing goodwill for impairment, the carrying values of the CGUs or group of CGUs, including goodwill, are compared with their respective recoverable amounts and an impairment loss, if any, is recognized for the excess. The recoverable amounts of the CGUs or group of CGUs are estimated based on the higher of their fair value less costs of disposal using an earnings multiplier valuation method and value in use using a discounted cash flow model. The determination of the recoverable amount requires management to make significant estimates and assumptions related to: • • The forecasted cash flows based on earnings before interest, income taxes, depreciation and amortization ("EBITDA"), terminal growth rates and discount rates, used in the discounted cash flow model EBITDA multiples used in the earnings multiplier valuation method. Why this matter is a key audit matter We identified the assessment of the carrying amount of Goodwill for Dairy Division (Australia) and Dairy Division (UK) CGUs as a key audit matter. This matter represented an area of significant risk of material misstatement given the sensitivity of the Entity’s determination of the recoverable amounts of the CGUs to changes to significant assumptions. In addition, significant auditor judgment and specialized skills and knowledge were required in evaluating the results of our audit procedures. How the Key Audit Matter Was Addressed in the Audit The primary procedures we performed to address this key audit matter included the following: We evaluated the Entity’s ability to accurately forecast EBITDA by comparing actual results to historical EBITDA forecasts. We involved our valuations professionals with specialized skills and knowledge, who assisted in evaluating the appropriateness of the: • • • Terminal growth rates by developing a range of independent terminal growth rates using publicly available industry market data and expected long term inflation rates and comparing those to the Entity’s terminal growth rate assumptions Discount rates by comparing inputs into the discount rates to publicly available data for comparable entities EBITDA multiples by developing an independent range of multiples using available market information from third party sources and observed in recent comparable transactions, and comparing those to EBITDA multiples selected by management. Other Matter - Comparative Information The financial statements for the year ended March 31, 2021 were audited by another auditor who expressed an unmodified opinion on those financial statements on June 3, 2021. ANNUAL REPORT 2022 Page 52 Other Information Management is responsible for the other information. Other information comprises: • • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “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 and remain alert for indications that the other information appears to be materially misstated. We obtained the information included in Management’s Discussion and Analysis and the Annual Report filed with the relevant Canadian Securities Commissions as at the date of this auditors’ 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 the auditors’ 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 International Financial Reporting Standards (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 Entity’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 Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditors’ 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 auditors’ 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 generally accepted auditing standards 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 the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, 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. ANNUAL REPORT 2022 Page 53 • • • • • • • • 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 Entity'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 Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ 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 auditors’ report. However, future events or conditions may cause the Entity 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. 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. Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity 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. Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this auditors’ report is Toni Dilli. /s/ KPMG LLP* Montreal, Canada June 9, 2022 *CPA auditor, public accountancy permit No. A123145 ANNUAL REPORT 2022 Page 54 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 statement of financial position as at March 31, 2021, and the consolidated income statement, consolidated statements of comprehensive income, changes in equity and cash flows for the year 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, 2021, and its financial performance and its cash flows for the year 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. Key Audit Matter A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements for the year ended March 31, 2021. This matter was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Goodwill —Dairy Division (Australia) and Dairy Division (UK) — Refer to Notes 3 and 8 to the consolidated financial statements Key Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the carrying values of cash- generating units (“CGUs”) or group of CGUs, including goodwill, with their respective recoverable amounts. The recoverable amounts of the Dairy Division (Australia) and Dairy Division (UK) CGUs are estimated based on the higher of its value in use using a discounted cashflow model or fair value less costs of disposal using a multiple earnings method. This requires management to make significant estimates and assumptions related to the forecasted revenues and associated earnings before interest, income taxes, depreciation and amortization (“EBITDA”) margins, terminal growth rates and discount rates, used in the discounted cashflow model and EBITDA multiples used in the multiple earnings method. Changes in these assumptions could have a significant impact on the determination of the recoverable amounts. The recoverable amounts of these CGUs exceeded their carrying values as of the measurement date, and therefore no impairment was recognized. While there are several estimates and assumptions that are required to estimate the recoverable amounts of the Dairy Division (Australia) and Dairy Division (UK) CGUs, the estimates and assumptions with the highest degree of subjectivity related to the forecasted revenues and associated EBITDA margins, terminal growth rates, discount rates and EBITDA multiples. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of audit effort, including the need to involve valuation specialists. ANNUAL REPORT 2022 Page 55 How the Key Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasted revenues and associated EBITDA margins, terminal growth rates, discount rates and EBITDA multiples used by management to estimate the recoverable amount of the Dairy Division (Australia) and the Dairy Division (UK) CGUs included the following, among others: • • Evaluated management’s ability to accurately forecast revenues and EBITDA margins by comparing actual results to management’s historical forecasts. Evaluated the reasonableness of management’s forecasted revenues and EBITDA margins by comparing the forecasts to: ◦ Historical revenues and EBITDA margins. ◦ Internal communications to senior leadership and to the Board of Directors detailing business strategies and growth plans. Forecasted revenue growth rates in analysts and industry reports that are publicly available. ◦ • With the assistance of our valuation specialists evaluated the reasonableness of the: ◦ Terminal growth rates by developing a range of independent estimates using available industry data and expected long term inflation rates and comparing those to the terminal growth rates selected by management. ◦ Discount rates by testing the source information underlying the determination of the discount rates and developing a range of independent estimates and comparing those to the discount rates selected by management. EBITDA multiples by developing an independent range of estimates using available market information from third party sources and recent transactions, if applicable and comparing those to the EBITDA multiples selected by management. ◦ 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 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 2022 Page 56 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Gianmarco Lombardi. /s/ Deloitte LLP1 Montréal, Québec June 3, 2021 1 CPA auditor, CA, public accountancy permit No. A125494 ANNUAL REPORT 2022 Page 57 CONSOLIDATED INCOME STATEMENTS (in millions of CDN dollars, except per share amounts) Years ended March 31 Revenues (Note 24) Operating costs excluding depreciation, amortization, and restructuring costs (Note 5) Earnings before income taxes, financial charges, acquisition and restructuring costs, gain on disposal of assets, impairment of intangible assets, and depreciation and amortization Depreciation and amortization Impairment of intangible assets (Note 8) Gain on disposal of assets Acquisition and restructuring costs (Note 23) Financial charges (Note 14) Earnings before income taxes Income taxes (Note 15) Net earnings Net earnings per share (Note 16) Basic Diluted 2022 $ 15,035 $ 13,880 2021 14,294 12,823 1,155 560 1,471 515 58 (9) 71 70 405 131 274 $ 19 — (3) 96 844 218 626 0.66 $ 0.66 $ 1.53 1.52 $ $ $ The accompanying notes are an integral part of these consolidated financial statements. ANNUAL REPORT 2022 Page 58 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions of CDN dollars) Years ended March 31 Net earnings Other comprehensive loss: Items that may be reclassified to net earnings: Exchange differences arising from foreign currency translation Inflation effect arising from the application of hyperinflation Unrealized gains on cash flow hedges (Note 17) Reclassification of loss (gains) on cash flow hedges to net earnings Income taxes relating to items that may be reclassified to net earnings Items that will not be reclassified to net earnings: Actuarial gain (loss) (Note 19) Income taxes relating to items that will not be reclassified to net earnings Other comprehensive loss Total comprehensive income $ The accompanying notes are an integral part of these consolidated financial statements. 2022 2021 $ 274 $ 626 (142) (450) (2) 19 11 (9) (123) (8) 62 (7) (15) (418) 72 (215) (11) 61 (62) 212 $ 41 (174) (592) 34 ANNUAL REPORT 2022 Page 59 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in millions of CDN dollars, except common shares) For the year ended March 31, 2022 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 412,333,571 $ 1,807 $ 210 $ — $ 165 $ 375 $ 4,262 $ 6,444 Net earnings Other comprehensive loss Total comprehensive income Dividends (Note 13) Shares issued under dividend reinvestment plan (Note 13) Stock options Exercise of stock options (Note 13) — — — 2,783,718 — 1,620,752 — — — 87 — 51 — (144) — — — — — 21 — — — — — (123) 274 61 274 (62) 212 — — 15 (296) (296) — — — 87 15 43 (8) (8) Balance, end of year 416,738,041 $ 1,945 $ 66 $ 21 $ 172 $ 259 $ 4,301 $ 6,505 For the year ended March 31, 2021 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 408,638,373 $ 1,686 $ 668 $ (40) $ 150 $ 778 $ 4,095 $ 6,559 Net earnings Other comprehensive loss Total comprehensive income Dividends (Note 13) Shares issued under dividend reinvestment plan (Note 13) Stock options Exercise of stock options (Note 13) — — — 2,348,157 — 1,347,041 — — — 80 — 41 — (458) — — — — — 40 — — — — — 626 (418) (174) 626 (592) 34 — — 22 (285) (285) — — — 80 22 34 (7) (7) — — — — 15 — — — — 22 Balance, end of year 412,333,571 $ 1,807 $ 210 $ — $ 165 $ 375 $ 4,262 $ 6,444 The accompanying notes are an integral part of these consolidated financial statements. ANNUAL REPORT 2022 Page 60 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 15) Prepaid expenses and other assets Property, plant and equipment (Note 6) Right-of-use assets (Note 7) Goodwill (Note 8) Intangible assets (Note 8) Other assets (Note 9) Deferred tax assets (Note 15) Total assets LIABILITIES Current liabilities Bank loans (Note 10) Accounts payable and accrued liabilities Income taxes payable (Note 15) Current portion of long-term debt (Note 11) Current portion of lease liabilities (Note 7) Long-term debt (Note 11) Lease liabilities (Note 7) Other liabilities (Note 12) Deferred tax liabilities (Note 15) Total liabilities EQUITY Share capital (Note 13) Reserves Retained earnings Total equity Total liabilities and equity March 31, 2022 March 31, 2021 165 $ 1,500 2,503 52 75 4,295 3,962 475 3,188 1,371 362 30 309 1,217 2,294 35 93 3,948 3,777 482 3,066 1,517 319 14 13,683 $ 13,123 $ $ $ 419 $ 1,952 44 300 65 2,780 3,075 386 101 836 $ 7,178 $ 1,945 259 4,301 6,505 $ 13,683 $ $ $ 76 1,641 54 300 75 2,146 3,278 386 116 753 6,679 1,807 375 4,262 6,444 13,123 The accompanying notes are an integral part of these consolidated financial statements. On behalf of the Board, (signed) Lino A. Saputo Lino A. Saputo Chair of the Board, President and Chief Executive Officer (signed) Tony Meti Tony Meti Director ANNUAL REPORT 2022 Page 61 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 Financial charges (Note 14) Income tax expense Depreciation and amortization Impairment of intangible assets (Note 8) Restructuring charges related to optimization initiatives (Note 23) (Gain) on disposal of property, plant and equipment Foreign exchange (gain) loss on debt Share of joint venture earnings, net of dividends received and other Changes in non-cash operating working capital items Cash generated from operating activities Interest and financial charges paid Income taxes paid Net cash generated from operating activities Investing Business acquisitions, net of cash acquired Additions to property, plant and equipment Additions to intangible assets Proceeds from disposal of property, plant and equipment Net cash used for investing activities Financing Bank loans Proceeds from issuance of long-term debt Repayment of long-term debt Repayment of lease liabilities Net proceeds from issuance of share capital Payment of dividends Net cash used in financing activities Decrease in cash and cash equivalents Cash and cash equivalents, beginning of year Effect of inflation Effect of exchange rate changes Cash and cash equivalents, end of year 2022 2021 $ 274 $ 37 70 131 560 58 68 (12) (21) 3 (252) 916 (117) (106) 693 $ (371) (453) (45) 70 (799) $ 356 306 (487) (80) 42 (209) $ $ $ (72) $ (178) 309 39 (5) 165 $ $ 626 36 96 218 515 19 — (7) 45 (2) (233) 1,313 (112) (123) 1,078 — (380) (54) 47 (387) (444) 1,084 (1,093) (80) 33 (205) (705) (14) 319 16 (12) 309 The accompanying notes are an integral part of these consolidated financial statements. ANNUAL REPORT 2022 Page 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Years ended March 31, 2022, and 2021. (Tabular amounts are in millions of CDN dollars except numbers of options, units, and shares. All dollar amounts are in CDN dollars, unless otherwise indicated.) 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, Argentina, and the United Kingdom. In addition to its dairy portfolio, the Company produces, markets, and distributes a range of dairy alternative cheeses and beverages. The address of the Company’s head office is 6869 Metropolitain Blvd. East, Montréal, Québec, Canada, H1P 1X8. The consolidated financial statements of the Company for the fiscal year ended March 31, 2022 (financial statements), comprise the financial results of the Company and its subsidiaries. The financial statements were authorized for issuance by the Board of Directors on June 9, 2022. NOTE 2 BASIS OF PRESENTATION STATEMENT OF COMPLIANCE The consolidated 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 historical cost basis except for defined benefit plan assets and liabilities as well as certain financial instruments that are measured at fair value as described in Note 3, Significant accounting policies. FUNCTIONAL AND PRESENTATION CURRENCY The Company’s consolidated 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 using the first in, first out method. ANNUAL REPORT 2022 Page 63 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 5 to 10 years based on estimated kilometers traveled 15 to 40 years 3 to 20 years 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, if any, 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, if any, are included in “depreciation and amortization” or “restructuring costs” in the consolidated income statements. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES Leases are recognized as a right-of-use asset and a corresponding lease liability at the commencement date. Each lease payment is allocated between a reduction of the liability and finance cost. The finance cost is recognized in ‘‘Financial charges’’ in the consolidated income statements over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The lease liability is measured at the present value of lease payments to be made, discounted using the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily available. The period over which the lease payments are discounted is the non-cancellable period for which the lessee has the right to use the underlying asset together with the renewal options that the Company is reasonably certain to exercise. The period needs to also consider termination options that the Company is reasonably certain not to exercise. Renewal options are included in a number of leases across the Company. Lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised and payment of penalties for termination of a lease. Right-of-use assets are measured at cost, which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the lease commencement date, any initial direct costs, and related restoration costs. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If a lease transfers ownership of the underlying asset or if it is reasonably certain at the commencement of the lease arrangement that the Company will exercise its purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. Costs associated with short-term leases and leases of low-value assets are included in the consolidated income statements. ANNUAL REPORT 2022 Page 64 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONT'D) 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 CGUs or group of CGUs, 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 which vary from 15 to 25 years and are reviewed for indicators of impairment at each reporting period. The assessment of the estimated useful life of trademarks is reviewed annually. 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 3 to 15 years and are reviewed for indicators of impairment at each reporting period. Refer to “Impairment Testing of Cash-Generating Units” in Note 8 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 a CGU), 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 “depreciation and amortization” or “restructuring costs” in the consolidated income statements 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. 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. EMPLOYEE FUTURE BENEFITS The cost of defined benefit pension and other post-retirement benefits is actuarially determined annually on March 31 using the projected unit credit method and using Management’s best estimates of rates of compensation increases, retirement ages of employees, and expected health care costs. Key assumptions made when valuing the defined benefit obligation include the discount rate, duration of the plan, inflation, and mortality, amongst others. 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. Current service costs and past service costs are included in the consolidated income statements. Past service costs are recognized at the earlier of the date of the plan amendment or curtailment. Interest on obligations offset by interest income on plan assets are included in financial charges in the consolidated income statements. The net pension expenditure under defined contribution pension plans is generally equal to the contributions made by the employer. ANNUAL REPORT 2022 Page 65 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONT'D) REVENUE RECOGNITION The Company recognizes revenue when control of the asset is transferred to the customer, the vast majority upon shipment of products. Revenue is measured at the amount of consideration to which the Company expects to be entitled to. 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, the Argentine peso, and the British pound. 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 installment 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 is subsequently remeasured at each reporting period with any change in value recorded in the consolidated income statements. The Company offers performance share units (PSU) and restricted share units (RSU) to senior management which are based on the market value of the Company’s common shares. The PSU and RSU plans are non-dilutive and are 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 subsequently remeasured at each reporting period with any change in value recorded in the consolidated income statements. Compensation expense is recognized over the three-year performance cycle for PSUs and over the three-year restriction period for RSUs. 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. ANNUAL REPORT 2022 Page 66 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONT'D) 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. 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, PSUs, and RSUs which is measured at the fair value of common shares on the financial position dates. – The Company applies the simplified approach to recognize lifetime expected credit losses under IFRS 9. 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 changes in 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 earnings, 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 2022 Page 67 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONT'D) FAIR VALUE HIERARCHY Assets and liabilities, for which fair value is measured or disclosed in the consolidated financial statements, 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 JUDGMENTS IN THE APPLICATION OF ACCOUNTING POLICIES The preparation of the Company’s financial statements requires Management to make certain judgments and estimates about transactions and carrying values that are fulfilled at a future date. Judgments 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 judgments and estimates that could have a material effect on the financial statements is provided below. SIGNIFICANT ESTIMATES AND JUDGMENTS Economic Conditions and Uncertainties The Company continues to monitor and assess the impact of the COVID-19 pandemic on the significant estimates and judgments used in the preparation of the consolidated financial statements. The Company is also continuously monitoring the geopolitical risk related to the evolving military conflict in Ukraine. This crisis did not have a significant impact on the Company’s consolidated financial statements. Income Taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment 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 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 judgment 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 2022 Page 68 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONT'D) 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 judgments, 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. Impairment of Assets Significant estimates and judgments are required in testing goodwill, intangible assets, and other long-lived assets, including right-of-use assets, for impairment. Management uses estimates or exercises judgment 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. Goodwill is tested for impairment annually based on the December 31 balances and whenever there is an indication of impairment. 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 duration of the obligation, inflation, the expected health care cost trend rate, the expected mortality rate, expected salary increase, etc. Changes in a number of key assumptions can have a material impact on the calculation of the obligation. 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 ADOPTED DURING THE YEAR The following standards, amendments to existing standards, and interpretation of standards were adopted by the Company on or after April 1, 2021: IAS 38, Configuration or customization costs in a cloud computing arrangement In April 2021, the IFRIC published a final agenda decision clarifying how to recognize certain configuration and customization expenditures related to cloud computing. The publication of this final agenda decision resulted in a change to our accounting policy for costs related to configuration or customization of application software that is not controlled by the Company in Software as a Service (SaaS) arrangements and as result $8 million ($5 million after tax) of previously capitalized costs were expensed and included under Impairment of intangible assets (see Note 8). ANNUAL REPORT 2022 Page 69 NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONT'D) EFFECT OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS, AND AMENDMENTS NOT YET IMPLEMENTED The following standards, amendments to standards and interpretations have been issued by the International Accounting Standards Board (IASB) and are applicable to the Company for its annual periods beginning on and after April 1, 2022, with an earlier application permitted: IFRS 3, Business Combinations: Reference to the Conceptual Framework In May 2020, amendments to IFRS 3, Business Combinations were issued adding a requirement that IAS 37, Provisions, contingent liabilities and contingent assets, or IFRIC 21, Levies, be applied by an acquirer to identify the liabilities it has assumed in a business combination. Also, an explicit statement was added requiring an acquirer to not recognize contingent assets acquired in a business combination. This amendment is applicable to the Company beginning April 1, 2022. The Company will apply this amendment to future business combinations. IAS 16, Property, Plant and Equipment: Proceeds Before Intended Use In May 2020, the IASB issued Property, Plant and Equipment: Proceeds before Intended Use, Amendments to IAS 16. This amendment prohibits a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related costs in profit or loss. This amendment is applicable to the Company beginning April 1, 2022, and its adoption will not have a significant impact on the Company’s financial statements. IAS 37, Onerous Contracts: Cost of Fulfilling a Contract In May 2020, the IASB issued Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37), amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. This amendment is applicable to the Company beginning April 1, 2022, and its adoption will not have a significant impact on the Company’s financial statements. IAS 1, Disclosure of Accounting Policies In February 2021, the IASB issued amendments to IAS 1 to require entities to disclose its material accounting policies instead of its significant accounting policies. This amendment is applicable to the Company beginning April 1, 2023. The adoption of this amendment is not expected to have a significant impact on the Company’s financial statements. IAS 8, Definition of Accounting Estimates In February 2021, the IASB issued amendments to IAS 8 to replace the definition of a change in accounting estimate. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. This amendment is applicable to the Company beginning April 1, 2023. The adoption of this amendment is not expected to have a significant impact on the Company’s financial statements. IAS 12, Deferred Tax Related to Assets and Liabilities Arising From a Single Transaction In May 2021, the IASB issued amendments to IAS 12 to require entities to recognize deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. This amendment is applicable to the Company beginning April 1, 2023. The adoption of this amendment is not expected to have a significant impact on the Company’s financial statements. ANNUAL REPORT 2022 Page 70 NOTE 4 INVENTORIES Finished goods Raw materials, work in progress and supplies Total March 31, 2022 March 31, 2021 $ $ 1,444 $ 1,059 2,503 $ 1,268 1,026 2,294 The amount of inventories recognized as an expense in operating costs for the year ended March 31, 2022, is $11.7 billion ($11.2 billion for the year ended March 31, 2021). NOTE 5 OPERATING COSTS EXCLUDING DEPRECIATION, AMORTIZATION, AND RESTRUCTURING COSTS Changes in inventories of finished goods and work in process $ Raw materials and consumables used Foreign exchange loss (gain) Employee benefits expense Other selling costs Other general and administrative costs For the years ended March 31 2022 (168) $ 10,522 11 1,877 803 835 2021 (74) 9,649 (36) 1,842 656 786 $ 13,880 $ 12,823 NOTE 6 PROPERTY, PLANT AND EQUIPMENT Cost As at March 31, 2021 Business acquisitions (Note 18) Additions Disposals Transfers Foreign currency and hyperinflation adjustments As at March 31, 2022 Accumulated depreciation As at March 31, 2021 Depreciation Disposals Transfers Impairment related to restructuring (Note 23) Foreign currency and hyperinflation adjustments As at March 31, 2022 Net book value at March 31, 2022 For the year ended March 31, 2022 Furniture, machinery and equipment Rolling stock Total Land Buildings $ 207 $ 1,428 $ 4,254 $ 13 $ 5,902 2 2 (3) — (5) 43 103 (11) 27 (6) 91 348 (73) (16) 3 — — (2) — 1 136 453 (89) 11 (7) 203 $ 1,584 $ 4,607 $ 12 $ 6,406 — $ 418 $ 1,697 $ 10 $ 2,125 — — — — — 68 (8) — 24 (1) 267 (72) 2 30 9 — $ 203 $ 501 $ 1,083 $ 1,933 $ 2,674 $ 1 (1) — — — 10 $ 2 $ 336 (81) 2 54 8 2,444 3,962 $ $ $ $ The net book value of property, plant and equipment under construction amounts to $294 million as at March 31, 2022, ($309 million as at March 31, 2021) and consists mainly of machinery and equipment. NOTE 6 PROPERTY, PLANT AND EQUIPMENT (CONT'D) Cost As at March 31, 2020 Additions Disposals Transfers Foreign currency adjustments As at March 31, 2021 Accumulated depreciation As at March 31, 2020 Depreciation Disposals Foreign currency and hyperinflation adjustments As at March 31, 2021 Net book value at March 31, 2021 For the year ended March 31, 2021 Furniture, machinery and Land Buildings equipment Rolling stock Total $ 204 $ 1,443 $ 4,192 $ 15 $ 5,854 1 (6) — 8 66 (30) — (51) 313 (68) (4) (179) — (3) — 1 207 $ 1,428 $ 4,254 $ 13 $ 380 (107) (4) (221) 5,902 — $ — — — — $ 207 $ 396 $ 1,598 $ 10 $ 2,004 61 (17) (22) 256 (58) (99) 418 $ 1,010 $ 1,697 $ 2,557 $ 2 (2) — 10 $ 3 $ 319 (77) (121) 2,125 3,777 $ $ $ $ ANNUAL REPORT 2022 Page 72 NOTE 7 RIGHT-OF-USE ASSETS AND LEASE LIABILITIES The following table presents changes in right-of-use assets during fiscal 2022: Balance as at April 1, 2021 New leases / leases modifications Depreciation Foreign currency Balance at March 31, 2022 For the year ended March 31, 2022 Real Estate Equipment $ $ 345 $ 23 (41) (5) 322 $ 137 $ 58 (38) (4) 153 $ Total 482 81 (79) (9) 475 The following table presents changes in right-of-use assets during fiscal 2021: Balance as at April 1, 2020 New leases / leases modifications Depreciation Disposals Foreign currency Balance at March 31, 2021 For the year ended March 31, 2021 Real Estate Equipment 274 $ 116 (35) (14) 4 345 $ 144 $ 20 (35) — 8 137 $ $ $ Total 418 136 (70) (14) 12 482 The following table presents changes in lease liabilities during fiscal 2022 and 2021: Balance, beginning of year New leases / lease modifications Interest expense Payments Foreign currency Current portion Balance, end of year March 31, 2022 March 31, 2021 $ 461 $ 80 15 (95) (10) 451 (65) $ 386 $ 415 120 15 (100) 11 461 (75) 386 The following maturity analysis of the Company’s lease liabilities outstanding at March 31, 2022, is based on the expected undiscounted contractual cash flows until the contractual maturity date: Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years More than 5 years $ $ 79 64 81 42 37 279 582 Expenses relating to short-term leases and leases of low value were not significant for the fiscal years ended March 31, 2022, and 2021. ANNUAL REPORT 2022 Page 73 NOTE 8 GOODWILL AND INTANGIBLE ASSETS For the year ended March 31, 2022 Definite Life Goodwill Trademarks Customer relationships Software1 and other Total Intangible Assets Cost As at March 31, 2021 $ 3,066 $ 1,126 $ 390 $ 416 $ 1,932 Business acquisitions (Note 18) Additions Transfer Foreign currency and hyperinflation adjustments As at March 31, 2022 Accumulated Amortization As at March 31, 2021 Amortization Impairment charges Transfer Foreign currency and hyperinflation adjustments As at March 31, 2022 Net book value at March 31, 2022 $ $ $ $ 170 — — (48) 34 — (7) (35) 3,188 $ 1,118 $ — $ — — — — — $ 3,188 $ 130 $ 55 — (5) (6) 174 $ 944 $ 19 — — (6) 403 $ 190 $ 36 — — (3) 223 $ 180 $ — 45 (10) 53 45 (17) 1 452 $ (40) 1,973 95 $ 54 58 (3) 1 205 $ 247 $ 415 145 58 (8) (8) 602 1,371 During the third quarter of fiscal 2022, the Company recognized an impairment charge of $58 million ($43 million net of taxes) related to software assets following the Company's decision to temporarily pause the final phase of the Harmoni deployment, the Company's Enterprise Resource Planning (ERP) project, which was set to begin in Canada. The impairment charge also includes an amount relative to previously capitalized cloud-based software costs following the application of the agenda decision of the IFRIC (see Note 3). For the year ended March 31, 2021 Definite Life Cost As at March 31, 2020 $ 3,219 $ 1,156 $ 412 $ 373 $ 1,941 Goodwill Trademarks Customer relationships Software1 and other Total Intangible Assets Additions Transfer Impairment charges Foreign currency and hyperinflation adjustments As at March 31, 2021 Accumulated Amortization As at March 31, 2020 Amortization Foreign currency and hyperinflation adjustments As at March 31, 2021 Net book value at March 31, 2021 1 None of the software were internally generated. $ $ $ $ — — — — — (19) (153) 3,066 $ (11) 1,126 $ — $ — — — $ 3,066 $ 75 $ 54 1 130 $ 996 $ — — — (22) 390 $ 165 $ 35 (10) 190 $ 200 $ 54 4 — (15) 416 $ 61 $ 37 (3) 95 $ 321 $ 54 4 (19) (48) 1,932 301 126 (12) 415 1,517 In fiscal 2021, the Company recognized impairment charges of $19 million related to trademarks. This charge was related to the Company’s decision to retire a cheese brand name from its Australian portfolio of brands and is part of a commitment to share in the responsibility to eliminate racism in all its forms. ANNUAL REPORT 2022 Page 74 NOTE 8 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 respective recoverable amounts of CGUs or groups of CGUs to which goodwill is allocated. Management considers the sectors below to be CGUs or groups of CGUs for goodwill impairment purposes as they represent the lowest level at which the goodwill is monitored for internal management purposes. The Company reports its operations under four geographic sectors. The Canada Sector consists of the Dairy Division (Canada). The USA Sector consists of the Dairy Division (USA). The International Sector combines the Dairy Division (Australia) and the Dairy Division (Argentina). Finally, the Europe Sector consists of the Dairy Division (UK). Goodwill is allocated to each CGU or group of CGUs as follows: Allocation of goodwill Canada Sector Dairy Division (Canada) USA Sector Dairy Division (USA) International Sector Dairy Division (Australia) Dairy Division (Argentina) Europe Sector Dairy Division (UK) March 31, 2022 March 31, 2021 $ 401 $ 401 1,906 1,851 267 9 605 3,188 $ 265 10 539 3,066 $ Recoverable amounts for each CGU or group of CGUs were 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 of market comparables that are applied to the results of each CGU or group of CGUs tested. The inputs used in this model are Level 3 inputs in the fair value hierarchy described in Note 3. Considering the activities of the Dairy Division (Australia) and the Dairy Division (UK) were added to the Company’s operational footprint in more recent years, we also estimated the recoverable amounts for these divisions 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 with growth 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 revenues for the CGU. The terminal growth rates used were 2.5% for the Dairy Division (Australia) and 2.2% for the Dairy Division (UK). • Discount rate: Cash flows are discounted using pre-tax discount rates. The pre-tax discount rates used were 7.1% for the Dairy Division (Australia) and 6.5% for the Dairy Division (UK). The Company performed its annual impairment testing of goodwill based on the December 31, 2021 balances, and, in all cases, the recoverable amounts exceeded their respective carrying values including goodwill; therefore, goodwill was not considered to be impaired as at March 31, 2022. ANNUAL REPORT 2022 Page 75 NOTE 8 GOODWILL AND INTANGIBLE ASSETS (CONT'D) Trademarks Trademarks are included in the following CGUs or group of CGUs: Allocation of trademarks by sectors March 31, 2022 March 31, 2021 Canada USA International Europe NOTE 9 OTHER ASSETS Joint ventures Financial loan Derivative financial assets Employee benefits (Note 19) Other $ $ $ $ 201 $ 123 33 586 943 $ 213 130 36 617 996 March 31, 2022 March 31, 2021 35 $ — 38 235 54 362 $ 41 50 — 178 50 319 The Company holds interests in joint ventures, which are all accounted for using the equity method. The Company recognized $4 million in net earnings, representing its share of earnings in the joint ventures for the year ended March 31, 2022 ($6 million for the year ended March 31, 2021). Dividends received from the joint ventures amounted to $7 million for the year ended March 31, 2022 ($5 million for the year ended March 31, 2021). ANNUAL REPORT 2022 Page 76 NOTE 10 BANK LOANS The Company has available bank credit facilities providing for bank loans as follows: Available for use Amount drawn Credit Facilities North America-USA North America-Canada Australia Australia Japan United Kingdom Argentina Canadian Currency Equivalent Maturity June 20271,6 $ June 20271,6 $ Yearly2,6 $ Yearly2,6 $ Yearly3,6 $ Yearly4 $ Yearly5, 6 $ $ Base Currency (in millions) March 31, 2022 March 31, 2021 375 875 257 125 82 123 325 2,162 300 USD 700 USD 275 AUD 100 USD 8,000 JPY 75 GBP 260 USD $ — $ 207 50 56 43 — 63 $ 419 $ — — — — 34 — 42 76 1 The US$1 billion North American bank credit facility bears monthly interest at rates ranging from lender’s prime rates plus a maximum of 1.00% or LIBOR or SONIA or BBSY or banker’s acceptance rate plus a minimum of 0.80% and a maximum of 2.00% depending on the Company credit ratings, plus an adjustment to the applicable margins based on the Company's achievement of its sustainability targets. As at March 31, 2022, US$165 million was drawn and its foreign currency risk was offset with a cross currency swap. Bears monthly interest at LIBOR or Australian Bank Bill Rate plus up to 0.90% and can be drawn in AUD or USD. 2 3 Bears monthly interest at TIBOR plus 0.70% and can be drawn in JPY. 4 Bears monthly interest at rates ranging from base rate plus 0.70% or SONIA plus 0.70% and can be drawn in GBP. 5 Bears monthly interest at local rate and can be drawn in USD or ARS. 6 Subject to interest rate benchmark reform (see Note 17). Since fiscal 2021, the Company has a trade receivable purchase agreement to sell certain receivables. As at March 31, 2022, receivables totalling $62 million (AU$66 million) ($68 million (AU$72 million) at March 31, 2021) were sold under this arrangement. The receivables were derecognized upon sale as substantially all risks and rewards associated with the receivables passed to the purchaser. On August 5, 2021, the Company amended its US$1 billion North American bank credit facility to, among other things, introduce a sustainability-linked loan (SLL) structure. The SLL structure introduces an annual pricing adjustment based on whether the Company achieves key climate and water targets in line with its 2025 environmental commitments. On June 1, 2022, the Company extended the maturity date to June 1, 2027. ANNUAL REPORT 2022 Page 77 NOTE 11 LONG-TERM DEBT Unsecured bank term loan facilities Obtained April 2018 (AU$600 million) and due in June 20251 Obtained April 2019 (£600 million) and due in June 20252,5 Unsecured senior notes3,4 2.20%, issued in June 2016 and repaid 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) 2.88%, issued in November 2019 and due in November 2024 (Series 6) 2.24%, issued in June 2020 and due in June 2027 (Series 7) 1.42%, issued in November 2020 and due in June 2026 (Series 8) 2.30%, issued in June 2021 and due in June 2028 (Series 9) Other Current portion 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, 2022 March 31, 2021 $ $ $ $ $ 373 $ 262 — 300 300 350 400 700 350 300 40 3,375 $ (300) 3,075 $ 300 $ 306 1,035 350 350 1,034 3,375 $ 385 459 300 300 300 350 400 700 350 — 34 3,578 (300) 3,278 300 759 685 400 350 1,084 3,578 1 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 a minimum of 0.80% and 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. 2 Bears monthly interest at lender’s prime rates plus a maximum of 1.00% or LIBOR or SONIA or banker’s acceptance rates plus 0.80% up to a 3 4 maximum of 2.00%, depending on the Company’s credit ratings, and can be drawn in CAD, USD or £. Interest payments are semi-annual. In fiscal 2021, the Company renewed its medium term note program by filing a supplement to its base shelf prospectus dated December 9, 2020, which provides the ability to make offerings of various securities during the 25-month period for which the base shelf prospectus is effective. 5 Subject to interest rate benchmark reform (see Note 17). On June 1, 2022, the Company amended its bank term loan facilities denominated in British pounds sterling and Australian dollars to extend their maturity dates to June 1, 2025. On June 22, 2021, the Company issued Series 9 medium term notes for an aggregate principal amount of $300 million due June 22, 2028, bearing interest at 2.30%. The net proceeds of the issuance were used in the first quarter of fiscal 2022 to repay the $300 million aggregate principal amount of the Series 2 medium term notes due June 23, 2021. On November 19, 2020, the Company issued Series 8 medium term notes for an aggregate principal amount of $350 million due June 19, 2026, bearing interest at 1.42%. The net proceeds of the issuance were used to repay $347 million (GBP 200 million) of the three-year tranche of the term loan facility incurred in connection with the Dairy Crest Acquisition, and for general corporate purposes. On June 16, 2020, the Company issued Series 7 medium term notes for an aggregate principal amount of $700 million due June 16, 2027, bearing interest at 2.24%. The net proceeds of the issuance were used during the first quarter of fiscal 2021 to repay (i) the $426 million two-year tranche of the term loan facility incurred in connection with the Dairy Crest Acquisition and (ii) $206 million (AU$ 220 million) of revolving loan facilities for the Dairy Division (Australia), which included funds drawn in connection with the Specialty Cheese Business Acquisition. The remaining net proceeds were used for general corporate purposes. ANNUAL REPORT 2022 Page 78 NOTE 12 OTHER LIABILITIES Employee benefits (Note 19) Derivative financial liabilities Stock-based compensation - long-term portion Other NOTE 13 SHARE CAPITAL March 31, 2022 March 31, 2021 $ $ 37 $ — 51 13 101 $ 43 3 51 19 116 AUTHORIZED The authorized share capital of the Company consists of an unlimited number of common shares. The common shares are voting and participating. STOCK OPTION PLAN The Company has an equity settled stock 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, 2022, 14,292,522 common shares are available for future grants under this plan and 22,021,670 common shares are underlying options outstanding. During fiscal 2022, a total of 1,620,752 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 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Exercise price $ 21.61 $ 21.48 $ 25.55 $ 27.74 $ 35.08 $ 41.40 $ 46.29 $ 41.02 $ 45.30 $ 33.35 $ 37.52 March 31, 2022 March 31, 2021 Number of options Number of exercisable options Number of options Number of exercisable options 104,017 964,504 1,494,384 1,733,541 2,808,213 2,914,637 3,395,873 2,723,052 4,073,214 104,017 964,504 1,494,384 1,733,541 2,808,213 2,360,566 2,075,330 1,127,580 797,840 100,778 812,537 1,243,555 1,734,764 1,873,838 3,057,893 3,211,194 3,791,350 3,017,017 4,496,395 100,778 812,537 1,243,555 1,734,764 1,873,838 2,430,803 1,938,427 1,510,080 607,726 — 1,810,235 22,021,670 — 13,465,975 — 23,339,321 — 12,252,508 Changes in the number of outstanding stock options for the year ended March 31 are as follows: Balance, beginning of year Granted Exercised Cancelled Balance, end of year March 31, 2022 March 31, 2021 Number of options Weighted average exercise price Number of options Weighted average exercise price 23,339,321 $ 1,984,038 $ (1,620,752) $ (1,680,937) $ 22,021,670 $ 37.81 37.52 25.83 40.74 38.45 20,946,092 $ 4,637,830 $ (1,347,041) $ (897,560) $ 23,339,321 $ 38.05 33.35 24.31 40.70 37.81 The weighted average exercise price of the stock options granted in fiscal 2022 is $37.52, which corresponds to the weighted average market price for the five trading days immediately preceding the date of the grant ($33.35 in fiscal 2021). ANNUAL REPORT 2022 Page 79 NOTE 13 SHARE CAPITAL (CONT'D) The weighted average fair value of stock options granted in fiscal 2022 was estimated at $6.52 per option ($5.04 in fiscal 2021), using the Black-Scholes option pricing model with the following assumptions: Weighted average: Risk-free interest rate Expected life of options Volatility1 Dividend rate March 31, 2022 March 31, 2021 0.88 % 6.4 years 21.92 % 1.91 % 0.53 % 6.3 years 21.17 % 2.08 % 1 The expected volatility is based on the historic share price volatility over a period similar to the life of the options. A compensation expense of $15 million ($13 million net of taxes) and $22 million ($20 million net of taxes) relating to stock options was recorded in operating costs in the consolidated income statements for the year ended March 31, 2022, and March 31, 2021, respectively. Options to purchase 2,600,057 common shares at a price of $29.59 per share were granted on April 1, 2022. 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 100% in 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 in the consolidated income statements. Balance, beginning of year Annual retainer Dividends reinvested Variation due to change in stock price Balance, end of year 2022 Units 467,685 $ 61,379 10,763 — 539,827 $ Liability 18 2 — (4) 16 2021 Units 404,019 $ 55,067 8,599 — 467,685 $ Liability 14 2 — 2 18 The Company enters into equity forward contracts in order to mitigate the compensation costs associated with its DSU plan. As at March 31, 2022, and 2021, the Company had equity forward contracts on 420,000 common shares with a notional value of $14 million ($15 million as of March 31, 2021). The net compensation expense related to the DSU plan was $2 million for the year ended March 31, 2022 ($4 million for March 31, 2021), including the effect of the equity forward contracts. ANNUAL REPORT 2022 Page 80 NOTE 13 SHARE CAPITAL CONT'D PERFORMANCE SHARE UNIT PLAN The Company offers key employees and officers of the Company a performance share unit (PSU) plan to form part of long-term incentive compensation. 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. The Corporate Governance and HR Committee has discretion to award compensation absent the achievement of the vesting criteria established. 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 based on 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 in operating costs in the consolidated income statements. Balance, beginning of year Annual grant Cancelled Payment Balance, end of year 2022 Units 1,071,256 682,326 (241,109) (188,162) 2021 Units 819,656 501,811 (87,350) (162,861) 1,324,311 1,071,256 As at March 31, 2022, a long-term obligation related to PSUs of $20 million was recorded ($22 million as at March 31, 2021) in addition to $5 million that was recorded in accrued liabilities ($8 million as at March 31, 2021). On April 1, 2022, 1,330,950 PSUs were granted at a price of $29.59 per unit ($37.52 in 2021). RESTRICTED SHARE UNIT PLAN The Company also offers a restricted share unit (RSU) plan to form part of long-term incentive compensation for key employees and officers of the Company. 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. The Corporate Governance and HR Committee has discretion to award compensation absent the achievement of the vesting criteria established. 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 based on 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 is recognized as a payable and is revised at each reporting period. The expense is included in employee benefits in operating costs in the consolidated income statements. Balance, beginning of year Annual grant Cancelled Payment Balance, end of year 2022 Units 330,469 442,912 (39,598) (7,654) 726,129 2021 Units 129,778 205,119 (3,007) (1,421) 330,469 As at March 31, 2022, a long-term obligation related to RSUs of $9 million was recorded in addition to $4 million that was recorded in accrued liabilities. On April 1, 2022, 612,895 RSUs were granted at a price of $29.59 per unit ($37.52 in 2021). ANNUAL REPORT 2022 Page 81 NOTE 13 SHARE CAPITAL CONT'D The Company enters into equity forward contracts in order to mitigate the compensation costs associated with its PSU and RSU plans. As at March 31, 2022, the Company had equity forward contracts on 2,000,000 common shares (1,170,000 as of March 31, 2021) with a notional value of $72 million ($40 million as of March 31, 2021). The net compensation expense related to PSUs was $16 million for the year ended March 31, 2022 ($13 million for the year ended March 31, 2021), including the effect of the equity forward contracts. The net compensation expense related to RSUs was $7 million for the year ended March 31, 2022 ($4 million in 2021), including the effect of the equity forward contracts. DIVIDENDS AND DIVIDEND REINVESTMENT PLAN The Company has a dividend reinvestment plan (DRIP), which became effective as of the first quarter of fiscal 2021 and provides eligible shareholders with the opportunity to have all or a portion of their cash dividends automatically reinvested into additional common shares. The dividends paid in cash and through the DRIP during the years ended 2022, and 2021, are shown below: For the year ended March 31, 2022 Payment date March 18, 2022 $ December 17, 2021 September 17, 2021 June 25, 2021 Total $ Payment date March 26, 2021 $ January 7, 2021 October 2, 2020 July 9, 2020 Total $ Cash 50 $ 53 54 52 209 $ Cash 50 $ 52 52 51 205 $ DRIP 25 $ 21 21 20 87 $ Total 75 74 75 72 296 For the year ended March 31, 2021 DRIP 22 $ 20 20 18 80 $ Total 72 72 72 69 285 On June 9, 2022, the Board of Directors approved a dividend of $0.18 per share payable on June 28, 2022, to common shareholders of record on June 21, 2022. NOTE 14 FINANCIAL CHARGES Interest on long-term debt Other finance costs, net Gain on hyperinflation Interest on lease liabilities Net interest revenue from defined benefit obligation (Note 19) For the years ended March 31 2021 2022 $ $ 74 $ 31 (48) 15 (2) 70 $ 79 27 (17) 15 (8) 96 ANNUAL REPORT 2022 Page 82 NOTE 15 INCOME TAXES Income tax expense comprises the following: Current tax expense Deferred tax expense Income tax expense For the years ended March 31 2022 91 $ 40 131 $ 2021 151 67 218 $ $ RECONCILIATION OF THE EFFECTIVE TAX RATE The effective income tax rate was 32.3% in 2022 (25.8% in 2021). 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 25.8% (25.8% in 2021) Adjustments resulting from the following: Effect of tax rates for foreign subsidiaries Changes in tax laws and rates Stock-based compensation Benefit arising from investment in subsidiaries Adjustments in respect of inflation in Argentina Impairment of goodwill/assets Adjustments in relation to prior years and other Income tax expense $ $ 2022 405 $ 105 $ 12 51 2 (14) (24) — (1) $ 131 $ 2021 844 218 4 (1) 3 (12) (13) 6 13 218 On June 10, 2021, the UK Finance Act 2021 was enacted increasing the UK tax rate from 19% to 25%, effective April 1, 2023. This change resulted in the Company recording, in the first quarter of fiscal 2022, an income tax expense of approximately $50 million and a corresponding increase to deferred income tax liabilities. INCOME TAX RECOGNIZED IN OTHER COMPREHENSIVE INCOME Income tax on items recognized in other comprehensive income in 2022 and 2021 were as follows: Deferred tax expense (benefit) on actuarial losses on employee benefit obligations Current tax expense on cash flow hedge Deferred tax expense on cash flow hedges Total income tax expense (benefit) recognized in other comprehensive income INCOME TAX RECOGNIZED IN EQUITY Income tax on items recognized in equity in 2022 and 2021 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 benefit recognized in equity CURRENT TAX ASSETS AND LIABILITIES Income taxes receivable Income taxes payable Income taxes receivable (payable) (net) $ $ $ $ $ $ 2022 11 $ 4 5 20 $ 2021 (41) — 15 (26) 2022 2021 (1) $ (1) $ 2022 52 $ (44) 8 $ (1) (1) 2021 35 (54) (19) ANNUAL REPORT 2022 Page 83 NOTE 15 INCOME TAXES (CONT'D) DEFERRED TAX ASSETS AND LIABILITIES Deferred income taxes are presented as follows on the consolidated statements of financial position, as at March 31: Deferred tax assets Deferred tax liabilities Deferred tax liabilities (net) $ $ 2022 30 $ (836) (806) $ 2021 14 (753) (739) The movement of deferred tax assets and liabilities were as follows for the years ended March 31: Accounts payable and accrued liabilities Income tax losses Net assets of pension plans Inventories Property, plant and equipment Goodwill, intangible assets and other Net deferred tax liabilities For the year ended March 31, 2022 Balance, beginning of the year $ 53 $ 38 $ (22) $ (5) $ (375) $ (428) $ (739) Charged/credited to net earnings Charged/credited to other comprehensive income Acquisitions Translation and other 7 — — (2) 89 (18) (24) (60) (34) — — (7) (11) — 3 — — 2 — — — (5) (10) 3 (40) (16) (10) (1) Balance, end of the year $ 58 $ 120 $ (48) $ (27) $ (435) $ (474) $ (806) Accounts payable and accrued liabilities Income tax losses Net assets of pension plans Inventories For the year ended March 31, 2021 Property, plant and equipment Goodwill, intangible assets and other Net deferred tax liabilities Balance, beginning of the year $ 68 $ 42 $ (62) $ (5) $ (337) $ (415) $ (709) Charged/credited to net earnings Charged/credited to other comprehensive income Acquisitions Translation and other Balance, end of the year $ (19) (4) (1) (1) (22) (20) (67) — 4 — 53 $ — — — 38 $ 41 — — (22) $ — — 1 (5) $ — 1 (17) (375) $ (15) (3) 25 (428) $ 26 2 9 (739) As at March 31, 2022, the Company had $265 million in capital losses for which no deferred tax assets had been recognized. These capital losses can be carried forward indefinitely but can only be used against future taxable capital gains. Recognized deferred tax assets relating to unused tax losses carried forward are supported by projections of future profitability of the Company. ANNUAL REPORT 2022 Page 84 NOTE 16 NET EARNINGS PER SHARE Net earnings Weighted average number of common shares outstanding Dilutive stock options Weighted average diluted number of common shares outstanding Basic net earnings per share Diluted net earnings per share For the years ended March 31 2022 274 $ 2021 626 414,137,462 409,854,735 690,528 1,530,666 414,827,990 411,385,401 0.66 $ 0.66 $ 1.53 1.52 $ $ $ When calculating diluted net earnings per share for the year ended March 31, 2022, 19,458,765 options were excluded from the calculation because their exercise price is higher than the average market value of shares during the same period (14,951,292 options were excluded for the year ended March 31, 2021). NOTE 17 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 and cash equivalents and receivables. Cash equivalents consist mainly of short-term investments. The Company has deposited these cash and 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 expected credit losses. Due to its large and diverse customer base and its geographic diversity, the Company has low exposure to credit risk concentration with respect to customers' receivables. There are no receivables from any individual customer that exceeded 10% of the total balance of receivables as at March 31, 2022, and March 31, 2021. No customer represented more than 10% of total consolidated revenues for the fiscal years ended March 31, 2022, and March 31, 2021. Allowances for expected credit loss are reviewed by Management at each financial position date and the estimate of the allowance for expected credit loss is updated 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 Company considers a financial asset in default when contractual payments are considered past due and at risk depending on the various economic and asset-specific factors, or if it becomes probable that a customer will enter bankruptcy or other insolvency proceedings. ANNUAL REPORT 2022 Page 85 NOTE 17 FINANCIAL INSTRUMENTS (CONT'D) The amount of the allowance for expected credit loss 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. These allowances are not significant for the year ended March 31, 2022. 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 22 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, 2022, are as follows: accounts payable and accrued liabilities, bank loans, lease liabilities and long-term debt. All items included in accounts payable and accrued liabilities are less than one year. For maturities on bank loans, lease liabilities and the long-term debt, please refer to Note 10, Note 7, and Note 11, 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 loan 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. As a result of the interest rate benchmark reform, the Company partially amended the applicable variable interest rates referenced under certain bank credit facilities and long-term debt (see Notes 10 and 11). The Company has already transitioned the GBP LIBOR which did not have a significant impact on the Company’s financial statements. Furthermore, the Company is in the process of completing its transition to the USD LIBOR. The Company is taking all necessary steps to identify, measure, and control all risks to ensure a smooth transition to the interest rate benchmark reform. As at March 31, 2022, the transition is progressing according to schedule. The reform is not expected to have a significant impact on the Company’s financial statements. For the fiscal year ended March 31, 2022, the interest expense on long-term debt totalled $74 million ($79 million in fiscal 2021). The interest accrued as at March 31, 2022, was $19 million ($19 million as at March 31, 2021). As at March 31, 2022, the net amount exposed to short-term rates fluctuations was approximately $889 million. Based on this exposure, an assumed 1% increase in the interest rate would have an unfavourable impact of approximately $7 million on net earnings with an equal but opposite effect for an assumed 1% decrease. 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, Argentine Peso, British pounds sterling, and Japanese Yen. The Company enters 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. As at March 31, 2022, the Company had outstanding forward exchange contracts with a notional value of US$415 million. During the fiscal year, the cash flow hedges were highly effective and accordingly, the Company recognized an unrealized loss of $3 million (net of tax of $1 million) in other comprehensive income as a result. A loss of $13 million (net of tax of $5 million) was reclassified to net earnings during fiscal 2022 related to these forward exchange contracts. These cash flow hedges were also deemed to be highly effective during fiscal 2021, and an unrealized gain of $46 million (net of tax of $19 million), was recorded in other comprehensive income. A gain of $25 million (net of tax of $11 million) was reclassified to net earnings during fiscal 2021 related to these forward exchange contracts. ANNUAL REPORT 2022 Page 86 NOTE 17 FINANCIAL INSTRUMENTS (CONT'D) The Company’s largest exposure comes from the US dollar fluctuations. The following table details the Company’s sensitivity to a $0.10 weakening against the US dollar on net earnings and comprehensive income. For a $0.10 appreciation 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 $ $ 2022 2 $ 294 $ 2021 15 277 COMMODITY PRICE RISK In certain instances, the Company enters into futures contracts to hedge against fluctuations in the price of commodities. The Company applies hedge accounting for certain of these transactions. During the fiscal year, these hedges (designated as cash flow hedges) were highly effective and accordingly, an unrealized gain of $9 million (net of tax of $3 million) was recorded in other comprehensive income. A gain of $ $4 million (net of tax of $1 million) was reclassified to net earnings during fiscal 2022 when the related inventory was ultimately sold. These hedges were also assessed to be highly effective during fiscal 2021 and accordingly, a non significant unrealized loss was recorded in other comprehensive income. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company determined that the fair value of certain 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 presents the fair value and the carrying value of other financial instruments as at March 31, 2022, and March 31, 2021. 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. Cash flow hedges Equity forward contracts (Level 2) $ 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) Foreign exchange derivatives (Level 2) March 31, 2022 March 31, 2021 Fair value Carrying value Fair value Carrying value (3) $ 8 52 (10) 2 1 (3) $ 8 52 (10) 2 1 — $ 2 (6) 5 1 — — 2 (6) 5 1 — Long-term debt (Level 2) 3,231 3,375 3,626 3,578 For the years ended March 31, 2022, and 2021, 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, judgment 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 which is based on the amount at which they could be settled based on estimated current market rates. ANNUAL REPORT 2022 Page 87 NOTE 18 BUSINESS ACQUISITIONS USA SECTOR i) CAROLINA ASEPTIC AND CAROLINA DAIRY On August 31, 2021, the Company completed the acquisition of the Carolina Aseptic and Carolina Dairy businesses formerly operated by AmeriQual Group Holdings, LLC (Carolina Aseptic and Carolina Dairy), increasing the Company's capacity to manufacture and distribute products in its USA Sector. The activities of these two businesses are conducted at two facilities in North Carolina (USA) and employ a total of approximately 230 people. Carolina Aseptic develops, manufactures, packages, and distributes aseptic shelf-stable food products and beverages out of a purpose-built facility in Troy, North Carolina. Nearby, Carolina Dairy manufactures, packages, and distributes refrigerated yogurt in spouted pouches in Biscoe, North Carolina. The purchase price of $148 million (US$116 million), on a cash-free and debt-free basis, was paid in cash from available credit facilities. Recognized goodwill (tax deductible) reflects the value assigned to expected future growth to be achieved through increased capacity to manufacture and distribute products in the rapidly growing aseptic beverage and food categories as well as nutritional snacks. ii) REEDSBURG FACILITY OF WISCONSIN SPECIALTY PROTEIN, LLC On May 29, 2021, the Company completed the acquisition of the Reedsburg facility of Wisconsin Specialty Protein, LLC (the Reedsburg Facility). This facility located in Wisconsin (USA) manufactures value-added ingredients, such as goat whey, organic lactose, and other dairy powders, and it employs approximately 40 people. The purchase price of $37 million (US$30 million), on a cash-free and debt-free basis, was paid in cash from cash on hand. EUROPE SECTOR i) WENSLEYDALE DAIRY PRODUCTS On July 30, 2021, the Company acquired the activities of Wensleydale Dairy Products Ltd (Wensleydale Dairy Products). The business operates two facilities located in North Yorkshire (UK) and employs approximately 210 people. Wensleydale Dairy Products manufactures, blends, markets, and distributes a variety of specialty and regional cheeses which complement and expand the Company's existing range of British cheeses. The purchase price of $38 million (£22 million), on a cash-free and debt-free basis, was paid in cash from cash on hand. ii) BUTE ISLAND FOODS LTD On May 25, 2021, the Company acquired all of the shares of Bute Island Foods Ltd (Bute Island Foods), based in Scotland (United Kingdom) and employing approximately 180 people. It is a manufacturer, marketer, and distributor of a variety of dairy alternative cheese products for both the retail and foodservice market segments under the vegan Sheese brand, alongside private label brands. The purchase price of $148 million (£87 million), on a cash-free and debt-free basis, was paid in cash from available credit facilities and cash on hand. Recognized goodwill (not tax deductible) reflects the value assigned to know-how and expected accelerated growth of dairy alternative cheese products globally. ANNUAL REPORT 2022 Page 88 NOTE 18 BUSINESS ACQUISITIONS CONT'D Had the Company concluded each of the aforementioned acquisitions prior to (or at the beginning of) fiscal 2022, the pro-forma effect on the Company's total revenues and net earnings would have been minimal for the year ended March 31, 2022. The allocation of the purchase price for each acquisition to assets acquired and liabilities assumed is presented below: Bute Island Foods Reedsburg Facility Wensleydale Dairy Products Carolina Aseptic and Carolina Dairy Assets acquired Net working capital $ 6 $ Property, plant and equipment Goodwill and intangible assets Liabilities assumed Deferred income taxes 11 139 (8) Net assets acquired $ 148 $ 1 $ 36 — — 37 $ 10 $ 17 13 (2) 38 $ 5 $ 72 71 — 148 $ Total 22 136 223 (10) 371 NOTE 19 EMPLOYEE POST-EMPLOYMENT BENEFIT PLANS The Company sponsors various post-employment benefit plans. These include both defined contribution and defined benefit pension plans, and other post-employment benefit plans. DEFINED CONTRIBUTION PLANS The Company offers and participates in defined contribution pension plans of which more than 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 2022, the defined contribution expenses for the Company amounted to $80 million ($77 million in fiscal 2021). The Company expects to contribute approximately $83 million to its defined contribution plans for fiscal 2023. DEFINED BENEFIT PLANS The Company offers and 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 up to 2% of the average eligible earnings of the last employment years multiplied by years of credited service. There are no active employees in the Dairy Division (UK) Defined Benefit Pension Fund, which is a final salary scheme in the UK that was closed to future service accrual from April 1, 2010, and had been closed to new joiners from June 30, 2006. The Fund is administered by a corporate trustee which is legally separate from the Company; the directors of the corporate trustee comprise representatives of both the employer and employees as well as a professional trustee. The corporate trustee is responsible for the day to day administration of the benefits and the Investment Policy. The registered pension plans must comply with statutory funding requirements in the jurisdiction 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 five 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. ANNUAL REPORT 2022 Page 89 NOTE 19 EMPLOYEE POST-EMPLOYMENT BENEFIT PLANS (CONT'D) The cost of pension benefits earned by employees is actuarially determined using the projected unit credit method 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 benefit programs, such as health insurance, life insurance, and dental plans to eligible employees and retired employees. The Company expects to contribute approximately $4 million to its defined benefit plans in fiscal 2023. The principal risks associated with the Company's defined benefit pension plans are as follows: Investment Risk The respective present values of the defined benefit plans’ obligations are calculated using a discount rate determined with reference to high-quality corporate bond yields; if assets underperform this yield, this will create a deficit. Changes in Bond Yields A decrease in the corporate bond yields will increase the value of the defined benefit plans’ liabilities, although this will be partially offset by an increase in the value of the defined benefit plans’ debt securities holdings. Inflation Risk A significant portion of the defined benefit plans’ obligations are linked to inflation, and higher expected future inflation will lead to higher liabilities. The majority of the assets are either unaffected by or only loosely correlated with inflation, meaning that an increase in expected future inflation will also increase the deficit. Longevity Risk The majority of the defined benefit plans’ obligations are to provide benefits for the life of the member; increases in life expectancy of plan participants will result in an increase in liabilities. The Company’s net surplus (liability) for defined benefit plans comprises the following: March 31, 2022 March 31, 2021 Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Dairy Division (UK) Defined Benefit Pension Fund Other Plans Fair value of assets $ 1,943 Present value of funded obligations Present value of net surplus (obligations) for funded plans Present value of unfunded obligations Present value of net surplus (obligations) Asset ceiling test Accrued pension/benefit cost $ 1,708 235 — 235 — 235 71 68 2,014 $ 2,081 1,776 1,903 3 238 178 (36) (33) (4) (37) (36) 202 (4) 198 $ — 178 — 178 68 73 (5) (38) (43) — (43) Total 2,149 1,976 173 (38) 135 — 135 Presented in the statement of financial position as follows: Other Assets (Note 9) Other Liabilities (Note 12) Total net surplus (liability) March 31, 2022 March 31, 2021 $ $ 235 $ (37) 198 $ 178 (43) 135 ANNUAL REPORT 2022 Page 90 NOTE 19 EMPLOYEE POST-EMPLOYMENT BENEFIT PLANS (CONT'D) The changes in the present value of the defined benefit obligations are as follows: March 31, 2022 March 31, 2021 Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Defined benefit obligation, beginning of year $ 1,903 111 2,014 $ 1,733 101 1,834 Current service costs Interest cost Actuarial (gains) losses due to change in experience Actuarial (gains) losses due to changes in financial assumptions Exchange differences Benefits paid Defined benefit obligation, — 39 21 (90) (93) (72) 5 3 (2) (10) — (3) 5 42 19 (100) (93) (75) — 38 (17) 236 (13) (74) 6 4 3 9 (2) (10) 6 42 (14) 245 (15) (84) end of year $ 1,708 104 1,812 $ 1,903 111 2,014 The changes in the fair value of plan assets are as follows: March 31, 2022 March 31, 2021 Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Fair value of plan assets, beginning of year $ 2,081 68 2,149 $ 2,115 64 2,179 Interest income on plan assets Return on plan assets, excluding interest income Administration costs Contributions by employer Exchange differences Benefits paid Fair value of plan assets, 42 (3) (1) — (104) (72) 2 (2) — 6 — (3) 44 (5) (1) 6 (104) (75) 47 12 (1) — (18) (74) 3 4 — 8 (1) (10) 50 16 (1) 8 (19) (84) end of year $ 1,943 71 2,014 $ 2,081 68 2,149 For fiscal 2022, actual return on plan assets amounted to a gain of $38 million ($65 million in fiscal 2021). ANNUAL REPORT 2022 Page 91 NOTE 19 EMPLOYEE POST-EMPLOYMENT BENEFIT PLANS (CONT'D) The fair value of plan assets, which does not include assets of the Company, consist of the following (all assets have a quoted market value in an active market with the exception of annuity contract and property and other, which is valued based on the corresponding liability, and cash). March 31, 2022 March 31, 2021 Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Dairy Division (UK) Defined Benefit Pension Fund Other Plans Bonds, LDI and cash¹ $ 1,333 Annuity contract Property and other Equity Instruments Total 375 235 — $ 1,943 48 — — 23 71 1,381 $ 1,388 375 235 23 420 273 — 2,014 $ 2,081 51 — — 17 68 Total 1,439 420 273 17 2,149 1 The Liability Driven Investment ('LDI') portfolio is managed by an external party. The objective is to hedge a proportion of the Fund's liabilities against changes in interest rates and inflation expectations by investing in assets that are similarly sensitive to changes in interest rates and inflation expectations. Market yields are monitored against a number of pre-set yield triggers; the level of hedging will be increased as and when triggers are met. The Consolidated Income Statements include the following: March 31, 2022 March 31, 2021 Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Dairy Division (UK) Defined Benefit Pension Fund Other Plans Total Recognized in “Operating costs” (Note 5): Employer current service cost $ Administration costs Recognized in “Financial charges” (Note 14): Interest costs Interest income on plan assets Net defined benefits plans expense $ — 1 1 39 (42) (3) (2) 5 — 5 3 (2) 1 6 5 $ 1 6 42 (44) (2) 4 $ — 1 1 38 (47) (9) (8) 6 — 6 4 (3) 1 7 6 1 7 42 (50) (8) (1) ANNUAL REPORT 2022 Page 92 NOTE 19 EMPLOYEE POST-EMPLOYMENT BENEFIT PLANS (CONT'D) 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: March 31, 2022 March 31, 2021 Dairy Division (UK) Defined Benefit Pension Fund Other Plans Dairy Division (UK) Defined Benefit Pension Fund Total Other Plans Total Return on plan assets (excluding interest income) $ Actuarial gains (losses) due to change in experience Actuarial gains (losses) due to changes in financial assumptions Effect of the asset ceiling test Amount recognized in other comprehensive income $ (3) (21) 90 — 66 (2) 2 10 (4) 6 (5) $ (19) 12 17 100 (236) (4) — 72 $ (207) 4 (3) (9) — (8) 16 14 (245) — (215) Weighted average assumptions used in computing the benefit obligations at the financial position date are as follows: Discount rate Duration of the obligation (in years) Inflation Rate Future salary increases Mortality table March 31, 2022 March 31, 2021 Dairy Division (UK) Defined Benefit Pension Fund 2.70 % 18.00 2.90 % n/a S2P base tables with the following scaling factors: Pens (M/F): 109%/103% Defs (M/F): 110%/99% Other Plans 4.02 % 13.77 2.00 % Dairy Division (UK) Defined Benefit Pension Fund 2.10 % 18.00 2.50 % 3.0 % 2014 Private Sector Canadian Pensioners Mortality Table, projected generationally using Scale MI-2017 n/a S2P base tables with the following scaling factors: Pens (M/F): 109%/103% Defs (M/F): 110%/99% Other Plans 3.21 % 17.30 2.00 % 3.0 % 2014 Private Sector Canadian Pensioners Mortality Table, projected generationally using Scale MI-2017 It has been assumed that the Dairy Division (UK) Defined Benefit Pension Fund members exchange 25% of their pension for a cash lump sum at retirement, on terms 8% lower than the funding basis. 30% of deferred members are assumed to take a pension increase exchange option at retirement which is available under the Fund. SENSITIVITY TO CHANGES IN ASSUMPTIONS The impact of an increase (decrease) of 0.1% of the discount rate would be a decrease of $31 million of the amount of the obligation (increase of $32 million). A one-year increase in life expectancy would increase the obligation by approximately $80 million. Specifically, for the Dairy Division (UK) Defined Benefit Pension Fund, the impact of an increase of 0.1% of the inflation rate would be an increase of approximately $23 million of the amount of the obligation. Specifically pertaining to the Other plans, an increase of 0.1% of the percentage of future salary increases would be an increase below $1 million of the amount of the obligation. ANNUAL REPORT 2022 Page 93 NOTE 20 COMMITMENTS AND CONTINGENCIES COMMITMENTS The table and paragraphs below present the future minimum payments for 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 $ $ Leases¹ Purchase obligations2 9 $ 6 3 2 1 1 22 $ 245 $ 37 23 12 9 3 329 $ Total 254 43 26 14 10 4 351 1 Commitments related to leases represent short-term and low-value leases that do not meet the definition of a lease under IFRS 16. 2 Purchase obligations are the contractual obligations for capital expenditures and service agreements to which the Company is committed. 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, 2022, 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, 2022, and March 31, 2021, the Company had not recorded any significant liabilities associated with these indemnifications. LETTERS OF CREDIT As at March 31, 2022, the Company had issued letters of credit in an aggregate amount of $67 million pursuant to a banking facility authorizing the issuance of letters of credit in an aggregate amount of $110 million (as at March 31, 2021, the Company had issued letters of credit in an aggregate amount of $69 million pursuant to a banking facility authorizing the issuance of letters of credit in an aggregate amount of $111 million). NOTE 21 RELATED PARTY TRANSACTIONS The Company receives services from and provides goods and services 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 are entered into and have been recorded at fair value, consistent with market values for similar transactions. The services that are received consist mainly of travel, publicity, lodging, and office space rental. The goods that are provided consist mainly of dairy products. The services that are provided consist of management services. Transactions with key management personnel (short-term employee benefits, post-employment benefits, and stock- based compensation) 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. ANNUAL REPORT 2022 Page 94 NOTE 21 RELATED PARTY TRANSACTIONS (CONT'D) 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 For the years ended March 31 2022 2021 $ $ 5 $ 3 35 43 $ 4 3 37 44 Dairy products provided by the Company were less than $1 million for the years ended March 31, 2022, and 2021. Outstanding accounts payable and accrued liabilities for the transactions above are the following: Key management personnel Directors Executive officers Accounts payable and accrued liabilities March 31, 2022 March 31, 2021 16 33 49 $ 18 47 65 $ The amounts payable to the Directors consist entirely of balances payable under the Company’s DSU plan. Refer to Note 13 for further details. The amounts payable to executive officers consist of short-term employee incentives, share-based awards, and post-retirement benefits. Outstanding accounts receivable from related parties were less than $1 million for the years ended March, 31 2022, and 2021. KEY MANAGEMENT PERSONNEL COMPENSATION The compensation expense for transactions with the Company’s key management personnel 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 2022 2021 1 $ 2 3 $ 16 $ 3 16 35 $ 38 $ 1 2 3 18 6 13 37 40 $ $ $ $ $ ANNUAL REPORT 2022 Page 95 NOTE 21 RELATED PARTY TRANSACTIONS (CONT'D) 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 Ltd The King Island Company Pty Ltd Molfino Hermanos S.A. Dairy Crest Ltd NOTE 22 CAPITAL DISCLOSURES Percentage Owned Location 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Canada USA USA Australia Australia Australia Argentina UK 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 2.25 times net debt to net earnings before income taxes, financial charges, acquisition and restructuring costs, gain on disposal of assets, impairment of intangible assets, and depreciation and amortization. From time to time, the Company may deviate from its long-term leverage target to pursue 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. The Company’s primary use of capital is to finance acquisitions and other growth initiatives. The Company’s capital is composed of net debt and equity. Net debt consists of long-term debt, lease liabilities, and bank loans, net of cash and cash equivalents. The net debt as at March 31, 2022, and March 31, 2021, are as follows: Long-term debt, including current portion Bank loans Lease liabilities Less: Cash and cash equivalents Net debt $ $ 2022 3,375 $ 419 451 (165) 4,080 $ 2021 3,578 76 461 (309) 3,806 The primary measure used by the Company to monitor its financial leverage is its ratio of net debt to net earnings before income taxes, financial charges, acquisition and restructuring costs, gain on disposal of assets, impairment of intangible assets, and depreciation and amortization. The ratio at March 31, 2022, was 3.53 (2.59 at March 31, 2021). 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, 2022. The Company is not subject to capital requirements imposed by a regulator. ANNUAL REPORT 2022 Page 96 NOTE 23 ACQUISITION AND RESTRUCTURING COSTS Acquisition and restructuring costs are summarized as follows: Restructuring costs Acquisition costs Total 2022 2021 $ $ 71 $ — 71 $ (6) 3 (3) RESTRUCTURING COSTS During the fourth quarter of fiscal 2022, the Company announced several capital investments and consolidation initiatives intended to enhance and streamline its manufacturing footprint in the USA Sector and International Sector. In the UK, the Company undertook plans to outsource the Nuneaton facility’s warehouse and distribution activities, creating opportunities for network consolidation within the Europe Sector. Restructuring costs of $71 million ($51 million after tax) were recorded during the fourth quarter of fiscal 2022, with $53 million attributable to the International Sector, $9 million to the USA Sector and $9 million to the Europe Sector. These restructuring costs included an impairment charge of property, plant and equipment of $60 million ($43 million after tax) and severance costs of $8 million ($6 million after tax). Liabilities related to severance and other restructuring costs are included in accounts payable and accrued liabilities on the consolidated statement of financial position. In fiscal 2021, restructuring costs included a gain on disposal of assets of $6 million ($5 million after tax) relating to the sale of a Canada Sector facility. ACQUISITION COSTS In connection with the acquisitions completed during fiscal 2022 (see Note 18), the Company incurred acquisition costs of $6 million. Acquisition costs also include a favourable purchase price adjustment of $6 million for a prior year acquisition. In fiscal 2021, acquisition costs of $3 million ($2 million after tax) were related to additional costs from a prior year acquisition. NOTE 24 SEGMENTED INFORMATION The Company reports under four geographic sectors. The Canada Sector consists of the Dairy Division (Canada). The USA Sector consists of the Dairy Division (USA). The International Sector comprises the Dairy Division (Australia) and the Dairy Division (Argentina). The Europe Sector consists of the Dairy Division (UK). These reportable sectors are managed separately as each sector represents a strategic business unit that offers different products and serves different markets. The President and Chief Executive Officer, Chief Financial Officer, President and Chief Operating Officer (North America), and President and Chief Operating Officer (International and Europe) are, collectively, our chief operating decision maker and regularly review our operations and performance by sector. They review adjusted EBITDA as the key measure of profit for the purpose of assessing performance of each sector and to make decisions about the allocation of resources. Adjusted EBITDA is defined as net earnings before income taxes, financial charges, acquisition and restructuring costs, gain on disposal of assets, impairment of intangible assets, and depreciation and amortization. The divisions within the International Sector have been combined due to similarities in global market factors and production processes. ANNUAL REPORT 2022 Page 97 NOTE 24 SEGMENTED INFORMATION (CONT'D) INFORMATION ON REPORTABLE SECTORS Revenues Canada USA International1 Europe Operating costs excluding depreciation, amortization, and restructuring costs Canada USA International Europe Adjusted EBITDA Canada USA International Europe Depreciation and amortization Canada USA International Europe Impairment of intangible assets (Note 8) Gain on disposal of assets Acquisition and restructuring costs (Note 23) Financial charges Earnings before income taxes Income taxes Net earnings For the years ended March 31 2022 4,281 $ 6,409 3,453 892 2021 4,135 6,122 3,221 816 15,035 $ 14,294 3,806 $ 6,121 3,205 748 3,688 5,555 2,916 664 13,880 $ 12,823 475 $ 288 248 144 447 567 305 152 1,155 $ 1,471 103 $ 210 132 115 560 $ 58 (9) 71 70 405 131 274 $ 99 200 112 104 515 19 — (3) 96 844 218 626 $ $ $ $ $ $ $ $ $ 1 Australia accounted for $2,528 million and $2,529 million of the International Sector's revenues while Argentina accounted for $925 million and $692 million for the years ended March 31, 2022, and 2021, respectively. ANNUAL REPORT 2022 Page 98 NOTE 24 SEGMENTED INFORMATION (CONT'D) MARKET SEGMENT INFORMATION The Company sells its products in three different market segments: retail, foodservice, and industrial. For the years ended March 31 Revenues Retail Foodservice Industrial Total Canada USA International Europe 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 $ 7,461 $ 7,571 $ 2,539 $ 2,614 $ 2,811 $ 2,847 $ 1,416 $ 1,399 $ 4,579 2,995 4,082 2,641 1,414 328 1,199 322 2,859 739 2,651 624 285 1,752 224 1,598 $ 15,035 $ 14,294 $ 4,281 $ 4,135 $ 6,409 $ 6,122 $ 3,453 $ 3,221 $ 695 $ 21 176 892 $ 711 8 97 816 GEOGRAPHIC INFORMATION Net book value of property, plant and equipment Canada USA Australia Argentina United Kingdom Net book value of intangible assets Canada USA Australia Argentina United Kingdom March 31, 2022 March 31, 2021 $ $ $ $ 874 $ 1,676 873 150 389 3,962 $ 259 $ 345 108 7 652 856 1,480 963 100 378 3,777 320 365 117 8 707 1,371 $ 1,517 ANNUAL REPORT 2022 Page 99 COR POR ATE HEAD QUARTERS Saputo Inc. 6869 Métropolitain Blvd. East Montréal, QC Canada H1P 1X8 T. 514-328-6662 saputo.com ANNUAL MEETING OF SHAR EHOLDERS Thursday, August 4, 2022, at 10 a.m. (Eastern Time) - Virtual-only format web.lumiagm.com/427557186 TR ANSF ER AGENT Computershare Trust Company of Canada 1500 Robert-Bourassa Blvd., Suite 700 Montréal, QC Canada H3A 3S8 INV ESTOR REL ATI ONS Nicholas Estrela T. 514-328-3117 E. nicholas.estrela@saputo.com STOCK EXC HANGE Toronto Stock Exchange Symbol: SAP EXTERNAL AU DITORS T. 514-982-7888 KPMG LLP E. service@computershare.com Montréal, QC Canada D IV ID E ND PO LIC Y Saputo Inc. declares quarterly cash dividends on common shares, currently at $0.18 per share, representing an annual dividend of $0.72 per share. The Board of Directors reviews our dividend policy annually, based on factors such as financial condition, financial performance, and capital requirements. D IV ID E ND REI NVEST MENT PL AN Saputo provides eligible shareholders with the opportunity to have all or a portion of the cash dividends declared on their common shares automatically reinvested into additional Saputo common shares. To learn more about the DRIP, please visit: saputo.com/en/investor-toolkit/drip SAPUTO.COM 

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