Lassonde Industries : Financial Report

Interim Management's Discussion & Analysis

Second quarter ended July 2, 2022

Table of Contents
1.	Basis of Presentation .........................................................................................................................................	3
2.	Forward-Looking Statements and Use of Estimates .......................................................................................	3
3.	Corporate Profile.................................................................................................................................................	3
4.	Multi-Year Strategy .............................................................................................................................................	4
5.	Financial Highlights ............................................................................................................................................	5
6.	Financial Information..........................................................................................................................................	6
7.	Interim Results ....................................................................................................................................................	9
8.	Financial Position ...............................................................................................................................................	9
9.	Analysis of the Consolidated Cash Flows......................................................................................................	11
10.	Financial Measures Not in Accordance With IFRS ........................................................................................	13
11.	Off-Consolidated-Statement-of-Financial-Position Arrangements ..............................................................	14
12.	Share Information .............................................................................................................................................	15
13.	Dividends ...........................................................................................................................................................	15
14.	Subsequent Event.............................................................................................................................................	15
15.	Adoption of IFRS Standards ............................................................................................................................	15
16.	Accounting Policies and Future Accounting Changes .................................................................................	15
17.	Disclosure Controls and Procedures ("DC&P").............................................................................................	15
18.	Internal Control Over Financial Reporting ("ICFR") ......................................................................................	16
19.	Outlook...............................................................................................................................................................	16

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1. Basis of Presentation

The following Management's Discussion and Analysis ("MD&A") presents the results, financial position, and cash flows of Lassonde Industries Inc. ("Lassonde" or the "Corporation") and should be read in conjunction with its unaudited interim condensed consolidated financial statements ("interim consolidated financial statements") and accompanying notes. In addition to containing an analysis of the three- and six-month periods ended July 2, 2022, this MD&A reports on items deemed significant that have taken place from July 2, 2022 up to and including August 12, 2022, which is the date on which this MD&A was approved by the Corporation's Board of Directors.

The financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards ("IFRS"). Unless otherwise indicated, the reporting currency for figures in this document is the Canadian dollar. The MD&A is available on the Lassonde Industries Inc. website at www.lassonde.com. Readers will also find this MD&A, the Annual Information Form, additional documents, press releases, certifications of filings for the second quarter of 2022, and more information about the Corporation on the SEDAR website at www.sedar.com.

This document contains financial measures not in accordance with IFRS. Please refer to section 10 of this MD&A for additional details. Unless otherwise indicated, all dollar amounts are expressed in millions, which may cause calculation discrepancies due to rounding.

2. Forward-Looking Statements and Use of Estimates

Any statement contained in this report that does not constitute a historical fact may be deemed a forward-looking statement. Verbs such as "believe," "expect," "estimate" and other similar expressions, in addition to the negative forms of these terms or any variations thereof, appearing in this report generally indicate forward-looking statements. These forward-looking statements do not provide guarantees as to the future performance of Lassonde Industries Inc. and are subject to risks, both known and unknown, as well as uncertainties that may cause the outlook, profitability, and actual results of Lassonde Industries Inc. to differ significantly from the profitability or future results stated or implied by these statements. Detailed information on risks and uncertainties is provided in the "Uncertainties and Principal Risk Factors" section of the annual MD&A for the year ended December 31, 2021.

In preparing interim consolidated financial statements in accordance with IFRS, management must exercise judgment when applying accounting policies and use assumptions and estimates that have an impact on the amounts of the assets, liabilities, revenues and expenses reported and on the contingent liability and contingent asset information provided.

The main assumptions and estimates used by management are as follows:

• Measurements of revenues from product sales;
• Measurements of the quarterly effective tax rate;
• Measurements of right-of-use assets and lease liabilities;
• Measurements of defined benefit assets and liabilities; and
• Measurements of non-financial assets.

Because the use of assumptions and estimates is inherent to the financial reporting process, the actual results of items subject to assumptions and estimates may differ from these assumptions and estimates.

3. Corporate Profile

Lassonde Industries Inc. develops, manufactures and markets a wide range of ready-to-drink juices and drinks, fruit-based snacks in the form of bars and bites as well as frozen juice concentrates in North America. The Corporation is the largest producer of fruit juices and drinks in Canada and one of the two largest producers of store brand shelf-stable fruit juices and drinks in the United States. It is also a major producer of cranberry sauces. Furthermore, the Corporation develops, manufactures and markets specialty food products such as pasta sauces, soups as well as fondue broths and sauces. In addition, it produces apple cider and cider-based beverages and imports selected wines from several countries of origin for packaging and marketing purposes. The Corporation produces superior quality products through the expertise of more than 2,700 people working in 17 plants across Canada and the United States. The Class A subordinate voting shares of Lassonde Industries Inc. are listed for trading on the Toronto Stock Exchange under the ticker symbol LAS.A.

The Corporation is active in two market segments: the retail segment and the food service segment. Retail sales consist of (i) sales to food retailers and wholesalers such as supermarket chains, independent grocers, superstores, warehouse clubs, major pharmacy chains and (ii) online sales. Food service sales consist of sales to restaurants, hotels, hospitals, schools and wholesalers serving these institutions.

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The Corporation's national brands are sold in various packages under several proprietary trademarks, as well as under trademarks for which the Corporation is a licensed user. The Corporation also manufactures private label products for the vast majority of major retailers and wholesalers in North America.

Sales Breakdown (2021)

Main National Brands

4. Multi-Year Strategy

In the "Outlook" section of its 2021 annual MD&A, the Corporation announced the launch of a multi-year strategy to drive long-term value, accelerate growth as well as improve overall margins and profitability. The three priorities of its multi-year strategy are as follows: 1) Build a growth-oriented portfolio; 2) Drive sustainable performance; and 3) Improve capacity to act.

In 2022, this strategic initiative is expected to result in related operating expenses ranging between $10 million and $15 million. In addition, the initiative is supported by significant capital expenditures, initially targeted at approximately $100 million for 2022. The Corporation now anticipates that capital expenditures will be approximately $65 million in 2022, with the $35 million balance being deferred to the first half of 2023. This deferral is mainly due to current market conditions that are making access to certain resources and equipment more difficult.

The first phase of the strategy, in 2022, focuses primarily on three key areas: 1) Strategic review to establish the cornerstones of the Corporation's growth plan for the coming years; 2) Revitalization of U.S. operations ("Project Eagle") to optimize and increase production capacity as well as increase operational efficiency; and 3) Implementation of new management systems and upgrading of technology infrastructures.

During the second quarter of 2022, the Corporation continued its strategic review and completed the diagnostic step of Project Eagle. Moreover, it began implementing new management systems, including demand planning and transportation management systems. The Corporation incurred $3.0 million in expenses related to these activities. For the first six months of 2022, the Corporation incurred $5.4 million in expenses related to these activities.

During the second quarter of 2022, the Corporation made capital expenditures of $2.8 million towards growth and optimization projects. These investments include an ongoing project aimed at improving productivity and production capacity in Canada; it also invested $1.9 million in technology projects. For the first six months of 2022, the Corporation made capital expenditures of $5.0 million towards growth and optimization projects; it also invested $3.4 million in technology projects.

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5. Financial Highlights

Second quarter ended July 2, 2022:

• Sales of $529.5 million. Excluding an $11.5 million favourable foreign exchange impact, sales were up $48.7 million (10.4%) from the same quarter last year, mainly explained by the favourable impact of selling price adjustments.
• Gross profit of $138.7 million (26.2% of sales), up $8.6 million from the same quarter in 2021.
• Operating profit of $22.3 million, down $7.6 million from the same quarter last year;

1. $12.7 million increase in transportation costs incurred to deliver products to clients resulting from higher fuel surcharges; and

• 1. $3.0 million in expenses related to the multi-year strategy.
• EBITDA1 of $37.2 million, down $7.6 million from the same quarter last year.
• Profit attributable to the Corporation's shareholders of $14.2 million, resulting in basic and diluted earnings per share of $2.06, down $4.6 million and $0.65, respectively, from the same quarter in 2021.
• $6.5 million in cash used by operating activities compared to $46.9 million in cash generated in the same quarter last year. This increase in cash outflows is essentially explained by a change in non-cash operating working capital items, which used $46.2 million more than in the same quarter of 2021, mainly due to a higher inventory level.

First six months ended July 2, 2022:

• Sales of $1,038.6 million. Excluding an $11.6 million favourable foreign exchange impact, sales were up $90.9 million (9.7%) from the same period last year, mainly explained by the favourable impact of selling price adjustments and by a favourable change in the sales mix of private label sales.
• Gross profit of $274.3 million (26.4% of sales), up $12.6 million from the same period of 2021.
• Operating profit of $44.7 million, down $16.6 million from the same period last year;

1. $23.5 million increase in transportation costs incurred to deliver products to the clients resulting from higher tariffs and fuel surcharges; and

• 1. $5.4 million in expenses related to the multi-year strategy.
• EBITDA of $74.5 million, down $17.0 million from the same period last year.
• Profit attributable to the Corporation's shareholders of $29.0 million, resulting in basic and diluted earnings per share of $4.19, down $9.9 million and $1.41, respectively, from the same period in 2021.
• $27.1 million in cash used by operating activities compared to $51.3 million in cash generated in the same period last year. This increase in cash outflows is essentially explained by a change in non-cash operating working capital items, which used $67.4 million more than in the same period of 2021, mainly due to a higher inventory level.
• As at July 2, 2022, long-term debt, including the current portion, stood at $243.0 million, up $67.6 million from December 31, 2021.

1 This is a Financial measure not in accordance with IFRS. Please refer to section 10 for definitions and reconciliations.

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